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Annual Report 2019

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2019 ANNUAL REPORT FISCAL 2019 Year Ended March 31, 2019 | Stingray Group Inc. 2 Annual Report 2019 | Stingray Group Inc.TABLE OF CONTENT 04 Word from the CEO 06 Word from the Chairman 09 Management’s Discussion and Analysis 10 Company Profile 12 SVOD Success 14 B2C Mobile Apps 16 Numeris Radio 17 Numeris Pay Audio 19 Current Company Goals 20 Proven Acquisition Strategy 23 Competitive Strengths 24 Key Business Risks 26 Executive Officers 27 Non-Executive Directors 51 Consolidated Financial Statements Glossary of Terms 3 Annual Report 2019 | Stingray Group Inc. WORD FROM THE CEO Dear investors, partners, clients, and colleagues, If there’s one word that I would use to describe the past year, it’s “transformative.” Transformation has always dictated our business strategy, approach to client service, and vision for our present and future, but never more so than in 2018. We achieved more in the past 12 months than the most optimistic stakeholder would have ever thought possible. And for that I thank you. I thank each and every one of you for your commitment, support, and unwavering belief in the Stingray story. Every milestone we reach reflects the trust you have in us. This year, your trust led to record numbers in virtually every sector. Without you we would not have grown our workforce by 800, would not have successfully launched a broadcast radio division, and would not have added direct- to-consumer services to our proven B2B business model. We are committed to building an agile company that adapts to market demand while staying true to its core purpose: providing lean-back curated music services for every moment and on every platform. As audiences and technology evolve, so do we. Revenues have continued to show strong growth. Revenues increased by 63.3%, reaching $212.7 million (compared to $130.2 million in Fiscal 2018). Of the total growth in revenues, 4.4% was organic growth. At the same time, Adjusted EBITDA(1) increased by 74.0% to $72.2 million and net loss was $10.9 million ($0.17 per share). Cash flow from operating activities increased 77.1% to $34.3 million and adjusted free cash flow(1) increased 15.0% to $38.2 million. We continued to raise our dividends and returned over $16.0 million to you, our shareholders. Eric Boyko President, Co-founder and CEO (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33 4 Annual Report 2019 | Stingray Group Inc.BUILDING A CONSUMER BRAND The process of change is never easy, but it is essential to reap the biggest rewards. Music is one of the most exciting and changeable industries. With streaming confirmed as the largest contributor to the global recorded-music business, in 2018 we focused on breaking through the direct-to-consumer market as another area of income. These investments are energizing our product portfolio and reshaping how we evaluate our success, profitability, and key measurements. This year, we launched Stingray Classica and Stingray Music as direct-to-consumer mobile apps. In only a few months, both apps reached a 5-star rating in the Apple App Store, proof that our wager is already paying off. Stingray Qello, the concert streaming service described by Forbes as the “Netflix of concert films and documentaries,” continues to gain subscribers and has entered into exclusive content partnerships with major artists and festivals such as Joe Satriani and KABOO Del Mar. Our team also launched The Voice karaoke app and Piano Academy, a new app to learn the piano. In total, Stingray apps have reached 140 million downloads. We are confident that we are well on our way to creating a consumer brand on a par with the industry’s most recognizable players. PRODUCT PORTFOLIO GROWTH Not a year goes by when we do not bring new services to market in record time. It should be common knowledge by now that Stingray’s curation team is amongst the best in the business. With their help, we constantly surpass client expectations, and develop niche and mainstream services that engage with all demographics. In addition to new mobile apps, this year we introduced three additional music video channels for entertainment content providers: PalmarèsADISQ par Stingray, Stingray Country, and Stingray Latin Hits. SOLID PARTNERSHIPS As we develop our direct-to-consumer offering, we are not leaving our operator clients behind, far from it. Our competitive advantage lies in the diversity and flexibility of our business model. We continue to build on solid partnerships with the world’s most important operators who count on our competitively priced services to institute engaging music strategies and retain subscribers. This year alone we signed new distribution agreements with Telekom Srbija and Thailand’s True Visions, and renewed and expanded our partnerships with TELUS and Bell (the first Canadian operator to offer its subscribers every Stingray music and video service). The numbers don’t lie, the Holiday 2018 Numeris survey confirmed the relevance of our services to pay-TV subscribers: 41.4% of Canadians and 41.6% of Canadians ages 25-54 listened to Stingray Music on TV between December 17 and December 30, 2018. CONTINUED ON-DEMAND EXPANSION Stingray operates in a competitive environment, and yet we continue to flourish and improve profitability where other flounder. How? By continually diversifying our offering and aggressively, yet thoughtfully, seizing opportunities. Being at the forefront of the On-Demand economy is crucial to distinguishing ourselves and competing at the national and international level. This year, we added On-Demand music services, including Stingray Qello, Stingray DJAZZ, and Stingray Karaoke, to the catalogs to major American and European entertainment content providers Comcast, Altice, Magenta TV, Sling TV, and Roku. We now exceed 364,000 subscribers worldwide, a (4.6%) increase over last year’s number. MAKING (AIR)WAVES FROM COAST TO COAST By far the most significant and talked-about announcement of 2018 was our acquisition of Newfoundland Capital Corporation, one of Canada’s leading radio broadcasters with 101 licenses (82 FM and 19 AM) across the country. The transaction significantly strengthened our position as Canada’s leading independent music company while we continue to build our global reach. We are already reaping the benefits of this complementary vertical and new revenue sources. Only six months after this acquisition, we were presented with two prestigious awards at the World Radio Summit, the annual industry convention that attracts broadcast professionals from around the world: International Broadcast Group of the Year and International Radio Programmer of the Year. We received these honors despite stiff competition from leading radio broadcast groups and professionals from around the world. THE FUTURE OF STINGRAY Today, we are better positioned than ever to capture a growing share of the market by continuing to deliver quality service and leveraging our scale and expertise to expand into new sectors of the music industry. Our success is not the result of luck or coincidence. It is the product of the innovative thinking, relentless efforts, and profound commitment of 1,200 employees whose dedication never fails to amaze me. Without them and their belief in Stingray’s vision, we could not continually surpass our goals. Thank you! I also want to thank my management team and board for helping me build this extraordinary company. I look forward to writing the next pages of the Stingray story together. We will never rest on our laurels, but we have reached a point where we can confidently envision the next decades and beyond. Stingray’s future has never been brighter! 5 Annual Report 2019 | Stingray Group Inc.WORD FROM THE CHAIRMAN Few things are as motivating as helping an organization reach new heights. It is my distinct honor to chair Stingray’s board for the second year and help the management team reinvent its business model while increasing profitability for investors. Although the challenges faced by the music industry are significant, Stingray’s leadership has the proven ability to adapt its business strategy rapidly in response to market demands and new technologies. Great companies pursue a bold vision for the future without ever risking their present. I am very pleased to see Stingray’s management continuously evaluating new opportunities with vigor while still maintaining an acute awareness of their responsibility to stakeholders. This year, Stingray’s notable entry into the direct-to-consumer market has proved highly rewarding, and the positive reception from consumers confirms the merit of this strategy. I am confident that we will see Stingray make even greater strides in this space in the coming years. The growth of the company’s On-Demand subscriber base - through agreements with key partners such as Comcast - provides even more assurance of future success. I would be remiss if I did not also highlight the expansion of the distribution agreements with Bell and TELUS, which solidified Stingray’s position as the number one Canadian provider of music service for cable and satellite operators. It is with pride and confidence that I plan to guide Stingray through the next steps in becoming a dominant force in the global music industry. On behalf of the board and the management team, I would like to thank our shareholders for their continued trust and support. Mark Pathy Chairman of the Board 6 Annual Report 2019 | Stingray Group Inc.7 8 Annual Report 2019 | Stingray Group Inc.MANAGEMENT’S DISCUSSION AND ANALYSIS The following is the annual report and Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of Stingray Group Inc. (“Stingray” or “the Corporation”), and should be read in conjunction with the Corporation’s consolidated audited financial statements and accompanying notes for the years ended March 31, 2019 and 2018. This MD&A reflects information available to the Corporation as at June 5, 2019. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com 9 COMPANY PROFILE Stingray is a leading music, media, and technology company with over 1,200 employees worldwide. Stingray is a premium provider of curated direct-to-consumer and B2B services, including audio television channels, more than 100 radio stations, SVOD content, 4K UHD television channels, karaoke products, digital signage, in-store music, and music apps, which have been downloaded over 140 million times. Stingray reaches 400 million subscribers (or users) in 156 countries. 10 Annual Report 2019 | Stingray Group Inc.11 Annual Report 2019 | Stingray Group Inc.SVOD SUCCESS 12 Annual Report 2019 | Stingray Group Inc.THE RISE OF SVOD: STINGRAY’S YEAR IN NUMBERS After over a decade, Stingray remains unique in its capacity to expand its global reach within the digital music industry. Where others struggle, we continually reach new milestones while improving profitability. Subscription video-on-demand (SVOD) services have become the preferred destination for consumers to access video content - including motion pictures and made-for-television content - over a range of Internet-capable devices including smart TVs, smartphones, tablets, video game consoles, and multimedia devices such as Apple TV, Google Chromecast, and Roku. Stingray’s growing SVOD offering is now available through major entertainment services providers such as Amazon, Comcast, and Telefonica. SVOD AND THE CONSUMER EXPERIENCE The following Stingray services are available as SVOD: • Stingray Karaoke: songs in all the most popular genres including pop, rock, country, R&B/hip-hop, Disney, and much more. • Stingray Classica: a catalog of classical music, opera, in the world’s most and ballet performances filmed renowned venues. • Stingray DJAZZ: live performances by the jazz icons of yesterday and today. • Stingray Qello: the world’s leading streaming service for full-length concerts and music documentaries. 364,000 SUBSCRIBERS AS AT MARCH 31, 2019 +4.6% SINCE APRIL 2018 MONTHLY RMR* +23.0% $2.8M TO $3.4M SINCE MARCH 2018 *RMR= recurring monthly revenue 13 Annual Report 2019 | Stingray Group Inc.B2C MOBILE APPS Expertly-curated music channels, in all genres, for all of life’s moments. Featured in the “Apps for Carplay” section The premium destination for breathtaking classical music concerts, opera, ballet, and music documentaries. The world’s leading streaming service for full-length concert films and music documentaries. Classica was featured in: • New Apps we Love (US and UK) • This week’s favourites (Canada) • Top banner in the music section (Canada) • For Classical Enthusiasts” section (Canada) • Classica was featured in Ireland, Turkey and Thailand Over 14,000 karaoke songs with on- the-go convenience and easy set-up. 14 Annual Report 2019 | Stingray Group Inc.Over 14,000 karaoke songs with optional special effects, mics, and high-quality karaoke videos. Kid-tested and parent-approved karaoke songs for little ones. Fans of the television show The Voice come together to like, favorite, follow, and share each other’s singing via social media. YOKEE MUSIC The ultimate karaoke destination to perform and record songs, add voice effects and share with a network of dedicated singers YOKEE PIANO Fun, professionally-designed piano lessons, for all levels, that entertain as well as teach. YOKEE GUITAR Easy-to-follow guitar tutorials to learn and play. 15 Annual Report 2019 | Stingray Group Inc.NUMERIS RESULTS ARE IN: CANADIANS ARE TUNING IN TO STINGRAY RADIO With the acquisition of Newfoundland Capital Corporation Limited in 2018, Stingray became Canada’s largest public independent media company and a contender for Numeris broadcast measurement. The first Numeris numbers showed impressive listenership results in both the PPM Markets (Toronto, Vancouver, Montreal, Calgary, and Edmonton) and Diary Markets (St. John’s, Charlottetown, Halifax, Sydney, Fredericton, Moncton, Saint John, Ottawa-Gatineau, Sudbury, Red Deer, Camrose, Kamloops, Kelowna, Penticton). These numbers underline radio’s lasting relevance in the lives of Canadians and the strength of the medium as it continues to adapt and evolve in the digital landscape. Stingray’s reach is as strong as ever, and the company is leading the industry in radio programming, sales, networking, and advertising opportunities. STANDOUT STATS PPM MARKETS 16 MILLION CANADIANS BOOM 97.3 RANKED #1 TOP 3 2018 16 million Canadians aged 12+ tuned into a Stingray radio station in 2018 Boom 97.3 (Toronto) ranked #1 for adults 25-54 in spring of 2018 XL 103 (Calgary) ranked top 3 for the calendar year and is the gold music format leader in the market 90.3 AMP (Calgary) beat out its competitor Virgin Radio in both spring 2018 and fall 2018 [Source: Numeris PPM, A2554 & A12+, AW (All Week, Mo-Su 2a-2a), Share and Cume, Non-C Total Canada & Ctrl Markets] 16 Annual Report 2019 | Stingray Group Inc.DIARY MARKETS #1 RANKING STATIONS A D C B E F A VOCMFM (St. John’s) B Q104 (Halifax) C Ocean 100 (Charlottetown) D C103 (Moncton) E Rewind 103.9 (Sudbury) F Hot 89-9 (Ottawa) NUMERIS PAY AUDIO As of December 2018, Numeris has been measuring listenership rankings for Stingray Music’s pay audio TV channels. The results demonstrate the popularity of the service across the nation and are a testament to Canadian audiences’ strong demand for expertly curated music channels. 15 MILLION CANADIANS 9 MILLION LISTENERS 41.6% From Dec 17, 2018, to March 31, 2019, Stingray’s pay audio channels reached over 15 million Canadians A2+ with a peak average minute audience of 182,000 During this period, Stingray’s English and French Holiday channel reached 9.1 million listeners A2+ alone Overall, Stingray’s pay audio service reached 41.6% of all Canadian adults age 25-54 during the same period These outstanding numbers demonstrate Stingray’s solid foothold in the market and the ability to reach audiences of all ages, from coast to coast. 17 Annual Report 2019 | Stingray Group Inc.18 Annual Report 2019 | Stingray Group Inc.CURRENT COMPANY GOALS Pursue a strategic and disciplined approach to our M&A strategy by focusing on four (4) vectors: • SVOD / B2C, • TV channels, • Commercial music, and • Radio consolidation. Continue to grow in the SVOD space (B2B2C) by buying or licensing content; increasing our reach across platforms and markets; exploring new verticals (e.g. country music, hip-hop, faith-based video); and investing in marketing and discovery. Develop our B2C market share by investing in digital marketing platforms and continuing to develop best in class video apps, web-based solutions, and mobile app such as the recently announced The Voice singing app for which Stingray has signed a 5-year deal. Grow Stingray Music’s reach and maintain its top-rated position. Relaunch the Stingray Karaoke apps and online services all the while pursuing the expansion of the Yokee family of apps. Expand the reach of our commercial music and digital signage services through an international expansion strategy that includes acquisitions and the growth of our affiliate network. Continue to foster a winning company culture through accountability, responsiveness, training, empowerment, and growth opportunities. 1 2 3 4 5 19 Annual Report 2019 | Stingray Group Inc.PROVEN ACQUISITION STRATEGY $760 M SPENT ON ACQUISITIONS SINCE INCEPTION Stingray became the undisputed world-leading provider of classical music programming, demonstrating our ability to act as an industry consolidator. 2007 2009 2010 • Slep-Tone Entert. Corp/ • Canadian Broadcast Corp. • Marketing Senscity Inc. SoundChoice (Karaoke Channel) (Galaxie) • Concert TV Inc. • MaxTrax Music Ltd. • Chum Satellites Services (CTV) 2011 2012 2013 • Music Choice International Ltd. • Musicoola Ltd. Zoe • Executive Communication • Interactive Ltd. • Emedia Networks Inc. • Stage One Innovations Ltd. • Intertain Media Inc 20 Annual Report 2019 | Stingray Group Inc.2014 2015 2016 • DMX LATAM (Mood Media) • Les réseaux Urbains Viva Inc. • Nümedia • Archibald Media Group • Brava Group (HDTV, NL • Festival 4K B.V. and Djazz TV) • DMX Canada (Mood Media) • Digital Music Distribution • Bell Media’s specialty music video channels • Telefonica – On the Spot • iConcerts Group • EuroArts Classical catalogue 2017 • Classica • Nature Vision TV • Yokee Music Ltd. • C Music Entertainment Ltd. • SBA Music PTY Ltd. • Satellite Music Australia PTY Ltd. 2018 • Qello Concerts LLC • Newfoundland Capital Corporation • Novramedia • DJ Matic • New Glasgow 21 Annual Report 2019 | Stingray Group Inc.22 Annual Report 2019 | Stingray Group Inc.COMPETITIVE STRENGTHS We believe that the following competitive strengths will contribute to our ongoing commercial success and future performance: UNIQUE AND DIVERSIFIED WORLD LEADING MUSIC AND VIDEO SERVICE PROVIDER With 400 million subscribers in 156 countries, our total reach is one of the largest relative to our peers. Our products and services are distributed through numerous platforms including digital TV, satellite TV, IPTV, the Internet, mobile devices, Wi-Fi systems, game consoles, and connected cars. With 101 radio licenses and more than 140 million app downloads, Stingray reaches millions of radio listeners and app users every month. STRONG AND PREDICTABLE CASH FLOW FROM LONG-TERM CONTRACTS AND CLIENT RELATIONSHIPS Our business model is based on subscription revenues and long-term agreements with pay-TV providers, which gives us significant predictability of future cash flow, reduces cyclicality of earnings, and increases customer retention. As a result, we have established deeply integrated relationships with many of our customers, providing recurring annual revenues of $129.3 million at the end of Fiscal 2019 (60.8% of our total revenue). PROPRIETARY INNOVATIVE TECHNOLOGIES We are a leader and innovator in the digital music space, and as such have developed a unique set of proprietary technologies that provide us with an important competitive advantage. We have extensive experience in developing technologies to distribute digital music on multiple platforms such as TV, mobile devices, and the Web. For instance, we introduced a second generation of UBIQUICAST allowing multiproduct distribution and a third generation of our Commercial platform – the SB3 allowing simultaneous distribution of digital display and HD music. TRACK RECORD OF SUCCESSFUL ACQUISITIONS AND INTEGRATIONS Since Stingray’s inception in 2007, we have completed 38 acquisitions representing outlays of approximately $760 million, which brought new clients, new products and new geographical markets to our business. Fiscal 2019, we have completed four (4) acquisitions for an aggregate purchase value of $510,0 million. Stingray’s proven track record of successfully integrating these acquisitions is a result of our experienced management team’s rigorous and disciplined acquisition strategy. The versatility, portability and flexibility of Stingray’s products and technologies permit us to efficiently integrate and support the complementary products and technologies of the businesses we acquire. LEADING CONTENT CURATION EXPERTISE Our business strategy is based on a lean-back, rather than lean forward, music consumption model. Stingray provides some of the world’s most comprehensive music libraries and channels, all programmed by more than 200 expert programmers around the world. Our music products and services are adapted to local tastes and trends to create the ultimate user experience. HIGH EMPLOYEE RETENTION RATE AND LOW TURN-OVER As an entrepreneurial and growing Canadian company, we attract and retain talented professionals. Our team of almost 1 200 dedicated individuals is comprised of experienced and knowledgeable operations, financial, technology, marketing and communications, sales, and legal and regulatory experts who, prior to joining Stingray, garnered extensive experience with other industry leaders. 23 Annual Report 2019 | Stingray Group Inc.KEY BUSINESS RISKS The key risks and uncertainties of our business drive our operating strategies. Additional risks and uncertainties not presently known to us, or that we currently consider immaterial, may also affect us. If any of the events identified in these risks and uncertainties were to occur, Stingray’s business, financial condition and results of operations could be materially harmed. For further discussion of the significant risks we face, refer to the Annual Information Form for the year ended March 31, 2019 available on SEDAR at sedar.com. Our key risks, in terms of severity of consequence and likelihood, are displayed as follows: PUBLIC PERFORMANCE AND MECHANICAL RIGHTS AND ROYALTIES We pay public performance and mechanical royalties to songwriters and publishers through contracts negotiated with labels and music rights collection societies in various parts of the world. If public performance or mechanical royalty rates for digital music are increased, our results of operations and financial performance and condition may be adversely affected. We mitigate this risk by operating, whenever possible, under statutory licensing regimes and structures applicable to a non-interactive music services. The royalty rates to be paid pursuant to statutory licenses can be established by either negotiation or through a rate proceeding conducted by the Copyright Board; such royalty rates are generally stable and are not likely to fluctuate from year to year. INTEGRATING BUSINESS ACQUISITIONS The Corporation has made or entered into, and will continue to pursue, various acquisitions, business combinations and joint ventures intended to complement or expand our business. The Corporation may encounter difficulties in integrating acquired assets with our operations. Furthermore, the Corporation may not realize the benefits, economies of scale and synergies we anticipated when we entered into these transactions. To mitigate this risk, the Corporation has committed to develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel, all of which will enable the Corporation to properly leverage our services into new markets, platforms and technologies. LONG-TERM PLAN TO EXPAND INTO INTERNATIONAL MARKETS A key element of our growth strategy is to continue to expand our operations into international markets. For Fiscal 2019, approximately 42% of our revenue is derived from customers outside of Canada. Operating in international markets requires significant resources and management attention and will subject us to regulatory, economic and political risks that are different from those in Canada. To mitigate this risk, the Corporation has committed to develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel, all of which will enable the Corporation to continue to expand into international markets. DEPENDENCE ON PAY-TV PROVIDERS The majority of the Stingray Music pay-TV subscriber base is reached through a small number of significant pay-TV providers who are all under long-term contracts. Packaging decisions made by pay-TV providers in respect of service offerings can impact the subscriber base. Moreover, the contractual obligations of pay-TV providers in Canada to distribute Stingray Music are subject to changes in CRTC rules, including the CRTC’s new policy framework set forth in Broadcasting Regulatory Policy CRTC 2015- 96. See “Recent Developments” in the 2019 AIF. We mitigate this risk by understanding the business needs of pay-TV providers and offering compelling services, distributed across multiple platforms and proprietary technologies, with a demonstrable value proposition. Based on our strong relationships and our interpretation of the long-term contracts with pay- TV providers, Stingray expects that all Canadian pay-TV providers will continue to carry Stingray’s pay-audio service on the most widely distributed unregulated first-tier package (where available). 24 Annual Report 2019 | Stingray Group Inc.RAPID GROWTH IN AN EVOLVING MARKET The audio and video entertainment industry is rapidly evolving. The market for online digital music and videos has undergone rapid and dramatic changes in our relatively short history and is subject to significant challenges. In addition, our growth in certain markets could be impeded by existing contractual undertakings with competitors which forbid us to solicit customers in such markets. To mitigate this risk, our skilled and experienced sales personnel have placed a greater emphasis on cross-selling our growing suite of products and our capable engineers continue to innovate and develop new products and proprietary technologies to distribute digital music, which in turn allows us to attract and retain customers and expand our service offering on multiple digital platforms beyond the TV. To manage the growth of our operations and personnel, we continue to improve our operational, financial and management controls and our reporting systems and procedures. COMPETITION FROM OTHER CONTENT PROVIDERS The market for acquiring exclusive digital rights from content owners is competitive. Many of the more desirable music recordings are already subject to digital distribution agreements or have been directly placed with digital entertainment services. We face increasing competition for listeners and/or viewers from a growing variety of businesses that deliver audio and/or video media content through mobile phones and other wireless devices. The growth of social media could facilitate other forms of new entry that will compete with the Corporation. To mitigate this risk, the Corporation continues to rely upon human programming and content curation by award-winning music experts from around the world, each of whom adapt to the tastes and trends of listeners in order to create the ultimate user experience. In addition, the Corporation remains determined to create and acquire original long-form content in order to grow its proprietary catalogue. 25 EXECUTIVE OFFICERS ERIC BOYKO President, CEO, Co-founder and Director JEAN-PIERRE TRAHAN Chief Financial Officer LLOYD FELDMAN Senior Vice-President, Corporate Secretary and General Counsel MARIO DUBOIS Senior Vice-President and Chief Technology Officer MATHIEU PÉLOQUIN Senior Vice-President, Marketing and communications DAVID PURDY Chief Revenue Officer IAN LURIE President, Radio SÉBASTIEN CÔTÉ Vice-President, Human Resources RATHA KHUONG General Manager, Stingray Business 26 Annual Report 2019 | Stingray Group Inc.NON-EXECUTIVE DIRECTORS CLAUDINE BLONDIN Director and Member of the Corporate Governance, Human Resources and Compensation Committees FRANÇOIS-CHARLES SIROIS Director and Member of the Human Resources and Compensation Committee GARY S. RICH Director and Chairman of the Human Resources and Compensation Committee JACQUES PARISIEN Director and Chairman of the Corporate Governance Committee MARK PATHY Chairman of the Board of Directors and Member of the Audit Committee and the Human Resources and Compensation Committee PASCAL TREMBLAY Director and Member of the Corporate Governance Committee and Chairman of the Audit Committee ROBERT G. STEELE Director JOHN STEELE Director and Member of the Audit Committee 27 Annual Report 2019 | Stingray Group Inc.BASIS OF PREPARATION AND FORWARD-LOOKING STATEMENTS The following is the annual financial report and Management’s Discussion and Analysis (“MD&A”) of the results of operations and financial position of Stingray Group Inc., (“Stingray” or “the Corporation”), and should be read in conjunction with the Corporation’s audited consolidated financial statements and accompanying notes for the years ended March 31, 2019 and 2018. This MD&A reflects information available to the Corporation as at June 5, 2019. Additional information relating to the Corporation is also available on SEDAR at www.sedar.com. This MD&A contains forward-looking information within the meaning of applicable Canadian securities laws. This forward-looking information includes, but is not limited to, statements with respect to management’s expectations regarding the future growth, results of operations, performance and business prospects of the Corporation. This forward-looking information relates to, among other things, our objectives and the strategies to achieve these objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimations and intentions, and may also include other statements that are predictive in nature, or that depend upon or refer to future events or conditions. Statements with the words “could”, “expect”, “may”, “will”, “anticipate”, “assume”, “intend”, “plan”, “believes”, “estimates”, “guidance”, “foresee”, “continue” and similar expressions are intended to identify statements containing forward-looking information, although not all forward-looking statements include such words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events. Although management believes the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are based on the opinions, assumptions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include, but are not limited to the following risk factors : increases in royalties and tariffs or restricted access to music rights; our dependence on Pay- TV providers; the rapidly evolving audio and video entertainment industry; competition from other content providers and other media companies; the expansion of our operations into international markets; our rapid growth and our growth strategy; our acquisitions, business combinations and joint ventures; our reliance on third party hardware, software and related services; our dependence on key personnel; exchange rate fluctuations; economic and political instability in emerging countries; royalty calculation methods; rapid technological and industry changes; development of new or alternative media technologies ; unavailability of additional funding; failure to generate cash revenues; reliance on our credit facilities; costly and protracted litigation in defence of copyrighted content; our inability to protect our proprietary technology; our inability to maintain our corporate culture; unfavourable economic conditions; our exposure to foreign privacy and data security laws; unauthorized and pirated music and video content; natural catastrophic events and interruption by man-made problems; additional income tax liabilities; maintaining our reputation; litigation and other claims; credit risk; liquidity risk; failure to comply with the Canadian Radio-television and Telecommunications Commission (CRTC) requirements; failure to maintain or renew our CRTC licences; the increase in broadcasting licence fees payable by us; unfavourable changes in government regulation affecting our industry. In addition, if any of the assumptions or estimates made by management prove to be incorrect, actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A. Such assumptions include, but are not limited to, the following: our ability to generate sufficient revenue while controlling our costs and expenses; our ability to manage our growth effectively; the absence of material adverse changes in our industry or the global economy; trends in our industry and markets; the absence of any changes in law, administrative policy or regulatory requirements applicable to our business, including any change to our licences with the CRTC; minimal changes to the distribution of the pay audio services by Pay-TV providers in light of recent CRTC policy decisions; our ability to manage risks related to international expansion; our ability to maintain good business relationships with our clients, agents and partners; our ability to expand our sales and distribution infrastructure and our marketing; our ability to develop products and technologies that keep pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changing client preferences and requirements; our ability to protect our technology and intellectual property rights; our ability to manage and integrate acquisitions; our ability to retain key personnel; and our ability to raise sufficient debt or equity financing to support our business growth. Accordingly, prospective purchasers are cautioned not to place undue reliance on such statements. All of the forward-looking information in this MD&A is qualified by these cautionary statements. Statements containing forward-looking information contained herein are made only as of the date of this MD&A. The Corporation expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumption underlying them, whether as a result of new information, future events or otherwise, except as required by law. SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES The Corporation believes that Adjusted EBITDA and Adjusted EBITDA margin are important measures when analyzing its operating profitability without being influenced by financing decisions, non-cash items and income taxes strategies. Comparison with peers is also easier as companies rarely have the same capital and financing structure. The Corporation believes that Adjusted Net income and Adjusted Net income per share are important measures as it demonstrates its core bottom-line profitability. The Corporation believes that Adjusted Free cash flow is an important measure when assessing the amount of cash generated after accounting for capital expenditures and non-core charges. It demonstrates cash available to make business acquisitions, pay dividend and reduce debt. The Corporation believes that Net debt, Net debt to Adjusted EBITDA and Pro Forma Adjusted EBITDA are important measures when analyzing the significance of debt on the Corporation’s statement of financial position. Each of these non-IFRS financial measures is not an earnings or cash flow measure recognized by International Financial Reporting Standards (IFRS) and does not have a standardized meaning prescribed by IFRS. Our method of calculating such financial measures may differ from the methods used by other issuers and, accordingly, our definition of these non-IFRS financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that non-IFRS financial measures should not be construed as an alternative to net income determined in accordance with IFRS as indicators of our performance or to cash flows from operating activities as measures of liquidity and cash flows. Annual Report 2019 | Stingray Group Inc. | 28 KEY PERFORMANCE INDICATORS(1) For the three-month period ended March 31, 2019 (“Q4 2019”): $72.7 M $34.5 M $22.4 M $10.5 M ▲ 112.5% from Q4 2018 Revenues ▲ 12.4% from Q4 2018 Recurring Broadcasting and Commercial Music revenues(2) ▲ 90.7% from Q4 2018 Adjusted EBITDA ▼ 4.9% from Q4 2018 Adjusted Free cash flow $0.065 ▲ 18.2% from Q4 2018 Quarterly dividend per share 65.6% % of international(3) Broadcasting and Commercial Music revenues $3.9 M Or $0.06 per share Net income $13.6 M ▲ 27.7% from Q4 2018 Cash flow from operating activities For the year ended March 31, 2019 (“Fiscal 2019”): $212.7 M $129.3 M $72.2 M $38.2 M ▲ 63.3% from Fiscal 2018 Revenues ▲ 15.7% from Fiscal 2018 Recurring Broadcasting and Commercial Music revenues(2) ▲ 74.0% from Fiscal 2018 Adjusted EBITDA ▲ 15.0% from Fiscal 2018 Adjusted Free cash flow $0.25 ▲ 19.0% from Fiscal 2018 Year dividend per share 61.8% % of international(3) Broadcasting and Commercial Music revenues $(12.0) M $34.8 M Or $(0.19) per share Net loss ▲ 79.3% from Fiscal 2018 Cash flow from operating activities Notes: (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. (2) Recurring Broadcasting and Commercial Music revenues include subscriptions and usage in addition to fixed fees charged to our customers on a monthly, quarterly and annual basis for continuous music services. Non-recurring revenues mainly include advertising, support, installation, equipment and one-time fees. International means all jurisdictions except Canada. (3) Annual Report 2019 | Stingray Group Inc. | 29 FINANCIAL AND BUSINESS HIGHLIGHTS Highlights of the fourth quarter ended March 31, 2019 Compared to the quarter ended March 31, 2018 (“Q4 2018”):         Revenues increased 112.5% to $72.7 million from $34.2 million; Recurring Broadcasting and Commercial Music revenues(1) increased 12.4% to $34.5 million from $30.7 million; Adjusted EBITDA(2) increased 90.7% to $22.4 million from $11.8 million; Adjusted EBITDA(2) margin was 30.8% compared with 34.3%; Net income was $3.9 million ($0.06 per share) compared with a net income of $4.7 million ($0.08 per share); Adjusted Net income(2) of $12.5 million ($0.18 per share) compared with $9.7 million ($0.17 per share); Cash flow from operating activities increased 27.7% to $13.6 million compared to $10.7 million; and Adjusted Free cash flow(2) decreased 4.9% to $10.5 million compared to $11.1 million, due in large part, to income taxes payable included in the opening balance sheet of Newfoundland Capital Corporation Inc. (“NCC”) paid after the acquisition date. Excluding this item, Adjusted Free cash flow(2) would have reached $14.1 million. Highlights of the year ended March 31, 2019 Compared to the year ended March 31, 2018 (“Fiscal 2018”):         Revenues increased 63.3% to $212.7 million from $130.2 million; Recurring Broadcasting and Commercial Music revenues(1) increased 15.7% to $129.3 million from $111.8 million; Adjusted EBITDA(2) increased 74.0% to $72.2 million from $41.5 million; Adjusted EBITDA(2) margin was 34.0% compared with 31.9%; Net loss was $12.0 million ($(0.19) per share) compared with a net income of $2.3 million ($0.04 per share) mainly attributable to the CRTC Tangible benefits expense and acquisition costs related to the NCC transaction totaling $37.7 million; Adjusted Net income(2) of $37.5 million ($0.57 per share) compared with $26.9 million ($0.50 per share); Cash flow from operating activities increased 79.3% to $34.8 million compared to $19.4 million; and Adjusted Free cash flow(2) increased 15.0% to $38.2 million compared to $33.2 million. Excluding the income taxes paid related to the NCC acquisition described above, Adjusted Free cash flow(2) would have reached $41.8 million. Notes: (1) Recurring Broadcasting and Commercial Music revenues include subscriptions and usage in addition to fixed fees charged to our customers on a monthly, quarterly and annual basis for continuous music services. Non-recurring revenues mainly include advertising, support, installation, equipment and one-time fees. (2) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. Annual Report 2019 | Stingray Group Inc. | 30 Additional business highlights for the fourth quarter and subsequent events:         On May 9, 2019, the Corporation announced that its wholly-owned subsidiary, Stingray Radio Inc., had entered into an agreement to acquire the assets of CIXL-FM and CKYY-FM in Welland, Ontario, from Wellport Broadcasting Limited/RB Communications Ltd, subject to approval from the Canadian Radio-television and Telecommunications Commission (the “CRTC”). On March 29, 2019, the Corporation was presented with two prestigious awards at the World Radio Summit, the annual industry convention that attracts broadcast professionals from around the world: International Broadcast Group of the Year and International Radio Programmer of the Year. On March 28, 2019, the Corporation declared a quarterly dividend of $0.065 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend will be payable on or around June 14, 2019 to shareholders on record as of May 31, 2019. On February 18, 2019, the Corporation announced the expansion of its distribution deal with TELUS. The agreement brings five new music television channels, Stingray Festival 4K, Stingray Now 4K, Stingray Hits!, PalmarèsADISQ par Stingray, and Stingray Classica to Optik TV subscribers in Alberta, British Columbia, and Quebec. On February 6, 2019, the Corporation declared a quarterly dividend of $0.065, representing an increase of 8.3% per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend has been paid on March 15, 2019 to shareholders on record as of February 28, 2019. On January 8, 2019, the Corporation announced that the first two weeks (December 17 – 30, 2018) of Numeris measurement for the Stingray Music audio channels on television revealed impressive listenership results; Stingray Music reached over 15 million Canadians aged 2+ (41.4% of Canadians) and 41.6% of aged 25-54 (6.3 million); Stingray Music’s English-language holiday programming channel alone reached over 7.2 million Canadians aged 2+; Stingray Music’s French-language holiday programming channel alone reached over 1.9 million Canadians aged 2+ and Stingray Music represented 14.2% of audio market shares with the aged 2+ demographic and 12.8% of the audio market shares for the aged 25-54 demographic as measured by Numeris. On January 7, 2019, the Corporation announced that its wholly-owned subsidiary, Stingray Radio Inc., had entered into an agreement to acquire the assets of CHOO-FM in Drumheller, Alberta, from Golden West Broadcasting Ltd. subject to approval from the CRTC. If approved, the closing is expected to take place mid-2019. On January 2, 2019, the Corporation announced that its previously-announced endeavors to acquire Music Choice have been terminated. Annual Report 2019 | Stingray Group Inc. | 31 SELECTED CONSOLIDATED FINANCIAL INFORMATION (in thousands of Canadian dollars, except per share amounts) Revenues Recurring Revenues(1) Revenues Operating expenses CRTC Tangible benefits Depreciation, amortization and write-off Net finance expense (income)(2) Change in fair value of investments Acquisition, legal, restructuring and other expenses Income (loss) before income taxes Income taxes Net income (loss) Adjusted EBITDA(3) Adjusted Net income(3) Adjusted Free cash flow(3) Cash flow from operating activities Net debt(3) Net debt to Adjusted EBITDA(3)(4)(5) 22,407 12,534 10,527 13,613 357,821 3.13x Net income (loss) per share basic Net income (loss) per share diluted Adjusted Net income per share basic(3) Adjusted Net income per share diluted(3) 0.06 0.06 0.18 0.18 3 months March 31, 2019 Q4 2019 % of revenues $ March 31, 2018 Q4 2018 % of revenues $ March 31, 2019 Fiscal 2019 $ % of revenues 12 months March 31, 2018 Fiscal 2018 $ % of revenues March 31, 2017 Fiscal 2017 $ % of revenues 72,730 34,534 100.0 % 47.5 % 34,223 30,734 100.0 % 89.8 % 212,650 100.0 % 130,214 100.0 % 101,501 100.0 % 129,345 60.8 % 111,790 85.9 % 87,612 86.3 % 72,730 51,250 – 100.0 % 70.5 % 0.0 % 34,223 23,724 – 100.0 % 69.2 % 0.0 % 212,650 100.0 % 130,214 100.0 % 101,501 100.0 % 92,239 70.8 % 70,977 70.0 % 142,877 67.3 % 25,306 11.9 % 0.0 % 0.0 % – – 9,978 2,259 336 3,132 5,775 1,833 3,942 13.7 % 3.1 % 0.5 % 5,613 (378) (421) 16.4 % (1.1) % (1.2) % 31,133 14.6 % 12,298 5.8 % (565) (0.3) % 4.3 % 7.9 % 2.5 % 5.4 % 30.8 % 17.2 % 14.5 % 18.7 % – – – – – – 1,396 4,289 (385) 4,674 11,752 9,732 11,066 10,675 35,265 0.85x 0.08 0.08 0.17 0.17 4.1 % 12.6 % (1.1) % 13.7 % 34.3 % 28.4 % 32.3 % 31.2 % 16,817 (15,216) (3,228) (11,988) 7.9 % (7.2) % (1.5) % (5.7) % 72,234 34.0 % 37,536 17.7 % 38,171 18.0 % 34,753 16.3 % – – – – – – 357,821 3.13x (0.19) (0.19) 0.58 0.57 – – – – – – 21,287 16.3 % 17,168 16.9 % 2,036 2.0 % (408) (0.4) % 3,174 600 2.4 % 0.5 % 10,631 2,283 1.8 % (13) 0.0 % 4.5 % 8.2 % 4,607 7,121 (3,596) (3.6) % 1.8 % 10,717 10.6 % 7.0 % 2,296 41,524 31.9 % 33,864 33.4 % 26,858 20.6 % 27,310 26.9 % 33,181 25.5 % 26,511 26.1 % 19,385 14.9 % 22,766 22.4 % 35,265 0.85x 35,178 1.04x – – – – 0.04 0.04 0.50 0.50 – – – – 0.21 0.21 0.53 0.53 – – – – Revenues by segment Broadcasting and Commercial Music Radio Corporate Revenues 38,718 34,012 – 72,730 53.2 % 46.8 % 0.0 % 100.0 % 34,223 – – 34,223 100.0 % 0.0 % 0.0 % 100.0 % 146,741 69.0 % 130,214 100.0 % 101,501 100.0 % 0.0 % 0.0 % 65,227 30.7 % 0.3 % 682 – – 0.0 % 212,650 100.0 % 130,214 100.0 % 101,501 100.0 % 0.0 % – – Revenues by geography Canada United States Other Countries Revenues Notes: 47,318 9,351 16,061 72,730 65.0 % 12.9 % 22.1 % 100.0 % 13,658 8,331 12,234 34,223 39.9 % 24.3 % 35.8 % 100.0 % 121,919 57.3 % 34,439 16.2 % 56,292 26.5 % 59,248 45.5 % 56,129 55.3 % 25,294 19.4 % 13,609 13.4 % 45,672 35.1 % 31,763 31.3 % 212,650 100.0 % 130,214 100.0 % 101,501 100.0 % (1) Recurring Broadcasting and Commercial Music revenues include subscriptions and usage in addition to fixed fees charged to our customers on a monthly, quarterly and annual basis for continuous music services. Non-recurring revenues mainly include advertising, support, installation, equipment and one-time fees. Interest paid during the Q4 2019 was $4.4 million (Q4 2018; $0.4 million) and $10.0 million Fiscal 2019 (Fiscal 2018; $1.4 million and Fiscal 2017; $1.1 million) (2) (3) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 28 and for reconciliations to the most directly comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 33. (4) As at Marc 31, 2018 and 2017, net debt to Adjusted EBITDA consists of Net debt divided by Adjusted EBITDA trailing twelve months (TTM). (5) As at March 31, 2019, Pro Forma Adjusted EBITDA is calculated as the Corporation’s Fiscal 2019 Adjusted EBITDA ($72.2 million) and last twelve months pro rated Adjusted EBITDA for the acquisitions made in Fiscal 2019 for the months prior to the acquisitions which are not already reflected in the results ($42.0 million including synergies of $5.8 million). Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 28 and for reconciliations of Adjusted EBITDA to the most directly comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 33. Annual Report 2019 | Stingray Group Inc. | 32 SUPPLEMENTAL INFORMATION ON NON-IFRS MEASURES Adjusted EBITDA, Adjusted EBITDA margin, Adjusted Net income, Adjusted Net income per share, Adjusted Free cash flow, Net debt and Net debt to Adjusted EBITDA are non-IFRS measures that the Corporation uses to assess its operating performance. See “Supplemental information on Non-IFRS Measures” on page 28. The following tables show the reconciliation of Net income to Adjusted EBITDA: (in thousands of Canadian dollars) Net income (loss) Net finance expense (income) Change in fair value of investments Income taxes Depreciation and write-off of property and equipment Amortization of intangible assets Share-based compensation Restricted, performance and deferred share unit expense CRTC Tangible benefits Acquisition, legal, restructuring and other expenses Adjusted EBITDA Net finance expense (income) Income taxes Depreciation of property and equipment and write-off Income taxes related to change in fair value of investments, share-based compensation, restricted, performance and deferred share unit expense, amortization of intangible assets, CRTC Tangible benefits and acquisition, legal, restructuring and other expenses Adjusted Net income 3 months 12 months March 31, 2019 Q4 2019 3,942 2,259 336 1,833 2,791 7,187 297 630 - 3,132 22,407 (2,259) (1,833) (2,791) March 31, 2018 Q4 2018 4,674 (378) (421) (385) 1,019 4,594 473 780 - 1,396 11,752 378 385 (1,019) March 31, 2019 Fiscal 2019 (11,988) 12,298 (565) (3,228) 7,703 23,430 1,093 1,368 25,306 16,817 72,234 (12,298) 3,228 (7,703) March 31, 2018 Fiscal 2018 2,296 3,174 600 (13) 3,062 18,225 1,325 2,224 - 10,631 41,524 (3,174) 13 (3,062) (2,990) 12,534 (1,764) 9,732 (17,925) 37,536 (8,443) 26,858 The following table shows the reconciliation of Cash flow from operating activities to Adjusted Free cash flow: (in thousands of Canadian dollars) Cash flow from operating activities Add / Less : Acquisition of property and equipment Acquisition of intangible assets other than internally developed intangible assets Addition to internally developed intangible assets Net change in non-cash operating working capital items Acquisition, legal, restructuring and other expenses Adjusted Free cash flow The following table shows the calculation of Net debt: (in thousands of Canadian dollars) Credit facilities Subordinated debt Cash and cash equivalents Net debt 3 months 12 months March 31, 2019 Q4 2019 13,631 March 31, 2018 Q4 2018 10,675 March 31, 2019 Fiscal 2019 34,753 March 31, 2018 Fiscal 2018 19,385 (1,935) (846) (7,623) (4,546) (669) (1,742) (1,890) 3,132 10,527 (406) (1,166) 1,413 1,396 11,066 (3,671) (6,164) 4,059 16,817 38,171 (2,403) (2,013) 12,127 10,631 33,181 March 31, 2019 312,955 49,539 (4,673) 357,821 March 31, 2018 38,627 - (3,362) 35,265 Annual Report 2019 | Stingray Group Inc. | 33 FINANCIAL RESULTS FOR THE QUARTERS AND YEARS ENDED MARCH 31, 2019 AND 2018 CONSOLIDATED PERFORMANCE Revenues Revenues are detailed as follows: (in thousands of Canadian dollars) 2019 2018 % Change 2019 2018 % Change 3 months 12 months Revenues by geography Canada United States Other Countries Revenues Global 47,318 9,351 16,061 72,730 13,658 8,331 12,234 34,223 246.4 12.2 31.3 112.5 121,919 34,439 56,292 212,650 59,248 25,294 45,672 130,214 105.8 36.2 23.3 63.3 Revenues in Q4 2019 increased $38.5 million or 112.5% to $72.7 million, from $34.2 million for Q4 2018. The increase was primarily due the acquisition of NCC, combined with the acquisition of DJ Matic and organic growth in Business to Consumer (“B2C”) apps and subscription video-on-demand services (“SVOD”). Revenues for Fiscal 2019 increased $82.5 million or 63.3% to $212.7 million, from $130.2 million for Fiscal 2018. The increase was primarily due the acquisition of NCC, combined with the acquisition of DJ Matic, Qello Concerts and Novramedia, as well as organic growth in B2C apps and SVOD, partially offset by a decrease in equipment and installation sales related to digital signage. Since the acquisition of NCC during Q3 2019, the Corporation reorganized its financial reporting process such that the chief operating decision maker is now assessing the financial performance of the Corporation in two separate segments: Broadcasting & Commercial Music and Radio. The operating segments reflect how the Corporation manages its operations, resources and assets and how it measures its performance. Canada Revenues in Canada in Q4 2019 increased $33.6 million or 246.4% to $47.3 million, from $13.7 million for Q4 2018. The increase in was primarily due the acquisition of NCC and Novramedia. Revenues in Canada for Fiscal 2019 increased $62.8 million or 105.8% to $122.0 million, from $59.2 million for Fiscal 2018. The increase was primarily due the acquisition of NCC and Novramedia, partially offset by a decrease in equipment and installation sales related to digital signage. United States Revenues in United States in Q4 2019 increased $1.1 million or 12.2% to $9.4 million, from $8.3 million for Q4 2018. The increase was primarily due to organic growth in SVOD. Revenues in United States for Fiscal 2019 increased $9.1 million or 36.2% to $34.4 million, from $25.3 million for Fiscal 2018. The increase was primarily due to the acquisition of Qello Concerts and organic growth in SVOD. Other Countries Revenues in Other countries in Q4 2019 increased $3.9 million or 31.3% to $16.1 million, from $12.2 million for Q4 2018. Revenues in Other countries for Fiscal 2019 increased $10.6 million or 23.3% to $56.3 million, from $45.7 million for Fiscal 2018. For both periods, the increase was primarily due to the acquisition of DJ Matic and to organic growth in B2C apps and SVOD. Annual Report 2019 | Stingray Group Inc. | 34 Operating Expenses Operating expenses in Q4 2019 increased $27.6 million or 116.0% to $51.3 million, from $23.7 million for Q4 2018. Operating expenses for Fiscal 2019 increased $50.7 million or 54.9% to $142.9 million, from $92.2 million for Fiscal 2018. For both periods, the increase was primarily due to the acquisitions of NCC and DJ Matic and organic growth in B2C apps and SVOD. Adjusted EBITDA(1) Adjusted EBITDA in Q4 2019 increased $10.6 million or 90.7% to $22.4 million from $11.8 million for Q4 2018. Adjusted EBITDA margin was 30.8% compared to 34.3% for Q4 2018. The increase in Adjusted EBITDA was primarily due to the acquisition of NCC and other acquisitions realized in Fiscal 2019 and 2018. The decrease in Adjusted EBITDA margin was mainly related to the new Radio segment, which has a lower Adjusted EBITDA margin, particularly in the fourth quarter due to normal business seasonality. Adjusted EBITDA for Fiscal 2019 increased $30.7 million or 74.0% to $72.2 million from $41.5 million for Fiscal 2018. Adjusted EBITDA margin was 34.0% compared to 31.9% for Fiscal 2018. The increase in Adjusted EBITDA was primarily due to the acquisition of NCC and other acquisitions realized in Fiscal 2019 and 2018. The increase in Adjusted EBITDA margin was mainly related to the reversal of certain accrued liabilities, which positively contributed to the Adjusted EBITDA of the Radio segment in Q3 2019. CTRC Tangible benefits The CRTC approved the change in ownership and effective control of NCC on October 23, 2018. Pursuant to the decision, the CRTC required the Corporation to pay tangible benefits corresponding to an amount of $31.0 million over a seven-year period in equal annual payments. In Q3 2019, the Corporation recognized an expense of $25.3 million, which reflects the fair value of the payment stream using a discount rate of 5.70%, which is the Corporation effective interest rate plus a risk premium. There was no CRTC Tangible benefits expense for Q4 2019 and Fiscal 2018. Net Finance Expense (Income) In Q4 2019, net finance expense increased to $2.3 million from a net finance income of $0.4 million for Q4 2018. The increase was mainly related to higher interest expense due to the additional debt related to the funding of the acquisition of NCC, to the mark-to-market losses on derivative instruments and to the negative foreign exchange impact, partially offset by the write-off of balance payable on acquisition and the positive change in fair value of contingent considerations. Net finance expense for Fiscal 2019 increased to $12.3 million from $3.2 million for Fiscal 2018. The increase was mainly related to higher interest expense due to the additional debt related to the funding of the acquisition of NCC, to the mark-to- market losses on derivative financial instruments and to negative foreign exchange impact, partially offset by the write-off of balance payable on acquisition and the positive change in fair value of contingent considerations. Change in fair value of investments In Q4 2019, a loss on fair value of $0.3 million was recorded compared to a gain of $0.4 million for Q4 2018. In Fiscal 2019, a gain on fair value of $0.6 million was recorded compared to a loss on fair value of $0.6 million for Fiscal 2018. The variances are related to the translation of an investment denominated in U.S. dollars to Canadian dollars. Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. Annual Report 2019 | Stingray Group Inc. | 35 Acquisition, legal, restructuring and other expenses (in thousands of Canadian dollars) Acquisition Legal Restructuring and other Acquisition, legal, restructuring and other expenses 2019 2,564 453 115 3 months 2018 Change $ 2019 12 months 2018 Change $ 648 631 117 1,916 (178) (2) 13,738 2,099 980 1,963 8,373 295 11,775 (6,274) 685 3,132 1,396 1,736 16,817 10,631 6,186 In Q4 2019, acquisition, legal, restructuring and other expenses increased to $3.1 million from $1.4 million for Q4 2018. Acquisition, legal, restructuring and other expenses for Fiscal 2019 increased to $16.8 million from $10.6 million for Fiscal 2018. For both periods, the increase was mainly related to the acquisition of NCC, partially offset by lower legal expenses related to the Music Choice litigation. Income Taxes The income taxes expense recognized in the comprehensive income was $1.8 million for Q4 2019 compared to income taxes recovery of $0.4 million for Q4 2018. The effective tax rate for Q4 2019 was 31.7% compared to (9.0)% for Q4 2018. The increase in the effective tax rate is mainly due to the relative importance of permanent difference compared to net income (loss) before income taxes. The income taxes recovery recognized in the comprehensive income was $3.2 million for Fiscal 2019 compared to nil for Fiscal 2018. The effective tax rate for Fiscal 2019 was 21.2% compared to (0.6%) for Fiscal 2018. The increase in the effective tax rate is mainly due to the relative importance of permanent difference compared to net income (loss) before income taxes. For Fiscal 2019, share issuance costs of $6.7 million ($2.3 million for Fiscal 2018) have been recognized as a reduction of share capital net of income taxes of $1.8 million ($0.6 million for Fiscal 2018). Net income (loss) and net income (loss) per share Net income in Q4 2019 was $3.9 million ($0.06 per share) compared to $4.7 million ($0.08 per share) for Q4 2018. The decrease was mainly attributable to higher interest, mark-to-market losses on derivative financial instruments, amortization, income taxes, depreciation and acquisition expenses, partially offset by higher operating results and write-off of balance payable on acquisition. Net loss for Fiscal 2019 was $12.0 million ($(0.19) per share) compared to a net income of $2.3 million ($0.04 per share) for Fiscal 2018. The decrease was mainly attributable to the CRTC Tangible benefits expense of $25.3 million related to the NCC acquisition, higher acquisition, interest, amortization and depreciation expenses, partially offset by higher operating results, lower legal expenses related to the Music Choice litigation and write-off of balance payable on acquisition. Adjusted Net income(1) and Adjusted Net income per share(1) Adjusted Net income in Q4 2019 was $12.5 million ($0.18 per share), compared to $9.7 million ($0.17 per share) for Q4 2018. The increase is related to higher operating results and write-off of balance payable on acquisition, partially offset by higher interest expense, higher income taxes expense, mark-to-market losses on derivative financial instruments, and higher depreciation expense. Adjusted Net income for Fiscal 2019 was $37.5 million ($0.57 per share), compared to $26.9 million ($0.50 per share) for Fiscal 2018. The increase is related to higher operating results, partially offset by higher interest, income taxes and depreciation expenses. Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. Annual Report 2019 | Stingray Group Inc. | 36 BUSINESS SEGMENT PERFORMANCE BROADCASTING AND COMMERCIAL MUSIC (in thousands of Canadian dollars) Revenues Operating expenses Adjusted EBITDA(1) Adjusted EBITDA margin(1) Revenues 3 months 12 months 2019 38,718 24,069 14,649 37.8% 2018 % Change 13.1 12.8 13.6 0.4 34,223 21,330 12,893 37.7% 2019 146,741 93,913 52,828 36.0% 2018 % Change 12.7 11.4 15.1 2.1 130,214 84,301 45,913 35.3% In Q4 2019, Broadcasting and Commercial Music revenues increased $4.5 million or 13.1% to $38.7 million from $34.2 million for Q4 2018. This increase is mostly attributable to the acquisition of DJ Matic and Novramedia and to revenues from B2C apps and SVOD. During the quarter, existing operations excluding non-recurring equipment and installation sales related to digital signage experienced organic growth of 4.6%. Broadcasting and Commercial Music revenues for Fiscal 2019 increased $16.5 million or 12.7% to $146.7 million from $130.2 million for Fiscal 2018. The increase was primarily due the acquisition of DJ Matic, Qello Concerts and Novramedia, as well as organic growth in B2C apps and SVOD, partially offset by a decrease in equipment and installation sales related to digital signage. Existing operations excluding non-recurring equipment and installation sales related to digital signage experienced organic growth of 4.4%. Adjusted EBITDA(1) In Q4 2019, Broadcasting and Commercial Music Adjusted EBITDA increased by $1.7 million or 13.6% to $14.6 million from $12.9 million for Q4 2018. This increase is mostly related to subscriber revenues from B2C apps and SVOD and to the acquisition of DJ Matic. Broadcasting and Commercial Music Adjusted EBITDA for Fiscal 2019 increased $6.9 million or 15.1% to $52.8 million from $45.9 million for Fiscal 2018. This increase is mostly related to the acquisition of Qello Concerts, DJ Matic and Novramedia and, to a lesser extent, to subscriber revenues from B2C apps and SVOD. The increase in Adjusted EBITDA margin was mainly related to the decrease in non-recurring equipment and installation sales related to digital signage in Fiscal 2019, which tend to have lower margin. Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. Annual Report 2019 | Stingray Group Inc. | 37 RADIO (in thousands of Canadian dollars) Revenues Operating expenses Adjusted EBITDA(1) Adjusted EBITDA margin(1) Revenues 3 months 12 months 2019 34,012 25,094 8,918 26.2% 2018 % Change - - - - - - - - 2019 65,227 41,209 24,018 36.8% 2018 % Change - - - - - - - - Radio revenues represented $34.0 million for Q4 2019 and $65.2 million for Fiscal 2019 reflecting the contribution from the acquisition of NCC since the October 26, 2018 closing date. Adjusted EBITDA(1) Radio Adjusted EBITDA represented $8.9 million for Q4 2019 and $24.0 million for Fiscal 2019 reflecting the contribution from the acquisition of NCC since the October 26, 2018 closing date. CORPORATE (in thousands of Canadian dollars) Revenues Operating expenses Adjust: Share-based compensation Restricted, performance and deferred share unit expense Adjusted EBITDA(1) 3 months 12 months 2019 - 2,087 2018 % Change - (12.8) - 2,394 2019 682 7,755 2018 % Change - (2.3) - 7,938 (297) (473) (37.2) (1.093) (1,325) (17.5) (630) (1,160) (780) (1,141) (19.2) 1.7 (1,368) (4,612) (2,224) (4,389) (38.5) 5.1 The Corporate segment derives its revenue from hotel operations, which was acquired through the NCC acquisition. Corporate expenses are related to head office functions and hotel operations. The hotel was disposed of on December 28, 2018. No gain or loss on disposal were recorded in the results as the assets and liabilities were recognized at fair value through the purchase price allocation of NCC. Revenues Corporate revenues represented $0.7 million for Fiscal 2019 attributable to the hotel’s operations. Corporate revenues were nil in Q4 2019 due to the disposal of the hotel on December 28, 2018. Adjusted EBITDA(1) Corporate Adjusted EBITDA represented the net revenues of the hotel’s operations and the head office operating expenses less the share-based compensation and restricted, performance and deferred share unit expense. In Q4 2018 and Fiscal 2018, share-based compensation and restricted, performance and deferred share unit expense was higher due to the higher value of the Corporation’s stock price. Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. Annual Report 2019 | Stingray Group Inc. | 38 Quarterly results Revenues increased over the last eight quarters from $29.7 million in the first quarter of Fiscal 2018 to $72.7 million in the fourth quarter of Fiscal 2019. The increase was mainly attributable to the successful integration of acquisitions and organic growth including new contracts in all geographic locations. The decrease in Q4 2018 revenues compared to Q3 2018 was mainly explained by lower non-recurring revenues related to digital signage. The increases in Q3 2019 and Q4 2019 were mainly explained by the acquisition of NCC on October 26, 2018. Adjusted EBITDA(1) increased over the last eight quarters from $9.2 million in the first quarter of Fiscal 2018 to $22.4 million in the fourth quarter of Fiscal 2019. The increase was mainly attributable to the successful integration of acquisitions and organic growth including new contracts. The increase in Q3 2019 was primarily due to the acquisition of NCC and other acquisitions realized in Fiscal 2019 and 2018, and to the organic growth of B2C apps and SVOD. The decrease in Q4 2019 was mainly due to normal business seasonality in the Radio segment and to the reversal of certain accrued liabilities, which positively contributed to the Adjusted EBITDA(1) of the Radio segment in Q3 2019. Net income (loss) fluctuated over the last eight quarters from a net income of $0.3 million in the first quarter of Fiscal 2018 to a net income of $3.9 million in the fourth quarter of Fiscal 2019. In Q2 2018, the net loss was mainly related to higher legal fees and finance expenses, offset partially by an income tax recovery. In Q3 2018, the net income was mainly attributable to higher operating results and lower legal fees, partially offset by the negative change in fair value of contingent consideration and higher amortization expense of intangible assets compared to Q2 2018. In Q4 2018, the increase in net income was mainly attributable to higher net finance income and income tax recovery. In Q3 2019, the decrease was mainly attributable to the CRTC Tangible benefits expense related to the NCC acquisition, higher interest and acquisition expenses, partially offset by higher operating results. The increase in Q4 2019 was mainly explained by the absence of CRTC Tangible benefits expense, lower acquisition expenses and write-off of balance payable on acquisition, partially offset by higher income taxes and lower operating results. Summary of Consolidated Quarterly Results (in thousands of Canadian dollars, except per share amounts) Revenues by segment Broadcasting and Commercial Music Radio Corporate Total revenues Revenues by geography Canada United States Other countries Total revenues Adjusted EBITDA(1) Net income (loss) Net income (loss) per share basic Net income (loss) per share diluted Adjusted Net income(1) Adjusted Net income per share basic(1) Adjusted Net income per share diluted(1) 3 months March 31, 2019 Fiscal 2019 Dec. 31, 2018 Fiscal 2019 Sept. 30, 2018 Fiscal 2019 June 30, 2018 Fiscal 2019 March 31, 2018 Fiscal 2018 Dec. 31, 2017 Fiscal 2018 Sept. 30, 2017 Fiscal 2018 June 30, 2017 Fiscal 2018 38,718 34,012 - 72,730 38,875 31,215 682 70,772 34,692 - - 34,692 34,456 - - 34,456 34,223 - - 34,223 35,099 - - 35,099 31,222 - - 31,222 29,670 - - 29,670 47,318 9,351 16,061 72,730 46,738 8,834 15,200 70,772 14,222 8,069 12,401 34,692 13,641 8,185 12,630 34,456 13,658 8,331 12,234 34,223 16,219 7,037 11,843 35,099 14,833 5,222 11,167 31,222 14,538 4,704 10,428 29,670 22,407 3,942 27,219 (18,053) 11,429 777 11,179 1,346 11,752 4,674 11,151 737 9,452 (3,395) 9,169 280 0.06 (0.26) 0.01 0.02 0.08 0.01 (0.07) 0.01 0.06 12,534 (0.26) 12,396 0.01 6,708 0.02 5,898 0.08 9,732 0.01 6,016 (0.07) 5,407 0.01 5,703 0.18 0.18 0.12 0.10 0.17 0.11 0.10 0.11 0.18 0.18 0.12 0.10 0.17 0.11 0.10 0.11 Cash flow from operations Adjusted Free Cash Flow(1) 13,631 10,527 9,160 15,998 5,186 5,448 6,776 6,198 10,675 11,066 6,589 8,022 2,710 6,853 (589) 7,240 Quarterly dividend 0.05 0.06 (1) Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 28 and for reconciliations to the most directly 0.055 0.055 0.065 0.065 0.06 0.05 comparable IFRS financial measure, refer to “Reconciliation of Quarterly Non-IFRS Measures” on page 33. Annual Report 2019 | Stingray Group Inc. | 39 Reconciliation of Quarterly Non-IFRS Measures (in thousands of Canadian dollars) Net income (loss) Net finance expense (income) Change in fair value of investments Income taxes Depreciation and write-off of property and equipment Amortization of intangible assets Share-based compensation Restricted, performance and deferred share unit expense CRTC Tangible benefits Acquisition, legal, restructuring and other expenses Adjusted EBITDA Net finance expense (income) Income taxes Depreciation and write-off of property and equipment Income taxes related to change in fair value of investments, share-based compensation, restricted, performance and deferred share unit expense, amortization of intangible assets, CRTC Tangible benefits and acquisition, legal, restructuring and other expenses Adjusted Net income (in thousands of Canadian dollars) Cash flow from operating activities Acquisition of property and equipment Acquisition of intangible assets other than internally developed intangible assets Addition to internally developed intangible assets Net change in non-cash operating working capital items Acquisition, legal, restructuring and other expenses Adjusted Free cash flow 3 months March 31, 2019 Fiscal 2019 3,942 2,259 Dec. 31, 2018 Fiscal 2019 (18,053) 7,208 Sept. 30, 2018 Fiscal 2019 777 910 June 30, 2018 Fiscal 2019 1,346 1,921 March 31, 2018 Fiscal 2018 4,674 (378) Dec. 31, 2017 Fiscal 2018 737 1,746 Sept. 30, 2017 Fiscal 2018 (3,395) 1,269 June 30, 2017 Fiscal 2018 280 537 336 1,833 (840) (6,117) 436 567 (497) 489 (421) (385) (110) 849 697 (941) 434 464 2,791 2,469 1,274 1,169 1,019 704 718 621 7,187 297 6,401 263 5,255 358 4,587 175 4,594 473 4,582 346 4,508 312 4,541 194 630 - (147) 25,306 518 - 367 - 780 - 422 - 709 - 313 - 3,132 22,407 (2,259) (1,833) 10,729 27,219 (7,208) 6,117 1,334 11,429 (910) (567) 1,622 11,179 (1,921) (489) 1,396 1,875 11,752 11,151 (1,746) (849) 378 385 5,575 9,452 (1,269) 941 1,785 9,169 (537) (464) (2,791) (2,469) (1,274) (1,169) (1,019) (704) (718) (621) (2,990) 12,534 (11,263) 12,396 (1,970) 6,708 (1,702) 5,898 (1,764) 9,732 (1,836) 6,016 (2,999) 5,407 (1,844) 5,703 3 months March 31, 2019 Fiscal 2019 Dec. 31, 2018 Fiscal 2019 Sept. 30, 2018 Fiscal 2019 June 30, 2018 Fiscal 2019 March 31, 2018 Fiscal 2018 Dec. 31, 2017 Fiscal 2018 Sept. 30, 2017 Fiscal 2018 June 30, 2017 Fiscal 2018 13,631 9,160 5,186 6,776 10,675 6,589 2,710 (589) (1,935) (1,972) (1,488) (2,228) (846) (2,188) (705) (807) (669) (1,272) (1,383) (347) (406) (593) (1,000) (404) (1,742) (1,827) (1,390) (1,205) (1,166) (847) - - (1,890) 1,180 3,189 1,580 1,413 3,186 273 7,255 3,132 10,527 10,729 15,998 1,334 5,448 1,622 6,198 1,396 11,066 1,875 8,022 5,575 6,853 1,785 7,240 Annual Report 2019 | Stingray Group Inc. | 40 LIQUIDITY AND CAPITAL RESOURCES FOR THE QUARTERS AND YEARS ENDED MARCH 31, 2019 AND 2018 (in thousands of Canadian dollars) Operating activities Financing activities Investing activities Net change in cash Cash – beginning of period Cash – end of period Adjusted Free cash flow(1) Operating activities 3 months 12 months 2019 13,631 (9,717) (4,346) (432) 5,105 4,673 10,527 2018 10,675 3,599 (15,429) (1,155) 4,517 3,362 11,066 2019 34,753 450,140 (483,582) 1,311 3,362 4,673 38,171 2018 19,385 19,698 (41,583) (2,500) 5,862 3,362 33,181 Cash flow generated from operating activities amounted to $13.6 million for Q4 2019 compared to $10.7 million for Q4 2018. The increase was mainly due to higher operating results, partially offset by higher interest paid and income taxes paid due to income taxes payable included in the opening balance sheet of NCC at the acquisition date. Cash flow generated from operating activities amounted to $34.8 million for Fiscal 2019 compared to $19.4 million for Fiscal 2018. The increase was mainly due to higher operating results and lower legal fees, partially offset by higher acquisition expenses, interest paid and income taxes paid. Financing Activities Net cash flow used in financing activities amounted to $9.7 million for Q4 2019 compared to net cash flow generated by financing activities of $3.6 million for Q4 2018. The net change was mainly attributable to repayments of the revolving credit facility and higher dividend payment, partially offset by lower repayments of other payable. Net cash flow generated by financing activities amounted to $450.1 million for Fiscal 2019 compared to $19.7 million for Fiscal 2018. The net change was mainly attributable to the funding of the NCC acquisition, which was financed through credit facilities, a subordinated debt and share issuances. The Corporation also paid other payables related to prior acquisitions and a higher dividend. Investing Activities Net cash flow used in investing activities amounted to $4.3 million for Q4 2019 compared to $15.4 million for Q4 2018. The net change was primarily due to lower business and asset acquisitions compared to Q4 2018. Net cash flow used in investing activities amounted to $483.6 million for Fiscal 2019 compared to $41.6 million for Fiscal 2018. The net change was primarily due to the acquisition of NCC and DJ Matic, partially offset by the proceeds from the disposal of some non-core assets previously held by NCC. Adjusted Free cash flow(1) Adjusted Free cash flow generated in Q4 2019 amounted to $10.5 million compared to $11.1 million for Q4 2018. The decrease was mainly related to higher interest paid, income taxes paid due to income taxes payable included in the opening balance sheet of NCC at the acquisition date and higher capital expenditures, partially offset by higher operating results. Excluding the income taxes paid related to the NCC acquisition, Adjusted Free cash flow would have reached $14.1 million. Adjusted Free cash flow generated in Fiscal 2019 amounted to $38.2 million compared to $33.2 million for Fiscal 2018. The increase was mainly related to higher operating results, partially offset by higher interest paid, higher capital expenditures and income taxes paid in part related to the NCC acquisition described above. Excluding the income taxes paid related to the NCC acquisition, Adjusted Free cash flow would have reached $41.8 million. Note: (1) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. Annual Report 2019 | Stingray Group Inc. | 41 Contractual Obligations The Corporation is committed under the terms of contractual obligations with various expiration dates, primarily the rental properties and equipment, broadcast licences commitments and financial obligations under our credit agreement and subordinated debt. The following table summarizes the Corporation’s undiscounted significant contractual obligations as at March 31, 2019, including its estimated payments and commitments related to leasing contracts: (in thousands of Canadian dollars) Operating lease agreements Broadcast licences commitments Credit facility Subordinated debt Accounts payables and accrued liabilities Other liabilities Total obligations Broadcast licences and royalties Less than 1 year 14,216 6,347 14,086 - 62,364 16,186 113,199 1 to 5 years 22,850 23,327 301,128 50,000 - 35,035 432,340 More than 5 years 2,096 7,681 - - - 12,808 22,585 Total 39,162 37,355 315,214 50,000 62,364 64,029 568,124 A condition of the broadcast licences owned by the Corporation is to commit to fund Canadian Content Development (“CCD”) over the initial term of the licences, which is usually 7 years. The Corporation must also pay royalties for the use of music for the majority of its music services. Through copyright collective societies, the Corporation pays royalties to two sets of rights holders: rights holders in music works, which are the music and the lyrics; and, rights holders in artists’ performances and sounds recordings, which are the actual performances and recordings of the musical works. Annual Report 2019 | Stingray Group Inc. | 42 Capital resources The Corporation has a credit facility for an authorized amount up to $450.0 million maturing in October 2021. The credit facility consists of a revolving credit facility for an authorized amount up to $300.0 million and a non-revolving term facility in the amount of $150.0 million. The credit facility may be drawn in Canadian dollars in the form of prime rate loan or banker’s acceptances, in US dollars in the form of US base rate loans or LIBOR loans, or in Euro and British Pound in the form of LIBOR loans and in Australian dollars in the form of BBSY loans. The credit facility bears interest at (a) the bank’s prime rate plus an applicable margin based on a financial covenant or (b) the banker’s acceptance rate plus an applicable margin based on a financial covenant (5.325% as at March 31, 2019). In addition, the Corporation incurs standby fees, varying between 0.28% and 0.60% (0.48% as at March 31, 2019), based on a financial covenant, on the unused portion of the Credit facility. The Credit facility is secured by guarantees from subsidiaries and first ranking lien on universality of all assets, tangible and intangibles, present and future. The following table summarizes the net change in Net debt that occurred in the year ended March 31, 2019 including related ratios: Movement in Net debt(1)(2) $483.2 $10.0 $16.0 $165.1 $19.2 $357.8 $35.3 As at March 31, 2018 Business acquisitions outlays and holdbacks payments Investment and intangible asset acquired through asset acquisition Dividend payment Issuance of shares Remaining net change of revolving facility and cash As at March 31, 2019 $41.5 0.85 As at March 31, 2018: 12-Month Trailing Adjusted EBITDA(1)(2)(3) As at March 31, 2019: Pro Forma Adjusted EBITDA(1)(2)(4) Net debt to Adjusted EBITDA(1)(2)(3) $114.2 3.13 In millions of Canadian dollars. Notes: (1) (2) Refer to “Supplemental information on Non-IFRS measures” on page 28 and 33. (3) Adjusted EBITDA is calculated on the last twelve months in regards to the Net debt to Adjusted EBITDA ratio. (4) As at March 31, 2019, Pro Forma Adjusted EBITDA is calculated as the Corporation’s Fiscal 2019 Adjusted EBITDA ($72.2 million) and last twelve months pro rated Adjusted EBITDA for the acquisitions made in Fiscal 2019 for the months prior to the acquisitions which are not already reflected in the results ($42.0 million including synergies of $5.8 million). Refer to “Forward-looking statements” and “Supplemental information on Non-IFRS measures” on page 28 and for reconciliations of Adjusted EBITDA to the most directly comparable IFRS financial measure, refer to “Supplemental information on Non-IFRS measures” on page 33. Annual Report 2019 | Stingray Group Inc. | 43 CONSOLIDATED FINANCIAL POSITION The following table shows the main variances that have occurred in the consolidated financial position of the Corporation for the year ended March 31, 2019: (in thousands of Canadian dollars) March 31, 2019 March 31, 2018 Variance Trade and other receivables 68,861 35,444 33,417 ▲ Intangible assets, excluding broadcast licences 65,111 54,355 10,756 ▲ Broadcast licences 270,555 - 270,555 ▲ Goodwill 332,132 98,467 233,665 ▲ Accounts payables and accrued liabilities 62,364 35,199 27,165 ▲ Other liabilities Credit facility Subordinated debt Music Choice Litigation Music Choice v. Stingray 59,769 28,087 31,682 ▲ 312,955 49,539 38,627 - 274,328 ▲ 49,539 ▲ Significant contributions Accounts receivables related to the acquisition of NCC Recognition of intangibles following business and asset acquisitions, partially offset by disposals and write-off Recognition of broadcast licences following the acquisition of NCC Recognition of goodwill following the acquisitions of NCC, DJ Matic and Novramedia Accounts payables related to the acquisitions of NCC and DJ Matic Recognition of the CTRC tangible benefits and pension liability related to the NCC acquisition and contingent considerations assumed following the acquisitions of DJ Matic and Novramedia, partially offset by revaluations and payments made on contingent consideration and balances payable on past acquisitions Funding of the acquisitions of NCC, DJ Matic and Novramedia Funding of the acquisition of NCC Music Choice filed its original Complaint against the Corporation on June 6, 2016, asserting infringement of four U.S. patents, namely, U.S. Patent Nos. 8,769,602 (the ’602 Patent), 9,357,245 (the ’245 Patent), 7,320,025 (the ’025 Patent) and 9,351,045 (the ’045 Patent). On August 12, 2016, Music Choice filed its First Amended Complaint, which added a fifth U.S. patent, namely, U.S. Patent No. 9,414,121 (the ’121 Patent). The Corporation filed its Answer to the Original Complaint (including counterclaims) on August 30, 2016, asserting, among other things, defenses and counterclaims of non-infringement and invalidity. On September 2, 2016, Music Choice filed its Second Amended complaint, adding Stingray Music USA, Inc. (SMU) as a defendant, and the Corporation and SMU filed their answers and counterclaims on September 23 and October 4, 2016, respectively. Since the commencement of the case, the parties have jointly prepared and filed with the Court a docket control order, a protective order and an ESI order. Music Choice also served its infringement contentions on September 12, 2016, the parties exchanged Initial Disclosures, and the Corporation served its invalidity contentions on November 28, 2016. On March 27, 2017, the Corporation filed a motion for judgment on the pleadings on the basis that the Asserted Patents are invalid under 35 U.S.C. 101 for claiming unpatentable subject matter. The parties exchanged amended infringement and invalidity contentions on April 28, 2017. In addition, on November 14, 2016, the Corporation filed an amended answer and counterclaims which included inequitable conduct counterclaims based on David Del Beccaro’s (and the other inventors’) failure to disclose a product offered by Music Choice Europe in or about 2001 to the patent office and their misrepresentations to the patent office that they are the true inventors of the patents-in-suit. Music Choice moved to dismiss and strike the Corporation’s inequitable conduct counterclaims, which the Corporation opposed on January 4, 2017. On May 3, 2017, the magistrate judge handling the case issued a Report and Recommendation that the motion be dismissed, and on September 6, 2017, the Court adopted the report and denied Music Choice’s motion. On July 6, 2017, the Court issued a Markman Order construing certain claim terms of the Asserted Patents. On September 14, 2017, Music Choice dropped one of the five patents-in-suit (the ‘602 Patent). On October 17, 2017, the Corporation filed a motion to adjourn the trial date and remaining case deadlines, in part because the Patent Trial and Appeal Board (PTAB) instituted inter partes review for three of the four patents-in-suit (i.e., the ’025, ’045 and ’245 Patents). On October 23, 2017, the Corporation filed a petition for Annual Report 2019 | Stingray Group Inc. | 44 inter partes review for claims 10 and 15 of the ’245 Patent. On October 24, 2017, Music Choice requested adverse judgment against itself from the PTAB with respect to 1-9, 12-14, and 16-17 of the ’245 Patent. On October 27, 2017, the PTAB instituted inter partes review on the fourth patent-in-suit (i.e., the ’121 Patent), and on October 30, 2017, the Corporation filed a motion to stay the litigation pending the inter partes reviews. On December 12, 2017, the Court granted the Corporation’s motion to stay, staying the litigation pending resolution of the inter partes reviews, and dismissed without prejudice Stingray’s motion for judgment on the pleadings. On March 26, 2018, the PTAB declined to institute an inter partes review for claims 10 and 15 of the ’245 Patent. On April 26, 2018, the PTAB entered adverse judgment against Music Choice as to claims 1-9, 12-14, and 16-17 of the ’245 Patent and terminated the proceeding. On June 19, 2018 and July 16, 2018, the PTAB held hearings for the instituted inter partes reviews. On September 20, 2018, the PTAB invalidated claims 1, 3 and 4 of the ’025 Patent and stated that claim 8 was not shown to be unpatentable as anticipated by U.S. Patent Application Publication No. 2002/0078456 A1 (Hudson). On October 11, 2018, the PTAB invalidated claims 1-4 and 6-9 of the ’045 Patent and stated that claims 5 and 10- 20 were not shown to be unpatentable as obvious in view of Hudson and U.S. Patent No. 6,248,946 (Dwek). On October 17, 2018, the PTAB invalidated all of the claims of the ’602 Patent. On October 24, 2018, the PTAB invalidated claims 1, 6, and 10- 12 of the ’121 Patent and stated the claim 14 was not shown to be unpatentable as anticipated by U.S. Patent No. 5,752,160. Since claim 14 of the ’121 Patent is not asserted in the litigation, the ’121 Patent is no longer at issue in the district court litigation. On November 21, 2018, Stingray filed a Notice of Appeal regarding the PTAB’s decision that claim 8 of the ’025 Patent was not shown to be unpatentable as anticipated by Hudson. On November 23, 2018, the parties filed a joint status report advising the district court as to the outcome of the proceedings and a joint motion proposing a docket control order. On November 26, 2018, the Court lifted the stay and entered an Amended Docket Control Order. On December 12, 2018, Stingray filed a Notice of Appeal regarding the PTAB’s decision that claims 5 and 10-20 of the ’045 Patent were not shown to be unpatentable as obvious in view of Hudson and Dwek. Supplemental fact discovery has closed, and expert discovery has commenced. Trial is scheduled for August 19, 2019. Stingray v. Music Choice SMU filed its Complaint on August 30, 2016, asserting claims of unfair competition under the Federal Lanham Act, defamation, trade libel, tortious interference, and common law unfair competition, stemming from false misrepresentations of fact made by Music Choice regarding the nature, characteristics and qualities of Stingray Music and its products and services, to SMU’s existing and potential customers, with the goal of damaging SMU’s relationships with those customers and its business generally. On October 17, 2016, Music Choice filed a Motion to Dismiss on the grounds that all of SMU’s claims are time-barred. In response, on November 3, 2016, SMU filed an Amended Complaint, after which (on December 7, 2016), Music Choice moved to dismiss only the state law claims. Music Choice also filed a motion to transfer the case to the Eastern District of Pennsylvania. On January 4, 2017, SMU opposed both motions. In addition, SMU filed a motion to consolidate the action with the Music Choice patent infringement action. On March 16, 2017, the Court denied Music Choice’s motion to change venue, and granted SMU’s motion to consolidate, ordering that this action be consolidated for all pretrial issues with the Music Choice v. Stingray action. Music Choice’s motion to dismiss the state law claims remains pending. On March 30, 2017, Music Choice answered SMU’s complaint (except for the state law claims that remain subject to its pending motion to dismiss) and asserted a counterclaim against SMU and the Corporation. Music Choice’s counterclaim alleges that the Stingray entities misused Music Choice confidential data in violation of various non-disclosure agreements (the “NDAs”). These non-disclosure agreements arose from discussions between the parties concerning a possible acquisition of Music Choice by the Corporation. The Corporation’s entities answered the counterclaim on April 28, 2017, denying the allegations and asserting various affirmative defenses, including that Music Choice acted fraudulently and in bad faith with regard to the NDAs. Supplemental fact discovery has closed, and expert discovery has commenced. Trial is scheduled for August 19, 2019. SOCAN and Re:Sound legal proceedings From May 2, 2017 until May 10, 2017, the Corporation, together with its Canadian Broadcast Distribution Undertaking customers (together, the “Objectors”), presented an affirmative case before the Copyright Board of Canada to seek a reduction in the prescribed rates and terms for the Pay Audio Services Tariff for the 2007-2016 period. SOCAN and Re:Sound (together, the “Collectives”) opposed that case, but in the opinion of the Objectors failed to offer compelling alternatives other than a request to maintain the status quo. While the Objectors and the Collectives await the final determination of the Board on the proper quantum of the Tariff, in early 2018 the Board released a tentative ruling proposing that allocation of affiliation payments across the suite of Stingray services is reasonable and appropriate and asking the parties to propose favoured approaches to allocation. The parties have responded to the Board’s request, with the Objectors proposing an allocation based on a “cost approach”, as supported by independent, expert advice. The Copyright Board of Canada continues its consideration of the matter, and the Corporation anticipates a decision in about 6 to 15 months, based on past experience and the complexity of this proceeding. Annual Report 2019 | Stingray Group Inc. | 45 Transactions Between Related Parties The key management personnel of the Corporation are the Chief Executive Officer, Chief Financial Officer and certain other key employees of the Corporation. Key management personnel compensation and director’s fees include the following: (in thousands of Canadian dollars) Short-term employee benefits Share-based compensation Restricted and performance share units Deferred share units Off-Balance Sheet Arrangements 3 months 12 months 2019 2018 2019 2018 1,246 124 234 193 1,797 1,188 271 195 263 1,917 4,497 630 811 - 5,938 4,350 921 557 911 6,739 The Corporation had no off-balance sheet arrangements, other than operating leases (which have been discussed under “Contractual Obligations”), that have, or are reasonably likely to have, a current or future material effect on its consolidated financial position, financial performance, liquidity, capital expenditures or capital resources. Disclosure of Outstanding Share Data Issued and outstanding shares and outstanding stock options consisted of: Issued and outstanding shares: Subordinate voting shares Subordinate voting shares held in trust through employee share purchase plan Variable subordinate voting shares Multiple voting shares Outstanding stock options: Stock options June 4, 2019 March 31, 2019 57,685,820 57,671,720 (21,850) 623,629 17,941,498 76,229,097 (13,044) 637,729 17,941,498 76,237,903 2,104,100 2,104,100 The Corporation has a stock option plan to attract and retain employees, directors, officers and consultants. The plan provides for the granting of options to purchase subordinate voting shares. Under this plan,10% of all multiple voting shares, subordinate voting shares and variable subordinate voting shares issued and outstanding on a non-diluted basis is reserve for issuance. In Fiscal 2019, 147,500 options were exercised, 280,773 options were forfeited, and 567,146 options were granted to eligible employees, subject to service vesting periods of 4 years. Financial Risk Factors Currency risk: The Corporation is exposed to currency risk on sales and expenses that are denominated in currencies other than the functional currency of the Corporation’s subsidiaries, primarily the US dollar and the euro. Also, additional earnings variability arises from the translation of monetary assets and liabilities denominated in currencies other than the functional currency of the Corporation’s subsidiaries at the rate of exchange at each balance sheet date, the impact of which is reported as a foreign exchange gain or loss in the consolidated statements of comprehensive income. The Corporation's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows, by transacting with third parties in the above currencies to the maximum extent possible and practical, given that this will act as natural economic hedges for each of these currencies. Liquidity risk: Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows under both normal and Annual Report 2019 | Stingray Group Inc. | 46 stressed conditions. Also, the Board of Directors reviews and approves the Corporation’s operating and capital budgets, as well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions or other major investments or divestitures. Interest rate risk: Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Corporation holds the majority of its cash and cash equivalents balance in accounts bearing interest at rates less than 1.25%. The Corporation is, therefore, not materially exposed to future cash flow fluctuations coming from changes in market interest rates for its cash and cash equivalents. The credit facility is a variable interest rate instrument that is due in more than one year. This instrument is exposed to changes in future interest rates that could result in future cash flow fluctuations. To manage its interest rate risk, the Corporation entered into an interest rate swaps agreement. To manage its interest rate risk, the Corporation entered into the following interest rate swap agreements during the year ended March 31, 2019: (in thousands of Canadian dollars) Maturity Currency Fixed interest rate Initial nominal value Mark-to-market liabilities as at March 31, 2019 October 25, 2021 October 25, 2024 CAD CAD 2.19% 2.29% 100,000 100,000 841 2,157 2,998 Credit risk: Credit risk is the risk of an unexpected financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet contractual obligations, and it arises primarily from the Corporation's trade and other receivables. The Corporation’s credit risk is principally attributable to its trade receivables. The amounts presented in the consolidated statements of financial position are net of an allowance for doubtful accounts, estimated by the Corporation’s management and based, in part, on the age of the specific receivable balance and the current and expected collection trends. The Corporation's exposure to credit risk is mainly influenced by the characteristics of each customer. The demographics of the Corporation's customer base, including the default risk of the industry and country in which the customer operates, have less of an influence on the credit risk. Generally, the Corporation does not require collateral or other security from customers for trade receivables; however, credit is extended following an evaluation of creditworthiness. In addition, the Corporation performs ongoing credit reviews of its customers and establishes an allowance for doubtful accounts when the likelihood of collecting the account has significantly diminished. The Corporation believes that the credit risk of trade receivables is limited. Critical Accounting Estimates The preparation of the Corporation’s consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Below an overview of the areas that involved more judgement or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions turning out to be wrong. Estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected by these revisions. The areas involving significant estimates or judgments are: Estimation of current tax payable and current tax expense In the calculation of current tax, the Corporation is required to make significant estimates due to the fact that it is subject to tax laws of the many jurisdictions in which it operates. Recorded income taxes and tax credits are subject to review and approval by tax authorities and therefore, could be different from the amounts recorded. Annual Report 2019 | Stingray Group Inc. | 47 Recognition of deferred tax asset for carried forward tax losses In the calculation of deferred tax, estimates must be used to determine the appropriate rates and amounts and to take into account the probability of their occurrence. Deferred income tax assets also reflect the benefit of unutilized tax losses that can be carried forward to reduce income taxes in future years. The deferred tax assets include an amount which relates to carried forward tax losses of some European and Australian subsidiaries. The subsidiaries have incurred the losses over the last financial years before the acquisition by the Corporation. The subsidiaries now generate taxable income. The Corporation has concluded that the deferred assets will be recoverable using the estimated future taxable income based on the approved business plans and budgets for the subsidiaries. Estimation of cost of defined benefit pension plans and present value of the net pension obligation The cost of defined benefit pension plans and the present value of the net pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, the net pension obligation is highly sensitive to changes in these assumptions. Management engages the services of external actuaries to assist in the determination of the appropriate discount rate. Management, with the assistance of actuaries, considers the interest rates of high quality corporate bonds that have terms to maturity approximating the terms related to the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future pension increases are based on expected future inflation rates. Estimated fair value of certain investments The fair value of investments that are not traded in an active market is determined using valuation techniques. The Corporation uses judgement to select a valuation method and make assumptions that are mainly based on market conditions existing at the end of each reporting period. Estimated goodwill and broadcasting licences impairments Broadcast licences and goodwill are not amortized but are tested annually for impairment, or more frequently if events or circumstances indicate that it is more likely than not that the value of broadcast licences and/or goodwill may be impaired. Impairment exists when the carrying value of an asset or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value-in-use. The fair value less costs to sell calculation is based on available data from binding sales transactions in an arm’s-length transaction of similar assets, observable market prices, or discounted cash flow projections less incremental costs for disposing of the asset. The value-in-use calculation is based on a discounted cash flow model. The cash flows are derived from the budget for the next five years and do not include restructuring activities that the Corporation is not yet committed to or significant future investments that will enhance the asset’s performance of the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash inflows and the growth rate used for extrapolation purposes. Estimation of fair values of contingent consideration and balance payable on business acquisitions in business combinations The contingent consideration and balance payable on business acquisitions related to business combinations is payable based on the achievement of targets for growth in revenues for a period from the date of the acquisition and upon renewal of client contracts. The fair value of the contingent consideration and balance payable on business acquisitions were estimated by calculating the present value of the future expected cash flows. Business Combinations Under the acquisition method, on the date that control is obtained, the identifiable assets, liabilities and contingent liabilities of the acquired business are measured at their fair values. Depending on the complexity of determining the valuation for certain assets, the Corporate uses appropriate valuation techniques in arriving at the estimated fair value at the acquisition date for these assets. These valuations are generally based on a forecast of the total expected future net discounted cash flows and relate closely to the assumptions made by management regarding the future performance of the related assets and the discount rate applied as it would be assumed by a market participant. Annual Report 2019 | Stingray Group Inc. | 48 Future Accounting Changes IFRS 16 – Leases Effective April 1, 2019, the Corporation will adopt IFRS 16 using the modified retrospective approach. IFRS 16 set out new principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard provides lessees with a single accounting model for all leases and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying assets is of low value. In particular, lessees will be required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Assets and liabilities arising from a lease will be initially measured on a present value basis. As a result of adopting IFRS 16, the Corporation will recognize a significant increase to both assets and liabilities of the consolidated statements of financial position as well as a decrease to operating expenses (for the removal of rent expense for leases), an increase to depreciation, amortization and write-off (due to depreciation of the right-of-use asset) and an increase to net finance expense (income) (due to accretion of the lease liability). The Corporation is still assessing the impact of the new leasing standard on its consolidated financial statements. Evaluation of Disclosure Controls and Procedures and Internal Control Over Financial Reporting Internal control over financial reporting ("ICFR") is a process designed to provide reasonable, but not absolute, assurance regarding the reliability of financial reporting and of the preparation of financial statements for external purposes in accordance with IFRS. The President and Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), together with Management, are responsible for establishing and maintaining adequate disclosure controls and procedures ("DC&P") and ICFR, as defined in National Instrument 52-109. The Corporation’s internal control framework is based on the criteria published in the updated version released in May 2013 of the report Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“2013 COSO Framework”). The DC&P have been designed to provide reasonable assurance that material information relating to the Corporation is made known to the CEO and CFO by others, and that information required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by the Corporation under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. As at March 31, 2019, an evaluation was carried out, under the supervision of the CEO and the CFO, of the design and operating effectiveness of the Corporation’s DC&P. Based on this evaluation, the CEO and the CFO concluded that the Corporation’s DC&P were appropriately designed and were operating effectively as at March 31, 2019. As at March 31, 2019, an evaluation was carried out, under the supervision of the CEO and the CFO, of the effectiveness of the ICFR based on the 2013 COSO Framework. Based on this evaluation, they have concluded that the Corporation’s ICFR were effective as at March 31, 2019. There have been no changes in the Corporation’s internal control over financial reporting that occurred during the period that have materially affected, or are likely to materially affect, the Corporation’s ICFR. Management’s assessment of and conclusion on the design and the effectiveness of the Corporation’s ICFR as at June 5, 2019, did not include the controls or procedures of the operations of Novramedia, DJ Matic and NCC which were acquired in Fiscal 2019. The Corporation has accordingly availed itself of provision 3.3(1)(b) of Regulation 52-109 which permits exclusion of these acquisitions in the design and operating effectiveness assessment of its ICFR for a maximum period of 365 days from the date of acquisition. The following table summarizes the financial information for Fiscal 2019 for these entities: (in thousands of Canadian dollars) Results of operations Revenues Net income (loss) Financial Position Current assets Non-current assets Current liabilities Non-current liabilities Novramedia DJ Matic NCC 3,456 813 768 43 506 - 5,525 (132) 65,909 (10,234) 3,577 6,037 4,111 1,471 13,176 314,321 25,200 75,563 Annual Report 2019 | Stingray Group Inc. | 49 Subsequent Events Agreement for a business acquisition On May 9, 2019, the Corporation announced it has entered into an agreement to acquire the assets of two radio stations located in Welland, Ontario. The completion of the assets acquisition is subject to the CRTC approval. Additional Information Additional information about the Corporation is available on our website at www.stingray.com and on the SEDAR website at www.sedar.com Annual Report 2019 | Stingray Group Inc. | 50 KPMG LLP 600 de Maisonneuve Blvd. West Suite 1500, Tour KPMG Montréal (Québec) H3A 0A3 Canada Telephone Fax Internet (514) 840-2100 (514) 840-2187 www.kpmg.ca INDEPENDENT AUDITORS' REPORT To the Shareholders of Stingray Group Inc. Opinion We have audited the accompanying consolidated financial statements of Stingray Group Inc. (the "Corporation", formerly Stingray Digital Group Inc.), which comprise the consolidated statements of financial position as at March 31, 2019 and March 31, 2018, the consolidated statements of comprehensive income (loss) for the years then ended, the consolidated statements of changes in equity for the years then ended, the consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements including a summary of significant accounting policies (hereinafter, referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated financial position of the Corporation as at March 31, 2019 and March 31, 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS"). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report. We are independent of the Corporation in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada 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. Other Information Management is responsible for the other information. Other information comprises:   the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions; the information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Annual Report 2019". Our opinion on the financial statements does not cover the other information and we do not and will 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 identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Canada provides services to KPMG LLP. Annual Report 2019 | Stingray Group Inc. | 51 Page 2 We obtained the information included in Management’s Discussion and Analysis filed with the relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditors’ report. We have nothing to report in this regard. The information, other than the financial statements and the auditors’ report thereon, included in a document likely to be entitled "Annual Report 2019" is expected to be made available to us after the date of this auditors’ report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance. Responsibility of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards ("IFRS"), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Corporation'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 management either intends to liquidate the Corporation or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Corporation's financial reporting process. Auditors’ 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 auditors’ 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 Canadian generally accepted auditing standards 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 the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:  Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Annual Report 2019 | Stingray Group Inc. | 52 Page 3  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control.   Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Corporation's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Corporation to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.  Provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. The engagement partner on the audit resulting in this auditors’ report is Alain Bessette. Montréal, Canada June 5, 2019 *CPA auditor, CA, public accountancy permit No. A115894 Annual Report 2019 | Stingray Group Inc. | 53 Consolidated Statements of Comprehensive Income (Loss) Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, except per share amounts) Note 2019 2018 Revenues 6 $ 212,650 $ 130,214 Operating expenses CRTC tangible benefits Depreciation, amortization and write-off Net finance expense (income) Change in fair value of investments Acquisition, legal, restructuring and other expenses Income (loss) before income taxes Income tax recovery Net income (loss) Net income (loss) per share – Basic Net income (loss) per share – Diluted Weighted average number of shares – Basic Weighted average number of shares – Diluted Comprehensive income (loss) Net income (loss) Other comprehensive income (loss), net of tax Items that may be reclassified to profit and loss Exchange differences on translation of foreign operations Items that will not be reclassified to profit and loss Remeasurement loss on pension benefit obligations, net of income tax recovery of $62 Total other comprehensive income (loss) 20 8 16, 27 9 142,877 25,306 31,133 12,298 (565) 16,817 (15,216) 92,239 – 21,287 3,174 600 10,631 2,283 10 (3,228) (13) $ (11,988) $ 2,296 11 11 11 11 (0.19) (0.19) 0.04 0.04 64,709,965 64,709,965 53,455,073 54,080,184 $ (11,988) $ 2,296 (2,450) 1,640 (120) – (2,570) 1,640 Total comprehensive income (loss) $ (14,558) $ 3,936 Net income (loss) is entirely attributable to Shareholders. The accompanying notes are an integral part of these consolidated financial statements. Annual Report 2019 | Stingray Group Inc. | 54 Consolidated Statements of Financial Position March 31, 2019 and 2018 (In thousands of Canadian dollars) Assets Current assets Cash and cash equivalents Trade and other receivables Income taxes receivable Inventories Other current assets Non-current assets Property and equipment Intangible assets, excluding broadcast licences Broadcast licences Goodwill Investments Other non-current assets Deferred tax assets Total assets Liabilities and Equity Current liabilities Credit facility Accounts payable and accrued liabilities Dividend payable Deferred revenues Current portion of other liabilities Income taxes payable Non-current liabilities Credit facility Subordinated debt Other liabilities Deferred tax liabilities Total liabilities Shareholders’ equity Share capital Contributed surplus Deficit Accumulated other comprehensive income (loss) Total equity Commitments (note 25) Subsequent events (note 3) Total liabilities and equity Note March 31, 2019 March 31, 2018 $ 12 $ $ 13 14 15 15 16 10 18 17 22 20 18 19 20 10 22 $ 4,673 68,861 972 2,624 9,033 86,163 50,326 65,111 270,555 332,132 18,738 1,367 10,672 3,362 35,444 989 1,784 6,793 48,372 11,135 54,355 – 98,467 17,473 954 12,950 835,064 $ 243,706 $ 14,086 62,364 4,956 1,634 16,186 3,889 103,115 298,869 49,539 43,583 52,423 547,529 337,714 4,344 (53,317) (1,206) 287,535 – 35,199 3,097 1,530 13,212 2,403 55,441 38,627 – 14,875 5,156 114,099 146,354 3,825 (21,936) 1,364 129,607 $ 835,064 $ 243,706 The accompanying notes are an integral part of these consolidated financial statements. Approved by the Board of Directors, (Signed) Eric Boyko, Director (Signed) Pascal Tremblay, Director . Annual Report 2019 | Stingray Group Inc. | 55 Consolidated Statements of Changes in Equity Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, except number of share capital) Share Capital Number Amount Contributed surplus Accumulated other comprehensive income (loss) Total shareholders’ equity Deficit Balance at March 31, 2017 51,326,366 $ 102,700 $ 2,872 $ (10,299) $ (325) $ 94,948 Issuance of shares upon exercise of options (note 22) Dividends Issuance of subordinate voting shares and variable subordinate voting shares (note 22) Share issuance costs, net of income taxes of $604 (note 22) Share-based compensation Employee share purchase plan (notes 22 and 24) Net income Other comprehensive income (loss) (133) – 85,198 – 301 – 4,900,200 45,082 (1,669) – – – 1,039 (6,011) (60) – – – – 47 – – Balance at March 31, 2018 56,305,753 $ 146,354 $ 3,825 $ (21,936) $ 1,364 $ 129,607 (49) 1,689 (279) – (13,884) – – – – 2,296 (19,393) – – – – – (11,988) – – – – – – 941 5 (148) – – – – – – – – – 168 (13,884) 45,082 (1,669) 1,039 (13) 2,296 1,640 – – – – – – – – 339 (19,393) 178,559 17,110 (4,899) 941 (23) (148) (11,988) Issuance of shares upon exercise of options (note 22) 147,500 Dividends – 618 – Issuance of subordinate voting shares and variable subordinate voting shares (note 22) Issuance of multiple voting shares 18,144,470 178,559 (note 22) 1,647,213 17,110 Share issuance costs, net of income taxes of $1,780 (note 22) Share-based compensation Employee share purchase plan (notes 22 and 24) Realized loss on sales of treasury shares held by the Corporation Net loss Other comprehensive income (loss) – – (4,899) – (7,033) (28) – – – – – – – (2,570) (2,570) Balance at March 31, 2019 76,237,903 $ 337,714 $ 4,344 $(53,317) $(1,206) $ 287,535 The accompanying notes are an integral part of these consolidated financial statements. Annual Report 2019 | Stingray Group Inc. | 56 Consolidated Statements of Cash Flows Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars) Note 2019 20 13 14 8 8 16 16 8 8 8 23 19 22 22 22 24 4 13 16 Operating activities: Net income (loss) Adjustments for: CRTC tangible benefits Depreciation, disposal and write-off of property and equipment Amortization of intangible assets Share-based compensation, PSU and DSU expenses Interest expense and standby fees Mark-to-market losses on derivative financial instruments Change in fair value of investments Share of results of joint venture Change in fair value of contingent consideration Write-off of balance payable on business acquisition Depreciation, amortization and accretion of other liabilities Income tax recovery Interest paid Income taxes paid Net change in non-cash operating items Financing activities: Increase (decrease) of credit facility Increase of subordinated debt Issuance of shares Share issuance costs Deferred financing fees Payment of dividend Proceeds from the exercise of stock options Proceeds from disposal of treasury shares held by a subsidiary Shares purchased under the employee share purchase plan Repayment of other payables Investing activities: Business acquisitions, net of cash acquired Disposal of non-core assets Investment in an associate Proceeds from disposal of an investment Acquisition of an investment Acquisition of property and equipment Acquisition of equipment for leasing purpose Intangible assets acquired through asset acquisitions Acquisition of intangible assets other than internally developed intangible assets Addition to internally developed intangible assets Increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year $ (11,988) $ 25,306 7,703 23,430 2,461 10,295 2,998 (565) 200 534 (4,264) 1,886 (3,228) (9,950) (6,006) 38,812 (4,059) 34,753 276,540 50,000 165,111 (6,679) (3,089) (16,007) 339 565 (199) (16,441) 450,140 (473,624) 11,500 – – (900) (7,623) – (3,100) (3,671) (6,164) (483,582) 1,311 3,362 Cash and cash equivalents, end of year $ 4,673 $ The accompanying notes are an integral part of these consolidated financial statements. Annual Report 2019 | Stingray Group Inc. | 57 2018 2,296 – 3,062 18,225 3,549 1,445 – 600 (96) 3,196 – 713 (13) (1,374) (91) 31,512 (12,127) 19,385 (2,413) – 45,082 (2,253) – (10,787) 168 – (77) (10,022) 19,698 (29,417) – (1,106) 1,218 – (4,546) (3,316) – (2,403) (2,013) (41,583) (2,500) 5,862 3,362 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 1. BUSINESS DESCRIPTION Stingray Group Inc. (formerly Stingray Digital Group Inc.) (the “Corporation”) is incorporated under the Canada Business Corporations Act. The Corporation is domiciled in Canada and its registered office is located at 730 Wellington, Montréal, Québec, H3C 1T4. The Corporation is a provider of multi-platform music services. It broadcasts high quality music and video content on a number of platforms including radio stations, premium television channels, digital TV, satellite TV, IPTV, the Internet, mobile devices and game consoles. Effective December 1, 2018, the Corporation changed its name to Stingray Group Inc. 2. SIGNIFICANT CHANGES AND HIGHLIGHTS The consolidated financial position and performance of the Corporation was particularly affected by the following events and transactions during the year ended March 31, 2019:  On November 26, 2018, the Corporation signed an agreement with Hector Broadcasting Company Limited to acquire the assets of two radio stations located in New Glasgow, Nova Scotia, for total consideration of $2,846. It resulted in the recognition of broadcast licences (notes 4 and 15) and balance payable on business acquisitions (note 4).  On November 13, 2018, the Corporation completed a subscription agreement with Irving West, Limited (the “investor”) pursuant to which the investor purchased an aggregate of 2,429,544 subordinate voting shares at a price of $10.29 per subordinate voting shares for total gross proceeds of $25,000. It resulted in a decrease of the credit facility (note 18) and increase of share capital (note 22).  On October 26, 2018, the Corporation completed the acquisition of all the outstanding Class A Subordinate Voting shares and Class B Common shares (together the “NCC shares”) of Newfoundland Capital Corporation Limited (“NCC”) for $14.75 per NCC share (the “Purchase Price”), representing a total consideration of $484,252. The acquisition was authorized on October 23, 2018 by the Canadian Radio-television and Telecommunications Commission (CRTC). It resulted in the recognition of goodwill (notes 4 and 15) and broadcast licences (notes 4 and 15).  On August 21, 2018, effective October 26, 2018, the Corporation amended its existing $100,000 credit facility (the “Credit facility”) by increasing the authorized amount up to $450,000 and extending the maturity to October 26, 2021 to finance the acquisition of NCC. The Credit facility consists of a revolving credit facility for an authorized amount up to $300,000 and a non-revolving term facility in the amount of $150,000. Refer to note 18 for more detail on the credit facility.  On July 11, 2018, effective October 26, 2018, the Corporation entered into a loan agreement in the amount of $50,000. The loan matures on October 26, 2023. Refer to note 19 for more detail on the transaction.  On October 12, 2018, the Corporation signed an agreement to acquire all of the outstanding shares of DJ-Matic, a provider of in-store media solutions for businesses with clients in Belgium, the Netherlands, Germany, and Denmark for total consideration of EUR$10,603 ($15,775). It resulted in the recognition of goodwill (notes 4 and 15), intangible assets (notes 4 and 14) and contingent consideration (notes 4 and 20).  On August 1, 2018, the Corporation signed an agreement to acquire all of the outstanding shares of Novramedia Inc., a Toronto-based leader in the design, development, and implementation of digital media solutions for total consideration of $7,737. It resulted in the recognition of goodwill (notes 4 and 15), intangible assets (notes 4 and 14) and contingent consideration (note 4). Annual Report 2019 | Stingray Group Inc. | 58 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 3. SUBSEQUENT EVENTS On May 9, 2019, the Corporation announced it had entered into an agreement to acquire the assets of two radio stations located in Welland, Ontario. The completion of the assets acquisition is subject to the CRTC approval. 4. BUSINESS ACQUISITIONS NEW GLASGOW On November 26, 2018, the Corporation purchased the assets of two radio stations, CKEC-FM and CKEZ-FM, located in New Glasgow, Nova Scotia (referred as “New Glasgow” acquisition) from Hector Broadcasting Company Limited for total consideration of $2,846. Assets acquired: Trade and other receivables Property and equipment Broadcasting licences Deferred tax assets Goodwill Liabilities assumed: Accounts payable and accrued liabilities Net assets acquired at fair value Consideration given: Cash Balance payable on business acquisitions Preliminary 237 676 1,885 52 100 2,950 104 104 $ 2,846 2,194 652 $ 2,846 As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained. Annual Report 2019 | Stingray Group Inc. | 59 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) NEWFOUNDLAND CAPITAL CORPORATION On October 26, 2018, the Corporation acquired all of the issued and outstanding shares for total consideration of $484,252, of which $453,694 was paid in cash and the remaining $30,558 through the issuance of 3,887,826 subordinate voting shares of the Corporation. NCC is a radio broadcaster who operates radio stations across Canada. As a result of the acquisition, goodwill of $219,138 was recognized related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation’s existing business. The goodwill will not be deductible for tax purposes. The fair value of acquired trade receivables was $33,224. The gross contractual amount of trade receivables was $34,184, of which $960 is expected to be uncollectible. The results of the business acquisition of NCC for the period ended March 31, 2019 are included in results since the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2019 were $65,227 and net loss was $10,234. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have been approximately $162,701 and net income would have been $35,624. Assets acquired: Cash and cash equivalents Trade and other receivables Other current assets Property and equipment Broadcast licences Goodwill Other non-current assets Deferred tax assets Liabilities assumed: Accounts payable and accrued liabilities Income taxes payable Other liabilities Deferred tax liabilities Net assets acquired at fair value Consideration given: Cash Share capital Preliminary 909 33,224 1,768 48,432 268,670 219,138 1,325 2,045 575,511 20,328 3,264 10,712 56,955 91,259 $ 484,252 453,694 30,558 $ 484,252 As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained. Annual Report 2019 | Stingray Group Inc. | 60 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) DJ-MATIC On October 12, 2018, the Corporation purchased all of the outstanding shares of DJ-Matic, a European provider of in-store media solutions for businesses for total consideration of EUR10,603 ($15,775). As a result of the acquisition, goodwill of $12,339 was recognized related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation’s existing business. The goodwill will not be deductible for tax purposes. The fair value of acquired trade receivables was $1,088 which represented the gross contractual amount. The contingent consideration arrangement requires the Corporation to pay, in cash, to the former owners, an amount not exceeding EUR7,473 ($11,118) over the next three years ending in October 2021, based on an adjusted EBITDA ratio. The fair value of the contingent consideration was determined using an income approach based on the estimated amount and timing of projected cash flows. The results of the business acquisition of DJ-Matic for the period ended March 31, 2019 are included in results since the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2019 were $5,526 and net loss was $351. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have been approximately $11,050 and net loss would have been $753. Assets acquired: Cash and cash equivalents Trade and other receivables Inventories Property and equipment Intangible assets Other non-current assets Goodwill Liabilities assumed: Accounts payable and accrued liabilities Deferred revenues Income taxes payable Deferred tax liabilities Net assets acquired at fair value Consideration given: Cash Contingent consideration $ Preliminary 543 1,088 312 489 9,951 100 12,339 24,822 5,821 652 30 2,544 9,047 $ 15,775 13,692 2,083 $ 15,775 As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained. Annual Report 2019 | Stingray Group Inc. | 61 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) NOVRAMEDIA On August 1, 2018, the Corporation purchased all of the outstanding shares of Novramedia Inc. (“Novramedia”) for total consideration of $7,737. Novramedia is a Canadian provider of digital media solution. As a result of the acquisition, goodwill of $3,431 was recognized related to the operating synergies expected to be achieved from integrating the acquired business into the Corporation’s existing business. The goodwill will not be deductible for tax purposes. The fair value of acquired trade receivables was $754 which represented the gross contractual amount. The contingent consideration arrangement requires the Corporation to pay, in cash, to the former owners, an amount not exceeding $2,500 over the next 12 months if certain revenues-based targets are met. The fair value of the contingent consideration was determined using an income approach based on the estimated amount and timing of projected cash flows. The results of the business acquisition of Novramedia for the period ended March 31, 2019 are included in results since the date of the acquisition. Revenues recorded from the acquisition date to March 31, 2019 were $2,628 and net loss was $643. Had the acquisition occurred at the beginning of the fiscal year, revenues related to this acquired business would have been approximately $3,942 and net loss would have been $1,543. Assets acquired: Cash and cash equivalents Trade and other receivables Inventories Other current assets Property and equipment Intangible assets Goodwill Liabilities assumed: Accounts payable and accrued liabilities Deferred revenues Deferred tax liabilities Net assets acquired at fair value Consideration given: Cash Working capital receivable Contingent consideration $ Preliminary 4 754 863 142 50 5,827 3,431 11,071 942 842 1,550 3,334 $ 7,737 5,500 (171) 2,408 $ 7,737 As of the reporting date, the Corporation has not completed the purchase price allocation over the identifiable net assets and goodwill as information to confirm the fair value of certain assets and liabilities remains to be obtained. Annual Report 2019 | Stingray Group Inc. | 62 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 5. SEGMENT INFORMATION OPERATING SEGMENTS In connection with the acquisition of NCC on October 26, 2018 (note 4), the Corporation’s operating segments have been modified and are now aggregated in two segments: Broadcasting and commercial music and Radio. The operating segments reflect how the Corporation manages its operations, resources and assets and how it measures its performance. Both operating segment’s financial results are reviewed by the Chief operating decision maker (“CDOM”) to make decisions about resources to be allocated to the segment and asses its performance based on adjusted EBITDA, and for which distinct financial information is available. Adjusted EBITDA excludes from income (loss) before income taxes the following expenses: share-based compensation, PSU and DSU expenses, CRTC tangible benefits, depreciation, amortization and write-off, net finance expense (income), change in fair value of investments and acquisition, legal, restructuring and other expenses. There are no inter-segment revenues for the periods. The Broadcasting and commercial music segment specializes in the broadcast of music and videos on multiple platforms and digital signage experiences and generates revenues from subscriptions or contracts. The Radio segment operates several radio stations across Canada and generates revenues from advertising. Corporate and eliminations is a non-operating segment comprising corporate and administrative functions that provide support and governance to the Corporation’s operating business units. Annual Report 2019 | Stingray Group Inc. | 63 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The following tables present financial information by segment for years ended March 31, 2019 and 2018. Year ended Revenues Operating expenses (excluding Share-based compensation, PSU and DSU expenses) Adjusted EBITDA Share-based PSU and DSU expenses CRTC tangible benefits Depreciation, amortization compensation and write-off Net finance expense (income) Change in fair value of investments Acquisition, legal, restructuring and other expenses Income (loss) before income taxes Income taxes Net income (loss) Total assets Total liabilities(1) Acquisition of property Broadcasting and commercial music 2019 2018 Radio 2019 2018 Corporate and eliminations 2019 2018 Consolidated 2019 2018 $ 146,741 $ 130,214 $ 65,227 $ – $ 682 $ – $ 212,650 $ 130,214 93,913 52,828 84,301 45,913 41,209 24,018 – – 5,294 (4,612) 1,093 1,368 25,306 4,389 140,416 (4,389) 72,234 1,093 1,325 1,368 2,224 25,306 – 88,690 41,524 1,325 2,224 – 31,133 21,287 31,133 21,287 12,298 3,174 12,298 3,174 (565) 600 (565) 600 16,817 10,631 16,817 10,631 $ (15,216) 2,283 (3,228) $ (11,988) $ (13) 2,296 $ 262,713 $ 243,706 $ 572,351 $ – $ – $ – $ 835,064 $ 243,706 $ 72,958 $ 72,375 $ 104,123 $ – $ 370,448 $ 41,724 $ 547,529 $ 114,099 and equipment $ 8,280 $ 8,838 $ 50,684 $ – $ – $ – $ 58,964 $ 8,838 Acquisition of intangible assets $ 35,094 $ 21,941 $ – $ – $ – $ – $ 35,094 $ 21,941 Acquisition of broadcast licences Goodwill recorded on $ – $ – $ 270,555 $ – $ – $ – $ 270,555 $ – business acquisitions $ 15,770 $ 27,577 $ 219,238 $ – $ – $ – $ 235,008 $ 27,577 (1) Total liabilities include operating liabilities, the Credit facility and the Subordinated debt Acquisition of property and equipment, intangible assets, broadcast licences and goodwill, includes those acquired through business acquisitions, whether they were paid or not. Approximately 78% of the Corporation’s non-current assets are located in Canada. Annual Report 2019 | Stingray Group Inc. | 64 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 6. REVENUES On April 1, 2018, the Corporation adopted IFRS 15 using the modified retrospective approach. Upon adoption of this standard, the Corporation did not have a cumulative adjustment, with the previous revenue recognition policy being applied consistently under the new standard. However, the standard has an impact on the gross or net presentation of certain Business to customers application revenue stream, such as mobile applications. Under IAS 18 – Revenue, the Corporation presented its applications revenues on a net basis. Under IFRS 15, revenue recognition is based on the core “transfer of control” principle that is used to determine the primary obligator of the service rendered. In this context, the Corporation is considered as the principal and therefore presents these revenues on a gross basis. The impact on revenues and operating expenses is as follows: (in thousands of Canadian dollars) Revenues Operating expenses ACCOUNTING POLICY Contracts with customers Reported figures 126,953 88,978 $ $ $ $ Adjustments 3,261 3,261 Year ended March 31, 2018 Restated figures 130,214 92,239 $ $ The Corporation records revenues from contracts with customers in accordance with the five steps in IFRS 15 Contracts with customers as follows: 1) 2) Identify the contract with a customer; Identify the performance obligations in the contract; 3) Determine the transaction price, which is the total consideration provided by the customer; 4) Allocate the transaction price among the performance obligations in the contract based on their relative fair values; and 5) Recognize revenues when the relevant criteria are met for each performance obligation. Revenues are measured based on the value of the expected consideration in a contract with a customer and are recognized when control of a product or service is transferred to a customer. A contract asset is recognized in the consolidated statement of financial position when revenues are earned without having been invoiced. Contract assets are presented in “Other current assets”. A contract liability is recognized when the Corporation has received consideration in advance of the transfer of products or services to a customer. BROADCASTING AND COMMERCIAL MUSIC SEGMENT The Broadcasting and commercial music segment specializes in the broadcast of music and videos on multiple platforms and digital signage experiences and generates revenues from subscriptions or contracts. Subscriptions The Corporation recognize revenues related to continuous music and video distribution over time, as the customer receives and consumes the benefits of the music supply at the same time it is broadcasted. On-demand products, primally music and concerts services, are also recognized over time as the customer receives and consumes the benefits of the on- demand product at the same time it is broadcasted. The Corporation records contract liabilities when customers pay their subscription fees in advance. Annual Report 2019 | Stingray Group Inc. | 65 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) Media solutions For media solutions projects, mainly bundled arrangements, the Corporation accounts for individual products and services when they are separately identifiable, and the customer can benefit from the product or service on its own or with other readily available resources. The total arrangement consideration is allocated to each product or service on its own or with other readily available resources based on its stand-alone selling price. The Corporation generally determines stand-alone selling prices based on the observable prices for products sold separately without a service contract, adjusted for market conditions and other factors, as appropriate. When similar products and services are not sold separately, the Corporation uses the expected cost plus margin approach to determine stand-alone selling prices. The Corporation recognizes revenues for each individual product or service, when the related performance obligations are satisfied, which is usually at a point in time for sale of equipment and over time for music related services. RADIO SEGMENT The radio segment operates radio stations across Canada and generates revenues from advertising. Advertising revenues are recognized at a point in time when the advertising airs on the Corporation’s radio stations. Revenues are recorded net of any agency commissions as these charges are paid directly to the agency by the advertiser. DISAGGREGATION OF REVENUES The following table presents the Corporation’s revenues disaggregated by reportable segment, primary geographical market and product. Reportable segments Broadcasting and commercial music Radio Corporate $ Total revenues 121,919 34,439 56,292 212,650 127,991 18,194 65,783 682 $ 212,650 682 – – 682 – – – 682 682 For the year ended March 31, 2019 Geography Canada United states Other countries $ Products Subscriptions (1) Media solutions (2) Advertising (3) Other $ 56,010 34,439 56,292 146,741 127,991 18,194 556 – $ 65,227 – – 65,227 – – 65,227 – (1) Generally recognized over time (2) Approximately 50% of revenues are recognized overtime and 50% at a point in time (3) Generally recognized at a point in time $ 146,741 $ 65,227 $ Annual Report 2019 | Stingray Group Inc. | 66 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) Reportable segments Broadcasting and commercial music Radio Corporate For the year ended March 31, 2018 Geography Canada United states Other countries $ Products Subscriptions (1) Media solutions (2) $ 59,248 25,294 45,672 130,214 113,024 17,190 (1) Generally recognized over time (2) Approximately 50% of revenues are recognized overtime and 50% at a point in time $ 130,214 $ UNSATISFIED PORTION OF PERFORMANCE OBLIGATIONS $ Total revenues 59,248 25,294 45,672 130,214 113,024 17,190 $ 130,214 – – – – – – – $ $ – – – – – – – The following table presents the revenues expected to be recognized in the future related to unsatisfied or partially satisfied performance obligations as at March 31, 2019. The table below excludes i) contracts with a duration of one year or less and ii) variable considerations, such as revenues based on a number of subscribers or location as they will likely vary throughout the term of the contracts. The unsatisfied portion of the transaction price of the performance obligations relates to monthly services expected to be recognize over the next 3 years and thereafter. Subscriptions Media solutions 2020 2021 2022 Thereafter Total $ $ 380 11,471 11,851 – 6,689 6,689 – 2,449 2,449 – 876 876 $ $ 380 21,485 21,865 Unpon adoption of, and transition to, IFRS 15, the Corporation elected to utilize the following practical expedients and not disclose:   The unsatisfied portions of performance obligations related to contracts with a duration of one year or less; The unsatisfied portions of performance obligations where the revenue recognized corresponds to the amount invoiced to customers. 7. OTHER INFORMATION Expenses by nature are as follows: Salaries and other short-term employee benefits Research and development Equipment costs Share-based compensation PSU and DSU expenses $ 2019 55,949 7,244 5,849 1,093 1,368 $ 2018 34,688 6,589 6,618 1,325 2,224 Annual Report 2019 | Stingray Group Inc. | 67 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 8. NET FINANCE EXPENSE (INCOME) Interest expense and standby fees Mark-to-market losses on derivative financial instruments Change in fair value of contingent consideration Write-off of balance payable on business acquisition Depreciation, amortization and accretion of other liabilities Foreign exchange loss (gain) $ $ 9. ACQUISITION, LEGAL, RESTRUCTURING AND OTHER EXPENSES Acquisition Legal Restructuring and other 10. INCOME TAXES The income tax recovery consists of the following: Current income tax: Current year Adjustment for prior years Deferred income tax: Origination and reversal of temporary differences Adjustment for prior years Change in recognized tax losses and deductible temporary differences Total income tax recovery $ $ $ $ 2019 10,295 2,998 534 (4,264) 1,886 849 12,298 2019 13,738 2,099 980 16,817 2019 4,956 (331) 4,625 (8,635) (242) 1,024 (7,853) (3,228) 2018 1,445 – 2,480 – 713 (1,464) 3,174 2018 1,963 8,373 295 10,631 2018 1,905 (284) 1,621 (254) 334 (1,714) (1,634) (13) $ $ $ $ $ $ The following table reconciles income tax computed at the Canadian statutory rate of 26.7% (2018 – 26.8%) and the total income tax expense for the years ended March 31: 2019 2018 Income before income taxes $ (15,216) $ 2,283 Income tax at the combined Canadian statutory rate (Decrease) increase resulting from: Impact of foreign tax rate differences Income taxes on non-deductible expenses and non-taxable revenues Change in recognized tax losses and deductible temporary differences Other Total income tax recovery (4,063) (1,798) 1,722 1,024 (113) (3,228) $ 612 (873) 1,689 (1,714) 273 (13) $ Annual Report 2019 | Stingray Group Inc. | 68 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) SIGNIFICANT ESTIMATE Recorded income taxes and tax credits are subject to review and approval by tax authorities and therefore, final amounts could be different from the amounts recorded. RECOGNIZED DEFERRED TAX ASSETS AND LIABILITIES The tax effects of significant components of temporary differences that give rise to deferred tax assets and liabilities are as follows: 2019 2018 Assets Liabilities Assets Liabilities $ Property and equipment Intangible assets and goodwill Financing fees Tax losses carried forward Investments CRTC tangible benefits Restricted and performance share unit Balance payable on business acquisitions Accrued pension benefit liability Others Tax assets and liabilities Offsetting of assets and liabilities 1,117 $ 302 2,708 11,424 – 9,490 1,308 – 1,776 1,233 29,358 (18,686) $ 3,372 65,684 – – 1,973 – – – – 80 71,109 (18,686) 1,184 $ 716 1,523 11,416 – 845 1,127 729 – 256 17,796 (4,846) Net deferred tax assets and liabilities $ 10,672 $ 52,423 $ 12,950 $ – 8,017 – – 1,897 – – – – 88 10,002 (4,846) 5,156 Changes in deferred tax assets and liabilities for the year ended March 31, 2019 are as follow: Property and equipment Intangible assets and goodwill Financing fees Tax losses carried forward Investments CRTC tangible benefits Restricted and performance share unit Balance payable on business acquisitions Accrued pension benefit liability Others $ Balance as at March 31, 2018 1,184 (7,301) 1,523 11,416 (1,897) 845 1,127 Recognized in net loss 445 (6) (595) (672) (76) 8,645 181 Recognized in equity – – 1,780 – – – – Exchange rate change – 291 – (534) – – – Business acquisitions (3,884) (58,366) – 1,214 – – – Balance as at March 31, 2019 (2,255) (65,382) 2,708 11,424 (1,973) 9,490 1,308 729 – 168 (695) (110) 736 – 62 – (34) – (11) – 1,824 260 – 1,776 1,153 $ 7,794 7,853 1,842 (288) (58,952) (41,751) Annual Report 2019 | Stingray Group Inc. | 69 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) Changes in deferred tax assets and liabilities for the year ended March 31, 2018 are as follow: $ Property and equipment Intangible assets and goodwill Financing fees Tax losses carried forward Investments CRTC tangible benefits Restricted and performance share unit Balance payable on business Balance as at March 31, 2017 392 (5,832) 1,554 10,644 (1,981) 1,002 835 Recognized in net income 792 1,362 (635) 23 84 (157) 292 Recognized in equity – – 604 – – – – Exchange rate change – (319) – 749 – – – Business acquisitions – (2,512) – – – – – Balance as at March 31, 2018 1,184 (7,301) 1,523 11,416 (1,897) 845 1,127 acquisitions Others 924 (18) (268) 141 $ 7,520 1,634 – – 604 73 45 548 – – 729 168 (2,512) 7,794 UNRECOGNIZED DEFERRED TAX ASSETS The Corporation has operating tax losses carried forward of $92,964 that are available to reduce future taxable income. A tax benefit was not recognized for $32,637 of these tax losses carried forward. Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Corporation can utilized the benefits therefrom. As at March 31, 2019 and 2018, the amounts and expiry dates of the tax losses carried forward were as follows: 2019 2018 Canada (1) Singapore Switzerland United Kingdom Singapore Switzerland United Kingdom $ 2019 (2) 2020 2021 2022 2023 2027 2032 2034 2036 2037 2038 2039 Indefinite – $ – – – – 25 355 589 51 432 3,416 8,703 – $ 13,571 $ – $ – – – – – – – – – – – 484 484 $ $ – $ 4,984 4,804 3,445 2,045 – – – – – – – – – – – – – – – – – – – – 63,631 15,278 $ 63,631 $ – $ – – – – – – – – – – – 383 383 $ 4,221 $ 5,096 4,826 3,461 2,055 – – – – – – – – – – – – – – – – – – – – 76,003 19,659 $ 76,003 (1) Represents tax losses carried forward as per federal jurisdiction and tax losses available as per provincial jurisdictions may differ. (2) These losses expired during the year ended March 31, 2019. UNRECOGNIZED DEFERRED TAX LIABILITIES The Corporation has not recognized a deferred tax liability for the undistributed earnings of its subsidiaries in the current and prior years because the Corporation does not currently expect those undistributed earnings to reverse and become taxable in the foreseeable future. A deferred income tax liability will be recognized when the Corporation expects that it will recover those undistributed earnings in a taxable manner, such as the sale of the investment or through the receipt of dividends. Annual Report 2019 | Stingray Group Inc. | 70 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 11. EARNINGS PER SHARE 2019 2018 Net income (loss) $ (11,988) $ 2,296 Basic weighted average number of subordinate voting shares, variable subordinate voting shares and multiple voting shares Dilutive effect of stock options Diluted weighted average number of subordinated voting shares, variable subordinated voting shares and multiple voting shares Earnings per share – Basic Earnings per share – Diluted 64,709,965 – 53,455,073 625,111 64,709,965 54,080,184 $ $ (0.19) (0.19) $ $ 0.04 0.04 As at March 31, 2019, 801,855 stock options were excluded from the diluted weighted average number of subordinated voting shares, variable subordinated voting shares and multiple voting shares as their effect would have been anti-dilutive. 12. TRADE AND OTHER RECEIVABLES Trade Other receivables Sales taxes receivable Research and development tax credits 2019 62,833 3,858 863 1,307 68,861 $ $ 2018 31,335 1,929 1,570 610 35,444 $ $ Tax credits receivable of $1,307 (2018 - $610) comprise research and development tax credits receivable from the provincial and federal governments which relate to qualified research and development expenditures under the applicable tax laws. The amounts recorded as receivables are subject to a government tax audit and the final amounts received may differ from those recorded. Annual Report 2019 | Stingray Group Inc. | 71 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 13. PROPERTY AND EQUIPMENT Land, buildings and leasehold improvements Broadcasting infrastructure Furniture, fixtures and equipment Computer hardware Other Total $ 1,382 $ 562 – $ – 8,090 $ 5,879 5,990 $ 2,213 Cost: Balance at March 31, 2017 Additions Additions through business acquisitions Disposals and write-off Foreign exchange differences Balance at March 31, 2018 Additions Additions through business acquisitions Disposals and write-off Foreign exchange differences 18 – 1 1,963 1,330 – – – – 466 23,286 (11,177) 15,504 – – – Balance at March 31, 2019 15,402 15,970 Accumulated depreciation: Balance at March 31, 2017 Depreciation for the year Disposals and write-off Foreign exchange differences Balance at March 31, 2018 Depreciation for the year Disposals and write-off Foreign exchange differences 1,060 273 – 1 1,334 1,050 – 3 – – – – – 715 – – Balance at March 31, 2019 $ 2,387 $ 715 $ – – – – – – – 1,801 – – 1,801 – – – – – 188 – $ 15,462 8,654 184 (187) 124 24,237 9,217 49,747 (12,349) (249) 70,603 10,126 2,965 (90) 101 13,102 7,455 (252) 133 (3) 109 8,442 2,516 2,890 (6) (114) 13,728 4,436 1,370 (4) 75 5,877 2,051 – (83) – (28) 7,845 $ 188 $ 20,277 33 (184) 14 13,832 4,905 6,266 (1,166) (135) 23,702 4,630 1,322 (86) 25 5,891 3,451 (252) 52 9,142 Net carrying amounts: March 31, 2018 March 31, 2019 $ $ 629 $ 13,015 $ – $ 15,255 $ 7,941 14,560 2,565 $ 5,883 $ – 1,613 $ $ 11,135 50,326 On December 28, 2018, the Corporation disposed of non-core assets, acquired as part of the NCC acquisition (note 4), for total proceeds of $11,500. No gain or loss was recorded in the consolidated statement of comprehensive income. Annual Report 2019 | Stingray Group Inc. | 72 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 14. INTANGIBLE ASSETS, EXCLUDING BROADCAST LICENCES Internally developed intangible assets Music catalog Client list and relationships Trademark Licences, website application and computer software Cost: Balance at March 31, 2017 Additions Additions through business acquisitions Foreign exchange differences Balance at March 31, 2018 Additions Additions through business acquisitions Additions through asset acquisition Disposals and write-off Foreign exchange differences Balance at March 31, 2019 Accumulated depreciation: Balance at March 31, 2017 Amortization for the year Foreign exchange differences Balance at March 31, 2018 Amortization for the year Disposals and write-off Foreign exchange differences $ – $ 1,975 10,393 $ 625 92,780 $ – 7,228 $ 17 – 205 5,416 2,913 – 1,975 6,223 555 – – 6 20 11,243 469 – – – 1,089 99,285 – 13,140 – – 360 10,518 2 – – – (10) (789) (256) 8,759 11,702 111,636 10,264 – – – – 1,286 – 4,150 869 9 5,028 891 – 61,117 12,070 518 73,705 11,021 – 1,529 1,102 82 2,713 1,050 – Non- compete agreement Total $ 5,221 $ – 125,141 4,038 1,088 17,903 179 6,488 – 1,862 148,944 10,216 9,519 1,421 8,281 214 19,435 3,522 63 2,020 15,778 – (2,538) (266) 20,216 5,880 3,048 83 9,011 5,809 (2,538) 9,100 – 9,100 (2,538) (103) (1,418) 17,505 180,082 2,946 1,136 50 4,132 3,373 – 75,622 18,225 742 94,589 23,430 (2,538) 14 2 (450) (57) (2) (17) (510) Balance at March 31, 2019 $ 1,300 $ 5,921 $ 84,276 $ 3,706 $ 12,280 $ 7,488 $ 114,971 Net carrying amounts: March 31, 2018 March 31, 2019 $ $ 1,975 $ 7,459 $ 6,215 $ 5,781 $ 25,580 $ 27,360 $ 7,805 $ 6,558 $ 10,424 7,936 $ $ 2,356 $ 10,017 $ 54,355 65,111 15. GOODWILL AND BROADCAST LICENCES Balance at March 31, 2017 Additions through business acquisitions Foreign exchange differences Balance at March 31, 2018 Additions through business acquisitions (note 4) Foreign exchange differences Balance at March 31, 2019 Goodwill Broadcast licences $ $ 68,725 27,577 2,165 98,467 235,008 (1,343) 332,132 $ $ – – – – 270,555 – 270,555 Annual Report 2019 | Stingray Group Inc. | 73 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) ANNUAL IMPAIRMENT ASSESSMENTS Goodwill and broadcast licences are tested for impairment annually and when circumstances indicate the carrying value may be impaired. The Corporation’s impairment test for goodwill and broadcast licences having indefinite useful lives was based on value-in-use (“VIU”) and fair value less cost to sell (“FVLCS”) calculations determined by using a discounted cash flow model. As VIU and FVLCS of cash generating units (“CGUs”) is determined with significant unobservable inputs, it is considered level 3 within the fair value hierarchy. CASH-GENERATING UNITS For the purposes of assessing impairment, goodwill is allocated to those CGUs that are expected to benefit from synergies of the related business combination and represent the lowest level within the Company at which management monitors goodwill. Broadcast licences are grouped at the CGU level, which is the lowest level for which there are largely independent cash inflows. For broadcast licence impairment testing purposes, the Company has identified 14 CGUs, based on geographical areas where interdependent cash inflows exist. Impairment charges and reversals, if any, are included as a separate line on the consolidated statements of income. The carrying amounts of goodwill and broadcast licences allocated to each CGU and/or group of CGUs are set out in the following tables: Goodwill Radio Broadcast and commercial music Broadcast licences Toronto Ottawa Other(1) 2019 219,238 112,894 332,132 90,040 48,420 132,095 270,555 $ $ $ $ 2018 – 98,467 98,467 – – – – $ $ $ $ (1) The carrying value of broadcast licences in each of the other CGUs is less than 10% of the total carrying value of broadcast licences. Consequently, these other CGUs are grouped together for the purpose of note disclosure. RADIO GOODWILL AND BROADCAST LICENCES IMPAIRMENT ASSESSMENTS The recoverable amounts of the CGUs have been determined based on their VIU. The recoverable values have been determined to be higher than the carrying amounts. As a result, no impairment was recorded. The VIUs were calculated using unobservable (Level 3) inputs such as cash flow projections from financial budgets approved by the Board of Directors covering a five-year period. Growth rates used over the five-year budget period are based on management’s estimates of performance, which is established by considering historical growth rates achieved as well as anticipated improvements. The growth rates depend also on whether the CGU includes mature market stations versus start-up or evolving stations. Management assesses how the CGU’s market position, relative to its competitors, might change over the budget period. For most CGUs, the average growth rates used in the five-year budget period ranged between (1.4)% and 2.1%. Cash flows beyond the five-year period were extrapolated using a 0% growth rate, which is based on the Corporation’s estimate of future performance for this mature industry. Management expects the Corporation’s share of the market to be Annual Report 2019 | Stingray Group Inc. | 74 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) stable over the long-term budget period, despite that changes in rating results could affect local market shares and relating growth rates. The pre-tax discount rates applied to cash flow projections, which were derived from the Corporation’s weighted average cost of capital (“WACC”), ranged from 8.5% to 9.7% as at the date of the assessment. The discount rate calculation is based on the specific circumstances of the Corporation and its CGUs and is derived from its WACC. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Corporation’s investors. The cost of debt is based on the interest-bearing borrowings the Corporation is obliged to service. CGU-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data. The possibility of new market entrants can have an impact on growth rate assumptions, as can adverse ratings results, which would impact market share. However, management does not believe these would have a significant adverse effect on the forecasts included in the budget and management’s conclusions on impairment would not be materially different as a result. The determination of VIU is sensitive to the discount rates used and therefore management’s conclusions on impairment could be materially different if the assumptions used to determine the discount rates changed. A quantitative sensitivity analysis of the significant assumptions for the impairment test is presented below, showing the impact of a 50 basis point change in each of the assumptions listed: Assumption change Increase in pre-tax discount rate Decrease in growth rate during five-year budget period Decrease in terminal growth rate Goodwill impairment charge - Radio Broadcast licences impairment charge $ 11,000 – 4,000 $ – – – BROADCAST AND COMMERCIAL MUSIC GOODWILL IMPAIRMENT ASSESSMENT The recoverable amount of the CGU has been determined based on its FVLCS. The recoverable value has been determined to be higher than the carrying amount. As a result, no impairment was recorded. The FVLCS was calculated using unobservable (Level 3) inputs such as revenues and EBITDA margins from financial budgets approved by the Board of Directors covering a five-year period. The EBITDA is defined as net income before net finance costs, change in fair value of investments, income taxes, depreciation and amortization. The Corporation considered past experience, economic trends as well as industry and market trends in assessing the level of revenues and EBITDA that can be maintained in the future and derived cash flow projections from these assumptions. A growth rate of 2% per year was used to estimate revenues in the five-year period and cash flows beyond the five-year period were extrapolated using a 2% growth rate, which is based on the Corporation’s estimate of future performance for this industry. The Corporation also applied a pre-tax discount rate of 9.0% to cash flow projections, which represents WACC as at the date of the assessment. Refer to the section above for more information on discount rates calculation. By their nature, these estimates and assumptions are subject to measurement uncertainty, and consequently, actual results could differ from estimates used. However, it has been determined that there is no reasonable change in assumptions that would cause the carrying amount to exceed the estimated recoverable amount. Annual Report 2019 | Stingray Group Inc. | 75 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 16. INVESTMENTS The table below provides a continuity of investments, investment in a joint venture and investment in an associate: Balance at March 31, 2017 Addition Proceeds from disposal of an investment Share of results of joint venture Foreign exchange differences Balance at March 31, 2018 Additions Share of results of joint venture Foreign exchange differences Balance at March 31, 2019 INVESTMENTS Investments Investment in a joint venture Investment in an associate $ $ 17,351 $ – (1,218) – (600) 15,533 900 – 565 16,998 $ 738 $ – 96 – 834 – (200) – 634 $ – $ 1,106 – – – 1,106 – – – 1,106 $ Total 18,089 1,106 (1,218) 96 (600) 17,473 900 (200) 565 18,738 As at March 31, 2019, the Corporation has two equity instruments in private entities: AppDirect and Nextologies. Fair value as at March 31, 2019 were $16,098 (2018 – $15,033) and $900 (2018 – nil), respectively. Both equity instruments are classified as financial asset at fair value through profit and loss. There was no change in the fair value of investment in AppDirect as there was no external equity financing transactions or no other indicators of significant changes that could affect the fair value of the investment. As at March 31, 2017, the Corporation had an investment in a convertible note of a private entity amounted to US$1,000 ($1,330 as at March 31, 2017), which was entirely settled during the year ended March 31, 2018. A foreign exchange loss of $112 was recognized in net finance expense (income). SIGNIFICANT ESTIMATE The fair value of investments that are not traded in an active market is determined using valuation techniques. The Corporation uses judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of each reporting year. For details on the key assumptions used and the impact of changes to these assumptions see note 27. INVESTMENT IN AN ASSOCIATE The investment in an associate consist of a 40% interest in Business Transportation Services Limited Partnership, a partnership formed to own and operate one or more airplanes for the benefit of the limited partners and third parties. The associate had no capital commitments as at March 31, 2019 and 2018. Annual Report 2019 | Stingray Group Inc. | 76 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 17. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Trade Accrued liabilities Sales taxes payable 18. CREDIT FACILITY 2019 13,334 46,748 2,282 62,364 $ $ 2018 7,908 26,297 994 35,199 $ $ On August 21, 2018, effective October 26, 2018, the Corporation amended its existing $100,000 credit facility (the “Credit facility”) by increasing the authorized amount up to $450,000 and extending the maturity to October 26, 2021 to finance the acquisition of NCC. The Credit facility consists of a revolving credit facility (the “revolving facility”) for an authorized amount up to $300,000 and a non-revolving term facility (the “term facility”) in the amount of $150,000. The Credit facility may be drawn in Canadian dollars in the form of prime rate loan or banker’s acceptances, in US dollars in the form of US base rate loans or LIBOR loans, or in Euro and British Pound in the form of LIBOR loans and in Australian dollars in the form of BBSY loans. The Credit facility bears interest at (a) the bank’s prime rate plus an applicable margin based on a financial covenant or (b) the banker’s acceptance rate plus an applicable margin based on a financial covenant (5.325% as at March 31, 2019). In addition, the Corporation incurs standby fees, varying between 0.28% and 0.60% (0.48% as at March 31, 2019), based on a financial covenant, on the unused portion of the Credit facility. The Credit facility is secured by guarantees from subsidiaries and first ranking lien on universality of all assets, tangible and intangibles, present and future. The table below is a summary of the Credit facility at March 31, 2019: Total available Drawn Letters of credit Net available Committed credit facilities Revolving facility Term facility Total committed credit facilities Less: unamortized deferred financing fees Balance, end of year $ $ 300,000 150,000 450,000 Current portion Non-current portion $ $ $ $ $ $ 168,964 146,250 315,214 (2,259) 312,955 14,086 298,869 1,050 – 1,050 $ $ 129,986 – 129,986 As a result of the of the amendment, financing fees of $2,633 were incurred and recorded against Credit facility and are amortized over its duration of 3 years. The unamortized deferred financing fees amounted to $2,259 as at March 31, 2019. As at March 31, 2019, letters of credit amounting to $1,050 reduced the availability on the revolving facility. As at March 31, 2018, credit facility amounted to $38,627 and was entirely presented in non-current liabilities. Annual Report 2019 | Stingray Group Inc. | 77 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) Starting March 31, 2019, the Corporation is required to make consecutive quarterly capital repayments of 2.50% of the drawdown amount of its term facility. Additionally, the Corporation must make an annual capital repayment, equivalent to 50% of the excess cash flow, defined in the credit facility agreement, if a certain financial covenant target is not met. The remaining capital balance will be payable on maturity date. Minimum capital repayments to be made by the Corporation on the term facility in the forthcoming years are as follows: 2020 2021 2022 Capital repayments 14,086 12,729 119,435 146,250 As at March 31, 2019, the Corporation was in compliance with all the requirements of its credit agreement. 19. SUBORDINATED DEBT On July 11, 2018, effective October 26, 2018, the Corporation entered into a loan agreement in the amount of $50,000. The loan is unsecured and bears interest at an annual rate varying between 6.35% and 6.95% based on a financial covenant (6.95% as at March 31, 2019). The loan matures on October 26, 2023 and is entirely payable on maturity date. Financing fees of $505 were incurred and recorded against subordinated debt and are amortized over its duration of 5 years. Unamortized deferred financing fees amounted to $461 as at March 31, 2019. 20. OTHER LIABILITIES CRTC tangible benefits Contingent consideration Balance payable on business acquisitions Accrued pension benefit liability (note 21) Derivative financial instruments (note 27) Other Current portion 2019 2018 $ 31,797 12,430 3,359 6,673 2,998 2,512 59,769 (16,186) $ 3,170 15,596 9,321 – – – 28,087 (13,212) $ 43,583 $ 14,875 CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION (CRTC) TANGIBLE BENEFITS On October 23, 2018, the CRTC approved the change in ownership and effective control of NCC, a subsidiary of the Corporation since October 26, 2018. Pursuant to the decision, the CRTC requires the Corporation to pay tangible benefits corresponding to an amount of $30,963 over a seven-year period in equal annual payments. The Corporation recognized an expense of $25,306, which reflects the fair value of the payment stream using a discount rate of 5.70%, which is the Corporation’s effective interest rate plus a risk premium for a similar financial instrument. SIGNIFICANT ESTIMATE – CONTINGENT CONSIDERATION In the event that certain predetermined sales volumes, specific contract renewals and other conditions are achieved by the acquired companies, additional consideration may be payable in the future. Annual Report 2019 | Stingray Group Inc. | 78 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The fair value of the contingent consideration of $12,430 was estimated by calculating the present value of the future expected outflows. For details of the key assumptions used and the impact of changes to these assumptions, see note 27. The estimates are based on discounts rates ranging from 11% to 26%. During the year ended March 31, 2019, the Corporation reassessed certain contingent consideration, as the actual sales revenues expected to be achieved by the acquired companies were either above or below the maximum threshold, contingent services to be received are not expected to be received in the future for one acquired company, and because of contractual rights to offset an amount against a claim made by the Corporation to sellers of an acquired company. 21. EMPLOYEE BENEFIT PLANS The Corporation maintains a defined contribution pension plan and defined benefit pension plans. DEFINED CONTRIBUTION PENSION PLAN The defined contribution pension plan covers the majority of the Corporation’s employees. The Corporation’s contributions to the defined contribution pension plan are based on percentages of gross salaries and totalled $711. DEFINED BENEFIT PENSION PLANS The Corporation maintains a defined benefit pension plan (the “Basic Plan”) for a small group of the Corporation’s former employees, which is not accepting new entrants at this time. The Basic Plan provides pension benefits based on the length of service and the last five years of average earnings of each member. The Basic Plan meets the definition of a designated plan under the Income Tax Act (Canada). The most recent funding actuarial valuation for the Basic Plan was as of March 31, 2019. In addition, the Corporation has two individual Supplementary Retirement Pension Arrangements (“SRPAs”), which each provide pension benefits to a retired executive. These SRPAs provide benefits above the Income Tax Act (Canada) limit. These plans are not funded and are paid from the Corporation’s operations. The Corporation measures its accrued benefit obligations and fair value of plan assets for accounting purposes as of March 31 of each year. The obligation as at March 31, 2019 and the 2020 current service cost of the Plans are determined based on membership data as at March 31, 2019. Items related to the Corporation’s defined benefit pension plans are presented as follows in the consolidated financial statements: 2019 2018 Consolidated statements of financial position Accrued pension benefit liability, included in other liabilities (note 20) Accrued pension benefit asset, included in other non-current assets Net accrued pension liability Consolidated statements of comprehensive income Pension benefit expense, included in net finance expense (income) Other comprehensive gains and accumulated other comprehensive losses Actuarial losses recognized in other comprehensive income Cumulative actuarial losses recognized in other comprehensive income $ $ $ $ $ (6,673) 370 (6,303) 116 182 182 $ $ $ $ $ – – – – – – Annual Report 2019 | Stingray Group Inc. | 79 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The following summarizes the movements in the defined benefit pension plan balances: Accrued benefit obligations Balance, beginning of year Assumed through business acquisition Current service cost Interest cost Benefits paid Actuarial losses (gains): Impact of changes in financial assumptions Impact of changes in experience adjustments Balance, end of year Plan assets Fair value, beginning of year Acquired through business acquisition Interest income Actuarial gains: Return on plan assets, excluding interest income Administrative expenses Employee contributions Benefits paid Fair value, end of year Net accrued pension asset (liability) 2019 Basic Plan 2018 SRPAs Basic Plan SRPAs $ $ $ $ $ – 6,576 12 88 (2,040) 242 (6) 4,872 – 6,993 94 209 (14) – (2,040) 5,242 – 6,744 – 96 (322) 155 – 6,673 – – – – – – – – $ $ $ $ 370 (6,673) $ – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – The Corporation determined that there was no limit on the defined benefit asset (asset ceiling) because the Corporation has unimpaired rights to the surplus in the Basic Plan and it has the right to take contribution holidays when available. Employer contributions to the SRPAs are estimated to be $786 in 2020. Pension benefit expense recognized in the consolidated statements of comprehensive income (loss) as net finance expenses (income) is as follows: Current service costs, net of employee contributions Interest cost Interest income on plan assets Administrative expenses Defined benefit plan expense 2019 Basic Plan 12 88 (94) 14 20 SRPAs – 96 – – 96 2018 Basic Plan – – – – – SRPAs – – – – – Actuarial gains and losses recognized in other comprehensive income are as follows: Cumulative actuarial losses, beginning of year Recognized actuarial losses during the year Cumulative actuarial losses, end of year 2019 2018 Basic Plan SRPAs Total Basic Plan SRPAs Total $ $ – 27 27 – 155 155 – $ 182 182 $ – – – – – – – – – Annual Report 2019 | Stingray Group Inc. | 80 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The principal actuarial assumptions were as follows: Discount rate for the accrued net benefit obligation Future pension increases 2019 Basic Plan 3.1% 1.4% SRPAs 3.1% 0.1% 2018 Basic Plan – – SRPAs – – As at March 31, 2019 and based on an actuarial review, the net remeasurement loss recorded in other comprehensive income of $182 was primarily reflective of a decrease in the estimated discount rate for both plans, partially offset by an actuarial gain on plan assets. Plan assets for the Basic Plan consist of: Equity funds Fixed income funds 2019 65% 35% 100% 2018 – – – The pension plan has no direct investments in the Corporation nor any of its affiliates. Investments are diversified such that the failure of any single investment would not have a material impact on the overall level of assets. The largest proportion of assets is invested in equities, although there is a good portion also invested in bonds and other highly liquid assets. All assets are invested in funds where the underlying securities have quoted market prices in an active market. The Corporation believes that equities offer the best returns over the long-term with an acceptable level of risk. Since the benefit payments are adjusted to the Consumer Price Index, the pension plan is exposed to inflation. It is also exposed to interest rate risks and changes in life expectancy of pensioners. A large portion of the plan assets consist of equity securities, which are exposed to equity market risk. SIGNIFICANT ESTIMATE The cost of defined benefit pension plans and the present value of the net pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, mortality rates and future salary and pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, the net pension obligation is highly sensitive to changes in these assumptions. Management engages the services of external actuaries to assist in the determination of the appropriate discount rate. Management, with the assistance of actuaries, determines the applicable discount rates using the interest rates on high quality corporate bonds that have terms to maturity approximating the terms related to the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are based on expected future inflation rates. Changes in assumptions of all plans would have resulted in an increase (decrease) in the net defined benefit obligation as presented below: Discount rate – change of 0.5% Future pension costs – change of 1.0% Life expectancy – change by 1 year Change in assumption Decrease Increase 495 (457) 697 798 (194) (800) The sensitivity analysis above has been determined based on a method that extrapolates the impact on the net defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period. The average duration of the defined benefit plan obligation at the end of the reporting period is 8.4 years. Annual Report 2019 | Stingray Group Inc. | 81 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 22. SHARE CAPITAL Authorized: Unlimited number of subordinate voting shares, participating, without par value Unlimited number of variable subordinate voting shares, participating, without par value Unlimited number of multiple voting shares (10 votes per share), participating, without par value Unlimited number of special shares, participating, without par value Unlimited number of preferred shares issuable in one or more series, non-participating, without par value Issued and outstanding: The movements in share capital were as follows: Year ended March 31, 2018 Subordinate voting shares and variable subordinate voting shares As at March 31, 2017 Bought deal and exercise of over-allotment option Exercise of stock options Purchased and held in trust through employee share purchase plan Share issuance costs, net of income taxes of $604 As at March 31, 2018 Multiple voting shares As at March 31, 2018 and 2017 Year ended March 31, 2019 Subordinate voting shares and variable subordinate voting shares As at March 31, 2018 Conversion of subscription receipts issued through a bought deal offering Conversion of subscription receipts issued through a private placement Equity element of NCC purchase price Private placement Exercise of stock options Purchased and held in trust through employee share purchase plan Share issuance costs, net of income taxes of $1,780 As at March 31, 2019 Multiple voting shares As at March 31, 2018 Conversion of subscription receipts issued upon exercise of subscription rights Issuance As at March 31, 2019 Number of shares Carrying amount 35,032,081 4,900,200 85,198 (6,011) – 40,011,468 16,294,285 56,305,753 40,011,468 7,981,000 3,846,100 3,887,826 2,429,544 147,500 (7,033) – 58,296,405 16,294,285 1,452,850 194,363 17,941,498 76,237,903 $ $ $ $ $ $ $ 101,584 45,082 301 (60) (1,669) 145,238 1,116 146,354 145,238 83,002 39,999 30,558 25,000 618 (28) (4,899) 319,488 1,116 15,110 2,000 18,226 337,714 Annual Report 2019 | Stingray Group Inc. | 82 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) To comply with the Broadcasting Act and the regulations and directions promulgated thereunder from time to time, which permit non-Canadians (as defined in the Direction to the CRTC (Ineligibility of Non-Canadians) (SOR/97-192)) to own and control, directly or indirectly, up to 20% of the voting shares and 20% of the votes of an operating licensee that is a corporation, such as the Corporation, the Corporation has imposed restrictions respecting the issuance, transfer and, if applicable, voting of the Corporation’s shares. Restrictions include limitations over foreign ownership of the issued and outstanding voting shares. TRANSACTIONS FOR THE YEAR ENDED MARCH 31, 2019 During the year, 147,500 stock options were exercised and consequently, the Corporation issued 147,500 subordinate voting shares. The proceeds amounted to $339. An amount of $279 of contributed surplus related to those stock options was transferred to the subordinate voting shares’ account balance. On March 27, 2019, the Corporation declared a dividend of $0.065 per subordinate voting share, variable subordinate voting share and multiple voting share, totalling $4,956 that will be payable on or around June 15, 2019. The dividend payable is accrued in the consolidated statement of financial position as at March 31, 2019. On February 6, 2019, the Corporation declared a dividend of $0.065 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend of $4,956 was paid on March 15, 2019. On November 13, 2018, the Corporation completed a private placement with Irving West and issued from treasury 2,429,544 subordinate voting shares at a price of $10.29 per subordinate voting shares for total gross proceeds of $25,000. On November 7, 2018, the Corporation declared a dividend of $0.06 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend of $4,571 was paid on December 14, 2018. On October 26, 2018, concurrently with the closing of the acquisition of NCC (note 4), the holders of the outstanding subscription receipts exercised their conversion rights and consequently the Corporation issued 11,827,100 subordinate voting shares and 1,452,850 multiple voting shares for total gross proceeds of $138,111 and net proceeds of $133,191. Additionally, the Corporation issued from treasury 3,887,826 subordinate voting shares at a price of $7.86 per subordinate voting shares to finance the equity portion of the purchase price, equivalent to $30,558. On the same day, the Corporation also issued 194,363 multiple voting shares at a price of $10.29 per multiple voting shares for gross proceeds of $2,000. On August 7, 2018, the Corporation declared a dividend of $0.06 per subordinate voting share, variable subordinate voting share, multiple voting share and subscription receipts. The dividend of $4,179 was paid on September 14, 2018, of which an amount of $797 was paid with restricted cash. On June 15, 2018, the Corporation paid a dividend of $3,097. The dividend was declared on March 29, 2018 and therefore accrued in the consolidated statement of financial position as at March 31, 2018. TRANSACTIONS FOR THE YEAR ENDED MARCH 31, 2018 During the year, 85,198 stock options were exercised and consequently, the Corporation issued 85,198 subordinate voting shares. The proceeds amounted to $168. An amount of $133 of contributed surplus related to those stock options was transferred to the subordinate voting shares’ account balance. On March 29, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate voting share and multiple voting share, totaling $3,097 that will be payable on or around June 15, 2018 to holders of subordinate voting share, variable subordinate voting share and multiple voting share on record as of May 31, 2018. On October 24, 2017, the Corporation completed a bought deal offering of an aggregate 4,348,000 subordinate voting shares and variable subordinate voting shares of the Corporation at a price of $9.20 per share for gross proceeds of Annual Report 2019 | Stingray Group Inc. | 83 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) $40,002 and net proceeds of $38,402. On November 7, 2017 the underwriters exercised part of their over-allotment option and bought an additional 552,200 subordinate voting shares at a price of $9.20 for gross proceeds of $5,080 and net proceeds of $4,877. Share issuance costs for both issuances amounted to $2,273 which have been recognized as a reduction of share capital net of income taxes of $604. On February 7, 2018, the Corporation declared a dividend of $0.055 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend of $3,096 was paid on March 15, 2018. On November 8, 2017, the Corporation declared a dividend of $0.05 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend of $2,814 was paid on December 15, 2017. On August 1, 2017, the Corporation declared a dividend of $0.05 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend of $2,567 was paid on September 15, 2017. On April 28, 2017, the Corporation declared a dividend of $0.045 per subordinate voting share, variable subordinate voting share and multiple voting share. The dividend of $2,310 was paid on June 15, 2017. 23. SUPPLEMENTAL CASH FLOW INFORMATION Trade and other receivables Inventories Other current assets Other non-current assets Accounts payable and accrued liabilities Deferred revenues Income taxes payable Other payables 2019 1,319 304 (2,166) 300 (10,779) (1,401) (612) 8,976 (4,059) $ $ 2018 (6,289) (551) (1,928) – (861) 413 (1,187) (1,724) (12,127) $ $ Additions to property and equipment and intangible assets, excluding broadcast licences not affecting cash and cash equivalents amounted to $1,594 (2018 – $899) and $381 (2018 – $159), respectively, during the year ended March 31, 2019. 24. SHARE-BASED COMPENSATION: STOCK OPTIONS PLAN The Corporation has a stock option plan to attract and retain employees, directors, officers and consultants. The plan provides for the granting of options to purchase subordinate voting shares. Under this plan,10% of all multiple voting shares, subordinate voting shares and variable subordinate voting shares issued and outstanding on a non-diluted basis is reserved for issuance. The terms and conditions for acquiring and exercising options are set by the Board of Directors. Unless otherwise determined by the Board of Directors, each option shall expire at the latest on the tenth anniversary of the grant date. The total number of shares issued to a single person cannot exceed 10% of the Corporation’s total issued and outstanding common shares on a fully diluted basis. Under the stock option plan, 2,104,100 stock options were outstanding as at March 31, 2019. Outstanding options are subject to employee service vesting criteria which range from nil to four years of service. Annual Report 2019 | Stingray Group Inc. | 84 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018: 2019 2018 Number of options Weighted average exercise price Number of options Weighted average exercise price Options outstanding, beginning of year Granted Exercised (note 22) Forfeited Options outstanding, end of year 1,965,227 $ 567,146 (147,500) (280,773) 2,104,100 5.99 8.56 2.30 7.91 6.52 1,397,185 $ 682,429 (85,198) (29,189) 1,965,227 Exercisable options, end of year 985,950 $ 5.30 789,051 $ 4.93 7.66 1.98 6.11 5.99 3.95 The following is a summary of the information on the outstanding stock options as at March 31, 2019 and 2018: Exercise price March 31, 2019 $ 0.46 1.46 2.26 6.25 7.00 7.27 7.62 7.92 8.61 8.89 9.00 $ 6.52 March 31, 2018 $ 0.46 1.46 2.26 6.25 7.00 7.27 7.62 8.89 9.00 $ 5.99 Outstanding options Weighted average outstanding contractual life outstanding (years) Number of options outstanding 45,000 25,000 245,731 362,880 100,000 327,631 482,850 43,698 433,746 21,008 16,556 2,104,100 130,000 25,000 270,731 387,880 125,000 327,631 661,421 21,008 16,556 1,965,227 3.18 4.63 5.69 6.12 6.36 8.21 8.23 9.61 9.20 8.42 7.90 7.40 4.18 5.63 6.69 7.12 7.36 8.21 9.23 9.42 8.90 7.69 Exercisable options Number 45,000 25,000 245,731 297,160 75,000 163,816 120,713 – – 5,252 8,278 985,950 130,000 25,000 270,731 214,773 62,500 81,908 – – 4,139 789,051 Annual Report 2019 | Stingray Group Inc. | 85 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The weighted average fair value of the stock options granted during the year ended March 31, 2019 was $1.91 per stock option (2018 – $1.64). This fair value was estimated at the date on which the options were granted by using the Black-Scholes option pricing model with the following assumptions: Weighted average volatility Weighted average risk-free interest rate Weighted average expected life of options Weighted average value of the subordinate voting share at grant date Weighted average expected dividend rate 2019 2018 30% 2.14% – 2.46% 5 years $7.92 – $8.61 2.56% – 2.78% 30% 1.12% – 1.51% 5 years $7.62 – $8.89 2.25% – 2.37% The weighted average volatility used is calculated based on a combination of comparable publicly-traded companies and the Corporation’s historical volatility. Total share-based compensation costs recognized under this stock option plan amount to $1,072 for the year ended March 31, 2019 (2018 – $1,126). The weighted average share price at the date of exercise for share options exercised during the year ended March 31, 2019 was $7.64 (2018 – $8.75). EMPLOYEE SHARE PURCHASE PLAN The Corporation has an employee share purchase plan (“ESPP”) to attract and retain employees. Under this plan, eligible employees, including certain key management personnel, are permitted to contribute up to a maximum of 6% of their eligible earnings to purchase the Corporation’s subordinate voting shares and variable subordinate voting shares. Subject to certain conditions, the Corporation will match a percentage of the employee’s contributions up to a maximum of 2% of the employee’s eligible earnings and the shares purchased with the Corporation’s contributions become vested on January 31st of the following year. All contributions are used by the plan’s trustee to purchase subordinate voting shares and variable subordinate voting shares in the open market, on behalf of employees. The following summarizes the changes in the plan’s position for the year ended March 31, 2019 and 2018: 2019 Number of units Amount 2018 Number of units Unvested contributions, beginning of year Contributions Dividend credited Vested Unvested contributions, end of year 6,011 $ 25,890 534 (19,391) 13,044 $ 60 199 7 (178) 88 – $ 7,816 34 (1,839) 6,011 $ Amount – 77 – (17) 60 The weighted average fair value of the shares contributed during the year ended March 31, 2019 was $7.80 (2018 – $9.87). Total share-based compensation costs recognized under the ESPP amount to $140 for the year ended March 31, 2019 (2018 – $80). Annual Report 2019 | Stingray Group Inc. | 86 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) RESTRICTED SHARE UNIT PLAN The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018: Balance, beginning of year Granted Revision of estimates Liabilities settled Forfeited Balance, end of year Balance, vested 2019 Number of units Amount 2018 Number of units Amount 59,712 $ – – (59,712) – – $ – 680 – – (680) – – – 197,448 $ 1,319 – (136,581) (2,474) 59,712 $ – 1,468 – 444 (1,218) (14) 680 – Liabilities related to the restricted share unit plan were fully settled during the year ended March 31, 2019. This plan is no longer active and was replaced with the performance share unit plan. PERFORMANCE SHARE UNIT PLAN The Corporation has a performance unit plan (PSU) that can be granted to directors, officers, executives and employees as part of their long-term compensation package, which is expected to be settled in cash. The value of the payout is determined by multiplying the number of PSU vested at the payout date by the volume weighted average price of the Corporation’s shares on the last five trading days immediately preceding the vesting date. The fair value of the payout is determined at each reporting date based on the fair value of the Company’s shares at the reporting date. The fair value is amortized over the vesting period, being three years. During the year ended March 31, 2019, 528,440 PSU (2018 – 166,287) were granted at a range of $6.35 to $9.20 (2018 – $7.57 to $10.04) per unit to executives and employees and no outstanding PSU were vested. As at March 31, 2019, the fair value per unit was $7.31 (2018 – $10.36) for a total amount of $2,612 (2018 – $1,244) and was presented in accrued liabilities on the consolidated statements of financial position. The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018: Balance, beginning of year Granted Expense and revision of estimates Forfeited Balance, end of year Balance, vested 2019 Number of units Amount 2018 Number of units Amount 284,480 $ 528,440 – (38,066) 774,854 $ – 1,244 – 1,421 (53) 2,612 – 131,781 $ 166,287 – (13,588) 284,480 $ – 361 – 926 (43) 1,244 – Annual Report 2019 | Stingray Group Inc. | 87 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) DEFERRED SHARE UNIT PLAN The Corporation has a deferred share unit plan (“DSU”) that can be granted to directors, officers and employees as part of their compensation package, which is expected to be settled in cash. The value of the payout is determined by multiplying the number of DSU vested at the payout date by the fair value of the Corporation’s shares on the day prior to the payout date. The fair value of the payout is determined at each reporting date based on the fair value of the Corporation’s shares at the reporting date. During the year ended March 31, 2019, 88,487 DSU (2018 – 62,740) were granted at a range of $6.29 to $9.19 per unit to directors (2018 – $7.55 to $10.10) and no outstanding DSU were vested. The total expense related to DSU plans amounted to nil in 2019 (2018 – $911). As at March 31, 2019, the fair value per unit ranged from $6.98 to $7.01 (2018 – $10.22 to $10.36) for a total amount, including fringes, of $2,004 (2018 – 2,004) presented in accrued liabilities on the statements of financial position. The following summarizes the changes in the plan’s position for the years ended March 31, 2019 and 2018: Balance, beginning of year Granted and vested Liabilities settled Revision of estimates Balance, end of year Balance, vested 25. COMMITMENTS 2019 Number of units Amount 2018 Number of units Amount 182,369 $ 88,487 – – 270,856 $ 270,856 $ 2,004 718 – (718) 2,004 2,004 138,072 $ 62,740 (18,443) – 182,369 $ 182,369 $ 1,267 536 (174) 375 2,004 2,004 The following table is a summary of the Corporation’s operating obligations as at March 31, 2019 that are due in each of the next five years and thereafter. 2020 2021 2022 2023 2024 2025 and thereafter OPERATING OBLIGATIONS Operating obligations $ $ 14,216 10,543 6,816 2,962 1,482 3,143 39,162 The Corporation’s significant operating leases are for office premises and property and equipment. The Corporation must also pay royalties for the use of music for the majority of its music services. Through copyright collective societies, the Corporation pays royalties to two sets of rights holders: rights holders in music works, which are the music and the lyrics; and, rights holders in artists’ performances and sounds recordings, which are the actual performances and recordings of the musical works. Annual Report 2019 | Stingray Group Inc. | 88 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) BROADCAST LICENCES A condition of the broadcast licences owned by the Corporation is to commit to fund Canadian Content Development (“CCD”) over the initial term of the licences, which is usually 7 years. 26. USE OF ESTIMATES AND JUDGMENTS The preparation of these consolidated financial statements in conformity with International Financial Reporting Standards (“IFRS”) requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. This note provides an overview of the areas that involved a higher degree of judgment or complexity, and of items which are more likely to be materially adjusted due to estimates and assumptions differing from actual outcomes. Detailed information about each of these estimates and judgments is included in notes 4 to 25 together with information about the basis of calculation for each affected line item in the consolidated financial statements. SIGNIFICANT ESTIMATES The areas involving significant estimates are:  Estimation of current income tax payable and current income tax expense – note 10  Recognition of deferred tax assets for tax losses available for carry-forward – note 10     Estimation of cost of defined benefit pension plans and present value of the net pension obligation – note 21 Estimated fair value of certain investments – note 16 Estimated value in use and/or fair value less costs to sell of CGUs used in goodwill and broadcasting licences impairment testing – note 15 Estimation of fair value of identified assets, liabilities and contingent consideration recorded in business acquisitions – notes 4 and 20 Estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Any revision to accounting estimates are recognized in the year in which the estimates are revised and in any future years affected by these revisions. CRITICAL JUDGMENTS Critical judgements in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements include the following:  Impairment of non-current assets For the purpose of impairment testing of property and equipment, intangible assets, broadcast licences and goodwill, management must use its judgment to identify the smallest group of assets that generates cash inflows that are largely independent of those from other assets (“cash generating unit” or ”CGU”). The amounts used for impairment calculations are based on estimates of future cash flows of the Corporation, including estimates of future revenues, operating costs, discount rates and market prices. By their nature, these estimates and assumptions are subject to measurement uncertainty and, consequently, actual results could differ from estimates used. Annual Report 2019 | Stingray Group Inc. | 89 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated)  Useful lives of broadcast licences The Corporation has concluded that broadcast licences are indefinite life intangible assets because they are renewed every seven years without significant cost and there is a low likelihood of the renewal being denied.  Identifying a business acquisition Management must use its judgment in determining whether a transaction is a business combination or a purchase of assets in accordance with the criteria established in IFRS 3 Business combinations. The acquisition of an asset or a group of assets that constitute a business is accounted for as a business combination and may give rise to goodwill, whereas an asset purchase does not, thereby impacting subsequent amortization expense and/or impairment testing results.  Recognition of internally developed intangible assets Management must use its judgment in determining whether an internally developed intangible asset qualifies for recognition, such as, but not limited to, assessing the technological feasibility of a project and determining the appropriate internal costs to be capitalized. This exercise requires management to distinguish between the costs necessary to generate an intangible asset from the costs necessary to maintain it. Recognition of an internally developed intangible asset would lead to an increase of amortization expense as the opposite would lead to an increase in research and development costs. Judgment is also involved in determining the estimated useful life of an internally developed intangible asset. Increasing an asset’s estimated useful life would result in a decrease of the annual amortization expense. 27. FINANCIAL INSTRUMENTS: FAIR VALUES The Corporation has determined that the carrying amount of cash and cash equivalents, trade and other receivables, accounts payable and accrued liabilities and current other liabilities excluding the contingent consideration is a reasonable approximation of their fair value due to the short-term maturity of those instruments. As such information on their fair values is not presented below. The fair value of the credit facility bearing interest at variable rates approximates its carrying value, as it bears interest at prime or banker’s acceptance rates plus a credit spread which approximate current rates that could be obtained for debts with similar terms and credit risk. The fair value of the subordinated debt approximates its carrying value as its interest rate approximates current rates that could be obtained for debts with similar terms and credit risk. The carrying amount of CRTC tangible benefits and balance payable on business acquisitions is a reasonable approximation of their fair value as they are discounted using the effective interest rate, which approximate current rates that could be obtained with similar terms and credit risk. The tables below summarize the carrying and fair value of financial assets and liabilities, including their level in the fair value hierarchy, as at March 31, 2019 and 2018. The Corporation uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques: Level 1: quoted price (unadjusted) in active markets for identical assets or liabilities; Level 2 : other techniques for which all inputs that have a significant effect in the recorded value are observable, either directly or indirectly; and Level 3 : Techniques which uses inputs that have a significant effect on the recorded fair value that are not based on observable market data. Annual Report 2019 | Stingray Group Inc. | 90 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) As at March 31, 2019 Carrying value Fair value Level 1 Level 2 Level 3 Financial assets measured at amortized cost Cash and cash equivalents Trade and other receivables $ 4,673 66,691 Financial assets measured at fair value Investments Financial liabilities measured at amortized cost Credit facility Subordinated debt Accounts payable and accrued liabilities CRTC tangible benefits Balance payable on business acquisitions Financial liabilities measured at fair value Contingent consideration Derivative financial instruments $ 16,998 $ 16,998 $ – $ – $ 16,998 $ $ 312,955 49,539 60,082 38,470 3,359 12,430 2,998 $ 12,430 $ 2,998 – $ – – $ 12,430 – 2,998 As at March 31, 2018 Carrying value Fair value Level 1 Level 2 Level 3 Financial assets measured at amortized cost Cash and cash equivalents Trade and other receivables Financial assets measured at fair value Investment Financial liabilities measured at amortized cost Revolving facility Accounts payable and accrued liabilities CRTC tangible benefits Balance payable on business acquisitions Financial liabilities measured at fair value Contingent consideration Fair value measurement (Level 3): Balance as at March 31, 2017 Additions through business acquisitions Change in fair value Settlements Balance as at March 31, 2018 Additions through business acquisitions Addition through asset acquisition Change in fair value Settlements Balance as at March 31, 2019 $ 3,362 33,264 $ 15,533 $ 15,533 $ – $ – $ 15,533 $ 38,627 34,205 3,170 9,321 $ 15,596 $ 15,596 $ – $ – $ 15,596 Investments Contingent consideration $ $ $ 17,351 $ – (600) (1,218) 15,533 $ – 900 565 – 16,998 $ 12,956 9,040 2,480 (8,880) 15,596 4,491 – 534 (8,191) 12,430 Annual Report 2019 | Stingray Group Inc. | 91 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) INVESTMENTS The fair value of the equity instrument in a private entity, AppDirect, was estimated using the market approach. For the years ended March 31, 2019 and 2018, the fair value has been measured by using the valuation from the most recent financing round, minus a liquidity discount of 25%. The liquidity discount was used to reflect the marketability of the asset. In measuring fair value, management used the best information available in the circumstances and also an approach that it believes market participants would use. For the years ended March 31, 2019 and 2018, the equity instrument in a private entity is classified as a financial asset at fair value through profit and loss. A change of 5% in the liquidity discount would have increased / decreased the fair value of the investment by approximately $1,073 and $1,035 during the years ended March 31, 2019 and 2018, respectively. CONTINGENT CONSIDERATION The contingent consideration related to business combinations is payable based on the achievement of targets for growth in revenues for a period from the date of the acquisition and upon renewal of client contracts. The fair value measurement of the contingent consideration is determined using unobservable (Level 3) inputs. These inputs include (i) the estimated amount and timing of projected cash flows; and (ii) the risk-adjusted discount rate used to present value the cash flows which is based on the risk associated with the revenue targets being met. If projected cash flows were 10% higher, the fair value would have increase by $1,868 and if projected cash flows were 10% lower, the fair value would have decrease by $1,827. Discount rates ranging from 11% to 26% have been applied and consider the time value of money. A change in the discount rate by 100 basis points would have increased / decreased the fair value by $79. The contingent consideration is classified as a financial liability and is included in other payables (note 20). The change in fair value is recognized in net finance expense (income) (note 8). CREDIT RISK Credit risk is the risk of an unexpected financial loss to the Corporation if a customer or counterparty to a financial instrument fails to meet contractual obligations, and it arises primarily from the Corporation's trade and other receivables. The Corporation’s credit risk is principally attributable to its trade receivables. The amounts presented in the consolidated statements of financial position are net of an allowance for doubtful accounts, estimated by the Corporation’s management and based, in part, on the age of the specific receivable balance and the current and expected collection trends. The Corporation's exposure to credit risk is mainly influenced by the characteristics of each customer. The demographics of the Corporation's customer base, including the default risk of the industry and country in which the customer operates, have less of an influence on the credit risk. Generally, the Corporation does not require collateral or other security from customers for trade receivables; however, credit is extended following an evaluation of creditworthiness. In addition, the Corporation performs ongoing credit reviews of its customers and establishes an allowance for doubtful accounts when the likelihood of collecting the account has significantly diminished. The Corporation believes that the credit risk of trade receivables is limited. Annual Report 2019 | Stingray Group Inc. | 92 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The aging of trade receivable balances and the allowance for doubtful accounts as at March 31, 2019 and March 31, 2018 were as follows: Current Past due 0-30 days Past due 31-60 days Past due 61-90 days Past due more than 90 days Total trade receivables Less : allowance for doubtful accounts 2019 30,687 12,006 6,008 4,418 11,694 64,813 1,980 62,833 $ $ The movement in allowance for doubtful accounts in respect of trade receivables was as follows: Balance, beginning of year Addition through business acquisitions Bad debt expense Write-off against reserve Balance, end of year 2019 566 960 794 (340) 1,980 $ $ 2018 12,409 6,484 3,522 1,737 7,749 31,901 566 31,335 2018 474 – 741 (649) 566 $ $ $ $ The Corporation also has credit risk relating to cash and cash equivalents and other receivables. The Corporation manages its risk by transacting only with sound financial institutions. The carrying amounts of financial assets in the consolidated statements of financial position represent the Corporation's maximum credit exposure. LIQUIDITY RISK Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The Corporation also manages liquidity risk by continuously monitoring actual and budgeted cash flows under both normal and stressed conditions. Also, the Board of Directors reviews and approves the Corporation’s operating and capital budgets, as well as any material transactions out of the ordinary course of business, including proposals on mergers, acquisitions or other major investments or divestitures. The following are the contractual maturities of financial liabilities including estimated interest payments as at March 31, 2019: Credit facility Subordinated debt Accounts payables and accrued liabilities Other liabilities Total carrying amount Contractual cash flows Less than 1 year 1 to 5 years More than 5 years $ 312,955 49,539 $ 315,214 50,000 $ 14,086 – $ 301,128 50,000 $ – – 62,364 59,769 62,364 58,735 62,364 16,855 – 30,257 – 11,624 Annual Report 2019 | Stingray Group Inc. | 93 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) MARKET RISK Market risk is the risk that the changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Corporation's earnings or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimizing the return on risk. CURRENCY RISK The Corporation is exposed to currency risk on sales and expenses that are denominated in currencies other than the functional currency of the Corporation’s subsidiaries, primarily the US dollar (“USD”) and the euro (“EURO”). Also, additional earnings variability arises from the translation of monetary assets and liabilities denominated in currencies other than the functional currency of the Corporation’s subsidiaries at the rate of exchange at each balance sheet date, the impact of which is reported as a foreign exchange gain or loss in the consolidated statements of comprehensive income (loss). The Corporation's objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows, by transacting with third parties in the above currencies to the maximum extent possible and practical, given that this will act as natural economic hedges for each of these currencies. The Corporation's exposure to currency risk on its consolidated financial statements was as follows: Cash and cash equivalents Trade receivables Investments Credit facility Accounts payable and accrued liabilities Contingent consideration and balance payable on business acquisitions Net balance exposure Equivalent in Canadian dollars March 31, 2019 USD EURO March 31, 2018 USD EURO 794 11,562 12,046 (4,500) (1,347) (5,089) 13,466 17,995 1,238 7,116 – (7,200) (2,524) (3,356) (4,726) (7,090) 938 10,542 12,046 (14,150) (2,250) (10,365) (3,239) (4,176) 949 3,989 – – (1,061) (6,419) (2,542) (4,033) The following exchange rates are those applicable to the following periods and dates: 2019 2018 Average Reporting Average Reporting USD per CAD EURO per CAD 1.3343 1.5090 1.3363 1.5002 1.2926 1.5936 1.2894 1.5867 Based on the Corporation’s foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of the US dollar and EURO would have the following impacts on net income (loss), assuming that all other variables remained constant: Decrease (increase) in net loss Increase (decrease) in net income 919 – (334) – – (223) – (160) March 31, 2019 USD EURO March 31, 2018 USD EURO Annual Report 2019 | Stingray Group Inc. | 94 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) An assumed 5% weakening of the foreign currency would have had an equal but opposite effect on the basis that all other variables remained constant. INTEREST RATE RISK Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. The Corporation holds the majority of its cash and cash equivalents balance in accounts bearing interest at rates less than 1.25%. The Corporation is, therefore, not materially exposed to future cash flow fluctuations coming from changes in market interest rates for its cash and cash equivalents. Cash equivalents consist of term deposits with original maturities of less than three months and are, therefore, also exposed to interest rate risk on fair value. However, fair value risk is not significant, considering the relatively short term to maturity of these instruments. The credit facility is a variable interest rate instrument that is due in more than one year. This instrument is exposed to changes in future interest rates that could result in future cash flow fluctuations. To manage its interest rate risk, the Corporation entered into the following interest rate swap agreements during the year ended March 31, 2019: Maturity Currency Fixed interest rate Initial nominal value Mark-to-market liabilities as at March 31, 2019 October 25, 2021 October 25, 2024 CAD CAD 2.19% 2.29% $ $ $ 100,000 100,000 200,000 $ $ $ 841 2,157 2,998 Given the Corporation did not elect to apply hedge accounting, the mark-to market losses related to these interest rate swap agreements amounted to $2,998 was booked in net finance expense (income). 28. CAPITAL MANAGEMENT The Corporation’s objectives when managing capital are as follows: Pursue its growth strategy through acquisitions and organic growth by maintaining financial flexibility; and Provide the Corporation’s shareholders with an appropriate return on their investment. For capital management, the Corporation has defined its capital as the combination of net debt and total equity. Total managed capital is as follows: Contingent consideration, including current portion Balance payable on business acquisitions, including current portion Credit facility Cash and cash equivalents Net debt, including contingent consideration and balance payable on business acquisition Total equity 2019 12,430 3,359 312,955 (4,673) 324,071 287,535 611,606 $ $ 2018 15,596 9,321 38,627 (3,362) 60,182 129,607 189,789 $ $ The Corporation’s financing strategy is to maintain a flexible structure, to respond adequately to the changes in economic conditions and to allow growth through business acquisitions. The Corporation monitors its capital structure using the net debt to adjusted EBITDA ratio. Annual Report 2019 | Stingray Group Inc. | 95 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) In order to maintain or adjust the capital structure, the Corporation may adjust the amount of dividends paid to shareholders of the Corporation, issue or repay debt, issue shares or undertake any other activities as deemed appropriate under the specific circumstances, on a quarterly basis. 29. TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL AND RELATED PARTIES KEY MANAGEMENT PERSONNEL The key management personnel of the Corporation are the Chief Executive Officer, Chief Financial Officer and other key employees of the Corporation. Key management personnel compensation and director’s fees are as follows: Short-term employee benefits Share-based compensation Restricted and performance share units Deferred share units RELATED PARTIES 2019 4,497 630 811 – 5,938 $ $ 2018 4,350 921 557 911 6,739 $ $ Related parties of the Corporation include Directors and key management personnel, their family members and companies over which they have significant influence or control. The Corporation has transacted with related parties during the reporting period. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties having normal trade terms. During the year ended March 31, 2019, the Corporation recognized revenues amounted to $610 (2018 – nil) for advertising sold to companies controlled by directors of the Corporation. In addition, the Corporation sold a building and vacant lands to a company owned by a director of the Corporation for total consideration of $7,000. No gain or loss was recorded in the consolidated statement of comprehensive income as the assets were recognized at fair value through the purchase price allocation of NCC. Annual Report 2019 | Stingray Group Inc. | 96 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 30. BASIS OF PREPARATION A) STATEMENT OF COMPLIANCE The consolidated financial statements of the Corporation have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (''IASB''). The consolidated financial statements were authorized for issue by the Board of Directors on June 5, 2019. B) BASIS OF MEASUREMENT The consolidated financial statements have been prepared on the historical cost basis, except for the following:  Contingent consideration payable which is measured at fair value at each reporting period in accordance with IFRS 3;  Investments measured at fair value at year-end in accordance with IFRS 9;  Cost of defined benefit pension plans and present value of the net pension obligation measured at fair value in accordance with IAS 19;  Liabilities related to deferred share unit plan, restricted share unit and performance share unit plan measured at fair value at year-end in accordance with IFRS 2;  Equity stock options which are measured at fair value at date of grant pursuant to IFRS 2; and  Assets and liabilities acquired in business combinations are measured at fair value at acquisition date. C) FOREIGN CURRENCY TRANSLATION FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements of each of the subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (‘the functional currency’). The consolidated financial statements are presented in Canadian dollars, which is the Corporation’s functional and presentation currency. All financial information presented in Canadian dollars has been rounded to the nearest thousand. TRANSACTIONS AND BALANCES Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year end exchange rates are recognized in profit or loss. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency gains and losses are reported on a net basis. Annual Report 2019 | Stingray Group Inc. | 97 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) SUBSIDIARIES The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;  income and expenses for each statement of profit or loss and statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and  all resulting exchange differences are recognized in other comprehensive income. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate. 31. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all years presented in these consolidated financial statements and have been applied consistently by the Corporation’s subsidiaries. (A) BASIS OF CONSOLIDATION BUSINESS COMBINATIONS The Corporation measures goodwill as the excess of the fair value of the consideration transferred which includes the fair value of contingent consideration, over the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Corporation incurs in connection with a business combination are expensed as incurred. SUBSIDIARIES Subsidiaries are entities controlled by the Corporation. The Corporation controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. These consolidated financial statements include the accounts of the Corporation, Stingray Music USA Inc., Stingray Music Rights Management LLC, 2144286 Ontario Inc., 4445694 Canada Inc., Pay Audio Services Limited Partnership, Music Choice Europe Limited, Stingray Digital International Ltd., Stingray Europe B.V., Transmedia Communications SA, Think inside the box LLC (Nature Vision TV), SBA Music PTY Ltd., Stingray Music, S.A. de C.V., Novramedia Inc., DJ Matic NV and Stingray Radio Inc. (Newfoundland Capital Corporation Limited) and all these entities’ wholly-owned subsidiaries. Annual Report 2019 | Stingray Group Inc. | 98 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) INVESTMENT IN AN ASSOCIATE An associate is an entity over which the Corporation has significant influence. The Corporation has significant influence when it has the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control. The Corporation accounts for its investment in an associate using the equity method. Under the equity method, the investment is initially recognized at cost. Subsequent to initial recognition, the consolidated financial statements include the Corporation’s share of the earnings and losses of the associate until the date significant influence ceases. Distributions received from an associate reduce the carrying amount of the investment. The consolidated statements of comprehensive income (loss) include the Corporations’ share of any amounts recognized by its associate in other comprehensive income, if any. Intercompany balances between the Corporation and its associate are not eliminated. INTEREST IN JOINT VENTURE A joint venture is an arrangement whereby the Corporation and other parties that have joint control of the arrangement have rights to the net assets of the arrangement. TRANSACTIONS ELIMINATED ON CONSOLIDATION Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (B) FINANCIAL INSTRUMENTS FINANCIAL ASSETS AND FINANCIAL LIABILITIES The Corporation initially recognizes financial assets on the trade date at which the Corporation becomes a party to the contractual provisions of the instrument. On initial recognition, the Corporation classifies its financial assets as subsequently measured at either amortized cost or fair value, depending on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. If the financial asset is not subsequently accounted for at fair value through profit or loss, then the initial measurement includes transaction costs that are directly attributable to the asset’s acquisition or origination. Financial assets measured at amortized cost A financial asset is measured at amortized cost if both of the following conditions are met and is not designated as at fair value through profit and loss:  The asset is held within a business model whose objective is to hold the asset in order to collect contractual cash flows.  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. The Corporation currently classifies its cash and cash equivalents and trade and other receivables as financial assets measured at amortized cost. Financial assets measured at fair value All equity investments and other financial assets that do not meet the conditions to be classified as financial assets measured at amortized cost are measured at fair value through profit and loss. Changes therein, including any interest or dividend income, are recognized in profit or loss. Annual Report 2019 | Stingray Group Inc. | 99 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) The Corporation’s investments are classified as financial assets measured at fair value through profit and loss. The Corporation derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers not retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Corporation is recognized as a separate asset or liability. Financial liabilities The Corporation initially recognizes debt securities issued and subordinated liabilities on the date that they are originated. All other financial liabilities are recognized initially on the trade date at which the Corporation becomes a party to the contractual provisions of the instruments. Financial liabilities are initially measured at fair value. If the financial liabilities are not subsequently accounted for at fair value through profit or loss, then the initial measurement includes directly attributable transaction costs. The Corporation classifies all financial liabilities at amortized cost using the effective interest method, except for contingent consideration recorded at fair value through profit and loss and financial liabilities designated at fair value through profit or loss when doing so results in more relevant information. Such liabilities shall be subsequently measured at fair value. The Corporation derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. Financial assets and liabilities are offset and the net amount presented in the consolidated statements of financial position when, and only when, the Corporation has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Derivative financial instruments The Corporation use derivative financial instruments to manage its interest rate risk on its credit facility and does not use these instruments for speculative or trading purposes. The Corporation does not apply hedge accounting and therefore mark-to-market gains or losses are recognized in net finance expense (income). IMPAIRMENT OF FINANCIAL ASSETS At the end of each reporting year, the Corporation assesses whether there is any objective evidence that a financial asset or group of financial assets is impaired. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Corporation on terms that the Corporation would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, or the disappearance of an active market for a security. With respect to certain categories of financial assets, such as trade and other receivables, assets that are not individually determined to be impaired are measured for impairment on an aggregate basis. Objective evidence of impairment in the trade and other receivables portfolio may include the Corporation's past experience with debt recovery, an increased number of days exceeding payment terms in the portfolio, as well as a change - internationally or nationally - in economic conditions correlating with default payments in trade and other receivables. Annual Report 2019 | Stingray Group Inc. | 100 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) If there is objective evidence that an impairment loss on financial assets measured at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). The amount of the loss is recognized in profit or loss. If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor's credit rating), the previously recognized impairment loss is reversed. The reversal is recognized to the extent of the improvement without exceeding what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. The amount of the reversal is recognized in profit or loss. (C) REVENUE RECOGNITION Refer to Note 6. (D) RESEARCH AND DEVELOPMENT Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognized in profit or loss as incurred. Development costs, net of tax credits, are recognized in profit or loss as incurred, unless the costs can be measured reliably, the product or process is technically feasible, future economic benefits are probable and the Corporation intends to and has sufficient resources to complete the development and to use or sell the asset. In such a case, costs are recognized as internally developed intangible assets (see (m) intangible assets). (E) GOVERNMENT GRANTS Investment tax credits are accounted for as a reduction of the research and development costs during the year in which the costs are incurred, provided that there is reasonable assurance that the Corporation has met the requirements of the approved grant program and there is reasonable assurance that the grant will be received. The investment tax credits must be reviewed and approved by the tax authorities and it is possible that the amounts granted will differ from the amounts recorded. (F) LEASES AND PAYMENTS Operating leases are not recognized in the Corporation’s consolidated statements of financial position. Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease. Contingent lease payments are accounted for in the year in which they are incurred. (G) FINANCE INCOME AND FINANCE COSTS Finance income comprises interest income on funds invested, change in fair value of contingent consideration. Interest income is recognized as it accrues in profit or loss, using the effective interest method. Finance costs comprise interest expense on revolving facility, unwinding of the discount on provisions, change in fair value of derivatives and contingent consideration, amortization of deferred financing costs, foreign exchange (gain) loss and impairment losses recognized on financial assets. The Corporation recognizes finance income and finance costs as a component of operating activities in the consolidated statements of cash flows. Annual Report 2019 | Stingray Group Inc. | 101 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) (H) INCOME TAXES Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss except to the extent that they relate to a business combination, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for the following temporary differences:    temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; temporary differences relating to investments in subsidiaries, associates and joint arrangements to the extent that the Corporation is able to control the timing of the reversal of the temporary difference and it is probable that they will not reverse in the foreseeable future; and taxable temporary differences arising on the initial recognition of goodwill. A deferred tax asset is recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which they can be used. Deferred tax assets are measured at the end of each reporting year and their carrying amount is reduced to the extent that it is no longer probable that a taxable profit will be realized. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously. (I) EARNINGS PER SHARE Basic earnings per share are computed by dividing net earnings by the weighted average number of subordinate voting shares, variable subordinated voting shares and multiple voting shares outstanding during the year. Diluted earnings per share are computed using the weighted average number of common shares, subordinate voting shares, variable subordinated voting shares and multiple voting shares outstanding during the year adjusted to include the dilutive impact of stock options, restricted share units and deferred share units. The number of additional shares is calculated by assuming that all instruments with a dilutive effect are exercised and that the proceeds from such exercises, as well as the amount of unrecognized share-based compensation which is considered to be assumed proceeds, are used to repurchase subordinate voting shares, variable subordinated voting shares and multiple voting shares at the average share price for the year. For restricted share units, only the unrecognized share-based compensation is considered assumed proceeds since there is no exercise price paid by the holder. (J) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash on hand and balances with banks. Annual Report 2019 | Stingray Group Inc. | 102 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) (K) INVENTORIES Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the first-in, first-out cost method. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated selling expenses. (L) PROPERTY AND EQUIPMENT RECOGNITION AND MEASUREMENT Items of property and equipment are recognized at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset and the costs of dismantling and removing the item and restoring the site on which it is located, if any. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components). Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized in profit or loss. SUBSEQUENT COSTS The cost of replacing a part of an item of property and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Corporation, and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred. DEPRECIATION Depreciation is calculated over the cost of the asset less its residual value and is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives, unless it is reasonably certain that the Corporation will obtain ownership by the end of the lease term. The estimated useful lives for the current and comparative years are as follows: Property and equipment Building Broadcasting infrastructure Furniture, fixtures and equipment Computer hardware Leasehold improvements Period 20-60 years 8 to 25 years 3 to 10 years 4 to 6 years Lease term Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and adjusted if appropriate prospectively. Annual Report 2019 | Stingray Group Inc. | 103 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) (M) INTANGIBLE ASSETS, EXCLUDING BROADCAST LICENCES Intangible assets that are acquired by the Corporation and have finite useful lives are measured at cost less accumulated amortization and any accumulated impairment losses. The fair value of non-compete agreements acquired in a business combination are based on the discounted estimated revenues losses that have been avoided as a result of the non-compete being signed. The fair value of clients list and relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows. The fair value of music catalogs acquired in a business combination is determined using the estimated costs for creating such music catalogs. The fair value of trademarks acquired in a business combination is based on the discounted estimated future royalty payments that have been avoided. Amounts capitalized as internally developed intangible assets include the total cost of any external products or services and labour costs directly attributable to development. AMORTIZATION Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the definite life intangible assets. Internally developed intangible assets, net of related tax credits, are amortized starting from the date the products and services are commercialized. The estimated useful lives for the current and comparative years are as follows: Intangible assets Internally developed intangible assets Music catalog Client list and relationships Trademarks Licences, website applications and computer software Non-compete agreements Period 2 to 5 years 5 to15 years 3 to 15 years 2 to 20 years 1 to 11 years 2 to 11 years Estimates for depreciation methods, useful lives and residual values are reviewed at each reporting year-end and adjusted if appropriate prospectively. Annual Report 2019 | Stingray Group Inc. | 104 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) (N) BUSINESS COMBINATION, GOODWILL AND BROADCAST LICENCES Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at the acquisition date fair value. Acquisition costs incurred are expensed and included in acquisition, legal, restructuring and other expenses. The cost of a business combination is allocated to the fair value of the related net identifiable tangible and intangible assets. The excess of the cost of the acquired businesses over the fair value of the related net identifiable tangible and intangible assets acquired is allocated to goodwill. If the consideration is lower than the fair value of the net assets acquired, the difference is recognized in the consolidated statements of comprehensive income (loss). To receive approval to launch a new broadcast licence pursuant to applications made by the Corporation to the CRTC, the CRTC may require the Corporation to commit to fund Canadian Content Development (“CCD”) during the initial term of the licence over and above the prescribed annual requirements. These obligations are considered to be part of the costs related to the award of new broadcast licences and are recognized as a liability upon the launch of the new broadcast licence. Any other direct costs related to the award and launch of new broadcast licences are also capitalized as broadcast licences. CCD that arises from a business acquisition is considered a transaction cost and is expensed in the consolidated statements of comprehensive income (loss). After initial recognition, goodwill and broadcast licences are recorded at cost less any accumulated impairment losses. Both goodwill and broadcast licences have indefinite useful lives and are not amortized, but they are subject to an impairment evaluation. Broadcast licences are deemed indefinite life assets since they are renewed every seven years without significant cost, with the unlikely chance that the renewal will be denied; therefore, there is no foreseeable limit to the period over which broadcast licences are expected to generate net cash flows for the Corporation. (O) IMPAIRMENT OF NON-FINANCIAL ASSETS The Corporation reviews the carrying amount of its non-financial assets, which include intangible assets with a finite useful life and property and equipment on each reporting date in order to determine if specific events or changes in circumstances indicate that their carrying amounts may not be recoverable. The recoverable amount of goodwill and broadcast licences are tested for impairment each year at the same date, or more frequently if indications of impairment exist. For impairment testing purposes, assets that cannot be tested individually are grouped in CGUs. Goodwill is allocated to the CGU or CGU group that is expected to benefit from the synergies resulting from the business combination. Each unit or group of units to which goodwill is allocated shall not be larger than an operating segment and represents the lowest level at which goodwill is monitored for internal management purposes. An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Impairment losses are recognized in profit or loss. Impairment losses are first allocated to reduce the carrying amount of goodwill allocated to the CGU, and then to reduce the carrying amount of the other assets of the CGU on a pro rata basis. Annual Report 2019 | Stingray Group Inc. | 105 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) (P) PROVISIONS A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost. CONTINGENT LIABILITY A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Corporation; or a present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets, provision of services or any other transfer of economic benefits will be required to settle the obligation, or the amount of the obligation cannot be estimated reliably. (Q) EMPLOYEE BENEFITS SHORT-TERM EMPLOYEE BENEFITS Short-term employee benefits are expensed as the related service is provided. A liability is recognized for the amount expected to be paid if the Corporation has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Stock option plan The fair value at the grant-date of equity settled share-based payment awards granted to management and key employees of the Corporation is recognized as an employee benefit expense, with a corresponding increase in equity, over the vesting period of the awards. The amount expensed is adjusted to reflect the number of awards for which it is expected that the service conditions will be met, so that the amount ultimately expensed will depend on the number of awards that meet the service conditions at the vesting date. Restricted and performance share units and deferred share units plans Restricted share units, performance unit plan and deferred share units expected to be settled in cash are accounted for as cash settled awards, with the recognized compensation cost included in accounts payable and accrued liabilities. Compensation cost is initially measured at fair value at the grant date and is recognized in net income over the vesting year. The liability is remeasured based on the fair value price of the Corporation’s shares, at each reporting date. Remeasurements during the vesting year are recognized immediately to net income to the extent that they relate to past services and amortized over the remaining vesting year to the extent that they relate to future services. The cumulative compensation cost that will ultimately be recognized is the fair value of the Corporation’s shares at the settlement date. Annual Report 2019 | Stingray Group Inc. | 106 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) Employee share purchase plan The Corporation’s contributions, used to purchase shares on the open market on behalf of employees, are recognized when incurred as an employee benefit expense, with a corresponding increase in contributed surplus. The amount expensed is adjusted to reflect the number of awards for which it is expected that the vesting conditions will be met, so that the amount ultimately expensed will depend on the number of awards that meet the vesting conditions at the vesting date. Unvested shares held in trust on behalf of employees are treasury shares and therefore deducted from equity until they become vested. PENSION BENEFITS The Corporation maintains a defined contribution pension plan and defined benefit pension plans. The Corporation does not provide any non-pension post-retirement benefits to employees. Defined contribution pension plan The Corporation matches employee contributions under the defined contribution pension plan. Under this plan, contributions are funded to a separate entity and the Corporation has no legal or constructive obligation to pay further amounts. The Corporation’s portion is recorded as compensation expense as contributions are made, which coincides with the periods during which services are rendered by employees. Defined benefit pension plans The cost of providing benefits under the defined benefit pension plans is determined on an annual basis by independent actuaries separately for each plan using the projected unit credit costing method. Actuarial gains and losses for both defined benefit plans are recognized immediately in full in the period in which they occur in OCI. Actuarial gains and losses are not reclassified to the consolidated statements of income in subsequent periods. Past service costs are recognized in profit or loss on the earlier of: (i) the date of the plan amendment or curtailment, and (ii) the date that the Corporation recognizes restructuring-related costs. The discount rate is applied to the net defined benefit asset or liability to determine net interest expense or income. The Corporation recognizes the following changes in the net defined benefit obligation under operating expenses in the consolidated statements of income: (i) service costs comprising current service costs, past service costs, gains and losses on curtailments and settlements, and (ii) net interest expense or income. The value of any defined benefit asset recognized is restricted to the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. (R) SHARE CAPITAL Subordinate voting shares, variable voting shares and multiple voting shares are classified as equity. Incremental costs that are directly attributable to their issuance are recognized in reduction of equity, net of tax effects. Annual Report 2019 | Stingray Group Inc. | 107 Notes to Consolidated Financial Statements Years ended March 31, 2019 and 2018 (In thousands of Canadian dollars, unless otherwise stated) 32. NEW AND AMENDED STANDARDS NOT YET ADOPTED BY THE CORPORATION: IFRS 16 – Leases is required to be applied retrospectively for annual periods beginning on or after January 1, 2019 Effective April 1, 2019, the Corporation will adopt IFRS 16 using the modified retrospective approach. IFRS 16 set out new principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract. The standard provides lessees with a single accounting model for all leases and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying assets is of low value. In particular, lessees will be required to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. Assets and liabilities arising from a lease will be initially measured on a present value basis. As a result of adopting IFRS 16, the Corporation will recognize an increase to both assets and liabilities of the consolidated statements of financial position as well as a decrease to operating expenses (for the removal of rent expense for leases), an increase to depreciation, amortization and write-off (due to depreciation of the right-of-use asset) and an increase to net finance expense (income) (due to accretion of the lease liability). The Corporation is still assessing the impact of the new leasing standard on its consolidated financial statements. Annual Report 2019 | Stingray Group Inc. | 108 GLOSSARY OF TERMS TVideo On Demand (VOD): A system in which viewers choose their own filmed entertainment, by means of a PC or interactive TV system, from a wide selection. Subscription Video On Demand (SVOD): Refers to a service that gives users unlimited access to a wide range of programs for a monthly flat rate. The users have full control over the subscription, and can decide when to start the program. Over the top (OTT): Refers to film and television content provided via a high-speed Internet connection rather than a cable or satellite provider. 4K UHD: Ultra-high-definition (UHD) television, also abbreviated UHDTV, is a digital television display format in which the horizontal screen resolution is on the order of 4000 pixels (4K UHD). Pay TV: Television broadcasting in which viewers pay by subscription to watch a particular channel. IPTV: Internet Protocol television (IPTV) is the process of transmitting and broadcasting television programs through the Internet using Internet Protocol (IP). Satellite TV: Television broadcasting using a satellite to relay signals to appropriately equipped customers in a particular area. ANNUAL GENERAL MEETING OF SHAREHOLDERS The Annual General Meeting will be held on August 7, 2019 at: Stingray Headquarters 730 Wellington Street 8th Floor Montreal, Quebec H3C 1T4 PROVISIONAL CALENDAR OF RESULTS First quarter of 2020 August 7, 2019 Second quarter of 2020 November 7, 2019 Third quarter of 2020 February 6, 2019 Fourth quarter of 2020 June 4, 2020 STOCK EXCHANGE TSX: RAY.A and RAY.B TRANSFER AGENT AST Trust Company 2001 Boulevard Robert-Bourassa Suite 1600 Montreal, Quebec H3A 2A6 Canada 1-514-285-8300 or 1-800-387-0825 help@astfinancial.com www.astfinancial.com Annual Report 2019 | Stingray Group Inc.

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