Company Registration No. 03958483
7digital Group plc
Consolidated Report and Financial
Statements for the Year to 31
December 2016
7digital Group plc
Contents
Chairman’s Statement
Chief Executive Officer’s Review
Chief Financial Officer’s Review
Strategic Review
Board of Directors
Directors’ Report
Corporate Governance Statement
Directors’ Remuneration Report
Independent Auditors’ Report - Group
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Financial Statements
Independent Auditors’ Report - Company
Parent Company Balance Sheet
Parent Company Reconciliation of Shareholders’ Funds
Notes to Parent Company Financial Statements
General Information and Advisors
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47
7digital Group plc
Strategic Review
Chairman’s Statement
I am pleased to report on another successful year for 7digital, one in which the Group delivered against its key objectives of
growing its customer base across identified target sectors, strengthened the quality and resilience of its revenue base and
improved its overall financial performance.
The Group delivered on the Board’s commitment to achieving profitability by the year end with a profitable Q4 at a trading level.
At the same time the team has worked hard to position the business to take best advantage of the anticipated fast growth in
music streaming. While we continue to have much to do, we believe we already offer current and potential customers the
leading international b2b (business-to-business) platform and music rights capability to deliver music and radio streaming
services, particularly following the demise of competitor Omnifone, and our unmatched combination of market leading
technology, broad music rights and deep industry relationships is creating significant barriers to entry for others in the sector.
We predict that there will be further consolidation in the digital music industry, and that 7digital will be a beneficiary – and
leader – of this consolidation.
Following a number of key appointments in 2015, we have continued our efforts to ensure we have the management depth,
strength and expertise in place to take the business forward and realise its potential. During 2016, Matt Honey (who was
previously Finance Director of UBC Media and joined 7digital in an interim role) agreed to serve as permanent Chief Financial
Officer. Pete Downton, formerly Chief Commercial Officer, was appointed to the role of deputy CEO, Ed Kershaw was appointed
as Chief Commercial Officer and Philippe Decottignies of Snowite was appointed Chief Technology Officer following our
acquisition of that business. The company has already benefitted from those appointments during the past financial year.
Our progress in 2016 has been significant for the business and reflects the high quality and hard work of our staff. On behalf of
the Board I would once again like to thank them for their commitment to 7digital.
I am excited for the future of 7digital. We are successfully implementing a clear strategy to pursue opportunities in a market that
is developing as we anticipated and through which we are intent on delivering strong returns to shareholders.
Don Cruickshank
Chairman
5 June 2017
1
7digital Group plc
Strategic Review
Chief Executive Officer’s Review
2016 was a year of good progress overall for 7digital in line with our stated strategy, as we delivered on our commitment to
reach profit by the year end, recording a profitable Q4 at a trading level and a record sales month in December. Results for the
year are in line with market expectations, including a gain from the strength of the dollar, and a strong second half performance
gives us good momentum going into 2017.
We have seen our relationship with the music industry strengthened further and signed contracts with all three major labels
during 2016 to help create new services. The music ecosystem continues to change as we anticipated and we are increasingly
being seen as a service enabler to the digital music industry.
We successfully integrated our acquisition of Snowite, the leading French digital streaming music provider. The acquisition
delivered against all of its key strategic and financial objectives, including annualised monthly recurring revenues of over £0.85m
and the successful launch of a major new streamed music service in France for leading retailer Cdiscount.
We have continued to improve the quality and mix of our revenues, with total monthly recurring revenues (“MRR”) rising by 13%
against 2015, excluding the Guvera bad debt provision. Improving sales momentum during the period saw the annualized total
licensing exit MRR for the year rise by 7% and annualised streaming exit MRR rise by 14%. Licensing revenues for the year rose by
5.0% compared with 2015 and by 15.3% excluding Guvera. Group turnover increased 15% to £11.9m (2015: £10.4m), as the
Company delivered good growth across all revenue streams and, as anticipated, produced a strong performance in H2, with
licensing revenues up 21% on H1.
Primarily reflecting bad debt provisions, our move to a cloud based IT system and the timing of our R&D tax credit, adjusted
LBITDA increased to £3.7m (2015: £2.1m). We have focussed strongly on our cost base during the period and achieved
annualised cost savings of £1m, including the previously indicated £0.5m overhead synergies from the Snowite acquisition.
2016 saw several key developments in the global digital music market, which included the closure of Omnifone, one of our key
competitors. This, in addition to our market leading technology, broad music rights and deep industry relationships, has further
strengthened 7digital's position within our marketplace and the barriers to entry for others who may wish to enter it.
The Company has benefitted from the global acceleration of music streaming over the past year and is ideally positioned to
capitalise on the continued growth of streaming in 2017 and beyond. BPI, the leading British music industry association,
announced recently that UK consumption had surged in 2016, with 45 billion audio streams served during the year (68% more
than in 2015). Likewise, in the US, Nielsen reported streaming growth of 76% Year-on-Year. In addition, the three major music
labels (Universal, Sony and Warner) all posted double-digit percentage boost in earnings throughout the year, driven by
streaming.
We are increasingly well placed as the supplier of choice to enable a growing number of current and potential customers who are
looking to strengthen their consumer offer by delivering music and radio streaming services.
Licensing division
Licensing is the core of our business, providing the platform and rights management expertise through which our b2b customers
can create their own streamed music services, either standalone or bundled into their device or product offering. Typically,
customers pay an initial set-up fee and then a fixed monthly licence fee for using our platform; in addition, we may also take a
share of user related revenues generated by the service, including transaction and subscription revenues.
Licensing revenues rose by 5.0% to £6.8m (2015: £6.5m). Excluding Guvera, against whose revenue we made a full provision
given its non-payment of outstanding fees, licensing revenues grew by 15.3% against 2015.
Annualised exit MRR, which includes streaming and other platform licensing revenues, for December 2016 grew to £6.2m, an
increase of 7% against December 2015 (£5.8m). Licensing fees included £1.9m of initial set up fees paid by new customers, who
we would expect to contribute to increasing MRR in 2017.
In line with a strategic emphasis on further developing commercial relationships with rights holders, 7digital has reached new
agreements with all three of the world’s major music labels. In addition to continuing to license and provide access to their
catalogues for its customers, 7digital is helping to create new services for the labels across a number of geographies.
We have seen strong progress in the provision of high resolution audio in 2016, signing our first contract in H1 using the hi-res
audio technology, MQA. A second phase of work for that streaming service also started in the last quarter, in anticipation of the
forthcoming launch. The Group’s strategy was further validated at the recent Consumer Electronics Show (“CES”) in Las Vegas.
The record industry and hardware manufacturers – including Sony and Samsung – came together at CES to highlight the benefits
of higher quality digital sound. In particular, the MQA streaming technology which 7digital has pioneered received significant
attention.
The Company has also announced since the year end that it has been contracted to partner with DTS, on the development of
new high resolution audio solution prototypes for the automotive market. DTS currently provides dashboard-mounted audio for
2
7digital Group plc
Strategic Review
Chief Executive Officer’s Review
several leading brands and its portfolio of technology is integrated in more than two billion devices globally. This deal is a
significant move for 7digital into the in-car vertical, an area of expected growth for the business in 2017, and connects the
Company with third party automotive manufacturers for whom the prototypes are being developed.
2016 also saw the Company’s client base continue to shift to major, tier one corporates, increasing the scale of our customers
and continuing to improve the quality and predictability of our business and revenues. The Company signed a contract with
Cdiscount, a leading e-commerce retailer in France, to launch its new streamed music service. Cdiscount generated profits last
year of €1.765bn on a turnover of €2.741bn and enjoys a 34.4% total share of e-commerce in France (source: GfK).
During December 2016 we delivered 228m music streams to over 16m people, which compares to 72.6m streams delivered to
approximately 3m people for the whole of 2015. The increase demonstrates the rapid growth in the usage of our platforms as
well as our increasing geographic reach from servicing customers across 45 countries (2015: 33 countries).
The Company’s growth in emerging markets is set to continue, with new services extending 7digital’s reach into Africa, the
Middle East and Caribbean. Several of the deals agreed in 2016 have the capacity to develop into further contracts for additional
territories.
We also signed an agreement with musical.ly, the fast-growing global social media platform based around video and music with a
strong and growing global footprint of over 100m users, and we expect monthly revenues from this agreement to increase over
time. This agreement, in addition to our contract with grandPad®, a provider of technology solutions specifically designed for
senior citizens, and our partnership with will.i.am, who launched his Dial wearable “smartcuff” device, are examples of how we
can leverage our capabilities to enable and participate in disruptive new business models and product categories.
The merging of radio and music streaming continued in 2016 and the Company has been able to use its expertise in the
production of high-quality content for broadcast and extensive experience in streaming to enable clients to extend broadcast
radio brands into online services. In addition to the contracts with Global Radio and German national classical music broadcaster
Klassik Radio, new contracts were agreed in H2 that will see the Company provide consultancy, app development services, and
also license proprietary radio technology to clients for this purpose.
The provision of licensed ‘background’ music on location at bars, restaurants, cafes and other venues is another area 7digital has
identified as having potential for growth worldwide. Two new deals signed in H2 will see the Company power music services to
create the ambience desired by business owners served by the clients.
Creative division
Our Creative division is engaged in the creation of award winning audio and video programming for broadcasters, receiving
commissions from BBC’s national radio networks, commercial radio stations and other broadcasters such as Sky Television. It is a
profitable business that brings a number of synergistic benefits to our licensing operations, in particular the ability to offer clients
complementary knowledge and skillsets such as playlist curation and video or audio production.
As anticipated, Creative revenues were weighted towards the second half of the year and grew 4% on 2015 to £1.9m (2015:
£1.8m).
The division continues to win new business as a result of our broad capabilities and deep industry relationships. We were
contracted to produce content for Audible, an Amazon company, and signed a deal with Sky Arts to produce TV coverage of the
Cambridge Folk Festival for the fourth time. We continued our long and successful relationship with the BBC and we secured a
number of contracts in 2016, including retention of the popular Sunday Morning show and winning the high-profile Jazz Now
series commission (both BBC Radio 3).
Content division
The Content division includes revenue from the lower margin legacy sales of digital music downloads by the Group direct to
consumers and higher margin one off projects from record labels. In 2016 Content revenues rose by 30% to £2.6m (2015: £2.0m),
benefitting from a contract with a major label to use 7digital’s platform for the sales of music downloads direct from an artist’s
own website. A noticeable move towards Hi-Res digital music files is allowing the group to positively manage the decrease in
digital music download sales as consumers move to streaming.
Strengthened management
7digital has continued to strengthen its management team in 2016 with the permanent appointment of Matthew Honey as Chief
Financial Officer. The Company also appointed Philippe Decottignies to the position of Chief Technology Officer, following the
acquisition of Snowite, and Edward Kershaw to the role of Chief Commercial Officer. Pete Downton, previously Chief Commercial
Officer, was promoted to a newly-created Deputy CEO role. All bring significant skills and sector experience and will help drive
and manage the Group’s sustained growth. The Group has already seen material benefits from these appointments.
3
7digital Group plc
Strategic Review
Chief Executive Officer’s Review
Outlook
2016 was a successful year for the Group overall as we delivered against the Board’s commitment to achieve profitability by the
year-end, and returned a profit at a trading for the final quarter.
The Group continues to expand its customer base across an increasing range of geographies, strengthen its relationships with the
music industry and improve the quality of its business through the quality of revenues and reduction of its cost base.
We have agreed heads of terms with MediaMarktSaturn to acquire 24/7 Entertainment, 7digital’s only remaining significant
European competitor, which would materially strengthen revenues and, in 2018, be earnings enhancing. This transaction
remains subject to the completion of satisfactory due diligence and agreeing definitive legal documentation and therefore there
can be no guarantee that the transaction will complete.
7digital has a strong pipeline and is enjoying increasing momentum, and the Board remains committed to being profitable at the
operating level for the full year in 2017.
Simon Cole
Chief Executive
5 June 2017
4
7digital Group plc
Strategic Review
Chief Financial Officer’s Review
Results for the Year to 31 December
2016 £’000
2015 £’000
Change £’000
%
Revenue
Cost of Sales
Gross profit
Other operating income
Other administration expenses
Adjusted LBITDA
Depreciation
Adjusted operating loss
Share based payments
Exceptional items
Operating loss
Other gains and losses
Taxation on continuing operations
Finance (cost)/gain
Loss for the period
11,899
(3,451)
8,448
560
(12,712)
(3,704)
(1,156)
(4,860)
4
(464)
(5,320)
-
(12)
(13)
(5,345)
10,392
(3,308)
7,084
1,040
(10,227)
(2,103)
(759)
(2,862)
(137)
(128)
(3,127)
(4,767)
(3)
11
(7,886)
1,507
(143)
1,364
(480)
(2,485)
(1,601)
(397)
(1,998)
141
(336)
(2,193)
4,767
(9)
(24)
2,541
Revenue
2016 £’000
2015 £’000
Change
Monthly recurring revenue
Set-up fees
Licensing revenue
Content
Creative
Foreign exchange
Total Revenues
4,930
1,900
6,830
2,606
1,912
551
4,944
1,560
6,504
2,042
1,819
27
(14)
340
326
564
93
524
11,899
10,392
1,507
15%
-4%
19%
-46%
-24%
-76%
-52%
-70%
103%
-263%
-70%
100%
-300%
-218%
32%
%
0%
22%
5%
28%
5%
1,941%
15%
Post the EU referendum vote in the UK, the Group benefitted substantially from the fall in the value of sterling as a significant
proportion of its revenue is denominated on US dollars. The directors believe that these gains should be shown within revenue
on an ongoing basis to reflect the global nature of the Group’s business.
Our high-margin business-to-business (“b2b”) revenues have continued to enjoy growth, rising by 5% overall, and in the
strategically important monthly recurring revenues (“MRR”) we remained flat at £4.9m. Set-up fees increased by 22%,
underpinning MRR in 2017. There has been strong growth of 28% in content revenue as the company continued to manage the
decline in download revenues whilst benefitting from increased trading directly with record labels.
The strength in the rise in the level of b2b revenues, and especially in the increase in our MRR, can be seen in the next table. This
shows the exit rate of recurring revenues that was achieved at the end of the year, clearly illustrating how the business has over
recent years moved from one dependent on download services to one which is benefitting from the growth in streaming
services. The exit rate for streaming MRR has increased by 14%.
Exit MRR
Streaming
Downloads
Radio
Other
Total
2016 £’000
2015 £’000
Change
3,934
897
1,203
207
6,241
3,450
935
1,218
230
5,833
484
(38)
(15)
(23)
408
%
14%
-4%
-1%
-10%
7%
5
7digital Group plc
Strategic Review
Chief Financial Officer’s Review
Both gross profit, and our gross margin have increased in the period, due to the rise in revenue across every segment. Gross
profit has increased 19% for the second consecutive year to £8.4m, whilst our gross margin has risen from 68% to 71%.
Administration expenses have increased by 24% as we have the inclusion of 9 months of the operating costs of Snowite SAS (now
rebranded as ‘7digital France’) that was purchased during the year.
Adjusted Results
Adjusted LBITDA (which excludes return on investments, taxation, depreciation of tangible assets, amortisation of intangible
assets, share based payments and exceptional items) was £3.7m (2015: adjusted LBITDA of £2.1m). The adjusted operating loss
was £4.9m (2015: £2.9m).
Adjusting Items
7digital incurred exceptional costs of £464,000 (2015: £128,000) during the year. These relate to costs that were incurred in
relation to the acquisition of Snowite SAS, corporate restructuring, a capital reduction and legal fees. The Group also has a share
option scheme, which resulted in balancing credit of £4,000 (2015: debit £137,000).
Investment Loss
In 2015, the Group disposed of its remaining investment in audioBoom for £1.9m. This resulted in an impairment loss of £4.8m
during the prior year.
Statutory Result
The Group made a loss for the period of £5.3m (2015: £7.9m).
Loss per share
Reported earnings per share was a loss of 4.69 pence per share (2015: loss of 7.31 pence).
Cash and cash flow
At 31 December 2016, the Group had a cash balance of £0.8m (2015: £1.7m), and saw overall cash outflows in 2016 of £0.8m
(2015: £3.7m). This included a cash outflow of £0.5m from operating activities (2015: £4.7m), and £0.3m cash outflow on
investing activities (2015: £1.0m inflow).
Dividend
During the year, 7digital did not pay an interim or final 2015 dividend (2015: no interim or final 2014 dividend). The Board of
directors is not proposing a final dividend in the current year.
Matthew Honey
Chief Financial Officer
5 June 2017
6
7digital Group plc
Strategic Review
Strategy and Business Model
Strategy and Business model
7digital is a global b2b digital music and radio services company. The core of our business is the provision of robust and scalable
technical infrastructure and extensive global music rights used to create music streaming and radio services for a diverse range of
customers – including consumer brands, mobile carriers, broadcasters, automotive systems, record labels and retailers. We also
offer radio production and music curation services, editorial strategy and content management expertise.
Our strategy is to grow revenues, profitability and shareholder returns through:
• Offering end to end music solutions
•
•
•
•
• Maintaining strict control of our cost base to ensure that revenue growth is quickly reflected in improved overall Group
Increasing the number of clients we serve
Improving the financial quality of our business by driving recurring revenues
Expanding and leveraging our geographic coverage
Continued investment in market leading technology to meet shifting technology trends and client needs
profitability
7digital’s core platform provides its customers with access to a cloud-based software that allows them to create and develop
their own music services. 7digital operates business–to–business technology and music services (Licensing revenue), business–
to–consumer music services under the 7digital brand (Content revenue), and content production under the Unique, Smooth
Operations, Above the Title and Entertainment News brands (Creative revenue).
Licensing
7digital’s core business is to provide an API for third parties that wish to create digital music services, either standalone or
bundled within their own device or product offering. 7digital’s platform simplifies access to music by offering a combination of a
licenced music catalogue alongside the cloud-based technology platform and client side software, being software hosted by
7digital’s clients. These are needed to create on-demand music streaming and download services, radio style services and other
services. The 7digital platform is open, with open-source code wrappers to reduce complexity and time to market for its
potential customers and can be used for building products on any type of connected device.
Typically, customers pay a set up fee and monthly licence fees for using the 7digital platform and 7digital will also take a revenue
share of any music based revenue generated by the service, including transaction or subscription revenues.
In addition to providing an open API based platform from which third parties can build their own services, 7digital also provides
client side software applications for the leading OS and device platforms, including Android, iOS, BlackBerry, Windows 8 and
Windows Phone, Tizen, Firefox OS, HTML5 and Sonos.
7digital has obtained music licences in 82 countries in North America, Latin America, Europe, Asia-Pacific and Africa. These
licences are obtained from hundreds of individual record labels, music publishers and music collecting societies. Music licences
vary from country to country and by usage type.
Content
7digital.com is a licensed digital music store, one of the UK’s first when launched in 2004. 7digital.com operates 20 download
stores, of which 18 are country specific, one is offered to those located in the EU and one is offered globally. The 7digital.com
music download store offers a catalogue of high quality digital music from the major labels and independent aggregators in
Europe, North America and parts of Asia-Pacific. Users have the option to download their purchases as zip files or by using the
7digital download manager to input directly into their media player of choice. 7digital has apps for different devices as well as an
HTML5, mobile optimised web store.
Creative
7digital produces approximately 1,200 hours of video and audio content every year. The content companies benefit from regular
commissions from BBC’s national radio networks as well as one-off commissions from other broadcasters, such as Sky Television.
Key programmes include ‘Sounds of the Sixties’ and ‘Pick of the Pops’ on Radio 2 and the ‘Radcliffe and Maconie Show’ on Radio
6. Our Entertainment News content is distributed to around 150 commercial radio stations.
7
7digital Group plc
Strategy Review
Principal Risks and Uncertainties
Principal risks and uncertainties
While the Group turned a trading level profit in Q4 2016, it was loss making for the year. The goal of reaching profit for the full
year of 2017 is reliant on continuing to win new b2b licensing business. There is a risk that management will be unable to secure
new contracts or that the anticipated demand for the Group’s services will not materialise. However, the directors believe that
the Group is well placed to continue to grow the business in order to reach profitability in the medium term.
The market in which the Group operates continues to be fragmented and competitive and new players are entering the market.
These are in the shape of failed d2c streaming services offering their technology as a co-branded offer. However, that
technology is currently limited to supporting a £9.99 All-You-Can-Eat subscription service and we are not seeing huge demand in
this space and neither do we believe it is where we will see growth in the streaming market. The Group is a b2b provider of
services to customers that may be in competition with companies that are seen as industry leaders. It is possible that
developments by either the direct competition, or the competitors to customers, will render the Group’s current and proposed
products and services obsolete. However, 7digital’s position in the market and much strengthened relationship with the major
record companies mean we have huge support to help evolve and grow the market away from the technology giants.
The market in which the Group operates has seen a number of significant changes, such as the shift from physical sales, through
to downloads, and then onto streaming. The Group’s competitors, or the competitors of the Group’s customers, may announce
or develop new products, services or enhancements that better meet the needs of customers or the end consumers. Further,
new competitors, or alliances among competitors, could emerge. Increased competition may cause price reductions, reduced
gross margins and loss of market share, any of which could have a material adverse effect on the Group’s business, financial
condition and results of operations.
The directors believe that the overall market for the Group’s products and services will continue to grow, as the broadcast radio
industry and the recorded music industry continue to converge. There can, however, be no assurance that growth in the market
for its products and services will occur, or occur at the rate envisaged by the Group.
The Group relies on a number of key customers. The business plan produced by management assumes new and continuing
revenue strands by key customers. If existing contracts were to be terminated or new revenue strands failed to materialise, this
could affect the projected growth of the Group. Furthermore, 7digital’s production businesses are dependent on the BBC as a key
client and as such are vulnerable to the retendering process and BBC budget cuts. Failure by the BBC, as well as other key clients,
to fulfil or renew existing contracts, sign up to new revenue streams, or become insolvent themselves, could have a material
adverse effect on the financial condition of the Group.
The Group has a number of key suppliers of music content. The Group believe that these content rights that it has built up over a
number of years are key to the success of the business, and are also a significant barrier to entry to new competition within the
market. There is no certainty that the rights holders will not limit or change the way or the price at which the Group is able to use
the music content.
The Group depends on qualified and experienced employees, especially in relation to development staff, to enable it to generate
and retain business. Should the Group be unable to attract new employees or retain existing employees this could have a
material adverse effect on its ability to grow or maintain its business. Retention of the key executives of the Group is recognised
as a risk and is managed by the incentive and remuneration arrangements referred to on pages 18, 29 and 39.
Approved by the Board of Directors and signed on behalf of the Board,
Matthew Honey
Company Secretary
69 Wilson Street
London EC2A 2BB
5 June 2017
8
7digital Group plc
Governance
Board of Directors
Sir Donald Cruickshank, Independent Non-Executive Chairman
Don has served as a director of Qualcomm Incorporated since June 2005. Don’s career has included assignments at McKinsey &
Co. Inc., Times Newspapers, Virgin Group plc, Wandsworth Health Authority and the National Health Service in Scotland. He
served as Director General of Oftel from 1993 to 1998. He has been Chairman of the following: Action 2000 (1997-2000), SMG plc
(1999-2004), The London Stock Exchange (2000-2003), Clinovia Group Limited (2004-2007), Formscape Group Limited (2003-
2006). Don was a member of the Financial Reporting Council (2001-2007). He holds an MA degree in Law and an honorary LLD
degree from the University of Aberdeen and an MBA degree from Manchester Business School.
Simon Cole, Chief Executive Officer
Simon co-founded The Unique Broadcasting Company Limited in 1989 in partnership with Tim Blackmore, having pioneered the
market for national sponsored programmes whilst at Piccadilly Radio, where he was Head of Programmes. Simon has been
awarded a fellowship of the Radio Academy.
Matthew Honey, Chief Financial Officer
Matt, a chartered accountant, re-joined 7digital in June 2016 having originally worked with Simon Cole and Tim Blackmore at The
Unique Broadcasting Company where he was the Financial Director from 1992 to 2000 and Managing Director of the technology
and digital radio side of the business from 2000 to 2008. Matt has since been involved with a number of other businesses across
a broad range of industries from post production TV editing to international aid development consulting at IMC Worldwide Ltd,
where Matt is a non-executive director.
Pete Downton, Chief Commercial Officer
Pete joined 7digital in June 2014, assuming overall responsibility for its commercial strategy. He brings over 15 years of
operational and strategic experience within the heart of the nascent digital music and consumer technology businesses to the
role. Prior to 7digital, Pete held key leadership roles at Imagination Technologies, including responsibility for content and
consumer experiences across both the Imagination Tecnologies and PURE businesses. Before joining Imagination, Pete spent
over a decade working for Warner Music Group, holding senior management positions in the company's International Marketing
and Business Development teams.
Eric Cohen, Senior Independent Non-Executive Director
Eric was formerly Senior Vice President, Corporate Development at Dolby Laboratories, Inc., where he oversaw corporate
development, mergers and acquisitions activities, and corporate strategy. Prior to that, Eric was formerly a Managing Director
and senior member of the technology investment banking team at Cowen and Company. Eric, held the position of Managing
Director at J.P.Morgan and also worked for 11 years at Credit Suisse First Boston. Eric holds a BS degree from Brown University
and an MBA degree from Stanford University.
Paul McGowan, Non-Executive Director
Paul founded retail restructuring group Hilco UK in 2000 in a joint venture with Hilco, where he currently serves as Executive
Chairman to the company. Paul is also currently the Chairman of HMV, the entertainment retailer, as well as Denby Pottery
Group in the UK and the KRAUS Flooring group in Canada. Paul is a qualified Chartered Accountant.
Mark Foster, Independent Non-Executive Director
Mark has spent much of his career in the music industry, in a succession of Marketing and International roles, at Arista, Polydor
and Warner Music, including time in Paris as Marketing Director of both of Warner’s French affiliates. Mark’s previous roles
include spearheading the international expansion of streaming subscription service Deezer and leading the restructuring and
international growth of Arts Alliance's production, finance, distribution and marketing operations.
Anne de Kerckhove, Independent Non-Executive Director
Anne has over 15 years' experience in leading some of the fastest growing technology, media and entertainment companies in
Europe. Anne is currently the CEO of Iron Group. Previously, Anne was the Managing Director EMEA for Videology, one of world’s
largest ad technology platforms. As their European leader, she drove their expansion in over 16 countries in just under 3
years. Prior to joining Videology she was Global Director of Reed Elsevier, responsible for the B2B Entertainment Division, which
included leading events such as Midem, Mipcom, MIPTV and Le Web. From 2003 to 2009, Anne was COO and International
Managing Director at Inspired Gaming Group, overseeing the company from its launch to IPO and expansion into 12
countries. Anne has a Bachelor of Commerce from McGill University and an MBA from INSEAD. Anne is also an angel investor and
helped fund leading start-ups throughout the world including metail, the world’s first virtual fitting room powering leading e-
tailers such as Tesco and Warehouse.
9
7digital Group plc
Governance
Directors’ Report
The Board of Directors present their annual report and the audited financial statements for the year ended 31 December 2016.
The Corporate Governance Statement on pages 15 to 17 forms part of this report.
Business review and future developments
The Chief Executive’s Review is contained on pages 2 to 4 and the Chief Financial Officer’s Review is contained on pages 5 to 6;
these reviews, together with the information contained within the Directors’ Report constitute the Business Review. The
Business Review has been prepared solely to provide additional information to shareholders to assess the Group’s strategies and
the potential for these strategies to succeed.
The Business Review contains certain forward-looking statements. These statements are made by the directors in good faith
based on the information available to them up to the time of their approval of this report and such statements should be treated
with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-
looking information.
Results and dividends
The Group’s financial results for the year are shown in the Consolidated Statement of Comprehensive Income on page 22. As in
the previous year, the Board of Directors is not proposing a final dividend for the year ended 31 December 2016.
Directors and their interests
The names of the directors serving during the year and their interests at 31 December 2016 were as follows:
2016
2015
Number of
ordinary shares
Ordinary shares
under options
Number of
ordinary shares
Ordinary
shares under
options
S A Cole
P Downton
M Honey (appointed 16 June 2016)
J C Dent (resigned 31 March 2016)
B Drury (resigned 28 April 2016)
D Cruickshank
E Cohen
H Yassaie (resigned 7 February 2016)
A de Kerckhove
M Foster
P McGowan (appointed 14 January 2016)
2,481,046
53,319
200,000
-
-
943,000
-
-
23,433
17,243
250,000
576,222
393,177
200,000
-
-
447,762
-
-
-
-
-
2,173,875
37,038
-
37,038
12,767,913
-
-
-
4,135
2,155
-
422,222
272,667
-
263,334
376,903
447,762
-
-
-
-
-
At 31 December 2016, the following directors’ interests were also noted:
1. Of the ordinary shares shown as beneficially held by S A Cole, 2,453,151 were held by a nominee account.
2. P McGowan is the Executive Chairman of Hilco UK that indirectly holds 21,977,066 ordinary shares.
3. All of the ordinary shares shown as beneficially held by D Cruickshank were held by a nominee account.
4. All of the ordinary shares shown as beneficially held by P McGowan were held by a nominee account.
5. All of the shares shown as beneficially held by M Honey were held by a nominee account
Further to the shares shown above, additional shares have also accrued to the following Non-executive Directors in relation to
their remuneration:
Accrued
number of
ordinary shares
A de Kerckhove
M Foster
E Cohen
P McGowan
D Cruickshank
Total
162,827
77,736
564,118
388,679
1,278,612
2,471,972
It is the intention of the Board of Directors to issue these shares during 2017.
10
7digital Group plc
Governance
Directors’ Report
The Company has established a tax efficient EMI option scheme and an “unapproved” share option scheme pursuant to which
the CEO, CFO, Deputy CEO and other members of staff have been or may be granted share options. Options granted under this
scheme may have a vesting schedule and/or performance conditions attached. The number, exercise price and earliest and latest
dates of exercise of options over ordinary shares in the Company held by Directors at the end of the year were as follows:
Simon Cole
Matthew Honey
Pete Downton
Share Options
576,722
200,000
393,177
Currently
Exercisable
0
0
0
Exercise
price
0.0p
0.0p
0.0p
Earliest
exercise date
10 June 2017
01 June 2018
10 July 2018
Latest exercise
date
9 March 2020
30 May 2019
9 March 2020
There are a number of performance conditions relating to the financial periods ending December 2015, 2016, 2017 and 2018
attached to these options. These options were granted during the course of the last three years and no options were exercised,
lapsed or forfeited during the year. During the year options relating to Chris Dent and Ben Drury lapsed upon their resignation.
In addition, Don Cruickshank has options over 447,762 shares, of which 373,135 are current exercisable. The remaining 74,627
become exercisable within 6 months.
Directors’ indemnities
The company has made qualifying third party indemnity provisions for the benefit of its directors that were made during the year
and remain in force at the date of this report. Directors and officers indemnity insurance with an annual limit of £2 million is
maintained.
Substantial shareholders
At 5 June 2017, notification of beneficial interests in 3% or more of the Company’s issued share capital are as follows:
Goodmans Capital Investment Limited
Miton Asset Management
DC Thompson & Co Limited
Edale Europe Absolute Master Fund
Spreadex Limited
Number of Shares % of issued share capital
13.75%
12.15%
4.63%
4.44%
3.31%
21,977,066
19,420,511
7,394,857
7,101,105
5,286,632
% of voting rights
13.75%
12.15%
4.63%
4.44%
3.31%
Capital structure
The Group is primarily funded through readily available cash and working capital management. The Group acquired some debt as
part of the acquisition of Snowite SAS in April 2016. Details of the debt are shown in Note 11.
Details of the authorised and issued share capital, together with details of the movements in the Company’s issued share capital
during the year, are shown in Note 20. As at 31st December 2016 the Company had one class of ordinary share that carries no
right to fixed income. Each share carries the right to one vote at general meetings of the Company. During the year the Company
carried out a Capital Reduction to create distributable reserves. The movements involved are shown on page 44 as part of the
Reconciliation of Shareholders Funds.
There are no specific restrictions on the size of a holding or on the transfer of shares, which are both governed by the general
provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between
holders of the Company’s shares that may result in restrictions on the transfer of securities or on voting rights.
Details of employee share schemes are set out in Note 26.
No person has any special right of control over the Company’s share capital and all issued shares are fully paid.
With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association, the
Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The
powers of directors are described in the Main Board Terms of Reference, copies of which are available on request and the
Corporate Governance Statement on pages 15 to 17.
11
7digital Group plc
Governance
Directors’ Report
Under a resolution passed at the Company’s last AGM on 28th April 2016, the Company has authority to issue ordinary shares
and/or make market purchases each to an aggregate nominal value equal to fifteen per cent of the aggregate nominal ordinary
share capital as shown in the audited accounts.
Re-election of directors
All the directors will offer themselves for re-election at the Company’s Annual General Meeting (“AGM”). The Board has
considered the requirements of the UK Corporate Governance Code in respect of these matters and believes that these members
continue to be effective and to demonstrate their commitment to their role, the Board and the Group. Brief particulars of all
directors can be found on page 9.
Acquisition of the Company’s own shares
The company did not purchase any shares into Treasury during the year. At the end of the period, the company had 28,336
shares in Treasury (2015: 203,697). During the year, 175,361 treasury shares were issued to employees in lieu of cash bonuses
and to settle the exercising of share options.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and position are
set out in the Strategic Review on pages 7 to 8. The financial position of the Group, its cash flows and liquidity position are
described in the Finance Review on pages 5 to 6. In addition, note 29 to the financial statement includes the Group’s objectives,
policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its
exposures to credit risk and liquidity risk.
The financial statements at 31 December 2016 show that the Group generated an LBITDA for the period of £3.7 million (2015:
£2.1 million), and with cash used in operating activities of £0.5 million (2015: £4.7 million) and a net decrease in cash and cash
equivalents of £0.8 million in the year (2015: increase of £3.7 million). The Group balance sheet also showed cash reserves at 31
December 2016 of £0.8 million (2015: £1.7 million).
The financial statements have been prepared on a going concern basis, which assumes that the Group will be able to access
sufficient resources to enable it to continue trading for the foreseeable future.
The Board have prepared financial forecasts and projections, taking account of the reasonable potential fluctuations in trading
performance, which show that the Group will have adequate resources to continue in existence for the foreseeable future. These
forecasts and projections are dependent on the Group successfully securing additional external finance as and when required.
The Board has concluded that no matters have come to its attention which suggests that the Group will not be able to maintain
its current terms of trade with customers and suppliers. The Group’s forecasts for the combined Group, including due
consideration of the continued operating losses of the Group, and projections, taking account of reasonably possible changes in
trading performance and the opportunity for cost cutting, indicate that the Group has sufficient cash available to continue in
operational existence throughout the forecast period and beyond. The Board has considered various alternative operating
strategies should these be necessary and are satisfied that revised operating strategies could be adopted if and when necessary.
As a consequence, the Board believes that the Group is well placed to manage its business risks, and longer term strategic
objectives, successfully. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
Employee involvement
The Group places considerable value on the involvement of its employees and encourages the development of employee
involvement in each of its operating companies through both formal and informal meetings. It is the Group’s policy to ensure
that employees are made aware of significant matters affecting the performance of the Group through information bulletins,
informal meetings, team briefings, internal newsletters and the Group’s website.
Employment policy
The Group acknowledges the vital role that all employees play in its success through their skills, initiative and commitment. The
Group endorses and supports the principles of equal opportunities and always fully considers applications by disabled persons.
The policy in respect of staff that become disabled whilst employed is to train and assist them wherever practicable to continue
within the Group. It is the policy of the Group to consider individuals on their merit and to make employment decisions on a non-
discriminatory basis in compliance with its legal obligations. The Group’s policy is to ensure that, as far as is reasonably
practicable, working environments exist which will minimise risk to the health and safety of employees.
12
7digital Group plc
Governance
Directors’ Report
Environmental policy
In appreciating the importance of good environmental practice, the Group seeks to ensure that its operations cause minimum
detrimental impact on the environment. The Group’s objective is to comply with all relevant environmental legislation and to
promote effective environmental management throughout its businesses.
Policy and practice on payment of creditors
Each Group Company is responsible for agreeing the details of terms and conditions relating to transactions with its suppliers
where goods and services have been supplied in accordance with the relevant terms and conditions of the contract. Trade
creditors for the Group at 31 December 2016 represented 58 days of purchases (31 December 2015: 45 days of purchases).
Auditor
Hazlewoods LLP have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be
proposed at the forthcoming Annual General Meeting. The audit was last put out to competitive tender following the reverse
acquisition in 2014.
Directors’ statement as to the disclosure of information to the auditor
Each of the persons who is a director at the date of approval of this annual report confirms that:
•
•
so far as the directors are aware, there is no relevant audit information of which the Group’s auditor is unaware; and
the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any
relevant audit information and to establish that the Group’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of s418 of the Companies Act 2006.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law
and regulations.
Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under
that law, the directors are required to prepare Group financial statements in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the Parent
Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom
Accounting Standards and applicable law). The Parent Company financial statements are required by law to give a true and fair
view of the state of affairs of the Company. Under company law, the directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the
Company for that period. In preparing the Group financial statements, International Accounting Standard 1 requires that
directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity's financial position and financial
performance; and
• make an assessment of the Company’s ability to continue as a going concern.
select suitable accounting policies and then apply them consistently;
In preparing the Parent Company financial statements, the directors are required to:
•
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether applicable UK Accounting Standards have been followed; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
13
7digital Group plc
Governance
Directors’ Report
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions.
Approved by the Board of Directors and signed on behalf of the Board,
Matthew Honey
Company Secretary
69 Wilson Street
London EC2A 2BB
5 June 2017
14
7digital Group plc
Governance
Corporate Governance Statement
The Listing Rules require that listed companies (but not companies traded on the AIM market of the London Stock Exchange
(“AIM”) incorporated in the UK should state in their report and accounts whether they comply with the UK Corporate
Governance Code (“the Code”) and identify and give reasons for any area of non-compliance. The Company is listed on AIM and
therefore no disclosure is required. However, a number of voluntary disclosures have been made. The Board supports the
principles and aims of the Code and intends to ensure that the Group observes the provisions of the Code as it grows, as far as is
practical. However, the Board considers that at this stage in the Group’s development the expense of full compliance with the
Code is not appropriate.
The Company is controlled through a Board of Directors, which at 31 December 2016 comprised eight directors: three executive
directors, four independent non-executive directors and one non-executive director. Short biographies of each director are set
out on page 9. The role of the Chairman and that of the Chief Executive are separate. The senior independent non-executive
director is currently Eric Cohen.
The Chairman is responsible for the leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its
agenda. The Chairman also ensures that the directors receive accurate, timely and clear information and that there is effective
communication with shareholders. The Chairman also facilitates the effective contribution of the other non-executive directors
and ensures constructive relations between executive and non-executive directors.
The Chief Executive’s responsibilities are concerned with managing the Group’s business and implementing Group strategy.
The Board’s role is to provide entrepreneurial leadership of 7digital within the framework of prudent and effective controls that
enable risk to be assessed and managed. The Board is responsible for setting the Company’s strategic aims and for ensuring the
financial and human resources are in place for the Company to meet its objectives and to review management performance. The
Board is also responsible for setting the Company’s values and standards and ensuring that its obligations to its shareholders are
understood and met.
The Board dispatches its role by holding bi-monthly meetings, at which:
the monthly management accounts, including budgets and prior year comparatives, are reviewed;
strategy is set and policy is debated;
•
•
• all significant investment and acquisition opportunities are reviewed and, if appropriate, approval is given; and
• any proposed changes to internal control and operating policies are debated.
The non-executive directors bring a wide range of experience and expertise to the Group’s affairs, which allows them to
constructively challenge and help develop proposals and strategy, scrutinise performance and controls and take decisions
objectively in the interests of the Group.
D Cruickshank was considered by the Board to be independent on the date of his appointment as Chairman of the Board. P
McGowan is not considered by the Board to be independent by virtue of the fact that he is Executive Chairman of Hilco UK,
which own a substantial share of the Group.
E Cohen, A de Kerckhove and M Foster are considered to be independent by the Board.
All directors are subject to election by shareholders at the first opportunity after appointment and at each subsequent AGM of
the company. Details of directors submitted for re-election at the forthcoming AGM are provided on page 9. The Group carries
insurance to indemnify directors for claims made against them in relation to their duties, with the exception of any losses
incurred as a result of their wilful negligence. Cover with an annual limit of £2 million is maintained.
15
7digital Group plc
Governance
Corporate Governance Statement
The Board meets formally at regular intervals. During the year, the total number of formal meetings of the Board of 7digital
Group plc was eight. The attendance at formal meetings of the Board was as follows:
Number of Board
Meetings attended
Number of eligible
Board Meetings
S Cole
J Dent
B Drury
M Honey
D Cruickshank
E Cohen
P McGowan
A de Kerckhove
M Foster
P Downton
8
2
2
7
8
8
6
8
8
8
8
2
2
7
8
8
8
8
8
8
In addition, there were a number of informal meetings of the Board.
The Company has adopted the Market Abuse Regulation for Directors’ dealings as applicable to AIM companies.
Financial reporting
The Board places considerable emphasis on ensuring that all communications with shareholders present a balanced and
transparent assessment of the Group’s position and prospects. The Board or a subcommittee of the Board reviews and approves
results announcements, interim reports, annual reports, the Chairman’s AGM statement and trading updates prior to their
release. The Statement of Directors’ Responsibility in respect of the preparation of financial statements is set out on page 13 and
the auditor’s statement on the respective responsibilities of directors and the auditor is included within their report on page 20
Internal controls and risk management
The Board is responsible for maintaining a sound system of internal control to safeguard shareholders’ investments and the
Company’s assets. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives
and can provide only reasonable and not absolute assurance against material misstatement or loss. The Board has considered
the need for an internal audit function, but has concluded that the internal control systems in place are appropriate for the size
and complexity of the Company.
The Board is also responsible for the identification and evaluation of major risks faced by the Group and for determining the
appropriate course of action to manage those risks. The Board has put in place the procedures necessary to implement and
comply with the guidance ‘Internal Control: Guidance for Directors as issued by the Financial Reporting Council (Revised). In
accordance with Provision C.2.1 of the UK Corporate Governance Code, the directors performed a review of the Group’s control
systems during the financial year.
Committees of the Board
The Board has two standing committees, being the Audit Committee and the Remuneration Committee each of which operates
within defined terms of reference.
Audit Committee
The Audit Committee consists of D Cruickshank as chairman, E Cohen and M Foster. The Audit Committee has primary
responsibility for monitoring the integrity of the financial statements of the Group; reviewing the Group’s internal financial
controls; ensuring that the financial performance of the Group is properly measured and reported on; and for reviewing reports
from the Group’s auditor relating to the Group’s accounting and internal financial controls. The Chief Financial Officer and other
senior management also attend committee meetings by invitation. The Committee has unrestricted access to the Company’s
auditor. The Audit Committee met formally twice during the period. The Committee reviews arrangements by which staff of the
Company may raise in confidence concerns about improprieties in matters of financial reporting or other matters and
investigates appropriate follow-up action.
16
7digital Group plc
Governance
Corporate Governance Statement
The Audit Committee recommends to the Board the appointment, re-appointment or removal of the external auditor. Following
the reverse acquisition of 7digital Group, Inc. in 2014, the new Audit Committee made the decision to review the auditors of the
Group, and put the audit of the Group out to competitive tender. The tender process was led by the Chairman of the Audit
Committee, with relevant assistance from the Chief Financial Officer. The tender process resulted in no change to the audit firm,
who are now in their fifth year of service.
The Committee considers all proposals for non-audit services and ensures that these do not impact on the objectivity and
independence of the auditor. The Audit Committee in its meetings with the external auditor reviews the safeguards and
procedures developed by the auditor to counter threats or perceived threats to their objectivity and independence and assess
the effectiveness of the external audit. The Group’s policy on non-audit services performed by the external auditor is to address
any issues on a case-by-case basis. During the current and preceding financial year there were no non-audit services provided by
the auditors.
Remuneration Committee
The Remuneration Committee consists of D Cruickshank as chairman, E Cohen and A de Kerckhove. Further details of the
Committee’s remit are contained in the Directors’ Remuneration Report on page 18. The Remuneration Committee formally met
once during the period.
Relations with shareholders
The Board is committed to maintaining good communications with shareholders. The Chief Executive maintained a regular
dialogue with institutional shareholders throughout the year. The executive directors give presentations to analysts and hold
one-to-one formal meetings with the Group’s key shareholders immediately following the announcement of the Group’s full year
and interim results. The Group obtains independent feedback on these meetings through its corporate brokers, and this
feedback is disclosed to the Board.
The Company responds formally to all queries and requests for information from existing and prospective shareholders. In
addition, the non-executive directors are available to shareholders to ensure that any potential concerns can be raised directly.
The Group’s Annual Report and Accounts, final and interim announcements, trading statements and press releases are available
on its website at about.7digital.com.
Constructive use of the AGM
The Board uses the Annual General Meeting to communicate with both institutional and private shareholders. Resolutions are
proposed on each substantially separate issue and the agenda includes a resolution to adopt the Group’s Annual Report and
Accounts. Details of the proxy votes for and against each resolution are announced after the result of the hand votes is known.
Before the formal business of the AGM is undertaken, the Chairman invites shareholders’ questions to the Board.
17
7digital Group plc
Governance
Directors’ Remuneration Report
Unaudited information
As an AIM-listed company, 7digital Group plc is not required to disclose a Directors’ Remuneration Report; however, the
Company has opted to make a voluntary disclosure.
Remuneration Committee
The Board has established a Remuneration Committee with formally delegated duties and responsibilities. The Remuneration
Committee consists of D Cruickshank as chairman, E Cohen and A de Kerckhove. The provisions of the UK Corporate Governance
Code recommend that as Company Chairman, D Cruickshank should not be a member of the Committee. However, it was
considered that D Cruickshank’s experience and knowledge is of considerable value to the Committee and as a result he has been
appointed a member of the Committee. The Remuneration Committee has responsibility for determining executive directors’
terms and conditions of service, including remuneration and grant of options under the Share Option Schemes.
Remuneration policy for executive directors
The Company’s policy on executive director remuneration is to:
• Attract and retain high-quality executives by paying competitive remuneration packages relevant to each director’s role,
experience and the external market; and
Incentivise directors to maximise shareholder value through share options and the payment of an annual bonus.
•
Directors’ service contracts
The executive director S Cole has a 12-month rolling service agreement with the Company. M Honey and P Downton have 6-
month rolling service agreements with the Company.
The remuneration of each of the directors for the year ended 31 December 2016 for the 7digital Group was as follows:
Salary &
Fees
£'000
Salary & Fees
Payable in
Shares
£’000
Bonus
£'000
Taxable
benefits
£'000
Pension
contribution
£'000
Total
2016
£'000
Total
2015
£'000
Executive
S.A. Cole
P Downton
M Honey
J.C. Dent
B Drury
Non-executive
D Cruickshank (1)
E Cohen (2)
H Yassaie (3)
R Smith (3)
A de Kerckhove (4)
M Foster (5)
P McGowan (6)
B Drury
Total
156
115
113
64
-
-
-
-
-
29
25
-
8
510
(This information is audited)
15
8
10
-
-
-
-
-
-
2
3
-
-
38
50
25
-
-
11
5
-
-
91
6
10
-
-
-
-
-
-
-
-
-
-
1
17
6
4
3
-
-
-
-
-
-
-
-
-
13
183
137
123
67
-
50
25
-
-
42
33
-
9
669
171
72
-
115
128
50
25
-
-
20
17
-
-
598
(1) D Cruickshank receives a fee of £50,000 per annum. This fee is payable in shares at the end of each 6 month period
based on the share price at the end of each period. Additionally he was granted 447,762 share options with an exercise
price of 0.0p. These options become exercisable in six tranches at six-month intervals. 373,135 options are currently
exercisable under this plan.
(2) E Cohen receives a fee of £25,000 per annum. This fee is payable in shares at the end of each 6 month period based on
the share price at the end of each period.
(3) H Yassaie and R Smith did not take a fee. However, instead of a fee being paid personally, a fee of £12,500 was paid
directly to Imagination Technologies plc.
18
7digital Group plc
Governance
Directors’ Remuneration Report
(4) A de Kerckhove receives fees of £30,000 per annum. £5,000 of this fee is payable in shares at the end of each 6 month
period based on the share price at the end of each period. In addition to the non-executive fee, A de Kerckhove
receives £8,000 per annum for her role as President of 7digital SAS.
(5) M Foster receives fees of £30,000 per annum. £5,000 of this fee is payable in shares at the end of each 6 month period
based on the share price at the end of each period.
(6) P McGowan did not take a fee. However, instead of a fee being paid personally, Amcomri Asset Management Limited
receives a fee of £25,000 per annum. This fee is payable in shares at the end of each 6 month period based on the
share price at the end of each period.
19
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
We have audited the Group financial statements of 7digital Group plc for the year ended 31 December 2016 which comprise the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Cash Flow
Statement, the Consolidated Statement of Changes in Equity and the related notes. The financial reporting framework that has been
applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement (set out on page 13), the directors are responsible for the
preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit
and express an opinion on the Group financial statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to
identify material inconsistencies with the audited financial statements with the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications
for our report.
Emphasis of Matter
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made
in note 1 concerning the Group’s ability to continue as a going concern. The Group is currently in the final stages of completing a
significant acquisition. In order to continue operations for the next 12 months, the Group is dependent on the completion of the
transaction, cost cutting measures and contracting with significant new customers and the directors have prepared forecasts on this
basis. This condition indicates the existence of a material uncertainty which may cast doubt as to the Group’s ability to continue as a
going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a
going concern.
Opinion on financial statements
In our opinion the Group financial statements:
•
•
•
give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of its loss for the year then ended;
have been properly prepared in accordance with IFRSs as adopted by the European Union; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the Strategic Report and Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of our knowledge and understanding of the Group and its environment obtained in the course of the audit, we have not
identified material misstatements in the Strategic Report and the Directors’ Report.
•
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our
opinion:
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit; or
•
Adequate accounting records have not been kept by the Group, or returns adequate for our audit have not been received
from branches not visited by us; or
The Group financial statements are not in agreemnet with the accounting records and returns.
•
20
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
Other matters
We have reported separately on the Parent Company financial statements of 7digital Group plc for the year ended 31 December
2016 and on the information in the Directors’ Remuneration Report that is described as having been audited.
Scott Lawrence (Senior Statutory Auditor)
for and on behalf of Hazlewoods LLP
Chartered Accountants and Statutory Auditor
Cheltenham
5 June 2017
21
7digital Group plc
Consolidated Statement of Comprehensive Income
Year ended 31 December 2016
Continuing operations
Revenue
Cost of sales
Gross profit
Other Income
Administrative expenses
Adjusted operating loss
- Share based payments
- Exceptional items
Operating loss
Other gains and losses
Finance income
Finance cost
Loss before tax
Taxation on continuing operations
Total comprehensive income attributable to owners of the
parent company
Loss per share (pence)
Basic and diluted
Year to 31 Dec
2016
£'000
Year to 31 Dec
2015
£'000
Notes
2
5
4
26
3
14
8
8
9
10
11,899
(3,451)
8,448
560
(14,328)
(4,860)
4
(464)
(5,320)
-
6
(19)
(5,333)
(12)
(5,345)
10,392
(3,308)
7,084
1,040
(11,251)
(2,862)
(137)
(128)
(3,127)
(4,767)
12
(1)
(7,883)
(3)
(7,886)
(4.69)
(7.31)
22
7digital Group plc
Consolidated Statement of Financial Position
31 December 2016
Assets
Non-current assets
Intangibles
Property, plant and equipment
Current assets
Inventory: work-in-progress
Patent
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Provisions for liabilities and charges - current
Net current (liabilities)/assets
Non-current liabilities
Loans
Provisions for liabilities and charges – non current
Total liabilities
Net (liabilities)/assets
Equity
Share capital
Share premium account
Treasury reserve
Other reserves
Retained earnings
Total equity
Notes
12
13
16
16
17
18
19
11
19
20
22
21
2016
£'000
2,303
475
2,778
142
35
3,575
838
4,590
7,368
(6,731)
(462)
(7,193)
(2,603)
(1,519)
(227)
(1,746)
(8,939)
(1,571)
11,575
-
(5)
(4,301)
(8,840)
(1,571)
2015
£'000
416
704
1,120
54
7
4,502
1,656
6,219
7,339
(3,804)
(170)
(3,974)
2,245
-
-
-
(3,974)
3,365
10,843
17,278
(42)
(4,547)
(20,167)
3,365
These financial statements for company registration number 03958483, which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cash Flow, the
Consolidated Statement of Changes in Equity and related Notes 1 to 29 were approved by the Board of Directors on 5 June 2017
and were signed on its behalf by:
Matthew Honey
Director
23
7digital Group plc
Consolidated Cash Flow Statement
Year ended 31 December 2016
Loss for the period
Adjustments for:
Taxation
Interest
Foreign exchange
Amortisation of intangible assets
Depreciation of fixed assets
Loss on sale of investment
Share based payments
Share option valuation adjustment
(Decrease) in provisions
Increase/(Decrease) in accruals and deferred income
(Increase) in inventories
Decrease/(increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
Cash flows from operating activities
Taxation
Net interest
Net cash used in operating activities
Investing activities
Disposal of investment
Purchase of property, plant, equipment and bespoke software
Cash acquired with subsidiary
Net cash (used) in / generated from investing activities
Net (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of period
Notes
Year to 31
Dec 2016
£'000
(5,345)
Year to 31
Dec 2015
£'000
(7,886)
12
13
(551)
746
410
-
176
(4)
(27)
1,355
(116)
1,432
1,445
(454)
(12)
(13)
(479)
-
(448)
109
(339)
(818)
1,656
-
838
3
(11)
(27)
277
484
4,767
-
137
(18)
(263)
(18)
(1,406)
(730)
(4,691)
(3)
11
(4,683)
1,828
(848)
-
980
(3,703)
5,312
47
1,656
11
24
7digital Group plc
Consolidated Statement Changes in Equity
Year ended 31 December 2016
Notes
26
27
26
At 1 January 2015
Loss for the period
Other comprehensive
income for the period
Share based payment
At 1 January 2016
Loss for the period
Other comprehensive
income for the period
Capital reduction
Acquisition of subsidiary
Share based payment
At 31 December 2016
Share
capital
£'000
10,833
-
-
10
10,843
-
-
-
732
-
11,575
Share
premium
account
£'000
17,278
-
-
-
17,278
-
-
(17,278)
-
-
-
Treasury
reserves
£'000
(216)
-
-
172
(42)
-
-
-
-
37
(5)
Other
reserves
(Note 21)
£'000
(1,456)
-
(3,091)
-
(4,547)
-
82
-
(12)
176
(4,793)
Retained
earnings
£'000
(15,311)
(7,886)
2,915
115
(20,167)
(5,345)
(565)
17,278
-
(41)
(8,840)
Total
£'000
11,128
(7,886)
(176)
299
3,365
(5,345)
(483)
-
720
172
(1,571)
25
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
1.
Accounting policies
General information
7digital Group plc is a company incorporated in the United Kingdom under the Companies Act. The address of the
registered office is given on page 47.
The Group prepares its consolidated financial statements in accordance with International Accounting Standards (“IAS”)
and International Financial Reporting Standards (“IFRS”) as adopted by the EU. The financial statements have been
prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies
set out below have been consistently applied to all the periods presented in these financial statements; except as stated
below.
Basis of Preparation
Statutory accounts for the year ended 31 December 2015 have been delivered to the Registrar of Companies. The
financial information for the year ended 31 December 2016 contained in these results has been audited.
The financial information contained in these results has been prepared using the recognition and measurement
requirements of International Financial Reporting Standards (IFRSs) as adopted by the EU. The accounting policies
adopted in these results have been consistently applied to all the years presented and are consistent with the policies
used in the preparation of the financial statements for the year ended 31 December 2015. New standards, amendments
and interpretations to existing standards, which have been adopted by the Group for the year ended 31 December 2016,
have been listed below.
New standards and interpretations
The following new and amended IFRSs have been adopted during the year:
•
•
•
•
•
•
•
•
Amendments to IAS 32: Offsetting Financial Assets and Financial Liabilities
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016)*
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
(effective 1 January 2016)*
Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016)*
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture (effective 1 January 2016)*
Amendments to IAS 1: Disclosure Initiative (effective 1 January 2016)*
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception
(effective 1 January 2016)*
Annual improvements 2012-2014 (effective 1 January 2016) *
The above amendment has not had any significant impact on the Group’s financial statements. The Group has not yet
adopted certain new standards, amendments and interpretations to existing standards, which have been published but
are only effective for the Group’s accounting periods beginning on or after 1 January 2017 . The new pronouncements
are listed below:
•
•
•
•
FRS 7 Financial Instruments (IFRS 9 Disclosures) (effective 1 January 2018)
IFRS 15: Revenue from Contracts with Customers (effective 1 January 2018)*
IFRS 9: Financial Instruments (effective 1 January 2018)
IFRS 16 Leases (1 January 2019)
* Not yet endorsed for use in the EU
26
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
1.
Accounting policies (continued)
Key accounting policies
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic Review on pages 7 to 8. The financial position of the Group, its cash flows and
liquidity position are described in the Finance Review on pages 5 to 6. In addition, note 29 to the financial statement
includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives,
details of its financial instruments and its exposures to credit risk and liquidity risk.
The financial statements at 31 December 2016 show that the Group generated an LBITDA for the period of £3.7 million
(2015: £2.1 million), and with cash used in operating activities of £0.5 million (2015: £4.7 million) and a net decrease in
cash and cash equivalents of £0.8 million in the year (2015: increase of £3.7 million). The Group balance sheet also
showed cash reserves at 31 December 2016 of £0.8 million (2015: £1.7 million).
The financial statements have been prepared on a going concern basis, which assumes that the Group will be able to
access sufficient resources to enable it to continue trading for the foreseeable future.
The Board have prepared financial forecasts and projections, taking account of the reasonable potential fluctuations in
trading performance, which show that the Group will have adequate resources to continue in existence for the
foreseeable future. These forecasts and projections are dependent on the Group successfully securing additional external
finance as and when required.
The Board has concluded that no matters have come to its attention which suggests that the Group will not be able to
maintain its current terms of trade with customers and suppliers. The Group’s forecasts for the combined Group,
including due consideration of the continued operating losses of the Group, and projections, taking account of reasonably
possible changes in trading performance and the opportunity for cost cutting, indicate that the Group has sufficient cash
available to continue in operational existence throughout the forecast period and beyond. The Board has considered
various alternative operating strategies should these be necessary and are satisfied that revised operating strategies
could be adopted if and when necessary. As a consequence, the Board believes that the Group is well placed to manage
its business risks, and longer term strategic objectives, successfully. Accordingly, they continue to adopt the going
concern basis in preparing the annual report and accounts.
Revenue
Revenue represents amounts receivable for goods and services provided in the normal course of business, and excludes
intra-group sales, Value Added Tax and trade discounts. Revenue comprises:
•
•
Sale of programmes and content: the value of goods and services supplied is recognised on delivery of content.
Production costs are recognised on the same date as the relevant revenue.
Sale of software: the value of goods and services supplied is recognised on delivery.
Exceptional items
Exceptional items are those items the Group considers to be non-recurring or material in nature that should be brought
to the reader’s attention in understanding the Group’s financial performance.
Foreign currency
For the purpose of the consolidated financial statements, the results and financial position of each Group company are
expressed in Pounds Sterling, which is the functional currency of the Company, and the presentation currency for the
consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions.
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at
the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a
foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are
included in profit and loss for the year.
27
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
1.
Accounting policies (continued)
Foreign currency (continued)
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign
operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are
translated at the average monthly rate of exchange ruling at the date of the transaction, unless exchange rates fluctuate
significantly during that month, in which case the exchange rates at the date of transactions are used.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, if any.
Depreciation is calculated under the straight-line method to write off the depreciable amount of the assets over their
estimated useful lives. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use
unless the asset is fully depreciated. The principal annual rates used for this purpose are between 3 and 5 years.
The depreciation method, useful lives and residual values are reviewed, and adjusted if appropriate, at the end of each
reporting period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates
and the expected pattern of consumption of the future economic benefits embodied in the items of the property, plant
and equipment.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only
when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the
Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised.
The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Cost
also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for
which the Group are obligated to incur when the asset is acquired, if applicable.
Cash and cash equivalent
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments
that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Government grants
Government grants, including research and development credits are recognised when it is reasonable to expect that the
grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment.
Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.
Fixed asset investments
Fixed asset investments are shown at cost less provision, if appropriate, for any impairment.
Financial instruments
Classification
Financial instruments are classified and accounted for according to the substance of the contractual arrangement, as
financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual
interest in the assets of the company after deducting all of its liabilities. Where shares are issued, any component that
creates a financial liability of the company is presented as a liability on the balance sheet. The corresponding dividends
relating to the liability component are charged as interest expenses in the profit and loss account.
Recognition and measurement
All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those
financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is
normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction. If
an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present
value of the future payments discounted at a market rate of interest for a similar debt instrument.
Impairment
Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If
there is objective evidence of impairment, an impairment loss is recognised in profit or loss.
28
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
1.
Accounting policies (continued)
Operating leases
Rentals payable under operating leases are charged against income on a straight-line basis over the lease term. Benefits
received and receivable as an incentive to sign an operating lease are similarly spread on a straight line basis over the
lease term, except where the period to the review date on which the rent is first expected to be adjusted to the
prevailing market rate is shorter than the full lease term, in which case the shorter period is used.
Taxation
The tax expense for the period comprises current tax. Tax is recognised in profit or loss, except that a charge attributable
to an item of income or expense recognised as other comprehensive income is also recognised directly in other
comprehensive income.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively
enacted by the reporting date in the countries where the company operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements and on unused tax losses or tax credits in the company. Deferred
income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date and a valuation allowance is set up
against deferred tax assets so that the net carrying amount equals the highest amount that is more likely than not to be
recovered based on current or future taxable profit.
Critical accounting judgements and key areas of estimation uncertainty
Valuation of intangible assets on acquisition
On acquiring a business the Group is required to consider the existence or otherwise of intangible assets. On
identification of these assets, such as intellectual property, technical know how, brands and customer relationships, the
Group considers the cash flows expected to arise from existing relationships, which is a judgement.
Share based compensation
The Group issues equity settled share based payments to certain Directors and employees, which have included grants of
shares, warrants and options in the current year. Equity settled share based payments are measured at fair value at the
date of grant, with the charge being recognised within the statement of comprehensive income over the period of service
to which the grant relates.
The fair value is measured using a Black-Scholes framework. The Directors have used judgement in the calculation of the
fair values of the share based compensation which has been granted during the period, and different assumptions in the
model would change the financial result of the business.
The number of shares issued in lieu of services is based on the remuneration due at specificed dates divided by the share
price on that date
Forecasting
The Group prepares medium-term forecasts based on Board approved budgets and 3-year financial models. These are
used to support judgements in the preparation of the Group’s financial statements including the decision on whether to
recognise deferred tax assets and for the Group’s going concern assessment.
Revenue recognition
Management considers the detailed criteria for the recognition of revenue from the sale of goods and services set out in
IAS 18 Revenue, in particular whether the Group had transferred to the buyer the significant risks and rewards of
ownership of the goods.
29
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
2.
Business and geographical segments
Business segments
For management purposes, the Group is organised into three continuing operating divisions – Content, Licensing and
Creative. The principal activity of the Content division is the sales of digital music direct to consumers. The principal
activity of Licensing is the creation of software solutions for managing and delivering digital content. The principal activity
of Creative is the production of audio and video programming for broadcasters. These divisions comprise the Group’s
operating segments for the purposes of reporting to the Group’s chief operating decision maker, the Chief Executive
Officer.
Content
Licensing
Creative
Unallocated
Total
Revenue
Segment's result (gross profit)
Other income
Corporate expense
Operating profit/(loss)
Other gains and losses
Financing income
Financing costs
Tax charge
Loss for the year
Other segment items:
Capital additions
Depreciation
Amortisation
2016
£'000
2,606
750
-
-
750
2015
£'000
2,012
215
-
-
215
2016
£'000
6,830
6,162
-
-
6,162
2015
£'000
6,509
5,923
-
-
5,923
2016
£'000
1,912
985
-
-
985
2015
£'000
1,844
919
-
-
919
2016
£'000
551
551
560
(14,328)
(13,217)
2015
£'000
27
27
1,040
(11,251)
(10,184)
2016
£'000
11,899
8,448
560
(14,328)
(5,320)
-
6
(19)
(12)
(5,345)
2,814
410
746
2015
£'000
10,392
7,084
1,040
(11,251)
(3,127)
(4,767)
12
(1)
(3)
(7,886)
848
482
277
Revenue from the Group’s largest customer in the year was £1,379,000 (2015: £1,822,000). There were no other
customers that formed greater than 10% of external revenues within the years ended 31 December 2016 and 2015.
During 2016, the value of Sterling against the US Dollar weakened significantly resulting in foreign exchange gains for the
Group. This movement of £551,000 (2015: £27,000) has been shown within revenue.
Geographical information
The Group’s revenue from external customers and information about its segments by geographical location is detailed
below:
Continuing Operations
United Kingdom
Europe
Rest of World
3.
Exceptional items
Acquisition costs
Capital reduction
Exceptional legal fees
Corporate restructuring
Revenue
2016
£'000
4,272
2,265
5,362
11,899
2015
£'000
3,724
1,252
5,416
10,392
Non-current assets
2016
£'000
2,705
73
-
2,778
2015
£'000
1,120
-
-
1,120
2016
£'000
(82)
(25)
(105)
(252)
(464)
2015
£'000
(16)
-
-
(112)
(128)
On 07 April 2016, 7digital Group plc announced the successful acquisition Snowite SAS. As part of this transaction the
Group incurred a variety of legal and professional fees which have been classified as exceptional items due to their one-
off nature.
30
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
On 07 July 2016, the High Court approved the cancellation of the balance standing to the credit of the Company’s share
premium account. As part of this capital reduction, the Group incurred a variety of legal and professional fees which have
been classified as exceptional items due to their one-off nature.
During 2016, the Group settled a patent infringement claim. The settlement and associated legal fees were classified as
exceptional items due to the size and their one-off nature.
During 2016, the Group incurred costs relating to restructuring the business, the main items being synergies due to the
acquisition of Snowite SAS. During 2015, the Group closed their Luxembourg office following changes in EU VAT rules,
which resulted in restructuring costs. These costs have also been classified as exceptional items due to the one-off nature
and magnitude.
4.
Operating loss for the year
Operating loss for the year has been arrived at after charging:
Net foreign exchange profit
Amortisation of intangible
Depreciation of property, plant & equipment
Operating lease payments - land and buildings
Loss on disposal of investment
Share based payment expense
Research and development expenditure
2016
£'000
(551)
746
410
525
-
(4)
1,485
2015
£'000
(27)
277
482
452
4,767
137
1,707
5.
Other operating income
The other operating income earned by the Group in the current year of £560,000 relates to Research & Development tax
credits. In 2015, £490,000 of the amount relates to claims made for previous years, with the remaining £550,000 being in
relation to the amount due from HMRC with respect to 2015.
6.
Auditor’s remuneration
Fees payable to the Company's auditor for the audit of the Company's annual
accounts
Fees payable to the Company's auditor for other services to the Group
The audit of the Company's subsidiaries pursuant to legislation
Total audit fees
Non-audit fees:
Total non-audit fees
Total fees paid to Company's auditor
2016
£'000
2015
£'000
18
26
44
-
44
18
26
44
-
44
A description of the work of the Audit Committee is set out in the Corporate Governance Statement and includes an
explanation of how auditor’s objectivity is safeguarded when non-audit services are provided by the auditor.
7.
Staff costs
The average monthly number of persons employed by the Group during the year, including executive directors, was 131
(2015: 127). Staff costs in the Group are presented in administrative expenses.
Number of production, R & D, and sales staff
Number of management and administrative staff
2016
No.
102
29
131
2015
No.
97
30
127
31
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
Wages and salaries
Social security costs
Other pension costs
Share based payments
8.
Interest
Bank interest received
Other charges similar to interest
2016
£'000
6,966
768
178
(4)
7,908
2016
£'000
6
(19)
(13)
9.
Tax
Corporation tax is calculated at 20% (2015: 20.25%) of the estimated assessable profit for the year.
£'000
Current tax
-
UK corporation tax on the results for the year
12
Foreign tax suffered
12
Total current tax charge
The charge for the year can be reconciled to the profit per statement of comprehensive income as follows:
Profit/(loss) before tax
Tax at UK corporation tax rate of 20% (2015: 20.25%)
Tax effect of expenses that are not deductible in determining taxable profit
Fixed asset differences
Deferred tax not recognised
Foreign tax suffered
Income not taxable for tax purposes
Adjustments in respect of prior periods
Additional deduction for R&D expenditure
Adjust closing deferred tax to average rate of 20%
Adjust opening deferred tax to average rate of 20%
Difference in tax rates
R&D tax credit
Tax credit receivable
Tax credit and effective tax rate for the year
2016
£'000
(5,333)
(1,069)
153
11
374
12
(102)
-
(386)
1,024
(635)
(53)
188
495
12
2015
£'000
5,857
682
188
137
6,864
2015
£'000
12
(1)
11
£'000
-
3
3
2015
£'000
(7,883)
(1,596)
1,096
97
(381)
3
(211)
(481)
(458)
711
(75)
-
231
1,067
3
At the balance sheet date, the Group has unrecognised deferred tax assets of £5,801,811 at a rate of 17% (2015:
£5,695,344 (18%)) in respect of unused trading tax losses which have not been recognised on the grounds that there is
insufficient evidence that these will be recoverable. These assets will be recovered when future tax charges are sufficient
to absorb these tax benefits.
10.
Earnings per share
Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of
ordinary shares in issue during the year. IAS 33 requires presentation of diluted EPS when a company could be called upon
to issue shares that would decrease earnings per share, or increase the loss per share. For a loss-making company with
outstanding share options, net loss per share would be decreased by the exercise of options. Therefore the antidilutative
32
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
potential ordinary shares are disregarded in the calculation of diluted EPS. Reconciliation of the profit and weighted
average number of shares used in the calculation are set out below:
Basic and Diluted EPS
Loss attributable to shareholders:
Basic and Diluted EPS
Loss attributable to shareholders:
31 Dec 2016
Weighted average
number of shares
Thousand
Per share amount
Pence
Loss
£'000
(5,345)
114,030
(4.69)
£'000
(7,886)
31 Dec 2015
Thousand
107,873
Pence
(7.31)
11.
Acquisition
On 08 April 2016, 7digital Group plc acquired a French software company Snowite SAS out of administration. The
amounts recognised in respect of the identifiable assets acquired and liabilities assumed are as set out in the table below:
Goodwill
Other intangible assets
Property plant and equipment
Financial assets
Trade and other receivables
Cash and cash equivalents
Bank loans
Trade and other payables
Intangible assets recognised under IFRS3
Goodwill
Total consideration
31-Mar-16
£
64
831
40
36
421
109
(898)
(1,259)
(656)
Fair Value
Adjustment
£
(64)
(831)
-
-
-
-
-
-
(895)
Adjusted
£
-
-
40
36
421
109
(898)
(1,259)
(1,551)
1,655
546
650
The transaction was satisfied by a share swap of 7,320,000 ordinary shares at a value of 10 pence per share in 7digital
Group plc for 100% of the shareholding in Snowite SAS. The market value at the time of the transaction of 8.875 pence
per share was used in the calculation of the consideration. The primary reason for the acquisition was to acquire
Snowite’s software and IP. The difference between the adjusted fair value of the net assets and the consideration have
been classified as intangible assets and will be amortised over a 3 year period in line with the Group policy on bespoke
software.
As part of the purchase;
•
•
the Group negotiated a reduction in the amount of the debt existing at the time of the purchase within Snowite
and to be repaid by the Group, from €1.8m to €1.7m (£1,519,000). The terms of repayment agreed are over 8
years starting on 7th April 2017, payable in equal instalments with no interest; and
the Group agreed with three of the original institutional shareholders in Snowite who received 3,056,894
shares in 7digital Group plc as part of the consideration that after a 12-month prohibition on selling, if they are
unable to sell their shares in the public market, 7digital Group plc would purchase 75% their shares at a strike
price of 8.75p over a 4-year period, 10% in year 1 and then c.21.7% each year there after.
33
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
12.
Intangibles
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Additions
At 31 December 2016
Amortisation
At 1 January 2015
Disposals
Charge for year
At 31 December 2015
Charge for year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
Bespoke
applications
£'000
Goodwill
£'000
994
352
(294)
1,050
2,087
3,137
649
277
(292)
634
746
1,380
1,757
416
-
-
-
-
546
546
-
-
-
-
-
-
546
-
Total
£'000
994
352
(294)
1,050
2,633
3,683
649
277
(292)
634
746
1,380
2,303
416
During the year, the Group acquired Snowite SAS including an acquisition of software which will be amortised over 3
years in line with the Group’s policy. Included in the figures above is £1,655,000 of cost and £414,000 of amortisation,
adding £1,241,000 to the net book value of intangibles.
13.
Property, plant and equipment
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2015
Charge for year
Disposals
At 31 December 2015
Charge for year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
Property
£'000
Computer
equipment
£'000
Fixture and
fittings
£'000
Vehicle
£'000
404
-
-
404
39
-
443
125
81
-
206
81
287
156
198
1,411
454
(497)
1,368
136
-
1,504
1,048
365
(497)
916
298
1,214
290
452
228
42
(151)
119
2
-
121
195
33
(151)
77
25
102
19
42
19
-
-
19
4
-
23
4
3
-
7
6
13
10
12
Total
£'000
2,062
496
(648)
1,910
181
-
2,091
1,372
482
(648)
1,206
410
1,616
475
704
34
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
14.
Investment in asset for sale
Cost and net book value
At 1 January
Acquisition of subsidiary
Disposal
Fair value adjustment
At 31 December
2016
£’000
-
-
-
-
-
2015
£’000
6,625
-
(6,625)
-
-
The amounts included above represent investments in Audioboom Group plc (“Audioboom”), an AIM listed company,
which was acquired as part of the reverse acquisition of 7digital Group plc. During 2015, the Group disposed of their
remaing interest in Audioboom Group plc with a book value of £6.63m for net consideration of £1.86m resulting in a loss
of £4.77m recognised in the Income Statement.
15.
Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of
ownership interest is given in Note B to the Parent Company financial statements.
16.
Inventories
Work-in-progress
Patents
17.
Trade and other receivables
Amount receivable for the sale of goods
Allowance for doubtful debts
Net Receivables
Other debtors
Accrued income
Prepayments
2016
£’000
142
35
177
2016
£'000
3,797
(1,387)
2,410
245
615
305
3,575
2015
£’000
54
7
61
2015
£'000
3,758
(738)
3,020
260
958
264
4,502
The average credit period taken on sales of goods and services is 78 days (2015: 140 days). No interest is charged on
receivables. Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods and
services, determined by reference to past default experience and likelihood of recovery as assessed by the directors.
Before accepting any new material customer, the Group uses an external credit scoring system to assess the potential
customer’s credit quality and defines credit limits by customer. The directors believe that the trade receivables that are
past due but not impaired are of a good credit quality.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £971,000 (2015: £1.7 million)
which are past due at the reporting date for which the Group has not provided as there has not been a significant change
in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these
balances. The average age of these receivables is 165 days (2015: 167 days).
35
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
Customers that represent more than 5% of the total balance of trade receivables are:
Customer A
Customer B
Customer C
Customer D
Customer E
Ageing of past due but not impaired receivables
30-60 days
60-90 days
90-120 days
120+ days
Total
Movement in the allowance for doubtful debts
Balance at the beginning of the period
Impairment losses recognised
Written off as bad debt
Amounts recovered during the period
Balance at the end of the period
2016
£'000
1,174
365
297
229
123
2016
£'000
403
177
156
235
971
2016
£'000
738
1,285
(636)
-
1,387
2015
£'000
836
731
75
-
212
2015
£'000
264
562
145
732
1,703
2015
£'000
489
443
(78)
(116)
738
In determining the recoverability of trade receivables the Group considers any change in the credit quality of the trade
receivable from the date credit was initially granted up to the reporting date.
Included in the allowance for doubtful debts there are no individually impaired trade receivables which have been placed
under liquidation (2015: £nil). Any impairment recognised represents the difference between the carrying amount of
these trade receivables and the present value of the expected liquidation proceeds. The Group does not hold any
collateral over these balances.
Ageing of impaired trade receivables
Current
30-60 days
60-90
90-120
120+
Total
2016
£'000
82
101
14
56
1,134
1,387
2015
£'000
46
29
31
23
609
738
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
36
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
18.
Trade and other payables
Trade payables
Other taxes and social security
Other payables
Accrued costs
Deferred income
2016
£'000
1,422
1,087
225
3,326
671
6,731
2015
£'000
512
302
351
2,186
453
3,804
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 58 days (2015: 45 days). The Group has financial risk management
policies in place to ensure that all payables are paid within the credit time frame.
The directors consider that the carrying amount of trade payables approximates to their fair value.
19.
Provisions
At 1 January 2016
Acquisition of subsidiary
Increase in provision
Utilisation of provision
Release of provision
At 31 December 2016
Of which is: current
Of which is: non-current
20.
Share capital
Allotted, called up and fully paid:
Ordinary A share of £0.10 each
Allotted, called up and fully paid
At 1 January
Shares issued in the period
Vendor consideration shares
Share options
At 31 December
Deferred tax
provision
£'000
-
-
546
-
-
546
Dilapidation
£'000
125
-
-
-
-
125
Employer's
NI
provision
£'000
45
-
-
-
(33)
12
Legal
provision
£'000
-
-
6
-
-
6
319
227
125
-
12
-
6
-
Total
£'000
170
-
552
-
(33)
689
462
227
2016
No. of shares
2015
No. of shares
115,751,517
108,431,517
2016
£'000
10,843
732
-
11,575
2015
£'000
10,833
-
10
10,843
During 2016, the Group acquired Snowite SAS. Consideration was paid using ordinary shares.
As at 31st December 2016, the Group had one class of ordinary shares which carry no right to fixed income.
37
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
21.
Other reserves
Reverse
acquisition
reserve
Foreign
exchange
translation
reserve
At 1 January 2015
Other comprehensive
income
At 31 December 2015
Other comprehensive
income
Acquisition of subsidiary
Share based payments
£'000
(4,430)
-
(4,430)
-
-
-
At 31 December 2016
(4,430)
£'000
(31)
(86)
(117)
82
70
-
35
Asset for
sale
reserve
£'000
3,004
(3,004)
-
-
-
-
-
Merger
reserve
Shares to
be issued
Other capital
reserves
£'000
-
-
-
-
(82)
-
(82)
£'000
-
-
-
-
-
176
176
£'000
(1,457)
(3,090)
(4,547)
82
(12)
176
(4,301)
22.
Treasury reserve
The treasury reserve represents the cost of shares in 7digital Group plc purchased in the market and held by 7digital
Group plc in treasury. The number of shares held in treasury at 31 December 2016 was 28,336 (2015: 203,697), and were
valued at £5,264 (2015: £42,090).
23.
Operating lease arrangements
The Group as lessee
Minimum lease payments under operating leases recognised as an expense in
the year
2016
£'000
525
2015
£'000
452
At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-
cancellable operating leases, which fall due as follows:
Within one year
In the second to fifth year inclusive
2016
£'000
498
123
621
2015
£'000
452
560
1,012
Operating lease payments represent rentals payable by the Group for its office properties and equipment. Property leases
are negotiated for an average term of ten years and equipment for an average term of five year.
24.
Retirement benefit schemes
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for qualifying employees. The total cost charged to
income of £178,000 (2015: £188,000) represents contributions payable to these schemes by the Group at rates specified
in the rules of the plans. As at 31 December 2016, contributions due in respect of the current reporting period of £98,022
had not been paid over to the schemes (2015: £39,444).
38
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
25.
Related party transactions
During the year, the Group recognised £197,000 (2015: £175,000) of revenue from HMV Digital Limited, of which Paul
McGowan is also a Director. The revenue relates to licensing of software. At 31 December 2016, the Group was owed
£60,000 (2015: £93,000). The Group also incurred £8,000 (2015: £nil) of costs relating to royalties due.
During the year, the Group paid £33,000 (2015: £nil) to Kinetic Helm Limited, a company associated with Matthew Honey.
The amounts relate to directorship services provided prior to Matt becoming an employee of the Group on 1st June 2016.
These emoluments have been included in the Directors’ Remuneration Report.
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate
for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of
individual directors is provided in the audited part of the Directors’ Remuneration Report on page 20.
Short- term employment benefits
Post-employment benefits
2016
£'000
656
13
669
2015
£'000
582
16
598
26.
Share-based payments
79 members of staff hold options to subscribe for shares in the Company under the 7digital Group plc enterprise
management incentive scheme (approved by the Board on 10 June 2014).
Outstanding at the beginning of the
period
Granted during the period
Forfeited during the period
Exercised during the period
Outstanding at the end of the period
Exercisable at the end of the period
2016
Options
3,059,950
1,796,010
(1,990,320)
(24,111)
2,841,529
-
Weighted
average
exercise price
-
-
-
-
-
2015 Options
2,955,102
1,585,377
(873,070)
(607,459)
3,059,950
-
566,455
Weighted
average
exercise price
-
-
-
-
-
-
During the period, 24,111 shares were exercised (2015: 607,459). There are 2,841,529 options outstanding at 31
December 2016 (2015: 3,059,950) of which nil (2015: 566,455) are exercisable.
The fair value of the outstanding share options has been calculated using the Black-Scholes model. The Black-Scholes
model values each share option at market value based on the grant date.
At 31 December 2016 2,471,971 shares were due to be issued to non executive directors under the terms of their service
contracts and as disclosed within the Directors Report and Directors Remuneration Report. The number of shares due are
based on the remuneration due at specificed dates divided by the share price on that date.
27.
Capital reduction
During 2016, the High Court approved the cancellation of the Company’s share premium account therefore creating
distributable reserves that have been transferred to retained earnings. The Capital Reduction has no effect on the overall
net asset position of the Company.
39
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
28.
29.
Post balance sheet events
On 28 March 2017, the Group completed a placing and open offer raising approximately £2.6m after costs. The new
shares were admitted to trading on 29 March 2017. At the same time and in addition, 7digital Group plc also carried out
a capital reorganisation to reduce the nominal value of the ordinary shares from 10p to 1p and announced the potential
acquisition of 24/7 Entertainment ApS.
Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they
arise while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as
disclosed in Notes 20 to 22. The Group does not have any external borrowings, does not have access to committed
borrowing facilities, and is not subject to externally imposed capital requirements.
Categories of financial instruments
Financial Instruments
Financial assets
Cash and cash equivalents
Loan and receivables
Financial liabilities at amortised cost
Trade and other payables
Loans
2016
£'000
838
2,655
2015
£'000
1,656
3,280
(4,973)
(1,519)
(3,049)
-
The carrying amounts of financial assets and financial liabilities not carried at FVTPL approximate their fair values.
Financial and market risk management objectives
It is, and has been throughout the year under review, the Group’s policy not to use or trade in derivative financial
instruments. The Group’s financial instruments comprise its cash and cash equivalents and various items such as trade
debtors and trade creditors that arise directly from its operations. The main purpose of the financial assets and liabilities
is to provide finance for the Group’s operations in the year.
Currency risk management
The Group has exposure to foreign currency risk due to subsidiaries in France and United States. The Group manages the
risk by holding cash in numerous currencies to avoid foreign exchange charges on payments and receipts. The Group is
exposed to translation variances on consolidation. The Group translates balances from foreign subsidiaries relating to the
Income Statement at the monthly average exchange rate and balances relating to the Statement of Financial Position at
the year-end exchange rate.
Interest rate risk management and sensitivity
The Group’s policy is to ensure that it maximises the interest income on surplus cash. This involves placing cash in a mix of
fixed rate and floating rate short-term deposits. There is no prescribed ratio of fixed to floating rate. Due to the current
level of cash and the current rates of interest the Group is not exposed to any significant interest rate risk.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk
of financial loss from defaults. The Group only transacts with entities after assessing credit quality using independent
rating agencies and if not available, the Group uses other publicly available financial information and its own trading
records to rate its major customers. The Group’s exposure is continuously monitored and the aggregate value of
transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits.
40
7digital Group plc
Notes to the financial statements
Year ended 31 December 2016
On going credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is
limited because the counterparties are banks with high credit-rating assigned by international credit-rating agencies. The
carrying amount of financial assets recorded in the financial statements, which is net impairment losses, represents the
Group’s maximum exposure to credit risk.
Liquidity risk management
The Group’s policy throughout the year has been to ensure continuity of funds. The Group manages liquidity risk by
maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities.
Liquidity and interest risk tables
All trade and other payables are non-interest bearing and fall due within one month. The agreed term of repayment of
the loan relating to the purchase of Snowite SAS is over 8 years starting 7th April 2017, payable in equal instalments with
no interest.
Fair value of financial instruments
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally
accepted pricing models based on discounted cash flow analysis using prices from observable current market
transactions.
41
Independent auditor’s report to the members of 7digital Group plc
We have audited the Parent Company financial statements of 7digital Group plc for the year ended 31 December 2016 which
comprise the Parent Company Balance Sheet, the Parent Company Reconciliation of Shareholders’ Funds and the related Notes.
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting
Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or
for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors’ Responsibility (set out on page 13), the directors are responsible for the
preparation of the Parent Company financial statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the Parent Company financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices
Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an
assessment of: whether the accounting policies are appropriate to the Parent Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and
the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the
annual report to identify material inconsistencies with the audited financial statements, with the knowledge acquired by us in
the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider
the implications for our report.
Emphasis of Matter
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure
made in note 1 of the Group accounting policies above concerning the Group and Company’s ability to continue as a going
concern. The Company is currently in the final stages of completing a significant acquisition. In order to continue operations for
the next 12 months, the Group and Company is dependent on the completion of the transaction, cost cutting measures and
contracting with significant new customers and the directors have prepared forecasts on this basis. This condition indicates the
existence of a material uncertainty which may cast doubt as to the Company’s ability to continue as a going concern. The
financial statements do not include the adjustments that would result if the Company was unable to continue as a going concern.
Opinion on financial statements
In our opinion the Parent Company financial statements:
•
give a true and fair view of the state of the Company’s affairs as at 31 December 2016 and of its loss for the year then
ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
•
the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Directors’ Report for the financial year for which the financial statements are prepared is
consistent with the Parent Company financial statements.
•
•
•
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in
our opinion:
•
adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been
received from branches not visited by us; or
•
the Parent Company financial statements are not in agreement with the accounting records and returns; or
•
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
42
Independent auditor’s report to the members of 7digital Group plc
Other matters
We have reported separately on the Group financial statements of 7digital Group plc for the year ended 31 December 2016.
Scott Lawrence (Senior Statutory Auditor)
For and on behalf of Hazlewood’s LLP
Chartered Accountants and Statutory Auditor
Cheltenham
5 June 2017
43
7digital Group plc
Parent Company Statement of Financial Position and Reconciliation of Shareholder’s Funds
For the year ended 31 December 2016
Fixed asset investments
Current assets
Debtors
- due after more than one year
- due within one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Provisions for liabilities and charges - current
Net current assets
Total assets less current liabilities
Provisions for liabilities and charges - non-current
Net assets
Capital and reserves
Called up share capital
Share premium account
Shares to be issued
Own shares
Profit and loss account
Shareholders’ funds
Notes
B
C
C
D
E
2016
£’000
6,772
1,278
10,165
378
11,821
(1,530)
-
10,291
17,063
(14)
17,049
11,575
-
176
(5)
5,303
17,049
2015
£’000
5,040
1,138
10,576
129
11,843
(995)
-
10,848
15,888
(45)
15,843
10,843
17,278
-
(42)
(12,236)
15,843
This Company Balance Sheet and related notes for company registration number 03958483 were approved by the Board of
Directors on 5 June 2017 and were signed on its behalf by
Matthew Honey
Director
Reconciliation of Shareholders Funds as at 31st December 2016
At 31 December 2015
Profit for the period
Capital reduction
Acquisition of subsidiary
Share based payment
At 31 December 2016
Share
capital
£'000
10,843
-
-
732
-
11,575
Share premium
account
£'000
17,278
-
(17,278)
-
-
-
Shares to
be issued
£’000
-
-
-
-
176
176
Own
shares
£'000
(42)
-
-
-
37
(5)
Accumulated
profits
£'000
(12,236)
302
17,278
-
(41)
5,303
Total
£'000
15,843
302
-
732
172
17,049
44
7digital Group plc
Notes to the Parent Company financial statements
For the year ended 31 December 2016
A.
Principal accounting policies
The parent company financial statements are presented as required by the Companies Act 2006. They have been
prepared in accordance with applicable law and accounting standards in the United Kingdom. The Company balance
sheet and related notes have been prepared under the hisotircal cost convention and in accordance with Financial
Reporting Standards 100 Application of Financial Reporting Requirements (FRS100) and 101 Reduced Disclosures
Framework.
The preparation of financial statements in compliance with FRS 101 requires the use of certain critical accounting
estimates. It also requires management to exercise judgment in applying the Company's accounting policies.
Result for the year
As permitted by section 408 of the Companies Act 2006 the Company has not elected to present its own profit and loss
account for the year. 7digital Group plc reported a profit for the financial period ended 31 December 2016 of £302,000
(2015: loss £1,620,000).
The average number of employees throughout 2016 was 15 (2015: 15). Staff costs amounted to £1.5m (2015: £1.0m).
Information about the remuneration of directors is provided in the audited part of the Directors’ Remuneration Report on
page 18 of the consolidated financial statements.
Fixed asset investments
Fixed asset investments are shown at cost less provision, if appropriate, for any impairment.
B.
Fixed asset investments
Cost
At 1 January 2015
Additions in year
Disposals
At 31 December 2015
Additions in year
Disposals
At 31 December 2016
Provision for impairment
At 1 January 2015
Additions in year
At 31 December 2015
Additions in year
At 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
£’000
20,380
-
(2,459)
17,921
1,732
-
19,573
(810)
(12,071)
(12,881)
-
(12,881)
6,772
5,040
45
7digital Group plc
Notes to the Parent Company financial statements
For the year ended 31 December 2016
B.
Fixed asset investments (continued)
Principal subsidiaries, joint ventures and associates
Ordinary shares
held at 31
December 2016
Principle activity
Country of incorporation
Subsidiaries
The New Unique Broadcasting Company
Limited
Smooth Operations (Productions)
Limited
Unique Interactive Limited
7digital Trading Limited
7digital Limited
SD Music Stores Limited
7digital, Inc
7digital Group, Inc
7digital SAS
Oneword Radio Limited
UBC Interactive Limited
100%
100%
100%
100%
100%
100%*
100%*
100%
100%
100%*
100%*
* indicates indirect investment of the company
C.
Debtors
Due after one year:
Amounts owed by group undertakings
Due within one year:
Other debtors
Prepayments and accrued income
D.
Creditors: amounts falling due within one year
Trade creditors
Other creditors
Accruals and deferred income
E.
Share capital
Radio production
England and Wales
Radio production
Technical audio and data
delivery services
HR Services
Music streaming and
download services
Music download services
Music streaming and
download services
Holding company
Music streaming services
Dormant
Dormant
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Delaware, United States of America
Delaware, United States of America
France
England and Wales
England and Wales
2016
£’000
1,278
£’000
10,165
-
10,165
2016
£’000
73
914
543
1,530
2015
£’000
1,138
£’000
10,520
57
10,576
2015
£’000
39
611
345
995
Allotted, called up and fully paid:
115,751,517 ordinary shares of 10p each (2015: 108,431,517 of 10p each)
2016
2015
11,575
10,843
As at 31st December 2016 the Company has one class of ordinary shares which carry no right to fixed income as detailed
in Note 20 of the Consolidated Financial Statements.
46
7digital Group plc
General Information & Advisers
Registered office
69 Wilson Street
London EC2A 2BB
Country of Incorporation
England and Wales
Registered number
03958483
Nominated adviser and broker
finnCap
60 New Broad Street
London
EC2M 1JJ
Solicitors
Osborne Clarke
One London Wall
London
EC2Y 5EB
Principal bankers
Barclays Bank plc
United Kingdom House
180 Oxford Street
London
W1D 1EA
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Auditor
Hazlewoods LLP
Chartered Accountants
Windsor House
Bayshill Road
Cheltenham
GL50 3AT
47