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7digital Group Plc LSE:7DIG London Ordinary Share GB00BMH46555 ORD 0.01P
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Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Media 9.3 -5.8 -0.5 - 46

7digital Group PLC Full Year Results

29/09/2020 7:02am

UK Regulatory (RNS & others)


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TIDM7DIG

RNS Number : 3728A

7digital Group PLC

29 September 2020

29 September 2020

7digital Group plc

("7digital", "the Group" or "the Company")

Full Year Results

7digital Group plc (AIM: 7DIG), the global leader in B2B end-to-end digital music solutions, announces its audited full year results for the year ended 31 December 2019.

Financial Summary

   --    Revenue of GBP9.3m (2018: GBP19.9m) 
   --    Revenue from continuing operations * : GBP8.2m (2018: GBP9.3m) 
   --    Gross profit of GBP6.3m (2018: GBP14.7m) 
   --    Gross margin of 67.7% (2018: 74.0%) 
   --    Gross margin from continuing operations * : 64.0% (2018: 62.0%) 
   --    Operating loss reduced by 54% to GBP5.6m (GBP12.1m) 
   --    Adjusted EBITDA loss of GBP2.8m (2018 restated: GBP2.5m) 
   --    Loss per share reduced by 84% to 0.47p (2018: 2.97p) 

-- Successfully delivered annualised cost savings of more than GBP6.0m, reducing operational cost run rate by over 50% since beginning of the year

*After excluding the termination of Juke contract (major customer) during the year

Operational Highlights

-- Received EUR4m settlement from MediaMarktSaturn over Juke contract and agreed sale of select unprofitable technology and staff to TDC Group for EUR1.375m

-- New Board in place since July 2019 led by Tamir Koch and David Lazarus, both experienced businessmen widely recognised for technology entrepreneurship and executive leadership

-- GBP4.1 million invested in 2019, rising to GBP5 million in first 12 months since taking charge, to reposition the company, stabilise the business and secure future growth

-- Paul Langworthy promoted to CEO and Michael Juskiewicz appointed CFO to oversee implementation of new strategy

-- Repositioned 7digital as a music technology company and the global leader in B2B music solutions

-- Streamlined the technology offering - supporting both established markets and new business models and verticals with greater profit margins

-- New contract wins, contract expansions and renewals show growing demand for digital music services in new entertainment formats

Tamir Koch, Chairman of 7digital, commented: " Upon taking over the Group halfway through the year, the new Board set in motion a transformation programme to bring the business to break even as quickly as possible. Our plan was to build a business around best-in-class technology, a global music catalogue and music industry expertise. We provided the required financial support to move the business forward, reduced our cost base by moving away from the development of bespoke, customer-specific services and focused on delivering a world-leading, cloud-based, music platform-as-a-service that offers true global coverage at scale. The business is now on a much more stable financial footing, winning market share in strategic growth industries, and the Board is very excited about the future."

Paul Langworthy, CEO of 7digital, commented: "Having realigned our strategy around our leading technology offering, we have been able to capitalise on the growing demand for digital music services and enjoy meaningful growth and significant revenue opportunities from the fastest-growing sectors in social media, online fitness and artist monetisation. The strength in our core business paired with financially supportive majority shareholders and an extensive pipeline of deals, gives us full confidence in our long-term growth and sustainability in 2020 and beyond."

The Company will today be publishing its 2019 Annual Report and Accounts. This will be available to download from the investor relations section of the 7digital website at www.7digital.com/reports and will be posted to shareholders.

Enquiries

 
 7digital                                         020 7099 7777 
 Paul Langworthy, CEO 
 
 Arden Partners (Nominated Adviser and Broker)    020 7614 5900 
 Richard Johnson, Benjamin Cryer 
 
 Luther Pendragon (Financial PR)                  020 7618 9100 
 Harry Chathli, Joe Quinlan, Elliot Fradd 
 
 

About 7digital ( www.7digital.com )

7digital is the global leader in B2B end-to-end digital music solutions. The core of its business is the provision of robust and scalable technical infrastructure, licensing expertise and extensive global music rights used to create music and music video streaming and radio services for a diverse range of customers. These include consumer and social media brands, online fitness technologies, mobile carriers, broadcasters, automotive systems, record labels and retailers. 7digital also offers radio production and music curation services, editorial strategy and content management expertise.

7digital fosters industry growth and innovation by simplifying access to music for clients. From years of being the largest independent producer of programming for the BBC and powering services for partners like Triller, Soundtrack Your Brand, Global Eagle, GrandPad and Fender, 7digital is perfectly positioned to lead innovation at the intersection of digital music and next-generation radio services.

Operational Review

In 2019, 7digital secured new investment and installed a new Board and management team to stabilise the business and position it for future growth. In the second half of the year, the new Board implemented a series of critical changes and refocused resources to turn around the Company and ensure it could fully support its customers and employees. By taking advantage of the core technology and industry relationships, the management team and Board successfully worked together to lay the foundation for how 7digital positions, sells, develops and delivers its technology to current and future clients. The Group won new business, streamlined operations, returned to financial stability and set on a path to financial stability.

By contrast, in the first half of 2019, the Group was significantly impacted by the loss of its largest contract with European retailer MediaMarktSaturn ("MMS") to provide the music streaming service for its wholly-owned subsidiary, Juke Entertainment Gmbh ("Juke"). The Group had to take immediate action and agreed the sale of select technology from the Company and the transfer of staff to TDC Group for a total consideration of EUR1.375m in cash. This technology, which was only used by one customer, had become unprofitable to maintain.

As a result of the changes and progress made in the second half, the Board is pleased to report that the Group's revenue from operations (after adjusting for the loss of the Juke contract) declined only by 12% in 2019 to GBP8.2m. However, gross profit on the same basis increased by 2% to GBP5.2m. The statutory operating loss for 2019 decreased by 54% to GBP5.6m (GBP12.1m).

Investment and Refocused Strategy

From June 2019 onwards, the Group welcomed investment from a consortium comprising Magic Investment S.A. and Shmuel Koch Holdings Limited, led by Tamir Koch and David Lazarus who joined the Board as respectively Non-Executive Chairman and Non-Executive Director in July 2019. This group of successful entrepreneurs and business leaders has provided the required financial support to move the business forward, including a GBP5m cash injection in the first 12 months of taking charge of the Group. However, the new Board also recognised that a change of strategy and management team was required to suit the changing business environment. Paul Langworthy, the Group's former Chief Operating Officer, was appointed Chief Executive Officer and set about a plan to bring the business to break even as quickly as possible.

This new strategy recognised that 7digital is foremost a technology company rather than a media company. It has allowed the Group to considerably reduce its cost base by moving away from the development of a bespoke, customer-specific service to focus on delivering a highly productised technology offering. This contrasts with previous strategies where the Company implemented bespoke solutions for a diverse range of customers often with divergent needs, leading to unprofitable business at higher risk. From an operational standpoint, the new strategy has enabled 7digital to streamline its technology estate as well as the associated costs and staffing levels. The Group also retired a number of legacy radio technology services that were no longer strategic for 7digital and improved its technology efficiency through the use of cloud-based services. As a result, the Group was able to reduce its operational cost run rate by over 50% since the beginning of 2019 and successfully deliver annualised cost savings of over GBP6.0 million.

With a more stable financial platform in place, the Group has been able to focus on delivering a world-leading, cloud-based, music platform-as-a-service that provides true global coverage at scale. By moving from bespoke modular solutions to a highly productised technology offering, 7digital is now able to support a myriad of business use cases while operating with much greater profit margins.

Winning New Business and Renewing Important Contracts

In spite of a difficult year and poor market sentiment, the Group was able to renew existing customer contracts and sign new deals with a number of innovative companies in fast-growing sectors.

7digital signed an initial one-year deal with Dubset, a rights technology company that identifies and collects royalties within mix content. The Group also entered significant partnerships in fast-growing sectors.

The Group was also awarded an initial one year-long contract to provide its Music Platform-as-a-Service in support of an innovative new music streaming company. The full premium service was launched in a single European market and is in the process of rolling out to several additional countries.

This commercial momentum accelerated post-year end as the Group's Music Platform-as-a-Service was used to launch jazzed, the world's first dedicated audio-visual streaming service for jazz and jazz-influenced music. This deal epitomises the growing opportunity for premium streaming services catering to more specific tastes, genres and geographies.

In addition to jazzed, the Group has signed multiple new contracts and contract renewals. This includes a new contract to power Single Music, a Shopify-integrated, direct-to-fan distribution platform as well as a contract renewal with GrandPad, the first purpose-built tablet for people over the age of 75. The Group has also renewed its contract with major music label to support its streaming service through a French mobile carrier, and fan-facing music playlist service.

Financial Review

On 4 January 2019, the Group announced that its largest customer, MediaMarktSaturn, had indicated that it may wish to change the current arrangements and that this could involve 7digital taking more responsibility for certain aspects of the service or the service being closed with a resulting termination payment becoming due and payable to the Group. On 1 March 2019, 7digital announced that it had accepted settlement of, and release from, all outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of EUR4,000,000. Further, Juke agreed to write off all interest payments and GBP250,000 of the principal amount of the convertible loan note issued to Juke (as announced on 26 October 2018). 7digital settled a further GBP500,000 balance of the convertible loan note principal amount from the proceeds of the Agreement.

Following the loss of the MMS contracts, the platform was used by only one customer and had become unprofitable for the Group to maintain. On 2 May 2019, the Group announced the sale of bespoke technology from the Danish business and transfer of staff to TDC Group ("TDC"), the largest telecommunications company in Denmark. The sale transferred control of bespoke technology, and the resources to maintain it, to TDC.

The consideration was EUR1.375 million, of which GBP1.0 million was paid to 7digital in cash during 2019 being equivalent to the net value of the assets sold. The remainder of the cash consideration was retained by TDC to cover certain potential liabilities of which GBP47k was released by TDC to the Group in April 2020 to the extent that it is not required to meet such liabilities and is subject to customary post-closing adjustments. The annualised losses eliminated from the business totalled around GBP1.6 million. This sale meant that 7digital would focus its resources on its productised, cloud-hosted technology.

On 13 May 2019, Magic Investments S.A. (a technology investment holding company) ("Magic") bought the remaining loans from the existing shareholders at face value of GBP0.6 million.

On 7 June 2019, a consortium, comprising Magic and Shmuel Koch Holdings Limited ("SKH") subscribed for, an aggregate of, 634,132,641 shares at 0.01 pence per share, to raise GBP1.3 million (before expenses). On the same date, Magic agreed to capitalise the outstanding GBP585,932 principal and accrued interest of the Convertible Loan Notes at the Exchange Price of 0.02p into 332,915,704 shares with a discount of 12%. A number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the General Meeting held on 25 June 2019.

On 18 July 2019, Paul Langworthy, the Group's current Chief Operating Officer and key contributor to the revised business strategy, succeeded John Aalbers as Chief Executive Officer and as a Director of the Group. Michael Juskiewicz, the CFO of eMusic, joined as Chief Financial Officer and was appointed to the Board on 20 September 2019.

On 20 September 2019, the Group announced that it had raised a further GBP1.88 million through a subscription of 937,900,000 new Ordinary shares of 0.01 pence to new and existing shareholders.

On 25 September 2019, the Group announced that it had completed an oversubscribed conditional Placing. The Placing of 130,848,460 new Ordinary Shares raised approximately GBP0.3 million (before expenses) at an issue price of 0.01 pence per share on 4 October 2019.

During the year, the Group secured a total of GBP4.1 million (gross) in funding.

Results and Financial Key Performance Indicators

The Group's revenue from operations (after adjusting for the loss of the Juke contract as shown on the table below) declined by 12% in 2019 to GBP8.2m (2018: GBP9.3m).

On-going gross profit% increased to 64.0%, a rise of 2 percentage points to GBP5.2m, as a result of growth in high-margin B2B licensing revenues which now represents a greater share of the total sales mix. The statutory operating loss for 2019 decreased 54% to GBP5.6m (2018: GBP12.1m). The adjusted EBITDA loss for 2019 increased 10% to GBP2.8m (2018: GBP2.5m) and this is reconciled to the operating loss in note 6.

The decrease in 2019 statutory operating loss is due to decrease in administration expenses by 52.1%, largely due to the significant payroll and technology cost reductions implemented by the new management under Paul Langworthy, the incoming CEO, to align the business with the new strategy going forward.

The loss per share decreased by 84% to 0.47 pence (2018: 2.97 pence).

 
 Revenue                2019 reported   2019 ongoing*   2018 reported   2018 ongoing*   Change ongoing*      Change 
                              GBP'000         GBP'000         GBP'000         GBP'000                      ongoing* 
                                                                                                                  % 
   Licensing revenue            5,341           4,227          13,410           4,046               181          4% 
   Content                      2,390           2,390           3,933           2,704              -314        -12% 
   Creative                     1,572           1,572           2,569           2,569              -997        -39% 
                       --------------  --------------  --------------  --------------  ----------------  ---------- 
 Total Revenues                 9,303           8,189          19,912           9,319            -1,130        -12% 
                       --------------  --------------  --------------  --------------  ----------------  ---------- 
 Gross Margin                   6,297           5,239          14,727           5,816              -577        -10% 
 Gross Margin%                  68.0%           64.0%           74.0%           62.0%             +2.0% 
                       --------------  --------------  --------------  --------------  ----------------  ---------- 
 

Expenditure

 
 Administrative expenses                 2019       2018   Change        % 
                                      GBP'000    GBP'000 
    Underlying Administrative 
     Expenses                          11,235     19,918   -8,683   -43.6% 
    Other Adjusted Administrative 
     Expenses                           1,802      7,305   -5,503 
                                    ---------  ---------  ------- 
 Total Administrative expenses         13,037     27,223   14,186   -52.1% 
                                    ---------  ---------  ------- 
 

*After excluding the termination of Juke contract (major customer) during the year

Other Adjusting Items

Other adjusting items for the year totaled GBP1.8m of which GBP0.7m relates to corporate restructuring, GBP0.5m to legal fees relating to fund raising and contingency planning, GBP0.4m of expenses and provisions relating to the closure of the Danish business and GBP0.2m as a legal provision for an ongoing litigation issue.

Dividend

During the year, 7digital did not pay an interim or final 2019 dividend (2018: no interim or final 2018 dividend). The Board of Directors is not proposing a final dividend in the current year.

Shareholder Loans

On 8 February 2019, the Group received notice of conversion from one holder in respect of GBP193,858 (including interest) of the Facility at a conversion price of 1p pursuant to which 19,385,843 ordinary shares were issued. Following conversion, an aggregate of GBP1,311,691 of the facility remained outstanding.

On 1 March 2019, the Group agreed to a EUR4m settlement from MMS under the MMS Settlement Agreement noted above. Out of the loan payable of GBP0.75m plus accrued interest of GBP27k, GBP0.5m was settled against the above EUR4m and GBP0.25m, together with the accrued interest of GBP27k, was forgiven by MMS. Following settlement of MMS's share of the Facility, an aggregate of GBP561,691 of the facility remained outstanding.

On 11 April 2019 the Group received a notice from the holder in respect of a tranche of the Facility, due to non-payment of interest. The Notice related to outstanding Facility and interest amounting to GBP325,570. Following receipt of the Notice, the outstanding amount became due and payable by 3 May 2019. The remaining tranche under the Facility of GBP0.25m plus accrued interest remained outstanding to another loan note holder.

On 13 May 2019 the remaining Facility was sold to Magic. Magic entered into a standstill agreement with the Group pursuant to which it agreed not to seek early redemption or conversion of the Facility before 30 June 2019 except in certain limited circumstances (including a major equity issuance or the insolvency of the Group).

On 7 June 2019 Magic agreed to capitalise the outstanding GBP585,932 principal and accrued interest of the Facility held by it into 332,915,704 new Ordinary Shares (at a 12 per cent. discount to the Issue Price).

Cash and Cash Flow

As of 31 December 2019, the Group had a cash balance of GBP0.1m (2018: GBP0.5m).

Net cash outflows in 2019 totalled GBP0.3m (2018: outflow GBP6.4m). The reduction was largely driven from a decrease in operating cash outflow of 38% as a result of the effective cost reduction efforts implemented by the new management team, issuance of share capital to the consortium and the sale of the Danish platform.

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2019

 
 
                                                Year to 31     Year to 31 Dec 
                                                  Dec 2019               2018 
 
                                      Notes        GBP'000            GBP'000 
 
 Revenue                                2            9,303             19,912 
 Cost of sales                                     (3,006)            (5,185) 
 Gross profit                                        6,297             14,727 
 
 Other Income                           5            1,103                371 
 Administrative expenses                          (13,037)           (27,223) 
 
 Adjusted operating loss                6          (3,358)            (4,599) 
 - Share based payments                26            (239)              (173) 
 - Foreign exchange                                  (238)               (48) 
 - Other adjusting items                3          (1,802)            (7,305) 
                                             -------------  ----------------- 
 
 Operating loss                         4          (5,637)           (12,125) 
 
 Finance income                         9                -                 31 
 Finance cost                           9            (172)              (101) 
                                             ------------- 
 Loss before tax                                   (5,809)           (12,195) 
 
 Taxation on continuing operations     10              (3)                334 
 Loss for the year attributable 
  to owners of the parent company                  (5,812)           (11,861) 
                                             =============  ================= 
 
 Loss per share (pence) 
 Basic and diluted                     11           (0.47)             (2.97) 
                                             =============  ================= 
 

Consolidated Statement of Comprehensive Income

 
                                                  Year to 31   Year to 31 
                                                    Dec 2019     Dec 2018 
                                          Notes      GBP'000      GBP'000 
 
 Loss for the year                                   (5,812)     (11,861) 
 
 Items that may be reclassified 
  subsequently to profit or loss: 
 Exchange differences on translation 
  of foreign operations                    22            184         (43) 
 Other comprehensive loss                            (5,628)     (11,904) 
 
 
 Total comprehensive loss attributable 
  to owners of the parent company                    (5,628)     (11,904) 
                                                 ===========  =========== 
 
 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2019

 
                                              2019       2018 
                                  Notes    GBP'000    GBP'000 
 Assets 
 Non-current assets 
 Intangible assets                 12            -      1,175 
 Property, plant and equipment     13           51        128 
 Right-of-use assets               14        1,321          - 
                                             1,372      1,303 
                                         ---------  --------- 
 Current assets 
 Trade and other receivables       16        1,631      5,784 
 Contract assets                    2          255        458 
 Cash and cash equivalents                     149        461 
                                             2,035      6,703 
                                         ---------  --------- 
 Total assets                                3,407      8,006 
                                         ---------  --------- 
 Current liabilities 
 Trade and other payables          17      (7,009)    (9,739) 
 Loans and borrowings              18            -    (1,306) 
 Derivative liability              18            -      (257) 
 Contract liabilities               2        (335)    (1,149) 
 Lease liability                   14        (472)          - 
 Provisions for liabilities 
  and charges                      19        (768)      (303) 
                                           (8,584)   (12,754) 
                                         ---------  --------- 
 Net current liabilities                   (6,549)    (6,051) 
                                         ---------  --------- 
 
 Non-current liabilities 
 Other payables                    17        (676)    (1,066) 
 Contract liabilities               2          (7)      (141) 
 Lease liability                   14      (1,186)          - 
 Provisions for liabilities 
  and charges                      19            -      (125) 
                                           (1,869)    (1,332) 
                                         ---------  --------- 
 Total liabilities                        (10,453)   (14,086) 
                                         ---------  --------- 
 Net liabilities                           (7,046)    (6,080) 
                                         =========  ========= 
 
 Equity 
 Share capital                     21       14,817     14,420 
 Share premium account              21      12,043      8,294 
 Other reserves                    22      (2,845)    (3,268) 
 Retained earnings                        (31,061)   (25,526) 
                                         ---------  --------- 
 Total deficit                             (7,046)    (6,080) 
                                         =========  ========= 
 

CONSOLIDATED CASHFLOW STATEMENT

Year ended 31 December 2019

 
                                                        Year to 31        Year to 
                                                          Dec 2019    31 Dec 2018 
                                                Notes      GBP'000        GBP'000 
 
 Loss for the year                                         (5,812)       (11,861) 
 Adjustments for: 
   Taxation                                      10              3          (334) 
   Finance Cost                                   9            172            101 
   Profit on sale of fixed assets                            (125)           (11) 
   Foreign exchange                               4            238             48 
   Amortisation of intangible assets             12            228          1,839 
   Amortisation of right-of-use asset            14            415              - 
   Depreciation of fixed assets                  13             77            251 
   Impairment of intangible fixed assets         12              -          3,946 
   Impairment of tangible fixed assets           13              -            131 
   Share based payments                          26            239            173 
   Increase/(decrease) in provisions             19            340            (9) 
   Decrease in accruals and deferred 
    income                                                 (1,190)        (3,639) 
   Decrease in trade and other receivables                   3,793            778 
   (Decrease)/increase in trade and 
    other payables                                         (2,658)          1,732 
                                                       -----------  ------------- 
 Cash flows used in operating activities                   (4,280)        (6,855) 
 Taxation                                        10             19           (44) 
 Interest income received                         9              -              1 
 Interest expense paid                            9           (31)           (39) 
 Net cash used in operating activities                     (4,292)        (6,937) 
 
 Investing activities 
 Purchase of property, plant and equipment, 
  and intangible assets                                          -        (1,000) 
 Proceeds from sale of intangible 
  and tangible fixed assets                                  1,073             11 
                                                       -----------  ------------- 
 Net cash generated/(used) in investing 
  activities                                                 1,073          (989) 
                                                       -----------  ------------- 
 
 Financing activities 
 Proceeds from issuance of share capital 
  (net)                                                      3,313              - 
 Proceeds from issuance of shareholder 
  loans                                          18              -          1,500 
 Principal paid on lease liabilities             14          (352)              - 
 Net cash generated from financing 
  activities                                                 2,961          1,500 
                                                       -----------  ------------- 
 
 Net decrease in cash and cash equivalents                   (258)        (6,426) 
 Cash and cash equivalents at beginning 
  period                                                       461          6,978 
 Effect of foreign exchange rate changes                      (54)           (91) 
 Cash and cash equivalents at end 
  of year                                                      149            461 
                                                       ===========  ============= 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2019

 
                                                                 Foreign 
                                                  Reverse       exchange              Shares 
                                              acquisition    translation    Merger     to be 
                                      Share       reserve        reserve   reserve    issued 
                            Share   premium         (note          (note     (note     (note     Retained 
                 Notes    capital   account           22)            22)       22)       22)     earnings       Total 
                          GBP'000   GBP'000       GBP'000        GBP'000   GBP'000   GBP'000      GBP'000     GBP'000 
 
 At 31 December 
  2018                     14,420     8,294       (4,430)             35       959       168     (25,526)     (6,080) 
 
 Comprehensive 
 income/(loss) 
 for the year 
 Loss for the 
  year                          -         -             -              -         -         -      (5,812)     (5,812) 
 Other 
  comprehensive 
  income                        -         -             -            184         -         -            -         184 
                        ---------  --------  ------------  -------------  --------  --------  -----------  ---------- 
 Total 
  comprehensive 
  income/(loss) 
  for the year                  -         -             -            184         -         -      (5,812)     (5,628) 
 
 Contributions by                                                                                       - 
 and 
 distributions 
 to owners 
 Share issued 
  (net of costs)    21        397     3,749             -              -         -         -            -       4,146 
 Share based 
  payments          26          -         -             -              -         -       239            -         239 
 Capital 
  contribution      18          -         -             -              -         -         -          277         277 
 Total 
  contributions 
  by 
  and 
  distributions 
  to owners                   397     3,749             -              -         -       239          277       4,662 
 
 At 31 December 
  2019                     14,817    12,043       (4,430)            219       959       407     (31,061)     (7,046) 
                        =========  ========  ============  =============  ========  ========  ===========  ========== 
 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2019

 
                                                                  Foreign 
                                                   Reverse       exchange              Shares 
                                               acquisition    translation    Merger     to be 
                                       Share       reserve        reserve   reserve    issued 
                             Share   premium         (note          (note     (note     (note     Retained 
                  Notes    capital   account           21)            21)       21)       21)     earnings      Total 
                           GBP'000   GBP'000       GBP'000        GBP'000   GBP'000   GBP'000      GBP'000    GBP'000 
 
 At 31 December 
  2017 as 
  previously 
  stated                    14,404     8,232       (4,430)             78       959        26     (12,837)      6,432 
 Adjustment on 
  the adoption 
  of IFRS 15                     -         -             -              -         -         -        (344)      (344) 
 Prior year 
  adjustments                    -         -             -              -         -         -        (484)      (484) 
                         ---------  --------  ------------  -------------  --------  --------  -----------  --------- 
 1 January 2018 
  as restated               14,404     8,232       (4,430)             78       959        26     (13,665)      5,604 
 
 Comprehensive 
 loss for 
 the year 
 Loss for the 
  year                           -         -             -              -         -         -     (11,861)   (11,861) 
 Other 
  comprehensive 
  loss                           -         -             -           (43)         -         -            -       (43) 
                         ---------  --------  ------------  -------------  --------  --------  -----------  --------- 
 Total 
  comprehensive 
  loss 
  for the year                   -         -             -           (43)         -         -     (11,861)   (11,904) 
 
 Contributions                                                                                           - 
 by and 
 distributions 
 to owners 
 Share issued      21           16        62             -              -         -         -            -         78 
 Share based 
  payments         26            -         -             -              -         -       142            -        142 
 Total 
  contributions 
  by 
  and 
  distributions 
  to owners                     16        62             -              -         -       142            -        220 
 
 At 31 December 
  2018                      14,420     8,294       (4,430)             35       959       168     (25,526)    (6,080) 
                         =========  ========  ============  =============  ========  ========  ===========  ========= 
 
 

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2019

   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 Group prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies set out below have been consistently applied to all the periods presented in these financial statements; except as stated below.

Basis of Preparation

Statutory accounts for the year ended 31 December 2019 have been delivered to the Registrar of Companies. The financial information for the year ended 31 December 2019 contained in these results has been audited.

The financial information contained in these results has been prepared using the recognition and measurement requirements of International Financial Reporting Standards (IFRSs) as adopted by the EU. The accounting policies adopted in these results have been consistently applied to all the years presented and are consistent with the policies used in the preparation of the financial statements for the year ended 31 December 2019. New standards, amendments and interpretations to existing standards, which have been adopted by the Group for the year ended 31 December 2019, have been listed below.

New standards and interpretations

a) New standards, interpretations and amendments effective from 1 January 2019.

New standards impacting the Group that have been adopted in the annual financial statements for the year ended 31 December 2019, and which have given rise to changes in the Group's accounting policies are:

-- IFRS 16 Leases (IFRS 16) refer note 14

The Group adopted IFRS 16 using the modified retrospective approach, with recognition of transitional adjustments on the date of initial application (1 January 2019), without restatement of comparative figures. The Group elected to apply the practical expedient to not reassess whether a contract is or contains a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. The definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 1 January 2019.

b) New standards, interpretations and amendments not yet effective.

There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these is:

-- IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors (Amendment - Definition of Material)

-- IFRS 3 Business Combinations (Amendment - Definition of Business)

-- Revised Conceptual Framework for Financial Reporting

New and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual

financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.

Going concern

Summary

On 21 February 2020, a short term loan of GBP500k was signed with CSS Alpha (BVI) Limited. The loan is repayable over 12 months in equal parts starting from 28 March 2020 with interest based on 1.5% of the outstanding balance. The loan is guaranteed by one of the Directors.

On 3 September 2020, 7digital annouced the placing of 266,666,667 new Ordinary Shares of 0.01p each, which raised GBP6m at an issue price of 2.25 pence per share. The net proceeds of the fundraising will be used to meet the immediate working capital requirements of the Group and support immediate and medium term commercial growth opportunities, in particular within home fitness, artist monetisation, and social media.

Background to and reasons for the placing and subscription

The music industry is undergoing a period of change and opportunity whereby revenue sources are changing. and growing. Whereas five years ago revenues were dominated mainly by music sales and live performances, today streaming has displaced download music sales and COVID-19 has shut down live performances for much of 2020 and is likely to continue to impact live performances in the medium term. In addition, as music streaming has gained in popularity, music listening on social video platforms has begun to outpace DSP streaming services.

7digital has an advanced, scalable, cloud-based platform and the Directors believe that the Company is positioned to take advantage of new sources of growth brought on by the changing industry as well as the new opportunities and models accelerated by the COVID-19 pandemic. This is supported by a number of renewals and new contracts over the last year, including with Triller, eMusic and a global technology company in August 2020. In particular 7digital has identified potentially significant emerging opportunities within social media, home fitness and artist monetisation channels.

COVID-19

In March 2020, the World Health Organisation declared a global pandemic due to the COVID-19 virus that has spread across the globe, causing different governments and countries to enforce restrictions on people movements, a stop to international travel, and other precautionary measures. This has had a widespread impact economically and a number of industries have been heavily impacted. This has resulted in impacts on certain industries and a more general need to consider whether budgets and targets previously set are realistic in light of these events.

As described above, the COVID-19 pandemic has impacted our business but the Board believes that the business is well positioned to be able to navigate through the impact of COVID-19 due to the strength and flexibility of its service proposition.

Brexit

The United Kingdom ('UK') formally left the European Union ('EU') on 30 January 2020. The period of time from when the UK voted to exit the EU on 23 June 2016 and the formal process initiated by the UK government to withdraw from the EU, or Brexit, created volatility in the global financial markets. The UK now enters a transition period, being an intermediary arrangement covering matters like trade and border arrangements, citizens' rights and jurisdiction on matters including dispute resolution, taking account of The EU (Withdrawal Agreement) Act 2020, which ratified the Withdrawal Agreement, as agreed between the UK and the EU. The transition period is currently due to end on 31 December 2020 and ahead of this date, negotiations are ongoing to determine and conclude a formal agreement between the UK and EU on the aforementioned matters.

The Group operates subsidiaries in many countries. The Directors currently deem that the effects of the UK's current transitional period outside the EU and the impact of ongoing discussions with the EU will not have a significant impact on the Group's operations due to the global geographical footprint of the business and the nature of is operations.

Facility

On 28 September 2020, the Group secured a GBP1m revolving credit facility with Investec for a period of 36 months guaranteed by two of the Directors; this attracts 6% interest above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion.

Conclusion

The Directors have reviewed 7digital's going concern position taking account of its current business activities, financial forecasts and factors likely to affect its future financial position, as set out in this Annual report which include 7digital's objectives, policies and processes for managing its capital and its financial risk management objectives. Considering the global coronavirus (COVID-19) pandemic, the global economic uncertainties and impact on delayed sales cycles, the Directors have undertaken an elevated scrutiny to the cashflow forecasts covering a period of at least 12 months from the date of approval of the financial statements. Cashflow forecasts have been prepared based on a range of scenarios including, but not limited to, no further debt or equity funding, existing customer churn at different churn rates, no new contracted sales revenue, delayed sales, cost reductions, both limited and extensive, and a combination of these different outcomes.

Having assessed the sensitivity analysis on cashflows including the funding of GBP6m and the security of the newly agreed credit facility, together with the significant current business momentum from new customers including Triller, the launch of eMusic Live and growing demand for streaming and digital music solutions, the Directors strongly believe 7digital will continue to operate as a going concern for the foreseeable future, being 12 months from their signing of the financial statements.

Basis of consolidation

The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2019.

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-exlstlng relationships, such amounts are generally recognised In profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date, if an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised In profit or loss.

Subsidiaries

Subsidiaries are entitles controlled by the Group, the Group controls an entity when it is exposed to, or has rights to, variable returns from its Involvement with the entity and has the ablity to affect those returns through its power over the entity. The financial statements of subsidiaries are included In the consolidated financial statements from the date on which control commences until the date on which control ceases.

Loss of control

When the Group loses control over a subsidiary, it de-recognlses the assets and liabilities of the subsidiary, and any non-controllng interests and other components of equity. Any resulting gain or loss is recognised in the profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

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)     Licencing fees (also known as B2B sales) 
   a.     Setup Fees 
   b.     Monthly development and support fees 
   c.     Usage fees 
   2)     Content ("download") revenues (also know as B2C sales) 
   3)     Creative revenues 

Each type of revenue is detailed below

Revenue comprises of:

I. Licensing revenues

7digital defines licensing revenues as fees earned both for access to the company's platform and for development work on that platform in order to adapt functions to customer needs. The Board considers that the provision of Technology Licensing Services comprises three separately identifiable components:

The description of the licence fees compromise three categories;

1. Set-up fees : Set up fees which grant initial access to the platform, allow use of our catalogue and associated metadata and mark the start of work to define a client's exact requirements and create the detailed specifications of a service.

2. Monthly development and support fees which cover the costs of developer and customer support time. These are usually fixed and are paid monthly once a service has been specified in detail; they are calculated at commercial rates based on the number of developer or support days required.

3. Usage fees which cover certain variable costs like bandwidth which can be re-charged to clients with an administrative margin are recognised at point in time based on usage.

II. Content ("download") revenues

Content revenues are recognised at the value of services supplied and on delivery of the content. The group manages a number of content stores and the income is recognised in the month it relates to. 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 accrued/deferred until such time as the programme is delivered and accepted by the client. At this time the accrued revenue coverts to trade receivables. These mainly include the production of weekly radio programmes, as well as the one-off production of episodes. In case of one-off productions which required the Group to provide progress reports to its customers and where the company has no alternative use of the program produced, the group recognises revenue over the period i.e. based on percentage of completion, for

the rest of the regular programs and contents, where the company 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 Licencing revenue (set-up fees, monthly revenue for using 7digital's API licence platform and usage fees), however may not be distinct in nature. Under IFRS 15, the Group 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 licencing revenue are (B2B):

   -     The licenses provide access to the 7D platform 
   -     The development and support fees which cover the costs of developer and customer support time 
   -     Usage fees which cover certain variable costs like bandwidth and content. 

A key consideration is whether licencing fees give the customer the right to use the API Licence as it exists when the licence is granted, or access to API which will, amongst other considerations, be significantly updated during the API licence period.

The group grants the customer a limited, revocable, non-exclusive and non-transferable licence in the Territory during the Term, to use the 7digital API and the content to enable the provision of the Music Service to the End Users via Application.

Set-up fees represent an obligation under the contract, which is not a distinct performance obligation, as the customer is not able to access the platform without them. These are therefore spread over the period of the contract agreed initially with the customers.

Monthly licence maintenance fees indicate service contracts that provide ongoing support over a period of time. Revenue is recognised over the term of the contract on a straight-line basis.

In the case of Creative Revenue, the sole performance obligation is to deliver the content specified as per contract, whether this be the delivery of regular content throughout the year (e.g. a radio series), or the production of a longer, one-off episode.

The only obligation for the group is to deliver the content production agreed in the contract. Control and risks are passed to the customer on delivery of the episode produced, news bulletins etc. The right to the IP varies from project to project. If the customer suggests a specific programme idea to tender, they will then own the underlying rights of the recordings and the IPR is exclusive to customer; 7digital's only performance obligation would be to produce the content.

In the case of one-off productions for an identifiable customer contract where 7digital is required to update the client on the progress of work completed, the Group applies an output method to determine the stage of completion and amount of revenue to recognize.

Payment terms vary depending on the specific product or service purchased. With licence fees, the set-up fees element is invoiced and paid upfront, while monthly maintenance revenues and usage fees are normally invoiced on a monthly basis. In the case of download sales, the cost is paid immediately by the customer upon download of the music/songs content from the 7digital platform. In the case of creative revenues, the payment terms are generally 50% on signing with the balance on delivery. All contracts are subject to these standard payment terms, to the extent that the parties involved expressly agree in writing that the conflicting terms of any agreement shall take precedence.

In the case of fixed-price contracts, the customer pays the fixed amount based on a monthly schedule. If the services rendered by the company exceed the payment, a contract asset (Accrued Income) is recognised; if the payments exceed the services rendered, a contract liability (Deferred Revenue) is recognised.

Determine transaction price and allocating to each performance obligation

The transaction price for licencing fees (set-up fees and monthly licence fee) is fixed as per contract and is explicitly noted in the contract. In the case of usage fees, the per gigabyte fee is determined and agreed in the contract. In the case of creative revenue, the transaction fees for radio services and one-off series is determined by taking into account the length of the production (this may vary for commercials, radio programs, tv shows, series, etc.). Any variations in transaction price are agreed and charged additionally depending on the obligations to be performed. None of the five factors (i.e. variable consideration, constraining estimates of variable consideration, the existence of a significant financing component in the contract, non-cash consideration, and consideration payable to a customer identified) are particularly relevant to 7digital's customer contracts. The transaction price included in 7digital's contracts is generally easily identifiable and is for cash consideration.

Other adjusting items

Other adjusting items are those items the Group considers to be non-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; and

- 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                                                      - 20% 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 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 Company classifies financial assets as subsequently measured at amortised cost, Fair Value through Other Comprehensive Income ("FVOCI") or Fair Value through Profit or Loss ("FVTPL") on the basis of following:

-- the entity's business model for managing the financial assets and

-- the contractual cash flow characteristics of the financial asset.

Amortised Cost:

A financial asset shall be classified and measured at amortised cost if both of the following conditions are met:

-- the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and

-- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

In case of financial assets classified and measured at amortised cost, any interest income, foreign exchange gains or losses and impairment are recognised in the Statement of Profit and Loss.

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 recognized for all financial assets subsequent to initial recognition other than financial assets in FVTPL category. For financial assets other than trade receivables, as per IFRS 9, the Group recognises 12 month expected credit losses for all originated or acquired financial assets if at the reporting date the credit risk of the financial asset has not increased significantly since its initial recognition. The expected credit losses are measured as lifetime expected credit losses if the credit risk on financial asset increases significantly since its initial recognition.

Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS 9 using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. Thus probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

The impairment losses and reversals are recognised in Statement of Profit and Loss.

De-recognition of financial assets and financial liabilities:

The Company de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises an associated liability for amounts it has to pay.

On de-recognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in OCI and accumulated in equity is recognised in the Statement of Profit and Loss.

The Company de-recognises financial liabilities when and only when, the Company's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability de-recognised and the consideration paid and payable is recognised in the Statement of Profit and Loss.

Financial liabilities and equity instruments:

-- Classification as debt or equity

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

-- Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a Company are recognised at the proceeds received.

Derivative financial instruments:

The Company enters into derivative financial instruments viz. a residual of the convertible loan instrument. The Company does not hold derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately.

Fair value measurement

A number of assets and liabilities included in the Group's financial statements require measurement at, and/or disclosure of, fair value.

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value

hierarchy'):

- Level 1: Quoted prices in active markets for identical items (unadjusted)

- Level 2: Observable direct or indirect inputs other than Level 1 inputs and

- Level 3: Unobservable inputs (i.e. not derived from market data).

The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.

Valuation techniques used to determine fair values

Specific valuation techniques used to value financial instruments Include

   --      current liabilities (level 3) - Monte-Carlo model 

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.

IFRS 16 was adopted 1 January 2019 without restatement of comparative figures.

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.

The effect of adoption of IFRS 16 as at 1 January 2019 :

 
                          GBP'000 
 Assets 
 Right-of-use asset         1,862 
 Less accruals (net)        (126) 
                         -------- 
 Total assets               1,736 
                         ======== 
 
 Liabilities 
 Lease liability          (1,862) 
 Total liabilities        (1,862) 
                         ======== 
 

The present value of the lease payments is based on applying a discount rate which is either the interest rate implicit in

the lease or the incremental borrowing rate. The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as of 31 Decemer 2018 as follows:

 
                                                          GBP'000 
 Operating lease commitments as at 31 December 
  2018                                                      2,902 
 Removal of elements not relevant to IFRS16 (service 
  charges)                                                  (719) 
                                                         -------- 
                                                            2,183 
 
 Weighted average incremental borrowing rate as 
  at 1 January 2019                                          7.0% 
 Discounted operating lease commitments at 1 January 
  2019                                                      1,862 
                                                         ======== 
 
 Lease liability recognised at 1 January 2019               1,862 
                                                         ======== 
 
   1.1              Critical accounting judgements and key areas of estimation uncertainty 

In the application of the Company accounting policies, which are described above, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revisions affect only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Content cost of sales

Content cost of sales is determined at an average rate of sales and is consistent with previous years. The directors believe that this calculation is deemed to be the most effective method of determining the true cost of content considering varied pricing structures agreed with all the label suppliers and publishers.

Creative revenue

Management considers the detailed criteria for the recognition of creative revenue as set out in the Group's accounting policy, in particular whether the Group determines the appropriate apportionment of revenue to the correct accounting period and subsequent amount accrued or deferred at the year end.

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).

Other adjusting items

The management and directors considers items of income and expenses as other adjusting items where the nature of the item, or its magnitude, is material and likely to be non-recurring in nature so as to assist the user of the financial statements to better understand then results of the core operations of the group. Details of other adjusting items are shown in note 3.

   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 
                            2019        2018       2019       2018       2019       2018       2019        2018 
                         GBP'000     GBP'000    GBP'000    GBP'000    GBP'000    GBP'000    GBP'000     GBP'000 
 
    Primary Geographical 
    Markets 
  UK                         807         773        621      1,278      1,549      2,099      2,977       4,150 
  USA                      2,198       2,279        592        632          -         88      2,790       2,999 
  Germany                  1,397       7,333        117         70          -          -      1,514       7,403 
  Denmark                      -       1,388          -      1,038          -          -          -       2,426 
  France                      35         299          -          -          -          -         35         299 
  Other                      904       1,338      1,060        915         23        382      1,987       2,635 
                       ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------- 
                           5,341      13,410      2,390      3,933      1,572      2,569      9,303      19,912 
                       =========  ==========  =========  =========  =========  =========  =========  ========== 
 
  Product Type 
  Set-up fees                528         211          -          -          -          -        528         211 
  Monthly service 
   fees and 
   usage fee               4,813      13,199          -          -          -          -      4,813      13,199 
  Production                   -           -          -          -      1,572      2,569      1,572       2,569 
  Download/streaming           -           -      2,390      3,933          -          -      2,390       3,933 
                       ---------  ----------  ---------  ---------  ---------  ---------  ---------  ---------- 
                           5,341      13,410      2,390      3,933      1,572      2,569      9,303      19,912 
                       =========  ==========  =========  =========  =========  =========  =========  ========== 
 
 
  Contract Counterparties 
  Direct to 
   consumer 
   (online)                    -           -      2,390      3,933          -          -      2,390       3,933 
  B2B                      5,341      13,410          -          -      1,572      2,569      6,913      15,979 
                           5,341      13,410      2,390      3,933      1,572      2,569      9,303      19,912 
                       =========  ==========  =========  =========  =========  =========  =========  ========== 
 
 
  Timing of transfer of 
   goods and services 
  Over time                5,341      13,410          -          -          -         48      5,341      13,458 
  Point in 
   Time (on 
   delivery)                   -           -      2,390      3,933      1,572      2,521      3,962       6,454 
                           5,341      13,410      2,390      3,933      1,572      2,569      9,303      19,912 
                       =========  ==========  =========  =========  =========  =========  =========  ========== 
 
 

The aggregate amount of the transaction price of the remaining performance obligations amounting to GBP335k (2018: GBP1,149k) are all expected to be released within the next 12 months; GBP7k (2018: GBP141k) 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 
                 ----------------------  ------------------  ------------------  --------------------- 
                       2019        2018      2019      2018      2019      2018       2019        2018 
                    GBP'000     GBP'000   GBP'000   GBP'000   GBP'000   GBP'000    GBP'000     GBP'000 
   Revenue from 
       external 
      customers       5,341      13,410     2,390     3,933     1,572     2,569      9,303      19,912 
                 ----------  ----------  --------  --------  --------  --------  ---------  ---------- 
 
      Segment's 
  result (gross 
        profit)       4,993      12,739       469       849       835     1,139      6,297      14,727 
 
   Depreciation        (50)       (218)      (22)      (14)       (5)      (19)       (77)       (251) 
   Amortisation       (228)     (1,839)         -         -         -         -      (228)     (1,839) 
     Impairment           -     (4,077)         -         -         -         -          -     (4,077) 
 Other adjusted 
          cost- 
    development 
          costs 
       expensed 
      (see note 
             3)       (162)     (2,715)         -         -         -         -      (162)     (2,715) 
     Settlement 
         income 
       included 
       in Other 
         Income       1,000                                                          1,000           - 
 
        Segment 
  profit/(loss)       5,553       3,890       447       835       830     1,120      6,830       5,845 
 
      Remainder 
       of other 
         income                                                                        103         371 
   Amortisation                                                                      (415)           - 
    of right to 
      use asset 
      Corporate 
       expenses                                                                   (12,155)    (18,341) 
      Financing 
         income                                                                          -          31 
      Financing 
          costs                                                                      (172)       (101) 
     Tax charge                                                                        (3)         334 
   Loss for the 
           year                                                                    (5,812)    (11,861) 
                                                                                 =========  ========== 
 
  Other segment                                                                    GBP'000     GBP'000 
         items: 
        Capital 
      additions                                                                          -       1,000 
                                                                                 =========  ========== 
 
 

Revenue from the Group's largest customer in the year was GBP1.0m (2018: GBP7.7m) and revenue from the second largest customer in the year was GBP0.5m (2018: GBP2.4m) . There were no other customers that formed greater than 10% of external revenues within the years ended 31 December 2019 and 2018.

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 
                            ------------------  --------------------- 
                                2019      2018        2019       2018 
 Continuing Operations       GBP'000   GBP'000     GBP'000    GBP'000 
 United Kingdom                2,977     4,150       1,498      1,304 
 United States of America      2,790     2,999           -          - 
 Germany                       1,514     7,403           -          - 
 Denmark                           -     2,426           -          - 
 France                           35       299           -          - 
 Rest of Europe                1,366     1,553           -          - 
 Rest of World                   621     1,082           -          - 
                               9,303    19,912       1,498      1,304 
                            ========  ========  ==========  ========= 
 

All revenues are derived from the provision of services.

   3.          Other adjusting items 
 
                                                    2019      2018 
                                                 GBP'000   GBP'000 
 Impairment of intangibles (i)                         -   (2,135) 
 Costs/impairment relating to closure of 
  French business (ii)                                 -     (992) 
 Costs/impairment relating to closure of 
  Denmark business (iii)                           (254)   (1,237) 
 Development costs expensed on legacy Denmark 
  platform (iv)                                    (162)   (2,715) 
 Corporate restructuring releases/(provision) 
  (v)                                              (694)     (226) 
 Exceptional legal fees (vi)                       (464)         - 
 Legal provision (vii)                             (228)         - 
                                                 (1,802)   (7,305) 
                                                ========  ======== 
 

(i) In 2018 the Group tested intangibles annually for impairment, or more frequently if there are indications that the assets might be impaired. Accordingly, certain bespoke applications have been impaired during the year resulting in a charge of GBP2,135k.

(ii) In 2018, due to the cessation of the French operations in Snowite SAS, a provision of GBP287k has been made for closing down the operations and an impairment of GBP705k for the intangible assets, as the directors consider these have a zero fair value.

(iii) In May 2019 the Group sold select technology from the Parent Company and its Denmark subsidiary, 24 -7 Entertainment ApS, and transferred staff to TDC Group, a large telecommunications company based in Denmark (see note 12). In 2019, a provision of GBP254k has been made for the closing down of the Danish operations. In 2018, fair value adjustments relating to goodwill of GBP688k and to customer lists of GBP418k were made (see note 12) and the 24-7 Entertainment ApS tangible assets of GBP131k were fully impaired (see note 13).

(iv) During the normal course of business the group would have capitalised GBP162k (2018: GBP2,715k) in respect of development costs associated with the Denmark platform, which was sold in 2019 as described in (iii) above. Due to the sale of this platform these costs have not been capitalised and are reflected in the profit and loss account.

(v) During 2019, the Group incurred costs of GBP649k (2018: GBP226k) to former directors on garden leave and for employee redundancies all relating to organisational restructuring.

(vi) In 2019 the Group incurred legal fees in relation to funding of GBP264k, legal costs relating to planning for supposed insolvency GBP120k and finalisation of the settlement agreement with Media-Saturn-Holding GBP80k.

(vii) 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. No contract was ever put in place with this customer. The breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial; ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an amount to be determined by a jury; (iv) attorney's fees, costs, and expenses; and (v) pre-and post-judgment interest. 7digital's legal team made a motion to dismiss the claims, however in the event that the claims are upheld, the Group estimates that damages would be in the region of USD300k/GBP228k, with an appropriate provision being made.

GBP1,582k (2018: GBP3,228k) of the Other adjusting items for the year ended 31 December 2019 are deductible for corporation tax purposes.

   4.          Operating loss for the year 

Operating loss for the year has been arrived at after charging:

 
                                                     2019      2018 
                                                  GBP'000   GBP'000 
 Net foreign exchange loss                            238        48 
 Amortisation of intangible assets                    228     1,839 
 Amortisation of right to use asset (see              415         - 
  note 14) 
 Depreciation of property, plant & equipment           77       251 
 Profit on sale of fixed assets                     (125)      (11) 
 Operating lease payments - land and buildings 
  (see note 23)                                         -     1,290 
 Share-based payment expense (see note 26)            239       173 
                                                 ========  ======== 
 
   5.          Other operating income 

In 2019, the Group agreed a settlement of EUR4m/GBP3.4m with Media-Saturn-Holding GmbH , of which GBP0.5m was used as payment for Shareholders fund (see note 18) and GBP1.9m cleared down outstanding trade-related balances; resulting in a net settlement income of GBP1,000k. As part of the settlement agreement Media-Saturn-Holding GmbH agreed to forgive GBP250k of outstanding loans plus associated unpaid interest of GBP27k. The total amount forgiven was GBP277k which is disclosed as a capital contribution (see note 18).

The remaining other operating income earned by the Group in the current year of GBP103k (2018: GBP371k) relates to Research & Development tax credits.

   6.          Reconciliation of non-IFRS financial KPIs 

This note reconciles the adjusted operating loss to the adjusted EBITDA loss. This note reconciles these key performance indicators to individual lines in the financial statements. In the Directors' view it is important to consider the underlying performance of the business during the year. Therefore, the directors have used certain alternative performance measures (AMPs) which are not IFRS compliant metrics. The main effect has been that the APMs exclude other adjusting items, amortisation, foreign exchange, depreciation and share based payments to reflect the underlying cash utilisation for the performance of the business. The APMs are consistent with those established within the prior year annual report and their derivation is set out in the table below.

 
 Reconciliation of adjusted operating loss 
  and adjusted EBITDA loss                       2019       2018 
                                              GBP'000    GBP'000 
 Statutory operating loss                     (5,637)   (12,125) 
 Other adjusting items (see note 3)             1,802      7,305 
 Foreign exchange                                 238         48 
 Share-based payment expense                      239        173 
                                             --------  --------- 
 Adjusted operating loss                      (3,358)    (4,599) 
 Profit on sale of fixed assets                 (125)          - 
 Depreciation and amortisation                    720      2,090 
 Adjusted EBITDA loss                         (2,763)    (2,509) 
                                             ========  ========= 
 
   7.          Auditor's remuneration 
 
                                                   2019      2018 
                                                GBP'000   GBP'000 
 Fees payable to the Company's auditor for 
  the audit of the Company's annual accounts        120       120 
 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                                   120       120 
                                               --------  -------- 
 Non-audit fees: 
 Other services                                       -         - 
                                               --------  -------- 
 Total non-audit fees                                 -         - 
                                               --------  -------- 
 Total fees payable to Company's auditor            120       120 
                                               ========  ======== 
 

A description of the work of the Audit Committee is set out in the Corporate Governance Statement and includes an explanation of how auditor's objectivity is safeguarded when non-audit services are provided by the auditor.

   8.          Staff costs 

The average monthly number of persons employed by the Group during the year, including executive directors, was 81 ( 2018: 147). Staff costs in the Group are presented in administrative expenses.

 
                                                     2019      2018 
                                                      No.       No. 
 Number of production, R&D, and sales staff            65       121 
 Number of management and administrative staff         16        26 
                                                       81       147 
                                                 ========  ======== 
                                                     2019      2018 
                                                  GBP'000   GBP'000 
 Wages and salaries                                 4,659     6,294 
 Redundancy payments                                  259        97 
 Social security costs                                573       854 
 Other pension costs                                  159       511 
 Share-based payments (note 26)                       239       173 
                                                    5,889     7,929 
                                                 ========  ======== 
 

Details of the directors' remuneration are provided in the Directors Remuneration Report.

   9.          Finance income and cost 
 
                                                  2019      2018 
                                               GBP'000   GBP'000 
 Bank interest receivable                            -         1 
 Rental deposit retained                             -        19 
 Other income                                        -        11 
                                              --------  -------- 
 Finance income                                      -        31 
                                              ========  ======== 
 
                                                  2019      2018 
                                               GBP'000   GBP'000 
 Shareholders interest payable                     (7)      (64) 
 Other charges similar to interest                (17)      (37) 
 Interest expenses on leased liability (see 
  note 14)                                       (148)         - 
                                                 (172)     (101) 
                                              ========  ======== 
 
   10.           Tax 

Corporation tax is calculated at 19% (2018: 19.25%) of the estimated assessable profit for the year.

 
                                                 2019      2018 
 Current tax                                  GBP'000   GBP'000 
 UK corporation tax on the results for the          -         - 
  year 
 Foreign tax suffered                               3        35 
 Adjustment in respect of prior period              -      (61) 
                                             --------  -------- 
 Total current tax charge/(credit)                  3      (26) 
                                             ========  ======== 
 
 
                                                      2019      2018 
 Deferred tax                                      GBP'000   GBP'000 
 Origination and reversal of timing differences          -     (374) 
 Adjustments in respect of prior periods                 -        66 
                                                  --------  -------- 
 Total deferred tax charge/(credit)                      -     (308) 
                                                  ========  ======== 
 
 Tax on loss on ordinary activities                      3     (334) 
                                                  ========  ======== 
 

The charge for the year can be reconciled to the profit per statement of comprehensive income as follows:

 
                                                      2019       2018 
                                                   GBP'000    GBP'000 
 Loss before tax                                   (5,809)   (12,195) 
                                                  --------  --------- 
 
 Tax at UK corporation tax rate of 19% (2018: 
  19.25%)                                          (1,104)    (2,317) 
 Fixed asset differences                                 -          2 
 Expenses not deductible for tax purposes              136        940 
 Income not taxable for tax purposes                  (30)      (208) 
 Additional deduction for R&D expenditure             (34)      (133) 
 Adjustments to R&D in respect of previous 
  periods                                               22          - 
 Adjustments to tax charge in respect of 
  previous periods                                       -       (61) 
 Adjustments to tax charge in respect of 
  previous periods - deferred tax                        -         66 
 Adjust closing deferred tax to average rate 
  of 19% (2018: 19%)                                     -        752 
 Adjust opening deferred tax to average rate 
  of 19% (2018: 19%)                                  (40)      (651) 
 Deferred tax not recognised                           979      1,459 
 Foreign taxation                                        3         35 
 Difference in tax rates                               (8)      (219) 
 Tax credit receivable                                  79        309 
 Deferred tax movement on business combinations          -      (308) 
 Tax credit / (credit)                                   3      (334) 
                                                  ========  ========= 
 

At the balance sheet date, the Group has unrecognised deferred tax assets of GBP5,880,728 at a rate of 17% (2018: GBP6,393,798 (17%)) in respect of unused trading tax losses which have not been recognised on the grounds that there is insufficient evidence that these will be recoverable. These assets will be recovered when future tax charges are sufficient to absorb these tax benefits.

   11.        Earnings per share 

Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of ordinary shares in issue during the year. IAS 33 requires presentation of diluted EPS when a company could be called upon to issue shares that would decrease earnings per share, or increase the loss per share. For a loss-making company with outstanding share options, net loss per share would be decreased by the exercise of options. Therefore the antidilutative potential ordinary shares are disregarded in the calculation of diluted EPS. Total potential ordinary shares which are outstanding at 31 December 2019 are 19,059,858 (2018: 13,912,308) which relate to the employee share options and shares to be issued to the non-executive directors under the terms of their service contracts (see Directors Report, Directors Remuneration Report and note 26).

Reconciliation of the profit and weighted average number of shares used in the calculation are set out below:

 
                                                     31 Dec 2019 
                                                   Weighted average   Per share 
                                           Loss    number of shares      amount 
 Basic and Diluted EPS                  GBP'000            Thousand       Pence 
 Loss attributable to shareholders:     (5,812)           1,244,214      (0.47) 
                                      =========  ==================  ========== 
                                                     31 Dec 2018 
 Basic and Diluted EPS                  GBP'000            Thousand       Pence 
 Loss attributable to shareholders:    (11,861)             399,430      (2.97) 
                                      =========  ==================  ========== 
 
   12.        Intangibles 
 
                                   Bespoke    Customer 
                              applications        list   Goodwill     Total 
                                   GBP'000     GBP'000    GBP'000   GBP'000 
 Cost 
 At 1 January 2018                   8,215         509        688     9,412 
 Additions                             803           -          -       803 
 At 31 December 2018                 9,018         509        688    10,215 
 Disposals                         (5,813)       (509)      (688)   (7,010) 
 At 31 December 2019                 3,205           -          -     3,205 
                            --------------              ---------  -------- 
 
 Accumulated Amortisation 
  and impairment 
 At 1 January 2018                   3,167          88          -     3,255 
 Charge for the year                 1,836           3          -     1,839 
 Impairment losses                   2,840         418        688     3,946 
 At 31 December 2018                 7,843         509        688     9,040 
 Charge for year                       228           -          -       228 
 Disposals                         (4,866)       (509)      (688)   (6,063) 
 At 31 December 2019                 3,205           -          -     3,205 
                            --------------  ----------  ---------  -------- 
 
 Net book value 
 
 At 31 December 2019                     -           -          -         - 
                            ==============  ==========  =========  ======== 
 At 31 December 2018                 1,175           -          -     1,175 
                            ==============  ==========  =========  ======== 
 At 31 December 2017                 5,048         421        688     6,157 
                            ==============  ==========  =========  ======== 
 Useful lives                    3-5 years   3-5 years 
                            ==============  ========== 
 
 

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.

On 29 May 2019 the Danish Platform, with a carrying value of GBP948k was sold to a Danish communications company, TDC Group for GBP951k. The customer list and goodwill, initially originating from the acquisition of Danish Platform, were deemed disposed.

   13.           Property, plant and equipment 
 
                                          Computer         Fixture 
                             Property    equipment    and fittings   Vehicle     Total 
                              GBP'000      GBP'000         GBP'000   GBP'000   GBP'000 
 Cost 
 At 1 January 
  2018                            404        1,795             125        19     2,343 
 Additions                          -          197               -         -       197 
 Acquisitions                       -            -               -         -         - 
 Released on disposals              -         (15)               -      (19)      (34) 
                            ---------  -----------  --------------  --------  -------- 
 At 31 December 
  2018                            404        1,977             125         -     2,506 
 Released on disposals              -        (443)             (5)         -     (448) 
 At 31 December 
  2019                            404        1,534             120         -     2,058 
                            ---------  -----------  --------------  --------  -------- 
 
 Accumulated depreciation 
  and amortisation 
 At 1 January 
  2018                            368        1,522             120         9     2,019 
 Charge for year                   36          210               5         -       251 
 Impairment losses                  -          131               -         -       131 
 Released on disposals              -         (14)               -       (9)      (23) 
                            ---------  -----------  --------------  --------  -------- 
 At 31 December 
  2018                            404        1,849             125         -     2,378 
 Charge for year                    -           77               -         -        77 
 Released on disposals              -        (443)             (5)         -     (448) 
                            ---------  -----------  --------------  --------  -------- 
 At 31 December 
  2019                            404        1,483             120         -     2,007 
                            ---------  -----------  --------------  --------  -------- 
 
 Net book value 
 
 At 31 December 
  2019                              -           51               -         -        51 
                            =========  ===========  ==============  ========  ======== 
 At 31 December 
  2018                              -          128               -         -       128 
                            =========  ===========  ==============  ========  ======== 
 At 31 December 
  2017                             36          273               5        10       324 
                            =========  ===========  ==============  ========  ======== 
 
   14.        Leases 

The Group leased a property that originally ran until April 2023. In February 2020, on agreement with the landlord the lease was terminated, and the Group vacated the premises. The Group has adopted IFRS 16 on the date of application and determined the value of the lease and the right to use asset based on the rental payments from the period 1 January 2019 to April 2023.

 
 Right-of-use asset 
                             Land and 
                            buildings 
                              GBP'000 
 Right-of-use asset             1,862 
 Less accruals (net)            (126) 
                          ----------- 
 As at 1 January 2019           1,736 
 Amortisation                   (415) 
                          ----------- 
 At 31 December 2019            1,321 
                          =========== 
 
 Lease liability 
                             Land and 
                            buildings 
                              GBP'000 
 As at 1 January 2019           1,862 
 Interest expense                 148 
 Lease payments                 (352) 
                          ----------- 
 At 31 December 2019            1,658 
                          =========== 
 
 Analysed: 
 Current                          472 
 Non-current                    1,186 
                          ----------- 
 Total                          1,658 
                          =========== 
 
 

The group terminated the existing lease contract in February 2020 and in August 2020, it signed a new lease for 3 years (see note 27).

   15.        Investment in subsidiary undertakings 

A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note E to the Parent Company financial statements.

   16.        Trade and other receivables 
 
                                                      2019                2018 
                                                   GBP'000             GBP'000 
 Trade receivable for the sale of 
  goods                                              1,851               4,610 
 Less: Provision for impairment 
  of trade receivables                             (1,014)               (408) 
                                                  --------          ---------- 
 Net trade receivables                                 837               4,202 
 Other debtors                                         382                 667 
 R&D credits receivable                                412                 815 
 Prepayments                                             -                 100 
                                                                    ---------- 
 Total financial assets at amortised 
  cost (excluding cash & cash equivalents)           1,631             5,784 
                                              ============      ============ 
 
 

The average credit period taken on sales of goods and services is 33 days (2018: 79 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 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 GBP0.3m (2018: GBP2.3m), 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 97 days (2018: 60 days). During the year the Group provided for certain accounts receivable balances relating to revenue recognised during 2019, where the collection of the outstanding amounts is uncertain.

As at 31 December 2019 the lifetime expected loss provision for trade receivables is:

 
                                         More       More        More 
                                         than       than        than 
                                      30 days    60 days    120 days 
                                         past       past        past      Total 
                           Current        due        due         due    GBP'000 
 Expected loss rate             2%         7%        20%         92% 
 Gross carrying amount         274        275        296       1,006      1,851 
 Loss provision                  7         18         59         930      1,014 
 

Customers that represent more than 5% of the total balance of trade receivables are:

 
                   2019      2018 
                GBP'000   GBP'000 
 Customer A         350     2,329 
 Customer B         209       381 
 Customer C         162       261 
 Customer D         136       200 
 Customer E         117       192 
 Customer F         101         - 
 

Movement in the allowance for doubtful debts:

 
                                         2019      2018 
                                      GBP'000   GBP'000 
 Balance at the beginning of the 
  period                                  408     1,943 
 Impairment losses recognised             717       408 
 Written off as bad debt                (111)   (1,943) 
                                               -------- 
 Balance at the end of the period       1,014       408 
                                     ========  ======== 
 

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.

   17.        Trade and other payables 
 
 
   Current Liabilities                  2019      2018 
                                     GBP'000   GBP'000 
 Trade payables                        3,101     4,990 
 Other taxes and social security         565       984 
 Other payables                          674       500 
 Accrued costs                         2,669     3,246 
 Corporation tax                           -        19 
                                    --------  -------- 
                                       7,009     9,739 
                                    ========  ======== 
 
   Non-Current Liabilities 
 Other payables                          676     1,066 
                                         676     1,066 
                                    ========  ======== 
 

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 241 (2018: 171 days). The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.

In March 2016 the Group acquired Snowite SAS (now 7digital France SAS). As part of the acquisition it negotiated a reduction in the amount of some of the existing liabilities within Snowite SAS, at the time of the purchase, to EUR1.7m (GBP1.5m). Terms of repayment were also agreed to be over 8 years starting on 7th April 2017. For the first two years repayments were set at 8% of the debt and then at 14% for each year thereafter. No interest is payable. The parent company has guaranteed the repayments of GBP245k.

A total amount of GBP1.0m (2018: GBP1.1m) remains repayable under this agreement at the balance sheet date. Of this balance, GBP0.7m (2018: GBP0.9m) falls due for repayment after more than one year. On 16 September 2020 the Group received confirmation that the long term portion of GBP676K was forgiven by the French authorities.

The directors consider that the carrying amount of trade payables approximates to their fair value.

   18.           Financial Liabilities 
 
 
                             2019      2018 
                          GBP'000   GBP'000 
 Current 
 Convertible 
  debt                          -     1,306 
 Embedded derivative            -       257 
                         --------  -------- 
                                -     1,563 
                         ========  ======== 
 

During the year the convertible loan from shareholders including the derivative instrument have been converted and forgiven, through the below series of events:

On 8 February 2019, GBP193,858 (including interest of GBP5,549) of the GBP1.5 million Shareholder loan facility was converted to 19,385,843 ordinary shares of 1p each.

On 4 January 2019, Juke GmbH, a wholly owned subsidiary of Media-Saturn-Holding GmbH, decided to discontinue their music services and their contract with the Group. On 1 March 2019, a settlement was agreed on the termination of all outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of EUR4.0m. Further, Juke agreed to forgive GBP250,000 of the principal amount of the convertible loan, the balance of the principal amount of GBP500,000 was paid from the proceeds of the termination settlement and all associated interest payments totalling GBP27,239 were forgiven. The total amount forgiven of GBP277k is accounted and disclosed as a capital contribution in the statement of changes in equity.

On 7 June 2019, the remaining GBP585,932 (including interest GBP24,241) of the GBP1.5 million facility was converted to 332,915,704 ordinary shares of 0.01p each.

   19.           Provisions 
 
                                             Provision 
                                           for closure        Legal         Other 
                           Dilapidation    of business    provision    provisions     Total 
                                GBP'000        GBP'000      GBP'000       GBP'000   GBP'000 
 
 At 1 January 
  2019                              125            288            -            15       428 
 Increase in provision                -            255          228            91       574 
 Release of provision                 -          (234)            -             -     (234) 
                                                                     ------------ 
 At 31 December 
  2019                              125            309          228           106       768 
                          =============  =============  ===========  ============  ======== 
 
 Of which is: 
  current                           125            309          228           106       768 
                          =============  =============  ===========  ------------  ======== 
 Of which is: 
  non-current                         -              -            -             -         - 
                          =============  =============  ===========  ============  ======== 
 

A dilapidations provision is held to cover the estimated costs of returning the Group's main office space to as it was at the commencement of the lease (see note 14).

On 4 October 2019, the Danish entity was liquidated by the local authorities; a provision has been made of GBP255k for possible associated outstanding liabilities.

In 2018 a provision of GBP288k relating to the closing of operations in Snowite SAS was made; during 2019 GBP234k of this provision has been utilised.

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. No contract was ever put in place with this customer. The breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial; ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an amount to be determined by a jury; (iv) attorney's fees, costs, and expenses; and (v) pre-and post-judgment interest. 7digital's legal team made a motion to dismiss the claims, however in the event that the claims are upheld, estimate that damages would be in the region of USD300k/GBP228k.

   20.           Deferred tax 

The deferred taxation provision included in the Statement of Financial Position, together with the charge/(credits) made to the Income Statement is set out below:

 
                                    Deferred 
                               tax liability 
                                     GBP'000 
 At 1 January 2019                         - 
 Charge/(credit) to income                 - 
 At 31 December 2019                       - 
                             =============== 
 
 At 1 January 2018                       308 
 Credit to income                      (308) 
 At 31 December 2018                       - 
                             =============== 
 
   21.        Share capital 
 
                                                      2019          2018 
                                                    No. of        No. of 
                                                    shares        shares 
 Allotted, called up and fully paid: 
 Ordinary shares of 0.01p each               2,455,419,294             - 
 Ordinary shares of GBP0.01 each                         -   400,236,646 
 Deferred shares of 0.99p each                 419,622,489             - 
 Deferred shares of GBP0.09 each               115,751,517   115,751,517 
                                            ==============  ============ 
 
                                                      2019          2018 
 Allotted, called up and fully paid                GBP'000       GBP'000 
 At 1 January                                       14,420        14,404 
 
 Shares issued in the period 
 Capital fundraising                                   397             - 
 Issued to employees/directors in lieu of 
  salary                                                 -            15 
 Share options exercised                                 -             1 
                                            --------------  ------------ 
 At 31 December                                     14,817        14,420 
                                            ==============  ============ 
 

i. On 8 February 2019, GBP193,858 (including interest) of the GBP1.5 million Shareholder loan facility was converted in to 19,385,843 ordinary shares of 1p each.

ii. In order for the Company to lawfully allot the shares as described in iii and iv below, all the 419,622,489 shares of 1p each were converted into 419,622,489 deferred shares of 0.99p each and 419,622,489 ordinary shares of 0.01p each on 7 June 2019. The deferred shares of 0.99p each carry limited voting rights.

iii. On 7 June 2019, GBP585,932 (including interest) of the GBP1.5 million Shareholder loan facility was converted to 332,915,704 ordinary shares of 0.01p each; share premium was increased by GBP552,640.

iv. On 7 June 2019, a number of shareholders, including Magic Investments S.A. (a tech investment holding company) ("Magic") and Shmuel Koch Holdings Limited ("SKH") subscribed for, an aggregate of, 634,132,641 ordinary shares at 0.01p each, to raise GBP1.3 million (before expenses). Share premium was increased by GBP1,204,852.

v. On 20 September 2019, 937,900,000 shares of 0.01p each were issued to the market to raise GBP1,875k (before expenses); share premium was increased GBP1,780,504.

vi. On 4 October 2019, a further 130,848,460 ordinary shares of 0.01p were issued to the market to raise GBP261,697; share premium was increased by GBP210,527 net of share issue expenses.

   22.           Other reserves 

The Reverse acqusition reserve was created upon the application of reverse acqusition accounting relating to the purchase of 7digital Group Inc, by UBC Media plc on 10 June 2014.

The Foreign exchange translation reserve of GBP184k profit (2018: GBP43k loss) relates to cumulative foreign exchange differences on translation of foreign operations.

The Merger reserve relates to the difference between the nominal value of shares issued as part of an acquistion and the fair value of the assets transferred.

The Shares to be issued includes GBP231k (2018: increase GBP89k) relating to the fair value at grant date of the share options that can be exercised in future years and GBP8k (2018: GBP53k) for the fair value of the shares to be issued to Non-Executive directors in lieu of salary as at December 2019 (see Directors' Remuneration Report pages 23 to 24 and note 26).

   23.           Operating lease arrangements 

The only lease has been accounted for under IFRS 16 (see note 14). There are no short term operating leases.

   24.        Defined contribution pension schemes 

The Group operates defined contribution retirement benefit schemes for qualifying employees. The total cost charged to income of GBP159k ( 2018: GBP511k) represents contributions payable to these schemes by the Group at rates specified in the rules of the plans. As at 31 December 2019, contributions due in respect of the current reporting period of GBP41k had not been paid over to the schemes (2018: GBP33k).

   25.        Related party transactions 

During the year, the Group paid GBP6.4k (2018: GBP9.6k) to MIDiA Research for music market research services, a company of which Mark Foster was a director during 2019. At 31 December 2019, the Group owed GBPnil (2018: GBP6.4k).

During the year, the Group invoiced and recognised GBP175k of revenue to eMusic (a subsidiary of TriPlay Inc.), a group which Tamir Koch was a director of during 2019. At 31 December 2019, the Group was owed GBP209k; GBP164k of this amount has been provided for at the year end.

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of key management personnel

The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual directors is provided in the audited part of the Directors' Remuneration Report.

 
                                                    2019      2018 
                                                 GBP'000   GBP'000 
 Wages and salaries                                  999       704 
 Social security costs                               113       101 
 Pension costs to defined contribution scheme         32        24 
 Share-based payments                                283         - 
                                                --------  -------- 
                                                   1,427       829 
                                                ========  ======== 
 
   26.        Share-based payments 

30 members of staff hold options to subscribe for shares in the Company under the 7digital Group plc enterprise management incentive scheme (approved by the Board on 10 June 2014). The Performance Share Plan is a "free" share award with an effective exercise price of GBPnil. All awards are subject to an Earnings per Share (EPS) performance condition. The performance period is three years. Further details of these conditions are set out in the Directors' Report. Awards are normally forfeited if the employee leaves the Group before the awards vest.

 
                                                         Weighted                           Weighted 
                                                          average                            average 
                                                         exercise                           exercise 
                                 2019 Options       price (pence)   2018 Options       price (pence) 
 Outstanding at the beginning 
  of the period                    13,912,308                   -      5,428,899                   - 
 Granted during the period                  -                   -     11,500,000                   - 
 Forfeited during the 
  period                          (5,016,140)                   -    (2,881,258)                   - 
 Exercised during the 
  period                                    -                   -      (135,333)                   - 
                                -------------  ------------------  -------------  ------------------ 
 Outstanding at the end 
  of the period                     8,896,168                   -     13,912,308                   - 
                                =============  ==================  =============  ================== 
 Exercisable at the end 
  of the period                             -                   -              -                   - 
                                =============  ==================  =============  ================== 
 

During the period, nil shares were exercised (2018: 135,333). There are 8,896,168 options outstanding at 31 December 2019 (2018: 13,912,308) of which nil (2018: nil) are exercisable. Their remaining weighted average contractual life is 604 days (2018: 1,224 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:

 
                              2018 Options 
 
   Share price at date 
   of grant                          5.85p 
 Exercise price                      0.00p 
 Volatility                           100% 
 Option life                        3 yrs. 
 Risk-free interest rate              0.5% 
 
 

At 31 December 2019 GBP61k (2018: GBP53k) was accrued for shares to be issued to non executive directors under the terms of their service contracts and as disclosed within the Directors' Report and Directors' Remuneration.

Also included within these charges are equity settled share based payment charges of GBPnil (2018: GBP31k) reflecting share awards to non-executive directors during the year.

The total expense recognised for the year ending 31 December 2019 arising from equity-settled share-based payment transactions amounted to GBP239k (2018 - GBP173k) and the share-based payment reserve as at 31 December 2019 amounted to GBP407k (2018 - GBP168k).

The issuance of shares relates to the shares issued to some non-executive directors in lieu of their remuneration. Further details can be found in the Directors' Remuneration Report.

   27.           Post balance sheet events 

On 21 February 2020, a short term loan of GBP500k was signed with CSS Alpha (BVI) Limited. The loan is repayable over 12 months in equal parts starting from 28 March 2020 with interest based on 1.5% of the outstanding balance. The loan is guaranteed by one of the Directors.

On 12 August 2020, following the termination of the old lease (see note 14), a new lease agreement was signed with Labs relating to a property in Camden, NW1. The initial period of the agreement is for 35 months starting from 1 July 2020, with a total cost of GBP1.4m.

On 3 September 2020, 7digital annouced the placing of 266,666,667 new Ordinary Shares of 0.01p each, which raised GBP6m at an issue price of 2.25 pence per share. The net proceeds of the fundraising will be used to meet the immediate working capital requirements of the Group and support immediate and medium term commercial growth opportunities, in particular within home fitness, artist monetisation, and social media.

On 16 September 2020 the Group received confirmation that the long term portion of GBP676K was forgiven by the French authorities.

On 28 September 2020, the Group secured a GBP1m revolving credit facility with Investec for a period of 36 months guaranteed by two of the Directors; this attracts 6% interest above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion.

The rapid spread of the coronavirus and resulting COVID-19 global pandemic has had a small impact on the Group, primarily on cash-in; management have taken action to mitigate and minimise the effect. The Group was already fully operational from home as a result of existing infrastructure.

   28.        Financial instruments 

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they arise while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 21 and 22. The Group has external liabilities by way of the debts owed on the purchase of Snowite SAS in March 2016 and as disclosed in note 17. It does not have access to committed borrowing facilities, and is not subject to externally imposed capital requirements.

Categories of financial instruments

 
                                                 2019       2018 
 Financial assets at amortised                GBP'000    GBP'000 
  cost 
 Cash and cash equivalents                        149        452 
 Trade and other receivables                    2,646      6,388 
 
 Financial liabilities at amortised 
  cost 
 Trade and other payables                     (7,004)   (10,091) 
 Borrowings (Convertible Loan Note)                 -    (1,306) 
 Put options                                    (123)      (196) 
 
 Financial liabilities at fair 
  value through profit and loss 
 
 Embedded derivative (see note 
  18)                                               -      (257) 
                                             ========  ========= 
 
 

Put Options

As part of the 2016 acquisition of Snowite, the Group agreed with three of the original institutional shareholders that if they are unable to sell the 3,056,894 shares in 7digital Group they received in the public market, 7digital Group plc would purchase 75% of their shares at a strike price of 8.75p over a 4-year period starting from March 2016, 10% in year 1 and then c.21.7% each year thereafter. As at 31 December 2019, the three institutional shareholders still retain all their shares in 7digital Groupl plc. The value of the options at 31 December 2019 is GBP123k (2018: GBP196k). Adjustments to this provision are taken directly to the Consolidated Income Statement within Administrative expenses. In 2019 this credit was GBP73k (2018: GBP47k). The financial liability is included in note 18.

The carrying amounts of financial assets and financial liabilities not carried at FVTPL approximate their fair values.

Financial instruments measured at fair value

 
                                        2019     2018 
                                     GBP'000    GBP'000 
 Level 3 
 
 Embedded derivative (see note 
  18)                                       -      (257) 
                                     ========   ======== 
 

The embedded derivative liabilty has been converted/forgiven during the year as described in note 18.

Financial and market risk management objectives

It is, and has been throughout the year under review, the Group's policy not to use or trade in derivative financial instruments. The Group's financial instruments comprise its cash and cash equivalents and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of the financial assets and liabilities is to provide finance for the Group's operations in the year.

Currency risk management

The Group has exposure to foreign currency risk due to subsidiaries in France, Denmark and United States. The Group manages the risk by holding cash in numerous currencies to avoid foreign exchange charges on payments and receipts.

The carrying value of the Group's short-term foreign currency denominated assets and liabilities are set out below

 
                          GBP BU's                                       USD BU's                   DKK BU's 
 ----------------------------------------------------------  --------------------------------  -----------------  --------- 
                               2019        2018        2017       2019       2018        2017   2019        2018       2017 
 Assets/(Liabilities) 
 GBP                              -           -           -          -          -           -      -   (538,151)   (55,583) 
 USD                        619,120     162,683   1,694,004          -          -           -      -    (41,484)    (5,686) 
 EUR                      (511,810)   1,548,206   1,647,447          -        139         139      -    (98,672)    (6,361) 
 Other                    (440,127)   (130,135)      59,403   (41,444)   (63,473)   (103,783)      -           -          - 
                         ----------  ----------  ----------  ---------  ---------  ----------  -----  ----------  --------- 
 Totals                   (332,817)   1,580,754   3,400,854   (41,444)   (63,334)   (103,644)      -   (678,307)   (67,630) 
                         ==========  ==========  ==========  =========  =========  ==========  =====  ==========  ========= 
 
 

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 +/- GBP47k (2018: GBP142k) in relation to the Euro and +/- GBP44k (2018: GBP44k) 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. The agreed term of repayment of the loan relating to the purchase of Snowite SAS is over 8 years starting 7(th) April 2017, payable in equal instalments with no interest.

The following table sets out the contractual maturities (representing the undiscounted contractual cash-flows) of financial liabilities:

 
                        2019      2018 
 Within 12 months    GBP'000   GBP'000 
 Trade payables        3,101     4,990 
 Other payables          325       222 
 Lease liability         472         - 
                    --------  -------- 
                       3,898     5,212 
                    ========  ======== 
 
 
                           2019      2018 
 More than 12 months    GBP'000   GBP'000 
 Other payables             676       870 
 Lease liability          1,186         - 
                       --------  -------- 
                          1,862       870 
                       ========  ======== 
 

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:

 
                      2019      2018     2017 
                   GBP'000   GBP'000  GBP'000 
 Barclays 
  Bank                 132       324    6,490 
 HSBC Bank               4        36       26 
 Bank of West            2         7       59 
 CIC Bank               11        23       15 
 Others                  -        71      388 
                       149       461    6,978 
 
      29.     Contingent liabiities 

The group does not have any contingent liabilities.

 
                                                    2019      2018 
                                        Notes    GBP'000   GBP'000 
Assets 
Non-current assets 
Intangibles                               B            -     1,176 
Tangibles                                 C           39        63 
Right-of-use asset                        D        1,321         - 
Fixed asset investments                   E            -     1,000 
                                                   1,360     2,239 
Current assets 
Trade and other receivables               F          248     1,987 
Contract assets                                        -       252 
Cash at bank and in hand                               1        19 
                                                     249     2,258 
Current liabilities 
Trade and other payables                  H      (1,308)   (4,344) 
Loans and borrowings                      I            -   (1,306) 
Derivative liabilities                    I            -     (257) 
Contract liabilities                                   -     (417) 
Lease liability                           D        (472)         - 
Provision for liabilities and charges     J        (829)     (517) 
                                                 (2,609)   (6,841) 
Net current liabilities                          (2,360)   (4,583) 
Total assets less current liabilities            (1,000)   (2,344) 
 
  Non-current liabilities 
  Other payables                          H            -     (197) 
Lease liability                                  (1,186)         - 
Provision for liabilities and charges     J            -     (111) 
                                                 (1,186)     (308) 
Total liabilities                                (3,795)   (7,149) 
Net liabilities                                  (2,186)   (2,652) 
 
Capital and reserves 
Called up share capital                   K       14,817    14,420 
Share premium account                             12,043     8,294 
Shares to be issued                                  407       168 
Profit and loss account                         (29,453)  (25,534) 
Shareholders' deficit                            (2,186)   (2,652) 
 

Result for the year

As permitted by section 408 of the Companies Act 2006 the Company has not prepared its own profit and loss account for the year. 7digital Group plc reported a loss for the financial year ended 31 December 2019 of GBP4,196k ( 201 8: loss GBP21,608k).

This Company Statement of Financial Position and related notes were approved by the Board of Directors on 28 September 2020 and were signed on its behalf by

Paul Langworthy, Director

Statement of changes in Equity for the year ended 31 December 2019

 
                                                           Profit 
                                        Share    Shares       and 
                              Share   premium     to be      Loss 
                            capital   account    issued   account     Total 
                            GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
 
At 1 January 2019            14,420     8,294       168  (25,534)   (2,652) 
Comprehensive loss 
 for the year 
Loss for the year                 -         -         -   (4,196)   (4,196) 
                           --------  --------  --------            -------- 
Total comprehensive 
 loss for the year                -         -         -   (4,196)   (4,196) 
 
Contributions by and 
 distributions to owners 
Shares issued                   397     3,749         -         -     4,146 
Share based payments              -         -       239         -       239 
Capital contribution              -         -         -       277       277 
Total contributions 
 by and distributions 
 to owners                      397     3,749       239       277     4,662 
 
At 31 December 2019          14,817    12,043       407  (29,453)   (2,186) 
 

Statement of changes in Equity for the year ended 31 December 2018

 
                                                            Profit 
                                          Share   Shares       and 
                                Share   premium    to be      Loss 
                              capital   account   issued   account     Total 
                              GBP'000   GBP'000  GBP'000   GBP'000   GBP'000 
 
At 1 January 2018              14,404     8,232       26     (500)    22,162 
Comprehensive loss 
 for the year 
Prior year adjustments                                       (805)     (805) 
Change in accounting 
 policy - IFRS 9 Financial 
 Instruments (see note 
 G)                                 -         -        -   (2,621)   (2,621) 
At 1 January 2018              14,404     8,232       26   (3,926)    18,736 
Comprehensive loss 
 for the year 
Loss for the year                   -         -        -  (21,608)  (21,608) 
Total comprehensive 
 loss for the year                  -         -        -  (21,608)  (21,608) 
 
Contributions by and 
 distributions to owners 
Shares issued                      16        62        -         -        78 
Share based payments                -         -      142         -       142 
Total contributions 
 by and distributions 
 to owners                         16        62      142         -       220 
 
At 31 December 2018            14,420     8,294      168  (25,534)   (2,652) 
 
   A.         Principal accounting policies 

7digital Group plc is a company incorporated in the United Kingdom (England and Wales) under the Companies Act 2006.

The parent company financial statements are presented as required by the Companies Act 2006. They have been prepared in accordance with applicable law and accounting standards in the United Kingdom. The Company balance sheet and related notes have been prepared under the historical cost convention and in accordance with Financial Reporting Standards 100 Application of Financial Reporting Requirements (FRS100) and 101 Reduced Disclosures Framework. The company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permittd by FRS 101 Reduced disclosure framework:

   --      the requirements of paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based payment; 
   --      the requirements of IFRS 7 Financial Instruments: Disclosures; 
   --      the requirements of paragraphs 91 to 99 of IFRS 13 Fair value measurement; 

-- the requirement in paragraph 38 of IAS 1 Presentation of Financial Statements to present comparative information in respect of:

o paragraph 79(a)(iv) of IAS1:

o paragraph 118(e) of IAS 38 Intangible Assets

-- the requirements of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D and 111 of IAS 1 Presentation of financial statements;

   --      the requirements of paragraphs 134 to 136 of IAS 1 Presenation of financial statements; 
   --      the requirements of IAS 7 Statement of Cashflows; 

-- the requirements of paragraphs 30 and 31 of IAS 8 Accounting policies, changes in accounting estimates and errors:

   --      the requirement of paragraphs 17 and 18A of IAS24 Related party disclosures; 

-- the requirements in IAS 24 Related party disclosures to disclose related party transactions entered into between two or more members of a group; and

-- the requirements of paragraphs 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 Impairment of assets.

These financial statements are separate financial statements.

Where required, equivalent disclosures are given in the Group's consolidated financial statements in notes 1 to 29.

Foreign currency

Transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit and loss for the year.

Intangible assets

Intangible assets acquired as part of acquisition of a business are stated at fair value less accumulated amortisation and any impairment losses are stated at cost less accumulated depreciation and impairment losses, if any.

Intangible assets (Bespoke applications) arising from the internal or external development phase of projects is recognised if, and only if, all of the following have been demonstrated:

- The technical feasibility of completing the intangible asset so that it will be available for use or sale;

   -       The intention to complete the intangible asset and use or sell it; 
   -       The ability to use or sell the intangible asset; 
   -       How the intangible asset will generate probable future economic benefits; 

- The availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and

- The ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.

Internally and externally generated intangible assets are amortised over their useful economic lives on a straight-line basis, typically over 3 years.

Research expenditure is recognised as an expense in the period in which it is incurred.

Impairment of tangible and other intangible assets

The Company reviews, at least annually, the carrying amounts of its tangible and intangible assets compared to the recoverable amounts to determine whether those assets have suffered an impairment loss. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss had been recognised for the asset in prior years.

Cash and cash equivalent

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Fixed asset investments

Investments in subsidiaries are accounted for at cost less impairment in the Company's financial statements.

Classification

Financial instruments are classified and accounted for according to the substance of the contractual arrangement, as financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. Where shares are issued, any component that creates a financial liability of the company is presented as a liability on the balance sheet. The corresponding dividends relating to the liability component are charged as interest expenses in the profit and loss account.

Recognition and measurement

All financial assets and liabilities are initially measured at transaction price (including transaction costs), except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value (which is normally the transaction price excluding transaction costs), unless the arrangement constitutes a financing transaction.

If an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.

Impairment

Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss.

Share-based payments

The Company issues equity settled share based payments to certain Directors and employees, which have included grants of shares and options in the current year . The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of an appropriate valuation model. The Black-Scholes option pricing model has been used to value the share options plans.

Going concern

These financial statements have been prepared on the going concern basis. Please refer to the Directors Reports on pages 15 to 19 of the Annual Report for further going concern commentary.

IFRS 9 "Financial Instruments"

IFRS 9 Financial Instruments replaces the existing guidance in IAS 39 Financial Instruments Recognition and Measurement IFRS 9 Includes revised guidance on the classification and measurement of financial Instruments, including a new expected loss model for calculating impairment on financial assets as is set out in the Group's accounting policy.

Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward- looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.

Leases

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

-- Leases of low value assets; and

-- Leases with a duration of 12 months or less.

IFRS 16 was adopted 1 January 2019 without restatement of comparative figures.

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. When the group revises its estimate of the term of any lease.

Critical accounting judgements and key sources of estimation uncertainty

In the application of the Company accounting policies, which are described above, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revisions affect only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Investment in subsidiary is carried at cost under IAS 27 in the financials are to be tested for impairment at each reporting date as per IAS 36. The impairment standard requires the management to estimate the recoverable amount of the asset and compare it with the carrying value in the books to measure any impairment. For estimating the recoverable amount of the "Investment in subsidiary" the management relies upon; the net asset position of the subsidiary as on the balance sheet date, which brings the necessary assurance about the recoverability of the investment.

There are no critical judgements, apart form those involving estimates, that directors have made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Employees

The average number of employees throughout 2019 was 14 ( 2018: 22). Staff costs amounted to GBP1.8m (2018: GBP1.9m). Information about the remuneration of directors is provided in the audited part of the Directors' Remuneration Report of the consolidated financial statements.

   B.         Intangibles 
 
                                              Bespoke 
                                         applications 
                                              GBP'000 
Cost 
At 1 January 2019                             2,086 
Disposals                                   (2,086) 
At 31 December 2019                               - 
 
Amortisation 
At 1 January 2019                               910 
Charge for year                                 228 
Disposals                                   (1,138) 
At 31 December 2019                               - 
 
Net book value 
 
At 31 December 2019                               - 
At 31 December 2018                           1,176 
At 31 December 2017                           1,833 
 
 

On 29 May 2019 the Danish Platform, with a carrying value of GBP948k was sold to a Danish communications company, TDC Group (see note 12) for GBP951k.

   C.         Tangibles 
 
                             Computer 
                            equipment 
                              GBP'000 
Cost 
At 1 January 2019 and 
 at 31 December 2019               69 
 
Depreciation 
At 1 January 2019                   6 
Charge for year                    24 
At 31 December 2019                30 
 
Net book value 
 
At 31 December 2019                39 
At 31 December 2018                63 
At 31 December 2017                 - 
 
   D.            Leases 

The Company leased a property that originally ran until April 2023. In February 2020, on agreement with the landlord the lease was terminated, and the Company vacated the premises. The Company has adopted IFRS 16 on the date of application and determined the value of the lease and the right to use asset based on the rental payments from the period 1 January 2019 to April 2023.

 
                               Land and 
  Right-of-use asset          buildings 
                                GBP'000 
 Right-of-use asset               1,862 
 Less accruals (net)              (126) 
                            ----------- 
 As at 1 January 2019             1,736 
 Amortisation                     (415) 
                            ----------- 
 At 31 December 2019              1,321 
                            =========== 
 
                               Land and 
 Lease liability              buildings 
                                GBP'000 
 As at 1 January 2019             1,862 
 Interest expense                   148 
 Lease payments                   (352) 
                            ----------- 
 At 31 December 2019              1,658 
                            =========== 
 
 Analysed: 
 Current                            472 
 Non-current                      1,186 
                            ----------- 
 Total                            1,658 
                            =========== 
 
 

The company terminated the existing lease contract in February 2020 and in August 2020, it signed a new lease for 3 years (see note 27).

   E.             Fixed asset investments 
 
                                         GBP'000 
Cost 
At 1 January 2019 and at 31 December 
 2019                                     21,769 
 
Provision for impairment 
At 1 January 2019                       (20,769) 
Impairment during the year               (1,000) 
At 31 December 2019                     (21,769) 
 
 
Net book value at 31 December 2019             - 
Net book value at 31 December 2018         1,000 
Net book value at 31 December 2017         3,665 
 

Related subsidiaries, joint ventures and associates

 
                                 Ordinary 
                                  shares held 
                                  at 31 December    Principle         Country of 
                                  2019               activity          incorporation  Registered office 
Subsidiaries 
                                                    Music streaming 
                                                     and download     England and 
7digital Limited                   100%              services          Wales          *** 
                                                                      England and 
7digital Creative Limited          100%             Radio production   Wales          *** 
                                                                       England and 
7digital Trading Limited           100%             HR Services(2)      Wales         *** 
                                                                                      369 Pine Street, 
                                                                      Delaware,        Suite 103, San 
                                                    Holding            United States   Francisco, CA 
7digital Group, Inc.               100%              company(3)        of America      94104 USA 
                                                                                      369 Pine Street, 
                                                    Music streaming   Delaware,        Suite 103, San 
                                                     and download      United States   Francisco, CA 
7digital, Inc                      100%              services(3)       of America      94104 USA 
                                                                                      21 Rue Aristade 
                                                                                       Briand Espace 
                                                                                       Aristide 
                                                                                       92170 Vanves 
7digital SAS                       100%             Non-trading       France           France 
                                                                                      D-202, Polite 
                                                                                       Hermitage, Sec 
                                                                                       18 Shivtej Nagar, 
7digital Wing India Private                                                            Chinchwad Pune 
 Limited                           100%             Non-trading       India            MH 411019 India 
 
Smooth Operations (Productions)                                       England and 
 Limited                           100%             Dormant            Wales          *** 
                                                                      England and 
Unique Interactive Limited         100%             Dormant            Wales          *** 
Oneword Radio Limited -                                               England and 
 dissolved 28 January 2020         100%(1)          Dormant            Wales          *** 
UBC Interactive Limited 
 - dissolved 28 January                                               England and 
 2020                              100%(1)          Dormant            Wales          *** 
7digital ApS - dissolved 
 3 October 2019 
 SD Music Stores Limited 
 - dissolved 26 February 
 2019 
7digital Projects Limited 
 - dissolved 22 October 
 2019 
 
 

(1) indicates indirect investment of the company

(2) ceased trading on 31 March 2020.

(3) non trading from 1 January 2020, dissolved with its immediate holding company, 7digital Group, Inc, on 22 May 2020.

*** registered office is Lower Lock, Water Lane, London UK NW1 8JZ.

The directors subjected the carrying value of investments to an impairment test at the year end. The director's assessment indicated that the carrying value of the investments in subsidiaries should be fully impaired at 31 December 2019.

   F.             Debtors 
 
                                        2019     2018 
Due within one year:                 GBP'000  GBP'000 
Trade Debtors                              -      163 
R&D credits receivable                   139      281 
Other debtors                            109      143 
Prepayments                                -       65 
Amounts owed by group undertakings         -    1,335 
                                         248    1,987 
 
   G.            Amounts owed by related parties 

The directors have reviewed the amounts owed by related parties and believe there are significant doubts as to the future recoverability of these balances, and as such, a provision for doubtful debts (impairment loss) of GBP2.7m (2018: GBP21k) has been raised in the Company statement of financial position.

   H.            Trade and other payables: 
 
                                         2019      2018 
Current Liabilities                   GBP'000   GBP'000 
Trade creditors                           410     2,273 
Other taxes and social security           391       175 
Other creditors                           248        14 
Accruals                                  259     1,700 
Amounts owed to group undertakings          -       186 
                                        1,308     4,348 
                                               ======== 
 
Non-Current Liabilities 
Other payables                              -       197 
                                            -       197 
                                               ======== 
 
   I.              Loans and borrowings 
 
 
                              2019       2018 
                           GBP'000    GBP'000 
Current 
Convertible debt                 -      1,306 
Embedded derivative              -        257 
                                 -      1,563 
 

On 8 February 2019, GBP193,858 (including interest of GBP5,549) of the GBP1.5 million Shareholder loan facility was converted to 19,385,843 ordinary shares of 1p each.

On 4 January 2019, Juke GmbH, a wholly owned subsidiary of Media-Saturn-Holding GmbH, decided to discontinue their music services and their contract with the Group. On 1 March 2019, a settlement was agreed on the termination of all outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of EUR4.0m. Further, Juke agreed to forgive GBP250,000 of the principal amount of the convertible loan, the balance of the principal amount of GBP500,000 was paid from the proceeds of the termination settlement and all associated interest payments totalling GBP27,239 were forgiven. The total amount forgiven of GBP277k is accounted and disclosed as a capital contribution in the statement of changes in equity.

On 7 June 2019, the remaining GBP585,932 (including interest GBP24,241) of the GBP1.5 million Shareholder loan facility was converted to 332,915,704 ordinary shares of 0.01p each.

   J.              Provision for liabilities and charges 
 
                                        Provision 
                                      for closure                    Legal 
                                    of businesses                provision 
                                            (note        Other       (note 
                                               a)   provisions          b)    Total 
                                          GBP'000      GBP'000     GBP'000  GBP'000 
 
At 1 January 2019                             621            7           -      628 
Provision for closure of Danish 
 operations                                   255            -           -      255 
Reduction in partial guarantee 
 of subsidiary loan                          (42)            -           -     (42) 
Release of provision for closure 
 of French operations                       (280)            -           -    (280) 
Litigation provision                            -            -         228      228 
Other                                           -           40           -       40 
At 31 December 2019                           554           47         228      829 
 
Of which is: current                          554           47         228      829 
Of which is: non-current                        -            -           -        - 
 

Note a

On 4 October 2019, the Danish entity was liquidated by the local authorities; a provision has been made of GBP255k for possible associated outstanding liabilities.

In 2018 a provision was made in the standalone books of the parent company, as the parent company has guaranteed all the half yearly repayments of a loan in the French entry Snowite SAS up to 30 April 2020. During the year the guarantee provision was reduced by GBP42k representing the amounts paid against the loan in 2019 by the French entity. At the year end, the parent company still guaranteed EUR288k/GBP245k of future payments.

In 2018 a provision of GBP288k relating to the closing of operations in Snowite SAS was made; during 2019 GBP280k of this provision has been utilised.

Note b

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. No contract was ever put in place with this customer. The breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial; ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an amount to be determined by a jury; (iv) attorney's fees, costs, and expenses; and (v) pre-and post-judgment interest. 7digital's legal team made a motion to dismiss the claims, however in the event that the claims are upheld, estimate that damages would be in the region of USD300k/GBP228k.

   k.          Share capital 
 
                                                        2019     2018 
                                                     GBP'000  GBP'000 
Allotted, called up and fully paid: 
2,455,419,294 ordinary shares of 0.01p each 
 (2018: nil)                                             245        - 
419,622,489 d eferred shares of 0.99p each 
 (2018: nil)                                           4,154        - 
Nil ordinary shares of 1p each (2018: 400,236,646)         -    4,002 
115,751,517 d eferred shares of 9p each 
 (2018: 115,751,517)                                  10,418   10,418 
 

i. On 8 February 2019, GBP193,858 (including interest) of the GBP1.5 million Shareholder loan facility was converted in to 19,385,843 ordinary shares of 1p each.

ii. In order for the Company to lawfully allot the shares as described in iii and iv below, all the 419,622,489 shares of 1p each were converted into 419,622,489 deferred shares of 0.99p each and 419,622,489 ordinary shares of 0.01p each on 7 June 2019. The deferred shares of 0.99p each carry limited voting rights.

iii. On 7 June 2019, GBP585,932 (including interest) of the GBP1.5 million Shareholder loan facility was converted to 332,915,704 ordinary shares of 0.01p each; share premium was increased by GBP552,640.

iv. On 7 June 2019, a number of shareholders, including Magic Investments S.A. (a tech investment holding company) ("Magic") and Shmuel Koch Holdings Limited ("SKH") subscribed for, an aggregate of, 634,132,641 ordinary shares at 0.01p each, to raise GBP1.3 million (before expenses). Share premium was increased by GBP1,204,852.

v. On 20 September 2019, 937,900,000 shares of 0.01p each were issued to the market to raise GBP1,875k (before expenses); share premium was increased GBP1,780,504.

vi. On 4 October 2019, a further 130,848,460 ordinary shares of 0.01p were issued to the market to raise GBP261,697; hare premium was increased by GBP210,527.

   l.           Post balance sheet events 

Refer to the Group's post balance sheet events in note 27.

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