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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| 7digital Group Plc | LSE:7DIG | London | Ordinary Share | GB00BMH46555 | ORD 0.01P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.69 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2022 to Apr 2024
TIDM7DIG
RNS Number : 7240Q
7digital Group PLC
30 June 2022
30 June 2022
7digital Group plc
("7digital", the "Group" or the "Company")
Final Results
Publication of Annual Report
7digital (AIM: 7DIG), the global leader in B2B end-to-end digital music solutions, announces its final results for the year ended 31 December 2021 and an update on its post year performance.
Post Year End Highlights
-- In the first six months of 2022, the Group has already secured contracted licensing revenue for the full year that exceeds total 2021 licensing revenue by 21%
-- In May 2022, adjusted EBITDA was profitable -- Signed a GBP0.5m shareholder loan and continued support from the major shareholders
-- Secured two new licensing customers, including a contract worth at least GBP1m with a pan-Asian consumer services company, and 8 contract expansions or extensions
-- As also announced today, the Group has entered into an agreement that expands the Company's revenue-generating opportunities with eMusic Live
2021 Financial Highlights
-- Revenue increased to GBP6.7m (2020: GBP6.5m) -- Gross margin of 64.2% (2020: 63.4% adjusted*) -- Adjusted EBITDA loss of GBP2.0m (2020: GBP1.9m adjusted*) -- Operating loss of GBP3.6m (2020: GBP2.1m) -- Loss per share of 0.14p (2020: 0.05p) -- Cash and cash equivalents of GBP0.4m at 31 December 2021 (31 December 2020: GBP2.8m)
*2020 adjusted for a GBP500k content accrual release - see note 1 to the financial statements
2021 Operational Highlights
-- Secured 11 new licensing customers and 13 contract expansions or extensions
-- Signed a multi-year renewal with a global technology company across multiple territories - a major validation for the scale and reach of 7digital's platform
-- Strategic expansion continued in key growth markets of fitness and wellness, social media and artist monetisation and begun fruitful discussions with gaming companies
o Multi-year contracts with fitness companies Barry's, Volava, Stryde and others
o Signed contract with Kuaishou, a leading content community and social platform based in China
o eMusic Live, one of the most advanced live streaming technology platforms worldwide and in close partnership with the Group, has partnered with further artists, agencies and venues to provide new monetisation opportunities for the music industry
-- Platform has now hosted 159 performances in total, including livestream and hybrid events from major artists
-- Became the first and only music livestream platform to offer artist non-fungible tokens (NFTs) alongside ticketed events running on the platform
-- Partnerships established, post year end, with AEG Presents, the world's largest live entertainment company, and iHeartMedia, the largest audio company in the US
Paul Langworthy, CEO of 7digital, said: "2021 was not the year we had hoped for, however we made great progress with the delivery of our strategy to focus on core growth sectors in our licensing business and on artist monetisation. In fitness and social media, 7digital has established a position as the go-to provider for music services. Our eMusic Live livestream platform hosted some of the world's most renowned artists and developed new monetisation opportunities. While at times the licensing process has taken longer than initially anticipated, we have demonstrated our value to our customers by helping them navigate these challenges. As a result, we grew our revenue and, more importantly, substantially expanded our customer base, contracted order book and our pipeline for going forward, which has translated to our contracted licensing revenue for 2022 already surpassing our 2021 amount by 21% just in the first six months.
"Furthermore, with this momentum continuing into the new year, assuming anticipated notable conversions of our pipeline into contracts, we continue to expect to deliver meaningful revenue growth in 2022. At the same time, the emergence of new digital platforms and formats are redefining how consumers engage with music and creating new sources of growth. Our offering is already well-positioned to leverage these trends, which provide a compelling platform for 7digital to become the leading provider of artist services globally. As a result, the Board remains confident in the outlook for the business and in the opportunities ahead."
Publication of Annual Report
The Company has today published its 2021 Annual Report and Accounts. The Annual Report is available to download from the investor relations section of the 7digital website at www.7digital.com/reports/ and is being posted to shareholders.
Enquiries
Hot Features
Premium
7digital Group plc
Paul Langworthy c/o +44 20 7618
9100
Strand Hanson Limited (Nominated and Financial
Adviser)
+ 44 (0) 20 7409
Richard Johnson, James Harris, James Bellman 3494
Arden Partners plc (Broker)
+44 (0) 20 7614
Ruari McGirr 5900
Luther Pendragon (Financial PR)
+44 (0) 20 7618
Harry Chathli, Claire Norbury 9100
7digitalIR@luther.co.uk
About 7digital
7digital is the global leader in B2B end-to-end digital music solutions, providing a scalable cloud-based platform that enables companies and brands to connect to its global music catalogue and rights management system to launch and manage unique and engaging music experiences. Operating worldwide in over 80 markets and integrated with more than 300,000 labels and publishers, 7digital's platform automates the complex and time-consuming processes of music management, making it easier to access and use music in streaming services, social media, home fitness, gaming, retail and more. With best-in-class infrastructure, deep industry expertise and intelligence tools, 7digital empowers their clients to innovate, grow and serve tomorrow's music consumer. For more information, visit http://www.7digital.com/ .
Operational Review
In 2021, 7digital progressed the delivery of its new strategy that was established in the previous year to focus on core sectors in its licensing business and on artist monetisation, which the Group believes offers significant growth potential. The Group's success is demonstrated by the substantial increase in its contracted order book at year end compared with when it entered the year, as well as the expansion in its pipeline.
Total revenue increased to GBP6.7m (2020: GBP6.5m), which included good growth in the Group's licensing business. '
In the Group's licensing business, which is the largest contributor to its revenue and increasingly so, 7digital is focusing on the strategic growth markets of fitness and wellness and social media and expanding its presence into gaming. During the year, 7digital signed 11 new customers (2020: 5). The Group also secured contract extensions with 13 existing customers (2020: 4) - of which 10 included fee expansions, reflecting the value of 7digital's platform and services to its customers. Many of these new and renewed contracts are multi-year agreements, which enhances visibility over future revenues.
During the year 7digital actively worked with its partners to facilitate the licensing process for customers. The music-as-a-service platform provides customers with access to pre-approved music in the Group's global catalogue based on the licensing agreements held by those customers with music labels. As noted previously, the licensing process in some of these new sectors has taken longer than initially anticipated, resulting in a right-shift in the timing for some of the Group's expected revenue. However, by supporting customers and partners in finding opportunities to streamline the process, 7digital can enhance its offering to customers and reduce the sales cycle for securing its own contracts going forward.
7digital also continued to enhance its music-as-a-service platform and increase its offer to global brands through establishing several pre-built integrations that enable customers to easily access complementary services from other providers.
The Group's eMusic Live virtual concert and artist monetisation platform that launched last year in collaboration with eMusic.com, Inc. ("eMusic") has continued to grow, entering partnerships with further artists, agencies and venues as the music industry increasingly seeks new engagement and monetisation opportunities. During the year, eMusic Live livestreamed events globally with some world-renowned artists while also evolving the digital merchandising platform, including the first offering of NFTs alongside ticketed events.
As a result, 7digital ended the year in a far stronger position than when it started, with exciting prospects ahead.
Fitness and Wellness
7digital's solution for fitness and wellness brands enables customers to seamlessly incorporate music into their offering and it is designed to make it easy to maximise the benefits of music. Based on 7digital's music-as-a-service platform, it provides features such as end-to-end global rights and reconciliation management, access to the Group's global catalogue and an easy-to-use playlisting tool. The Group believes that it has established a dominant position in this global growth market.
During the year, 7digital converted multiple sales leads into long-term contracts - adding seven new fitness and wellness companies to its customer base. In particular, the Group continued to grow its roster of home fitness clients, signing contracts with:
-- Barry's, the global fitness brand, which is using 7digital's instructor playlisting tool in the US and Canada to access a fully cleared catalogue of music to power Barry's X, a new digital product offering a fully integrated, many-to-many camera-on experience.
-- FORME, a premium home fitness system that delivers one-on-one fitness experiences through elegant, full-length mirrors that transform into immersive personal training studios.
-- Stryde, a provider of immersive cardio and strength workouts on a high-performance bike in the home, which is using 7digital's platform in the US to access fully rights-cleared music that can be synchronised with video programmes and made available on-demand.
-- Volava, a European interactive fitness platform that is using 7digital's solution for its bike-based online fitness offering in Spain.
-- Mentra by SATS, a new live and on-demand home workout experience from SATS, which is the leading provider of fitness and training services Nordics-wide.
7digital also expanded its offer into the wider health and wellness market with the signing of 24-month contracts with MedRhythms, a US-headquartered digital therapeutics company that uses sensors, music and software to measure and improve walking, and a second company that is creating a music-based health application for people with dementia. Both customers will use the Group's music-as-a-service platform to access its licensed catalogue and playlisting tool to design their interactive and therapeutic experiences.
Social Media
7digital is helping to shape how fans discover, share and create music by powering rights-cleared music on social media platforms. The Group made strong progress during the year in this sector with the signing of a contract with Kuaishou, a leading content community and social platform based in China. This reinforced 7digital's position as one of the largest providers of licensed music to global social media giants and tech-driven consumer brands.
The Group also continued its long-standing relationships with other customers in the social media sector, such as Triller Inc. Triller, which works with some of the biggest global artists and counts Snoop Dogg, The Weeknd, Marshmello and Lil Wayne as strategic investors, is an AI-powered app that allows users to choose their favourite music to create auto-edited, professional-quality videos that can be published on the app or shared via other social media channels.
eMusic Live & Artist Monetisation
7digital continues to drive new sources of growth in the music industry through its eMusic Live venture. This advanced live streaming platform enables artists, venues and brands to host live concerts while providing a range of commercial and fan engagement tools, offering new ways to monetise performances and engage with global audiences. Post year end, as also announced today, the Group entered into an agreement with eMusic regarding eMusic Live that strengthens the partnership while expanding the Company's revenue-generating opportunities.
eMusic Live has now hosted 159 livestream and hybrid events. During the year this included performances by multiple-award winning artists such as Crowded House and Tina Arena in Australia and Ivri Lider in Israel, with the latter two becoming among the first artists globally to host live-digital hybrid events where fans can stream a concert in real time.
Additionally, eMusic Live became the first livestream service to offer artist NFTs alongside ticketed events running on the platform. This allows fans to own authentic digital merchandise while substantially increasing artists' monetisation ability.
Post year end, eMusic Live announced a strategic relationship with AEG Presents, the world's largest live entertainment company and an authority in live music. In this milestone achievement, eMusic Live partnered with AEG Presents to exclusively livestream Hangout Music Festival and Cali Vibes Festival, featuring some of the world's biggest artists. These events achieved unprecedented scale and success, with over 500,000 views by fans in 73 countries who streamed millions of minutes of showtime. With a portfolio of premier music festivals, marquee concert venues, and in-house content development, the company has a multinational reach, promoting festivals and tours across Europe, Asia and North America. Hangout Music Festival is but one of the festivals that AEG Presents promotes, with others including Coachella Music & Arts Festival and Stagecoach in the US, as well as All Points East and American Express presents BST Hyde Park in the UK. This international reach leaves this partnership open to further expansion, and 7digital is very excited about its potential.
In addition, eMusic Live also announced a partnership with iHeartMedia, the largest audio company in the US, to livestream the star-studded line-up at the 2022 iHeartCountry Festival, including performances from Carrie Underwood and Maren Morris. With over a quarter of a billion monthly listeners, the iHeartMedia Multiplatform has an extensive reach in the US. In addition to the hottest country superstars, the livestream platform also featured music, brand sponsorships, and exclusive behind-the-scenes VIP content and interviews.
Other Key Music Licensing Contracts
In other verticals, 7digital won three new music streaming services customers. This includes signing a 36-month contract with Viihdeväylä Oy, a Finnish company that provides background music and playlisting curation to restaurants.
The Group was delighted to sign an extended contract continuing into 2023 with its global technology company customer. This is a highly significant deal and represents a major validation of the scale and reach of 7digital's platform.
7digital also secured renewals with existing customers such as media company Global Radio, owner of the largest commercial radio company in Europe.
Post year end, 7digital signed a significant contract expansion with an existing B2B music streaming service customer, which is worth a minimum of EUR2.2m over a three-year period. The Group also signed a new two-year contract worth at least GBP1m with a pan-Asian consumer services company to provide access to its global catalogue, full licence compliance management and curation via its playlisting tool. In addition, 7digital won a 24-month contract with a new music and data platform designed to better meet the monetisation needs of the rightsholder community. The customer expects to launch the service later in 2022.
New Integrations and Partnerships
7digital has continued to enhance its platform and increase its offer to global brands through establishing pre-built integrations that enable customers to easily access complementary services from other providers. During the year, the Group established new integrations and partnerships with:
-- Super Hi-Fi, an audio technology company using AI-based technologies to deliver next-generation music listening experiences. The integration of Super Hi-Fi's audio stitching and automated content curation technology allows customers to add a critical layer of differentiation and customised listening features to their music services when they access their music catalogue via 7digital's platform.
-- Muzooka, a leading verified artist asset database, so that content delivered via 7digital's music-as-a-service platform is pre-mapped with Muzooka's pre-approved database of artist images, links and other media assets.
-- ACRCloud to produce a solution around User Generated Content ("UGC") monitoring. The partnership pairs 7digital's catalogue with ACRCloud's leading fingerprint database of over 100 million tracks to create a simpler, more accurate and cost-effective process for companies wishing to monitor and report on UGC.
Financial Review
The Group's revenue for 2021 was GBP6.7m compared with GBP6.5m in 2020.
Licensing revenue continued to be the largest contributor to Group revenue, accounting for 56.4% (2020: 51.5%), with 30.8% provided by Content (2020: 32.0%) and 12.8% by Creative (2020: 16.5%).
Gross margin for 2021 was 64.2% (2020: 71.1% as stated; 63.4% before GBP500k of content accruals was released to cost of sales, see note 1 to the financial statements). Gross profit for the year was GBP4.3m (2020: GBP4.6m as stated; GBP4.1m before GBP500k content accrual release).
Administration expenses increased by GBP0.6m to GBP8.0m (2020: GBP7.4m).
Operating loss relating to ongoing operations for 2021 increased to GBP3.6m (2020: GBP2.1m loss) primarily due to the increase in 2021 costs relating to grant of share options of GBP481k and with no equivalent in 2021 of the 2020 releases of GBP878k relating to a) GBP500k content accrual release and b) GBP378k profit from the sale of a right-of-use asset. Adjusted EBITDA loss increased to GBP2.0m (2020: GBP1.4m loss as stated; restated to GBP1.9m before GBP500k content accrual release). Loss before tax on ongoing operations increased to GBP3.8m (2020: GBP2.3m).
Loss per share on ongoing operations was 0.14 pence (2020: 0.09 pence loss). Loss per share attributable to shareholders was 0.14 pence (2020: 0.05 pence loss).
Revenue 2021 2020 2020 Change Change
reported reported adjusted*
GBP'000 GBP'000 GBP'000
%
Licensing 3,797 3,355 3,355 442 13%
Content 2,073 2,085 2,085 -12 -1%
Creative 862 1,073 1,073 -211 -20%
---------- ---------- ----------- ------- -------
Total Revenue 6,732 6,513 6,513 219 3%
---------- ---------- ----------- ------- -------
Gross Profit 4,323 4,632 4,132 191 5%
Gross Margin % 64.22% 71.12% 63.44% 0.78%
---------- ---------- ----------- ------- -------
*adjusted for GBP500k content accrual release (see note 6 to the financial statements)
Administrative Expenses 2021 2020 Change %
GBP'000 GBP'000
Underlying Administrative
Expenses 7,460 6,950 510 7.34%
Other Adjusted Administrative
Expenses 509 465 44
--------- --------- -------
Total Administrative
Expenses 7,969 7,415 554 7.47%
--------- --------- -------
Licensing revenue 56.4% 51.5%
Content 30.8% 32.0%
Creative 12.8% 16.5%
Total Revenues 100.0% 100.0%
Adjusting items
Other adjusting items for the year totalled GBP509k (2020: GBP465k) of which GBP153k related to consultancy costs connected to the eMusic Live collaboration where the Group contracted directly with the suppliers, GBP112k provision for the uncertain recoverability of the cash advances made to the eMusic Live collaboration, GBP93k related to exceptional legal litigation fees, GBP65k for corporate restructuring costs and GBP86k for technology costs that may be payable in the future.
Funding
On 18 October 2021, the Group negotiated a further GBP1m secured revolving credit facility ("RCF") with Investec, for the period to 28 September 2023, aligned with the initial GBP1m taken out on 28 September 2020 for 36 months. The funds drawn under the RCF attract interest, payable quarterly, at 6% above the Bank Base Rate. The Company issued 5,437,883 warrants to Investec with an exercise price of 0.55 pence in part satisfaction of an arrangement fee. The RCF is secured by way of a debenture from the Company together with guarantees provided by certain shareholders, including Tamir Koch and David Lazarus, each a Board Director (see note 19 to the financial statements).
Post year end, in June 2022, the Group entered into an agreement with a major shareholder for a 13-month loan of up to GBP0.5m. The funds drawn attract interest, to be rolled up and payable on the date of repayment of the loan, at 6% above the Bank of England's base rate from time to time. In addition, the Group has received letters of support from major shareholders for the provision of further loans of up to GBP3.5m, expiring 30 June 2023.
Cash and Cash Flow
As at 31 December 2021, the Group had a cash balance of GBP0.4m (31 December 2020: GBP2.8m).
Net cash outflows during the year totalled GBP2.4m (2020: GBP3.0m inflow), which was largely driven by an operating cash outflow of GBP3.4m and in-house development of the Company's API platform of GBP0.5m partly offset by the net cash inflows from the Investec funding of GBP1.7m.
Material Uncertainty related to Going Concern
As discussed in note 1 to the financial statements, the Board of Directors of 7digital consider the Company to be a going concern, but acknowledge there to be a material uncertainty relating to going concern. The independent auditors' report is not modified in respect of this matter. The financial statements do not include any adjustments that would result if the Company were unable to continue as a going concern. For further details, refer to the 'Going Concern' section in note 1 to the financial statements.
Outlook
7digital entered 2022 with a substantially higher contracted order book than at the same point of the previous year and with a strong pipeline in its core sectors as well as a number of prospective contracts in the new sectors of gaming and connected-car entertainment. The Group has had some notable conversions of its pipeline into contracts this year and has already secured contracted licensing revenue for full year 2022 that is 21% greater than that achieved for 2021. The Board is confident that some of the other prospective contracts, including those representing significant revenue, will be signed in the near-term with others to follow in due course.
As a result, the Board continues to expect to deliver significant revenue growth in 2022.
The music industry continues to be transformed by the emergence of new digital platforms and formats, which are redefining how consumers engage with music and creating new sources of growth. This is evident across fitness and social media - two markets in which 7digital has established a position as the go-to provider for music services. It is also a key driver for 7digital's eMusic Live venture, through which artists can distribute, promote and monetise their music beyond traditional streaming with direct-to-fan opportunities such as NFTs, livestreaming and merchandise. This provides a compelling platform for 7digital to become the leading provider of artist services globally.
Coupled with the Group generating positive EBITDA for May 2022, the Board remains confident in the outlook for the business and in the opportunities ahead.
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2021
Year Year to
to 31 31 Dec
Dec 2021 2020
Notes GBP'000 GBP'000
Continuing operations
Revenue 2 6,732 6,513
Cost of sales (2,409) (1,881)
Gross profit 4,323 4,632
Other Income 5 - 644
Administrative expenses (7,969) (7,415)
Adjusted operating loss 6 (2,527) (1,396)
- Share based payments 27 (556) (99)
- Foreign exchange (54) (179)
- Other adjusting items 3 (509) (465)
--------------------------------------------- ------ ---------- --------
Operating loss 4 (3,646) (2,139)
Finance income and cost 9 (273) (136)
---------- --------
Loss before income tax (3,919) (2,275)
Taxation on continuing operations 10 - 1
---------- --------
Loss from continuing activities (3,919) (2,274)
Profit from discontinued operations 15 - 987
Loss for the year attributable to owners
of the parent company (3,919) (1,287)
========== ========
Loss per share (pence)
Basic and diluted - loss from continuing
operations 11 (0.14) (0.09)
Basic and diluted - loss attributable
to ordinary equity holders 11 (0.14) (0.05)
========== ========
Consolidated Statement of Comprehensive
Income
Year Year to
to 31 31 Dec
Dec 2021 2020
Notes GBP'000 GBP'000
Loss for the year (3,919) (1,287)
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations 23 5 (149)
----------
Other comprehensive loss (3,914) (1,436)
Total comprehensive loss attributable
to owners of the parent company (3,914) (1,436)
========== ========
The accompanying notes form part of the financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
2021 2020
Notes GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 12 559 287
Property, plant and equipment 13 114 97
Right-of-use assets 14 - 1,184
673 1,568
--------- ---------
Current assets
Trade and other receivables 16 698 1,347
Contract assets 70 86
Cash and cash equivalents 363 2,839
1,131 4,272
--------- ---------
Total assets 1,804 5,840
--------- ---------
Current liabilities
Trade and other payables 17 (4,781) (5,754)
Derivative liability 18 (46) (71)
Contract liabilities 2.1 (288) (164)
Lease liability 14 - (670)
Provisions for liabilities and charges 20 (697) (858)
(5,812) (7,517)
--------- ---------
Net current liabilities (4,681) (3,245)
--------- ---------
Non-current liabilities
Loans and borrowings 19 (2,000) (250)
Contract liabilities 2.1 (77) (8)
Lease liability 14 - (660)
Provisions for liabilities and charges 20 - (109)
(2,077) (1,027)
--------- ---------
Total liabilities (7,889) (8,544)
--------- ---------
Net liabilities (6,085) (2,704)
========= =========
Equity
Share capital 22 14,844 14,844
Share premium account 22 17,705 17,705
Other reserves 23 (3,361) (3,899)
Retained earnings (35,273) (31,354)
Total deficit (6,085) (2,704)
========= =========
The accompanying notes form part of the financial statements
CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 December 2021
Year Year to
to 31 31 Dec
Dec 2021 2020
Notes GBP'000 GBP'000
Loss for the year (3,919) (1,287)
Adjustments for:
Taxation 10 - (1)
Finance Cost 9 273 136
Loss/(profit) on sale of right-of-use
asset 14 5 (378)
Profit on disposal of subsidiary undertaking 15 - (987)
Foreign exchange 4 54 179
Amortisation of intangible assets 12 173 30
Amortisation of right-of-use asset 14 328 291
Depreciation of fixed assets 13 54 52
Share based payments 27 556 99
(Decrease)/increase in provisions 20 (893) 199
(Decrease) in accruals and deferred income (155) (937)
Decrease in trade and other receivables 672 453
(Decrease) in trade and other payables (550) (116)
---------- --------
Cash flows used in operating activities (3,402) (2,267)
Taxation 10 - 1
Interest expense paid 9 (231) (91)
Net cash used in operating activities (3,633) (2,357)
Investing activities
Purchase of property, plant and equipment,
and intangible assets (516) (415)
Proceeds from sale of intangible and - -
tangible fixed assets
---------- --------
Net cash used in investing activities (516) (415)
---------- --------
Financing activities
Proceeds from issuance of share capital
(net) - 5,689
Proceeds from bank loans 19 1,750 250
Principal paid on lease liabilities 14 (28) (149)
Net cash generated from financing activities 1,722 5,790
---------- --------
Net decrease in cash and cash equivalents (2,427) 3,018
Cash and cash equivalents at beginning
period 2,839 149
Effect of foreign exchange rate changes (49) (328)
Cash and cash equivalents at end of
year 363 2,839
========== ========
The accompanying notes form part of the financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Notes Share Share Reverse Foreign Merger Shares Retained Total
capital premium acquisition exchange reserve based earnings
account reserve translation payment
reserve reserve
(note (note (note (note
23) 23) 23) 23)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2021 14,844 17,705 (4,430) 70 - 461 (31,354) (2,704)
Comprehensive
income/(loss)
for the year
Loss for the
year - - - - - - (3,919) (3,919)
Other
comprehensive
income - - - 5 - - - 5
-------- -------- ------------ ------------ -------- -------- --------- --------
Total
comprehensive
income/(loss)
for the year - - - 5 - - (3,919) (3,914)
Contributions
by and
distributions
to owners
Share issued 22 - - - - - - - -
(net of costs)
Share based
payments 27 - - - - - 503 - 503
Share warrants
issued 19 - - - - - 30 - 30
Total
contributions
by
and
distributions
to owners - - - - - 533 - 533
At 31 December
2021 14,844 17,705 (4,430) 75 - 994 (35,273) (6,085)
======== ======== ============ ============ ======== ======== ========= ========
The accompanying notes form part of the financial statements
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
Notes Share Share Reverse Foreign Merger Shares Retained Total
capital premium acquisition exchange reserve based earnings
account reserve translation payment
reserve reserve
(note (note (note (note
23) 23) 23) 23)
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 31 December
2019 14,817 12,043 (4,430) 219 959 407 (31,061) (7,046)
Prior year
adjustments - - - - - (61) 35 (26)
-------- -------- ------------ ------------ -------- -------- --------- --------
At 1 January
2020 14,817 12,043 (4,430) 219 959 346 (31,026) (7,072)
Comprehensive
income/(loss)
for the year
Loss for the
year -
restated - - - - - - (1,287) (1,287)
Disposal of
subsidiary
undertaking 15 - - - - (959) - 959 -
Other
comprehensive
income - - - (149) - - - (149)
-------- -------- ------------ ------------ -------- -------- --------- --------
Total
comprehensive
income/(loss)
for the year - - - (149) (959) - (328) (1,436)
Contributions
by and
distributions
to owners
Share issued
(net of costs) 22 27 5,662 - - - - - 5,689
Share based
payments -
restated 27 - - - - - 89 - 89
Share warrants
issued 19 - - - - - 26 - 26
Total
contributions
by
and
distributions
to owners 27 5,662 - - - 115 - 5,804
At 31 December
2020 14,844 17,705 (4,430) 70 - 461 (31,354) (2,704)
======== ======== ============ ============ ======== ======== ========= ========
The accompanying notes form part of the financial statements
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2021
1. Accounting policies
General information
7digital Group plc is a public company, limited by shares and incorporated in the United Kingdom (England and Wales) under the Companies Act 2006. The address of the registered office is Labs Lower Lock, Water Lane, London, NW1 8JZ.
The Group prepares its consolidated financial statements in accordance with UK-adopted International Financial Reporting Standards ("IFRS"). The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies set out below have been consistently applied to all the periods presented in these financial statements; except as stated below.
Basis of Preparation
Statutory accounts for the year ended 31 December 2021 have been delivered to the Registrar of Companies. The financial information for the year ended 31 December 2021 contained in these results has been audited.
The financial information contained in these results has been prepared using the recognition and measurement requirements of UK-adopted International Financial Reporting Standards ("IFRS"). The accounting policies adopted in these results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2021. New standards, amendments and interpretations to existing standards, which have been adopted by the Group for the year ended 31 December 2021, have been listed below.
New standards and interpretations
New standards
New standards that have been adopted in the annual financial statements for the year ended 31 December 2021, but have not had a material effect on the Group are:
-- IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Disclosure Initiative - Definition of Material); and
-- Revisions to the Conceptual Framework for Financial Reporting. a) New standards, interpretations and amendments not yet effective.
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January 2022:
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37); -- Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
-- References to Conceptual Framework (Amendments to IFRS 3).
In January 2020, the IASB issued amendments to IAS 1, which clarify the criteria used to determine whether liabilities are classified as current or non-current. These amendments clarify that current or non-current classification is based on whether an entity has a right at the end of the reporting period to defer settlement of the liability for at least twelve months after the reporting period. The amendments also clarify that 'settlement' includes the transfer of cash, goods, services, or equity instruments unless the obligation to transfer equity instruments arises from a conversion feature classified as an equity instrument separately from the liability component of a compound financial instrument. The amendments were originally effective for annual reporting periods beginning on or after 1 January 2022. However, in May 2020, the effective date was deferred to annual reporting periods beginning on or after 1 January 2023.
The Group does not expect any of the standards issued by the IASB, but not yet effective, to have a material impact on the Group.
Going concern
The Group made a loss before/after tax of GBP3,919k in the year (2020: GBP1,287k) and at the year-end had a net current liability position of GBP4,681k. The pressure on short-term working capital combined with a reliance on anticipated revenue growth which is sensitive to factors outside the Group's control, as well as the risk that the Group's sales targets may not be met, indicate that a material uncertainty exists in relation to the timing of future cash inflows and cash outflows that may cast significant doubt on the Group's ability to continue as a going concern.
Taking the reasonable worst-case scenario that has been considered by the Directors, and if the Group is unable to raise finance from alternative sources, the Group is reliant on continued support from existing shareholders of up to GBP4m to ensure it can meet its liabilities as they fall due. Whilst the Group has had success with raising funds in the past, there is no certainty over future funding. Within the pledged GBP4m of shareholder support, GBP0.5m is expected to be received soon after signing, in the form of a loan repayable in no less than 12 months from the date of drawdown.
Whilst the existing shareholders have demonstrated both the intent and ability to provide this support and have provided a letter of support to the Group, this support is not certain as it is not legally binding. The uncertainty over provision of this support, leads to the existence of a material uncertainty; should this support not be provided, significant doubt would be cast over the ability for the Group to continue trading as a going concern.
The Directors note that the Group has recently generated positive EBITDA and are optimistic that the Group will achieve its forecast revenue for 2022 and 2023.
Whilst the Directors acknowledge that the above material uncertainties exist at the balance sheet date, the Directors are confident that the Group's revenues, profits and therefore cashflow from operations will be in excess of the reasonable worst case scenario, and the shareholders who have pledged their support will provide this support as and when the Group requires it to ensure there is sufficient cash over a period of at least 12 months. On this basis, the Directors have prepared the financial statements on a going concern basis.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2021.
All subsidiaries are controlled by the Group and are included in the consolidated financial statements; the Group controls an investee if, and only if, the Group has:
-- Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities
of the investee)
-- Exposure, or rights, to variable returns from its involvement with the investee -- The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
-- The contractual arrangement(s) with the other vote holders of the investee -- Rights arising from other contractual arrangements -- The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships, such amounts are generally recognised in profit or loss.
Any contingent consideration payable is measured at fair value at the acquisition date, if an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
Loss of control
When the Group loses control over a subsidiary, it de-recognises the assets and liabilities of the subsidiary, and any non-controling interests and other components of equity. Any resulting gain or loss is recognised in the profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
Intra-Group balances and transactions, and any unrealised income and expenses arising from intra-Group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Revenue
The Group comprises of mainly three types of revenues
1) Licensing fees (also known as B2B sales)
a. Set-up Fees
b. Monthly development and support fees
c. Usage fees
2) Content ("download") revenues (also know as B2C sales)
3) Creative revenues
Each type of revenue is detailed below
Revenue comprises of:
I. Licensing revenues
7digital defines licensing revenues as fees earned both for access to the Group's platform and for development work on that platform in order to adapt functions to customer needs. The Board considers that the provision of Technology Licensing Services comprises three separately identifiable components:
The description of the licence fees compromise three categories;
1. Set-up fees : Set up fees which grant initial access to the platform, allow use of our catalogue and associated metadata and mark the start of work to define a client's exact requirements and create the detailed specifications of a service. Recognition of set-up fees is detailed below.
2. Monthly development and support fees which cover the costs of developer and customer support time. These are usually fixed and are paid monthly once a service has been specified in detail; they are calculated at commercial rates based on the number of developer or support days required. Recognition of these fees is detailed below.
3. Usage fees which cover certain variable costs like bandwidth which can be re-charged to clients with an administrative margin are recognised at point in time based on usage.
II. Content ("download") revenues
Content revenues are recognised at the value of services supplied and on delivery of the content. The Group manages several content stores, and the income is recognised in the month it relates to. Majority of the revenue converts directly to cash; any accrued revenue converts to trade receivables within 30days.
III. Creative revenues
Creative revenues relate to the sale of programmes and other content. 7digital also undertakes bespoke radio programming for its customers. As the programmes are being created the associated revenue is recognised when the programme is delivered and accepted by the client. These mainly include the production of weekly radio programmes, as well as the one-off production of episodes.
In the case of one-off productions which required the Group to provide progress reports to its customers and where the Group has no alternative use of the programme produced, the Group recognises revenue over the period i.e., based on percentage of completion, for the rest of the regular programs and contents, where the Group does not own the IP, the Group measures the revenue based on delivery of the content i.e., at a point in time.
Contracts with multiple performance obligations
Many of the Group's contracts include a variety of performance obligations, including Licensing revenue (set-up fees, monthly revenue for using 7digital's API licence platform and usage fees), however these may not be distinct in nature. Under IFRS 15, the Group evaluates the segregation of the agreed goods or services based on whether they are 'distinct', if both the customer benefits from them either on its own or together with other readily available resources, and it is 'separately identifiable' within the contract.
To determine whether to recognise revenue, the Group follows a 5-step process:
- Identifying the contract with customers - Identifying the performance obligations - Determining the transaction price - Allocating the transaction price to the performance obligations - Recognising revenue when/ as performance obligations are satisfied
Performance Obligations and timing of revenue recognition
Revenue generated from B2B customer contracts often identify separate goods/services, with these generally being the access of the API license platform, and the associated monthly licence maintenance fees and content usage fees.
The list of obligations as per the contract that are deemed to be one performance obligation in case of Licensing revenue are (B2B):
- The licences provide access to the 7digital platform
- The development and support fees which cover the costs of developer and customer support time
- Usage fees which cover certain variable costs like bandwidth and content
A key consideration is whether Licensing fees give the customer the right to use the API Licence as it exists when the licence is granted, or access to API which will, amongst other considerations, be significantly updated during the API licence period.
The Group grants the customer a limited, revocable, non-exclusive and non-transferable licence in the Territory during the Term, to use the 7digital API and the content to enable the provision of the Music Service to the End Users via Application.
Set-up fees represent an obligation under the contract, which is not a distinct performance obligation, as the customer is not able to access the platform without them. These are therefore spread over the period of the contract agreed initially with the customers.
Monthly licence maintenance fees indicate service contracts that provide ongoing support over a period of time. Revenue is recognised over the term of the contract on a straight-line basis.
In the case of Creative Revenue, the sole performance obligation is to deliver the content specified as per contract, whether this be the delivery of regular content throughout the year (e.g., a radio series), or the production of a longer, one-off episode.
The only obligation for the Group is to deliver the content production agreed in the contract. Control and risks are passed to the customer on delivery of the episode produced, news bulletins etc. The right to the IP varies from project to project. If the customer suggests a specific programme idea to tender, they will then own the underlying rights of the recordings and the IPR is exclusive to the customer; 7digital's only performance obligation would be to produce the content.
In the case of one-off productions for an identifiable customer contract where 7digital is required to update the client on the progress of work completed, the Group applies an output method to determine the stage of completion and amount of revenue to recognise.
Payment terms vary depending on the specific product or service purchased. With licence fees, the set-up fees element is invoiced and paid upfront, while monthly maintenance revenues and usage fees are normally invoiced on a monthly basis. In the case of download sales, the cost is paid immediately by the customer upon download of the music/songs content from the 7digital platform. In the case of creative revenues, the payment terms are generally 50% on signing with the balance on delivery. All contracts are subject to these standard payment terms, to the extent that the parties involved expressly agree in writing that the conflicting terms of any agreement shall take precedence.
In the case of fixed-price contracts, the customer pays the fixed amount based on a monthly schedule. If the services rendered by the Group exceed the payment, a contract asset (Accrued Income) is recognised; if the payments exceed the services rendered, a contract liability (Deferred Revenue) is recognised.
Determine transaction price and allocating to each performance obligation
The transaction price for Licensing fees (set-up fees and monthly licence fee) is fixed as per contract and is explicitly noted in the contract. In the case of usage fees, the per gigabyte fee is determined and agreed in the contract. In the case of creative revenue, the transaction fees for radio services and one-off series are determined by taking into account the length of the production (this may vary for commercials, radio programs, tv shows, series, etc.). Any variations in transaction price are agreed and charged additionally depending on the obligations to be performed. None of the five factors (i.e. variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, non-cash consideration, and consideration payable to a customer identified) are particularly relevant to 7digital's customer contracts. The transaction price included in 7digital's contracts is generally easily identifiable and is for cash consideration.
Other adjusting items
Other adjusting items are those items the Group considers to be non-recurring or material in nature that should be brought to the readers' attention in understanding the Group's financial statements. Other adjusting items consist of one-off acquisition costs, costs related to non-recurring legal and statutory events, restructuring costs and other items which are not expected to re-occur in future years.
Foreign currency
For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions.
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items, are included in profit and loss for the year.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average monthly rate of exchange ruling at the date of the transaction, unless exchange rates fluctuate significantly during that month, in which case the exchange rates at the date of transactions are used.
Intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.
Intangible assets (Bespoke Applications) arising from the internal development phase of projects is recognised if, and only if, all of the following have been demonstrated:
- The technical feasibility of completing the intangible asset so that it will be available for use or sale
- The intention to complete the intangible asset and use or sell it - The ability to use or sell the intangible asset - How the intangible asset will generate probable future economic benefits
- The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
- The ability to measure reliably the expenditure attributable to the intangible asset during its development
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.
Internally generated intangible assets are amortised over their useful economic lives on a straight-line basis, over 3 years.
Property, plant and equipment
Items of property, plant and equipment are initially recognised at cost. As well as the purchased price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions.
Depreciation is provision on all items of property, plant and equipment, so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:
Property - 33.33% per annum straight line Computer equipment - 33.33% per annum straight line Fixtures and fittings - 33.33% per annum straight line
Impairment of tangible and other intangible assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e., the higher of value in use and fair value less costs to sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from a business combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.
Cash and cash equivalent
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Government grants
Government grants, including research and development and CJRS income and Furlough credits are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.
Financial instruments
Financial assets and financial liabilities are recognised when a Company becomes a party to the contractual provisions of the instruments.
Initial Recognition:
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss and ancillary costs related to borrowings) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are charged to the Statement of Profit and Loss over the tenure of the financial assets or financial liabilities.
Classification and Subsequent Measurement: Financial Assets
The Group classifies financial assets as subsequently measured at amortised cost, Fair Value through Other Comprehensive Income ("FVOCI") or Fair Value through Profit or Loss ("FVTPL") on the basis of following:
-- the entity's business model for managing the financial assets and
-- the contractual cash flow characteristics of the financial asset.
Amortised Cost:
A financial asset shall be classified and measured at amortised cost if both of the following conditions are met:
-- the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and
-- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
In case of financial assets classified and measured at amortised cost, any interest income, foreign exchange gains or losses and impairment are recognised in the Statement of Profit and Loss.
Fair Value through OCI:
A financial asset shall be classified and measured at fair value through OCI if both of the following conditions are met:
-- the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and
-- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Fair Value through Profit or Loss:
A financial asset shall be classified and measured at fair value through profit or loss unless it is measured at amortised cost or at fair value through OCI.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
For financial assets at FVTPL, net gains or losses, including any interest or dividend income, are recognised in the Statement of Profit and Loss.
Classification and Subsequent Measurement: Financial liabilities
Financial liabilities are classified as either financial liabilities at FVTPL or 'other financial liabilities'.
Financial Liabilities at FVTPL:
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or is a derivative (except for effective hedge) or are designated upon initial recognition as FVTPL.
Gains or Losses, including any interest expense on liabilities held for trading, are recognised in the Statement of Profit and Loss.
Other Financial Liabilities:
Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method.
The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost on initial recognition.
Interest expense (based on the effective interest method), foreign exchange gains and losses, and any gain or loss on derecognition is recognised in the Statement of Profit and Loss.
Impairment of financial assets:
Expected credit losses are recognised for all financial assets subsequent to initial recognition other than financial assets in FVTPL category. For financial assets other than trade receivables, as per IFRS 9, the Group recognises 12 month expected credit losses for all originated or acquired financial assets if at the reporting date the credit risk of the financial asset has not increased significantly since its initial recognition. The expected credit losses are measured as lifetime expected credit losses if the credit risk on financial asset increases significantly since its initial recognition.
Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process, the probability of the non-payment of the trade receivables is assessed. Thus, probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
The impairment losses and reversals are recognised in Statement of Profit and Loss.
De-recognition of financial assets and financial liabilities:
The Group de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises an associated liability for amounts it has to pay.
On de-recognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in OCI and accumulated in equity is recognised in the Statement of Profit and Loss.
The Group de-recognises financial liabilities when and only when, the Group's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability de-recognised and the consideration paid and payable is recognised in the Statement of Profit and Loss.
Financial liabilities and equity instruments:
-- Classification as debt or equity
Debt and equity instruments issued by the Group are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
-- Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a Group are recognised at the proceeds received.
Derivative financial instruments:
The Group enters into derivative financial instruments viz. a residual of the convertible loan instrument. The Group does not hold derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately.
Fair value measurement
A number of assets and liabilities included in the Group's financial statements require measurement at, and/or disclosure of, fair value.
The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):
- Level 1: Quoted prices in active markets for identical items (unadjusted)
- Level 2: Observable direct or indirect inputs other than Level 1 inputs
- Level 3: Unobservable inputs (i.e. not derived from market data)
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.
Share-based payments
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of an appropriate valuation model. The Black-Scholes option pricing model has been used to value the share options plans.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a charge attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.
The deferred tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Company operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and on unused tax losses or tax credits in the Company. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
-- leases of low value assets; and
-- leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease.
On initial recognition, the carrying value of the lease liability also includes:
-- amounts expected to be payable under any residual value guarantee;
-- the exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option; and
-- any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
-- lease payments made at or before commencement of the lease;
-- initial direct costs incurred; and
-- the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.
Critical accounting judgements and key areas of estimation uncertainty
In the application of the Group accounting policies, which are described above, the Directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revisions affect only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
Content cost of sales
The API platform has the ability to analyse the usage reports derived from download sales and which are distributed to the labels on a monthly basis and publishers on a quarterly basis. These usage reports assist management in calculating content cost of sales and content accruals. The label portion of the content accrual is correctly stated as usage reports agree to subsequent trade invoices processed. There is some uncertainty with regards the publisher accrual as publisher costs are based on complex annual calculations taking into account market share which are primarily determined by the publishing suppliers. Management considers the usage reports for the publisher element to be the most effective method of determining the true cost of publisher content. Using data usage reports, historical invoicing patterns and supplier confirmations, management have determined that there was no adjustment for prior years. As at 31 December 2020, GBP500k of historical accruals were released relating to prior periods, as this amount had previously been calculated on a different method with reference to the average cost per contract applied to sales.
Impairment of accounts receivables
The management and Directors have made certain estimates and judgements in the application of IFRS 9 when measuring expected credit losses and the assessment of expected credit loss provisions required for accounts receivable balances. (see note 16).
Capitalisation of internally developed software
Distinguishing the research and development phases of a new customised software project and determining whether the recognition requirements for the capitalisation of development costs are met, requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired.
2. Revenue
2.1 Revenue from contracts with customer
The Group has disaggregated revenue into various categories in the following table which is intended to:
-- depict how the nature, amount, timing and uncertainity of revenue and cash flows are affected by economic data; and
-- enable users to understand the relationship with revenue segments information provided in 2.2 below.
Licensing Content Creative Total
2021 2020 2021 2020 2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Primary Geographical Markets
UK 559 671 267 382 848 917 1,674 1,970
USA 1,492 1,513 737 683 - - 2,229 2,196
Germany 138 216 148 103 - - 286 319
Other 1,608 955 921 917 14 156 2,543 2,028
-------- -------- -------- -------- -------- -------- -------- --------
3,797 3,355 2,073 2,085 862 1,073 6,732 6,513
======== ======== ======== ======== ======== ======== ======== ========
Product Type
Set-up fees 290 306 - - - - 290 306
Monthly service
fees and
usage fee 3,507 3,049 - - - - 3,507 3,049
Production - - - - 862 1,073 862 1,073
Download/streaming - - 2,073 2,085 - - 2,073 2,085
-------- -------- -------- -------- -------- -------- -------- --------
3,797 3,355 2,073 2,085 862 1,073 6,732 6,513
======== ======== ======== ======== ======== ======== ======== ========
Contract Counterparties
Direct to
consumer
(online) - - 2,073 2,085 - - 2,073 2,085
B2B 3,797 3,355 - - 862 1,073 4,659 4,428
3,797 3,355 2,073 2,085 862 1,073 6,732 6,513
======== ======== ======== ======== ======== ======== ======== ========
Timing of transfer of goods and services
Over time 3,797 3,355 - - 127 127 3,924 3,482
Point in
Time (on
delivery) - - 2,073 2,085 735 946 2,808 3,031
3,797 3,355 2,073 2,085 862 1,073 6,732 6,513
======== ======== ======== ======== ======== ======== ======== ========
Contract Contract Contract Contract
Assets Assets Liabilities Liabilities
2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000
Contract balances
At 1 January 86 255 (172) (342)
Transfers in the period from
the contract assets to trade
receivables (86) (255) - -
Amounts included in contract
liabilities that were recognised
as revenue during the period - - 164 335
Excess of revenue recognised
over cash (or rights to cash)
being recognised during the
period 70 86 - -
Cash received in advance of
performance and not recognised
as revenue during the period - - (357) (165)
At 31 December 70 86 (365) (172)
========= ========= ============= =============
The aggregate amount of the transaction price of the remaining performance obligations amounting to GBP288k (2020: GBP164k) are all expected to be released within the next 12 months; GBP77k (2020: GBP8k) released in the following year.
2.2 Business segments
For management purposes, the Group is organised into three continuing operating divisions - Licensing, Content and Creative. The principal activity of Licensing is the creation of software solutions for managing and delivering digital content. The principal activity of the Content division is the sales of digital music direct to consumers. The principal activity of Creative is the production of audio and video programming for broadcasters. These divisions comprise the Group's operating segments for the purposes of reporting to the Group's chief operating decision maker, the Chief Executive Officer.
Licensing Content Creative Total
------------------ ------------------ ------------------ ------------------
2021 2020 2021 2020 2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Revenue from
external
customers 3,797 3,355 2,073 2,085 862 1,073 6,732 6,513
-------- -------- -------- -------- -------- -------- -------- --------
Segment's
result (gross
profit) 3,512 3,151 334 828 477 653 4,323 4,632
-
Depreciation (31) (28) (16) (16) (7) (8) (54) (52)
Amortisation (173) (30) - - - - (173) (30)
Settlement
income included
in Other
Income - 135 - - - - - 135
Segment profit/(loss) 3,308 3,228 318 812 470 645 4,096 4,685
Remainder
of other
income - 509
Amortisation
of right
to use asset (328) (291)
Corporate
expenses (7,414) (7,042)
Financing
income and
costs (273) (136)
Tax charge - 1
Discontinued
operations - 987
Loss for
the year (3,919) (1,287)
======== ========
Other segment GBP'000 GBP'000
items:
Capital additions 516 415
======== ========
Revenue from the Group's largest customer in the year was just under GBP0.6m (2020: over GBP0.4m) and revenue from the second largest customer in the year was just over GBP0.4m (2020: under GBP0.4m). There were 4 (2020: 3) other customers that formed greater than 10% of external revenues within the year.
2.3 Geographical information
The Group's revenue from external customers and information about its segments by geographical location is detailed below:
Revenue Non-current
assets
------------------ ------------------
2021 2020 2021 2020
Continuing Operations GBP'000 GBP'000 GBP'000 GBP'000
United Kingdom 1,674 1,970 673 1,568
United States of America 2,229 2,196 - -
Germany 286 318 - -
Rest of Europe 1,732 1,329 - -
Rest of World 811 700 - -
6,732 6,513 673 1,568
======== ======== ======== ========
All revenues are derived from the provision of services.
3. Other adjusting items
2021 2020
GBP'000 GBP'000
Consultancy costs (i) (153) -
Provision for uncertain recoverability (112) -
of cash advances (ii)
Exceptional legal fees (iii) (93) (297)
Corporate restructuring releases/(provision)
(iv) (65) (145)
Legal provision (v) - (285)
Technology provision (vi) (86) -
Provisions relating to closure of Denmark
business - 262
(509) (465)
======== ========
(i) Consultancy costs relate to directly contracted suppliers working on the eMusic Live collaboration.
(ii) Provision for the uncertain recoverability of the cash advances made to eMusic Live collaboration.
(iii) In 2021 the Group incurred legal fees in relation to funding of GBP80k (2020: GBP104k), fundraising GBP52k (2020: GBPnil), litigation provision release -GBP39k (2020: provisions for fees GBP73k) and unsuccessful M&A activity GBPnil (2020: GBP120k).
(iv) During 2021, the Group incurred costs of GBP65k (2020: GBP145k) for employee redundancies.
(v) During 2018 a civil action was brought by a former US customer against the Parent Company for failure to deliver services specified in their Term Sheet. The breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial; ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an amount to be determined by a jury; iv) attorney's fees, costs, and expenses; and (v) pre-and post-judgment interest. At 31 December 2020, the provision made in 2019 of GBP228k was increased by a further GBP285k. In May 2021, the parties reached a settlement agreement in principle upon confidential terms. By 31 December 2021, the Group had paid the remaining amount of GBP285k.
(vi) GBP86k relates to the increase in the technology provision as disclosed in note 20 that management believe may become due.
GBP311k (2020: GBP503k) of the other adjusting items for the year ended 31 December 2021 are deductible for corporation tax purposes.
4. Operating loss for the year
Operating loss for the year has been arrived at after charging:
2021 2020
GBP'000 GBP'000
Net foreign exchange loss 54 179
Amortisation of intangible assets 173 30
Amortisation of right to use asset (see
note 14) 328 291
Depreciation of property, plant & equipment 54 52
Loss/(profit) on sale of right-of-use
asset (see note 14) 5 (378)
Share-based payment expense (see note
27) 556 99
-------- --------
5. Other operating income
2021 2020
GBP'000 GBP'000
Settlement income relating to customers
contracts - 135
Profit on sale of right-of-use asset (see
note 14) - 378
Furlough monies received from HMRC - 131
---------- --------
- 644
========== ========
6. Reconciliation of non-IFRS financial KPIs
This note reconciles the adjusted operating loss to the adjusted EBITDA loss. This note reconciles these key performance indicators to individual lines in the financial statements. In the Directors' view it is important to consider the underlying performance of the business during the year. Therefore, the Directors have used certain alternative performance measures (AMPs) which are not IFRS compliant metrics. The main effect has been that the APMs exclude other adjusting items, amortisation, foreign exchange, depreciation and share based payments to reflect the underlying cash utilisation for the performance of the business. The APMs are consistent with those established within the prior year annual report and their derivation is set out in the table below.
Reconciliation of adjusted operating
loss and adjusted EBITDA loss:
2021 2020
GBP'000 GBP'000
Statutory operating loss (3,646) (2,139)
Other adjusting items (see note 3) 509 465
Foreign exchange 54 179
Share-based payment expense (see note
27) 556 99
-------- --------
Adjusted operating loss - per statutory (2,527) (1,396)
Loss/(profit) on sale of right-of-use
asset (see note 14) 5 (378)
Depreciation and amortisation 555 373
Adjusted EBITDA loss (1,967) (1,401)
======== ========
The 2020 Adjusted EBITDA loss includes a GBP500k release in content accrual as per note 1 under Critical accounting judgements and key areas of estimation uncertainty. The 2020 Adjusted EBITDA loss relating to 2020 trading is GBP1,901k.
7. Auditor's remuneration
2021 2020
GBP'000 GBP'000
Fees payable to the Company's auditor
for the audit of the Company's annual
accounts 110 105
Fees payable to the Company's auditor
for other services to the Group
The audit of the Company's subsidiaries - -
pursuant to legislation
Total audit fees 110 105
-------- --------
Non-audit fees:
Other services - -
-------- --------
Total non-audit fees - -
-------- --------
Total fees payable to Company's auditor 110 105
======== ========
A description of the work of the Audit Committee is set out in the Corporate Governance Statement of the 2021 Annual Report and includes an explanation of how auditor's objectivity is safeguarded when non-audit services are provided by the auditor.
8. Staff costs
The average monthly number of persons employed by the Group during the year, including executive Directors, was 51 ( 2020: 58). Staff costs in the Group are presented in administrative expenses.
2021 2020
No. No.
Number of production, R&D, and sales staff 39 48
Number of management and administrative
staff 12 10
51 58
======== ========
2021 2020
GBP'000 GBP'000
Wages and salaries 3,455 3,673
Redundancy payments 63 132
Social security costs 364 417
Other pension costs 109 119
Share-based payments (note 27) 556 99
4,547 4,440
======== ========
Details of the Directors' remuneration are provided in the Directors' Remuneration Report in the 2021 Annual Report.
9. Finance income and cost
2021 2020
GBP'000 GBP'000
Interest receivable 7 -
--------
Finance income 7 -
======== ========
2021 2020
GBP'000 GBP'000
Other charges similar to interest (231) (91)
Interest expenses on leased liability
(see note 14) (49) (45)
Finance cost (280) (136)
======== ========
10. Tax
Corporation tax is calculated at 19% (2020: 19%) of the estimated assessable profit for the year.
2021 2020
GBP'000 GBP'000
Current tax
UK corporation tax on the results for - -
the year
Foreign taxation - (1)
Research & development tax credits - -
-------- --------
Total current tax credit - (1)
======== ========
Deferred tax
Total deferred tax charge/(credit) - -
======== ========
Tax on loss on ordinary activities - (1)
======== ========
The charge for the year can be reconciled to the profit per
statement of comprehensive income as follows:
Loss before tax (3,919) (1,287)
-------- --------
Tax at UK corporation tax rate of 19%
(2020: 19%) (744) (432)
Fixed asset differences (1) -
Expenses not deductible for tax purposes 209 32
Income not taxable for tax purposes (36) (281)
Adjustments to brought forward values 28 -
Adjustments to tax charge in respect of
previous periods - 12
Adjustments to charge in respect of previous
periods - deferred tax - 36
Remeasurement of deferred tax for charges
in rates (2020: 19% to 2021: 25%) (2,389) (678)
Deferred tax not recognised 2,933 1,304
Foreign taxation - (1)
Other - 7
Tax credit - (1)
======== ========
At the balance sheet date, the Group has unrecognised deferred tax assets of GBP9,905,284 (2020: GBP7,101,109) which has been calculated at a rate of 25% (2020: 19%) of unused trading tax losses; this has not been recognised on the grounds that there is insufficient evidence that these assets will be recoverable. These assets will be recovered when future tax charges are sufficient to absorb these tax benefits.
11. Earnings per share
Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the year. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share, or increase the loss per share. For a loss-making company with outstanding share options, net loss per share would be decreased by the exercise of options. Therefore the antidilutative potential ordinary shares are disregarded in the calculation of diluted EPS. Total potential ordinary shares which are outstanding at 31 December 2021 are 73,210,822 (2020: 12,134,155) which relate to the employee share options and shares to be issued to the non-executive Directors under the terms of their service contracts (see the Directors' Report and Directors' Remuneration Report in the 2021 Annual Report and note 27).
Reconciliation of the profit and weighted average number of shares used in the calculation are set out below:
31-Dec-21
-------------- ----------- ------------
Loss/(profit) Weighted Per share
average amount
number
of shares
Basic and Diluted EPS GBP'000 Thousand Pence
Loss attributable to shareholders (3,807) 2,722,086 (0.14)
============== =========== ============
31-Dec-20
-------------- ----------- ------------
Loss - Weighted Per share
restated average amount
number - restated
of shares
Basic and Diluted EPS GBP'000 Thousand Pence
Loss attributable to shareholders
- continuing operations (2,274) 2,542,122 (0.09)
Profit attributable to shareholders
- discontinued operations 987 2,542,122 0.04
Loss attributable to shareholders (1,287) 2,542,122 (0.05)
============== =========== ============
12. Intangibles
Bespoke
applications
GBP'000
Cost
At 1 January 2020 3,205
Additions 317
At 31 December 2020 3,522
Additions 445
--------------
At 31 December 2021 3,967
==============
Amortisation
At 1 January 2020 3,205
Charge for the year 30
At 31 December 2020 3,235
Charge for year 173
--------------
At 31 December 2021 3,408
==============
Net book value
At 31 December 2021 559
==============
At 31 December 2020 287
==============
At 31 December 2019 -
==============
Useful lives 3 years
==============
Additions relate to internally developed software relating to the 7digital platform. Amortisation charges are included within the administrative expenses within the Income Statement. The useful life of each group of intangible assets varies according to the underlying length of benefit expected to be received.
Impairment testing of bespoke applications
The Group tests intangibles annually for impairment, or more frequently if there are indications that the assets might be impaired. During 2021, the 2020 equity fundraising has enabled the Group to enhance and develop the platform; management are of the opinion that the internal costs associated with certain identifiable development projects of GBP445k (2020: GBP317k) can be capitalised and amortised from the time that the project is deemed "live".
Management considered the carrying value of the platform at 31 December 2021 in 7digital Limited based on value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, future cash flows and growth rates during the period. Future cash flows of the Group were based on forecasts determined at year end, extrapolated over five years and based on existing contracts at that time, along with the expectation of new opportunities. A pre-tax discount rate was applied of 6.75%, reflecting current market assessment of the time value of money and the risks specific to the CGU was applied. The review indicated no impairment was required.
13. Property, plant and equipment
Computer
equipment
& capitalised
software
GBP'000
Cost
At 1 January 2020 1,534
Additions 98
Disposals (1,396)
At 31 December 2020 236
Additions 71
Disposals (110)
---------------
At 31 December 2021 307
===============
Amortisation
At 1 January 2020 1,483
Charge for the year 52
Disposals (1,396)
At 31 December 2020 139
Charge for year 54
Disposals (110)
---------------
At 31 December 2021 193
===============
Net book value
At 31 December 2021 114
===============
At 31 December 2020 97
===============
At 31 December 2019 51
===============
2020 and 2021 disposals relate to obsolete assets that were identified and disposed of for zero cash.
14. Leases
On 1 July 2020, the Group entered into a lease that was expected to run until August 2023. During 2021, the Group successfully negotiated an exit agreement in regard to this lease which required the Group to pay GBP500k as a settlement over 15 months to December 2022. The GBP500k settlement is shown in provisions for liabilities and charges (see note 20). As from October 2021, the Group is using service-office space on an as-and-when basis.
Right-of-use assets Land and
buildings
GBP'000
At 1 January 2021 1,184
Changes to initial lease 107
Profit and loss impact relating to changes
- amortisation 16
Amortisation (344)
Disposal (963)
-----------
At 31 December 2021 -
===========
Lease liability Land and
buildings
GBP'000
At 1 January 2021 1,330
Changes to initial lease 107
Profit and loss impact relating to changes
- interest expense 2
Provision created on termination of property
lease (note 20) (500)
Interest expense 47
Lease payments (28)
Disposal (958)
-----------
At 31 December 2021 -
===========
Analysed:
Current -
Non-current -
-----------
Total -
===========
15. 2020 discontinued operations
On 16 September 2020, 7digital France SAS, a subsidiary was placed into liquidation; on that day 7digital France SAS had EUR1,274k/GBP987k of liabilities no longer payable of which EUR1,147k related to the liabilities acquired when 7digital France SAS was bought by the Group in 2016. Subsequently, GBP987k has been transferred to profit and loss as profit and loss on disposal of subsidiary. There was no effect on Group cash or consideration received relating to liquidation of this subsidiary. There were no other material balances included in the Group's Consolidated Income Statement for the year ended 31 December 2020 relating to the discontinued operations. A merger reserve of GBP959k, which was created on acquisition of the French entity in 2016, was reanalysed to retained earnings.
16. Trade and other receivables
2021 2020
GBP'000 GBP'000
Trade receivable for the sale of goods 1,721 1,890
Less: Provision for impairment of trade
receivables (1,173) (897)
Net trade receivables 548 993
Other debtors 84 163
R&D credits receivable - 79
Total financial assets at amortised cost
(excluding cash & cash equivalents) 632 1,235
Prepayments and accrued income 66 112
Total trade and other receivables 698 1,347
Less: non-current portion - other debtors - (80)
-------- --------
Current portion 698 1,267
======== ========
The average credit period taken on sales of goods and services is 30 days (2020: 55 days). No interest is charged on receivables. Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience and likelihood of recovery as assessed by the Directors. Before accepting any new material customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. The Directors believe that the trade receivables that are past due but not impaired are of a good credit quality. The Group adopts a policy that each new customer is analysed individually for credit worthiness before the Group's standard payment and delivery terms and conditions are offered.
The management assessed the requirement for a general bad debt provision under IFRS 9. The expected loss rates are based on the combination of the Group's historical credit losses experienced over the three-year period prior to the period end coupled with forward looking information. Management also note that the Group generally has a consistent recovery rate on trade and other receivables, due to a significant amount of work being completed for reputable businesses. However, Management does note that dealings with smaller businesses can be difficult at times to recover funds owed and as such, provisions have been raised based on historic knowledge of each client's credit risk. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Included in the Group's trade receivable balance are debtors with a carrying amount of GBP0.2m (2020: GBP0.3m), which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 119 days (2020: 117 days). During the year, the Group provided for certain accounts receivable balances relating to revenue recognised during 2021, where the collection of the outstanding amounts is uncertain.
As at 31 December 2021 the lifetime expected loss provision for trade receivables is:
Current More More More Total
than than than GBP'000
30 days 60 days 120 days
past past past
due due due
Expected loss
rate 5% 12% 34% 91%
Gross carrying
amount 310 129 43 1,239 1,721
Loss provision 15 15 15 1,128 1,173
======== ========= ========= ========== =========
As at 31 December 2020 the lifetime expected loss provision for trade receivables was:
Current More More More Total
than than than GBP'000
30 days 60 days 120 days
past past past
due due due
Expected loss
rate 1% 5% 29% 67%
Gross carrying
amount 379 103 155 1,253 1,890
Loss provision 5 5 45 842 897
======== ========= ========= ========== =========
Customers that represent more than 5% of the total balance of trade receivables are:
2021 2020
GBP'000 GBP'000
Customer A 335 331
Customer B 211 320
Customer C 206 227
Customer D 183 209
Customer E 84 121
Customer F 83 102
Customer G - 83
======== ========
In determining the recoverability of trade receivables the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date.
Movement in the allowance for doubtful
debts:
2021 2020
GBP'000 GBP'000
Balance at the beginning of the period 897 1,014
Impairment losses recognised 113 28
Written off as bad debt 163 (145)
-------- --------
Balance at the end of the period 1,173 897
======== ========
During the year, the Group paid GBP112k (2020: GBPnil) to eMusic for the new venture eMusic Live which is included in Other Debtors. This was fully proided for at the year end (2020: GBPnil).
17. Trade and other payables
2021 2020
GBP'000 GBP'000
Current Liabilities
Trade payables 1,752 2,499
Other taxes and social security 1,429 1,369
Other payables 107 45
Accrued costs 1,493 1,841
-------- --------
4,781 5,754
======== ========
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 206 (2020: 286 days). The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.
The Directors consider that the carrying amount of trade payables approximates to their fair value.
18. Derivative liability
2021 2020
GBP'000 GBP'000
Remuneration to be paid in the form of
shares 46 71
46 71
========================== ==========================
Certain Non-Executive Directors and employees of the Group have been award remuneration in the form of shares. The number of shares will be determined at market value on the date the shares are awarded.
19. Loans and borrowings
GBP'000
As at January 2020 -
Draw down on revolving loan negotiated
on 28 September 2020 250
As at December 2020 250
Draw down on revolving GBP1m loan negotiated
on 28 September 2020 750
Draw down on revolving GBP1m loan negotiated
on 18 October 2021 1,000
--------
As at December 2021 2,000
========
On 28 September 2020, the Group secured a GBP1m revolving loan facility with Investec for a period of 36 months guaranteed by two of the Directors. The arrangement allows a maximum of 4 draw downs in any 12 month period of no less than GBP250k per draw down. As at 31 December 2021 the whole facility had been drawn down. The total loan Interest , payable quarterly, is calculated at 6% above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion. An arrangement fees of GBP30k was agreed and payable in 5,437,883 warrants. At 31 December 2021, there was accrued interest of GBP15k (2020:GBP7k) relating to this facility for the last quarter for 2021.
On 18 October 2021, the Group secured a further GBP1m revolving loan facility with Investec for the period to 28 September 2023 guaranteed by two of the Directors. The arrangement allows a maximum of 4 draw downs in any 12 month period of no less than GBP250k per draw down. An arrangement fees of GBP30k was agreed, of which GBP4k was payable at the time of this draw down and GBP26k payable in 1,382,488 warrants. As at 31 December 2021 the whole facility had been drawn down during the year. The total loan Interest , payable quarterly, is calculated at 6% above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion. At 31 December 2021, there was accrued interest of 12k relating to the period 18 October 2021 to 31 December 2021.
As at December 2021, a total of GBP2,027k (2020: GBP257k) of capital and interest was due to Investec.
20. Provisions
Provision Legal Property Other Total
for closure provision provision provisions
of business
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2021 245 513 - 209 967
Additions - - 500 - 500
Utilisation (144) (474) (275) - (893)
Increase in provision - - - 162 162
Release of provision - (39) - - (39)
------------- ----------- ----------- ------------ --------
At 31 December
2021 101 - 225 371 697
============= =========== =========== ============ ========
Of which is:
current 101 - 225 371 697
============= =========== =========== ============ ========
Of which is: - - - - -
non-current
============= =========== =========== ============ ========
At 31 December 2021, the provision for closure of business of GBP101k relates to the French entity, which was liquidated on 16 September 2020 (see note 15); the balance is being paid off in 9 instalments of GBP10k to September 2022 and 3 instalments thereafter of GBP3k to December 2022.
During 2018 a civil action was brought by a former US customer against the Parent Company for failure to deliver services specified in their Term Sheet. The breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial; ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an amount to be determined by a jury; (iv) attorney's fees, costs, and expenses; and (v) pre-and post-judgment interest. At 31 December 2020, the provision of GBP513k was based on a settlement agreement in May 2021. During the year the Group paid GBP474k in accordance with the settlement which is now finalised and GBP39k released.
During 2021, the Group successfully negotiated an exit agreement in regard to a lease signed in July 2020 (see note 14). The settlement required the Group to pay GBP500k over 15 months to December 2022. The GBP500k settlement is shown as a property provision of which GBP186k amount has been paid in 2021 and GBP89k, being substantiated by invoices, is included as trade payables.
At 31 December 2021, other provisions consist of GBP234k (2020: GBP148k) provision for technology costs that may become due and GBP137k (2020: GBP61k) payroll taxes on share options.
21. Deferred tax
There is no deferred taxation provision included in the Statement of Financial Position (2020: GBPnil).
22. Share capital
2021 2020
No. of No. of
shares shares
Allotted, called up and fully paid:
Ordinary shares of 0.01p each 2,722,085,961 2,455,419,294
Deferred shares of 0.99p each 419,622,489 419,622,489
Deferred shares of GBP0.09 each 115,751,517 115,751,517
========================== ==============
2021 2020
Allotted, called up and fully paid GBP'000 GBP'000
At 1 January 14,844 14,817
Shares issued in the period
Capital fundraising - 27
At 31 December 14,844 14,844
========================== ==============
23. Other reserves
The Reverse acquisition reserve was created upon the application of reverse acquisition accounting relating to the purchase of 7digital Group Inc, by UBC Media plc on 10 June 2014.
The Foreign exchange translation reserve of GBP5k profit (2020: GBP149k loss) relates to cumulative foreign exchange differences on translation of foreign operations.
The Share-based payment reserve includes GBP503k (2020: GBP89k) relating to the fair value at grant date of the share options that can be exercised in future years and GBP30k (2020: GBP26k) for share warrants (see note 19).
The Merger reserve related to the difference between the nominal value of shares issued as part of an acquistion and the fair value of the assets transferred in relation to the 2016 acquisition of the French entity, 7digital France SAS. On 16 September 2020, the French entity was liquidated and the merger reserve has susequently been transferred to retained earnings (see note 15).
24. Operating lease arrangements
There are no short term operating leases.
25. Defined contribution pension schemes
The Group operates defined contribution retirement benefit schemes for qualifying employees. The total cost charged to income of GBP109k ( 2020: GBP119k) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2021, contributions due in respect of the current reporting period of GBP47k had not been paid over to the schemes (2020: GBP25k).
26. Related party transactions
During the year, the Group paid GBP5k (2020: GBP8.2k) to MIDiA Research for music market research services, a company of which Mark Foster was a Director during 2021. At 31 December 2021, the Group owed GBPnil (2020: GBPnil).
During the year, the Group invoiced and recognised $100k (2020: $143k) of revenue to eMusic (a subsidiary of TriPlay Inc.), a group which Tamir Koch was a Director of during 2021. At 31 December 2021, the Group was owed GBP208k (2020: GBP327k); which was fully provided for at year end (2020: no provision was made).
During the year, the Group paid GBP112k (2020: GBPnil) to eMusic for the new venture eMusic Live. This was fully proided for at the year end as shown in note 3 (2020: GBPnil).
During the year, the Group paid fees of GBP252k (2020: GBP189k) to MJ Advisory, which is Michael Juskiewicz's personal service company based in the US.
Transactions between the Parent Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Directors' Remuneration Report in the 2021 Annual Report.
2021 2020
GBP'000 GBP'000
Wages and salaries 577 574
Social security costs 40 34
Pension costs to defined contribution scheme 9 10
Share-based payments 321 59
947 677
======== ========
27. Share-based payments
42 members of staff hold options to subscribe for shares in the Parent Company under the 7digital Group plc enterprise management incentive scheme (approved by the Board on 10 June 2014). The Performance Share Plan is a "free" share award with an effective exercise price of GBPnil. All awards are subject to an Earnings per Share (EPS) performance condition. The performance period is variable. Further details of these conditions are set out in the Directors' Report in the 2021 Annual Report. Awards are normally forfeited if the employee leaves the Group before the awards vest.
2021 Weighted 2020 Weighted
Options average Options average
exercise exercise
price price
(pence) (pence)
Outstanding at 1 January 8,043,334 - 8,896,168 -
Granted during the period 65,477,778 - - -
Forfeited during the period (9,812,834) - (852,834) -
Exercised during the period - - - -
------------ ------------------ ---------------- ------------------
Outstanding at the end of
the period 63,708,278 - 8,043,334 -
============ ================== ================ ==================
Exercisable at 31 December 33,698,581 - 5,413,334 -
============ ================== ================ ==================
On 27 May 2021, 65,477,778 (2020: nil) options were granted to the Board, employees and long term contractors. During the period, nil shares were exercised (2020: nil). There are 63,708,278 options outstanding at 31 December 2021 (2020: 8,043,334) of which 33,698,581 (2020: 5,413,334) are exercisable. Their remaining weighted average contractual life is 3,434 days (2020: 268 days).
The fair value of the share options has been calculated using the Black-Scholes model at the grant date. The key inputs into the Black-Scholes model are detailed below:
2021 Options
Share price at date
of grant 0.125p
Exercise price 0.00p
Volatility 100%
Option life 10 yrs.
Risk-free interest rate 0.97%
The total expense recognised for the year ending 31 December 2021 arising from equity-settled share-based payment transactions is summarised as below:-
2021 2020
GBP'000 GBP'000
Shares options 503 89
Employer contribution payable on share 76
options -
Provision (released)/made for shares to
be issued for remuneration (23) 10
556 99
======== ========
The share-based payment reserve as at 31 December 2021 is detailed below:
2021 2020
GBP'000 GBP'000
Shares options 938 435
Share warrants 56 26
994 461
======== ========
28. Post balance sheet events
Post year end, in June 2022, the Group entered into an agreement with a major shareholder for a 13-month loan of up to GBP0.5m. The funds drawn attract interest, to be rolled up and payable on the date of repayment of the loan, at 6% above the Bank of England's base rate from time to time. In addition, the Group has received letters of support from major shareholders for the provision of further loans of up to GBP3.5m, expiring 30 June 2023.
29. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they arise while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 22 and 23. During the year the Group secured an extra GBP1m revolving loan facilty with Investec for a period of 36 months guaranteed by two of the Directors (2020: the Group secured initial GBP1m loan with Investec for a period of 36 months guaranteed by two of the Directors) as disclosed in note 19.
Categories of financial instruments
2021 2020
Financial assets at amortised cost GBP'000 GBP'000
Cash and cash equivalents 363 2,839
Trade and other receivables 1,917 2,132
Financial liabilities at amortised cost
Trade and other payables (3,352) (4,385)
Loans and borrowings (2,000) (250)
Financial liabilities at fair value through
the profit and loss
Derivative liability (see note 18) (46) (71)
======== ========
Financial and market risk management objectives
It is, and has been throughout the year under review, the Group's policy not to use or trade in derivative financial instruments. The Group's financial instruments comprise its cash and cash equivalents and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of the financial assets and liabilities is to provide finance for the Group's operations in the year.
Currency risk management
The Group manages the risk by holding cash in numerous currencies to avoid foreign exchange charges on payments and receipts.
The carrying value of the Group's short-term foreign currency denominated assets and liabilities are set out below:
GBP BU's
------ --------- ------
2021 2020 2019
Assets/(Liabilities) GBPk GBPk GBPk
USD 908 1,077 619
EUR 215 - (512)
Other (41) 22 (440)
Totals 1,082 1,099 (333)
====== ========= ======
The majority of the Group's financial assets are held in Sterling but movements in the exchange rate of the Euro and US dollar against Sterling have an impact on both the result for the year and equity. Sensitivity to reasonably possible movement in the Euro and US dollar exchange rates can be measured on the basis that all other variables remain constant. The effect on profit and equity of strengthening or weakening of the Euro or US dollar in relation to Sterling by 10% would result in a movement of +/- GBP22k (2020: GBP6k) in relation to the Euro and +/- GBP92k (2020: GBP89k) in relation to the US dollar.
Interest rate risk management and sensitivity
The Group's policy is to ensure that it maximises the interest income on surplus cash. This involves placing cash in a mix of fixed rate and floating rate short-term deposits. There is no prescribed ratio of fixed to floating rate. Due to the current level of cash and the current rates of interest the Group is not exposed to any significant interest rate risk.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities after assessing credit quality using independent rating agencies and if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group's exposure is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits.
On going credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is limited because the counterparties are banks with high credit-rating assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, which is net impairment losses, represents the Group's maximum exposure to credit risk.
Liquidity risk management
The Group's policy throughout the year has been to ensure continuity of funds. The Group manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Liquidity and interest risk tables
All trade and other payables are non-interest bearing and fall due within one month. GBP1m of the bank loan is repayable in full by 28 September 2023, the remaining GBP1m is repayable in full by 18 October 2024 (see note 19). Interest, payable per calendar quarters, is calculated at 6% above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion.
The following table sets out the contractual maturities (representing the undiscounted contractual cash-flows) of financial liabilities:
2021 2020
Within 12 months GBP'000 GBP'000
Trade payables 1,752 2,499
Other payables 107 45
Lease liability - 670
-------- --------
1,859 3,214
======== ========
2021 2020
More than 12 months GBP'000 GBP'000
Other payables - -
Lease liability - 660
-------- --------
- 660
======== ========
Fair value of financial instruments
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.
Cash at bank and short-term bank deposits
Cash is held within the following institutions:
2021 2020 2019
GBP'000 GBP'000 GBP'000
Barclays Bank 363 2,839 132
HSBC Bank - - 4
Bank of West - - 2
CIC Bank - - 11
-------- -------- --------
363 2,839 149
======== ======== ========
30. Contingent liabiities
The Group does not have any contingent liabilities.
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END
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