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Share Name Share Symbol Market Type Share ISIN Share Description
7digital Group Plc LSE:7DIG London Ordinary Share GB00BMH46555 ORD 0.01P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.10 6.06% 1.75 1.70 1.80 1.75 1.625 1.625 2,692,613 09:08:29
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Media 9.3 -5.8 -0.5 - 48

7digital Group PLC Interim Results

29/09/2020 7:04am

UK Regulatory (RNS & others)


7digital (LSE:7DIG)
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TIDM7DIG

RNS Number : 3730A

7digital Group PLC

29 September 2020

29 September 2020

7digital Group plc

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

Interim Results

7digital Group plc (AIM: 7DIG), the global leader in B2B end-to-end digital music solutions, announces its interim results for the six months ended 30 June 2020.

Financial Highlights

The Company continued to make significant progress on cost restructuring and positioning itself for operational profitability in H2 2020. The new management and board instated in 2019 have transformed the business:

   --    Revenues of GBP3.1m (H1 2019*: GBP4.5m) 
   --    Gross margin increased to 66% (H1 2019*: 64%) 
   --    Administrative expenses reduced by 51% to GBP3.1m (H1 2019*: GBP6.4m) 
   --    Operating loss reduced by 73% to GBP0.9m (H1 2019: loss of GBP3.2m) 
   --    Adjusted EBITDA loss improved 72% to GBP0.9m (H1 2019*: loss of GBP3.3m) 
   --    Fully diluted loss per share GBP0.04 (H1 2019: loss per share GBP0.77) 

-- Cash and cash equivalents of GBP4.3m at 28 September 2020 (30 June 2020: GBP183k; 31 December 2019: GBP149k)

*H1 2019 figures exclude Juke sales and TDC settlement in 2019 as shown in note 2.3

Operational Highlights

-- Repositioned the Company as the leading global B2B music platform-as-a-service (MPAAS) company built to enable innovation and growth in the music industry

-- Implemented new product, commercial and marketing strategies to sign and expand traditional B2B music services

o Supported the launch of jazzed, the world's first dedicated audio-visual streaming service for jazz and jazz-influenced music

o Added integration with Shopify, the second largest e-commerce platform in a world, to support artist stores through Single Music contract

o Contract renewals with several clients including Soundtrack Your Brand, GrandPad and Global Eagle Entertainment

-- Reacted quickly to COVID-19 to prioritise the safety of the workforce and ensure the continuity of client services. The Company's advanced technology in conjunction with increased use of virtualised applications and cloud-based technologies enabled a seamless and secure transition to remote working with no impact on 7digital's delivery and service capability for clients.

Post-period Events and Outlook

-- The Company is well-positioned to leverage our technology and services to expand traditional models and support post-COVID growth opportunities in new models and markets such as social media, online fitness, and artist monetisation

o On 12 August 2020, company announced contract with Triller to power the world's fastest growing social music video app

o Partnered with eMusic to launch eMusic Live, a first-of-its-kind virtual concert and artist monetisation platform

o Signed six-month deal with a global technology company to support new music-based experiences

o Signed contract with in-home cycling new-to-market Apex Rides, with a pipeline of additional high-profile global companies

-- Raised GBP 6m (gross) in oversubscribed equity placing and GBP 1m credit facility to drive growth in immediate commercial opportunities

   --    On track to reach operational profitability in H2 2020 
   --    Built active customer base from 34 to 45 

-- Strong product-market positioning in traditional music services and value in new markets provided for a bigger pipeline of new clients in H2 than in the previous year

Paul Langworthy, CEO of 7digital, said: "We are in unprecedented times, and I am immensely proud of the 7digital team for rising to this new and challenging environment. Our ability to support and improve services for current clients as well as to create value for new markets and models demonstrates the importance of our technology and solutions to a rapidly evolving music industry. Capitalising on 7digital's leading music platform, global music catalogue and industry experience we have remained focused on future growth in a number of emerging market trends and formats where music streaming plays an integral role in customer engagement, such as in social media, home fitness and artist monetisation. We continue to strengthen our platform and position to capture these growing markets and change music opportunities, as evidenced by our recent contracts with Triller, Apex Rides and the launch of eMusic Live. The Group is well capitalised, has financially supportive majority shareholders and a best-in-breed technology platform to capitalise on powerful market trends. As a result, 7digital is on track to achieve operational profitability in the second half of 2020 for the first time and deliver value for our 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

The Group made strong progress in the first half of the year as it executed its strategy to deliver a higher margin, productised technology offering to clients. However, the period was defined by the outbreak of COVID-19. The Company was able to respond rapidly to safeguard the health of its staff, service its clients remotely, and build an expanded pipeline of new customers in strategic growth markets.

Strong commercial momentum entering the year

Following a year of transformation, in which the Board was reshaped and the strategy updated, 7digital entered 2020 with growing momentum and a strong pipeline of new deals and contract renewals.

In January 2020, the Group expanded its client base to support online stores on Shopify, the second largest ecommerce platform in the world used by over one million businesses globally. It signed an initial 12-month contract to support Single Music, a Shopify-integrated platform that enables artists and labels to market and distribute their music and merchandise directly to fans.

Similarly, the Group built on its strategy to power music streaming innovators in February by supporting the launch of jazzed, the world's first dedicated audio-visual streaming service for jazz and jazz-influenced music. The Group's Music Platform-as-a-Service is the music engine behind the service, allowing jazzed users to stream music from 7digital's extensive catalogue of jazz tracks. Post period, a follow-up contract expanded the terms of the deal with 7digital supporting jazzed to launch globally in new territories and roll out a new tier of its music service including HD lossless audio. This relationship epitomises the shift away from mass-market, all-you-can-eat subscription models and the growing demand for premium streaming services catering to more specific tastes, genres and geographies.

The Group also signed multiple contract renewals, reflecting the strong relationships that 7digital build with its partners and the value of its offering. This includes a contract renewal with GrandPad, the first purpose-built tablet for people over the age of 75 as well as a renewal with a large music group to support its

streaming service partnership   in France , and fan-facing music playlist service. 

COVID-19 response and pivot to emerging growth opportunities

As the COVID-19 pandemic began to impact markets and businesses around the world, 7digital was fast to protect its employees and ensure the continuity of its operations. The measures taken in 2019 to streamline the business and reduce costs put 7digital in a strong position to manage the impact of COVID-19 and protect the Group's financial position, while prioritising the health and wellbeing of its employees. The Company delivered a seamless and secure transition to remote, cloud-based working where it was able to fully service all its clients with minimal disruption. Although the Company maintained its commercial pipeline, some of these new deals and renewals were shifted from Q2 to Q3 and Q4 2020 with a consequential effect on H1 revenues. In light of this, the Group took the prudent step to implement further cost savings, which are expected to generate in-year savings of approximately GBP500k in 2021.

As a much leaner and more flexible business, with significantly lower overheads, 7digital was able to successfully navigate the immediate market uncertainty and pivot to a pipeline of market opportunities based around its cloud-based, technology service for the music industry. At an early stage, the management team took the proactive decision to further refine the Company's strategy to capitalise on substantial growth opportunities both in the current market and to enable new models in a post-pandemic world. As a result, it has turned its focus to enabling growth and innovation in those sectors where social distancing has accelerated the adoption of emerging trends. In particular, it has built up a substantial pipeline of new business opportunities across the areas of social media, artist monetisation and home fitness.

Growing commercial momentum in highly strategic markets in H2 2020

The success of this strategy is reflected in the number of new contracts won post-period in these key verticals. In August 2020, 7digital signed a contract with Triller to power the world's fastest growing social music video app with its Music Platform-as-a-Service offering. At the time of the announcement, Triller had become the most downloaded app in the App Store in 50 countries, including the US, UK, Brazil, Germany, France and Australia, and 7digital will receive both a monthly licensing fee and usage-based payments to capture Triller's future growth. This reflects the Group's strategy to lead the B2B market by partnering with innovators behind the most exciting forms of music consumption and supporting them as they grow.

In addition, in August 2020, 7digital signed a six-month contract on similar commercial terms with a global technology company to provide access to the Company's global music catalogue and reporting services in support of new music-based experiences.

Also, in August 2020, the Company partnered with eMusic to launch eMusic Live, a first-of-its-kind virtual concert platform for artists and the wider music industry to monetise online performances. In light of the physical restrictions on live gigs, eMusic Live creates a new way for artists to engage with fans and recoup lost income, however it also paves the way for a new engagement and income stream that in a post-pandemic world, bundling ticketing, music sales, merchandise and collectibles in a single web-based platform. It will be powered using 7digital's advanced technology platform and, as the platform expands, it is expected to also utilise 7digital's trusted expertise in B2B music solutions and flexible services, combined with eMusic's pioneering B2C technology and functionality, to introduce new solutions for the live music industry.

7digital also entered the fast-growing home fitness market by signing an initial 12-month contract with Apex Rides in September 2020. In exclusive partnership with London-based boutique fitness pioneer Boom Cycle, new-to-market Apex Rides provides a full home exercise connected bike and subscription service with live and on-demand interactive classes. 7digital's out-of-the-box solution supports music-based virtual fitness services to access fully cleared and compliant music for programming classes and curating exercise playlists.

These are all new contracts in strategic markets for the Company with significant growth prospects. The Company continues to execute its strategy of leveraging its market-leading technology to capitalise on the growth in music streaming and demand for music in new entertainment formats and use-cases.

Financial Review

Revenue from operations (after adjusting for the Juke sales and TDC contract in H1 2019) was GBP3.1m (H1 2019*: GBP4.5m). The gross margin increased by two percentage points to 66% (H1 2019: 64%).

The Group continued to significantly reduce its administrative expenses as the business becomes more streamlined and focuses on its productised technology offering. Total administrative expenses fell by 49% to GBP3.2m (H1 2019*: GBP6.4m).

As a result, the operating loss reduced by 69% to GBP1.0m (H1 2019: loss of GBP3.2m) and the adjusted EBITDA loss improved by 69% to GBP1.0m (H1 2019*: loss of GBP3.3m).

Fully diluted loss per share was GBP0.04 (H1 2019: loss per share GBP0.77).

Cash and cash equivalents were GBP4.8m at 22 September 2020 (30 June 2020: GBP183k; 31 December 2019: GBP149k)

Financing

Post period, the Group raised GBP7.0m to support the growth of the business. In particular, these proceeds will enable 7digital to capitalise on significant emerging opportunities in the markets of home fitness, artist monetisation and social media.

On 3 September 2020, the Group announced that it had successfully completed an oversubscribed placing and subscription. This raised GBP6.0 million (gross) through the placing of 266,666,667 new Ordinary Shares, all at an issue price of 2.25 pence per share.

In addition, the Group today announced that it has entered into a GBP1m secured revolving credit facility ("RCF") with Investec Bank plc. The RCF adds non-dilutive financing to the placing and subscription announced earlier in September 2020.

The funds set the business up for a sustained period of growth, building on the Group's leading global position in the expanding market of B2B music streaming.

Outlook

The Company's decisive response to the COVID-19 pandemic and GBP7m financing during September 2020 has positioned 7digital to capitalise on significant growth markets. Streaming is being adopted by consumers at an increasing pace, accounting for 56% of all music sales in 2019 and driving a fifth consecutive year of growth, according to the IFPI. The lockdowns implemented as a result of the COVID-19 pandemic have only further accelerated this adoption, leading to a rise in home entertainment streaming as well as other formats.

The Group has identified a number of emerging trends for which it has a strong product market fit. Management see meaningful growth and revenue opportunities from well-funded and enterprise businesses that consider music a vital component in their own customer engagement and growth strategies. These sectors include:

-- Social media platforms: following the success of TikTok and the popularity of video and audio inclusive user-generated content, the Group is discussing opportunities with several such companies that provide either similar services or more disruptive variances to the existing offering (as with Triller)

-- Virtual-live market: this rapidly emerging live stream market is attracting much attention, including the launch of eMusic Live, and the Group expects servicing operators in this space to become a valuable new pillar in the 7digital ecosystem

-- Home fitness: building on the deal with Apex Rides, the Group is currently engaging with a number of fitness companies looking to incorporate digital content, ranging from virtual cycling and running to more traditional gyms in this $94 billion global industry

7digital's leading technology offering, global music catalogue and industry expertise makes the Group well placed to capitalise on the growing demand for digital music services to improve existing customer offerings and power new entertainment formats. Even with the impact of COVID-19, the Group entered H2 2020 with more customers and a higher sales pipeline than it entered H2 2019.

The Group is well capitalised, has financially supportive majority shareholders and a best-in-breed technology platform to capitalise on powerful market trends. As a result, 7digital is on track to achieve operational profitability in the second half of 2020 for the first time and deliver value for our shareholders.

Condensed consolidated statement of comprehensive income

Six months ended 30 June 2020 (unaudited)

 
                                                          Unaudited     Unaudited      Audited 
                                                         six months      restated    full year 
                                                              ended    six months        ended 
                                                            30 June         ended       31 Dec 
                                                               2020       30 June         2019 
                                                                             2019 
                                                Notes       GBP'000       GBP'000      GBP'000 
 Continuing operations 
 Revenue                                          2           3,097         5,591        9,303 
 Cost of sales                                              (1,057)       (1,659)      (3,006) 
                                                       ------------  ------------  ----------- 
 Gross profit                                                 2,040         3,932        6,297 
 Other income                                     3             193         1,269        1,103 
 Administrative expenses                          4         (3,124)       (8,442)     (13,037) 
                                                       ------------  ------------  ----------- 
 Adjusted operating loss                                      (749)       (2,240)      (3,358) 
 - Share based payments                                        (88)          (43)        (239) 
 - Foreign Exchange                                            (54)          (21)        (238) 
 - Other adjusting items                          5               0         (937)      (1,802) 
                                                       ------------  ------------  ----------- 
 
 Operating loss                                   4           (891)       (3,241)      (5,637) 
 Finance income and charges                       6            (54)          (92)        (172) 
 Loss before tax                                              (945)       (3,333)      (5,809) 
 Taxation on continuing operations                                0          (33)          (3) 
 Total comprehensive income attributable 
  to owners of the parent company                             (945)       (3,366)      (5,812) 
                                                       ============  ============  =========== 
 
 Loss per share (pence) 
 Basic and diluted                                7          (0.04)        (0.77)       (0.47) 
                                                       ============  ============  =========== 
 
 Consolidated Statement of Comprehensive 
  Income 
 
 Loss for the year                                            (945)       (3,366)      (5,812) 
 Items that may be reclassified subsequently 
  to profit or loss: 
 Exchange differences on translation 
  of foreign operations                                        (83)          (24)          184 
 Other comprehensive loss                                   (1,028)       (3,390)      (5,628) 
 
 Total comprehensive loss attributable 
  to owners of the parent company                           (1,028)       (3,390)      (5,628) 
                                                       ============  ============  =========== 
 

Condensed consolidated statement of financial position At 30 June 2020 (unaudited)

 
                                                  Unaudited   Unaudited    Audited 
                                                     30 Jun    restated     31 Dec 
                                                       2020      30 Jun       2019 
                                                                   2019 
 
                                          Notes     GBP'000     GBP'000    GBP'000 
 Assets 
 Non-current assets 
 Intangible assets                          8            55           0          0 
 Property, plant and equipment              9            30         105         51 
 Right of Use of asset                     13             0       1,509      1,321 
                                                         85       1,614      1,372 
                                                 ----------  ----------  --------- 
 Current assets 
 Trade and other receivables               10         1,215       1,956      1,631 
 Contract assets                                         78         450        255 
 Cash and cash equivalents                              183       1,851        149 
                                                      1,476       4,257      2,035 
                                                 ----------  ----------  --------- 
 Total assets                                         1,561       5,871      3,407 
                                                 ----------  ----------  --------- 
 Current liabilities 
 Trade and other payables                  11       (8,125)     (9,724)    (7,009) 
 Contract liabilities                                 (256)       (562)      (335) 
 Lease liabilities                         12             0       (388)      (472) 
 Provisions for liabilities and 
  charges - current                        13         (630)       (169)      (768) 
                                                 ----------  ----------  --------- 
                                                    (9,011)    (10,843)    (8,584) 
                                                 ----------  ----------  --------- 
 Net current assets                                 (7,535)     (6,586)    (6,549) 
                                                 ----------  ----------  --------- 
 
 Non-current liabilities 
 Other payables                            11         (536)       (652)      (676) 
 Contract liabilities                                     0           0        (7) 
 Lease liabilities                         12             0     (1,348)    (1,186) 
 Provision for Liabilities and charges     13             0       (125)          0 
                                                      (536)     (2,125)    (1,869) 
                                                 ----------  ----------  --------- 
 Total liabilities                                  (9,547)    (12,968)   (10,453) 
                                                 ----------  ----------  --------- 
 Net assets                                         (7,986)     (7,097)    (7,046) 
                                                 ==========  ==========  ========= 
 
 Equity 
 Share capital                             14        14,817      14,711     14,817 
 Share premium                                       12,043      10,051     12,043 
 Other reserves                                     (2,840)     (3,250)    (2,845) 
 Retained earnings                                 (32,006)    (28,609)   (31,061) 
                                                 ----------  ----------  --------- 
 Total Equity                                       (7,986)     (7,097)    (7,046) 
                                                 ==========  ==========  ========= 
 

Condensed consolidated cash flow statement

Six months ended 30 June 2020 (unaudited)

 
                                                       Unaudited     Unaudited      Audited 
                                                      six months      restated    full year 
                                                           ended    six months        ended 
                                                         30 June      ended 30       31 Dec 
                                                            2020     June 2019         2019 
 Notes 
                                             Notes       GBP'000       GBP'000      GBP'000 
 Loss for the period                                       (945)       (3,366)      (5,686) 
 Adjustments for: 
 Taxation                                                      0            33            3 
 Profit on sale of fixed assets               12           (378)          (13)        (125) 
 Net finance                                                  20            63          172 
 Foreign Exchange                                             54            21          238 
 Amortisation of intangible assets                             2            58          228 
 Amortisation of rights to use of 
  asset                                                       69           227          415 
 Depreciation of fixed assets                                 21           250           77 
 Share based payments                                         88            43          239 
 Increase/(decrease) in provisions                         (138)         (134)          340 
 Increase/(decrease) in accruals 
  and deferred income                                        332           609      (1,392) 
 (Increase)/decrease in trade and 
  other receivables                                          593         3,836        3,869 
 Increase/(decrease) in trade and 
  other payables                                             225       (1,716)      (2,658) 
                                                    ------------  ------------  ----------- 
 Cash flows from operating activities                       (57)          (89)      (4,280) 
 Taxation                                                      0          (28)           19 
 Net interest                                                (3)          (22)         (31) 
                                                                  ------------  ----------- 
 Net cash used in operating activities                      (60)         (139)      (4,292) 
                                                    ------------  ------------  ----------- 
 
 Investing activities 
 Purchase of property, p&m and intangible 
  assets                                                    (57)             0            0 
 Proceeds from sale of fixed assets                            0           974        1,073 
 Net cash generated / (used) from 
  investing activities                                      (57)           974        1,073 
                                                    ------------  ------------  ----------- 
 
 Financing activities 
 Payment of lease liabilities                               (45)         (166)        (352) 
 Proceeds from issue of ordinary 
  share capital                                                0         1,267        3,313 
 Repayment of shareholders loans                               0         (500)            0 
 Loan monies received                         11             500             0            0 
 Repayment of loan                            11           (167)             0            0 
 Net cash generated from in financing 
  activities                                                 288           601        2,961 
                                                    ------------  ------------  ----------- 
 
 Net increase/(decrease) in cash 
  and cash equivalents                                       171         1,436        (258) 
 Cash and cash equivalents at beginning 
  of period                                                  149           461          461 
 Effect of foreign exchange rate 
  changes                                                  (137)          (46)         (54) 
 Cash and cash equivalents at end 
  of period                                                  183         1,851          149 
                                                    ============  ============  =========== 
 

Condensed consolidated statement of changes in equity

Six months ended 30 June 2020 (unaudited)

 
                                                Share      Share       Other    Retained     Total 
                                              capital    premium    reserves    earnings 
                                                         account 
                                     Notes    GBP'000    GBP'000     GBP'000     GBP'000   GBP'000 
 
 At 1 January 2019                             14,420      8,294     (3,268)    (25,526)   (6,080) 
 Adjustment on adoption of IFRS 
  16                                                                                  10        10 
 At 1 January 2019 - restated                  14,420      8,294     (3,268)    (25,516)   (6,070) 
 Loss for the period                                                             (2,852)   (2,852) 
 Other comprehensive loss for the 
  period                                                                (24)                  (24) 
 Shares issued                                  2,128       (80)                             2,048 
 Share based payment                                                      42                    42 
 At 30 June 2019 - reported                    16,548      8,214     (3,250)    (28,368)   (6,856) 
 Adjustment on adoption of IFRS 
  16 - correction                      1                                            (10)      (10) 
 Shares issued - correction            1      (1,837)      1,837                                 0 
 Other comprehensive loss for the 
  period - correction                  1                                             277       277 
 Loss for the period - correction      1                                           (514)     (514) 
 At 30 June 2019 - restated                    14,711     10,051     (3,250)    (28,615)   (7,103) 
 Loss for the period                                                             (2,446)   (2,446) 
 Other comprehensive loss for the 
  period                                                                 208                   208 
 Shares issued                                    106      1,992                             2,098 
 Share based payment                                                     197                   197 
 At 31 December 2019                           14,817     12,043     (2,845)    (31,061)   (7,046) 
 Loss for the period                                                               (945)     (945) 
 Other comprehensive loss for the 
  period                                                                (83)                  (83) 
 Share based payment                                                      88                    88 
                                               14,817     12,043     (2,840)    (32,006)   (7,986) 
                                            =========  =========  ==========  ==========  ======== 
 

Notes to the interim results

Six months ended 30 June 2020 (unaudited)

   1.         Presentation of financial information and accounting policies 

Basis of preparation

The condensed consolidated financial statements are for the six months to 30 June 2020.

The information for the six months ended 30 June 2020 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The information for the year ending 31 December 2019 is taken from the Annual Reports and Financial Statements 2019 of 7digital Group plc.

The combined financial information has been prepared in accordance with 7digital Group plc accounting policies. 7digital Group plc accounting policies are in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and as issued by the International Accounting Standards Board, and are set out in the 7Ddigital Group plc Annual Reports and Financial Statements 2019

Going concern

Summary

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

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 in the Operational Review, 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.

On 28 September 2020, the Group secured a GBP1m secured revolving credit facility with Investec, interest of 6% above Investec bank rate on the drawn portion of the facilty .

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, 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.

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 known as B2C sales) 
   3)     Creative revenues 

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 comprises 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.

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. These mainly include the production of weekly radio programmes, as well as the one-off production of episodes. In case of one-off productions which required the Group to provide progress reports to its customers and where the company has no alternative use of the program produced, the group recognises revenue over the period ie based on percentage of completion, for the rest of the regular programs and contents, where the company doesn't own the IP, the group measures the revenue based on delivery of the content i.e. point in time.

Contracts with multiple performance obligations

Many of the Group's contracts include a variety of performance obligations, including Licencing revenue (set-up fees, monthly revenue for using 7digital's API licence platform and usage fees), however may not be distinct in nature. Under IFRS 15, the Group must evaluate the segregation of the agreed goods or services based on whether they are 'distinct'. If both the customer benefits from them either on its own or together with other readily available resources, and it is 'separately identifiable' within the contract.

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 7digital platform 

- The development and support fees which cover the costs of developer and customer support time

   -      Usage fees which cover certain variable costs like bandwidth and content 

A key consideration is whether 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.

Intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives. Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical accounting judgements and key areas of estimation uncertainty below).

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

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

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

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

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

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. Due to the implementation of IFRS16, the brought forward balances at 1 January 2019 have been adjusted to reflect the inclusion of a Rights of Use asset.

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 
   Right-of-use assets                                       - over period of the lease 

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.

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;

-- 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 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 revenue from the sale of goods and services as set out in the Group's accounting policy, in particular whether the Group determines the appropriate apportionment of revenue to the correct accounting period and subsequent amount accrued or deferred at the year end.

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

Correction to prior period

Share capital and share premium

There was an overtstatement of share capital and an understatement of share premium of GBP1,837k relating to the capital reorganisation in June 2019.

Shareholder's loan forgiven and associated interest

During the 2019 audit, it was established that the the shareholder's loan of GBP250k plus associated interest of GBP27k that was forgiven in March 2019 should have been deemed a capital contribution and not shown within finance income. This has effected the reported loss.

Understatement of content cost of sales

Content cost of sales was understated at 30 June 2019 by GBP179k; consequently cost of sales and accrued costs have been increased by GBP179k. This as effected the report loss.

Implementation of IFRS 16

During the 2019 audit the Group took the decision to adopt IFRS16 from 1 January 2019 without restatement of comparative figures. In addition the value of the tight to use asset and associated leased liability was revised. The effect has been to reduce the asset value by GBP70k, reduce the lease liability by GBP60k and remove the entry in the statement of changes in equity.

The effect of the above has been to incresae the reported loss for the six month period to 30 June 2019 by GBP456k to GBP3,308k

   2.             Revenue 

2.1 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.

 
                                     Unaudited     Unaudited      Audited 
                                    six months      restated    full year 
                                         ended    six months        ended 
                                       30 June      ended 30       31 Dec 
                                          2020     June 2019         2019 
                                       GBP'000       GBP'000      GBP'000 
 Revenue 
 Licensing                               1,626         3,495        5,341 
 Content                                 1,063         1,306        2,390 
 Creative                                  408           790        1,572 
 Total                                   3,097         5,591        9,303 
 
 Gross profit 
 Licensing                               1,577         3,359        4,993 
 Content                                   201           193          469 
 Creative                                  262           380          835 
 Total                                   2,040         3,932        6,297 
 
 Operating profit attributable 
  to revenue streams 
 Licensing                               1,699         3,668        5,553 
 Content                                   193           186          447 
 Creative                                  259           345          830 
 Total                                   2,151         4,199        6,830 
 
 Other income (unattributable)              59           269          103 
 Amortisation of right to use 
  of asset                                (69)         (227)        (415) 
 Corporate expenses                    (3,032)       (7,509)     (12,155) 
 Financing income & costs                 (54)          (65)        (172) 
 Taxation                                    0          (33)          (3) 
                                  ------------  ------------  ----------- 
 Loss for the year                       (945)       (3,366)      (5,812) 
                                  ============  ============  =========== 
 

2.2 Geographical information

 
                                          Revenue                        Non-current assets 
                         ---------------------------------------  -------------------------------- 
                            Unaudited     Unaudited      Audited   Unaudited   Unaudited   Audited 
                           six months      restated    full year      30 Jun    restated    31 Dec 
                                ended    six months        ended        2020      30 Jun      2019 
                              30 June      ended 30       31 Dec                    2019 
                                 2020     June 2019         2019 
                              GBP'000       GBP'000      GBP'000     GBP'000     GBP'000   GBP'000 
 Continuing operations 
 United Kingdom                 1,049         1,680        2,977          85       1,614     1,372 
 Europe                           805         1,660        2,915           0           0         0 
 Rest of World                  1,243         2,251        3,411           0           0         0 
                                3,097         5,591        9,303          85       1,614     1,372 
                         ============  ============  ===========  ==========  ==========  ======== 
 

2.3 On-going operations

 
                         Unaudited     Unaudited       Var       Var 
                        six months      restated 
                             ended    six months 
                           30 June         ended 
                              2020       30 June 
                                           2019* 
                           GBP'000       GBP'000   GBP'000   GBP'000 
 Revenue 
 Licensing                   1,626         2,381     (755)      -32% 
 Content                     1,063         1,306     (243)      -19% 
 Creative                      408           790     (382)      -48% 
 Total                       3,097         4,477   (1,380)      -31% 
 
 Gross profit 
 Licensing                   1,577         2,301     (724)      -31% 
 Content                       201           193         8        4% 
 Creative                      262           380     (118)      -31% 
 Total                       2,040         2,874     (834)      -29% 
 
 Gross profit% 
 Licensing GP%                 97%           97%                  0% 
 Content GP%                   19%           15%                  4% 
 Creative GP%                  64%           48%                 16% 
 Total GP%                     66%           64%                  2% 
 
 Other Income                  193           269      (76)      -28% 
 Corporate expenses        (3,142)       (6,441)     3,299      -51% 
 Adjusted EBITDA             (909)       (3,298)     2,389      -72% 
                      ============  ============  ========  ======== 
 

*the above 2019 numbers exclude Juke sales and TDC settlement in 2019

   3.             Other income 
 
                                            Unaudited     Unaudited      Audited 
                                           six months      restated    full year 
                                             ended 30    six months     ended 31 
                                            June 2020      ended 30     Dec 2019 
                                                          June 2019 
                                              GBP'000       GBP'000      GBP'000 
 
 Research and development tax credits 
  receivable                                       59           160          103 
 Income from termination agreement 
  with Customers                                  134         1,000        1,000 
 Income received from sale of domain 
  names not capitalised                             0           109            0 
                                                  193         1,269        1,103 
                                         ============  ============  =========== 
 
   4.             Operating loss for the year 
 
                                                      Unaudited     Unaudited      Audited 
                                                     six months      restated    full year 
                                                       ended 30    six months     ended 31 
                                                      June 2020      ended 30     Dec 2019 
                                                                    June 2019 
                                                        GBP'000       GBP'000      GBP'000 
 
 Net foreign exchange loss                                   54            21          238 
 Amortisation of intangibles                                  2           285          228 
 Amortisation of right to use of asset                       69           227          415 
 Depreciation of property, plant & 
  equipment (i)                                              21           250           77 
 (Profit)/loss on sale of fixed assets                    (378)          (13)        (125) 
 Bad debt provisions and write offs                           0           591          609 
 Share based payment expense                                 88            43          239 
 Staff costs                                              1,937         3,612        5,435 
                                          =====================  ============  =========== 
 

Underlying adjusted administrative costs

The underlying adjusted administrative costs reflect the impact of capitalizing R&D costs in prior year and the removal of the 2019 other adjusting items:

 
                                  Unaudited     Unaudited    Change   Change 
                                 six months      restated 
                                   ended 30    six months 
                                  June 2020      ended 30 
                                                June 2019 
                                    GBP'000       GBP'000   GBP'000        % 
 Administrative expenses            (3,124)       (8,442)     5,318     -63% 
 Other adjusting items (see 
  note 5)                                 0           937     (937) 
 Administrative expenses 
  - adjusted                        (3,124)       (7,505)     4,381     -58% 
                               ============  ============  ========  ======= 
 
   5.         Other adjusting items 
 
                                                 Unaudited     Unaudited      Audited 
                                                six months      restated    full year 
                                                  ended 30    six months     ended 31 
                                                 June 2020      ended 30     Dec 2019 
                                                               June 2019 
                                                   GBP'000       GBP'000      GBP'000 
 
 Costs/impairment relating to closure 
  of Denmark business                                    0         (134)        (254) 
 Development costs expensed on legacy 
  Denmark platform                                       0         (198)        (162) 
 Corporate restructuring provision                       0         (321)        (694) 
 Professional fees relating to contingency 
  planning & fund raising                                0         (284)        (464) 
 Legal provision                                         0             0        (228) 
                                                         0         (937)      (1,802) 
                                              ============  ============  =========== 
 

During the six months to 30 June 2020 there were no other adjusting iitems.

   6.         Finance income and charges 
 
                                                 Unaudited     Unaudited      Audited 
                                                six months      restated    full year 
                                                  ended 30    six months     ended 31 
                                                 June 2020      ended 30     Dec 2019 
                                                               June 2019 
                                                   GBP'000       GBP'000      GBP'000 
 
 Other income                                            0            13            0 
 Interest expenses on leased liability                (17)          (91)        (148) 
 Shareholders interest payable                           0           (7)          (7) 
 Finance costs                                         (9)             1         (17) 
 Loan interest                            11          (25)             0            0 
 Other charges similar to interest                     (3)           (8)            0 
                                                      (54)          (92)        (172) 
                                              ============  ============  =========== 
 
   7.         Earnings per share 
 
                                            Unaudited     Unaudited         Audited 
                                           six months      restated       full year 
                                             ended 30    six months        ended 31 
                                            June 2020      ended 30        Dec 2019 
                                                          June 2019 
 Basic and Diluted EPS 
 Loss attributable to Share Holders 
  (GBP'000)                                     (945)       (3,366)         (5,812) 
 Weighted average number of shares 
  (Nos)                                 2,455,419,294   436,816,663   1,244,214,336 
 Per share amount (pence)                      (0.04)        (0.77)          (0.47) 
                                       ==============  ============  ============== 
 
   8.         Intangible assets 
 
                              Bespoke        Finance   Customer   Goodwill   Intangible 
                         applications    application       List                  assets 
                              GBP'000                   GBP'000    GBP'000      GBP'000 
 Cost 
 At 31 December 2018            9,018              0        509        688       10,215 
 Disposals                    (3,569)              0          0          0      (3,569) 
 At 30 June 2019                5,449              0        509        688        6,646 
 Disposals                    (2,244)              0      (509)      (688)      (3,441) 
 At 31 December 2019            3,205              0          0          0        3,205 
 Additions                          0             57          0          0           57 
 At 30 June 2020                3,205             57          0          0        3,262 
                       --------------  -------------  ---------  ---------  ----------- 
 Depreciation 
 At 31 December 2018            7,843              0        509        688        9,040 
 Charge for period                285              0          0          0          285 
 Disposals                    (2,679)              0          0          0      (2,679) 
 At 30 June 2019                5,449              0        509        688        6,646 
 Charge for period               (57)              0          0          0         (57) 
 Impairment losses            (2,187)              0      (509)      (688)      (3,384) 
 At 31 December 2019            3,205              0          0          0        3,205 
 Charge for period                  0              2          0          0            2 
 At 30 June 2020                3,205              2          0          0        3,207 
                       ==============  =============  =========  =========  =========== 
 
 Net book value 
                       --------------  -------------  ---------  ---------  ----------- 
 At 30 June 2020                    0             55          0          0           55 
                       ==============  =============  =========  =========  =========== 
 
 At 30 June 2019                    0              0          0          0            0 
                       ==============  =============  =========  =========  =========== 
 
 At 31 December 2019                0              0          0          0            0 
                       ==============  =============  =========  =========  =========== 
 
   9.         Tangible assets 
 
                        Property     Computer        Fixtures   Tangible 
                                    equipment    and fittings     assets 
                         GBP'000      GBP'000         GBP'000    GBP'000 
 
 
 At 31 December 2018         404        1,977             125      2,506 
 Disposals                     0            0               0          0 
 At 30 June 2019             404        1,977             125      2,506 
 Disposals                              (443)             (5)      (448) 
 At 31 December 2019         404        1,534             120      2,058 
 Disposals                 (404)            0               0      (404) 
 At 30 June 2020               0        1,534             120      1,654 
                       ---------  -----------  --------------  --------- 
 Depreciation 
 At 31 December 2018         404        1,849             125      2,378 
 Charge for period             0           23               0         23 
 Disposals                     0            0               0          0 
 At 30 June 2019             404        1,872             125      2,401 
 Charge for period             0           54               0         54 
 Disposals                     0        (443)             (5)      (448) 
 At 31 December 2019         404        1,483             120      2,007 
 Charge for period             0           21               0         21 
 Disposals                 (404)            0               0      (404) 
 At 30 June 2020               0        1,504             120      1,624 
                       =========  ===========  ==============  ========= 
 
 Net book value 
                       ---------  -----------  --------------  --------- 
 At 30 June 2020               0           30               0         30 
                       =========  ===========  ==============  ========= 
 
 At 30 June 2019               0          105               0        105 
                       =========  ===========  ==============  ========= 
 
 At 31 December 2019           0           51               0         51 
                       =========  ===========  ==============  ========= 
 
   10.       Trade and other receivables 
 
                                  Unaudited   Unaudited   Audited 
                                     30 Jun    restated    31 Dec 
                                       2020      30 Jun      2019 
                                                   2019 
                                    GBP'000     GBP'000   GBP'000 
 
 Trade Debtors                        1,796       2,288     1,851 
 Provision for doubtful debts         (914)       (999)   (1,014) 
                                 ----------  ----------  -------- 
 Net trade receivables                  882       1,289       837 
 Prepayments                              3          38         0 
 Other Debtors                          177         230       382 
 R&D credits receivable                 138         399       412 
                                      1,200       1,956     1,631 
 Non - current 
 Other Debtors                           15           0         0 
                                      1,215       1,956     1,631 
                                 ==========  ==========  ======== 
 
   11.       Trade and other payables 
 
                                     Unaudited   Unaudited   Audited 
                                        30 Jun    restated    31 Dec 
                                          2020      30 Jun      2019 
                                                      2019 
                                       GBP'000     GBP'000   GBP'000 
 Current 
 Trade Creditors                         2,918       4,322     3,101 
 Accrued Costs                           3,008       4,042     2,669 
 Other Taxes and Social Security         1,250         380       565 
 Other Creditors                           616       1,106       674 
 Loans                                     333           0         0 
                                         8,125       9,850     7,009 
                                    ==========  ==========  ======== 
 
                                       GBP'000     GBP'000   GBP'000 
 Non-current 
 Other payables                            536         652       676 
                                           536         652       676 
                                    ==========  ==========  ======== 
 

On 6 March 2020, a loan of GBP500k was received from CSS Alpha; it is repayable over 12 equal monthly installments starting from 27 Match 2020 along with interest calculated at 1.5% of the outstanding balance. Up to 30 June 2020, 4 monthly payments had been made together with a total interest of GBP25k.

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 GBP0.2m as at 30 June 2020.

A total amount of GBP0.9m remains repayable under this agreement at the balance sheet date. Of this balance, GBP0.5m falls due for repayment after more than one year. On 16 September 2020 the Group received confirmation GBP0.7m (GBP0.2m included in current and GBP0.5m non-curent) was forgiven by the French authorities.

   12.       Rights of use of asset and lease liability 

The group leased a property that originally ran until April 2023. The value of the lease and the right to use asset has been determined based on the rental payments relating to the period 1 January 2019 to April 2023.

In February 2020, on agreement with the landlord the lease was terminated, and the Group vacated the premises. The disposal of the assets and associated liability resulted in a profit on sale of fixed assets of GBP252k.

Right of use of asset

 
                                 Land and 
                                buildings 
                                  GBP'000 
 Cost 
 At 31 December 2018                    0 
 Additions under IFRS 16            2,273 
 At 30 June 2019                    2,273 
 IFRS16 correction                  (537) 
 At 30 June 2019 - restated         1,736 
 At 31 December 2019                1,736 
 Disposals                        (1,736) 
 At 30 June 2020                        0 
                              ----------- 
 Depreciation 
 At 31 December 2018                    0 
 Additions under IFRS 16              341 
 Charge for period                    227 
 At 30 June 2019                      568 
 IFRS16 correction                  (341) 
 At 30 June 2019 - restated           227 
 Charge for period                    188 
 At 31 December 2019                  415 
 Charge for period                     69 
 Disposals                          (484) 
 At 30 June 2020                        0 
                              =========== 
 
 Net book value 
                              ----------- 
 At 30 June 2020                        0 
                              =========== 
 
 At 30 June 2019                    1,509 
                              =========== 
 
 At 31 December 2019                1,321 
                              =========== 
 

Lease liability

 
                                Leased 
                                 asset 
 At 31 December 2018                 0 
 Additions under IFRS 16         2,090 
 Interest expense                   49 
 Lease payments                  (166) 
 At 30 June 2019                 1,973 
 IFRS16 correction               (228) 
 IFRS16 correction                  36 
 IFRS16 correction                (45) 
 At 30 June 2019 - restated      1,736 
 Interest expense                   63 
 Lease payments                  (141) 
 At 31 December 2019             1,658 
 Interest expense                   17 
 Lease payments                   (45) 
 Disposals                     (1,630) 
 At 30 June 2020                     0 
                              ======== 
 

On 12 August 2020, following the termination of the old lease, 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.

   13.       Provisions for liabilities and charges 
 
                                       Unaudited   Unaudited   Audited 
                                          30 Jun    restated    31 Dec 
                                            2020      30 Jun      2019 
                                                        2019 
                                         GBP'000     GBP'000   GBP'000 
 Current 
 Dilapidation provision                        0           0       125 
 Provision for closure of business           288         144       309 
 Legal provision                             228           0       228 
 Other provision                             114          25       106 
                                             630         169       768 
                                      ==========  ==========  ======== 
 
                                         GBP'000     GBP'000   GBP'000 
 Non-current 
 Dilapidation provision                        0         125         0 
                                               0         125         0 
                                      ==========  ==========  ======== 
 

In February 2020, on agreement with the landlord the lease was terminated, and the Group vacated the premises The dilapidation provision was no longer required.

   14.       Share capital and share premium account 
 
                             Unaudited     Unaudited         Audited 
                                30 Jun      restated          31 Dec 
                                  2020        30 Jun            2019 
                                                2019 
                                No. of        No. of          No. of 
                                shares        shares          shares 
 Allotted, called 
  up and fully paid: 
 Ordinary shares of 
  0.01p each             2,455,419,294             -   2,455,419,294 
 Ordinary share of                   -   399,556,701               - 
  GBP0.01 each 
 Deferred share of 
  0.99p each               419,622,489             -     419,622,489 
 Deferred share of 
  GBP0.09 each             115,751,517   115,751,517     115,751,517 
                        ==============  ============  ============== 
 
                               GBP'000       GBP'000         GBP'000 
 
 Allotted, called 
  up and fully paid             14,817        14,711          14,817 
                        ==============  ============  ============== 
 
   15.       Related party transactions 

During the six month period, the Group invoiced and recognised GBP89k (31 December 2019: GBP175k) of revenue to eMusic (a subsidiary of TriPlay Inc.), a group which Tamir Koch is a director. At 30 June 2020, the Group was owed GBP299k (31 December 2019: GBP209k); GBP164k of this amount has been provided for at the year end.

During the six month period, the Group paid GBP9.8k (2018: GBP9.6k) to MIDiA Research for music market research services, a company of which Mark Foster is a director. At 30 June 2019, the Group owed GBP4.9k (31 December 2018: GBP6.4k).

   16.       Post balance sheet event 

On 12 August 2020, following the termination of the old lease, 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 GBP676k (as detailed in note 11 above) was forgiven by the French authorities.

On 28 September 2020, the Group secured a GBP1m revolving credit facility with Investec, 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. 7digital is now showing strong commercial momentum, a clearer and more defined strategy with significant refinancing.

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END

IR SEUSSUESSEEU

(END) Dow Jones Newswires

September 29, 2020 02:04 ET (06:04 GMT)

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