1
Contents
2021 Overview
2
Chairman’s Statement
3
Chief Executive Officer’s Review
4
Chief Financial Officer’s Review
7
Strategic Report
9
Section 172 Statement
11
Board of Directors
14
Directors’ Report
16
Corporate Governance Statement
20
Directors’ Remuneration Report
23
Independent Auditors’ Report to the Members of 7digital Group plc
26
Consolidated Income Statement and Statement of Comprehensive Income for the Group
32
Consolidated Statement of Financial Position
33
Consolidated Cash Flow Statement
34
Consolidated Statement of Changes in Equity
35
Notes to the Consolidated Financial Statements
37
Parent Company Statement of Financial Position
69
Parent Company Statement of Changes in Equity
70
Notes to Parent Company Financial Statements
71
Company Information
79
2021 OVERVIEW
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FINANCIAL SUMMARY
Year ended 31 December 2021
Group Revenue
£6.7 million
(2020: £6.5m)
Gross Profit
£4.3 million
(2020: £4.1m adjusted)
(see page 7 for details)
Adjusted EBITDA Loss
£2.0 million
(2020: £1.9m adjusted)
(see note 6 on page 52 for definition)
Loss Per Share
0.14 pence
(2020: 0.05p)
Gross Margin
64.2 per cent
(2020: 63.4 per cent adjusted)
(see page 7 for details)
Operating Loss
£3.6 million
(2020: £2.1m)
OPERATIONAL HIGHLIGHTS
11 NEW LICENSING CUSTOMERS SIGNED (2020: 5)
SECURED 13 LICENSING CONTRACT EXTENSIONS AND
EXPANSIONS (2020: 4)
SUSTAINED PROGRESS WITH EMUSIC LIVE LIVESTREAM
PLATFORM
MUSIC-AS-A-SERVICE PLATFORM ENHANCED
SUBSTANTIAL GROWTH IN CONTRACTED ORDER BOOK AND
PIPELINE OVER THE YEAR
CHAIRMAN’S STATEMENT
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Tamir Koch
Chairman
29 June 2022
2021 was a year in which we successfully executed on
our strategy to focus on key verticals and consolidated
our leading position across fitness & wellness and social
media. Our market-leading music-as-a-service platform
and strategic focus on core sectors enabled us to grow
the number of customers licensing our technology as
well as the scale and reach of our offering. As a result,
we ended the year with a significantly higher contracted
order book than we entered with. 2021 was also a year
in which we further aligned ourselves with the interests
of artists and consumers of their music, through our
eMusic Live joint offering. The rise of livestreaming
continues to gather pace and become mainstream with
major players now entering the space. With eMusic Live,
we are centrally positioned in this market, and it will take
us towards our aim of becoming a leading platform
providing end-to-end artist services beyond traditional
streaming.
Our ability to capitalise on the growth opportunities in
fitness & wellness and social media and become the
dominant music solutions provider in these target
markets is mainly due to the strength of our platform
combined with our significant industry expertise and
experience. Paul Langworthy, our CEO, and the senior
management team have done a superb job of taking
advantage of these opportunities. At the same time, we
all would have liked this year’s sales growth to have
been greater – which was not the case primarily due to
the pace of closing deals being dependent on our
clients completing their licensing deals with labels,
which, in some instances, took longer than anticipated.
However, we didn’t lose business to our competitors
and our clients tell us they choose to work with us as we
have the best product in the market – it is just a right-
shift in the timeline for completing some deals and we
remain on track for strong growth in 2022.
As Paul discusses further in the Chief Executive Officer’s
Review, during the year we signed 11 new licensing
customers and 13 contract expansions and renewals.
Significantly, many of these are multi-year contracts,
which provides us with greater visibility of revenues
going forward. It also reflects how our superior
technology and service offering has offered real value to
our customers, and how we support them with their
own expansion.
Our eMusic Live platform also continued to thrive in
2021 and the momentum has carried on in 2022. The
venture has evolved multi-genre partnerships to bring
music and customised artist experiences to music fans.
During the pandemic lockdowns, eMusic Live provided
an alternative to live gigs for a struggling music industry,
uniting both big names and relatively unknown artists to
fan bases. Livestreaming, however, is increasingly being
recognised beyond the pandemic as a way of
monetising artists’ and other rightsholders’ work singly
or in tandem with live concerts. In May 2022, Netflix and
Apple, for example, both revealed their interest in
livestreaming, with the latter announcing it will be
launching a new concert livestreaming series – Apple
Music Live. As a dedicated music livestreaming platform,
with
partnerships
established
with
the
biggest
organisations in live entertainment such as AEG
Presents and iHeart Media, and as one of the most
commercial platforms available, eMusic Live is in prime
position to capitalise on this trend.
The music industry is never static. It continues to be
transformed by the emergence of new digital platforms
and formats, which are constantly redefining how
consumers engage with music and creating new
sources of growth. We expect this to continue to benefit
us in fitness and social media markets. We are also
starting to the see the gaming industry as a key vertical
market for our music-as-a-service platform in 2022.
Transformation through the emergence of new digital
formats is also a key driver for our eMusic Live venture.
Bringing together our
technology, our industry
expertise and our experience, we are establishing solid
foundations on which 7digital can build to become the
leading end-to-end platform providing artist services
globally.
I would like to thank Paul Langworthy, our CEO, and
Michael Juskiewicz, our CFO, for their tremendous
efforts in navigating the evolving music landscape. Many
thanks, also, to our senior management team and my
Board colleagues for their considerable contribution as
well as to all of our employees. Their dedication, skills
and professionalism are greatly appreciated.
Mostly, I would like to thank our loyal shareholders for
their ongoing support. As a Board, we all are committed
to creating value for our shareholders, and we believe
that we are in the right market, at the right time and with
the right experience and offering to be able to deliver
this. I look forward to reporting on our progress.
CHIEF EXECUTIVE OFFICER’S REVIEW
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Paul Langworthy
Chief Executive Officer
29 June 2022
In 2021, we progressed the delivery of our new strategy
that we established in the previous year to focus on
core sectors in our licensing business and on artist
monetisation, which we believe offer significant growth
potential. Our success is demonstrated by the
substantial increase in our contracted order book at
year end compared with when we entered the year as
well as the expansion in our pipeline.
As Michael discusses further in the Chief Financial
Officer’s Review, we increased total revenue to £6.7m
(2020: £6.5m), which included good growth in our
licensing business.
In our licensing business, which is the largest
contributor to our revenue and increasingly so, we are
focusing on the strategic growth markets of fitness and
wellness and social media and expanding our presence
into gaming. During the year, we signed 11 new
customers (2020: 5). We also secured contract
extensions with 13 existing customers (2020: 4) – of
which 10 included fee expansions, reflecting the value
of our platform and services to our customers. Many of
these new and renewed contracts are multi-year
agreements, which enhances our visibility over future
revenues.
During the year we actively worked with our partners to
facilitate the licensing process for customers. Our
music-as-a-service platform provides customers with
access to pre-approved music in our global catalogue
based on the licensing agreements held by those
customers with music labels. As we have discussed
previously, the licensing process in some of these new
sectors has taken longer than we had initially
anticipated, resulting in a right-shift in the timing for
some of our expected revenue. However, by supporting
our customers and partners in finding opportunities to
streamline the process, we can enhance our offering to
customers and reduce the sales cycle for securing our
own contracts going forward.
During the year, we also continued to enhance our
music-as-a-service platform and increase our offer to
global brands through establishing several pre-built
integrations that enable customers to easily access
complementary services from other providers.
Our eMusic Live virtual concert and artist monetisation
platform that we launched last year in collaboration with
eMusic has continued to grow, entering partnerships
with further artists, agencies and venues as the music
industry increasingly seeks new engagement and
monetisation opportunities. During the year, eMusic
Live livestreamed events globally with some world-
renowned artists while also evolving the digital
merchandising platform, including the first offering of
NFTs alongside ticketed events.
As a result, we ended the year in a far stronger position
than when we started, with exciting prospects ahead of
us. Now to go into our activities during the year in more
detail.
Fitness and Wellness
Our solution for fitness and wellness brands enables
customers to seamlessly incorporate music into their
offering and it is designed to make it easy for them to
maximise the benefits of music. Based on our music-as-
a-service platform, we provide features such as end-to-
end global rights and reconciliation management,
access to our global catalogue and an easy-to-use
playlisting tool. We believe that we have established a
dominant position in this global growth market.
During the year, we converted multiple sales leads into
long-term contracts – adding seven new fitness and
wellness companies to our customer base. In particular,
we continued to grow our roster of home fitness clients,
signing contracts with:
Barry’s, the global fitness brand, which is using our
instructor playlisting tool in the US and Canada to
access a fully cleared catalogue of music to power
Barry’s X, a new digital product offering a fully
integrated, many-to-many camera-on experience.
FORME, a premium home fitness system that
delivers one-on-one fitness experiences through
elegant, full-length mirrors that transform into
immersive personal training studios.
Stryde, a provider of immersive cardio and
strength workouts on a high-performance bike in
the home, which is using our platform in the US to
access a fully rights-cleared music that can be
synchronised with video programmes and made
available on-demand.
CHIEF EXECUTIVE OFFICER’S REVIEW
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Volava, a European interactive fitness platform
that is using 7digital’s solution for its bike-based
online fitness offering in Spain.
Mentra by SATS, a new live and on-demand home
workout experience from SATS, which is the
leading provider of fitness and training services
Nordics-wide.
We also expanded our offer into the wider health and
wellness market with the signing of 24-month contracts
with
MedRhythms,
a
US-headquartered
digital
therapeutics company that uses sensors, music and
software to measure and improve walking, and a
second company that is creating a music-based health
application for people with dementia. Both customers
will use our music-as-a-service platform to access our
licensed catalogue and playlisting tool to design their
interactive and therapeutic experiences.
Social Media
7digital is helping to shape how fans discover, share and
create music by powering rights-cleared music on social
media platforms. We made strong progress during the
year in this sector with the signing of a contract with
Kuaishou, a leading content community and social
platform based in China. This reinforced our position as
one of the largest providers of licensed music to global
social media giants and tech-driven consumer brands.
We also continued our long-standing relationships with
our other customers in the social media sector, such as
Triller Inc. Triller, which works with some of the biggest
global artists and counts Snoop Dogg, The Weeknd,
Marshmello and Lil Wayne as strategic investors, is an
AI-powered app that allows users to choose their
favourite music to create auto-edited, professional-
quality videos that can be published on the app or
shared via other social media channels.
eMusic Live & Artist Monetisation
7digital continues to drive new sources of growth in the
music industry through its eMusic Live venture. This
advanced live streaming platform enables artists,
venues and brands to host live concerts while providing
a range of commercial and fan engagement tools,
offering new ways to monetise performances and
engage with global audiences. Post year end, as also
announced today, the Group entered into an
agreement with eMusic regarding eMusic Live that
strengthens the partnership while expanding the
Company’s revenue-generating opportunities.
eMusic Live has now hosted 159 livestream and hybrid
events. During the year this included performances by
multiple-award winning artists such as Crowded House
and Tina Arena in Australia and Ivri Lider in Israel, with
the latter two becoming among the first artists globally
to host live-digital hybrid events where fans can stream
a concert in real time.
Additionally, eMusic Live became the first livestream
service to offer artist NFTs alongside ticketed events
running on the platform. This allows fans to own
authentic digital merchandise while substantially
increasing artists’ monetisation ability.
Post year end, eMusic Live announced a strategic
relationship with AEG Presents, the world’s largest live
entertainment company and an authority in live music.
In this milestone achievement, eMusic partnered with
AEG Presents to exclusively livestream Hangout Music
Festival and Cali Vibes Festival, featuring some of the
world’s
biggest
artists.
These
events
achieved
unprecedented scale and success, with over 500,000
views by fans in 73 countries who streamed millions of
minutes of showtime. With a portfolio of premier music
festivals, marquee concert venues, and in-house
content development, the company has a multinational
reach, promoting festivals and tours across Europe, Asia
and North America. Hangout Music Festival is but one
of the festivals that AEG Presents promotes, with others
including Coachella Music & Arts
Festival and
Stagecoach in the US, as well as All Points East and
American Express presents BST Hyde Park in the UK.
This international reach leaves this partnership open to
further expansion, and we are very excited about its
potential.
In addition, eMusic Live also announced a partnership
with iHeartMedia, the largest audio company in the US,
to livestream the star-studded line-up at the 2022
iHeartCountry Festival, including performances from
Carrie Underwood and Maren Morris. With over a
quarter of a billion monthly listeners, the iHeartMedia
Multiplatform has an extensive reach in the US. In
addition to the hottest country superstars, the
livestream platform also featured music, brand
sponsorships, and exclusive behind-the-scenes VIP
content and interviews.
CHIEF EXECUTIVE OFFICER’S REVIEW
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Other Key Music Licensing Contracts
In other verticals, we won three new music streaming
services customers. This includes signing a 36-month
contract with Viihdeväylä Oy, a Finnish company that
provides background music and playlisting curation to
restaurants.
We were delighted to sign an extended contract
continuing into 2023 with our global technology
company customer. This is a highly significant deal and
represents a major validation of the scale and reach of
our platform.
We also secured renewals with existing customers such
as media company Global Radio, owner of the largest
commercial radio company in Europe.
Post year end, we signed a significant contract
expansion with an existing B2B music streaming service
customer, which is worth a minimum of €2.2m over a
three-year period. We also signed a new two-year
contract worth at least £1m with a pan-Asian consumer
services company to provide access to our global
catalogue, full licence compliance management and
curation via our playlisting tool. In addition, we won a
24-month contract with a new music and data platform
designed to better meet the monetisation needs of the
rightsholder community. The customer expects to
launch the service later in 2022.
New Integrations and Partnerships
We have continued to enhance our platform and
increase our offer to global brands through establishing
pre-built integrations that enable customers to easily
access complementary services from other providers.
During the year, we established new integrations and
partnerships with:
Super Hi-Fi, an audio technology company using
AI-based technologies to deliver next-generation
music listening experiences. The integration of
Super Hi-Fi’s audio stitching and automated
content curation technology allows customers to
add a critical layer of differentiation and
customised listening features to their music
services when they access their music catalogue
via 7digital’s platform.
Muzooka, a leading verified artist asset database,
so that content delivered via our music-as-a-
service platform is pre-mapped with Muzooka’s
pre-approved database of artist images, links and
other media assets.
ACRCloud to produce a solution around User
Generated Content (“UGC”) monitoring. The
partnership
pairs
7digital’s
catalogue
with
ACRCloud’s leading fingerprint database of over
100 million tracks to create a simpler, more
accurate and cost-effective process for companies
wishing to monitor and report on UGC.
Outlook
7digital entered 2022 with a substantially higher
contracted order book than at the same point of the
previous year and with a strong pipeline in our core
sectors as well as a number of prospective contracts in
the new sectors of gaming and connected-car
entertainment. We have already had some notable
conversions of our pipeline into contracts this year and
has already secured contracted licensing revenue for
full year 2022 that is 21% greater than that achieved for
2021. The Board is confident that some of the other
prospective contracts, including those representing
significant revenue, will be signed in the near-term with
others to follow in due course.
As a result, the Board continues to expect to deliver
significant revenue growth in 2022.
The music industry continues to be transformed by the
emergence of new digital platforms and formats, which
are redefining how consumers engage with music and
creating new sources of growth. This is evident across
fitness and social media - two markets in which 7digital
has established a position as the go-to provider for
music services. It is also a key driver for our eMusic Live
venture, through which artists can distribute, promote
and monetise their music beyond traditional streaming
with
direct-to-fan
opportunities
such
as
NFTs,
livestreaming and merchandise. This provides a
compelling platform for 7digital to become the leading
provider of artist services globally.
Coupled with the Group generating positive EBITDA for
May 2022, the Board remains confident in the outlook
for the business and in the opportunities ahead.
CHIEF FINANCIAL OFFICER’S REVIEW
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Michael Juskiewicz
Chief Financial Officer
29 June 2022
Financial results
The Group’s revenue for 2021 was £6.7m compared with £6.5m in 2020.
Licensing revenue continued to be the largest contributor to Group revenue, accounting for 56.4% (2020: 51.5%), with
30.8% provided by Content (2020: 32.0%) and 12.8% by Creative (2020: 16.5%).
Gross margin for 2021 was 64.2% (2020: 71.1% as stated; 63.4% before £500k of content accruals was released to cost
of sales, see note 1 on page 47). Gross profit for the year was £4.3m (2020: £4.6m as stated; £4.1m before £500k
content accrual release).
Administration expenses increased by £0.6m to £8.0m (2020: £7.4m).
Operating loss relating to ongoing operations for 2021 increased to £3.6m (2020: £2.1m loss) primarily due to the
increase in 2021 costs relating to grant of share options of £481k and with no equivalent in 2021 of the 2020 releases
of £878k relating to a) £500k content accrual release and b) £378k profit from the sale of a right-of-use asset. Adjusted
EBITDA loss increased to £2.0m (2020: £1.4m loss as stated; restated to £1.9m before £500k content accrual release).
Loss before tax on ongoing operations increased to £3.8m (2020: £2.3m).
Loss per share on ongoing operations was 0.14 pence (2020: 0.09 pence loss). Loss per share attributable to
shareholders was 0.14 pence (2020: 0.05 pence loss).
Revenue
2021
reported
£’000
2020
reported
£’000
2020
adjusted*
£'000
Change
Change
£'000
%
Licensing
3,797
3,355
3,355
442
13%
Content
2,073
2,085
2,085
-12
-1%
Creative
862
1,073
1,073
-211
-20%
Total Revenue
6,732
6,513
6,513
219
3%
Gross Profit
4,323
4,632
4,132
191
5%
Gross Margin %
64.22%
71.12%
63.44%
0.78%
*adjusted for £500k content accrual release (see note 6 page 52)
Administrative Expenses
2021
£’000
2020
£’000
Change
%
Underlying Administrative Expenses
7,460
6,950
510
7.34%
Other Adjusted Administrative
Expenses
509
465
44
Total Administrative Expenses
7,969
7,415
554
7.47%
Licensing revenue
56.4%
51.5%
Content
30.8%
32.0%
Creative
12.8%
16.5%
Total Revenues
100.0%
100.0%
CHIEF FINANCIAL OFFICER’S REVIEW
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Adjusting items
Other adjusting items for the year totalled £509k (2020: £465k) of which £153k related to consultancy costs connected
to the eMusic Live collaboration where the Group contracted directly with the suppliers, £112k provision for the
uncertain recoverability of the cash advances made to the eMusic Live collaboration, £93k related to exceptional legal
litigation fees, £65k for corporate restructuring costs and £86k for technology costs that may be payable in the future.
Dividend
During the year, 7digital did not declare an interim dividend and the Board of Directors is not proposing a final dividend
for 2021 (2020: no interim or final dividend).
Funding
On 18 October 2021, the Group negotiated a further £1m secured revolving credit facility (“RCF”) with Investec, for the
period to 28 September 2023, aligned with the initial £1m taken out on 28 September 2020 for 36 months The funds
drawn under the RCF attract interest, payable quarterly, at 6% above the Bank Base Rate. The Company issued 5,437,883
warrants to Investec with an exercise price of 0.55 pence in part satisfaction of an arrangement fee. The RCF is secured
by way of a debenture from the Company together with guarantees provided by certain shareholders, including Tamir
Koch and David Lazarus, each a Board Director (see page 23 for Directors’ Shareholdings).
Post year end, in June 2022, the Group entered into an agreement with a major shareholder for a 13-month loan of up
to £0.5m. The funds drawn attract interest, to be rolled up and payable on the date of repayment of the loan, at 6%
above the Bank of England’s base rate from time to time. In addition, the Group has received letters of support from
major shareholders for the provision of further loans of up to £3.5m, expiring 30 June 2023.
Cash and Cash Flow
As at 31 December 2021, the Group had a cash balance of £0.4m (31 December 2020: £2.8m).
Net cash outflows during the year totalled £2.4m (2020: £3.0m inflow), which was largely driven by an operating cash
outflow of £3.4m and in-house development of the Company’s API platform of £0.5m partly offset by the net cash inflows
from the Investec funding of £1.7m.
Material Uncertainty related to Going Concern
As discussed in note 1 to the financial statements, the Board of Directors of 7digital consider the Company to be a going
concern, but acknowledge there to be a material uncertainty relating to going concern. The independent auditors’ report
is not modified in respect of this matter. The financial statements do not include any adjustments that would result if
the Company were unable to continue as a going concern. For further details, refer to the ‘Going Concern’ section of
the Directors’ Report on page 17 and in note 1 to the financial statements.
STRATEGIC REPORT
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Strategy and business model
7digital provides end-to-end digital music solutions for its business customers. 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. We cater for a diverse range of B2B customers – including consumer and
social media brands, online fitness companies, mobile carriers, broadcasters,
automotive systems, record labels and retailers. Our core platform provides
customers with access to cloud-based software. We also offer radio production and
music curation services.
Our strategy is to grow revenues, profitability and shareholder returns through:
offering flexible, highly productised, end-to-end music solutions that drive high gross profit margin deals;
increasing the number of clients, we serve in strategic, well-funded market verticals;
moving to more usage-based commercial deals where successful client consumer use drives revenue beyond our
fixed recurring licence fees, meaning 7digital can recognise increasing revenues based on our clients’ success;
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, user consumption and
client needs;
applying strict control of our cost base to ensure that revenue growth is quickly reflected in improved overall Group
profitability; and
establishing and maintaining a partner channel program for scaling sales into the identified target market verticals.
7digital operates:
business–to–business technology and music services (Licensing revenue), which is our primary focus;
business–to–consumer music services under the 7digital brand (Content revenue); and
content production under the 7digital Creative brand.
7digital is also seeking to utilise its platform to leverage the growing trend in artist monetisation whereby artists’
managers and labels are looking for new ways to monetise music consumption, such as through sponsorships, music
sales and merchandise.
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.
Platform revenue comprises the following fee structures:
-
Set-up fee for granting access to the 7digital platform and use of a given catalogue across required territories,
plus any associated initial configuration work
-
Monthly access fee, which is a fixed fee based on catalogue size and number of territories
-
Usage, which covers certain variable costs like bandwidth
-
Reporting – variable charges to generate royalty and usage reports to rights holders
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
Our strategic priority is to
secure monthly recurring
long-term contracts for our
Music-as-as-a-Service
platform, focusing on our key
business-to-business
markets of social media and
home fitness.
STRATEGIC REPORT
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an HTML5, mobile optimised web store. Content (download) revenues are recognised by 7digital on the delivery of
content.
Creative
7digital produces approximately 700 hours of video and audio content every year. It benefits from regular commissions
from the 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.
Principal risks and uncertainties
The Directors consider the principal risks and uncertainties facing the Group, and a summary of the key measures taken
to mitigate those risks, are as follows:
Financial risks
The key financial risk is the availability of sufficient funding until the business reaches a sustained positive cash
generative position. The Group has an experienced finance team that provides effective management of the Group’s
financial exposures, with a strong focus on cash control. During the year the Group secured a further revolving credit
of £1m. After the year end, the Group received £0.5m in the form of a long term shareholder loan. With the forecast
revenue growth along with the £3.5m support in the form of loans from its largest shareholders expiring 30 June 2023,
the Board is confident that the Group will have sufficient funding to enable it to capitalise on the growth opportunities
it has identified.
Competition
The market in which the Group operates has seen a number of significant changes, such as the shift from physical sales
to digital downloads, then onto streaming and now the emergence of new Web 3.0 technologies. While some of the
Group’s competitors have shifted the focus away from B2B, some may announce or develop new products, services or
enhancements that better meet the needs of customers or the end consumers. Further, new competitors, or alliances
among competitors, could emerge. Increased competition may cause price reductions, reduced gross margins and loss
of market share, any of which could have a material adverse effect on the Group’s business, financial condition and
results of operations. However, 7digital’s position in the market and strong relationship with the major record
companies mean we have support to help grow the market by significantly lowering the barriers to entry for new services
and formats for music consumption. The Group’s product roadmap is regularly evaluated against the developing
marketplace to ensure that we remain competitive.
In the 2022 labour market, there is an unprecedented demand for highly skilled technology employees. As a result,
there is a flight risk that 7digital could lose its technology staff motivated by elevated salaries that are presently on offer
in the market. Furthermore there is also the added difficulty of attracting highly skilled technology candidates.
Market demand
The Directors believe that the overall market for the Group’s products and services will continue to grow and that its
success will be driven by how well it can execute in the market. The Group 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.
Operational risks
The key risk to the Group’s operations is any disruption in the availability or performance of its music platform. The
Group has invested in a cloud-based disaster-recovery environment for its core databases so that the platform can
continue to run in the event of a serious incident at its datacentres. The Group has also moved its back-office file servers
into a cloud-based service, so they are not reliant on a datacentre. The Group has implemented a number of measures
to protect against the threat of a cyberattack, such as investing in a cloud-based pen testing service that scans IT
endpoints daily for vulnerabilities in both the Group’s data centre and cloud environments.
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Section 172 statement
Section 172 of the Companies Act 2006 requires each Director of the Group to act in the way they consider, in good
faith, would most likely promote the success of the Group for the benefit of its members as a whole. In this way, Section
172 requires a Director to have regard, amongst other matters, to the: likely consequences of any decisions in the long-
term; interests of the Group’s employees; need to foster the Group’s business relationships with suppliers, customers
and other material stakeholders; impact of the Group’s operations on local communities and the environment;
desirability of the Group maintaining a reputation for high standards of business conduct; and need to act fairly between
members of the Group.
In discharging its 172 duties, the Board has considered the factors set out above and the views of key stakeholders as
described below.
The Board acknowledges that some decisions will not necessarily result in a positive outcome for all of 7digital’s
stakeholders. However, by considering the Group’s purpose, mission and values and commitment to responsible
business together with its strategic priorities and having a process in place for decision-making, the Board aims to
ensure that its decisions are in the best interests of the business.
We operate in a sensitive environment between right holders and service providers, commercial entities and brands,
and as such ensure that we meet all the standards required by our customers and our suppliers, such as privacy,
information governance, reporting and rights compliance.
Employees
The Group is small and, while clear management structures are in place, all employees, if required, have direct access
to the Executive Directors daily and, if necessary, to the Chairman. The Group retains HR services to ensure the fair and
equitable treatment of employees. The Group promotes a policy of promoting from within supported by training and
mentorship. We encourage diverse thinking and recognise strengths and contribution to the business.
The Group conducts monthly all staff engagement surveys, with the results shared company-wide, and holds quarterly
survey meetings for teams and their managers to take immediate action on feedback from employees. The Group
granted share options to all staff under a staff share incentive scheme in May 2021.
The Group continues to provide an Employee Assistance Programme to employees and their family members with
complimentary 24/7 access to support for mental health, financial and other advisory needs; providing access to online
GP services; training three mental health first aiders for different parts of the business; undertaking monthly health &
wellbeing survey; offering flexible working to support parents and carers; issuing screens and equipment from the office
for home use; providing full sick pay for those self-isolating or ill with COVID-19; holding regular ‘All Hands’ meetings to
provide updates; and arranging regular remote social events.
The Group is pleased to note that its Employer Net Promoter Score increased from +10 in January 2021 to +33 in January
2022 and the Staff Survey Engagement Score improved from 7.4 in January 2021 to 7.7 in January 2022.
Customers
We engage and build our relationships with our customers in a number of ways, from tech- and product-driven updates
that improve efficiency and transparency in operations and standards of performance, to our face-to-face interactions
with our “white glove” standard customer service, accompanied with a client support hub and client-facing
documentation. We undertake regular business reviews with our clients to report on account performance, user and
account level analytics, technology roadmap and new partnerships supported as well as to gather customer feedback.
The success of the Group’s client engagement was demonstrated with renewal agreements being signed with 13 existing
clients in 2021. In addition, the Group also supported a number of product upsells with existing clients to further
enhance their service covering support for areas such as new label ingestion, expansion to additional service countries
and provision of additional rightsholder reports.
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Suppliers
We engage with our label partners frequently during the ordinary course of business to communicate new client deals
and to seek relevant approvals to make content available. We undertake regular business reviews with the major labels
to report on performance, collaborate on market opportunities and provide them with updates on the 7digital
strategy. In 2021 we made a concerted effort to improve our ingestion processes for the benefit of our suppliers with
the consequence that we now have several of our supplier feeds automated and we have reduced our average ingestion
time significantly.
We also made great strides in increasing the overall number of suppliers on our platform by on-boarding more Merlin
member content. Also in 2021, we started to roll out a new Supplier Dashboard that provides our supplier partners
with information regarding which 7digital clients have access to a supplier’s catalogue and how that catalogue is
performing on each service. This initiative will extend into 2022. Further, we have begun work on improving the flexibility
of our catalogue availability tools. Such tooling will enable suppliers to designate individual tracks as exclusive to a
particular client, or to exclude portions of catalogue from a designated client. This has become increasingly important
to suppliers as we have expanded the use cases of the platform into the spheres of social and fitness.
Shareholders
The Board is focused on delivering value for shareholders by focusing on continued strategic innovation via a policy of
market validation and product development funded through organic investment plus capital raises, as agreed at
shareholder meetings, and supported by clearly communicated vision and direction. In our communication to
shareholders, the Board is clear in terms of its short, medium and long-term strategy and maintains an open-door
approach to shareholders seeking additional clarity on any issue and offers a dedicated investor email contact via the
website. The Board release notices on a regular basis informing shareholders of developments in areas of business
progress, non-confidential strategic decisions and any change to Group policy. During 2021, the Group also hosted an
online investor meeting where Paul Langworthy, CEO, presented information on the Group’s operations and strategy
and investors were given the opportunity to ask questions.
Key Performance Indicators
For the year ended 31 December 2021, we measured our performance using the key indicators below. As the business
develops, the Board intends to adopt additional, non-financial key performance indicators (KPI) to measure the delivery
of our strategy:
Revenue
Why it is a KPI: Reflects the element of billings generated and recognised during the period from all operations
and measures our overall performance at a sales level.
Performance 2021: £6.7m (2020: £6.5m)
Administrative Expenses
Why it is a KPI: Indirect expenditure on running the business, which reflects cost effectiveness and cost
management, and which is of key importance while the Group is developing its revenue streams.
Performance 2021: £8.0m (2020: £7.4m)
Gross Profit
Why it is a KPI: An indicator of the amount of profit available to cover overheads and ultimately pass to the
owners.
Performance 2021: £4.3m (2020: £4.1m adjusted see page 7)
Adjusted EBITDA
Why it is a KPI: A key measure of our effectiveness of turning revenue into earnings.
Performance 2021: £2.0m loss (2021: £1.9m loss adjusted see note 6 on page 52)
Cash Balance
Why it is a KPI: The Group’s cash balance provides a measure of our financial strength and self-sufficiency to
support operations while the business is at the pre-profit stage.
Performance 2021: £0.4m at year end (2020: £2.8m)
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Debtor Days
Why it is a KPI: An indicator of how quickly invoices are converted to cash which can be put to use to support
operations and management strategy.
Performance 2021: 30 (2020: 55)
Approved by the Board of Directors and signed on behalf of the Board.
Paul Langworthy
CEO
Lower Lock, Water Lane, London, NW1 8JZ
29 June 2022
BOARD OF DIRECTORS
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EXECUTIVE DIRECTORS:
Paul Langworthy, Chief Executive Officer
Paul was appointed CEO of 7digital in July 2019, to lead the restructuring and repositioning
of the Group as a global leader in B2B music solutions. Under his leadership, the Group
has refocussed to capitalize on the flexibility and scalability of the 7digital platform
technology and catalogue to power unique and diversified customer experiences on behalf
of enterprises and brands in the music streaming space. Previously COO, Paul was
responsible for organizing the business to meet its strategic goals and objectives. Paul
joined 7digital in April 2013 and has become a driving force in the Group's operations.
Initially managing the Group's content supply chain, he later took leadership of 7digital's
Client Operations teams. Paul also oversaw operations within the Production businesses
that became part of 7digital Group plc following the 2014 merger with UBC Media. With 18
years of experience in digital and content operations, Paul has worked across all aspects of
the digital supply chain including metadata, rights, scheduling, asset management and
distribution. Prior to 7digital, Paul oversaw Content Operations at digital TV service YouView.
He also spent over nine years with Universal Music Group within the label's International
Digital Supply Chain Management division.
Michael Jusekwicz, Chief Financial Officer
Michael is an experienced technology, media and finance executive who currently also
holds the position of CFO & Head of Corporate Development at eMusic. Michael spent over
10 years working in investment banking, mergers & acquisitions, and capital markets at the
TMT groups of Bank of America Merrill Lynch, Nomura, and Cyndx. Michael has also acted
as interim CFO of Export Now, a cross border focused e-commerce company, and gained
experience working for the international accounting firm BDO. He holds an MBA from the
University of Chicago Booth School of Business and a Bachelor of Science with a double
major in both Accounting and Economics from Tel Aviv University. Michael is the Group
Company Secretary on 25 September 2019.
.
NON-EXECUTIVE DIRECTORS:
Tamir Koch, Chair
Tamir is President of TriPlay Inc., an online music and audiobook store and brand which
started trading in 1998 and is 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
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, as well as being a Director of Magic Investments SA.
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INDEPENDENT NON-EXECUTIVE DIRECTORS:
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.
Helen Gilder
Helen brings a wealth of experience from her time as CFO at AIM-listed ZOO Digital Group
plc, where she was part of the team taking the business from tech start up to success in
the international entertainment industry. Since leaving ZOO in 2018 Helen has built a
portfolio of NED and advisory roles in a range of businesses and is chairperson of a small
charity. Helen qualified with the Institute of Chartered Accountants in England and Wales
in 1991.
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The Board of Directors present their annual report and the audited financial statements for the year ended 31
December 2021. The Corporate Governance Statement on pages 20 to 22 forms part of this report.
Business review and future developments
The Chief Executive’s Review is contained on pages 4 to 6, the Chief Financial Officer’s Review is contained on pages 7
to 8 and the Corporate Governance Statement on pages 20 to 22; 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 32. As in the
previous year, the Board of Directors is not proposing a final dividend for the year ended 31 December 2021.
Directors’ indemnities
The Group 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 £1 million is maintained.
Substantial shareholders
On 17 June 2022 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
742,436,219
27.27%
27.27%
Shmuel Koch Holdings
445,012,126
16.35%
16.35%
Mr Joseph Samberg
345,000,000
12.67%
12.67%
Hargreaves Lansdown Asset Mgt
267,792,864
9.84%
9.84%
Interactive Investor
118,569,823
4.36%
4.36%
The Joe & Sandy Samberg Foundation Inc
100,000,000
3.67%
3.67%
LAS Investments
90,111,111
3.31%
3.31%
Mr Noam Band
89,000,000
3.27%
3.27%
Capital structure
The Group is primarily funded through readily available cash and working capital management.
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 22.
The Company’s share capital consists of 2,722,085,961 of Ordinary 0.01p shares which carry full voting rights,
419,622,489 Deferred 0.99p shares and 115,751,517 Deferred 9p shares both of which carry limited voting rights. The
Ordinary shares carry no right to fixed income. Each Ordinary Share carries the right to one vote at general meetings
of the Company. Details of the share capital can be found in note 22.
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
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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 27.
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 20 to 22.
Please refer to the post balance sheet note 28.
Financial risk management
Consideration of principal risks and uncertainties are included on page 10 of the Strategic Report including the
management of financial risks. These are also outlined further in note 29.
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 14 to 15.
Going concern
The Group made a loss before/after tax of £3,919k in the year (2020: £1,287k) and at the year-end had a net current
liability position of £4,681k. The pressure on short-term working capital combined with a reliance on anticipated
revenue growth which is sensitive to factors outside the Group’s control, as well as the risk that the Group’s sales targets
may not be met, indicate that a material uncertainty exists in relation to the timing of future cash inflows and cash
outflows that may cast significant doubt on the Group’s ability to continue as a going concern.
Taking the reasonable worst-case scenario that has been considered by the Directors, and if the Group is unable to
raise finance from alternative sources, the Group is reliant on continued support from existing shareholders of up to
£4m to ensure it can meet its liabilities as they fall due. Whilst the Group has had success with raising funds in the past,
there is no certainty over future funding. Within the pledged £4m of shareholder support, £0.5m is expected to be
received soon after signing, in the form of a loan repayable in no less than 12 months from the date of drawdown.
Whilst the existing shareholders have demonstrated both the intent and ability to provide this support and have
provided a letter of support to the Group, this support is not certain as it is not legally binding. The uncertainty over
provision of this support, leads to the existence of a material uncertainty; should this support not be provided,
significant doubt would be cast over the ability for the Group to continue trading as a going concern.
The Directors note that the Group has recently generated positive EBITDA and are optimistic that the Group will achieve
its forecast revenue for 2022 and 2023.
Whilst the Directors acknowledge that the above material uncertainties exist at the balance sheet date, the Directors
are confident that the Group’s revenues, profits and therefore cashflow from operations will be in excess of the
reasonable worst case scenario, and the shareholders who have pledged their support will provide this support as and
when the Group requires it to ensure there is sufficient cash over a period of at least 12 months. On this basis, the
Directors have prepared the financial statements on a going concern basis.
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
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contract. Trade creditors for the Group at 31 December 2021 represented 206 days of purchases (31 December 2020:
286 days of purchases).
Auditor
Haysmacintyre LLP were reappointed as the auditors for the year ended 31 December 2021.
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 UK-adopted
International Financial Reporting Standards (“IFRS”) and Article 4 of the IAS Regulation and have elected to prepare the
Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law). The Parent Company financial statements are required by
law to give a true and fair view of the state of affairs of the Company. Under company law, the Directors must not
approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing the Group financial statements,
International Accounting Standard 1 requires that Directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable
users to understand the impact of particular transactions, other events and conditions on the entity's financial
position and financial performance; and
make an assessment of the Company’s ability to continue as a going concern.
In preparing the Parent Company financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
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; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company
will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible
for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
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The Directors are responsible for the maintenance and integrity of the corporate and financial information included on
the Group’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
Lower Lock, Water Lane, London, NW1 8JZ
29 June 2022
CORPORATE GOVERNANCE STATEMENT
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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 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. The following information
is provided to explain how the Company complies with the QCA Code.
Board Composition
The Company is controlled through a Board of Directors, which at 31 December 2021 comprised six Directors: two
executive Directors, two non-executive Directors and two independent non-executive Directors. Short biographies of
each Director are set out on pages 14 to 15. The role of the Chair and that of the Chief Executive are separate.
Tamir Koch, the Chair, is not considered by the Board to be independent by virtue of the fact that he is Executive Chair
of TriPlay Inc., a customer of one of the subsidiaries, and his related party relationship with Shmuel Koch Holdings which
is a substantial shareholder. David Lazarus is not considered by the Board to be independent by virtue of the fact that
he is Executive Chair of Magic Investments SA which is a substantial shareholder. Mark Foster and Helen Gilder are
considered independent by the Board.
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 9 to 10. 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.
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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 £1 million is
maintained.
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 8. The attendance at formal
scheduled meetings of the Board was as follows:
Number of
Board Meetings
attended
Number of eligible Board Meetings
P Langworthy
12
12
M Juskiewisz
12
12
T Koch
12
12
D Lazarus
11
12
M Foster
12
12
H Gilder
12
12
In addition, there were a number of informal meetings of the Board.
The Company has adopted a Share Dealing Code (including compliance with 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 18 and the auditor’s statement on the respective responsibilities of Directors and the auditor is included
within their report on pages 26 to 31.
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.
CORPORATE GOVERNANCE STATEMENT
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Audit Committee
The Audit Committee consists of Helen Gilder (the Chair) and Mark 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 3 times during the period. The Committee reviews arrangements by which staff of
the Group may raise in confidence concerns about improprieties in matters of financial reporting or other matters and
investigates appropriate follow-up action.
The Audit Committee recommends to the Board the appointment, re-appointment or removal of the external auditor.
On 16 December 2021, the Audit Committee made the decision to reappoint Haysmacintyre LLP as external auditors.
Remuneration Committee
The Remuneration Committee consists of Mark Foster, as chairman, Tamir Koch and Helen Gilder. Further details of the
Committee’s remit are contained in the Directors’ Remuneration Report on pages 23 to 24. The Remuneration
Committee met formally once during the period.
Risk Register
A risk register is implemented to improve process, enhance and strengthen internal controls and manage risk.
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 executive Directors and
Chairman give presentations to analysts and investors and are available for one-to-one formal meetings with the
Group’s key shareholders.
The Company responds formally to all queries and requests for information from existing and prospective shareholders.
In addition, the non-executive Directors are available to shareholders to ensure that any potential concerns can be
raised directly. The Group’s Annual Report and Accounts, final and interim announcements, trading statements and
press releases are available on its website at about.7digital.com.
Constructive use of the AGM
The Board uses the Annual General Meeting to communicate with both institutional and private shareholders.
Resolutions are proposed on each substantially separate issue and the agenda includes a resolution to adopt the
Group’s Annual Report and Accounts. Details of the proxy votes for and against each resolution are announced after
the result of the hand votes is known. Before the formal business of the AGM is undertaken, the Chair invites
shareholders’ questions to the Board.
DIRECTORS’ REMUNERATION REPORT
23
> Overview
> Strategic Report
> Governance
> Financial Statements
Remuneration Committee
The Board has established a Remuneration Committee with formally delegated duties and responsibilities. The
Remuneration Committee consists of Mark Foster, as chairman, Tamir Koch and Helen Gilder. The provisions of the QCA
Code recommend that as Company Chairman, Tamir Koch, should not be a member of the Committee. However, it was
considered that Tamir’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 2021 for the 7digital Group
was as follows:
Salary
Fees
Share-based
payments
Pension
contribution
Total
2021
Total
2020
£’000
£’000
£’000
£’000
£’000
£’000
Executive
P Langworthy
240
-
158
9
407
358
M Juskiewicz (1)
-
252
84
-
336
189
Non-executive
M Foster (2)
50
-
68
-
118
55
H Gilder (3)
35
-
12
-
46
41
Total
325
252
321
9
906
317
(1)
M Juskiewicz was paid fees of £252k via his consultancy business in the US.
(2)
The remuneration of M Foster includes £5,000 per annum to be satisfied through the issue of 1,063,830 options by reference
to the share price at the year-end. During the year, M Foster received 5,000,000 share options valued at £68k being the
settlement of accrued remuneration for prior years; these options formed part of M Foster remuneration and were not
performance related. As at 31 December 2021, M Foster was owed fees of £5,000 which is included in derivative liabilities at
the year end and which will be satisfied through the issue of options, subject to market conditions,
(3)
The remuneration of H Gilder includes £5,000 per annum to be satisfied through the issue of 1,063,830 options by reference
to the share price at the year-end. During the year H Gilder received 527,778 share options valued at £12k relating to the
settlement of accrued remuneration for prior years; these options formed part of H Gilder remuneration and were not
performance related. As at 31 December 2021, H Gilder was owed fees of £5,000 which is included in derivative liabilities at
the year end and which will be satisfied through the issue of options, subject to market conditions.
T Koch and D Lazarus received no remuneration during the year (2020: £nil).
Total employer national insurance contributions relating to Directors’ remuneration were £39,540 (2020: £33,923).
Directors and their interests
The Directors who held office at 31 December 2021 had the following interest in the ordinary share capital of the
Company at the end of the year:
2021
2020
Number of
ordinary shares
Ordinary
shares under
options
Number of
ordinary shares
Ordinary
shares under
options
D Lazarus (1)
742,436,219
-
742,436,219
-
T Koch (2)
446,512,126
-
445,012,126
-
M Juskiewicz
1,000,000
8,000,000
-
-
M Foster
587,943
5,000,000
587,943
-
P Langworthy
25,572
14,600,000
25,572
2,716,667
H Gilder
-
527,778
-
-
DIRECTORS’ REMUNERATION REPORT
24
> Overview
> Strategic Report
> Governance
> Financial Statements
At 31 December 2021, the following Directors’ interests were also noted:
1.
742,436,219 (2020: 742,436,219) were held by Magic Investments SA of which D Lazarus is a Director.
2.
445,012,126 (2020: 445,012,126) were held by a Shmuel Koch Holdings of which T Koch is a Director and
1,500,000 held by T Koch under Nominee (UK) Limited.
During the year the Non-executive Directors accepted a change to their remuneration packages; remuneration in the
form of shares was now satisfied by remuneration in the form of share options; consequently, no shares were issued
to Non-executive Directors in lieu of remuneration.
Accrued gross
number of
ordinary shares
remaining due at
31 Dec 2020
Shares issued
during year in
lieu of
remuneration
Shares forfeited
during year due
to resignations
Accrual
released by
conversion to
share options
Accrued gross
number of
ordinary shares
remaining due at
31 Dec 2020
M Foster
4,628,236
-
-
(4,628,236)
-
H Gilder
1,493,951
-
-
(1,493,951)
-
Total
6,122,187
-
-
(6,122,187)
-
The Company has established a tax efficient EMI option scheme, an “unapproved” share option scheme pursuant to
which the CEO, CFO 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:
Share Options
Currently
Exercisable
Exercise
price
Earliest exercise
date
Latest exercise
date
P Langworthy
883,333
883,333
0.0p
29 Aug 2019
27 May 2031
P Langworthy
883,333
883,333
0.0p
29 Aug 2020
27 May 2031
P Langworthy
883,334
883,334
0.0p
29 Aug 2021
27 May 2031
P Langworthy
3,555,555
3,555,555
0.0p
27 May 2021
27 May 2031
P Langworthy
3,555,556
3,555,556
0.0p
01 Jul 2021
27 May 2031
P Langworthy
3,555,556
-
0.0p
01 Jul 2022
27 May 2031
P Langworthy
853,416
853,416
0.0p
27 May 2021
27 May 2031
P Langworthy
429,917
429,917
0.0p
01 Apr 2022
27 May 2031
M Juskiewicz
2,666,666
2,666,666
0.0p
27 May 2021
27 May 2031
M Juskiewicz
2,666,667
2,666,667
0.0p
18 Jul 2021
27 May 2031
M Juskiewicz
2,666,667
-
0.0p
18 Jul 2022
27 May 2031
M Foster
5,000,000
5,000,000
0.0p
27 May 2021
27 May 2031
H Gilder
527,778
527,778
0.0p
27 May 2021
27 May 2031
There are a number of performance conditions relating to all the financial periods ending December 2016 to 2021
(inclusive) attached to these options. Of these options granted, the table below shows the options issued, exercised,
lapsed or forfeited during 2021:
Share Options
held at 31
December 2020
Issued
Forfeited
Lapsed
Share Options
held at 31
December 2021
P Langworthy
2,716,667
11,066,667
(66,667)
-
13,716,667
M Juskiewicz
-
8,000,000
-
-
8,000,000
M Foster
-
5,000,000
-
-
5,000,000
H Gilder
-
527,778
-
-
527,778
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF 7DIGITAL GROUP PLC
26
> Overview
> Strategic Report
> Governance
> Financial Statements
Opinion
We have audited the financial statements of 7digital Group Plc (the ‘parent company’ or referred to together with its subsidiaries as
the ‘group’) for the year ended 31 December 2021 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated and Parent Company Statement of Financial Position, the Consolidated Statement of Cash Flows, the Consolidated and
Parent Company Statements 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 UK-adopted International Financial Reporting Standards (“IFRS”). 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 2021 and of the group’s
loss for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards ;
• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
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 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
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate but acknowledge that there are material uncertainties in relation to continued
shareholder support and the timing of cash inflows and cash outflows which could materially impact the cash position throughout the
going concern period.
Our evaluation of the directors’ assessment of the entity’s ability to continue to adopt the going concern basis of accounting included
but was not limited to the following:
-
We have obtained management’s going concern assessment and challenged and scrutinised the estimates and assumptions
made in the forecasts that allow management to satisfy themselves that the Group is a going concern.
-
This included an assessment of possible methods of preserving cash that management have presented in their forecasts as
mitigating factors.
-
We have challenged and corroborated management’s forecasts and considered previous forecasts against actual results as
an indicator of management’s ability to successfully forecast.
-
We have reviewed the letter of support from two shareholders, showing commitment to provide the group with the
sufficient financial support as is evidenced as required per the reasonable worst case cashflow forecast, being £4m.
-
We have confirmed that one of the shareholders has agreed to provide the Group with an injection of £500k within the 7
days following the signing of the financial statements, as a long term loan facility, demonstrating both the ability and desire
to provide the Group with the required support
-
We verified that these shareholders have sufficient liquid resources to allow them to provide this support. This entailed a
review of documentation supporting this capability that has been provided to the Directors in making their assessment.
-
We have reviewed the disclosures made by the Directors in the Directors’ report, Strategic report and notes to the financial
statements to ensure appropriate disclosure has been made regarding the material uncertainty noted.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF 7DIGITAL GROUP PLC
27
> Overview
> Strategic Report
> Governance
> Financial Statements
The group made a loss before tax of £3.91m during the year ended 31 December 2021 and, as of that date, the group’s liabilities
exceeded its total assets by £6.08m.
The Directors have prepared a detailed cashflow forecast including a plausible worst-case scenario. Under the plausible worst-case
scenarios, the directors are comfortable that the level of support required to ensure the group remains cash positive, will be met by
two shareholders and as such, consider the Group to be a going concern, but acknowledge there to be a material uncertainty.
The Directors have indicated in their assessment of going concern, that the Group is reliant on the following, to ensure the Group has
sufficient cash to meet its liabilities as and when they fall due for a period of 12 months:
-
the continued support from two shareholders, who have provided a letter of financial support for an amount of £4m,
including £500k which will injected into the business as a long term loan within 7 days of signing the financial statements;
-
the timing of cash inflows and cash outflows throughout the going concern period
-
winning a number of new contracts and increasing fees in line with expectations
The Directors are satisfied that should the actual results not be in line with, or in excess of their reasonable worst-case scenario, there
are appropriate cash savings that can be made by reducing variable costs, and halting discretionary capital expenditure.
The Directors are satisfied that the group is a going concern due continued financial support provided by two shareholders, as well as
highlighting sufficient cost savings that could be made should performance not be in line with, or in excess of the reasonable worst
case scenario prepared.
We draw attention to note 1, the accounting policy note on going concern, and the various disclosures made throughout the directors’
reports. As stated in this note, these events indicate that a material uncertainty exists that may cast significant doubt on the group’s
ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
The financial statements do not include any adjustments that would result if the group was unable to continue as a going concern.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, in evaluating the effect of misstatements and in
forming an option. For the purpose of determining whether the financial statements are free from material misstatement, we define
materiality as the magnitude of a misstatement or an omission from the financial statements, or related disclosures, that would make
it probable that the judgement of a reasonable person, relying on the information would have been changed or influenced by the
misstatement or omission. We also determine a level of performance materiality, which we used to determine the extent of testing
need, to reduce to an appropriately low level the risk that the aggregate of uncorrected and undetected misstatement exceeds
materiality for the financial statements as a whole.
Materiality for the Group financial statements as a whole was set at £130,000. This was determined with reference to 2% of turnover,
being a KPI of the Group. On the basis of our risk assessment and review of the Group’s control environment, performance materiality
was set at 75% of materiality, being £97,500. The reporting threshold to the Audit and Risk Committee was set as 5% of materiality,
being £6,500. If in our opinion differences below this level warranted reporting on qualitative grounds, these would also be reported.
Materiality for the Parent Company financial statements was set at £60,000. This was determined with reference to 2% of expenditure
based on the company being an investment entity does not generate revenues. On the basis of our risk assessment and review of the
Parent Company’s control environment, performance materiality was set at 75% of materiality, being £45,000. The reporting
threshold to the Audit and Risk Committee was set as 5% of materiality, being £3,000.
If in our opinion in differences below this level warranted reporting on qualitative grounds, these would also be reported.
An overview of the scope of the audit
Our audit scope included all components of the group which are registered companies trading in the United Kingdom. The trading
subsidiaries of the Group are exempt from requiring an audit, and as such we have not performed a statutory audit for the trading
subsidiaries of the Group. In order to be able to opine on the financial statements of the Group, we have performed audit work on
the trading subsidiaries of the Group, using component materiality, which was set at 75% of group materiality. The work carried out
on the trading subsidiaries of the Group, is sufficient to ensure that an appropriate level of testing was performed to respond to the
assessed risks and support our audit opinion.
We communicated with both the directors and the audit committee our planned audit work via our audit planning report, and our
audit planning call.
We have communicated any issues with the audit committee and the directors in our audit findings report which was discussed at the
completion call with the audit committee.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF 7DIGITAL GROUP PLC
28
> Overview
> Strategic Report
> Governance
> Financial Statements
Key audit matters
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.
In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters
described below to be the key audit matters to be communicated in our report.
Key Audit Matter
How our scope addressed this matter
Revenue recognition
See the accounting policy for revenue in note 1 of the
financial statements.
The majority of revenue is in relation to B2B license
revenue where the risk in relation to revenue recognition is
that revenue is overstated and recognised in advance of
performance obligations being met.
Additionally, where there are set up fees on the license
revenue streams, there is a risk that the revenue is not
correctly recognised under IFRS 15.
There is a risk that content revenue is overstated,
specifically around the year end.
There is a risk that creative revenue is overstated,
specifically where revenue is recognised over the length of
the contract which spans the year-end.
Our audit work has focused on ensuring that the revenue
recognition methods for each revenue stream utilized by
management is in line with the applicable accounting
standard IFRS 15. Our audit work considered, but was not
restricted to, the following:
For licensing revenue, a sample of license contracts
was selected for testing. Each item selected for testing
was agreed to contract and the revenue recognised in
the year in relation to each contract was recalculated
in line with the terms of the contract with the
customer, to ensure that no material overstatement
occurred
For content related revenue, a test in total of all
content revenue was performed using a cash to sales
reconciliation substantive analytical approach to
ensure that revenue had not been materially
overstated.
For creative revenue, a sample of contracts from the
year were selected for testing and the revenue
recognised in the year was testing in accordance with
the performance obligations detailed in the contract.
A selection of transactions were tested around the
year end to ensure appropriate cut-off of revenue. A
sample of deferred income items were tested in
conjunction with contracts that span the year-end.
Completeness of digital content costs of sales and
associated accrual (£0.97m)
Included in the Group Statement of Financial Position is an
accrual for unbilled content related cost of sales. See
critical accounting estimates and judgements note 3 for
further details in relation to this balance.
There is a high level of estimation required in assessing the
content accrual in relation to publishers which requires the
Our audit work considered, but was not restricted to, the
following:
•
A critical review of the estimates made by
management in determining the appropriate accrual
at the end of the year with reference to various data
sources and historic invoicing patterns
•
A review of the reconciliation between the brought
forward and carried forward accrual by confirming
invoices received in the year recognised against the
accrual have been appropriately classified
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF 7DIGITAL GROUP PLC
29
> Overview
> Strategic Report
> Governance
> Financial Statements
use of multiple sources of data and historic trends for
management to make their best estimate of this balance.
There is a risk that the content accrual and costs recognised
in the year are materially misstated.
•
Post year end invoice testing to test for a potential
understatement of the accrual at the year end
•
Post year end invoice testing to ensure the accuracy of
estimated accruals made in relation to publisher costs
•
A test on a sample basis, of movements in the accrual
in the year with reference to the usage reports sent to
record labels
•
A test of the veracity of the usage report data in
relation to content sales recorded in the year, tracing
sales from the bank to appropriate inclusion in the
usage reports
We draw attention to note 1 and 3 of the financial
statements. Due to the level of estimation uncertainty
involved in assessing the appropriate accrual relating to
publishers, there is a risk that the accrual recognised at the
year-end could be materially different from the actual
outcome.
Our opinion is not modified in respect of this matter.
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.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF 7DIGITAL GROUP PLC
30
> Overview
> Strategic Report
> Governance
> Financial Statements
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 set out on page 18 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below:
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified the principal risks of non-compliance with laws and regulations
and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006,
income tax, payroll tax and sales tax.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk
of override of controls) and determined that the principal risks were related to posting inappropriate journal entries to revenue and
management bias in accounting estimates. Audit procedures performed by the engagement team included:
− InspecƟng correspondence with regulators and tax authoriƟes;
− Discussions with management including consideraƟon of known or suspected instances of non-compliance with laws and regulation
and fraud;
− EvaluaƟng management’s controls designed to prevent and detect irregularities;
− IdenƟfying and tesƟng journals, in parƟcular journal entries posted with unusual account combinaƟons, posƟngs by unusual users
or with unusual descriptions; and
– Challenging assumptions and judgements made by management in their critical accounting estimates particularly relating to the
digital content accrual.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a
material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance
with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to
become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error,
as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
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.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF 7DIGITAL GROUP PLC
31
> Overview
> Strategic Report
> Governance
> Financial Statements
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to
them in an Auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we
have formed.
Jon Dawson
(Senior Statutory Auditor)
10 Queen Street Place
For and on behalf of Haysmacintyre LLP
London
Statutory Auditors
EC4R 1AG
29 June 2022
Haysmacintyre LLP is a limited liability partnership registered in England and Wales (with registered number OC423459).
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE
INCOME
For the year ended 31 December 2021
32
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> Governance
> Financial Statements
Year to 31
Dec 2021
Year to 31
Dec 2020
Notes
£’000
£’000
Continuing operations
Revenue
2
6,732
6,513
Cost of sales
(2,409)
(1,881)
Gross profit
4,323
4,632
Other Income
5
-
644
Administrative expenses
(7,969)
(7,415)
Adjusted operating loss
6
(2,527)
(1,396)
- Share based payments
27
(556)
(99)
- Foreign exchange
(54)
(179)
- Other adjusting items
3
(509)
(465)
Operating loss
4
(3,646)
(2,139)
Finance income and cost
9
(273)
(136)
Loss before income tax
(3,919)
(2,275)
Taxation on continuing operations
10
-
1
Loss from continuing activities
(3,919)
(2,274)
Profit from discontinued operations
15
-
987
Loss for the year attributable to owners of the parent company
(3,919)
(1,287)
Loss per share (pence)
Basic and diluted - loss from continuing operations
11
(0.14)
(0.09)
Basic and diluted - loss attributable to ordinary equity holders
11
(0.14)
(0.05)
Consolidated Statement of Comprehensive Income
Year to 31
Dec 2021
Year to 31
Dec 2020
Notes
£’000
£’000
Loss for the year
(3,919)
(1,287)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
23
5
(149)
Other comprehensive loss
(3,914)
(1,436)
Total comprehensive loss attributable to owners of the parent company
(3,914)
(1,436)
The notes from pages 37 to 68 form part of the financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
33
> Overview
> Strategic Report
> Governance
> Financial Statements
2021
2020
Notes
£'000
£'000
Assets
Non-current assets
Intangible assets
12
559
287
Property, plant and equipment
13
114
97
Right-of-use assets
14
-
1,184
673
1,568
Current assets
Trade and other receivables
16
698
1,347
Contract assets
70
86
Cash and cash equivalents
363
2,839
1,131
4,272
Total assets
1,804
5,840
Current liabilities
Trade and other payables
17
(4,781)
(5,754)
Derivative liability
18
(46)
(71)
Contract liabilities
2.1
(288)
(164)
Lease liability
14
-
(670)
Provisions for liabilities and charges
20
(697)
(858)
(5,812)
(7,517)
Net current liabilities
(4,681)
(3,245)
Non-current liabilities
Loans and borrowings
19
(2,000)
(250)
Contract liabilities
2.1
(77)
(8)
Lease liability
14
-
(660)
Provisions for liabilities and charges
20
-
(109)
(2,077)
(1,027)
Total liabilities
(7,889)
(8,544)
Net liabilities
(6,085)
(2,704)
Equity
Share capital
22
14,844
14,844
Share premium account
22
17,705
17,705
Other reserves
23
(3,361)
(3,899)
Retained earnings
(35,273)
(31,354)
Total deficit
(6,085)
(2,704)
The financial statements were approved by the Board and authorised for issue on 29 June 2022 and are signed on its behalf
by:
Director
The notes from pages 37 to 68 form part of the financial statements.
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 December 2021
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Year to 31
Dec 2021
Year to 31
Dec 2020
Notes
£'000
£'000
Loss for the year
(3,919)
(1,287)
Adjustments for:
Taxation
10
-
(1)
Finance Cost
9
273
136
Loss/(profit) on sale of right-of-use asset
14
5
(378)
Profit on disposal of subsidiary undertaking
15
-
(987)
Foreign exchange
4
54
179
Amortisation of intangible assets
12
173
30
Amortisation of right-of-use asset
14
328
291
Depreciation of fixed assets
13
54
52
Share based payments
27
556
99
(Decrease)/increase in provisions
20
(893)
199
(Decrease) in accruals and deferred income
(155)
(937)
Decrease in trade and other receivables
672
453
(Decrease) in trade and other payables
(550)
(116)
Cash flows used in operating activities
(3,402)
(2,267)
Taxation
10
-
1
Interest expense paid
9
(231)
(91)
Net cash used in operating activities
(3,633)
(2,357)
Investing activities
Purchase of property, plant and equipment, and intangible assets
(516)
(415)
Proceeds from sale of intangible and tangible fixed assets
-
-
Net cash used in investing activities
(516)
(415)
Financing activities
Proceeds from issuance of share capital (net)
-
5,689
Proceeds from bank loans
19
1,750
250
Principal paid on lease liabilities
14
(28)
(149)
Net cash generated from financing activities
1,722
5,790
Net decrease in cash and cash equivalents
(2,427)
3,018
Cash and cash equivalents at beginning period
2,839
149
Effect of foreign exchange rate changes
(49)
(328)
Cash and cash equivalents at end of year
363
2,839
The notes from pages 37 to 69 form part of the financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
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Notes
Share
capital
Share
premium
account
Reverse
acquisition
reserve
Foreign
exchange
translation
reserve
Merger
reserve
Share
based
payment
reserve
Retained
earnings
Total
(note 23)
(note 23)
(note 23)
(note 23)
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
At 1 January 2021
14,844
17,705
(4,430)
70
-
461
(31,354)
(2,704)
Comprehensive income/(loss) for the year
Loss for the year
-
-
-
-
-
-
(3,919)
(3,919)
Other comprehensive income
-
-
-
5
-
-
-
5
Total comprehensive income/(loss) for the year
-
-
-
5
-
-
(3,919)
(3,914)
Contributions by and distributions to owners
Share issued (net of costs)
22
-
-
-
-
-
-
-
-
Share based payments
27
-
-
-
-
-
503
-
503
Share warrants issued
19
-
-
-
-
-
30
-
30
Total contributions by and distributions to
owners
-
-
-
-
-
533
-
533
At 31 December 2021
14,844
17,705
(4,430)
75
-
994
(35,273)
(6,085)
The notes from pages 37 to 68 form part of the financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
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Notes
Share
capital
Share
premium
account
Reverse
acquisition
reserve
Foreign
exchange
translation
reserve
Merger
reserve
Share
based
payment
reserve
Retained
earnings
Total
(note 23)
(note 23)
(note 23)
(note 23)
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
At 31 December 2019
14,817
12,043
(4,430)
219
959
407
(31,061)
(7,046)
Prior year adjustments
-
-
-
-
-
(61)
35
(26)
At 1 January 2020
14,817
12,043
(4,430)
219
959
346
(31,026)
(7,072)
Comprehensive income/(loss) for the year
Loss for the year - restated
-
-
-
-
-
-
(1,287)
(1,287)
Disposal of subsidiary undertaking
15
-
-
-
-
(959)
-
959
-
Other comprehensive income
-
-
-
(149)
-
-
-
(149)
Total comprehensive income/(loss) for the year
-
-
-
(149)
(959)
-
(328)
(1,436)
Contributions by and distributions to owners
Share issued (net of costs)
22
27
5,662
-
-
-
-
-
5,689
Share based payments - restated
27
-
-
-
-
-
89
-
89
Share warrants issued
19
-
-
-
-
-
26
-
26
Total contributions by and distributions to
owners
27
5,662
-
-
-
115
-
5,804
At 31 December 2020
14,844
17,705
(4,430)
70
-
461
(31,354)
(2,704)
The notes from pages 37 to 68 form part of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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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 79.
The Group prepares its consolidated financial statements in accordance with UK-adopted International Financial Reporting
Standards (“IFRS”). 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 2021 have been delivered to the Registrar of Companies. The financial
information for the year ended 31 December 2021 contained in these results has been audited.
The financial information contained in these results has been prepared using the recognition and measurement
requirements of UK-adopted International Financial Reporting Standards (“IFRS”). 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 2021. New standards, amendments and interpretations to
existing standards, which have been adopted by the Group for the year ended 31 December 2021, have been listed below.
New standards and interpretations
New standards
New standards that have been adopted in the annual financial statements for the year ended 31 December 2021, but have
not had a material effect on the Group are:
IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors (Amendment – Disclosure Initiative - Definition of Material); and
Revisions to the Conceptual Framework for Financial Reporting.
a)
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 following amendments are effective for the period beginning 1 January 2022:
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
References to Conceptual Framework (Amendments to IFRS 3).
In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are
classified as current or non-current. These amendments clarify that current or non-current classification is based on
whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months
after the reporting period. The amendments also clarify that ‘settlement’ includes the transfer of cash, goods, services, or
equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an
equity instrument separately from the liability component of a compound financial instrument. The amendments were
originally effective for annual reporting periods beginning on or after 1 January 2022. However, in May 2020, the effective
date was deferred to annual reporting periods beginning on or after 1 January 2023.
The Group does not expect any of the standards issued by the IASB, but not yet effective, to have a material impact on the
Group.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
Going concern
The Group made a loss before/after tax of £3,919k in the year (2020: £1,287k) and at the year-end had a net current liability
position of £4,681k. The pressure on short-term working capital combined with a reliance on anticipated revenue growth
which is sensitive to factors outside the Group’s control, as well as the risk that the Group’s sales targets may not be met,
indicate that a material uncertainty exists in relation to the timing of future cash inflows and cash outflows that may cast
significant doubt on the Group’s ability to continue as a going concern.
Taking the reasonable worst-case scenario that has been considered by the Directors, and if the Group is unable to raise
finance from alternative sources, the Group is reliant on continued support from existing shareholders of up to £4m to
ensure it can meet its liabilities as they fall due. Whilst the Group has had success with raising funds in the past, there is no
certainty over future funding. Within the pledged £4m of shareholder support, £0.5m is expected to be received soon after
signing, in the form of a loan repayable in no less than 12 months from the date of drawdown.
Whilst the existing shareholders have demonstrated both the intent and ability to provide this support and have provided
a letter of support to the Group, this support is not certain as it is not legally binding. The uncertainty over provision of this
support, leads to the existence of a material uncertainty; should this support not be provided, significant doubt would be
cast over the ability for the Group to continue trading as a going concern.
The Directors note that the Group has recently generated positive EBITDA and are optimistic that the Group will achieve
its forecast revenue for 2022 and 2023.
Whilst the Directors acknowledge that the above material uncertainties exist at the balance sheet date, the Directors are
confident that the Group’s revenues, profits and therefore cashflow from operations will be in excess of the reasonable
worst case scenario, and the shareholders who have pledged their support will provide this support as and when the Group
requires it to ensure there is sufficient cash over a period of at least 12 months. On this basis, the Directors have prepared
the financial statements on a going concern basis.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31
December 2021.
All subsidiaries are controlled by the Group and are included in the consolidated financial statements; the Group controls
an investee if, and only if, the Group has:
•
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
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.
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-existing 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.
Loss of control
When the Group loses control over a subsidiary, it de-recognises the assets and liabilities of the subsidiary, and any non-
controling 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.
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
The Group comprises of mainly three types of revenues
1)
Licensing fees (also known as B2B sales)
a.
Setup Fees
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
Revenue comprises of:
I. Licensing revenues
7digital defines licensing revenues as fees earned both for access to the Group’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;
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. Recognition of set-up fees is detailed below.
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. Recognition
of these fees is detailed below.
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
II. Content (“download”) revenues
Content revenues are recognised at the value of services supplied and on delivery of the content. The Group
manages several content stores, and the income is recognised in the month it relates to. Majority of the revenue
converts directly to cash; any accrued revenue converts to trade receivables within 30days.
III. Creative revenues
Creative revenues relate to the sale of programmes and other content. 7digital also undertakes bespoke radio
programming for its customers. As the programmes are being created the associated revenue is recognised when
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 the case of one-off productions which required the Group to provide progress reports to its customers and where
the Group has no alternative use of the programme produced, the Group recognises revenue over the period i.e.,
based on percentage of completion, for the rest of the regular programs and contents, where the Group does not
own the IP, the Group measures the revenue based on delivery of the content i.e., at a point in time.
Contracts with multiple performance obligations
Many of the Group's contracts include a variety of performance obligations, including Licensing revenue (set-up fees,
monthly revenue for using 7digital’s API licence platform and usage fees), however these may not be distinct in nature.
Under IFRS 15, the Group evaluates 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.
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 Licensing revenue
are (B2B):
-
The licences provide access to the 7digital 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 Licensing 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.
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
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 the 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 recognise.
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 Group exceed the payment, a contract asset (Accrued Income) is recognised; if the payments exceed the
services rendered, a contract liability (Deferred Revenue) is recognised.
Determine transaction price and allocating to each performance obligation
The transaction price for Licensing 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 are 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-recurring 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.
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
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.
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.
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
- 33.33% per annum straight line
Computer equipment
- 33.33% per annum straight line
Fixtures and fittings
- 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.
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 and CJRS income and Furlough 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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
Financial instruments
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 Group 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.
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.
Other Financial Liabilities:
Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised
cost using the effective interest method.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
44
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1.
Accounting policies (continued)
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 recognised 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.
De-recognition of financial assets and financial liabilities:
The Group 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
Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the
transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have
to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group
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 Group de-recognises financial liabilities when and only when, the Group’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 Group 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 Group are recognised at the proceeds received.
Derivative financial instruments:
The Group enters into derivative financial instruments viz. a residual of the convertible loan instrument. The Group 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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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1.
Accounting policies (continued)
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.
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.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
• leases of low value assets; and
• leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in the lease.
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;
and
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination
option being exercised.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
46
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1.
Accounting policies (continued)
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and
increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the
leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the
remaining term of the lease.
Critical accounting judgements and key areas of estimation uncertainty
In the application of the Group 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.
Content cost of sales
The API platform has the ability to analyse the usage reports derived from download sales and which are distributed to the
labels on a monthly basis and publishers on a quarterly basis. These usage reports assist management in calculating content
cost of sales and content accruals. The label portion of the content accrual is correctly stated as usage reports agree to
subsequent trade invoices processed. There is some uncertainty with regards the publisher accrual as publisher costs are
based on complex annual calculations taking into account market share which are primarily determined by the publishing
suppliers. Management considers the usage reports for the publisher element to be the most effective method of
determining the true cost of publisher content. Using data usage reports, historical invoicing patterns and supplier
confirmations, management have determined that there was no adjustment for prior years. As at 31 December 2020, £500k
of historical accruals were released relating to prior periods, as this amount had previously been calculated on a different
method with reference to the average cost per contract applied to sales.
Impairment of accounts receivables
The management and Directors have made certain estimates and judgements in the application of IFRS 9 when measuring
expected credit losses and the assessment of expected credit loss provisions required for accounts receivable balances.
(see note 16).
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
47
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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
data; and
enable users to understand the relationship with revenue segments information provided in 2.2 below
Licensing
Content
Creative
Total
2021
2020
2021
2020
2021
2020
2021
2020
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Primary Geographical Markets
UK
559
671
267
382
848
917
1,674
1,970
USA
1,492
1,513
737
683
-
-
2,229
2,196
Germany
138
216
148
103
-
-
286
319
Other
1,608
955
921
917
14
156
2,543
2,028
3,797
3,355
2,073
2,085
862
1,073
6,732
6,513
Product Type
Set-up fees
290
306
-
-
-
-
290
306
Monthly service fees
and usage fee
3,507
3,049
-
-
-
-
3,507
3,049
Production
-
-
-
-
862
1,073
862
1,073
Download/streaming
-
-
2,073
2,085
-
-
2,073
2,085
3,797
3,355
2,073
2,085
862
1,073
6,732
6,513
Contract Counterparties
Direct to consumer
(online)
-
-
2,073
2,085
-
-
2,073
2,085
B2B
3,797
3,355
-
-
862
1,073
4,659
4,428
3,797
3,355
2,073
2,085
862
1,073
6,732
6,513
Timing of transfer of goods and services
Over time
3,797
3,355
-
-
127
127
3,924
3,482
Point in Time (on
delivery)
-
-
2,073
2,085
735
946
2,808
3,031
3,797
3,355
2,073
2,085
862
1,073
6,732
6,513
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
48
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2.
Revenue (continued)
2.1 Revenue from contracts with customer (continued)
Contract
Assets
Contract
Assets
Contract
Liabilities
Contract
Liabilities
2021
2020
2021
2020
£’000
£’000
£’000
£’000
Contract balances
At 1 January
86
255
(172)
(342)
Transfers in the period from the contract assets to trade
receivables
(86)
(255)
-
-
Amounts included in contract liabilities that were
recognised as revenue during the period
-
-
164
335
Excess of revenue recognised over cash (or rights to
cash) being recognised during the period
70
86
-
-
Cash received in advance of performance and not
recognised as revenue during the period
-
-
(357)
(165)
At 31 December
70
86
(365)
(172)
The aggregate amount of the transaction price of the remaining performance obligations amounting to £288k (2020:
£164k) are all expected to be released within the next 12 months; £77k (2020: £8k) released in the following year.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
49
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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
2021
2020
2021
2020
2021
2020
2021
2020
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Revenue from
external customers
3,797
3,355
2,073
2,085
862
1,073
6,732
6,513
Segment's result
(gross profit)
3,512
3,151
334
828
477
653
4,323
4,632
-
Depreciation
(31)
(28)
(16)
(16)
(7)
(8)
(54)
(52)
Amortisation
(173)
(30)
-
-
-
-
(173)
(30)
Settlement income
included in Other
Income
-
135
-
-
-
-
-
135
Segment
profit/(loss)
3,308
3,228
318
812
470
645
4,096
4,685
Remainder of other
income
-
509
Amortisation of right
to use asset
(328)
(291)
Corporate expenses
(7,414)
(7,042)
Financing income
and costs
(273)
(136)
Tax charge
-
1
Discontinued
operations
-
987
Loss for the year
(3,919)
(1,287)
Other segment
items:
£'000
£'000
Capital additions
516
415
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
50
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2.
Revenue (continued)
Revenue from the Group’s largest customer in the year was just under £0.6m (2020: over £0.4m) and revenue from the
second largest customer in the year was just over £0.4m (2020: under £0.4m). There were 4 (2020: 3) other customers that
formed greater than 10% of external revenues within the year.
2.3 Geographical information
The Group’s revenue from external customers and information about its segments by geographical location is detailed
below:
Revenue
Non-current assets
2021
2020
2021
2020
Continuing Operations
£'000
£'000
£'000
£'000
United Kingdom
1,674
1,970
673
1,568
United States of America
2,229
2,196
-
-
Germany
286
318
-
-
Rest of Europe
1,732
1,329
-
-
Rest of World
811
700
-
-
6,732
6,513
673
1,568
All revenues are derived from the provision of services.
3.
Other adjusting items
2021
2020
£'000
£'000
Consultancy costs (i)
(153)
-
Provision for uncertain recoverability of cash advances (ii)
(112)
-
Exceptional legal fees (iii)
(93)
(297)
Corporate restructuring releases/(provision) (iv)
(65)
(145)
Legal provision (v)
-
(285)
Technology provision (vi)
(86)
-
Provisions relating to closure of Denmark business
-
262
(509)
(465)
(i)
Consultancy costs relate to directly contracted suppliers working on the eMusic Live collaboration.
(ii) Provision for the uncertain recoverability of the cash advances made to eMusic Live collaboration.
(iii) In 2021 the Group incurred legal fees in relation to funding of £80k (2020: £104k), fundraising £52k (2020: £nil),
litigation provision release -£39k (2020: provisions for fees £73k) and unsuccessful M&A activity £nil (2020:
£120k).
(iv) During 2021, the Group incurred costs of £65k (2020: £145k) for employee redundancies.
(v) During 2018 a civil action was brought by a former US customer against the Parent Company for failure to deliver
services specified in their Term Sheet. 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. At 31 December 2020, the provision made in 2019
of £228k was increased by a further £285k. In May 2021, the parties reached a settlement agreement in principle
upon confidential terms. By 31 December 2021, the Group had paid the remaining amount of £285k.
(vi) £86k relates to the increase in the technology provision as disclosed in note 20 that management believe may
become due.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
51
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3.
Other adjusting items (continued)
£311k (2020: £503k) of the other adjusting items for the year ended 31 December 2021 are deductible for corporation tax
purposes.
4.
Operating loss for the year
Operating loss for the year has been arrived at after charging:
2021
2020
£'000
£'000
Net foreign exchange loss
54
179
Amortisation of intangible assets
173
30
Amortisation of right to use asset (see note 14)
328
291
Depreciation of property, plant & equipment
54
52
Loss/(profit) on sale of right-of-use asset (see note 14)
5
(378)
Share-based payment expense (see note 27)
556
99
5.
Other operating income
2021
2020
£’000
£’000
Settlement income relating to customers contracts
-
135
Profit on sale of right-of-use asset (see note 14)
-
378
Furlough monies received from HMRC
-
131
-
644
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
52
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6.
Reconciliation of non-IFRS financial KPIs (continued)
Reconciliation of adjusted operating loss and adjusted EBITDA loss:
2021
2020
£'000
£'000
Statutory operating loss
(3,646)
(2,139)
Other adjusting items (see note 3)
509
465
Foreign exchange
54
179
Share-based payment expense (see note 27)
556
99
Adjusted operating loss - per statutory
(2,527)
(1,396)
Loss/(profit) on sale of right-of-use asset (see note 14)
5
(378)
Depreciation and amortisation
555
373
Adjusted EBITDA loss
(1,967)
(1,401)
The 2020 Adjusted EBITDA loss includes a £500k release in content accrual as per note 1 under Critical accounting
judgements and key areas of estimation uncertainty. The 2020 Adjusted EBITDA loss relating to 2020 trading is £1,901k.
7.
Auditor’s remuneration
2021
2020
£'000
£'000
Fees payable to the Company's auditor for the audit of the Company's annual
accounts
110
105
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
110
105
Non-audit fees:
Other services
-
-
Total non-audit fees
-
-
Total fees payable to Company's auditor
110
105
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.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
53
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8.
Staff costs
The average monthly number of persons employed by the Group during the year, including executive Directors, was 51
(2020: 58). Staff costs in the Group are presented in administrative expenses.
2021
2020
No.
No.
Number of production, R&D, and sales staff
39
48
Number of management and administrative staff
12
10
51
58
2021
2020
£'000
£'000
Wages and salaries
3,455
3,673
Redundancy payments
63
132
Social security costs
364
417
Other pension costs
109
119
Share-based payments (note 27)
556
99
4,547
4,440
Details of the Directors’ remuneration are provided in the Directors Remuneration Report on pages 23 to 24.
9.
Finance income and cost
2021
2020
£'000
£'000
Interest receivable
7
-
Finance income
7
-
2021
2020
£'000
£'000
Other charges similar to interest
(231)
(91)
Interest expenses on leased liability (see note 14)
(49)
(45)
Finance cost
(280)
(136)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
54
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10.
Tax
Corporation tax is calculated at 19% (2020: 19%) of the estimated assessable profit for the year.
2021
2020
£'000
£'000
Current tax
UK corporation tax on the results for the year
-
-
Foreign taxation
-
(1)
Research & development tax credits
-
-
Total current tax credit
-
(1)
Deferred tax
Total deferred tax charge/(credit)
-
-
Tax on loss on ordinary activities
-
(1)
The charge for the year can be reconciled to the profit per statement of comprehensive income as follows:
Loss before tax
(3,919)
(1,287)
Tax at UK corporation tax rate of 19% (2020: 19%)
(744)
(432)
Fixed asset differences
(1)
-
Expenses not deductible for tax purposes
209
32
Income not taxable for tax purposes
(36)
(281)
Adjustments to brought forward values
28
-
Adjustments to tax charge in respect of previous periods
-
12
Adjustments to tax charge in respect of previous periods - deferred tax
-
36
Remeasurement of deferred tax for changes in rates (2020: 19% to 2021: 25%)
(2,389)
(678)
Deferred tax not recognised
2,933
1,304
Foreign taxation
-
(1)
Other
-
7
Tax credit
-
(1)
At the balance sheet date, the Group has unrecognised deferred tax assets of £9,905,284 (2020: £7,101,109) which has
been calculated at a rate of 25% (2020: 19%) of unused trading tax losses; this has not been recognised on the grounds
that there is insufficient evidence that these assets will be recoverable. These assets will be recovered when future tax
charges are sufficient to absorb these tax benefits.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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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 2021 are 73,210,822 (2020: 12,134,155) 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 27).
Reconciliation of the profit and weighted average number of shares used in the calculation are set out below:
31-Dec-21
Loss/(profit)
Weighted
average
number of
shares
Per share
amount
Basic and Diluted EPS
£'000
Thousand
Pence
Loss attributable to shareholders:
(3,807)
2,722,086
(0.14)
31-Dec-20
Loss - restated
Weighted
average
number of
shares
Per share
amount -
restated
Basic and Diluted EPS
£'000
Thousand
Pence
Loss attributable to shareholders - continuing operations:
(2,274)
2,542,122
(0.09)
Profit attributable to shareholders - discontinued operations:
987
2,542,122
0.04
Loss attributable to shareholders:
(1,287)
2,542,122
(0.05)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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12.
Intangibles
Bespoke
applications
£'000
Cost
At 1 January 2020
3,205
Additions
317
At 31 December 2020
3,522
Additions
445
At 31 December 2021
3,967
Amortisation
At 1 January 2020
3,205
Charge for the year
30
At 31 December 2020
3,235
Charge for year
173
At 31 December 2021
3,408
Net book value
At 31 December 2021
559
At 31 December 2020
287
At 31 December 2019
-
Useful lives
3 years
Additions relate to internally developed software relating to the 7digital platform. 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. During 2021, the 2020 equity fundraising has enabled the Group to enhance and develop the platform;
management are of the opinion that the internal costs associated with certain identifiable development projects of £445k
(2020: £317k) can be capitalised and amortised from the time that the project is deemed “live”.
Management considered the carrying value of the platform at 31 December 2021 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.
A pre-tax discount rate was applied of 6.75%, reflecting current market assessment of the time value of money and the
risks specific to the CGU was applied. The review indicated no impairment was required.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
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13.
Property, plant and equipment
Computer
equipment &
capitalised
software
£'000
Cost
At 1 January 2020
1,534
Additions
98
Disposals
(1,396)
At 31 December 2020
236
Additions
71
Disposals
(110)
At 31 December 2021
307
Amortisation
At 1 January 2020
1,483
Charge for the year
52
Disposals
(1,396)
At 31 December 2020
139
Charge for year
54
Disposals
(110)
At 31 December 2021
193
Net book value
At 31 December 2021
114
At 31 December 2020
97
At 31 December 2019
51
2020 and 2021 disposals relate to obsolete assets that were identified and disposed of for zero cash.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
58
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14.
Leases
On 1 July 2020, the Group entered into a lease that was expected to run until August 2023. During 2021, the Group
successfully negotiated an exit agreement in regard to this lease which required the Group to pay £500k as a settlement
over 15 months to December 2022. The £500k settlement is shown in provisions for liabilities and charges (see note 20).
As from October 2021, the Group is using service-office space on an as-and-when basis.
Right-of-use assets
Land and
buildings
£’000
At 1 January 2021
1,184
Changes to initial lease
107
Profit and loss impact relating to changes - amortisation
16
Amortisation
(344)
Disposal
(963)
At 31 December 2021
-
Lease liability
Land and
buildings
£’000
At 1 January 2021
1,330
Changes to initial lease
107
Profit and loss impact relating to changes - interest expense
2
Provision created on termination of property lease (note 20)
(500)
Interest expense
47
Lease payments
(28)
Disposal
(958)
At 31 December 2021
-
Analysed:
Current
-
Non-current
-
Total
-
15.
2020 discontinued operations
On 16 September 2020, 7digital France SAS, a subsidiary was placed into liquidation; on that day 7digital France SAS had
€1,274k/£987k of liabilities no longer payable of which €1,147k related to the liabilities acquired when 7digital France SAS
was bought by the Group in 2016. Subsequently, £987k has been transferred to profit and loss as profit and loss on disposal
of subsidiary. There was no effect on Group cash or consideration received relating to liquidation of this subsidiary. There
were no other material balances included in the Group’s Consolidated Income Statement for the year ended 31 December
2020 relating to the discontinued operations. A merger reserve of £959k, which was created on acquisition of the French
entity in 2016, was reanalysed to retained earnings.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
59
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16.
Trade and other receivables
2021
2020
£’000
£’000
Trade receivable for the sale of goods
1,721
1,890
Less: Provision for impairment of trade receivables
(1,173)
(897)
Net trade receivables
548
993
Other debtors
84
163
R&D credits receivable
-
79
Total financial assets at amortised cost (excluding cash & cash equivalents)
632
1,235
Prepayments and accrued income
66
112
Total trade and other receivables
698
1,347
Less: non-current portion - other debtors
-
(80)
Current portion
698
1,267
The average credit period taken on sales of goods and services is 30 days (2020: 55 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. 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 management assessed the requirement for a general bad debt provision under IFRS 9. The expected loss rates are
based on the combination of the Group’s historical credit losses experienced over the three-year period prior to the period
end coupled with forward looking information. Management also note that the Group generally has a consistent recovery
rate on trade and other receivables, due to a 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. On confirmation that the trade
receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Included in the Group’s trade receivable balance are debtors with a carrying amount of £0.2m (2020: £0.3m), 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 119 days (2020: 117 days). During the year, the Group provided for certain accounts
receivable balances relating to revenue recognised during 2021, where the collection of the outstanding amounts is
uncertain.
As at 31 December 2021 the lifetime expected loss provision for trade receivables is:
Current
More than
30 days
past due
More than
60 days
past due
More than
120 days
past due
Total £'000
Expected loss rate
5%
12%
34%
91%
Gross carrying amount
310
129
43
1,239
1,721
Loss provision
15
15
15
1,128
1,173
As at 31 December 2020 the lifetime expected loss provision for trade receivables was:
Current
More than
30 days
past due
More than
60 days
past due
More than
120 days
past due
Total £'000
Expected loss rate
1%
5%
29%
67%
Gross carrying amount
379
103
155
1,253
1,890
Loss provision
5
5
45
842
897
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
60
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16.
Trade and other receivables (continued)
Customers that represent more than 5% of the total balance of trade receivables are:
2021
2020
£'000
£'000
Customer A
335
331
Customer B
211
320
Customer C
206
227
Customer D
183
209
Customer E
84
121
Customer F
83
102
Customer G
-
83
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.
Movement in the allowance for doubtful debts:
2021
2020
£’000
£’000
Balance at the beginning of the period
897
1,014
Impairment losses recognised
113
28
Written off as bad debt
163
(145)
Balance at the end of the period
1,173
897
During the year, the Group paid £112k (2020: £nil) to eMusic for the new venture eMusic Live which is included in Other
Debtors. This was fully proided for at the year end (2020: £nil).
17.
Trade and other payables
2021
2020
£’000
£’000
Current Liabilities
Trade payables
1,752
2,499
Other taxes and social security
1,429
1,369
Other payables
107
45
Accrued costs
1,493
1,841
4,781
5,754
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is 206 (2020: 286 days). The Group has financial risk management policies in place
to ensure that all payables are paid within the credit time frame.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
61
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18.
Derivative liability
2021
2020
£’000
£’000
Remuneration to be paid in the form of shares
46
71
46
71
Certain Non-Executive Directors and employees of the Group have been award remuneration in the form of shares. The
number of shares will be determined at market value on the date the shares are awarded.
19.
Loans and borrowings
£’000
As at January 2020
-
Draw down on revolving loan negotiated on 28 September 2020
250
As at December 2020
250
Draw down on revolving £1m loan negotiated on 28 September 2020
750
Draw down on revolving £1m loan negotiated on 18 October 2021
1,000
As at December 2021
2,000
On 28 September 2020, the Group secured a £1m revolving loan facility with Investec for a period of 36 months guaranteed
by two of the Directors. The arrangement allows a maximum of 4 draw downs in any 12 month period of no less than £250k
per draw down. As at 31 December 2021 the whole facility had been drawn down. The total loan Interest, payable quarterly,
is calculated at 6% above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion. An
arrangement fees of £30k was agreed and payable in 5,437,883 warrants. At 31 December 2021, there was accrued interest
of £15k (2020:£7k) relating to this facility for the last quarter for 2021.
On 18 October 2021, the Group secured a further £1m revolving loan facility with Investec for the period to 28 September
2023 guaranteed by two of the Directors. The arrangement allows a maximum of 4 draw downs in any 12 month period of
no less than £250k per draw down. An arrangement fees of £30k was agreed, of which £4k was payable at the time of this
draw down and £26k payable in 1,382,488 warrants. As at 31 December 2021 the whole facility had been drawn down
during the year. The total loan Interest, payable quarterly, is calculated at 6% above Investec bank rate on the drawn portion
of the facilty and 2% on the undrawn portion. At 31 December 2021, there was accrued interest of 12k relating to the
period 18 October 2021 to 31 December 2021.
As at December 2021, a total of £2,027k (2020: £257k) of capital and interest was due to Investec.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
62
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20.
Provisions
Provision
for closure
of business
Legal
provision
Property
provision
Other
provisions
Total
£'000
£'000
£'000
£'000
£'000
At 1 January 2021
245
513
-
209
967
Additions
-
-
500
-
500
Utilisation
(144)
(474)
(275)
-
(893)
Increase in provision
-
-
-
162
162
Release of provision
-
(39)
-
-
(39)
At 31 December 2021
101
-
225
371
697
Of which is: current
101
-
225
371
697
Of which is: non-current
-
-
-
-
-
At 31 December 2021, the provision for closure of business of £101k relates to the French entity, which was liquidated on
16 September 2020 (see note 15); the balance is being paid off in 9 instalments of £10k to September 2022 and 3
instalments thereafter of £3k to December 2022.
During 2018 a civil action was brought by a former US customer against the Parent Company for failure to deliver services
specified in their Term Sheet. 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. At 31 December 2020, the provision of £513k was based on a settlement agreement in May 2021.
During the year the Group paid £474k in accordance with the settlement which is now finalised and £39k released.
During 2021, the Group successfully negotiated an exit agreement in regard to a lease signed in July 2020 (see note 14).
The settlement required the Group to pay £500k over 15 months to December 2022. The £500k settlement is shown as a
property provision of which £186k amount has been paid in 2021 and £89k, being substantiated by invoices, is included as
trade payables.
At 31 December 2021, other provisions consist of £234k (2020: £148k) provision for technology costs that may become
due and £137k (2020: £61k) payroll taxes on share options.
21.
Deferred tax
There is no deferred taxation provision included in the Statement of Financial Position (2020: £nil)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
63
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22.
Share capital
2021
2020
No. of shares
No. of shares
Allotted, called up and fully paid:
Ordinary shares of 0.01p each
2,722,085,961
2,455,419,294
Deferred shares of 0.99p each
419,622,489
419,622,489
Deferred shares of £0.09 each
115,751,517
115,751,517
2021
2020
Allotted, called up and fully paid
£'000
£'000
At 1 January
14,844
14,817
Shares issued in the period
Capital fundraising
-
27
At 31 December
14,844
14,844
23.
Other reserves
The Reverse acquisition reserve was created upon the application of reverse acquisition accounting relating to the purchase
of 7digital Group Inc, by UBC Media plc on 10 June 2014.
The Foreign exchange translation reserve of £5k profit (2020: £149k loss) relates to cumulative foreign exchange
differences on translation of foreign operations.
The Share-based payment reserve includes £503k (2020: £89k) relating to the fair value at grant date of the share options
that can be exercised in future years and £30k (2020: £26k) for share warrants (see note 19).
The Merger reserve related to the difference between the nominal value of shares issued as part of an acquistion and the
fair value of the assets transferred in relation to the 2016 acquisition of the French entity, 7digital France SAS. On 16
September 2020, the French entity was liquidated and the merger reserve has susequently been transferred to retained
earnings (see note 15).
24.
Operating lease arrangements
There are no short term operating leases.
25.
Defined contribution pension schemes
The Group operates defined contribution retirement benefit schemes for qualifying employees. The total cost charged to
income of £109k (2020: £119k) represents contributions payable to these schemes by the Group at rates specified in the
rules of the plans. As at 31 December 2021, contributions due in respect of the current reporting period of £47k had not
been paid over to the schemes (2020: £25k).
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
64
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26.
Related party transactions
During the year, the Group paid £5k (2020: £8.2k) to MIDiA Research for music market research services, a company of
which Mark Foster was a Director during 2021. At 31 December 2021, the Group owed £nil (2020: £nil).
During the year, the Group invoiced and recognised £100k (2020: £143k) of revenue to eMusic (a subsidiary of TriPlay Inc.),
a group which Tamir Koch was a Director of during 2021. At 31 December 2021, the Group was owed £208k (2020: £327k);
which was fully provided for at year end (2020: no provision was made).
During the year, the Group paid £112k (2020: £nil) to eMusic for the new venture eMusic Live. This was fully proided for at
the year end as shown in note 3 (2020: £nil).
During the year, the Group paid fees of £252k (2020: £189k) to MJ Advisory, which is Michael Juskiewicz’s personal service
company based in the US.
Transactions between the Parent 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 23 to 24.
2021
2020
£'000
£'000
Wages and salaries
577
574
Social security costs
40
34
Pension costs to defined contribution scheme
9
10
Share-based payments
321
59
947
677
27.
Share-based payments
42 members of staff hold options to subscribe for shares in the Parent 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 variable. 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.
2021
Options
Weighted
average
exercise
price
(pence)
2020
Options
Weighted
average
exercise
price
(pence)
Outstanding at 1 January
8,043,334
-
8,896,168
-
Granted during the period
65,477,778
-
-
-
Forfeited during the period
(9,812,834)
-
(852,834)
-
Exercised during the period
-
-
-
-
Outstanding at the end of the period
63,708,278
-
8,043,334
-
Exercisable at 31 December
33,698,581
-
5,413,334
-
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
65
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27.
Share-based payments (continued)
On 27 May 2021, 65,477,778 (2020: nil) options were granted to the Board, employees and long term contractors. During
the period, nil shares were exercised (2020: nil). There are 63,708,278 options outstanding at 31 December 2021 (2020:
8,043,334) of which 33,698,581 (2020: 5,413,334) are exercisable. Their remaining weighted average contractual life is
3,434 days (2020: 268 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:
2021 Options
Share price at date of grant
0.125p
Exercise price
0.00p
Volatility
100%
Option life
10 yrs.
Risk-free interest rate
0.97%
The total expense recognised for the year ending 31 December 2021 arising from equity-settled share-based payment
transactions is summarised as below:-
2021
2020
£’000
£’000
Shares options
503
89
Employer contribution payable on share options
76
-
Provision (released)/made for shares to be issued for remuneration
(23)
10
556
99
The share-based payment reserve as at 31 December 2021 is detailed below:
2021
2020
£’000
£’000
Shares options
938
435
Share warrants
56
26
994
461
28.
Post balance sheet events
Post year end, in June 2022, the Group entered into an agreement with a major shareholder for a 13-month loan of up to
£0.5m. The funds drawn attract interest, to be rolled up and payable on the date of repayment of the loan, at 6% above the
Bank of England’s base rate from time to time. In addition, the Group has received letters of support from major
shareholders for the provision of further loans of up to £3.5m, expiring 30 June 2023.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
66
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29.
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 22 and 23. During the year the Group secured an extra £1m revolving loan facilty with Investec for a
period of 36 months guaranteed by two of the Directors (2020: the Group secured initial £1m loan with Investec for a
period of 36 months guaranteed by two of the Directors) as disclosed in note 19.
Categories of financial instruments
2021
2020
Financial assets at amortised cost
£'000
£'000
Cash and cash equivalents
363
2,839
Trade and other receivables
1,917
2,132
Financial liabilities at amortised cost
Trade and other payables
(3,352)
(4,385)
Loans and borrowings
(2,000)
(250)
Financial liabilities at fair value through the profit and loss
Derivative liability (see note 18)
(46)
(71)
Financial and market risk management objectives
It is, and has been throughout the year under review, the Group’s policy not to use or trade in derivative financial
instruments. The Group’s financial instruments comprise its cash and cash equivalents and various items such as trade
debtors and trade creditors that arise directly from its operations. The main purpose of the financial assets and liabilities is
to provide finance for the Group’s operations in the year.
Currency risk management
The Group 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
2021
2020
2019
Assets/(Liabilities)
£k
£k
£k
USD
908
1,077
619
EUR
215
-
(512)
Other
(41)
22
(440)
Totals
1,082
1,099
(333)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
67
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29.
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 +/- £22k (2020: £6k) in relation to the Euro and +/- £92k (2020: £89k) in relation to the US dollar.
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.
Liquidity and interest risk tables
All trade and other payables are non-interest bearing and fall due within one month. £1m of the bank loan is repayable in
full by 28 September 2023, the remaining £1m is repayable in full by 18 October 2024 (see note 19). Interest, payable per
calendar quarters, is calculated at 6% above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn
portion.
The following table sets out the contractual maturities (representing the undiscounted contractual cash-flows) of financial
liabilities:
2021
2020
Within 12 months
£'000
£'000
Trade payables
1,752
2,499
Other payables
107
45
Lease liability
-
670
1,859
3,214
2021
2020
More than 12 months
£’000
£’000
Other payables
-
-
Lease liability
-
660
-
660
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
68
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> Financial Statements
29.
Financial instruments (continued)
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
Cash is held within the following institutions:
2021
2020
2019
£’000
£’000
£’000
Barclays Bank
363
2,839
132
HSBC Bank
-
-
4
Bank of West
-
-
2
CIC Bank
-
-
11
363
2,839
149
30.
Contingent liabiities
The Group does not have any contingent liabilities.
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
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2021
2020
Notes
£’000
£’000
Assets
Non-current assets
Tangibles
B
80
63
Right-of-use asset
C
-
1,184
Fixed asset investments
D
-
-
80
1,247
Current assets
Trade and other receivables
E
151
198
Cash at bank and in hand
5
2,125
156
2,323
Current liabilities
Trade and other payables
G
(739)
(1,002)
Derivative liability
H
(46)
(71)
Lease liability
C
-
(670)
Provision for liabilities and charges
I
(463)
(710)
(1,248)
(2,453)
Net current liabilities
(1,092)
(130)
Total assets less current liabilities
(1,012)
1,117
Non-current liabilities
Loans and borrowings
J
(2,000)
(250)
Lease liability
C
-
(660)
Provision for liabilities and charges
I
-
(109)
(2,000)
(1,019)
Total liabilities
(3,248)
(3,472)
Net assets/(liabilities)
(3,012)
98
Capital and reserves
Called up share capital
K
14,844
14,844
Share premium account
17,705
17,705
Shares to be issued
994
461
Profit and loss account
(36,555)
(32,912)
Shareholders’ reserve/(deficit)
(3,012)
98
Result for the year
As permitted by section 408 of the Companies Act 2006 the Company has not prepared its own profit and loss account for the year.
7digital Group plc reported a loss for the financial year ended 31 December 2021 of £3,643k (2020: loss £3,494k).
This Company Statement of Financial Position and related notes were approved by the Board of Directors on 29 June 2022 and
were signed on its behalf by
Paul Langworthy, Director
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
For the years ended 31 December 2021 and 2020
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Statement of changes in Equity for the year ended 31 December 2021
Share
capital
Share
premium
account
Share
based
payment
reserve
Profit
and Loss
account
Total
£'000
£'000
£’000
£'000
£'000
At 1 January 2021
14,844
17,705
461
(32,912)
98
Comprehensive loss for the year
Loss for the year
-
-
-
(3,643)
(3,643)
Total comprehensive loss for the year
-
-
-
(3,643)
(3,643)
Contributions by and distributions to
owners
Shares issued
-
-
-
-
-
Share based payments (see note 26)
-
-
503
-
503
Share warrants issued (see note 18)
-
-
30
-
30
Total contributions by and distributions
to owners
-
-
533
-
533
At 31 December 2021
14,844
17,705
994
(36,555)
(3,012)
Statement of changes in Equity for the year ended 31 December 2020
Share
capital
Share
premium
account
Share
based
payment
reserve
Profit
and Loss
account
Total
£'000
£'000
£’000
£'000
£'000
At 31 December 2019 as previously
reported
14,817
12,043
407
(29,453)
(2,186)
Prior year adjustments
-
-
(61)
35
(26)
At 1 January 2020
14,817
12,043
346
(29,418)
(2,212)
Comprehensive loss for the year
Loss for the year
-
-
-
(3,494)
(3,494)
Total comprehensive loss for the year
-
-
-
(3,494)
(3,494)
Contributions by and distributions to
owners
Shares issued
27
5,662
-
-
5,689
Share based payments (see note 26)
-
-
89
-
89
Share warrants issued (see note 18)
-
-
26
-
26
Total contributions by and distributions to
owners
27
5,662
115
-
5,804
At 31 December 2020
14,844
17,705
461
(32,912)
98
The notes from pages 71 to 78 form part of the financial statements.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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A.
Principal accounting policies
7digital Group plc is a company incorporated in the United Kingdom (England and Wales) under the Companies Act 2006.
The 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 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 permitted 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
paragraph 79(a)(iv) of IAS1:
o
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 30.
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; and
-
The ability to measure reliably the expenditure attributable to the intangible asset during its development.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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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
These financial statements have been prepared on the going concern basis. Please refer to the Directors Reports on pages
16 to 19 for further going concern commentary.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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A.
Principal 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 43
to 46.
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.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
• Leases of low value assets; and
• Leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in the lease.
On initial recognition, the carrying value of the lease liability also includes:
• amounts expected to be payable under any residual value guarantee;
• the exercise price of any purchase option granted in favour of the Company if it is reasonably certain to assess that option;
and
• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination
option being exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and
increased for:
• lease payments made at or before commencement of the lease;
• initial direct costs incurred; and
• the amount of any provision recognised where the Company is contractually required to dismantle, remove or restore the
leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the
remaining term of the lease.
Critical accounting judgements and key sources of estimation uncertainty
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.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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A.
Principal accounting policies (continued)
Investment in subsidiary is carried at cost under IAS 27 and the financials are to be tested for impairment at each reporting
date as per IAS 36. The impairment standard requires the management to estimate the recoverable amount of the asset
and compare it with the carrying value in the books to measure any impairment. For estimating the recoverable amount
of the “Investment in subsidiary” the management relies upon; the net asset position of the subsidiary as on the balance
sheet date, which brings the necessary assurance about the recoverability of the investment.
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 2021 was 12 (2020: 10). Staff costs amounted to £1.6m (2020: £1.4m).
Information about the remuneration of Directors is provided in the audited part of the Directors’ Remuneration Report on
pages 23 to 25 of the consolidated financial statements.
B. Tangibles
Computer
equipment
£'000
Cost
At 1 January 2021
128
Additions
53
Disposals
(46)
At 31 December 2021
135
Amortisation
At 1 January 2021
65
Charge for the year
36
Disposals
(46)
At 31 December 2021
55
Net book value
At 31 December 2021
80
At 31 December 2020
63
At 31 December 2019
-
The 2021 additions relate to the implementation of the a new cloud-based accounting & forecasting systems.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
75
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C.
Leases
On 1 July 2020, the Group entered into a lease that was expected to run until August 2023. During 2021, the Group
successfully negotiated an exit agreement in regard to this lease which required the Group to pay £500k as a settlement
over 15 months to December 2022. The £500k settlement is shown in provisions for liabilities and charges (see note 20).
As from October 2021, the Group is using service-office space on an as-and-when basis.
Right-of-use assets
Land and
buildings
£’000
At 1 January 2021
1,184
Changes to initial lease
107
Disposal
(963)
Amortisation
(328)
At 31 December 2021
-
Lease liability
Land and
buildings
£’000
At 1 January 2021
1,330
Changes to initial lease
107
Disposal
(958)
Provision created on termination of property lease (note 20)
(500)
Interest expense
49
Lease payments
(28)
At 31 December 2021
-
D.
Fixed asset investments
£’000
Cost
At 1 January 2021
21,769
At 31 December 2021
21,769
Provision for impairment
At 1 January 2021
(21,769)
At 31 December 2021
(21,769)
Net book value at 31 December 2021
-
Net book value at 31 December 2020
-
Net book value at 31 December 2019
-
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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D.
Fixed asset investments (continued)
Related subsidiaries, joint ventures and associates
Subsidiaries
Ordinary
shares held at
31 December
2021
Principle activity
Country of
incorporation
Registered
office
7digital Limited
100%
Music streaming and
download services
England and
Wales
**
7digital Creative Limited
100%
Radio production
England and
Wales
**
7digital Trading Limited
100%
Non-trading
(from 1 April 2020)
England and
Wales
**
7digital Wing India Private Limited
(dissolved 5 October 2021)
100%
Dormant
India
****
Smooth Operations (Productions) Limited
(dissolved 16 March 2021)
100%
Dormant
England and
Wales
**
**
registered office Lower Lock, Water Lane, London UK NW1 8JZ.
**** registered office D-202, Polite Hermitage, Sec 18 Shivtej Nagar, Chinchwad Pune MH 411019 India
E.
Debtors
2021
2020
Due within one year:
£’000
£’000
Other debtors
124
54
Prepayments
27
64
Current
151
118
Non-current: other debtors
-
80
151
198
F.
Amounts owed by related parties
The Directors have reviewed the amounts owed by related parties and believe there are significant doubts as to the future
recoverability of these balances, and as such, a release of previous years provision for doubtful debts of £0.3m (2020:
provision increased by £0.5m) has been raised in the Company statement of financial position.
G.
Trade and other payables:
2021
2020
Current Liabilities
£’000
£’000
Trade creditors
489
445
Accruals
250
557
739
1,002
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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H.
Derivative liability
2021
2020
£’000
£’000
Remuneration to be paid in the form of shares
46
71
46
71
Certain Non-Executive Directors and employees of the Company have been award remuneration in the form of shares. The
number of shares will be determined at market value on the date the shares are awarded.
I.
Provision for liabilities and charges
Property
provision
(note a)
Provision for
closure of
businesses
(note b)
Legal
provision
(note c)
Other
provisions
(note d)
Total
£'000
£'000
£'000
£'000
£'000
At 1 January 2020
-
245
513
61
819
Additions
500
-
-
-
500
Utilisation
(275)
(144)
(474)
-
(893)
Change in provision
-
-
(39)
76
37
At 31 December 2020
225
101
-
137
463
Of which is: current
225
101
-
137
463
Of which is: non-current
-
-
-
-
-
Note a
During 2021, the Group successfully negotiated an exit agreement in regard to a lease signed in July 2020 (see note 14).
The settlement required the Group to pay £500k over 15 months to December 2022. The £500k settlement is shown as a
property provision of which £186k amount has been paid in 2021 and £89k, being substantiated by invoices, is included as
trade payables.
Note b
At 31 December 2021, the provision for closure of business of £101k relates to the French entity, which was liquidated on
16 September 2020 (see note 15); the balance is being paid off in 9 instalments of £10k to September 2022 and 3
instalments thereafter of £3k to December 2022.
Note c
During 2018 a civil action was brought by a former US customer against the Parent Company for failure to deliver services
specified in their Term Sheet. 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. At 31 December 2020, the provision of £513k was based on a settlement agreement in May 2021.
During the year the Group paid £474k in accordance with the settlement which is now finalised and £39k released.
Note d
At 31 December 2021, other provisions consist of £137k (2020: £61k) for payroll taxes on share options.
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended 31 December 2021
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J.
Loans and borrowings
£’000
As at January 2020
-
Draw down on revolving loan negotiated on 28 September 2020
250
As at December 2020
250
Draw down on revolving £1m loan negotiated on 28 September 2020
750
Draw down on revolving £1m loan negotiated on 18 October 2021
1,000
As at December 2021
2,000
On 28 September 2020, the Group secured a £1m revolving loan facility with Investec for the period to 28 September 2023
guaranteed by two of the Directors. The arrangement allows a maximum of 4 draw downs in any 12 month period of no
less than £250k per draw down. As at 31 December 2021 the whole facility had been drawn down. The total loan Interest,
payable quarterly, is calculated at 6% above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn
portion. . An arrangement fees of £30k was agreed and payable in 5,437,883 warrants. At 31 December 2021, there was
accrued interest of £15k (2020:£7k) relating to this facility for the last quarter for 2021.
On 18 October 2021, the Group secured a further £1m revolving loan facility with Investec for a period of 36 months
guaranteed by two of the Directors. The arrangement allows a maximum of 4 draw downs in any 12 month period of no
less than £250k per draw down. An arrangement fees of £30k was agreed, of which £4k was payable at the time of this
draw down and £26k payable in 1,382,488 warrants. As at 31 December 2021 the whole facility had been drawn down
during the year. The total loan Interest, payable quarterly, is calculated at 6% above Investec bank rate on the drawn portion
of the facilty and 2% on the undrawn portion. At 31 December 2021, there was accrued interest of 12k relating to the
period 18 October 2021 to 31 December 2021.
As at December 2021, a total of £2,027k (2020: £257k) for capital and interest was due to Investec.
K.
Share capital
2021
2020
£’000
£’000
Allotted, called up and fully paid:
2,722,085,961 ordinary shares of 0.01p each (2020: 2,455,419,294)
272
272
419,622,489 deferred shares of 0.99p each (2020: 419,622,489)
4,154
4,154
115,751,517 deferred shares of 9p each (2020: 115,751,517)
10,418
10,418
14,844
14,844
L.
Post balance sheet events
Refer to the Group‘s post balance sheet events in note 28 on page 65.
COMPANY INFORMATION
79
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> Financial Statements
Registered office
Labs Lower Lock
Water Lane
London
NW1 8JZ
Country of incorporation
England and Wales
Registered number
03958483
Nominated adviser
Strand Hanson Ltd
26 Mount Row
London
W1K 3SQ
Solicitors
Charles Russell Speechlys LLP
5 Fleet Place
London
EC4M 7RD
Principal bankers
Barclays Bank plc
United Kingdom House
180 Oxford Street
London
W1D 1EA
Registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Auditor
Haysmacintyre LLP
10 Queen Street Place
London
EC4R 1AG
Financial PR
Luther Pendragon
48 Gracechurch Street
London
EC3V 0EJ