Company Registration No. 03958483
7digital Group plc
Consolidated Report and Financial
Statements for the Year to
31 December 2018
7digital Group plc
Contents
Chief Executive Officer’s Review
Chief Financial Officer’s Review
Strategic Report
Board of Directors
Directors’ Report
Corporate Governance Statement
Directors’ Remuneration Report
Independent Auditors’ Report - Group
Consolidated Income statement
Consolidated Statement of Financial Position
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Financial Statements
Parent Company Statement of Financial Position
Parent Company Statement of changes in Equity
Notes to Parent Company Financial Statements
General Information and Advisors
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7digital Group plc
Strategic Report
Chief Executive Officer’s Review
Overview
7digital has gone through a number of changes since the start of 2018 in its pursuit of growth and improved cash flows. During
the year a significant amount of cost was removed from the business and a series of new commercial contracts were signed.
However, given a number of these contracts were with fledgling businesses, the Company is yet to see material new revenues
come through from them as they build customers and users. Furthermore, in January of 2019, 7digital was hit hard by the loss of
MediaMarktSaturn (“MMS”), a major customer. Despite receiving a termination payment, in April 2019, the Company
announced that it would require material further equity and/or debt funding in the immediate near-term, without which it would
be unable to continue as a going concern.
Late in 2018, it was recognised that a new approach was necessary if the Company was to become a success and deliver for
shareholders in the long term. There was a change in senior management, with Simon Cole, CEO, Pete Downton, Deputy CEO,
and David Holmwood, the Company’s interim CFO, departing in March and April. The Chairman, Donald Cruickshank, departed in
June.
In April 2019, Julia Hubbard and I arrived and an urgent review of the business was carried out in order to identify and implement
necessary changes and develop a much more focused business strategy which would fully capitalise on the capability of 7digital’s
cloud-based streaming platform.
In June 2019, we welcomed onboard a new majority shareholder in the form of a consortium led by Tamir Koch and David
Lazarus, who will join the company’s board of directors shortly and who are committed to making further funds available for the
business. A further fundraising is needed and planned for July 2019.
Having completed the partial rescue of the business to fund it beyond April 2019, the company will be well positioned to execute
the new strategy assuming the July fundraising succeeds as planned.
While the business has suffered in the past from a lack of focus, there is consensus that the global streaming market, which is
expected to be worth $11 billion by 2020, presents a huge opportunity. With a new strategy in place and 7digital’s excellent
platform, the team is now setting a course to deliver on 7digital’s vision of becoming a leading global supplier of B2B music
streaming solutions.
Strategy
The primary outcome from the strategic review undertaken was to recognise that the Company was, foremost, a technology
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company rather than a media company. Accordingly, the Company’s focus should be on winning repeatable, long-term business
through the provision of a standardised product that can be provided to a wide range of enterprises as a “Platform as a Service”
(“PaaS”) with the appropriate operating structure to support this model. This compares to previous strategies in which the
Company implemented bespoke solutions for a diverse range of customers often with divergent needs, leading to unprofitable
business at higher risk.
Our vision is to become the leading supplier of B2B music streaming solutions globally. While the Company will continue to sell
into and build on the “music industry” customer base that the Company has historically been able to secure and service, we
intend to focus on growing other B2B markets. Expansion into new markets will be targeted through a focus on identification of
specific verticals that exhibit ideal customer characteristics for the deployment of the Company’s solutions.
To this end, we have identified the following market verticals in which enterprises with these characteristics reside and have
determined that demand is potentially high. These include:
Mobile Telecommunications – specifically Mobile Virtual Network Operators (MVNOs);
Retail Loyalty Program Providers; and
Automotive Systems Providers.
7digital’s primary offering would be a “turn-key”, advanced feature, music streaming platform, which enterprises can brand as
their own. The Company’s platform already provides an extensive music catalogue and can be offered to the enterprise’s
consumer customers as part of a loyalty and churn reduction programme to increase customer retention.
In addition, to the Company’s core strategy described above, incremental revenue and competitive advantage is expected be
achieved from the second half of 2020 through agreeing an arms-length commercial agreement with eMusic.com, Inc., a leading
source of discovery and sales for independent music and artists, a company of which Tamir Koch is President. Synergy is expected
to be created with eMusic and its blockchain infrastructure which would allow DIY artists to upload content to 7digital’s platform
directly.
The Directors expect this to benefit 7digital by:
enabling 7digital to distribute to all music digital subscription providers; and
enabling 7digital to offer unique content when selling to new music service providers.
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Chief Executive Officer’s Review
(continued)
The Company’s sales strategy will be restructured to focus on the tightly defined market verticals where the Company’s core
customers operate. The Company accordingly intends to both enhance its direct sales force with experienced sales personnel and
to also scale up the Company’s reach to a much wider market by creating a global partner programme.
Outlook
On 7 June 2019, 7digital announced a number of important developments to raise additional finance to meet the immediate
working capital requirements of the Group. In summary, it was announced that:
a consortium, comprising Magic Investments S.A. (a tech investment holding company) (“Magic”) and Shmuel Koch
Holdings Limited (“SKH”) had conditionally agreed to subscribe for, an aggregate of, 634,132,641 Subscription Shares at
0.2 pence per share (“Issue Price”), to raise £1.3 million (before expenses);
Magic had agreed to capitalise the outstanding £585,932 principal and accrued interest of the Convertible Loan Notes
at the Issue Price into 332,915,704 Exchange Shares;
a number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the General
Meeting held on 25 June 2019
The Resolutions enabling the company to issue share capital in return for £1.3m (before expenses) and convert the Convertible
Loan Notes into equity were passed at the shareholders meeting on 25 June 2019. The funds were subsequently received by the
company on 26 June 2019 and the Loan Notes were converted on the same date.
The proposals were necessary to finance the immediate working capital requirements of the company as announced on 9 April
2019 and on 13 May 2019. The Board, however, remains of the view that equity investment in addition to the Subscription and
Debt to Equity Swap is required to meet the short-term working capital requirements of the company.
It was intended that, on publication of this annual report for the year ended 31 December 2018, the Company would
immediately seek to raise an additional £4.5 million by way of a placing and further subscription of new Ordinary Shares with
new and existing shareholders at the Issue Price. The Consortium has indicated that, acting together with its business partners
and associates, it may subscribe for up to £2.5 million of this amount, subject to review of the annual report, however no
assurance can be given in this respect.
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However, as announced in the ‘Result of General Meeting’ on 25 June 2019, Resolution 7, which was to approve the
disapplication of statutory pre-emption rights in relation to the allotment of equity securities for cash up to an aggregate nominal
amount of £300,000, was not passed. The failure by Shareholders to pass this Resolution has created greater execution risk for
any subsequent equity raise (a "Follow-on Financing") by the Company since further shareholder approval would now be
required in order to implement this. The Directors therefore intend to engage with the relevant Shareholders, where possible,
with a view to securing their support for a Follow-on Financing. However, Magic and SKH, our new majority shareholders, have
indicated that they will support the necessary resolutions. As set out in the Circular to shareholders dated 7 June 2019, the
Company currently believes that it still needs to raise Additional Funds of at least £4.5 million by 31 July 2019, failing which it is
highly likely that the Company would need to be placed into administration. It is further noted that should the implementation of
the Company’s new strategy take longer than currently expected, growth in revenue is slower or the Company is unable to
reduce certain costs as anticipated then it is highly likely that the Company will be required to raise additional finance during
2020.
The Company remains committed to executing the new strategy and firmly believe that 7digital has an excellent platform which,
along with a strengthened team and new financing and partnerships, will enable the delivery of 7digital’s vision. On behalf of the
Board, I would like to thank all of the team here at 7digital for their continued dedication. The Company will update Shareholders
and the market in due course on progress.
Board Changes
Whilst there were no Board changes during 2018, there have been a series of changes and proposed changes since the period
end as the business looked to quickly bring about necessary change. In March 2019, Pete Downton stepped down from the Board
having served as COO and Deputy CEO. This was then followed by the resignation of Simon Cole as CEO. In April 2019 John
Aalbers joined as CEO, bringing with him an extensive track record as a specialist in building early- and mid-stage technology
companies. Julia Hubbard also joined in April 2019 as Chief Financial Officer having previously worked for a number of publicly
listed companies, including AIM listed Amino Technologies plc where she partnered the CEO in a successful turnaround.
Sir Donald Cruickshank stepped down as Chairman and Eric Cohen stepped down as a Non-Executive Director with effect from
the completion of the subscription and debt to equity swap on 26 June 2019.
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Chief Executive Officer’s Review
Tamir Koch will join the Board as Non-Executive Chairman and David Lazarus will join the Board as a Non-Executive Director
following the publication of these annual accounts for the year ended 31 December 2018. Accordingly, until such time, Mark
Foster agreed to act as interim Chairman of the Company.
(continued)
Following these changes, the Board will consist of six directors, with two executive directors and four non-executive directors of
whom two are independent. It is anticipated that a further independent non-executive director may be appointed in due course.
Anne De Kerckhove Dit Van Der Varent has agreed to remain on the Board until such time that a further independent non-
executive director is appointed.
Further details of the Proposed Directors are as follows:
Tamir Koch, aged 47 - Proposed Non-Executive Chairman. Tamir Koch is President of eMusic.com, Inc., an online music and
audiobook store and brand which started trading in 1998 and focused on discovery and sales of independent music and artists.
Most recently Tamir has led the eMusic Blockchain Project, seeking to provide a decentralised approach to music distribution and
rights management to facilitate the utilisation of blockchain within the music industry.
Tamir has previously founded several successful start-ups including Orca Interactive and Dotomi. Orca was sold to Emblaze
Systems in 2000, which then floated Orca on AIM. It was subsequently acquired by France Telecom in 2008. Dotomi was acquired
by ValueClick in 2011.
David Lazarus, aged 55 - Proposed Non-Executive Director. David is an industrialist and international entrepreneur. David spent
six years at Lloyds of London as an accredited Lloyds Broker attending to Insurance and Re‐Insurance. David is currently an
Executive Director of the RAM Hand‐to‐Hand Couriers Group, a leader in the Courier, Logistics and Express Parcel Industry in
Southern Africa. The RAM Group operates from approximately 40 hubs, with approximately 1,700 vehicles and over 2,800 staff
across Southern Africa. David is also a member of the Young Presidents Organisation. David has been involved in several
international businesses, including having knowledge of the various investments of Magic.
John Aalbers
Chief Executive
28 June 2019
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Chief Financial Officer’s Review
Introduction
As noted in the Chief Executive’s Review, the Company raised £1.3m (net of the repayment of loan notes) on 26 June 2019
through a share issue however the Board believes that it still needs to raise Additional Funds of at least £4.5 million by 31 July
2019, failing which it is highly likely that the Company would need to be placed into administration.
An initial review of the Finance function has revealed that a number of processes are unwieldy and can be made more effective,
controls need to be further enhanced and KPIs and better Management Information designed and implemented quickly. Whilst
some improvements were made during the period, significant enhancements are still required to the current accounting system
which has been implemented poorly and thus exacerbated those control issues.
On 4 January 2019, the Company announced that its largest customer, MediaMarktSaturn (“MMS”), had indicated that it may
wish to change the current arrangements and this could involve 7digital taking more responsibility for certain aspects of the
service or the service being closed with a resulting termination payment becoming due and payable to the Company. On 1
March 2019, 7digital announced that it had accepted settlement of, and release from, all outstanding contracts and
commitments relating to the Juke music service for an immediate payment by Juke of €4,000,000. Further, Juke agreed to write
off all interest payments and £250,000 of the principal amount of the convertible loan note issued to Juke (as announced on 26
October 2018). 7digital paid the balance of the convertible loan note principal amount, £500,000, from the proceeds of the
Agreement.
Further, on 2 May 2019, the Company announced the sale of bespoke technology from the Danish business and transfer of staff
to TDC group, the largest telecommunications company in Denmark.
The sale transferred control of bespoke technology, and the resources to maintain it, to TDC. Following the loss of the MMS
contracts, this technology was used by only one customer and had become unprofitable for the Company to maintain. The
annualised losses eliminated from the business totalled around £1.6m and the net value of the assets sold was approximately
£0.9m as at December 2018. This sale meant that 7digital would focus its resources on its productised, cloud-hosted technology.
The consideration was €1.375m in cash, of which €1.0m was paid to 7digital at completion. The remainder of the cash
consideration was retained by TDC to cover certain potential liabilities and will be released by TDC to the Company by no later
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than 31 January 2020 to the extent that it is not required to meet such liabilities and is subject to customary post-closing
adjustments. The cash was used for general working capital.
The loss of MMS, its associated companies and TDC, being marginally in excess of 50% of the 2018 sales, is a fundamental loss to
the Company. The transfer of the Danish platform and staff to TDC will eliminate around £1.6m of annualised losses from the
business.
During 2018, the Group restructured its operations and the French operation and platform was closed. In addition, a number of
redundancies were made in the UK, Denmark and the US. The resulting cost savings, which led to a reduction in headcount of
c35% will benefit 2019.
On 26 June 2019, a consortium, comprising Magic Investments S.A. (a tech investment holding company) (“Magic”) and Shmuel
Koch Holdings Limited (“SKH”) subscribed for, an aggregate of, 634,132,641 shares at 0.2 pence per share, to raise £1.3 million
(before expenses). On the same date, Magic agreed to capitalise the outstanding £585,932 principal and accrued interest of the
Convertible Loan Notes at the Exchange Price of 0.2p into 332,915,704 shares. A number of changes to the Board were proposed,
conditional upon the passing of the Resolutions at the General Meeting held on 25 June 2019.
The proposals were necessary to finance the immediate working capital requirements of the Company as announced on 9 April
2019 and on 13 May 2019. The Board, however, remains of the view that equity investment in addition to the Subscription and
Debt to Equity Swap is required to meet the short-term working capital requirements of the Company.
The significant events during the year and since year end have had a dramatic effect on the results of the business. Other
adjusting costs of £7.3m resulted largely from impairment of intangible assets relating to the French and Danish businesses
following the closure of the French office, loss of MMS and subsequent sale of the Danish technology platform and the quality of
the remaining licensing business which has led to full impairment of the UK technology platform.
Results
The Group Revenue grew by 19% in 2018 to £19.9m (2017 restated: £16.7m) and Gross profit increased by 24% to £14.7m. Our
overall gross margin also increased to 74% from 71%.
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Chief Financial Officer’s Review
(continued)
The statutory operating loss for 2018 was £12.1m (2017 restated: £5.2m). The adjusted EBITDA loss for 2018 was £2.5m (2017
restated: £1.8m) and this is reconciled to the operating loss in note 6. The increase in 2018 statutory operating loss is largely due
to other adjusting items of £7.3m as noted above.
The Loss per share was 2.97 pence (2017 restated: 2.85 pence).
Revenue and Gross Margin
Shown in the table below: our high-margin business-to-business (“b2b”) Licensing revenues have increased by 13% to £13.4m
compared to 2017 (£11.6m). Around two thirds of this business was derived from the two major customers which were lost in
2019.
Whilst Content revenue has grown by 27% (2018: £3.9m; 2017: £3.1m), £1.7m of this revenue relates to customers from the
Danish platform which will not be repeated in 2019.
Revenue
Licensing revenue
Content
Creative
Total Revenues
Gross Margin
2018 £’000
2017 £’000
13,410
3,933
2,569
19,912
74.0%
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11,616
3,099
2,018
16,733
70.8%
Change
1,794
834
551
3,179
3.2%
%
13%
27%
27%
19%
Gross Margin has increased by 3.2 percentage points to 74.0% largely due to the increase in licensing revenues at higher margins.
Expenditure
Administrative expenses
2018 £’000
2017 £’000
Underlying Administrative Expenses
Other Adjusted Administrative Expenses
Total Administrative expenses
19,918
7,305
27,223
16,808
707
17,515
Change
3,110
6,598
9,708
%
18.5%
55.4%
Underlying administration expenses increased by 18.5% (2018: £19.9m; 2017 restated: £16.8m) largely due to the full year effect
for the Danish subsidiary which was acquired in June 2017 together with increased professional fees during 2018 resulting from
the restatement of the 2017 accounts.
Other adjusting items
Other adjusting items for the year total £7.3m and largely comprise intangible and goodwill impairment of £2.2m resulting from
the closure of the French and Danish businesses, £2.7m impairment of development costs incurred on the Danish platform which
was sold to TDC in May 2019, £2.1m in respect of capitalised bespoke and other applications that were subsequently impaired.
Dividend
During the year, 7digital did not pay an interim or final 2018 dividend (2017: no interim or final 2016 dividend). The Board of
directors is not proposing a final dividend in the current year.
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Strategic Report
Chief Financial Officer’s Review
(continued)
Shareholder Loans
On 26 October 2018 the Company signed agreements with 3 shareholders to provide an aggregate facility of £1.5 million
("Facility"). The Facility is on standard market terms and is optionally convertible into ordinary shares or redeemable at certain
specified times prior to maturity in December 2019. The price at which the principal and interest under the Facility may be
converted into new ordinary shares is calculated by reference to the volume weighted average price of the existing ordinary
shares. The maximum number of new ordinary shares which may be issued pursuant to the Facility was 58,157,529 ordinary
shares. Interest was payable on these Loan Notes at 10.438% per annum.
On 8 February 2019, the Company received notice of conversion from one holder in respect of £193,858 (including interest) of
the Facility at a conversion price of 1p pursuant to which 19,385,843 ordinary shares were issued. Following conversion an
aggregate of £1,311,691 of the facility remained outstanding.
On 1 March 2019, the Company received €4m from MMS under the MMS Settlement Agreement noted above. Of this cash
settlement, £0.5m was used to fulfil MMS’s share of the Facility, being £0.75m, in full. Thus £0.25m of the Facility was waived by
MMS. Following settlement of MMS’s share of the Facility an aggregate of £561,691 of the facility remained outstanding.
On 11 April 2019 the Company received a notice from the holder in respect of a tranche of the Facility, due to non-payment of
interest. The Notice related to outstanding Facility and interest amounting to £325,570. Following receipt of the Notice, the
outstanding amount became due and payable by 3 May 2019. The remaining tranche under the Facility of £0.25m plus accrued
interest remained outstanding to another loan note holder.
On 13 May 2019 the remaining Facility was sold to Magic Investments S.A. (a technology investment holding company) ("Magic").
Magic entered into a standstill agreement with the Company pursuant to which it agreed not to seek early redemption or
conversion of the Facility before 30 June 2019 except in certain limited circumstances (including a major equity issuance or the
insolvency of the Company).
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On 7 June 2019 Magic agreed to capitalise the outstanding £585,932 principal and accrued interest of the Facility held by it into
332,915,704 new Ordinary Shares (at a 12 per cent. discount to the Issue Price). This transaction was approved by shareholders
in a General Meeting on 25th June 2019 and the shares were issued on 26 June 2019.
Cash and cash flow
At 31 December 2018, the Group had a cash balance of £0.5m (2017: £7.0m).
Cash outflows in 2018 totalled £6.4m (2017: inflows £6.1m). This was largely driven from an operating cash outflow of £6.9m
which was partially offset by the receipt of £1.5m cash inflow from the issuance of the Loan Facility, net of £1m cash outflow
largely on platform development. In 2017 the operating cash outflow of £0.2m from operating activities was increased by an
investing cash outflow of £4.3m which related mainly to assets acquired through the Denmark acquisition and offset by the
issuance of share capital which resulted in a £10.6m inflow.
Julia Hubbard
CFO
28 June 2019
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Strategic Report
Strategy and Business model
7digital is a global “b2b” digital music technology company. The core of our business is the provision of robust and scalable
technical infrastructure combined with 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.
Our strategy is to grow revenues, profitability and shareholder returns through:
• Offering productised, end to end music solutions
•
•
•
•
•
Increasing the number of clients we serve in targeted, well-funded market verticals
Improving the financial quality of our business by driving recurring SaaS and PaaS revenues
Expanding and leveraging our geographic coverage
Continued investment in market leading technology to meet shifting technology trends and client needs
Applying strict control of our cost base to ensure that revenue growth is quickly reflected in improved overall Group
profitability
Establishing and maintaining a partner channel program for scaling sales into the identified target market verticals
•
7digital’s core platform provides its customers with access to cloud-based software. 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 7digital Creative brand.
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
licensed 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 to reduce complexity and time to market for its potential
customers and can be used for building products on any type of connected device.
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Going forward, the company’s revised strategy will see it aggressively target Enterprise customers with large, existing consumer
bases of their own. 7digital’s primary offering to these customers would be a “turn-key”, advanced feature, music streaming
platform, which enterprises can brand as their own. The Company’s platform already provides an extensive music catalogue and
can be offered to the enterprise’s consumer customers as part of a loyalty and churn reduction programme to increase customer
retention.
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 has obtained
music licences in many countries in regions including 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 available in almost 20 countries. 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, ‘Radcliffe and Maconie Show’ on Radio 6 and
‘Folk Show’ on Radio 2. Our Entertainment News content is distributed to around 150 commercial radio stations.
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Strategic Report
(continued)
Principal risks and uncertainties
The significant funding required by the Group which is discussed in The Chief Executive’s Report on page 2 above is required for
the business to continue as a going concern. There is a risk that this funding may not be secured.
The Group was loss making for the year. There is a risk that management will be unable to secure new contracts, that the
anticipated demand for the Group’s services will not materialise or that major customers may terminate their contracts.
However, with the execution of the revised strategy, the directors believe that the Group is well placed to grow the business,
even with a focus on reducing costs, in order to reach profitability in the medium term.
Our marketplace
The market in which the Group operates continues to be fragmented and competitive. These are in the shape of failed Direct to
Consumer (“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; 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 Company’s product roadmap is regularly evaluated against the developing marketplace to
ensure that we remain competitive.
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
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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 and that the company’s
success will be driven by how well it can execute in the market. The Company subscribes to the leading music market research
service MIDiA and holds regular meetings with their leading analyst to monitor trends in the marketplace and therefore
anticipate developments. There can, however, be no assurance that growth in the market for its products and services will occur
at the rate envisaged by the Group.
Customer mix
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. Our Client services team is in regular contact with all the Company’s clients in
order to deal promptly with any issues that arise. 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. However, in the last twelve months, after lobbying from
7digital and others, the BBC has, in fact, announced an increased commitment to Independent Production. 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.
Suppliers
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.
Brexit
The UK’s exit from the European Union creates uncertainty in some areas of the business. 7digital recently ceased operations in
two Continental European locations, leaving only one staff member in the region. However, the business holds significant
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Strategic Report
licences with international companies. The likely effects and the Group’s mitigating actions are being closely monitored by
management as the terms of Brexit are defined.
(continued)
Staff
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.
Approved by the Board of Directors and signed on behalf of the Board,
John Aalbars
Director
69 Wilson Street London EC2A 2BB
28 June 2019
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Board of Directors
EXECUTIVE DIRECTORS:
John Aalbers, Chief Executive Officer (appointed April 2019)
John Aalbers was appointed to the role of Chief Executive Officer on 1 April 2019. John has an extensive track record, specialising
in building early- and mid-stage technology companies. His most recent role was as CEO of Arts Alliance Media where he
established the company as the undisputed leader in operational support software for the cinema industry, before managing the
successful sale to Luxin Rio of China. Prior to that, John was in the Telecommunications sector where he held roles including CEO
of Volubill and numerous senior positions with CGI and Intec Telecom Systems (now CSG International).
Julia Hubbard, Chief Financial Officer (appointed April 2019)
Julia joined 7digital in April 2019. She is an accomplished CFO with experience in building high-growth companies and managing
strategic turnarounds. Julia has valuable expertise in business direction, financial strategy, debt and equity fundraising, investor
and stakeholder relationship management, and M&A management. Julia has held senior positions throughout the TMT, travel,
construction, engineering and publishing sectors, including roles at AIM-listed Amino Technologies, Lastminute.com Group, CSC
Media and TV Travel Group, among others.
Simon Cole, Chief Executive Officer (resigned April 2019)
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. Unique floated on the
London Stock Exchange as part of UBC Media Group plc with Simon as Chief Executive and in 2014, UBC merged with 7digital via
a reverse takeover. Simon has been awarded a fellowship of the Radio Academy and is also a Non-executive Director at Melody
VR which is a part of EVR Holdings plc.
Matthew Honey, Chief Financial Officer (resigned Aug 2018)
Matt, a chartered accountant, originally worked with Simon Cole 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 was then involved with a number of other businesses across a broad range of industries from post production TV
editing to international aid development consulting before re-joining 7digital in June 2016. Matt has now resigned and left the
company during the year.
DRAFT
Pete Downton, Deputy Chief Executive Officer (resigned May 2019)
Pete joined 7digital in June 2014, assuming overall responsibility for its commercial strategy. He brings over 20 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 Technologies 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. Pete has now resigned and left the company post year end.
INDEPENDENT NON-EXECUTIVE DIRECTORS:
Sir Donald Cruickshank, Chair (resigned 26 June 2019)
Don has served as a director of Qualcomm Incorporated from June 2005 to June 2016. 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 chair 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.
Eric Cohen (resigned 26 June 2019)
Eric is currently Chief Development Officer at InterDigital, Inc. Previously, he served as 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.
10
7digital Group plc
Governance
Board of Directors
(continued)
Mark Foster
Mark has spent much of his career in the music industry, in a succession of Marketing and International roles for all three major
labels, including time in Paris as Marketing Director for Warner Music France. Returning to London as Vice President of European
Marketing, Foster oversaw pan-regional marketing strategy before founding Warner Music International’s New Media Division.
After leaving Warner, he launched and ran Deezer in the UK and Ireland, then was appointed CEO for Arts Alliance, a leading
global player in Event Cinema. Since 2015, he has developed a portfolio of NED and chair roles for a range of businesses,
including highly-respected entertainment analysts MIDiA Research, and has led the digital transformation strategy for Moat
Homes, a major Housing Association. In addition, he acts as advisor and brand ambassador for a number of start-ups and scale-
ups in the digital entertainment and creative industries.
Anne de Kerckhove
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 Freespee, the conversation platform company. Previously, Anne was CEO of Iron Group and
Iron Capital an investment fund and payment enabler in the subscription economy. Before that Anne was the Managing Director
EMEA for Videology, one of world’s largest ad technology platforms where she drove 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 MIPCOM. 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 an angel investor in over 20 companies, including Andela
and metail. Anne also sits on the board of 888.com. Anne De Kerckhove has agreed to remain on the Board until such time that a
further independent non-executive director is appointed.
NON-EXECUTIVE DIRECTOR:
Paul McGowan (resigned 28 Spetember 2018)
Having qualified as a Chartered Accountant in Northern Ireland, Paul took up the post of Finance and Operations Director at
DRAFT
Jacqmar plc in London before moving on to Leslie Fay (UK). Paul managed all aspects of finance, administration, supply chain, and
retail operations in fashion businesses before becoming Chief Executive at Leslie Fay. He set up Hilco Capital in 2000 in a joint
venture with Hilco Trading.
11
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 2018.
The Corporate Governance Statement on pages 17 to 19 forms part of this report.
Business review and future developments
The Chief Executive’s Review is contained on pages 1 to 3, the Chief Financial Officer’s Review is contained on pages 4 to 6 and
Governance Report on pages 7 to 9; these reviews and reports, 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 Income Statement on page 30. As in the previous year,
the Board of Directors is not proposing a final dividend for the year ended 31 December 2018.
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 26 June 2019, notification of beneficial interests in 3% or more of the Company’s issued share capital are as follows:
Number of Shares % of issued share capital
% of voting rights
Magic Investments S.A. Limited
Shmuel Koch Holdings
24/7 Entertainment GmbH
Amcomri Limited Partnership
DRAFT
542,836,219
424,212,126
48,238,955
43,612,321
39.1%
30.6%
3.5%
3.2%
39.1%
30.6%
3.5%
3.2%
Capital structure
The Group is primarily funded through readily available cash, working capital management and derivative liabilities.
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.
Last year, the Company carried out a Capital subdivision of shares. This created two classes of share; Ordinary 1p shares that
carry full voting rights; and 9p Deferred shares that carry limited voting rights. The 1p Ordinary shares carry no right to fixed
income. Each Ordinary 1p share carries the right to one vote at general meetings of the Company. Details of the share capital
can be found in note 20.
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 25.
No person has any special right of control over the Company’s share capital and all issued shares are fully paid.
With regards to the appointment and replacement of directors, the Company is governed by its Articles of Association, the
Companies Act 2006 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 17 to 19.
Please refer to the post balance sheet note 26 on page 65.
12
7digital Group plc
Governance
Directors’ Report
(continued)
Financial risk management
Consideration of principal risks and uncertainties are included on pages 7 to 9 of the Strategic Report including the management
of financial risks. These are also outlined further in note 27.
Re-election of directors
The directors who retire by rotation in accordance with the Articles of Association will offer themselves for re-election at the
Company’s Annual General Meeting (“AGM”). The Board has considered the requirements of the QCA 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 pages 10 to 11.
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 no shares in
Treasury (2017: nil). During the year, nil (2017: 28,336) treasury shares were issued to employees to settle the exercising of share
options.
Going concern
Summary
On 7 June 2019, 7digital announced a number of important developments to raise additional finance to meet the immediate
working capital requirements of the Group. In summary, it was announced that:
a consortium, comprising Magic Investments S.A. (a tech investment holding company) (“Magic”) and Shmuel Koch
Holdings Limited (“SKH”) had conditionally agreed to subscribe for, an aggregate of, 634,132,641 Subscription Shares at
0.2 pence per share (“Issue Price”), to raise £1.3 million (before expenses);
Magic had agreed to capitalise the outstanding £585,932 principal and accrued interest of the Convertible Loan Notes
at the Exchange Price into 332,915,704 Exchange Shares;
a number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the General
Meeting held on 25 June 2019
DRAFT
The Issue Price represents a discount of 11 per cent to the closing middle market price of an Ordinary Share on 6 June 2019
(being the last dealing date prior to the publication of the announcement).
The Resolutions enabling the company to issue share capital in return for £1.3m (before expenses) and convert the Convertible
Loan Notes into equity were passed at the shareholders meeting on 25 June 2019. The funds were subsequently received by the
company on 26 June 2019 and the Loan Notes were converted on the same date.
The proposals were necessary to finance the immediate working capital requirements of the Group as announced on 9 April 2019
and on 13 May 2019. The Board, however, remains of the view that equity investment in addition to the Subscription and Debt to
Equity Swap is required to meet the short-term working capital requirements of the Group.
It was intended that, on publication of this annual report for the year ended 31 December 2018, the Company would
immediately seek to raise an additional £4.5 million by way of a placing and further subscription of new Ordinary Shares with
new and existing shareholders at the Issue Price. The Consortium has indicated that, acting together with its business partners
and associates, it may subscribe for up to £2.5 million of this amount, subject to review of the annual report, however no
assurance can be given in this respect.
However, as announced in the ‘Result of General Meeting’ on 25 June 2019, Resolution 7, which was to approve the
disapplication of statutory pre-emption rights in relation to the allotment of equity securities for cash up to an aggregate nominal
amount of £300,000, was not passed. The failure by Shareholders to pass this Resolution has created greater execution risk for
any subsequent equity raise (a "Follow-on Financing") by the Company since further shareholder approval would be required in
order to implement this. The Directors therefore intend to engage with the relevant Shareholders, where possible, with a view to
securing their support for a Follow-on Financing. However, Magic and SKH, our new majority shareholders, have indicated that
they will support the necessary resolutions. As set out in the Circular to shareholders dated 7 June 2019, the Company currently
believes that it still needs to raise Additional Funds of at least £4.5 million by 31 July 2019, failing which it is highly likely that the
Company would need to be placed into administration. It is further noted that should the implementation of the Company’s new
strategy take longer than currently expected, growth in revenue is slower or the Company is unable to reduce certain costs as
anticipated then it is highly likely that the Company will be required to raise additional finance during 2020. Hence, there is a
material uncertainty as to the Group’s ability to continue as a going concern.
13
7digital Group plc
Governance
Directors’ Report
(continued)
Background to the Proposals
Following the appointment of John Aalbers, Chief Executive Officer, and Julia Hubbard, Chief Financial Officer, the Company
announced on 9 April 2019 that under Julia Hubbard’s supervision, the Company had started work on the preparation of the
accounts for the financial year ended 31 December 2018 and reviewing budgets for the current year in conjunction with John
Aalbers’ review of the Company strategy. The announcement noted that the review was taking a more circumspect view of the
sales pipeline and that, whilst the work was not yet concluded and no final conclusions had been reached as to quantum, the
Board’s view at the time of the announcement was that the Group would require material further equity and/or debt funding in
the next quarter without which the Company would be unable to continue as a going concern.
Furthermore, on 11 April 2019, the Company announced that it had received a notice of redemption from a holder in respect of a
tranche of the Convertible Loan Notes previously issued to certain investors, due to non-payment of interest. The Convertible
Loan Notes provide for a maturity date of 31 December 2019. The notice related to outstanding Convertible Loan Notes and
interest amounting to £325,570.
Following initial discussions between the Consortium and the Company regarding a possible investment in the Company, on 13
May 2019, Magic agreed to purchase all of the outstanding Convertible Loan Notes and entered into the Standstill Agreement
with the Company pursuant to which Magic agreed not to seek early redemption or conversion of the notes before 30 June 2019,
except in certain limited circumstances (including a major equity issuance or the insolvency of the Company). As part of this
arrangement, the redemption notice served by one of the loan noteholders was revoked.
Working capital
Assuming the Proposals complete and the Additional Funds are secure, the Company’s business plan and working capital
requirement make certain assumptions as to the:
•
•
•
time to implement the Company’s new strategy set out below;
growth in revenue from the new standardised product; and
DRAFT
timing of and ability to reduce certain costs.
If the implementation of the Company’s new strategy takes longer than currently expected, growth in revenue is slower or the
Company is unable to reduce certain costs as anticipated then it is highly likely that the Company will be required to raise
additional finance during 2020. This additional finance is not secured and therefore there is a material uncertainty with regards
to the future going concern of the company.
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.
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.
14
7digital Group plc
Governance
Directors’ Report
(continued)
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 2018 represented 72 days of purchases (31 December 2017: 86 days of purchases).
Auditor
BDO LLP were formally appointed as the company’s auditor on 6th December 2017 following the resignation of Hazlewoods LLP.
BDO LLP were reappointed as the auditors for the year ended 31 December 2018.
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
DRAFT
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, subject to any material departures disclosed and
explained in the financial statements;
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.
15
7digital Group plc
Governance
Directors’ Report
(continued)
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,
Mark Foster
Director
69 Wilson Street
London EC2A 2BB
28 June 2019
DRAFT
16
7digital Group plc
Governance
Corporate Governance Statement
For the purposes of AIM Rule 26, the recognised corporate governance code that the Board has decided to apply is the Quoted
Companies Alliance Corporate Governance Code 2018 (‘QCA Code’). The Board believes the QCA Code provides the most
appropriate framework of governance arrangements for the Company, considering the size and stage of development of the
Company’s business. The following information is provided to explain how the Company complies with the QCA Code.
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.
Board Composition
The Company is controlled through a Board of Directors, which at 31 December 2018 comprised seven directors: two executive
directors, four independent non-executive directors including the Chair, and one non-executive director. Short biographies of
each director are set out on page 10. The role of the Chair and that of the Chief Executive are separate. E Cohen, A de Kerckhove
and M Foster are considered independent by the Board.
D Cruickshank was considered by the Board to be independent on the date of his appointment as Chair of the Board. P McGowan
is not considered by the Board to be independent by virtue of the fact that he is Executive Chair of Hilco UK, which is a
substantial shareholder.
Board Role
The chair is responsible for the leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its agenda.
The chair also ensures that the directors receive accurate, timely and clear information and that there is effective communication
with shareholders. The chair 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 regular 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.
Skills and Expertise
The non-executive directors bring a wide range of experience and expertise to the Group’s affairs, which allow them to
constructively challenge and help develop proposals and strategy, scrutinise performance and controls and take decisions
objectively in the interests of the Group.
Strategy and Corporate Governance
An updated description of the Company’s business model is provided in the strategic report and is included in this report at
pages 8 to 9. The Company’s Board composition and the areas of skill and expertise detailed above have been designed to
support the Company’s next stage of growth.
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 and 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). The
directors performed an informal review of the Group’s control systems during the financial year.
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.
17
7digital Group plc
Governance
Corporate Governance Statement
(continued)
Board Evaluation and Re-election
Procedures around performance evaluation of the Board are conducted informally while individual director evaluation is
conducted formally by the chair. The Board continues to evaluate the current balance of skills and determine whether the Board
composition is appropriate for the business, and in order to propel the Company to further growth as anticipated. Progress as to
this process will be reported in due course to shareholders, and further updates provided.
One-third of the directors must retire from office by rotation at each annual general meeting (AGM) and all directors appointed
since the date of the last AGM must put themselves forward for re-election.
Meeting Frequency
During the year, the total number of formal meetings of the Board of 7digital Group plc was nine. The attendance at formal
scheduled meetings of the Board was as follows:
Number
Meetings attended
of
Board
Number
Meetings
of
eligible Board
S Cole
M Honey
D Holmwood
D Cruickshank
E Cohen
P McGowan
A de Kerckhove
M Foster
P Downton
9
3
3
9
8
2
7
8
8
9 Resigned April 2019
5 Resigned August 2018
3 Resigned April 2019
9
9
3 Resigned September 2018
9
9
9 Resigned May 2019
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.
The Executive Directors are full time employees and the Non-Executive Directors are required to devote sufficient time to
discharge the duties of their office.
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 chair’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 15 and the
auditor’s statement on the respective responsibilities of directors and the auditor is included within their report on pages 23 to
29.
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 (resigned 26 June 2019) as chair, E Cohen (resigned 26 June 2019) 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 four times 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.
18
7digital Group plc
Governance
Corporate Governance Statement
(continued)
The Audit Committee recommends to the Board the appointment, re-appointment or removal of the external auditor. During
2018 the Audit Committee made the decision to re-engage BDO for a second year of service.
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 20. The Remuneration Committee formally met
four times during the period.
Relations with shareholders
The Company recognises that shareholder support is instrumental in the future growth of the Company. The Board is committed
to maintaining and further developing communications with shareholders. The Chief Executive and Chairman maintained a
regular dialogue with institutional shareholders throughout the year, with further opportunities for shareholder contact during
the presentation rounds prior to the cash fundraise. In addition, 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.
Further, the Company has invested in shareholder analysis by analysts Argus Vickers to enable further shareholder outreach and
dialogue.
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 Chair invites shareholders’ questions to the Board.
19
7digital Group plc
Governance
Directors’ Remuneration Report
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 QCA 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
The remuneration of each of the directors (as audited) for the year ended 31 December 2018 for the 7digital Group was as
follows:
Salary &
Fees
£'000
Salary & Fees
Payable in
Shares
£’000
Gain on
exercise
of share
options
£’000
Bonus
£'000
Taxable
benefits
£'000
Pension
contribution
£'000
Total
2018
£'000
Total
2017
£'000
Executive
S.A. Cole
P Downton
M Honey
Non-executive
D Cruickshank (1)
E Cohen (2)
A de Kerckhove (3)
M Foster (4)
P McGowan (5)
Total
212
160
96
54
8
40
28
-
598
25
-
-
-
-
-
-
-
25
-
7
14
-
-
-
-
-
21
14
10
-
-
-
-
-
-
24
251
177
110
79
33
45
33
25
753
228
157
188
74
25
38
30
25
765
25
25
5
5
25
85
-
-
(1) D Cruickshank received a fee of £54,250 per annum. He is owed a fee payable in shares of £25,000 which has been
accrued at year end. On 29 August 2018, he was granted 1,000,000 share options with an exercise date of 29 August
2021. On the day of grant, the mid-market price was 5.85p.
(2) E Cohen receives a fee of £8,125 per annum. During the year he received £12,187 (267,857 shares) in the form of
shares issued on 7 December 2018. He is owed a fee payable in shares of £12,813 (274,725 shares) which has been
accrued at the end of the year.
(3) A de Kerckhove receives fees of £32,500 per annum. In addition to the non-executive fee, A de Kerckhove receives
£7,800 per annum for her role as President of 7digital SAS. She is owed £5,000 (109,890 shares) in the form of shares
which has been accrued at the end of the year.
(4) 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. During the year he received £2,500 in the form of shares (54,945
shares) issued on 7 December 2018. He is owed a fee payable in shares of £2,500 (54,945 shares) which has been
accrued at the end of the year.
Instead of a fee being paid personally, Amcomri Asset Management Limited receives a fee of £32,500 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. During
the year he received £16,250 in the form of shares (357,143 shares) issued on 7 December 2018. He is owed a fee
payable in shares of £8,750 for the period 1 July to 30 September 2018 which has been accrued at the end of the year.
(5)
Total employer national insurance contributions relating to remuneration paid to Directors’ were £74,826.20 (2017: £100,669)
20
7digital Group plc
Governance
Directors’ Remuneration Report
(continued)
Directors and their interests
The names of the directors serving during the year and their interests at 31 December 2018 were as follows:
S A Cole
P Downton
M Honey
D Cruickshank
E Cohen
A de Kerckhove
M Foster
P McGowan
2018
2017
Number of
ordinary shares
3,481,046
53,319
603,847
4,718,605
1,638,251
160,747
587,943
Ordinary shares
under options
5,131,169
2,950,810
100,000
1,000,000
-
-
-
Number of
ordinary shares
3,481,046
53,319
603,847
4,718,605
1,208,489
134,557
500,617
Ordinary shares
under options
776,222
593,177
400,000
-
-
-
-
5,205,145
-
4,686,097
-
At 31 December 2018, the following directors’ interests were also noted:
1. Of the ordinary shares shown as beneficially held by S A Cole, 3,633,631 were held by two nominees.
2. All of the shares shown as beneficially held by M Honey were held by a nominee account
3. Of the ordinary shares shown as beneficially held by D Cruickshank, 2,962,231 were held by a nominee account.
4. All of the shares shown as beneficially held by E Cohen were held by a nominee account
5. Of the ordinary shares shown as beneficially held by M Foster, 403,847 were held by a nominee account.
6. All of the ordinary shares shown as beneficially held by P McGowan were held by a nominee account.
7. P McGowan is the Executive Chair of Hilco UK that indirectly holds 24,226,478 ordinary shares.
During the year shares were issued to Non-executive Directors in lieu of remuneration. The shares issued are included in the
table above. At 31st December 2018 1,167,582 (2017: 571,428) shares are due to be issued.
Accrued gross
number of ordinary
shares due at 31
Dec 2017
-
47,619
47,619
238,095
238,095
571,428
Shares issued
during year in lieu
of remuneration
-
26,190
87,326
429,762
519,048
1,062,326
Shares forfeited
during year in
lieu of tax
payable
-
21,429
15,238
76,190
76,190
189,047
Shares accrued
during the year in
lieu of
remuneration
549,451
109,890
109,890
542,582
535,714
1,847,527
Accrued gross
number of ordinary
shares remaining
due at 31 Dec 2018
549,451
109,890
54,945
274,725
178,571
1,167,582
D Cruickshank
A de Kerckhove
M Foster
E Cohen
P McGowan
Total
The Company has established a tax efficient EMI option scheme, an “unapproved” share option scheme and a French Share
Award 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 these schemes have a vesting schedule and for Senior Management, performance criteria are
defined.
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
Don Cruikshank
Share Options
5,131,169
100,000
2,950,810
1,000,000
Currently
Exercisable
0
0
0
0
Exercise
price
0.0p
0.0p
0.0p
0.0p
Earliest
exercise date
12 Mar 2018
04 Aug 2020
12 Mar 2018
29 Aug 2021
Latest exercise
date
29 Aug 2022
04 Aug 2021
29 Aug 2022
29 Aug 2022
21
7digital Group plc
Governance
Directors’ Remuneration Report
(continued)
There are a number of performance conditions relating to the financial periods ending December 2015, 2016, 2017, 2018 and
2019 attached to these options. Of these options granted, the table below shows the options issued, exercised, lapsed or
forfeited during 2018:
Simon Cole
Matthew Honey
Pete Downton
Don Cruikshank
Share Options
held at 1 January
2018
776.222
400,000
593.177
-
Issued
Forfeited
Lapsed
4,800,000
-
2,650,000
1,000,000
223,333
300,000
292,367
-
222,222
-
-
-
Share Options
held at 31
December 2018
5,131,167
100,000
2,950,810
1,000,000
22
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
Opinion
We have audited the financial statements of 7digital Group PLC (the ‘parent company’) and its subsidiaries (the ‘group’) for the year
ended 31 December 2018 which comprise the consolidated income statement, the consolidated statement of comprehensive
income, the consolidated statement of financial position, the consolidated cash flow statement, the consolidated statement of
changes in equity, the parent company statement of financial position, the parent company statement of changes in equity and
notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has
been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted
Accounting Practice).
In our opinion:
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31
December 2018 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements
section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1 to the financial statements which explains that the group and parent company is reliant on securing
additional funding to sustain its immediate working capital requirements. The parent company has raised £1.3m through a
consortium by way of a subscription of shares dated 26 June 2019.
Further, the group and parent company is seeking to raise additional funds of £4.5 million by way of a further subscription of shares
with its new and existing shareholders to secure the business for the next 12 months. As explained in note 1, the consortium has
indicated that, acting together with its business partners and associates, it may subscribe for up to £2.5 million of this amount,
subject to review of the annual report, however no assurance can be given in this respect. If the additional funds of at least £4.5
million are not raised by 31 July 2019, it is highly likely that the group would need to be placed into administration. In addition, if the
implementation of the group’s new strategy takes longer than currently expected, growth in revenue is slower and the group is
unable to reduce certain costs, then it is highly likely that the company will be required to raise additional finance during 2020.
The requirement for further finance of £4.5m, which at the date of this audit report had not been secured, along with the challenge
of potential additional finance being required if the company is not able to implement its business plan and forecast and the further
matters explained in Note 1 indicates that a material uncertainty exists that may cast significant doubt on the group and parent’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Given the judgements involved in forecasting cash flows of the group, we considered going concern to be a Key Audit Matter. We
performed the following work in response to this key audit matter.
Our response
We obtained an understanding of management’s working capital management strategy from discussion with management.
Our specific audit testing relating to going concern included:
• We reviewed the terms of the Subscription and debt for equity swap to understand the conditions attached to it and
verified that cash of £1.15 million (£1.3 million net of transaction fees) was received on 26 June 2019.
23
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
•
•
•
Performed a detailed review of the group’s cash flow forecast for the period of 12 months from the date of signing this
audit report to assess the reasonableness of the forecasts based on our understanding of the group’s historical
performance and future plans. The cashflow forecasts are dependent on the Group receiving the additional financing of
£4.5 million, as detailed above;
Sensitised the cash flow forecast prepared by management;
Checked the integrity of the cash flow model and confirmed the opening cash balance.
• We reviewed and challenged the Directors forecast used to assess the group’s and parent company’s ability to meet its
financial obligations as they fall due, based on our knowledge and experience of the group, for a period of 12 months from
the date of approval of the financial statements. The Directors forecast includes the additional funding expected to be
received amounting to £4.5m, which has not yet been secured.
•
Reviewed the appropriateness of the going concern disclosures made within the financial statements.
Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, key audit matters are those matters
that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and
include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
Revenue Recognition
See accounting policy in note 1 and revenue from contract
with customers in note 2
As required, the Directors have adopted IFRS 15 for the
first time within these financial statements. As set out in
note 1 the new requirements of IFRS 15 had a limited
impact on the accounting policies and resulted in an
adjustment to opening retained earnings of £343k,
increasing the losses brought forward.
Due to the different elements of the contracts entered
into by the group and the length of those contracts also
varying, the key risk of material misstatement arises both
from the recognition of set up fees, revenue around the
year end (cut-off) and the revenue recognition policy itself,
as detailed within note 1 of these financial statements,
ensuring it has been recognised in accordance with IFRS as
adopted by the European Union.
Cut-off risk arises around the correct apportionment of
revenue to the correct accounting period and subsequent
amount accrued or deferred at the year end.
How we addressed the key audit matter in the audit
audit
included
assessing
procedures
Our
the
appropriateness of the revenue recognition policies
implemented to ensure that they were in compliance with
IFRS 15, given its implementation in the year. We
considered the different revenue streams, being content,
licensing and creative. We covered all revenue streams via
a sample of key contracts which were selected for testing,
assessing whether the revenue recognised was in line with
the contractual terms, the group’s recognition policy and
in accordance with IFRS 15.
Through analysing a sample of contracts entered into
during both the current and prior periods a revenue
expectation was calculated and compared to the revenue
recognised by the group. For any contracts spanning the
year end, the accrued and deferred revenue elements of
the contract were recalculated. Contracts which include
set-up fees were reviewed to ensure that the revenue had
been appropriately recognised in accordance with IFRS 15
as denoted in note 1 / 2 and that the new standard had
been appropriately implemented.
24
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
Capitalisation of development costs
See accounting policy in note 1 and intangible assets note
12.
IAS 38, management’s policy
The group capitalises costs in relation to the development
and enhancement of the software utilised in the offering
of the service to the group’s customers. In accordance
is to capitalise
with
development expenditure on
internally developed
software products if the costs can be measured reliably
and the resulting asset meets the relevant criteria.
Development costs not satisfying the relevant criteria and
expenditure on the research phase or maintenance of
internal projects are recognised in the income statement
as incurred.
There is a risk that the judgemental criteria outlined under
IAS 38 are not met and therefore development costs are
incorrectly capitalised.
There is also a risk that certain capitalised development
costs are impaired at year end due to the sale of specific
identified
in
relation to a software platform which was disposed of
subsequent to the year end.
internally capitalised development costs
the
Our procedures
included considering whether
development costs capitalised met the criteria
for
capitalisation under IAS 38 and subsequently whether the
process capturing time spent on each project operated
accurately over the period. Through the review of
supporting documentation, in the form of salary and time
information, we have tested these mechanics.
A sample of capitalised projects during the year were
discussed with the development team to gain an
understanding of the project, conclude on the stage of
development and the ability for the asset to generate
future economic benefits for the business, by reviewing
the cash flow forecasts of the group. For each intangible
asset substantively sampled the related capitalised costs
were agreed back to supporting documentation and
assessed against the relevant criteria for capitalisation
under IAS38, obtaining support for the asset created.
Where external consultants were utilised in developing an
intangible asset, a sample of these costs were traced back
to supporting documentation, in the form of purchase
invoices.
We reviewed the sales proceeds received after the year
end following the disposal of a certain software platform
which had been internally generated. We ensured that
the carrying value at the year end was appropriately
impaired.
25
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
Impairment of Investments and of intangibles (including
Goodwill)
See accounting policy in note 1 and intangible assets in
note 12.
Parent company
In the parent company accounts there is a risk that the
carrying value of the investment in the acquired and
legacy subsidiary companies is too high, and thus should
be impaired.
impairment of the
In relation to the
investments,
intangible assets and goodwill balances recognised in both
the group and the parent company accounts, our
procedures included analysing the detailed impairment
review performed by management and reviewing the
the discounted cashflow
underlying calculations of
through testing the inputs of the calculation.
The main areas of focus were:
Group cashflow forecast - ensuring that the
short and long term revenue and cost growth
rates used were consistent with the 2018 trading
activity, whilst performing an analysis over
budget vs actuals for 2019;
The discount rate - reviewed against the
weighted average cost of capital (“WACC”) rates
utilised by comparable firms;
Sensitised forecasts to ensure that there was
sufficient headroom in the calculations.
Where impairments were identified in relation
to the investment carrying values in the parent
company and in relation to the goodwill and
intangible assets in the group, we ensured that
the necessary impairments were accounted for
appropriately.
Group
On consolidation the group holds goodwill and intangible
assets of £688,000 and £509,000 respectively arising from
the acquisition of 24-7 Entertainment ApS in 2017 and the
acquisition of Snowite SAS in 2016. Goodwill, where
applicable, should be allocated to each of the group’s cash
generating units (“CGU’s”). Further, an annual impairment
review is required by management to ensure the level of
goodwill is supported by the performance and position of
the underlying CGU where impairment indicators exist.
At year-end there are risks present over both the
intangible assets and goodwill:
• Intangible assets – risk over the valuation of the
separately identified intangibles and the subsequent risk
at year end as to whether any impairment indicators exist;
• Goodwill – risk that the recoverable amount of goodwill
is lower than its year end carrying amount.
Convertible Loan Notes issued to shareholders
See accounting policy in note 1 and financial liabilities in
note 17
During the year the parent company issued convertible
loan notes to its shareholders. The convertible loan notes
do not meet the fixed-for-fixed test as the number of
shares to be issued is not fixed. IFRS 9 requires that an
embedded derivative be separated from its host contract
and accounted for as a derivative when the conditions in
IFRS 9 (retained from IAS 39) are met. Accordingly, the fair
value of the embedded derivate was calculated at
£257,129 and the residual value was assigned to the debt
host liability component.
IFRS 9, being complex
that
We have obtained the loan note agreements, ensuring the
loan notes are accounted for in accordance with the
requirements of
financial
the method and
instruments. We ensured
assumptions used in calculating the embedded derivate
were correct and accurate, with a review being completed
by our internal valuation experts. Further in accordance
with IFRS 9, we have ensured that the host liability
recorded on the balance sheet has been correctly
accounted for at amortised cost.
The risks relates to the
convertible loan note in accordance with IFRS 9
incorrect valuation of the
26
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
(continued)
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For
planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level
the probability that any misstatements exceed materiality, we use a lower materiality, performance materiality, to determine the
extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also
take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Materiality
Materiality for the group as a whole was set at £198k (2017: £259k), which represents 1% (2017:1.5%) of group revenue. Materiality
for the parent company was set at £46k (2017: £53k), which represents 1% (2017: 1.5%) of the parent company revenue. Revenue
provides a consistent year on year basis for determining materiality due to the group making losses each year and has been
concluded as the most relevant performance measure to the stakeholders of the group. As a consequence of the risks identified
within the group audit, the materiality percentage has been reduced when compared to the prior year.
Performance Materiality
In considering individual account balances and classes of transactions we apply a lower level of materiality (performance
materiality) in order reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
Based upon our assessment of the risks within the group and the group’s control environment, performance materiality for the
financial statements was set at £139k (2017: £ 181k), being 70% (2017: 70%) of materiality.
Performance materiality levels used for the key components identified within the group were based upon the same benchmarks and
percentages detailed for the group, due to each component being consistent in both nature, audit risks identified and control
environment to the group as a whole. Although not strictly required to be disclosed, in the current year, for the UK components,
each of which is subject to individual statutory audit procedures, the materiality levels applied ranged from £1,198 to £114k (2017:
£2k to £138k). The materiality applied to non-UK components was £148k (2017: £194k).
Reporting Threshold
The reporting threshold is the amount below which identified misstatements are considered as being clearly trivial. We agreed with
the Audit Committee that we would report to them all uncorrected audit differences in excess of £8k (2017: £12.5k), which is 4%
(2017: 5%) of materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of
other relevant qualitative considerations in forming our opinion.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including the group’s system of
internal control, and assessing the risks of material misstatement in the financial statements at the group level.
In determining the scope of our audit we considered the size and nature of each component within the group to determine the level
of work to be performed at each in order to ensure sufficient assurance was gained to allow us to express an opinion on the
financial statements of the group as a whole.
We obtained an understanding of the internal control environment related to the financial reporting process and assessed the
appropriateness, completeness and accuracy of group journals and other adjustments performed on consolidation.
The group consists of eleven active entities based in Europe and the US, with the majority of trade arising within the UK entities.
Eight of the group entities are based in the UK, one being the holding company. Further to this there are trading entities within the
US, France and Denmark
Classification of component
Due to eight of the active entities being based in the UK and thus requiring a statutory audit, a lower level of materiality has been
utilised for these entities, therefore reducing the aggregation risk on consolidation. Testing has been performed over the
consolidation process including a review of consolidation adjustment and journals and analysis of all key judgements areas. Further
analytical procedures were performed to confirm our conclusion that there were no significant risks of material misstatement of the
aggregated financial information arising in the remaining components not subject to audit being the US, Denmark and France where
limited procedures have been performed. The significant UK components audited for the group reporting purposes accounted for
95% of the group’s revenue and 92% of the group’s total assets.
27
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
(continued)
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or
otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we
are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Opinions 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 the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course
of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which 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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
28
7digital Group plc
Independent Auditor’s Report to the members of 7digital Group plc
(continued)
Use of our report
This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit
work, for this report, or for the opinions we have formed.
Nicole Martin (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
28 June 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
29
7digital Group plc
Consolidated Income Statement
Year ended 31 December 2018
Continuing operations
Revenue
Cost of sales
Gross profit
Other Income
Administrative expenses
Adjusted operating loss
- Share based payments
- Foreign exchange
- Other adjusting items
Operating loss
Finance income
Finance cost
Loss before tax
Taxation on continuing operations
Loss for the year attributable to owners of the parent
company
DRAFT
Loss per share (pence)
Basic and diluted
Year to 31 Dec 2018
Year to 31 Dec 2017
Restated
£’000
19,912
(5,185)
14,727
371
(27,223)
(4,599)
(173)
(48)
(7,305)
(12,125)
31
(101)
(12,195)
334
(11,861)
£'000
16,733
(4,878)
11,855
509
(17,515)
(3,941)
(86)
(417)
(707)
(5,151)
1
(56)
(5,206)
380
(4,826)
(2.97)
(2.85)
Notes
2
5
6
25
3
4
9
9
10
11
Consolidated Statement of Comprehensive Income
Notes
Loss for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Other comprehensive income
21
Year to 31 Dec 2018
Year to 31 Dec 2017
£’000
(11,861)
(43)
(11,904)
£'000
(4,826)
43
(4,783)
Total comprehensive loss attributable to owners of the
parent company
(11,904)
(4,783)
The notes from pages 35 to 68 form part of the financial statements.
30
7digital Group plc
Consolidated Statement of Financial Position
31 December 2018
2018
2017
Restated
2016
Restated
Notes
£'000
£'000
£'000
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Loans and borrowings
Derivative liabilities
Provisions for liabilities and charges
Net current (liabilities)/assets
Non-current liabilities
Other payables
Deferred tax liability
Provisions for liabilities and charges
Total liabilities
Net (liabilities)/assets
Equity
Share capital
Share premium account
Treasury reserve
Other reserves
Retained earnings
Total equity
12
13
15
16
17
17
18
16
19
18
20
21
21
1,175
128
1,303
6,242
461
6,703
8,006
(10,888)
(1,306)
(257)
(303)
(12,754)
(6,051)
DRAFT
(1,207)
-
(125)
(1,332)
(14,086)
(6,080)
14,420
8,294
-
(3,268)
(25,526)
(6,080)
6,157
324
6,481
6,934
6,978
13,912
20,393
(12,333)
-
-
(34)
(12,367)
1,545
(1,367)
(308)
(403)
(2,078)
(14,445)
5,948
14,404
8,232
-
(3,367)
(13,321)
5,948
2,201
475
2,676
3,826
838
4,664
7,340
(6,384)
-
-
(143)
(6,527)
(1,863)
(1,511)
(546)
-
(2,057)
(8,584)
(1,244)
11,575
-
(5)
(4,301)
(8,513)
(1,244)
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 28 were approved by the Board of Directors on 28 June 2019
and were signed on its behalf by:
28 June 2019
Director
The notes from pages 35 to 68 form part of the financial statements.
31
7digital Group plc
Consolidated Cashflow Statement
Year ended 31 December 2018
Notes
10
9
9
4
12
13
12
13
25
18
10
9
9
Loss for the year
Adjustments for:
Taxation
Finance Cost (net)
Profit on sale of fixed assets
Foreign exchange
Amortisation of intangible assets
Depreciation of fixed assets
Impairment of intangible fixed assets
Impairment of tangible fixed assets
Share based payments
Increase in provisions
(Decrease)/increase in accruals and deferred income
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
Cash flows used in operating activities
Taxation
Interest income received
Interest expense paid
Net cash used in operating activities
DRAFT
Investing activities
Purchase of property, plant and equipment, and intangible
assets
Net cash inflow on acquisition of a subsidiary
Proceeds from sale of fixed assets
Net cash used in investing activities
Financing activities
Proceeds from issuance of share capital
Proceeds from issuance of shareholder loans
Net cash generated from financing activities
Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents at beginning period
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
The notes from pages 35 to 68 form part of the financial statements.
Year to 31 Dec
2018
Year to 31 Dec
2017
restated
£'000
(11,861)
(334)
101
(11)
48
1,839
251
3,946
131
173
(9)
(3,639)
778
1,732
(6,855)
(44)
1
(39)
(6,937)
(1,000)
-
11
(989)
-
1,500
1,500
(6,426)
6,978
(91)
461
£'000
(4,826)
(380)
55
417
1,738
415
-
-
86
294
4,505
(2,674)
222
(148)
-
1
(56)
(203)
(4,575)
297
-
(4,278)
10,599
-
10,599
6,118
838
22
6,978
32
7digital Group plc
Consolidated Statement of Changes in Equity
Year ended 31 December 2018
Notes
Share
capital
£'000
Share
premium
account
£'000
Reverse
acquisition
reserve
(note 21)
£'000
Foreign
exchange
translation
reserve
(note 21)
£'000
Merger
reserve
(note 21)
£'000
Shares to
be issued
(note 21)
£'000
Retained
earnings
£'000
At 31 December 2017 as
previously stated
14,404
8,232
(4,430)
Adjustment on the adoption of
IFRS 15
Prior year adjustments – “PYA”
(see page 46)
1 January 2018 as restated
1
-
-
-
-
14,404
8,232
Comprehensive income for the
year
Loss for the year
Other comprehensive income
Total comprehensive income
for the year
Contributions by and
distributions to owners
Share issued
Shares based payments
Total contributions by and
distributions to owners
20
25
-
-
-
16
-
16
-
-
-
62
-
62
-
-
(4,430)
DRAFT
-
-
-
-
-
-
78
-
-
78
-
(43)
(43)
-
-
-
959
-
-
959
-
-
-
-
-
-
At 31 December 2018
14,420
8,294
(4,430)
35
959
The notes from pages 35 to 68 form part of the financial statements.
Total
£'000
6,432
(344)
(484)
5,604
(11,861)
(43)
(11,904)
78
142
220
26
(12,837)
(344)
(484)
(13,665)
(11,861)
-
(11,861)
-
-
-
-
-
-
26
-
-
-
-
142
142
168
(25,526)
(6,080)
33
7digital Group plc
Consolidated Statement of Changes in Equity
Year ended 31 December 2018
Notes
20
At 1 January 2017
PYA – Content accrual (see
page 46)
At 1 January 2017 – restated
Comprehensive income for the
year
Loss for the year – restated
Other comprehensive income
Total comprehensive income
for the year
Contributions by and
distributions to owners
Transfer from Treasury
Share based payments
Other
Cost of capital raises
Issue of share capital
Total contributions by and
distributions to owners
Share
capital
£'000
11,575
-
11,575
-
-
-
-
-
-
-
2,829
2,829
Share
premium
account
£'000
-
-
-
-
-
-
-
-
-
(678)
8,910
8,232
At 31 December 2017
14,404
8,232
The notes from pages 35 to 68 form part of the financial statements.
Reverse
acquisition
reserve
(note 21)
£'000
(4,430)
-
(4,430)
Treasury
reserves
£'000
(5)
-
(5)
Foreign
exchange
translation
reserve
(note 21)
£'000
Merger
reserve
(note 21)
£'000
Shares to
be issued
(note 21)
£'000
35
-
35
-
43
43
-
-
-
-
-
-
(82)
-
(82)
-
-
-
-
-
-
-
1,041
1,041
176
-
176
-
-
-
(10)
26
-
-
(166)
(150)
Retained
earnings
£'000
(8,209)
(304)
(8,513)
(4,826)
-
(4,826)
10
30
(2)
-
(20)
18
Total
£'000
(940)
(304)
(1,244)
(4,826)
43
(4,783)
-
56
(2)
(678)
12,599
11,975
-
-
-
-
-
-
-
-
-
(4,430)
78
959
26
(13,321)
5,948
34
DRAFT
-
-
-
-
-
-
-
5
5
-
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies
General information
7digital Group plc is a public company, limited by shares and incorporated in the United Kingdom (England and Wales)
under the Companies Act 2006. The address of the registered office is given on page 80.
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 2018 have been delivered to the Registrar of Companies. The
financial information for the year ended 31 December 2018 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 2018. New standards, amendments
and interpretations to existing standards, which have been adopted by the Group for the year ended 31 December 2018,
have been listed below.
New standards and interpretations
a) New standards, interpretations and amendments effective from 1 January 2018
New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31
December 2018, and which have given rise to changes in the Group’s accounting policies are:
• IFRS 9 Financial Instruments (IFRS 9) refer note 15 and note 16; and
• IFRS 15 Revenue from Contracts with Customers (IFRS 15) refer note 2
DRAFT
The Group adopted IFRS 15 and IFRS 9 with a transition date of 1 January 2018. The group has chosen not to restate
comparatives on adoption of IFRS 15 and 9 and, therefore, are not reflected in the restated prior year financial
statements. Rather, these changes have been processed at the date of initial application (i.e. 1 January 2018) and
recognised in the opening equity balances. Therefore, upon the adoption of IFRS 15, the excess of the current and non-
current portions of deferred revenue of £137,875 and £206,940, respectively, was transferred to Retained earnings as at
1 January 2018. In case of IFRS 9, the adjustments with regards to impairment of inter-company loan balances have been
disclosed in the Company accounts as detailed in note F, having no impact on the Group, however at the Company level,
inter-company balances which have been impaired amounting £2.6m are adjusted to the retained earnings as at 1
January 2018.
b) New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB
that are effective in future accounting periods that the group has decided not to adopt early. The most significant of
these is:
• IFRS 16 Leases (mandatorily effective for periods beginning on or after 1 January 2019)
• IFRIC 23 Uncertainty over Income Tax Positions (effective 1 January 2019).
New and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual
financial statements are not expected to impact the Group as they are either not relevant to the Group’s activities or
require accounting which is consistent with the Group’s current accounting policies.
Adoption of IFRS 16 will result in the group recognising right-of-use assets and lease liabilities for all contracts that are, or
contain, a lease. For leases currently classified as operating leases, under current accounting requirements the group
does not recognise related assets or liabilities, and instead spreads the lease payments on a straight-line basis over the
lease term, disclosing in its annual financial statements the total commitment.
35
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
The Board has decided it will apply the modified retrospective adoption method in IFRS 16, and, therefore, will only
recognise leases on balance sheet as at 1 January 2019. In addition, it has decided to measure right-of-use assets by
reference to the measurement of the lease liability on that date. This will ensure there is no immediate impact to net
assets on that date. At 31 December 2018 operating lease commitments amounted to £2,902k (see note 22), which is
not expected to be materially different to the anticipated position on 31 December 2019 or the amount which is expecte
to be disclosed at 31 December 2018. Assuming the Group’s lease commitments remain at this level, the effect of
discounting those commitments is anticipated to result in right-of-use assets and lease liabilities of approximately
£2,828k being recognised on 1 January 2019. However, further work still needs to be carried out to determine whether
and when extension and termination options are likely to be exercised, which will result in the actual liability recognised
being higher than this.
Going concern
The Group and parent company’s business activities, together with the factors likely to affect its future development,
performance and position are set out in the Strategic Report on pages 7 to 9. The financial position of the Group, its cash
flows and liquidity position are described in the Chief Financial Officer Review on pages 4 to 6. In addition, note 27 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 2018 show that the Group generated a loss for the year of £11.9 (2017: loss
restated of £4.8m), and with cash used in operating activities of £6.9m (2017: £0.2m cash used) and a net decrease in
cash and cash equivalents of £6.4m in the year (2017: increase of £6.1m). The Group balance sheet also showed cash
reserves at 31 December 2018 of £0.5m (2017: £7.0 million). The parent company generated a loss for the year of
£21.6m (2017 restated: £4.7m) and showed cash reserves at 31 December of £nil (2017: £6.0m).On 7 June 2019, 7digital
announced a number of important developments to raise additional finance to meet the immediate working capital
requirements of the Group. In summary, it was announced that:
a consortium, comprising Magic Investments S.A. (a tech investment holding company) (“Magic”) and Shmuel
DRAFT
Koch Holdings Limited (“SKH”) had conditionally agreed to subscribe for, an aggregate of, 634,132,641
Subscription Shares at 0.2 pence per share (“Issue Price”), to raise £1.3 million (before expenses);
Magic had agreed to capitalise the outstanding £585,932 principal and accrued interest of the Convertible Loan
Notes at the Exchange Price into 332,915,704 Exchange Shares;
a number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the
General Meeting held on 25 June 2019
The Issue Price represents a discount of 11 per cent to the closing middle market price of an Ordinary Share on 6 June
2019 (being the last dealing date prior to the publication of the announcement).
The Resolutions enabling the company to issue share capital in return for £1.3m (before expenses) and convert the
Convertible Loan Notes into equity were passed at the shareholders meeting on 25 June 2019. The funds were
subsequently received by the company on 26 June 2019 and the Loan Notes were converted on the same date.
The proposals were necessary to finance the immediate working capital requirements of the Group as announced on 9
April 2019 and on 13 May 2019. The Board, however, remains of the view that equity investment in addition to the
Subscription and Debt to Equity Swap is required to meet the working capital requirements of the Group.
It was intended that, on publication of this annual report for the year ended 31 December 2018, the Company would
immediately seek to raise an additional £4.5 million by way of a placing and further subscription of new Ordinary Shares
with new and existing shareholders at the Issue Price. The Consortium has indicated that, acting together with its
business partners and associates, it may subscribe for up to £2.5 million of this amount, subject to review of the annual
report, however no assurance can be given in this respect.
However, as announced in the ‘Result of General Meeting’ on 25 June 2019, Resolution 7, which was to approve the
disapplication of statutory pre-emption rights in relation to the allotment of equity securities for cash up to an aggregate
nominal amount of £300,000, was not passed. The failure by Shareholders to pass this Resolution has created greater
execution risk for any subsequent equity raise (a "Follow-on Financing") by the Company since further shareholder
approval would be required in order to implement this. The Directors therefore intend to engage with the relevant
Shareholders, where possible, with a view to securing their support for a Follow-on Financing. However, Magic and SKH,
our new majority shareholders, have indicated that they will support the necessary resolutions. As set out in the Circular
36
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
to shareholders dated 7 June 2019, the Company currently believes that it still needs to raise Additional Funds of at least
£4.5 million by 31
1.
Accounting policies (continued)
July 2019, failing which it is highly likely that the Company would need to be placed into administration. It is further
noted that should the implementation of the Company’s new strategy take longer than currently expected, growth in
revenue is slower or the Company is unable to reduce certain costs as anticipated then it is highly likely that the Company
will be required to raise additional finance during 2020.
The directors have reviewed 7digital’s going concern position taking account of its current business activities, budgeted
performance and the factors likely to affect its future development as detailed above, and which include the Group's
objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to
credit and liquidity risks.
The directors have prepared cash flow forecasts covering a period of 3 years from the date of these results. Please refer
to the Directors Reports on pages 12 to 17 for further going concern commentary.
These financial statements have been prepared on the going concern basis, however the requirement for further finance
of £4.5m, which at the date of this audit report had not been secured, along with the challenge of potential additional
finance being required if the company is not able to implement its business plan and forecast means that a material
uncertainty exists that may cast significant doubt on the group and parent’s ability to continue as a going concern. These
financial statements do not include the adjustments that would result if the group and the parent company were unable
to continue as a going concern.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31
December 2018.
All subsidiaries controlled by the Group are included in the consolidated financial statements; the Group controls an
investee if, and only if, the Group has:
•
•
•
DRAFT
Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities
of the investee)
Exposure, or rights, to variable returns from its involvement with the investee
The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and
when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
•
•
•
The contractual arrangement(s) with the other vote holders of the investee
Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights .
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date
the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-
controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary,
adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the
Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any
investment retained is recognised at fair value.
37
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group
The consideration transferred In the acquisition is generally measured at fair value, as are the identifiable net assets
acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase Is recognised in
profit or loss immediately. Transaction costs are expensed as incurred, except If related to the issue of debt or equity
securities.
The consideration transferred does not include amounts related to the settlement of pre-exlstlng relationships, such
amounts are generally recognised In profit or loss.
Any contingent consideration payable is measured at fair value at the acquisition date, if an obligation to pay contingent
consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and
settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each
reporting date and subsequent changes in the fair value of the contingent consideration are recognised In profit or loss.
Subsidiaries
Subsidiaries are entitles controlled by the Group, the Group controls an entity when it is exposed to, or has rights to,
variable returns from its Involvement with the entity and has the ablity to affect those returns through its power over the
entity. The financial statements of subsidiaries are included In the consolidated financial statements from the date on
which control commences until the date on which control ceases.
Loss of control
When the Group loses control over a subsidiary, it derecognlses the assets and llabllltles of the subsidiary, and any non-
controllng interests and other components of equity. Any resulting gain or loss is recognised in the profit or loss. Any
interest retained in the former subsidiary is measured at fair value when control is lost.
DRAFT
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions,
are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the
investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated In the same way as
unrealised gains, but only to the extent that there is no evidence of impairment.
Revenue
IFRS 15 "Revenue from Contracts with Customers"
IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers where revenue is
recognized at the amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods and services to a customer. The new revenue standard supersedes all current revenue recognition
requirements under IAS 18 'Revenue'. The Group has applied IFRS 15 on 1 January 2018. The Group has reviewed its
position on the contracts not completed at the date of initial application 1 January 2018 and the cumulative effect of
initially applying this Standard as an adjustment to the opening balance of retained earnings as at 1 January 2018.
The group comprises of mainly three types of revenues
1)
Licencing fees (also known as B2B sales)
Setup Fees
a.
b. Monthly development and support fees
c. Usage fees
2) Content (“download”) revenues (also know as B2C sales)
3) Creative revenues
Each type of revenue is detailed below
38
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Changes in accounting policy due to the adoption of the new standard
The adoption of the standard has mainly affected the following areas which is further explained below
1) Set up fees
Set-up activities are not deemed to be separate performance obligations as it is not a distinct service provided to
the customer under the contract as they are functional in nature, the performance of which gives customers the
right to access 7Digital’s API platform. Consequently, these have been spread over the period of the contract
agreed initially with the customers, as opposed to under IAS 18 where set-up fees were recognized on a straight-
line basis over the set-up period (deemed to be the date the contract was signed to the point at which monthly
recurring revenues started being invoiced). Therefore, upon the adoption of IFRS 15, the excess of the current
and non-current portions of deferred revenue of £137,875 and £206,940, respectively, was transferred to
Retained earnings as at 1 January 2018.
2) Creative revenues
The Group analysed several contracts for one-off productions which required the Group to provide progress
reports to its customers. The Group has judged that these need to be measured over a period of time according
to the percentage-of-completion method. This represents a change in accounting policy from the prior year
where these contracts were recognised in line with other Creative contracts using a point-in-time methodology.
At the date of initial application, no contracts were outstanding and therefore the introduction of the new
standard had no impact on this Revenue stream.
Revenue comprises of:
I. Licensing revenues
7Digital defines licensing revenues as fees earned both for access to the company’s platform and for
development work on that platform in order to adapt functions to customer needs. The Board considers that the
provision of Technology Licensing Services comprises three separately identifiable components:
The description of the licence fees compromise three categories;
DRAFT
1.
Set-up fees : Set up fees which grant initial access to the platform, allow use of our catalogue and
associated metadata and mark the start of work to define a client’s exact requirements and create the
detailed specifications of a service.
2. Monthly development and support fees which cover the costs of developer and customer support time.
These are usually fixed and are paid monthly once a service has been specified in detail; they are
calculated at commercial rates based on the number of developer or support days required.
3. Usage fees which cover certain variable costs like bandwidth which can be re-charged to clients with an
administrative margin are recognised at point in time based on usage.
II. Content (“download”) revenues
Content revenues are recognised at the value of services supplied and on delivery of the content. The group
manages a number of content stores and the income is recognised in the month it relates to.
its customers. As the programmes are being created the associated revenue
III. Creative revenues
Creative revenues relate to the sale of programmes and other content. 7digital also undertakes bespoke radio
is
programming for
accrued/deferred until such time as the programme is delivered and accepted by the client. These mainly include
the production of weekly radio programmes, as well as the one-off production of episodes. In case of one-off
productions which required the Group to provide progress reports to its customers and where the company has
no alternative use of the program produced, the group recognises revenue over the period ie based on
percentage of completion, for the rest of the regular programs and contents, where the company doesn’t own
the IP, the group measures the revenue based on delivery of the content ie point in time.
Contracts with multiple performance obligations
Many of the Group's contracts include a variety of performance obligations, including Licencing revenue (set-up fees,
monthly revenue for using 7Digital’s API licence platform and usage fees), however may not be distinct in nature. Under
IFRS 15, the Group must evaluate the segregation of the agreed goods or services based on whether they are 'distinct'. If
both the customer benefits from them either on its own or together with other readily available resources, and it is
'separately identifiable' within the contract.
39
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
To determine whether to recognise revenue, the Group follows a 5-step process:
-
-
-
-
-
Identifying the contract with customers
Identifying the performance obligations
Determining the transaction price
Allocating the transaction price to the performance obligations
Recognising revenue when/ as performance obligations are satisfied
Performance Obligations and timing of revenue recognition
Revenue generated from B2B customer contracts often identify separate goods/services, with these generally being the
access of the API license platform, and the associated monthly licence maintenance fees and content usage fees.
The list of obligations as per the contract that are deemed to be one performance obligation in case of licencing revenue
are (B2B):
-
-
-
The licenses provide access to the 7D platform
The development and support fees which cover the costs of developer and customer support time
Usage fees which cover certain variable costs like bandwidth and content
A key consideration is whether licencing fees give the customer the right to use the API Licence as it exists when the
licence is granted, or access to API which will, amongst other considerations, be significantly updated during the API
licence period.
The group grants the customer a limited, revocable, non-exclusive and non-transferable licence in the Territory during
the Term, to use the 7Digital API and the content to enable the provision of the Music Service to the End Users via
Application.
DRAFT
Set-up fees represent an obligation under the contract, which is not a distinct performance obligation, as the customer is
not able to access the platform without them. These are therefore spread over the period of the contract agreed initially
with the customers.
Monthly licence maintenance fees indicate service contracts that provide ongoing support over a period of time.
Revenue is recognised over the term of the contract on a straight-line basis.
In the case of Creative Revenue, the sole performance obligation is to deliver the content specified as per contract,
whether this be the delivery of regular content throughout the year (e.g. a radio series), or the production of a longer,
one-off episode.
The only obligation for the group is to deliver the content production agreed in the contract. Control and risks are passed
to the customer on delivery of the episode produced, news bulletins etc. The right to the IP varies from project to project.
If the customer suggests a specific programme idea to tender they will then own the underlying rights of the recordings
and the IPR is exclusive to customer; 7Digital’s only performance obligation would be to produce the content.
In the case of one-off productions for an identifiable customer contract where 7Digital is required to update the client on
the progress of work completed, the Group applies an output method to determine the stage of completion and amount
of revenue to recognize.
Payment terms vary depending on the specific product or service purchased. With licence fees, the set-up fees element is
invoiced and paid upfront, while monthly maintenance revenues and usage fees are normally invoiced on a monthly
basis. In the case of download sales the cost is paid immediately by the customer upon download of the music/songs
content from the 7Digital platform. In the case of creative revenues, the payment terms are generally 50% on signing
with the balance on delivery. All contracts are subject to these standard payment terms, to the extent that the parties
involved expressly agree in writing that the conflicting terms of any agreement shall take precedence.
In the case of fixed-price contracts, the customer pays the fixed amount based on a monthly schedule. If the services
rendered by the company exceed the payment, a contract asset (Accrued Income) is recognised; if the payments exceed
the services rendered, a contract liability (Deferred Revenue) is recognised.
40
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
DRAFT
41
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Determine transaction price and allocating to each performance obligation
The transaction price for licencing fees (set-up fees and monthly licence fee) is fixed as per contract and is explicitly noted
in the contract. In the case of usage fees, the per gigabyte fee is determined and agreed in the contract. In the case of
creative revenue, the transaction fees for radio services and one-off series is determined by taking into account the
length of the production (this may vary for commercials, radio programs, tv shows, series, etc.). Any variations in
transaction price are agreed and charged additionally depending on the obligations to be performed. None of the five
factors (i.e. variable consideration, constraining estimates of variable consideration, the existence of a significant
financing component in the contract, Non-cash consideration, and consideration payable to a customer identified) are
particularly relevant to 7Digital’s customer contracts. The transaction price included in 7Digital’s contracts is generally
easily identifiable and is for cash consideration.
Other adjusting items
Other adjusting items are those items the Group considers to be non-recurirng or material in nature that should be
brought to the readers’ attention in understanding the Group’s financial statements. Other adjusting items consist of
one-off acquisition costs, costs related to non-recurring legal and statutory events, restructuring costs and other items
which are not expected to re-occur in future years.
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.
DRAFT
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.
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.
Intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis
over their useful economic lives.
Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to
contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation
techniques (see section related to critical accounting judgements and key areas of estimation uncertainty below).
Intangible assets (Bespoke Applications) arising from the internal development phase of projects is recognised if, and only
if, all of the following have been demonstrated:
-
-
-
-
-
-
The technical feasibility of completing the intangible asset so that it will be available for use or sale
The intention to complete the intangible asset and use or sell it
The ability to use or sell the intangible asset
How the intangible asset will generate probable future economic benefits
The availability of adequate technical, financial and other resources to complete the development and to use or sell
the intangible asset
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
42
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible
asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.
Internally generated intangible assets are amortised over their useful economic lives on a straight-line basis, over 3 years.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchased price, cost includes
directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing
items. The corresponding liability is recognised within provisions.
Depreciation is provision on all items of property, plant and equipment, so as to write off their carrying value over their
expected useful economic lives. It is provided at the following rates:
Property
Computer equipment
Fixtures and fittings
- 20% per annum straight line
- 33.33% per annum straight line
- 33.33% per annum straight line
Impairment of tangible and other intangible assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at
the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds
its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down
accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on
the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating
units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from
a business combination that gives rise to the goodwill.
DRAFT
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is not reversed.
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.
Financial instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments:
classification and measurement; impairment; and hedge accounting.
The Group applied IFRS 9 retrospectively, with an initial application date of 1 January 2018. The Group has not restated
the comparative information, which continues to be reported under IAS 39. Differences arising from the adoption of IFRS
9 have been recognised directly in retained earnings and other components of equity. No impact due to this on the
Group.
43
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Financial assets and financial liabilities are recognised when a Company becomes a party to the contractual provisions of
the instruments.
Initial Recognition:
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at
fair value through profit or loss and ancillary costs related to borrowings) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through
profit or loss are charged to the Statement of Profit and Loss over the tenure of the financial assets or financial liabilities.
Classification and Subsequent Measurement: Financial Assets
The Company classifies financial assets as subsequently measured at amortised cost, Fair Value through Other
Comprehensive Income (“FVOCI”) or Fair Value through Profit or Loss (“FVTPL”) on the basis of following:
• the entity’s business model for managing the financial assets and
• the contractual cash flow characteristics of the financial asset.
Amortised Cost:
A financial asset shall be classified and measured at amortised cost if both of the following conditions are met:
• the financial asset is held within a business model whose objective is to hold financial assets in order to collect
contractual cash flows and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
In case of financial assets classified and measured at amortised cost, any interest income, foreign exchange gains or
losses and impairment are recognised in the Statement of Profit and Loss.
DRAFT
Fair Value through OCI:
A financial asset shall be classified and measured at fair value through OCI if both of the following conditions are met:
• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows
and selling financial assets and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount outstanding.
Fair Value through Profit or Loss:
A financial asset shall be classified and measured at fair value through profit or loss unless it is measured at amortised
cost or at fair value through OCI.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value,
depending on the classification of the financial assets.
For financial assets at FVTPL, net gains or losses, including any interest or dividend income, are recognised in the
Statement of Profit and Loss.
Classification and Subsequent Measurement: Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or ‘other financial liabilities’.
Financial Liabilities at FVTPL:
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or is a derivative (except for
effective hedge) or are designated upon initial recognition as FVTPL.
Gains or Losses, including any interest expense on liabilities held for trading, are recognised in the Statement of Profit
and Loss.
44
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Other Financial Liabilities:
Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised
cost using the effective interest method.
The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points
paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or
discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised
cost on initial recognition.
Interest expense (based on the effective interest method), foreign exchange gains and losses, and any gain or loss on
derecognition is recognised in the Statement of Profit and Loss.
Impairment of financial assets:
Expected credit losses are recognized for all financial assets subsequent to initial recognition other than financial assets in
FVTPL category. For financial assets other than trade receivables, as per IFRS 9, the Group recognises 12 month expected
credit losses for all originated or acquired financial assets if at the reporting date the credit risk of the financial asset has
not increased significantly since its initial recognition. The expected credit losses are measured as lifetime expected credit
losses if the credit risk on financial asset increases significantly since its initial recognition.
Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the
lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is
assessed. Thus probability Is then multiplied by the amount of the expected loss arising from default to determine the
lifetime expected credit loss for the trade receivables For trade receivables, which are reported net, such provisions are
recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated
statement of comprehensive Income On confirmation that the trade receivable will not be collectable, the gross carrying
value of the asset is written off against the associated provision.
The impairment losses and reversals are recognised in Statement of Profit and Loss.
DRAFT
De-recognition of financial assets and financial liabilities:
The Company de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the
Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the
transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may
have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset,
the Company continues to recognise the financial asset and also recognises an associated liability for amounts it has to
pay.
On de-recognition of a financial asset, the difference between the asset’s carrying amount and the sum of the
consideration received and receivable and the cumulative gain or loss that had been recognised in OCI and accumulated
in equity is recognised in the Statement of Profit and Loss.
The Company de-recognises financial liabilities when and only when, the Company’s obligations are discharged, cancelled
or have expired. The difference between the carrying amount of the financial liability de-recognised and the
consideration paid and payable is recognised in the Statement of Profit and Loss.
Financial liabilities and equity instruments:
• Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance
with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
• Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by a Company are recognised at the proceeds received.
45
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Derivative financial instruments:
The Company enters into derivative financial instruments viz. a residual of the convertible loan instrument. The Company
does not hold derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value at
the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each
reporting period. The resulting gain or loss is recognised in profit or loss immediately.
Fair value measurement
A number of assets and liabilities included in the Group’s financial statements require measurement at, and/or disclosure
of, fair value.
The fair value measurement of the Group’s financial and non-financial assets and liabilities utilises market observable
inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different
levels based on how observable the inputs used in the valuation technique utilised are (the ‘fair value
hierarchy’):
- Level 1: Quoted prices in active markets for identical items (unadjusted)
- Level 2: Observable direct or indirect inputs other than Level 1 inputs
- Level 3: Unobservable inputs (i.e. not derived from market data).
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant
effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they
occur.
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments Include
current liabilities (level 3) - discounted cash flow analysis
DRAFT
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.
Share-based payments
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the
Group’s estimate of shares that will eventually vest. Fair value is measured by use of an appropriate valuation model. The
Black-Scholes option pricing model has been used to value the share options plans.
Taxation
The tax expense for the period comprises current and deferred 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 deferred 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. Recognition of deferred tax assets is
restricted to those instances where it is probable that taxable profit will be available against which the difference can be
utilised.
46
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
Critical accounting judgements and key areas of estimation uncertainty
Measurement of impairment of goodwill and intangibles assets
As set out on page 57 the carrying value of goodwill and intangible assets is reviewed for impairment at least annually. In
determining whether goodwill or intangible assets are impaired, an estimation of the value in use of the cash generating
unit (CGU) to which the goodwill and intangible assets have been allocated is required. This calculation of value in use
requires estimates to be made relating to the timing and amount of future cash flows expected from the CGU, and
suitable discount rates based on the Group’s weighted average cost of capital adjusted to reflect the specific economic
environment of the relevant CGU. These estimates have been used to conclude that management has fully impaired
Goodwill amounting to £688k, customer lists of £418k, intangibles of £2,135k in 7D Ltd and £705k in the French entity.
Further disclosure of these estimates, together with the sensitivity of the underlying impairment calculations to changes
in these estimates are provided in note 12 to the financial statements.
Revenue recognition
Management considers the detailed criteria for the recognition of revenue from the sale of goods and services as set out
in the Group’s accounting policy, in particular whether the Group determines the appropriate apportionment of revenue
to the correct accounting period and subsequent amount accrued or deferred at the year end.
Capitalisation of internally developed software
Distinguishing the research and development phases of a new customised software project and determining whether the
recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation,
management monitors whether the recognition requirements continue to be met and whether there are any indicators
that capitalised costs may be impaired.
Correction of prior period errors
The directors have determined that there was an under accrual of content in three of the Group’s subsidiaries, 7digital
Limited, 7digital Group, Inc & SD Music Stores Limited at the end of 2017 by £416k; £112k related to year ended 31
December 2017 and £304k related to prior years. Cost of sales and retained profit have been adjusted to reflect this
error.
DRAFT
The directors have identified an over accrual of revenue of £68k in the Company and one of its subsidiaries, 7digital
Limited at the end of 2017. A prior year adjustment has been made to reflect this revenue in 2017.
A summary of this prior period adjustment is set out in the table below:
Impact on equity (increase/(decrease) in equity)
Balance sheet (extract)
Intangibles
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions for liabilities and charges - current
Non-Current liabilities
Net assets/(liabilities)
Other equity
Retained earnings
Total equity
2017
As
previously
stated
£'000
6,157
324
7,002
6,978
(11,917)
(34)
(2,078)
6,432
19,269
(12,837)
6,432
Increase/
(Decrease)
2017
Restated
£'000
£'000
-
-
(68)
-
(416)
-
-
(484)
-
(484)
(484)
6,157
324
6,934
6,978
(12,333)
(34)
(2,078)
5,948
19,269
(13,321)
5,948
47
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
DRAFT
48
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
1.
Accounting policies (continued)
1.
Impact on statement of profit or loss (increase/(decrease)
in profit)
Statement of profit or loss (extract)
Revenue
Cost of sales
Other income
Administration expenses
Operating loss
2017
Increase/
(Decrease)
2017
As previously
Stated
£'000
16,801
(4,766)
509
(17,515)
(4,971)
£'000
(68)
(112)
-
-
(180)
Restated
£'000
16,733
(4,878)
509
(17,515)
(5,151)
Basic and diluted loss per share for the prior year have also been restatred to account for the above error. The impact
was to increase both basic and diluted loss per share by 0.11p per share.
Impact on equity (increase/(decrease) in equity)
Balance sheet (extract)
Intangibles
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Provisions for liabilities and charges - current
Non-Current liabilities
Net (liabilities)
DRAFT
Other equity
Retained earnings
Total equity
2016
As previously
Stated
£'000
2,201
475
3,826
838
(6,080)
(143)
(2,057)
(940)
7,269
(8,209)
(940)
Increase/
(Decrease)
£'000
-
-
-
-
(304)
-
-
(304)
-
(304)
(304)
2016
Restated
£'000
2,201
475
3,826
838
(6,384)
(143)
(2,057)
(1,244)
7,269
(8,513)
(1,244)
49
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
2.
Revenue
2.1 Revenue from contracts with customer
The Group has disaggregated revenue into various categories in the following table which is intended to:
depict how the nature, amount, timing and uncertainity of revenue and cash flows are affected by economic
date; and
enable users to understand the relationship with revenue segments information provided in 2.2 below
Licensing
2018
£'000
2017
£'000
Content
2018
£'000
2017
£'000
Creative
2018
£'000
2017
£'000
Total
2018
£'000
2017
£'000
Primary Geographical Markets
Germany
7,333
UK
773
USA
2,279
Denmark
1,388
France
299
Other
1,338
13,410
5,097
872
2,879
466
1,154
1,148
11,616
70
1,278
632
1,038
-
915
3,933
55
1,007
498
818
-
721
3,099
-
2,099
88
-
382
2,569
-
1,648
69
-
-
301
2,018
7,403
4,150
2,999
2,426
299
2,635
19,912
5,152
3,527
3,446
1,284
1,154
2,170
16,733
Product Type
Set-up fees
Monthly service fees
and usage fee
Production
Download/streaming
211
129
-
-
-
-
211
129
13,199
-
-
13,410
11,487
-
-
11,616
-
-
3,933
DRAFT
3,933
-
-
3,099
3,099
-
2,569
-
2,569
-
2,018
-
2,018
13,199
2,569
3,933
19,912
11,487
2,018
3,099
16,733
Contract Counterparties
Direct to consumer
(online)
B2B
-
13,410
13,410
-
11,616
11,616
3,933
-
3,933
3,099
-
3,099
-
2,569
2,569
-
2,018
2,018
3,933
15,979
19,912
3,167
13,761
16,733
Timing of transfer of goods and services
Overtime
Point in Time (on
delivery)
13,410
-
13,410
11,616
-
11,616
-
-
48
-
1,209
3,307
3,933
3,933
3,099
3,099
2,521
2,569
2,038
2,018
18,703
19,912
13,426
16,733
50
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
2.
Revenue (continued)
Contract balances
At 1 January
Cumulative catch-up adjustment
1 January (Restated)
Transfers in the period from the contract assets
to trade receivables
Amounts included in contract liabilities that were
recognised as revenue during the period
Excess of revenue recognised over cash (or rights
to cash) being recognised during the period
Cash received in advance of performance and
not recognised as revenue during the period
Contract
Assets
2018
£’000
Contract
Assets
2017
£’000
Contract
Liabilities
2018
£’000
Contract
Liabilities
2017
£’000
100
-
100
615
-
615
(4,492)
(671)
(344)
(4,836)
-
(671)
(469)
(749)
-
-
-
-
3,835
671
827
234
-
-
-
-
(288)
(4,492)
458
100
(1,289)
(4,492)
Contract assets are included with “trade and other receivables” and contract liabilities are included in “trade and other
payables” and “Other payables” on the face of the statement of financial position.
DRAFT
The aggregate amount of the transaction price of the remaining performance obligations amounting to £1,148k are all
expected to be released within the next 12 months; £133k will be released in 2020 and £8k in 2021.
51
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
2.
Revenue (continued)
2.2 Business segments
For management purposes, the Group is organised into three continuing operating divisions – Licensing, Content and
Creative. The principal activity of Licensing is the creation of software solutions for managing and delivering digital
content. The principal activity of the Content division is the sales of digital music direct to consumers. 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.
Licensing
Content
Creative
Total
Revenue from external
customers
Segment's result (gross
profit)
2018
£'000
2017
£'000
2018
£'000
2017
£'000
2018
£'000
2017
£'000
2018
£'000
2017
£'000
13,410
11,616
3,933
3,099
2,569
2,018
19,912
16,733
12,739
9,324
849
1,871
1,139
660
14,727
11,855
Depreciation
(218)
(327)
(14)
(65)
(19)
(23)
(251)
(415)
Amortisation
(1,839)
(1,758)
Impairment
(4,077)
Other adjusted cost–
development costs
expensed (see note 3)
(2,715)
-
-
-
-
-
DRAFT
-
-
-
-
-
-
-
-
-
(1,839)
(1,758)
(4,077)
(2,715)
-
-
Segment profit/(loss)
3,890
7,239
835
1,806
1,120
637
5,845
9,682
Other Income
Corporate expenses
Financing income
Financing costs
Tax charge
Loss for the year
Other segment items:
Capital additions
371
(18,384)
509
(15,342)
31
(101)
334
1
(56)
380
(11,904)
(4,826)
£'000
1,000
£'000
4,575
Revenue from the Group’s largest customer in the year was £7.7m (2017: £4.9m) and revenue from the second largest
customer in the year was £2.4m (2017: £1.5m) . There were no other customers that formed greater than 10% of
external revenues within the years ended 31 December 2018 and 2017.
52
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
2.
Revenue (continued)
2.3 Geographical information
The Group’s revenue from external customers and information about its segments by geographical location is detailed
below:
Continuing Operations
Germany
United Kingdom
United States of America
Denmark
France
Rest of Europe
Rest of World
Revenue
2018
£'000
7,403
4,150
2,999
2,426
299
1,553
1,082
19,912
2017
£'000
5,152
3,527
3,446
1,284
1,154
1,499
671
16,733
Non-current assets
2018
£'000
-
1,304
-
-
-
-
-
1,304
2017
£'000
6,594
-
61
(793)
619
-
-
6,481
All revenues are derived from the provision of services.
3.
Other adjusting items
Impairment of intangibles (i)
Costs/impairment relating to closure of French business (ii)
Impairment relating to closure of Denmark business (iii)
DRAFT
Development costs expensed on legacy Denmark platform (iv)
Corporate restructuring releases/(provision) (v)
Acquisition costs (vi)
Exceptional legal fees (vii)
2018
£'000
(2,135)
(992)
(1,237)
(2,715)
(226)
-
-
(7,305)
2017
£'000
-
-
-
-
(359)
(268)
(80)
(707)
(i)
(ii)
(iii)
(iv)
The Group tested intangibles annually for impairment, or more frequently if there are indications that the
assets might be impaired. Accordingly, certain bespoke applications have been impaired during the year
resulting in a charge of £2,135k (see note 12).
Due to the cessation of the French operations in Snowite SAS, a provision of £287k (see note 18) has been
made for closing down the operations and an impairment of £705k for the intangible assets (see note 12), as
the directors consider these have a zero fair value.
On 29 May 2019 the Group annouced the sale of select technology from the Parent Company and its Denmark
subsidiary, 24 -7 Entertainment ApS, and the transfer of staff to TDC Group, a large telecommunications
company based in Denmark (see note 26). Consequently, the net book value of the 2017 fair value adjustments
relating to goodwill of £688k and to customer lists of £418k have been fully impaired during 2018 (see note 12).
In addition the 24-7 Entertainment ApS tangible assets of £131k have been fully impaired at the year end, as
the directors consider these assets to have zero fair value (see note 13).
During the normal course of business the group would have capitalised £2,715k in respect of development
costs associated with the Denmark platform, which during 2019 was sold, as described in (iii) above. Due to
the sale of this platform these costs have not been capitalised and are reflected in the profit and loss account.
53
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
3.
Other adjusting items (continued)
(v)
(vi)
(vii)
During 2018, the Group incurred costs of £226k largly relating to redundancy costs in the UK. During 2017, the
Group incurred costs relating to restructuring the business following the acquisition of the French entity,
Snowite SAS in March 2016 and aquistion of Denmark entity, 24-7 Entertainment ApS in June 2017. The main
items being the removal of cost duplication in technical, management and sales areas.
On 19th June 2017, 7digital Group plc announced the acquisition of 24-7 Entertainment ApS. As part of this
transaction the Group incurred a variety of legal and professional fees which have been classified as Other
adjusting items due to their one-off nature.
During 2017, the Group incurred legal fees in relation to the settlement of patent infringement claims. The
settlement and associated legal fees were classified as Other adjusting items due to the size and nature.
£3,228k (2017: £439k) of the Other adjusting items for the year ended 31 December 2018 are deductible for corporation
tax purposes.
4.
Operating loss for the year
Operating loss for the year has been arrived at after charging:
Net foreign exchange loss
Amortisation of intangible assets
Depreciation of property, plant & equipment
Operating lease payments - land and buildings (note 22)
Share based payment expense (note 25)
DRAFT
5.
Other operating income
2018
£'000
48
1,839
251
1,290
173
2017
£'000
417
1,738
415
649
86
The other operating income earned by the Group in the current year of £371k (2017: £509k) relates to Research &
Development tax credits.
6.
Reconciliation of non-IFRS financial KPIs
This note reconciles the adjusted operating loss to the adjusted EBITDA loss. This note reconciles these key performance
indicators to individual lines in the financial statements. In the Directors’ view it is important to consider the underlying
performance of the business during the year. Therefore, the directors have used certain alternative performance
measures (AMPs) which are not IFRS compliant metrics. The main effect has been that the APMs exclude other adjusting
items, amortisation, foreign exchange, depreciation and share based payments to reflect the underlying cash utilisation
for the performance of the business. The APMs are consistent with those established within the prior year annual report
and their derivation is set out in the table below.
54
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
6.
Reconciliation of non-IFRS financial KPIs (continued)
Reconciliation of adjusted operating loss and adjusted EBITDA loss
Statutory operating loss
Other adjusting items
Foreign exchange
Share based payment
Adjusted operating loss
Depreciation and amortisation
Adjusted EBITDA loss
7.
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:
Other services
Total non-audit fees
Total fees payable to Company's auditor
DRAFT
2018
£'000
(12,125)
7,305
48
173
(4,599)
2,090
(2,509)
2018
£'000
120
-
120
-
-
120
2017
restated
£'000
(5,151)
707
417
86
(3,941)
2,153
(1,788)
2017
£'000
30
58
88
51
51
139
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.
8.
Staff costs
The average monthly number of persons employed by the Group during the year, including executive directors, was 147
(2017: 140). Staff costs in the Group are presented in administrative expenses.
Number of production, R&D, and sales staff
Number of management and administrative staff
Wages and salaries
Redundancy payments
Social security costs
Other pension costs
Share based payments (note 25)
2018
No.
121
26
147
2018
£'000
6,294
97
854
511
173
7,929
Details of the directors’ remuneration are provided in the Directors Remuneration Report on pages 20 to 22.
2017
No.
115
25
140
2017
£'000
6,574
0
1,174
326
86
8,160
55
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
9.
Finance income and cost
Shareholders interest payable
Other charges similar to interest
Bank interest receivable
Rental deposit retained
Profit on sale of fixed assets
10.
Tax
2018
£'000
(64)
(37)
1
19
11
(70)
Corporation tax is calculated at 19.25% (2017: 19.25%) of the estimated assessable profit for the year.
Current tax
UK corporation tax on the results for the year
Foreign tax suffered
Adjustment in respect of prior period
Total current tax charge
Deferred tax
Origination and reversal of timing differences
Adjustments in respect of prior periods
Total deferred tax charge/(credit)
DRAFT
Tax on profit on ordinary activities
2018
£'000
-
35
(61)
(26)
2018
£'000
(374)
66
(308)
(334)
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 19% (2017: 19.25%)
Fixed asset differences
Expenses not deductible for tax purposes
Income not taxable for tax purposes
Adjustments to tax charge in respect of previous periods - deferred tax
Additional deduction for R&D expenditure
Adjustments to tax charge in respect of previous periods
Adjust closing deferred tax to average rate of 19% (2017 : 19.25%)
Adjust opening deferred tax to average rate of 19% (2018 : 19.25%)
Deferred tax not recognised
Foreign taxation
Difference in tax rates
Tax credit receivable
Current year deferred tax movement on business combinations
Tax credit and effective tax rate for the year
2018
£'000
(12,195)
(2,317)
2
940
(208)
66
(133)
(61)
752
(651)
1,459
35
(219)
309
(308)
(334)
2017
£'000
-
(56)
1
-
-
(55)
2017
£'000
-
39
(2)
37
2017
£'000
(335)
(82)
(417)
(380)
2017
£'000
(5,138)
(968)
(19)
54
(118)
(84)
(384)
-
642
(650)
1,132
37
(157)
477
(342)
(380)
56
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
10.
Tax (continued)
At the balance sheet date, the Group has unrecognised deferred tax assets of £6,393,798 at a rate of 17% (2017:
£4,842,727 (17%)) 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.
11.
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
potential ordinary shares are disregarded in the calculation of diluted EPS. Total potential ordinary shares which are
outstanding at 31 December 2018 are 13,912,308 (2017: 5,820,327) which relate to the employee share options and
shares to be issued to the non-executive directors under the terms of their service contracts (see Directors Report,
Directors Remuneration Report and note 25).
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 2018
Weighted average
number of shares
Thousand
399,430
31 Dec 2017 – restated
Thousand
169,580
Per share amount
Pence
(2.97)
Pence
(2.85)
Loss
£'000
DRAFT
(11,861)
£'000
(4,826)
57
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
12.
Intangibles
Bespoke
applications
£'000
Customer list
£'000
Goodwill
£'000
Cost
At 1 January 2017
Acquisitions
Additions
At 31 December 2017
Additions
At 31 December 2018
and
Amortisation
Accumulated
impairment
At 1 January 2017
Charge for the year
At 31 December 2017
Charge for year
Impairment losses
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 31 December 2016
Useful lives
3,718
-
4,497
8,215
803
9,018
1,517
1,650
3,167
1,836
2,840
7,843
DRAFT
1,175
5,048
2,201
-
509
-
509
-
509
-
88
88
3
418
509
-
421
-
3-5 years
3-5 years
-
688
-
688
-
688
-
-
-
-
688
688
-
688
-
Total
£'000
3,718
1,197
4,497
9,412
803
10,215
1,517
1,738
3,255
1,839
3,946
9,040
1,175
6,157
2,201
Amortisation charges are included within the administrative expenses within the Income Statement. The useful life of
each group of intangible assets varies according to the underlying length of benefit expected to be received.
Impairment testing of bespoke applications
The group tests intangibles annually for impairment, or more frequently if there are indications that the assets might be
impaired. The bespoke applications of 7digital Limited have been fully impaired during the year by £2,135k. The loss-
making position of the Group, together with the new strategy, which is reliant on new untested revenue streams, led to
the UK platform being fully impaired.
Management considered the carrying value of the platform at 31 December 2018 in 7digital Limited based on value in
use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, future cash
flows and growth rates during the period. Future cash flows of the Group were based on forecasts determined at year
end, extrapolated over five years and based on existing contracts at that time, along with the expectation of new
opportunities. Costs were significantly reduced reflecting the shrinking cost base and continuing restructuring to align
costs and revenue. A pre-tax discount rate was applied of 20%, reflecting current market assessment of the time value of
money and the risks specific to the CGU was applied. The review indicated a full impairment was required, which has
been reflected in the carrying value.
Due to the cessation of the French operations in Snowite SAS (see note 26), the net book value of £705k has been
impaired at the year end.
The carrying value of £1.175m at 3 December 2018 was sold on 29 May 2019 to a Danish communications company, TDC
Group (see note 26). The management believes that no impairment was required of this platform.
58
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
12.
Intangibles (continued)
Impairment of customer list and goodwill
The group tests goodwill and customer relations annually for impairment. The goodwill and customer relations acquired
from acquisition of 24/7 Entertainment APS in June 2017 have been fully impaired during the year. Due to the sale of the
select technology platform to TDC in May 2019 (see note 26), the management believes the recoverable amount to which
the goodwill and customer relationships relates, determined from the value-in-use, has a nil impact. This has
consequently resulted in an impairment of £688k of goodwill and £418k of customer relationship.
13.
Property, plant and equipment
Property
£'000
Computer
equipment
£'000
Fixture
and
fittings
£'000
Vehicle
£'000
Cost
At 1 January 2017
Additions
Acquisitions
Disposals
At 31 December 2017
Additions
Disposals
At 31 December 2018
Accumulated depreciation
and amortisation
At 1 January 2017
Charge for year
Released on disposals
At 31 December 2017
Charge for year
Impairment losses
Released on disposals
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 31 December 2016
443
-
-
(39)
404
-
-
404
287
81
-
368
36
-
-
404
-
36
156
1,504
139
172
(20)
1,795
197
(15)
1,977
DRAFT
1,214
316
(8)
1,522
210
131
(14)
1,849
128
273
290
121
4
-
-
125
-
-
120
102
18
-
120
5
-
-
120
-
5
19
23
-
-
(4)
19
-
(19)
-
13
-
(4)
9
-
-
(9)
-
-
10
10
Total
£'000
2,091
143
172
(63)
2,343
197
(34)
2,506
1,616
415
(12)
2,019
251
131
(23)
2,378
128
324
475
Impairment of plant and equipment
Due to the announcement on 29 May 2019 of the impending closure of the Danish software company, 24-7
Entertainment ApS (see note 26), the net book value of the tangible assets of £131k has been fully impaired at the year
end, as these assets are deemed to have zero fair value.
59
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
14.
Investment in subsidiary undertakings
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of
ownership interest is given in note D to the Parent Company financial statements.
15.
Trade and other receivables
Trade receivable for the sale of goods
Less: Provision for impairment of trade receivables
Net trade receivables
Other debtors
Contract assets
R&D credits receivable
Prepayments
Total financial assets at amortised cost (excluding cash &
cash equivalents)
2018
£’000
4,610
(408)
4,202
667
458
815
100
6,242
2017
restated
£’000
7,022
(1,943)
5,079
821
604
238
192
6,934
The average credit period taken on sales of goods and services is 79 days (2017: 110 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.
DRAFT
The Group adopts a policy that each new customer is analysed individually for credit worthiness before the Group’s
standard payment and delivery terms and conditions are offered The Group's review includes external ratings, when
available, and in some cases bank references Customers that fall to meet the Group's benchmark creditworthiness may
transact with the Group on a prepayment basis.
Under IAS 39, the group management assessed the requirement for general bad debt provision by reference to historic
default patterns and management’s knowledge of the respective customer’s credit worthiness and forward-looking
estimate. The approach under IFRS 9 simplified method will be fairly similar. The expected loss rates are based on the
Group’s historical credit losses experienced over the three year period prior to the period end. Management also note
that group generally has a consistent recovery rate on trade and other receivables. This is due to significant amount of
work being completed for reputable businesses. However, Management does note that dealings with smaller businesses
can be difficult at times to recover funds owed and as such, provisions have been raised based on historic knowledge of
each client’s credit risk.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £2.3m (2017: £2.8m), 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 60 days (2017: 213 days).
60
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
15.
Trade and other receivables (continued)
As at 31 December 2018 the lifetime expected loss provision for trade receivables
Expected loss rate
Gross carrying amount
Loss provision
More than
30 days
past due
More
than 60
days past
due
More
than 120
days past
due
30%
257
77
37%
161
60
11%
1,897
201
Current
3%
2,294
70
Total
£'000
4,609
408
Customers that represent more than 5% of the total balance of trade receivables are:
Customer A
Customer B
Customer C
Customer D
Customer E
Movement in the allowance for doubtful debts
Balance at the beginning of the period
Impairment losses recognised
Written off as bad debt
Balance at the end of the period
DRAFT
2018
£'000
2,329
381
261
200
192
2018
£'000
1,943
408
(1,943)
408
2017
£'000
2,324
1,357
1,254
608
-
2017
£'000
1,387
556
-
1,943
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.
16.
Trade and other payables
Current Liabilities
Trade payables
Other taxes and social security
Other payables
Accrued costs
Contract liabilities
Corporation tax
Non-Current Liabilities
Contract liabilities
Other payables
2018
£'000
4,990
984
500
3,246
1,149
19
2017
Restated
£'000
3,212
614
476
3,539
4,492
-
10,888
12,333
141
1,066
1,207
-
1,367
1,367
2016
Restated
£'000
1,422
1,087
347
2,857
671
-
6,384
-
1,511
1,511
61
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
16.
Trade and other payables (continued)
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 171 (2017: 127 days). The Group has financial risk management
policies in place to ensure that all payables are paid within the credit time frame.
On 26 October 2018 the company announced shareholder funding, it has signed agreements with 3 shareholders to
provide an aggregate facility of £1.5 million. The Facility is on standard market terms and is convertible into ordinary
shares at certain specified times prior to maturity in December 2019. The price at which the principal and interest under
the Facility may be converted into new ordinary shares is calculated by reference to the volume weight average price of
the existing ordinary shares. The maximum number of new ordinary shares which may be issued pursuant to the Facility
is 58,157,529 ordinary shares.
In March 2016 the Group acquired Snowite SAS (now 7digital France SAS). As part of the acquisition it negotiated a
reduction in the amount of some of the existing liabilities within Snowite SAS, at the time of the purchase, to €1.7m
(£1.5m). Terms of repayment were also agreed to be over 8 years starting on 7th April 2017. For the first two years
repayments were set at 8% of the debt and then at 14% for each year thereafter. No interest is payable. The parent
company has guaranteed the next three repayments of €125k each, payable in April 2019, October 2019 and April 2020.
A total amount of £1.1m (2017: £1.4m) remains repayable under this agreement at the balance sheet date. Of this
balance, £0.9m (2017: £1.2m) falls due for repayment after more than one year.
The directors consider that the carrying amount of trade payables approximates to their fair value.
17.
Financial Liabilities
Current
Convertible debt
Embedded derivative
DRAFT
2018
£'000
1,306
257
1,563
2017
£'000
-
-
-
The parent company issued the following Convertible Loan Notes (CLN) in October 2018, ie 17th October – Harwood LLP -
£250,000; 25th October – Amcomri Ltd - £500,000; and 25th October – Media Saturn - £750,000, totalling to £1,500,000.
The CLN have a fixed coupon of 10.438% which accrues daily on the principal amount and is payable monthly. The
maturity date of the CLNs is 31st December 2019. However, the Company may at any time, by giving the noteholders
written notice,
repay the principal amount and accrued interest. The Company’s right to repay the CLNs is limited to the right to repay in
two tranches of £750,000 principal amount (and accrued but unpaid interest).
The CLNs do not meet the fixed-for-fixed test since the number of shares to be issued is not fixed. The number of shares
to be issued is impacted by the cap on new shares to be issued (58,157,529) as well as the volume weighted average price
for the period 30 days prior to conversion notice. Consequently, the CLNs comprises a host debt liability and an
embedded derivative liability (conversion option). The conversion option was valued as at the issue date (17th October
2018) using the Monte-Carlo simulation. IFRS 9 requires that an embedded derivative be separated from its host contract
and accounted for as a derivative when the conditions in IFRS 9 (retained from IAS 39) are met. Accordingly, the fair value
of the embedded derivate is £ 257,129 and the residual value is assigned to the debt host liability component.
The fair value of the liability component, included in current borrowings, at inception was calculated using a market
interest rate for an equivalent instrument without conversion option. The discount rate applied was 27.58%.
62
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
18.
Provisions
Dilapidation
£'000
Group
restructuring
£'000
Provision for
closure of
business
£'000
Other
provisions
£'000
At 1 January 2018
Increase in provision
Utilisation of provision
Release of provision
At 31 December 2018
Of which is: current
Of which is: non-current
125
-
-
-
125
-
125
278
-
-
(278)
-
-
-
-
288
-
-
288
288
-
34
7
(17)
(9)
15
15
-
Total
£'000
437
295
(17)
(287)
428
303
125
A dilapidations provision is held to cover the estimated costs of returning the Group’s main office space to as it was at the
commencement of the lease. The lease, which has 4 years and 3 months remaining on it at 31 December 2018 is
currently being renegotiated.
Due to the cessation of the French operations in Snowite SAS, a provision of £346k has been made for closure costs.
19.
Deferred tax
The deferred taxation provision included in the Statement of Financial Position, together with the charge/(credits) made
to the Income Statement is set out below:
DRAFT
At 1 January 2018
Charge/(credit) to income
At 31 December 2018
At 1 January 2017
Arising on acquisition
Charge/(credit) to income
At 31 December 2017
Deferred tax
Liability
£'000
308
(308)
-
546
111
(349)
308
63
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
20.
Share capital
Allotted, called up and fully paid:
Ordinary share of £0.10 each
Ordinary share of £0.01 each
Deferred share of £0.09 each
Allotted, called up and fully paid
At 1 January
Shares issued in the period
Vendor consideration shares
Capital fundraising
Issued to employees/directors in lieu of salary
Share options exercised
At 31 December
2018
No. of
shares
2017
2016
No. of shares
No of shares
-
400,236,646
115,751,517
-
398,638,987
115,751,517
115,751,517
-
-
2018
£'000
14,404
-
-
15
1
14,420
2017
£'000
11,575
231
2,566
25
7
14,404
2016
£’000
10,843
732
-
-
-
11,575
During the year, nil (2017: 28,336) treasury shares were issued to employees to settle the exercising of share options.
In 2017, the Company carried out a capital subdivision of shares. This created two classes of share; ordinary 1p shares
that carry full voting rights; and 9p deferred shares that carry limited voting rights. Neither the 1p ordinary shares, nor
9p deferred shares, carry a right to fixed income. Each ordinary 1p share carries the right to one vote at general meetings
of the Company.
DRAFT
On 19th June 2017, in connection with the acquisition of 24-7 Entertainment ApS, the Group issued 23,144,616 Ordinary
shares. In 2017, the Company issued 256,615,165 Ordinary shares via two placement offers. Total funds raised before
professional fees and broker costs associated with the raises, amounted to £11.3m.
21.
Other reserves
The Reverse acqusition reserve was created upon the application of reverse acqusition accounting relating to the
purchase of 7digital Group Inc, by UBC Media plc on 10 June 2014.
The Foreign exchange translation reserve of £43k loss (2017: £43k profit) relates to cumulative foreign exchange
differences of translation of foreign operations.
The Merger reserve relates to the difference between the nominal value of shares issued as part of an acquistion and the
fair value of the assets transferred.
The Shares to be issued relates to the fair value at grant date of the share options that can be exercised in future years
£89k and the fair value of the shares to be issued £53k to Non-Executive directors in lieu of salary for the period between
July 2018 and 31 December 2018 (see Directors’ Remuneration Report pages 20 to 22 and note 25).
64
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
22.
Operating lease arrangements
The Group as lessee
Minimum lease payments under operating leases recognised as an expense in
the year
2018
£'000
1,290
2017
£'000
743
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
2018
£'000
683
2,219
2,902
2017
£'000
710
26
736
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.
23.
Defined contribution schemes
The Group operates defined contribution retirement benefit schemes for qualifying employees. The total cost charged to
income of £511k (2017: £326k) represents contributions payable to these schemes by the Group at rates specified in the
rules of the plans. As at 31 December 2018, contributions due in respect of the current reporting period of £33k had not
been paid over to the schemes (2017: £25k).
been paid over to the schemes (2017: £25k).
24.
Related party transactions
During the year, the Group recognised £nil (2017: £105k) of revenue from HMV Digital Limited, of which Paul McGowan is
also a Director. The revenue relates to licensing of software. At 31 December 2018, the Group was owed £nil (2017: £13k).
The Group also incurred £nil (2017: £5k) of costs relating to royalties due.
DRAFT
During the year, the Group paid £9.6k (2017; £9.6k) to MIDiA Research for music market research services, a company of
which Mark Foster was a director during 2018. At 31 December 2018, the Group owed £6.4k (£nil).
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 pages 20 to 22.
Short- term employment benefits
Post-employment benefits
2018
£'000
805
24
829
2017
£'000
832
10
842
65
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
25.
Share-based payments
53 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). The Performance Share Plan is a “free” share
award with an effective exercise price of £nil. All awards are subject to an Earnings per Share (EPS) performance
condition. The performance period is three years. Further details of these conditions are set out in the Directors’ Report.
Awards are normally forfeited if the employee leaves the Group before the awards vest.
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
2018
Options
5,428,899
11,500,000
(2,881,258)
(135,333)
13,912,308
-
Weighted
average
exercise price
(pence)
-
-
-
-
-
-
2017 Options
3,319,291
3,360,000
(498,000)
(752,392)
5,428,899
293,222
Weighted
average
exercise price
(pence)
-
-
-
-
-
-
During the period, 135,333 shares were exercised (2017: 752,392). There are 13,912,308 options outstanding at 31
December 2018 (2017: 5,428,899) of which nil (2017: 293,222) are exercisable. Their remaining weighted average
contractual life is 1,224 days (2017: 1,005 days).
The fair value of the share options has been calculated using the Black-Scholes model at the grant date. The key inputs
into the Black-Scholes model are detailed below:
Share price at date of grant
Exercise price
Volatility
Option life
Risk-free interest rate
DRAFT
2018 Options
2017 Options
5.85p
0.00p
100%
3 yrs.
0.5%
6.12p
0.00p
100%
3 yrs.
0.5%
In total a £89k (2017: £26k) has been recognised in the statement of comprehensive income related to equity settled
share based payment charges in respect of share options.
At 31 December 2018 £53k (2017: £30k) was accrued for shares to be issued to non executive directors under the terms
of their service contracts and as disclosed within the Directors’ Report and Directors’ Remuneration.
Also included within these charges are equity settled share based payment charges of £31k (2017: £30k) reflecting share
awards to non-executive directors during the year.
The total share based payment charge to the Consolidated Income Statement is £173k (2017: £86k). This is reflected in
the Consolidated Statement of Changes in Equity as:
Shares to be issued – share options
Shares to be issued – in lieu of Directors Remuneration
Shares issued – in lieu of Directors Remuneration
2018
£’000
89
53
31
173
2017
£’000
26
30
30
86
The issuance of shares relates to the shares issued to some non-executive directors in lieu of their remuneration. Further
details can be found in the Directors’ Remuneration Report on pages 20 to 22.
66
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
26.
Post balance sheet events
Discontinuance of MMS (major customer)
On 4 January 2019, Juke GmbH, a wholly owned subsidiary of Media-Saturn-Holding GmbH, decided to discontinue their
music services and their contract with the Group. On 1 March 2019 a settlement was agreed on the termination of all
outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of €4.0m.
Further, Juke agreed to write off all interest payments and £250,000 of the principal amount of the convertible loan note
issued to Juke. The balance of the principal amount of £500,000 was paid from the proceeds of the termination
settlement.
Sale of platform to TDC
On 2 May, the Group announced the sale of select technology from the Parent Company and its Denmark subsidiary, 24-7
Entertainment ApS, and the transfer of staff to TDC Group, a large telecommunications company based in Denmark for
£0.9m. Following the loss of MMS, this technology was used by only one customer and had become unprofitable for the
Company to maintain. The annualised losses eliminated from the business totalled around £1.6m and the net value of
the assets sold was approximately £0.9m as at December 2018.
The consideration was €1.375m in cash, of which €1.0m was paid to 7digital at completion. The remainder of the cash
consideration was retained by TDC to cover certain potential liabilities and will be released by TDC to the Company by no
later than 31 January 2020 to the extent that it is not required to meet such liabilities and is subject to customary post-
closing adjustments. The cash was used for general working capital.
The loss of MMS and TDC, being marginally in excess of 50% of the 2018 sales, is a fundamental loss to the Company.
The transfer of the Danish platform and staff to TDC will eliminate around £3m of annualised costs from the Business.
Settlement of Convertible Loan Notes
On 8 February 2019, £193,858 (including interest) of the £1.5 million facility announced on 26 October 2018 (see note 17)
DRAFT
were converted to 19,385,843 ordinary shares of 1p each.
On 26 June 2019, the remaining £585,932 (including interest) of the £1.5 million facility announced on 26 October 2018
(see note 17) were converted to 332,915,704 ordinary shares of 1p each.
67
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
26.
Post balance sheet events (continued)
New shareholders and new proposals
On 26 June 2019, a consortium, comprising Magic Investments S.A. (a tech investment holding company) (“Magic”) and
Shmuel Koch Holdings Limited (“SKH”) subscribed for, an aggregate of, 634,132,641 shares at 0.2 pence per share, to
raise £1.3 million (before expenses). On the same date, Magic agreed to capitalise the outstanding £585,932 principal
and accrued interest of the Convertible Loan Notes at the Exchange Price of 0.2p into 332,915,704 shares. A number of
changes to the Board were proposed, conditional upon the passing of the Resolutions at the General Meeting to be held
on 25 June 2019.
The proposals were necessary to finance the immediate working capital requirements of the Company as announced on
9 April 2019 and on 13 May 2019. The Board, however, remains of the view that equity investment in addition to the
Subscription and Debt to Equity Swap is required to meet the short-term working capital requirements of the Company.
27.
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 21 and 23. The Group has external liabilities by way of the debts owed on the purchase of Snowite SAS
in March 2016 and as disclosed in note 16. It does not have access to committed borrowing facilities, and is not subject to
externally imposed capital requirements.
DRAFT
Categories of financial instruments
Financial Instruments
Financial assets at amortised cost
Cash and cash equivalents
Trade and other receivables
Financial liabilities at amortised cost
Trade and other payables
Borrowings (Convertible Loan Note)
Put options
2018
£'000
452
6,388
(10,091)
(1,306)
(196)
2017
£'000
6,978
5,820
(8,180)
-
(149)
Financial liabilities at fair value through profit and loss
Embedded derivative (see note 17)
(257)
-
Put Options
As part of the 2016 acquisition of Snowite, the Group agreed with three of the original institutional shareholders that if
they are unable to sell the 3,056,894 shares in 7digital Group they received in the public market, 7digital Group plc would
purchase 75% of their shares at a strike price of 8.75p over a 4-year period starting from March 2016, 10% in year 1 and
then c.21.7% each year thereafter. As at 31 December 2018, the three institutional shareholders still retain all their shares
in 7digital Groupl plc. The value of the options at 31 December 2018 is £196k (2017: £149k). Adjustments to this provision
are taken directly to the Consolidated Income Statement within Administrative expenses. In 2018 this charge was £47k
(2017: £36k). The financial liability is included in note 16.
The carrying amounts of financial assets and financial liabilities not carried at FVTPL approximate their fair values.
68
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
27.
Financial instruments (continued)
Financial instruments measured at fair value
Level 3
Embedded derivative (see note 19)
2018
£'000
(257)
2017
Restated
£'000
-
There were no transfers between levels during the period. The valuation technique used to measure the fair value of the
derivative financial instrument utilises the observable market price of the Company’s shares adjusted to the fixed price of
the underlying host contract.
The valuation techniques used in the valuation of the embedded derivative portion are summarised using the below
inputs
Share Price
£0.0313
Expected Life 1.2 years
Risk-free rate 0.75%
Volatility
50%
There were no changes to the valuation techniques during the year.
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.
DRAFT
Currency risk management
The Group has exposure to foreign currency risk due to subsidiaries in France, Denmark and United States. The Group
manages the risk by holding cash in numerous currencies to avoid foreign exchange charges on payments and receipts.
The carrying value of the Group’s short term foreign currency denominated assets and liabilities are set out below
GBP
BU's
USD
BU's
DKK
BU's
2018
2017
2016
2018
2017
2016
2018
2017
2016
Assets/(Liabilities)
GBP
USD
EUR
DKK
Other
Totals
-
-
-
162,683
1,694,004
1,442,604
1,548,206
1,647,447
(65,111)
(34,308)
(37,525)
-
-
-
139
-
-
-
139
-
(95,827)
96,928
19,913
(63,473)
(103,783)
1,580,754
3,400,854
1,397,406
(63,334)
(103,644)
-
-
0
-
80,813
80,813
(538,151)
(55,583)
(41,484)
(5,686)
(98,672)
(6,361)
-
-
-
-
(678,307)
(67,630)
-
-
-
-
-
-
69
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
27.
Financial instruments (continued)
The majority of the Group’s financial assets are held in Sterling but movements in the exchange rate of the Euro and US
dollar against Sterling have an impact on both the result for the year and equity. Sensitivity to reasonably possible
movement in the Euro and US dollar exchange rates can be measured on the basis that all other variables remain
constant. The effect on profit and equity of strengthening or weakening of the Euro or US dollar in relation to Sterling by
10% would result in a movement of +/- £142k (2017: £197k) in relation to the Euro, +/- £44k (2017: £271k) in relation to
the US dollar and +/- £2k (2017: £nil) in relation to the Danish Kroner.
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.
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.
DRAFT
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.
The following table sets out the contractual maturities (representing the undiscounted contractual cash-flows) of financial
liabilities:
Within 12 months
Trade payables
Other payables
More than 12 months
Other payables
2018
£'000
4,990
222
5,212
2018
£’000
870
2017
£'000
3,161
302
3,463
2017
£’000
1,392
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.
Cash at bank and short-term bank deposits
70
7digital Group plc
Notes to the financial statements
Year ended 31 December 2018
Cash is held within the following institutions:
Barclays Bank
Danske Bank
HSBC Bank
PayPal
Bank of West
CIC Bank
Others
28. Contingent liabiities
2018
£’000
324
2
36
66
7
23
3
461
2017
£’000
6,490
272
26
111
59
15
5
6,978
2016
£’000
576
-
54
71
53
44
40
838
A civil action was brought by a former US customer against 7digital Group plc (“7digital”) in July 2018 in New York State
for failure to deliver services specified in their Term Sheet. No contract was ever put in place with this customer. The
breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial;
ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an
amount to be determined by a jury; (iv) attorney’s fees, costs, and expenses; and (v) pre-and post-judgment interest.
7digital’s legal team has made a motion to dismiss the claims, however in the event that the claims are upheld, estimate
that damages would be in the region of USD200k.
The Company vigorously denies that it was at fault and is intending to defend itself against any such action. It is
anticipated the case will be concluded by the end of September 2019.
DRAFT
71
7digital Group plc
Parent Company Statement of Financial Position
For the year ended 31 December 2018
Assets
Non-current assets
Intangibles
Tangibles
Fixed asset investments
Current assets
Debtors
- due within one year
Cash at bank and in hand
Current liabilities
Trade and other payables
Loans and borrowings
Derivative liabilities
Provision for liabilities and charges
Net current (liabilities)/assets
Total assets less current liabilities
Non-current liabilities
Other payables
Provision for liabilities and charges
Total liabilities
Net (liabilities)/assets
Capital and reserves
Called up share capital
Share premium account
Shares to be issued
Profit and loss account
Shareholders’ (deficit)/funds
Notes
B
C
D
E
G
H
H
I
G
I
J
2018
£’000
1,176
63
1,000
2,239
2,239
19
2,258
(4,761)
(1,306)
(257)
(517)
(6,841)
(4,583)
(2,344)
(197)
(111)
(308)
(7,149)
(2,652)
14,420
8,294
168
(25,534)
(2,652)
2017
Restated
£’000
1,833
-
3,665
5,498
19,894
5,951
25,845
(9,873)
-
-
-
(9,873)
15,792
21,470
(113)
-
(113)
(9,986)
21,357
14,404
8,232
26
(1,305)
21,357
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 loss for the financial year ended 31 December 2018 of £21,608k (2017: restated loss
£4,747k).
This Company Statement of Financial Position and related notes for company registration number 03958483 were approved by
the Board of Directors on 28 June 2019 and were signed on its behalf by
28 June 2019
Director
72
7digital Group plc
Parent Company Statement of changes in Equity
For the years ended 31 December 2018 and 2017
Statement of changes in Equity for the year ended 31 December 2018
Share
capital
£'000
14,404
-
-
14,404
-
-
16
-
16
Share
premium
account
£'000
8,232
-
-
8,232
-
-
62
-
62
At 31 December 2017 as previously
stated
Prior year adjustments (see page 76)
Change in accounting policy – IFRS 9
Financial Instruments (see note F)
At 1 January 2018
Comprehensive income for the year
Loss for the year
Total comprehensive income for the
year
Contributions by and distributions to
owners
Shares issued
Share based payments
Total contributions by and
distributions to owners
At 31 December 2018
14,420
8,294
Statement of changes in Equity for the year ended 31 December 2017
DRAFT
Shares to
be issued
£’000
26
-
-
26
-
-
-
142
142
168
Profit
and Loss
account
£'000
(500)
(805)
(2,621)
(3,926)
(21,608)
(21,608)
-
-
-
Total
£'000
22,162
(805)
(2,621)
18,736
(21,608)
(21,608)
78
142
220
(25,534)
(2,652)
Share
premium
account
£'000
Shares to
be issued
£’000
Treasury
reserves
£'000
Profit and
Loss
account
£'000
Total
£'000
176
(5)
3,555
15,301
Share
capital
£'000
11,575
-
-
2,597
232
-
At 1 January 2017
Comprehensive income
for the year
Loss for the year
(restated – see note A)
Total comprehensive
income for the year
Contributions by and
distributions to owners
Issuance of shares
Cost of capital raises
Acquisition of subsidiary
Share based payments
Total contributions by
and distributions to
owners
-
-
-
8,838
(678)
72
-
-
-
(176)
-
26
2,829
8,232
(150)
At 31 December 2017
14,404
8,232
26
The notes from pages 72 to 79 form part of the financial statements.
-
-
5
-
-
5
-
(4,860)
(4,860)
(4,860)
(4,860)
-
-
-
-
11,264
(678)
304
26
10,916
(1,305)
21,357
73
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
A.
Principal accounting policies
7digital Group plc is a company incorporated in the United Kingdom (England and Wales) under the Companies Act 2006.
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 historical cost convention and in accordance with Financial
Reporting Standards 100 Application of Financial Reporting Requirements (FRS100) and 101 Reduced Disclosures
Framework. The company has taken advantage of the following disclosure exemptions in preparing these financial
statements, as permittd by FRS 101 Reduced disclosure framework:
the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based payment;
the requirements of IFRS 7 Financial Instruments: Disclosures;
the requirements of paragraphs 91 to 99 of IFRS 13 Fair value measurement;
the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative
information in respect of:
o
o
paragraph 79(a)(iv) of IAS1:
paragraph 118(e) of IAS 38 Intangible Assets
the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1
Presentation of financial statements;
the requirements of paragraphs 134 to 136 of IAS 1 Presenation of financial statements;
the requirements of IAS 7 Statement of Cashflows;
the requirements of paragraphs 30 and 31 of IAS 8 Accounting policies, changes in accounting estimates and
errors:
the requirement of paragraphs 17 and 18A of IAS24 Related party disclosures;
the requirements in IAS 24 Related party disclosures to disclose related party transactions entered into
between two or more members of a group; and
the requirements of paragraphs 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairment of assets.
These financial statements are separate financial statements.
Where required, equivalent disclosures are given in the Group’s consolidated financial statements in notes 1 to 27.
Foreign currency
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.
Intangible assets
Intangible assets acquired as part of acquisition of a business are stated at fair value less accumulated amortisation and
any impairment losses are stated at cost less accumulated depreciation and impairment losses, if any.
Intangible assets (Bespoke applications) arising from the internal or external development phase of projects is recognised
if, and only if, all of the following have been demonstrated:
-
-
-
-
-
-
The technical feasibility of completing the intangible asset so that it will be available for use or sale
The intention to complete the intangible asset and use or sell it
The ability to use or sell the intangible asset
How the intangible asset will generate probable future economic benefits
The availability of adequate technical, financial, and other resources to complete the development and to use or sell
the intangible asset
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
74
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
A.
Principal accounting policies (continued)
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible
asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.
Internally and externally generated intangible assets are amortised over their useful economic lives on a straight-line
basis, typically over 3 years.
Research expenditure is recognised as an expense in the period in which it is incurred.
Impairment of tangible and other intangible assets
The Company reviews, at least annually, the carrying amounts of its tangible and intangible assets compared to the
recoverable amounts to determine whether those assets have suffered an impairment loss. Where an impairment loss
subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed the carrying amount that would have been determined had
no impairment loss had been recognised for the asset in prior years.
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.
Fixed asset investments
Investments in subsidiaries are accounted for at cost less impairment in the Company’s financial statements.
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.
Share-based payments
The Company issues equity settled share based payments to certain Directors and employees, which have included grants
of shares and options in the current year. The fair value determined at the grant date is expensed on a straight-line basis
over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use
of an appropriate valuation model. The Black-Scholes option pricing model has been used to value the share options
plans.
Going concern
The company’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the Strategic Report on pages 7 to 9. The financial position of the company, its cash flows and
liquidity position are described in the Chief Financial Officer Review on pages 4 to 6. In addition, note 27 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.
75
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
A.
Principal accounting policies (continued)
The financial statements at 31 December 2018 show that the company generated a loss for the year of £21.6m (2017
restated: £4.7m) and showed cash reserves at 31 December of £nil (2017: £6.0m).On 7 June 2019, 7digital announced a
number of important developments to raise additional finance to meet the immediate working capital requirements of
the Group. In summary, it was announced that:
a consortium, comprising Magic Investments S.A. (a tech investment holding company) (“Magic”) and Shmuel
Koch Holdings Limited (“SKH”) had conditionally agreed to subscribe for, an aggregate of, 634,132,641
Subscription Shares at 0.2 pence per share (“Issue Price”), to raise £1.3 million (before expenses);
Magic had agreed to capitalise the outstanding £585,932 principal and accrued interest of the Convertible Loan
Notes at the Exchange Price of 0.2p into 332,915,704 Exchange Shares;
a number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the
General Meeting to be held on 25 June 2019
The Issue Price represents a discount of 11 per cent to the closing middle market price of an Ordinary Share on 6 June
2019 (being the last dealing date prior to the publication of the announcement).
The Resolutions enabling the company to issue share capital in return for £1.3m (before expenses) and convert the
Convertible Loan Notes into equity were passed at the shareholders meeting on 25 June 2019. The funds were
subsequently received by the company on 26 June 2019 and the Loan Notes were converted on the same date.
The proposals were necessary to finance the immediate working capital requirements of the Group as announced on 9
April 2019 and on 13 May 2019. The Board, however, remains of the view that equity investment in addition to the
Subscription and Debt to Equity Swap is required to meet the working capital requirements of the Group.
It is intended that, on signature of the Company's annual report for the year ended 31 December 2018, which is
anticipated shortly after Admission, the Company would immediately seek to raise an additional £4.5 million by way of a
placing and further subscription of new Ordinary Shares with new and existing shareholders at the Issue Price. The
Consortium has indicated that, acting together with its business partners and associates, it may subscribe for up to £2.5
million of this amount, subject to review of the annual report, however no assurance can be given in this respect.
However, as announced in the ‘Result of General Meeting’ on 25 June 2019, Resolution 7, which was voting to disapply
statutory pre-emption rights in relation to the allotment of equity securities for cash up to an aggregate nominal amount
of £300,000, was not passed. The failure by Shareholders not to pass this Resolution has created greater execution risk
for any subsequent equity raise (a "Follow-on Financing") by the Company since further shareholder approval would be
required in order to implement this. The Directors therefore intend to engage with the relevant Shareholders, where
possible, with a view to securing their support for a Follow-on Financing. However, Magic and SKH, our new majority
shareholders, have indicated that they will support the necessary resolutions. The Company currently believes that it still
needs to raise Additional Funds of at least £4.5 million by 31 July 2019 to secure the business for the next 12 months,
failing which it is highly likely that the Company would need to be placed into administration.
In addition, if the implementation of the company’s new strategy takes longer than currently expected, growth in
revenue is slower and the company is unable to reduce certain costs as anticipated, then it is highly likely that the
company will be required to raise additional finance during 2020.
The directors have reviewed 7digital’s going concern position taking account of its current business activities, budgeted
performance and the factors likely to affect its future development as detailed above, and which include the Group's
objectives, policies and processes for managing its capital, its financial risk management objectives and its exposure to
credit and liquidity risks.
The directors have prepared cash flow forecasts covering a period of 3 years from the date of these results. Please refer
to the Directors Reports on pages 12 to 17 for further going concern commentary.
These financial statements have been prepared on the going concern basis, however the requirement for further finance
of £4.5m, which at the date of this audit report had not been secured, along with the challenge of potential additional
finance being required if the company is not able to implement its business plan and forecast means that a material
uncertainty exists that may cast significant doubt on the group and parent’s ability to continue as a going concern. These
financial statements do not include the adjustments that would result if the group and the parent company were unable
to continue as a going concern.
76
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
A.
Accounting policies (continued)
IFRS 9 "Financial Instruments"
IFRS 9 Financial Instruments replaces the existing guidance in IAS 39 Financial Instruments Recognition and Measurement
IFRS 9 Includes revised guidance on the classification and measurement of financial Instruments, including a new
expected loss model for calculating impairment on financial assets as is set out in the Group’s accounting policy on page
number 42 to 43.
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a
forward- looking expected credit loss model. The methodology used to determine the amount of the provision is based
on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those
where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected
credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly,
lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be
credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised
Prior period adjustment
The Company identified certain accounting errors which have been adjusted as a prior period restatement in the parent
company financial statements. These adjustment errors related to intercompany loan movements and share option
charges. There was no impact on the Consolidated financial statements.
Critical accounting judgements and key sources of estimation uncertainity
In the application of the Company accounting policies, which are described above, the directors are required to make
judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period which the estimate is revised if the revisions affect only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
There are no critical judgements, apart form those involving estimates, that directors have made in the process of
applying the Company’s accounting policies and that have the most significant effect on the amounts recognised in the
financial statements.
Employees
The average number of employees throughout 2018 was 22 (2017: 19). Staff costs amounted to £1.9m (2017: £1.9m).
Information about the remuneration of directors is provided in the audited part of the Directors’ Remuneration Report on
pages 20 to 22 of the consolidated financial statements.
Correction of prior period errors
The directors have identified certain intergroup receivables arising out of transfer pricing that were overstated in the
company’s financial statements in the year ending 31 December 2017 due to an error. As a result, in the prior year the
company loss was understated and amounts due from group undertakings were overstated by an amount of £633k.
The directors have recognised an additional liability of £113k to reflect the shareholder put option liability, which was
incorrectly excluded from the prior period financial statements.
The directors have identified a 2017 consolidation journal that had incorrectly been omitted from the company’s
standalone books at 31 December 2017. This has been corrected in 2018. The reversal of this journal has increased the
net book value of bespoke applications by £104k and decreased the net book value of fixed assets investments by £95k
with the balance going to the P/L.
The directors had identified over-accrued revenue at the end of 2017 of £68k. A prior year adjustment has been made to
reflect this revenue in 2017.
Accordingly, the directors have restated net assets at 31 December 2017 and profit for the year ended 31 December
2017 to correct these errors. The result of this prior period adjustment was to reduce net assets and retained earnings at
1 January 2017 by £805k (see note A).
77
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
A.
Accounting policies (continued)
Impact on equity (increase/(decrease) in equity)
Balance sheet (extract)
Intangibles
Fixed asset investments
Trade and other receivables
Cash
Trade and other payables
Provisions for liabilities and charges
Net assets/(liabilities)
Other equity
Retained earnings
Total equity
B. Intangibles
Cost
At 1 January 2017
Additions
At 31 December 2017 (as restated see note A)
Additions
At 31 December 2018
Amortisation
At 1 January 2017
Charge for year
At 31 December 2017 (as restated see note A)
Charge for year
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017 (as restated see note A)
At 31 December 2016
2017
As previously
Stated
£'000
1,729
3,760
20,595
5,951
(9,873)
-
22,162
22,662
(500)
22,162
Increase/
(Decrease)
£'000
104
(95)
(701)
-
-
(113)
(805)
-
(805)
(805)
2017
Restated
£'000
1,833
3,665
19,894
5,951
(9,873)
(113)
21,470
22,662
(1,305)
21,357
Bespoke
applications
£'000
-
2,054
2,054
32
2,086
-
221
221
689
910
1,176
1,833
-
Total
£'000
-
2,054
2,054
32
2,086
-
221
221
689
910
1,176
1,833
-
78
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
C. Tangibles
Computer
equipment
£'000
Total
£'000
Cost
At 1 January 2017
Additions
At 31 December 2017
Additions
At 31 December 2018
Depreciation
At 1 January 2017
Charge for year
At 31 December 2017
Charge for year
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
At 31 December 2016
D.
Fixed asset investments
Cost
At 1 January 2018 (as restated see note A)
Additions in year
At 31 December 2018
Provision for impairment
At 1 January 2018 (as restated see note A)
Charge for the year
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017 (as restated see note A)
-
-
-
69
69
-
-
-
6
6
63
-
-
-
-
-
69
69
-
-
-
6
6
63
-
-
£’000
21,768
1
21,769
(18,103)
(2,666)
(20,769)
1,000
3,665
79
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
D.
Fixed asset investments
Related subsidiaries, joint ventures and associates
Ordinary shares
held at 31
December 2018
Principle activity
Country of
incorporation
Registered office
Subsidiaries
7digital Limited
7digital Creative Limited
7digital Trading Limited
7digital Group, Inc.
7digital, Inc.
SD Music Stores Limited
Smooth Operations (Productions) Limited
Unique Interactive Limited
Music streaming
and download
services
Radio production
HR Services
Holding company
Music streaming
and download
services
Music streaming
and download
services
Dormant
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
England and Wales
England and Wales
England and Wales
Delaware,
United States of America
***
***
***
369 Pine Street, Suite 103,
San Francisco, CA 94104 USA
Delaware,
United States of America
369 Pine Street, Suite 103,
San Francisco, CA 94104 USA
England and Wales
England and Wales
England and Wales
***
***
***
21 Rue Aristade Briand
Espace Aristide
92170 Vanves
Gothersgarde 12,3
1123 København
Denmark
D-202, Polite Hermitage, Sec
18 Shivtej Nagar, Chinchwad
Pune
MH 411019
India
***
***
***
7digital SAS
7digital ApS
100%
Non-trading****
France
100%
Non-trading
Denmark
7digital Wing India Private Limited
7digital Projects Limited
Oneword Radio Limited
UBC Interactive Limited
100%**
100%
100%*
100%*
Non-trading
Dormant
Dormant
Dormant
India
England and Wales
England and Wales
England and Wales
* indicates indirect investment of the company
** set up during 2018
*** registered office is 69 Wilson Street London UK EC2A 2BB
The directors subjected the carrying value of investments to an impairment test at the year end. The investment in all of
its subsidiaries apart from 7digital Limited was written down to zero. The director’s assessment indicated that no further
impairment to the carrying value of the investments in subsidiaries was required.
E.
Debtors
Due within one year:
Trade Debtors
Contract assets
R&D credits receivable
Other debtors
Prepayments
Amounts owed by group undertakings
2018
£’000
163
252
281
143
65
1,335
2,239
2017
Restated
£’000
569
-
-
526
-
18,799
19,894
80
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
F.
Related Party Loans
Impact of the adoption of IFRS 9 on interest free loans
In accordance with IFRS 9, the management have reviewed the related parties with outstanding receivable loan balances
and have determined that only 2 entities are at risk of recoverability. This risk is as a result of the closure of these entities
post 31 December 2018. All other entities in which the company has a receivable balance, have long term contracts and
licences with customers ensuring their ability to derive income in the future and repay the outstanding loan balances if
demanded. As a result, the Company has incurred impairment losses under the general expected credit loss model of
£2.62m relates to balances as at 31 December 2017 and £21k relates to balances at 31 December 2018 as these loans are
considered to be in level 3 of the general approach. The Company has chosen not to restate comparatives on adoption of
IFRS 9 and, therefore, are not reflected in the restated prior year financial statements. Rather, these changes have been
processed at the date of initial application (i.e. 1 January 2018) and recognised in the opening equity balances of £ 2.62m.
G.
Trade and other payables:
Current Liabilities
Trade creditors
Other taxes and social security
Other creditors
Contract liabilities
Accruals
Amounts owed to group undertakings
Non Current Liabilities
Other payables
H.
Loans and borrowings
Current
Convertible debt
Embedded derivative
2018
£’000
2,273
175
14
413
1,700
186
4,761
197
197
2017
Restated
£’000
828
-
205
-
3,578
5,262
9,873
113
113
2018
£'000
1,306
257
1,563
k
The parent company issued the following Convertible Loan Notes (CLN) in October 2018, ie 17th October – Harwood LLP -
£250,000; 25th October – Amcomri Ltd - £500,000; and 25th October – Media Saturn - £750,000, totalling to £1,500,000.
The CLN have a fixed coupon of 10.438% which accrues daily on the principal amount and is payable monthly. The
maturity date of the CLNs is 31st December 2019. However, the Company may at any time, by giving the noteholders
written notice, repay the principal amount and accrued interest. The Company’s right to repay the CLNs is limited to the
right to repay in two tranches of £750,000 principal amount (and accrued but unpaid interest).
The CLNs do not meet the fixed-for-fixed test since the number of shares to be issued is not fixed. The number of shares
to be issued is impacted by the cap on new shares to be issued (58,157,529) as well as the volume weighted average price
for the period 30 days prior to conversion notice. Consequently, we conclude that the CLNs comprises a host debt liability
and an embedded derivative liability (conversion option). The conversion option was valued as at the issue date (17th
October 2018) using the Monte-Carlo simulation. IFRS 9 requires that an embedded derivative be separated from its host
contract and accounted for as a derivative when the conditions in IFRS 9 (retained from IAS 39) are met. Accordingly, the
fair value of the embedded derivate is £ 257,129 and the residual value is assigned to the debt host liability component.
The fair value of the liability component, included in current borrowings, at inception was calculated using a market
interest rate for an equivalent instrument without conversion option. The discount rate applied was 27.58%.
81
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
I.
Provision for liabilities and charges
At 1 January 2018
Provision for closure of operations
Partial guarantee of subsidiary loan
Other
At 31 December 2018
Of which is: current
Of which is: non-current
Provision
for closure
of business
£'000
Other
provisions
£'000
-
288
333
-
621
510
111
-
-
-
7
7
7
-
Total
£'000
-
288
333
7
628
517
111
Due to the cessation of the French operations in Snowite SAS, a provision of £347k has been made for closing down the
operations (see note 3). In addition, a provision has been made in the companys books for future payments
In March 2016 the company acquired Snowite SAS (now 7digital France SAS). As part of the acquisition it negotiated a
reduction in the amount of some of the existing liabilities within Snowite SAS, at the time of the purchase, to €1.7m
(£1.5m). Terms of repayment were also agreed to be over 8 years starting on 7th April 2017. For the first two years
repayments were set at 8% of the debt and then at 14% for each year thereafter. No interest is payable. The whole of
the liability has been included in the Group’s Consolidated Statement of Financial Position (See note 16). A provision has
been made of £333k (of which £111k is non current) in the standalone books of the parent company, as the parent
company has guaranteed the next three repayments of €125k each, payable in April 2019, October 2019 and April 2020.
J.
Share capital
Allotted, called up and fully paid:
400,236,646 ordinary shares of £0.01 each (2017: 398,638,987)
115,751,517 deferred shares of £0.09 each (2017: 115,751,517)
2018
£’000
4,002
10,418
2017
Restated
£’000
3,986
10,418
82
7digital Group plc
Notes to the Parent Company financial statements
Year ended 31 December 2018
GENERAL INFORMATION AND ADVISORS
Registered office
69 Wilson Street
London EC2A 2BB
Country of Incorporation
England and Wales
Registered number
03958483
Nominated adviser and broker
Arden Partners plc
125 Old Broad Street
London
EC2N 1AR
Solicitors
Osborne Clarke
One London Wall
London
EC2Y 5EB
Principal bankers
Barclays Bank plc
United Kingdom House
180 Oxford Street
London
W1D 1EA
Registrars
Link Market Services Limited
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
Auditor
BDO LLP
55 Baker Street
London
W1U 7EU
83