TIDM7DIG
RNS Number : 9158A
7digital Group PLC
28 September 2022
28 September 2022
7digital Group plc
("7digital", "the Group" or "the Company")
7digital (AIM: 7DIG), the global leader in B2B end-to-end
digital music solutions, announces its interim results for the six
months ended 30 June 2022.
Financial Highlights
-- Total revenue increased by 21% to GBP3.9m (H1 2021: GBP3.3m),
including licensing revenue growth of 45% to GBP2.5m (H1 2021:
GBP1.7m)
-- Gross margin improved to 70.2% (H1 2021: 62.6%)
-- Achieved adjusted positive EBITDA of GBP0.03m (H1 2021: loss of GBP1.0m)*
-- Operating loss reduced to GBP0.2m (H1 2021: GBP1.9m)
-- Cash and cash equivalents of GBP0.03m as at 30 June 2022 (H1
2021: GBP0.5m); as at 27 September 2022, cash and cash equivalents
were GBP0.6m**
* Adjusted to exclude other adjusting items, amortisation,
foreign exchange, depreciation and share-based payments (see note 5
to the financial statements )
** Including fundraising announced on 23 September 2022
Operational Highlights
-- Secured 5 new licensing customers and 3 contract expansions or extensions, including:
o A new contract worth at least GBP1m with a pan-Asian consumer
services company
o A contract expansion worth at least EUR2.2m with a B2B music
streaming service
o Further progress in social media industry with a new two-year
contract with Lomotif, one of the top worldwide social
video-sharing apps
-- Sustained ramp-up in licensing revenue post period; as at 27
September 2022 the total contracted licensing revenue for full year
2022 is 43% greater than that generated in 2021
Paul Langworthy, CEO of 7digital, said:
"This was a great six months for 7digital. We delivered strong
revenue growth and achieved adjusted EBITDA profitability as the
new and expanded contracts we won last year and in the early part
of this year began to ramp up. We continued to win new customers
and sign renewals with existing customers, many of which are
multi-year agreements. Some of these deals also include significant
usage terms, which we expect to drive further increases in revenue
as these clients scale their own services.
"We entered the second half of the year delivering against a
strong contracted order book and with a solid new business
pipeline. The business has already secured a 43% increase in
contracted platform licensing revenue for FY 2022 over FY 2021. As
a result, we are on track to deliver strong revenue growth for 2022
and we look forward to reporting on our further progress."
Enquiries
7digital c/o 020 4582 3500
Paul Langworthy, CEO
Strand Hanson Limited (Nominated and Financial Adviser) 020 7409 3494
Richard Johnson, James Harris, James Bellman
Arden Partners plc (Broker) 020 7614 5900
Ruari McGirr
Gracechurch Group (Financial PR) 020 4582 3500
Harry Chathli, Claire Norbury
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 and extensive global music rights
used to create music streaming and radio services for a diverse
range of customers - including consumer brands, 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 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 six months to 30 June 2022 was a strong period for the Group
as it delivered a significant increase in revenue to GBP3.9m (H1
2021: GBP3.3m) and achieved adjusted EBITDA profitability of
GBP0.03m (H1 2021: loss of GBP1.0m). This growth was driven by the
Group's licensing business, based on new customers won in the prior
year coming on stream as well as contract renewals and expansions
with existing customers during the period. The Group also continued
to win new licensing customers. Many of these new and renewed
contracts are multi-year agreements, which enhances visibility over
future revenues.
During the period, the Group secured 5 new licensing customers,
which included a new two-year contract worth at least GBP1m with a
pan-Asian consumer services company. The new customer will be using
several unique services provided by 7digital's music-as-a-service
platform, which was selected after a competitive tender, to deliver
an app-based music streaming service to enhance its engagement with
its customers.
In further success in the social media industry, one of the
Group's core target segments, 7digital won a new two-year contract
with Singapore-based Lomotif, one of the top worldwide social
video-sharing apps. The Group's music-as-a-service platform will
provide music used by creators in the Lomotif app globally. The
initial contract will cover licenced major label content in the
app's current territories and will accommodate expansion in content
from newly licenced labels as well as usage. As such, this contract
also reflects the increasing transitioning of the Group's pricing
model to align revenue with usage that expands as the customer
grows.
The Group signed a long-term contract with Utopia Music AG, a
B2B music fintech company that exists to build technology and data
accounting to improve the way the music industry pays royalties to
the creators for the music copyrights consumption, as well as a
two-year contract with a new music and data B2B platform designed
to better meet the monetisation needs of the rightsholder community
. Using 7digital's global music database capabilities, in addition
to Utopia's existing data capabilities, Utopia's customers will be
able to monitor and measure the consumption of their music
copyrights globally. In so doing, Utopia's customers can leverage
data for faster, more accurate payouts of royalties to copyright
holders.
In progress with existing licensing customers, the Group secured
3 contract renewals or expansions during the first half of the year
(H1 2021: 4), reflecting the value of 7digital's platform and
services to its customers. This included a contract expansion with
a B2B music streaming service customer, worth a minimum of EUR2.2m
over a three-year period. 7digital has been providing services to
the customer since 2016, with contract renewals on an annual basis.
This latest contract expands the relationship to a long-term
agreement, providing the Group with greater visibility over
revenue.
Outside of licensing, eMusic Live, the Company's live streaming
platform in partnership with eMusic.com, livestreamed Hangout Music
Festival and Cali Vibes Festival, festivals of the world's largest
entertainment company, AEG Presents. eMusic Live also livestreamed
the iHeartCountry Festival of iHeartMedia, the largest audio
company in the US. At the end of the period, as announced on 30
June 2022, the Group entered into an agreement with eMusic.com that
expands 7digital's potential revenue generating opportunities with
eMusic Live to include a portion of net revenue derived from all
activity on the platform rather than just from providing the
digital music tracks for download in the eMusic Live experience.
The Group does not, however, anticipate generating revenue under
this new agreement in the current year.
Board Changes
As announced on 23 September 2022, Mark Foster, who has been a
Non-executive Director of the Group since April 2015, has been
appointed Interim Chairman following the resignation of Tamir Koch,
who stepped down from his role as Chairman to focus more time on
the development of eMusic Blockchain. Tamir Koch remains on the
Board as a Non-executive Director. Alongside this, and as described
further in the Financial Review below, the Group has terminated the
loan that had previously been secured with Tamir Koch, as announced
on 30 June 2022, with no accrual of interest.
Financial Review
Revenue for the first half of 2022 increased by 21% to GBP3.9m
compared with GBP3.3m for the first half of the prior year,
reflecting significant growth in licensing revenue and good growth
in content revenue. Licensing revenue continued to be the largest
contributor to Group revenue, accounting for 63% (H1 2021: 52%),
with 30% provided by Content (H1 2021: 32%) and 7% by Creative (H1
2021: 16%). The reduction in creative revenue, which was more than
offset by the growth elsewhere in the business, is primarily due to
H1 2021 benefitting from a rollover of projects that had been
delayed due to COVID-19. As at 30 June 2022, the Group had deferred
licensing revenue relating to set up fees of GBP345k of which
GBP183k is expected to be received by the Group in H2 2022, GBP131k
in the year ending 31 December 2023 and GBP31k in future
periods.
Gross margin for the first half of 2022 improved substantially
to 70.2% (H1 2021: 62.6%), reflecting the higher margin nature of
the Group's licensing business. Gross profit for the period
increased to GBP2.8m (H1 2021: GBP2.0m), reflecting the increase in
revenue and gross margin.
Adjusted administrative expenses were reduced by 11% to GBP2.7m
(H1 2021: GBP3.1m). This decrease of GBP0.3m was attributable to
salary savings of GBP0.2m and a reduction in bad debt provision of
GBP0.1m.
The Group achieved a substantial reduction in operating loss of
87% to GBP0.2m (H1 2021: GBP1.8m), which is primarily a combination
of:
-- GBP0.7m increase in revenue;
-- GBP0.3m reduction in adjusted administrative expenses;
-- GBP0.1m reduction in depreciation and amortisation due to the removal of right-of-use assets;
-- GBP0.2m decrease in share-based payments; and
-- GBP0.1m reduction in both non-operating expenses and FX expenses.
As a result, the Group achieved adjusted EBITDA profitability of
GBP0.03m compared with a loss of GBP1.0m for the first half of the
prior year (adjusted for other adjusting items, amortisation,
foreign exchange, depreciation and share-based payments).
Loss per share was 0.01 pence (H1 2021: 0.07 pence loss).
As at 30 June 2022, the Group had cash and cash equivalents of
GBP0.03m (30 December 2021: GBP0.4m). Post period, the Group has
received GBP0.5m in the form of a loan, as announced on 23
September 2022, from Magic Investments S.A., a significant
shareholder represented by David Lazarus who is a Non-executive
Director of the Group, that has been fully drawn. Alongside
entering the new loan, and as noted above, the Group terminated a
shareholder loan that had been previously secured with Tamir Koch,
as announced on 30 June 2022. The Group will fully repay the GBP50k
that had been drawn under the loan from Tamir Koch, which has been
terminated with no accrual of interest. As at 27 September 2022,
the Group had cash and cash equivalents of GBP0.6m.
Outlook
7digital entered the second half of 2022 with a strong
contracted order book as well as a solid new business pipeline,
some of which has transitioned to contract since period end.
Accordingly, the Group is on track to deliver strong total revenue
growth for the full year.
The licensing business is expected to continue to be the key
contributor to Group revenue and to drive growth. Contracted
licensing revenue for full year 2022 is 43% higher than that
generated in 2021. The Group also expects content and creative
revenue to remain constant year-on-year.
As a result, the Board remains confident in 7digital's prospects
and looks forward to reporting on the Company's progress.
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE
INCOME
SIX MONTHSED 30 JUNE 2022 (unaudited)
Unaudited Unaudited
six months six months Audited
ended ended full year
30 June 30 June to 31
2022 2021 Dec 2021
Notes GBP'000 GBP'000 GBP'000
Continuing operations
Revenue 2 3,941 3,270 6,732
Cost of sales (1,172) (1,222) (2,409)
Gross profit 2,769 2,048 4,323
Administrative expenses (3,002) (3,895) (7,969)
Adjusted operating loss 5 (116) (1,320) (2,527)
- Share-based payments 18 (126) (359) (556)
- Foreign exchange 41 (62) (54)
- Other adjusting items 3 (32) (106) (509)
--------------------------------------------- ------ ------------ ------------ -----------
Operating loss 4 (233) (1,847) (3,646)
Finance income and costs 7 (97) (62) (273)
------------ ------------ -----------
Loss before income tax (330) (1,909) (3,919)
Taxation on continuing operations - - -
------------ ------------ -----------
Loss from continuing activities (330) (1,909) (3,919)
Profit from discontinued operations - - -
-----------
Loss for the period attributable to
owners of the parent company (330) (1,909) (3,919)
============ ============ ===========
Loss per share (pence)
Basic and diluted - loss from continuing
operations 8 (0.01) (0.07) (0.14)
Basic and diluted - loss attributable
to ordinary equity holders 8 (0.01) (0.07) (0.14)
============ ============ ===========
Consolidated Statement of Comprehensive
Income
Unaudited Unaudited
six months six months Audited
ended ended full year
30 June 30 June to 31
2022 2021 Dec 2021
GBP'000 GBP'000 GBP'000
Loss for the period (330) (1,909) (3,919)
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations 225 (17) 5
-----------
Other comprehensive loss (105) (1,926) (3,914)
Total comprehensive loss attributable
to owners of the parent company (105) (1,926) (3,914)
============ ============ ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2022 (unaudited)
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
Notes GBP'000 GBP'000 GBP'000
Assets
Non-current assets
Intangible assets 9 703 415 559
Property, plant and equipment 10 96 88 114
Right-of-use assets 11 - 1,026 -
799 1,529 673
---------- ---------- ---------
Current assets
Trade and other receivables 12 1,422 986 698
Contract assets 86 148 70
Cash and cash equivalents 28 513 363
1,536 1,647 1,131
---------- ---------- ---------
Total assets 2,335 3,176 1,804
---------- ---------- ---------
Current liabilities
Trade and other payables 13 (5,482) (3,982) (4,781)
Derivative liability (51) (46) (46)
Contract liabilities (454) (238) (288)
Lease liability 11 - (510) -
Loans and borrowings 14 (50) - -
Provisions for liabilities and charges 15 (533) (737) (697)
(6,570) (5,513) (5,812)
---------- ---------- ---------
Net current liabilities (5,034) (3,866) (4,681)
---------- ---------- ---------
Non-current liabilities
Loans and borrowings 14 (2,000) (1,000) (2,000)
Contract liabilities (67) (140) (77)
Lease liability 11 - (752) -
Provisions for liabilities and charges 15 - (42) -
(2,067) (1,934) (2,077)
---------- ---------- ---------
Total liabilities (8,637) (7,447) (7,889)
---------- ---------- ---------
Net liabilities (6,302) (4,271) (6,085)
========== ========== =========
Equity
Share capital 16 14,844 14,844 14,844
Share premium account 17,705 17,705 17,705
Other reserves (3,248) (3,557) (3,361)
Retained earnings (35,603) (33,263) (35,273)
Total deficit (6,302) (4,271) (6,085)
========== ========== =========
CONSOLIDATED CASHFLOW STATEMENT
SIX MONTHSED 30 JUNE 2022 (unaudited)
Unaudited Unaudited
six months six months Audited
ended ended full year
30 June 30 June to 31
2022 2021 Dec 2021
Notes GBP'000 GBP'000 GBP'000
Loss for the period (330) (1,909) (3,919)
Adjustments for:
Taxation - - -
Finance Cost 7 97 62 273
Profit on sale of fixed assets - - 5
Profit on disposal of subsidiary undertaking - - -
Foreign exchange (41) 62 54
Amortisation of intangible assets 9 120 57 173
Amortisation of right-of-use asset 11 - 203 328
Depreciation of fixed assets 10 28 28 54
Share-based payments 18 126 359 556
Increase in provisions 15 (164) (188) (932)
Decrease in accruals and deferred
income 209 (99) (155)
Decrease in trade and other receivables (740) 299 672
Decrease in trade and other payables 415 (1,537) (511)
------------ ------------ -----------
Cash flows used in operating activities (280) (2,663) (3,402)
Interest expense paid (97) (34) (231)
Net cash used in operating activities (377) (2,697) (3,633)
Investing activities
Purchase of property, plant and equipment,
and intangible assets (274) (204) (516)
------------ ------------ -----------
Net cash generated/(used) in investing
activities (274) (204) (516)
------------ ------------ -----------
Financing activities
Net proceeds from bank and shareholder
loans 14 50 750 1,750
Principal paid on lease liabilities 11 - (96) (28)
-----------
Net cash generated from financing
activities 50 654 1,722
------------ ------------ -----------
Net decrease in cash and cash equivalents (601) (2,247) (2,427)
Cash and cash equivalents at beginning
period 363 2,839 2,839
Effect of foreign exchange rate changes 266 (79) (49)
Cash and cash equivalents at end
of period 28 513 363
============ ============ ===========
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SIX MONTHSED 30 JUNE 2022 (unaudited)
Share Share Share-based Other Retained Total
capital premium payment reserves earnings
account reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2021 14,844 17,705 461 (4,360) (31,354) (2,704)
Loss for the period - - - (1,909) (1,909)
Other comprehensive loss
for the period - - (17) - (17)
Share-based payments - - 359 - - 359
--------- --------- ------------ ---------- ---------- --------
At 30 June 2021 - reported 14,844 17,705 820 (4,377) (33,263) (4,271)
Loss for the period - - - - (2,010) (2,010)
Other comprehensive loss
for the period - - - 22 - 22
Share-based payments - - 144 - - 144
Share warrants - - 30 - - 30
At 31 December 2021
- reported 14,844 17,705 994 (4,355) (35,273) (6,085)
Loss for the period - - - - (330) (330)
Other comprehensive loss
for the period - - - 225 - 225
Share-based payments - - (112) - - (112)
At 30 June 2022 14,844 17,705 882 (4,130) (35,603) (6,302)
========= ========= ============ ========== ========== ========
NOTES TO THE INTERIM RESULTS
SIX MONTHSED 30 JUNE 2022 (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 2022.
The information for the six months ended 30 June 2021 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. The information for the year ending 31 December
2021 is taken from the Annual Reports and Financial Statements 2021
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 2021.
Going concern
The Group made a loss before/after tax of GBP330k for the period
(2021: GBP1,909k) and at the period-end had a net current liability
position of GBP5,034k (December 2021: GBP4,681k). The Directors
note that the Group has generated positive adjusted EBITDA since
May 2022 to date and are optimistic that the Group will achieve its
forecast revenue for the remainder of 2022 and for 2023.
GBP0.5m funding was received in September 2022 from David
Lazarus, a major shareholder and director. In addition, certain
existing shareholders will continue to provide support of up to
GBP4m to the Group, enabling the Group to continue trading as a
going concern. The shareholders who have pledged their support will
provide this support as and when the Group requires it to ensure
there is sufficient cash over a period of at least 12 months from
30 June 2022. On this basis, the Directors have prepared the
financial statements on a going concern basis.
Revenue
The Group comprises of mainly three types of revenues
1) Licensing fees (also known as B2B sales)
a. Setup Fees
b. Monthly development and support fees
c. Usage fees
2) Content ("download") revenues (also know as B2C sales)
3) Creative revenues
Each type of revenue is detailed below
Revenue comprises of:
I. Licensing revenues
7digital defines licensing revenues as fees earned both for
access to the Group's platform and for development work on that
platform in order to adapt functions to customer needs. The Board
considers that the provision of Technology Licensing Services
comprises three separately identifiable components:
The description of the licence fees compromise three
categories;
1. Set-up fees which grant initial access to the platform, allow
use of our catalogue and associated metadata and mark the start of
work to define a client's exact requirements and create the
detailed specifications of a service. Recognition of set-up fees is
detailed below.
2. Monthly development and support fees which cover the costs of
developer and customer support time. These are usually fixed and
are paid monthly once a service has been specified in detail; they
are calculated at commercial rates based on the number of developer
or support days required. Recognition of these fees is detailed
below.
3. Usage fees which cover certain variable costs like bandwidth
which can be re-charged to clients with an administrative margin
are recognised at point in time based on usage.
II. Content ("download") revenues
Content revenues are recognised at the value of services
supplied and on delivery of the content. The Group manages several
content stores, and the income is recognised in the month it
relates to. Majority of the revenue converts directly to cash; any
accrued revenue converts to trade receivables within 30 days.
III. Creative revenues
Creative revenues relate to the sale of programmes and other
content. 7digital also undertakes bespoke radio programming for its
customers. As the programmes are being created the associated
revenue is recognised when the programme is delivered and accepted
by the client. These mainly include the production of weekly radio
programmes, as well as the one-off production of episodes.
In the case of one-off productions which required the Group to
provide progress reports to its customers and where the Group has
no alternative use of the programme produced, the Group recognises
revenue over the period i.e., based on percentage of completion,
for the rest of the regular programs and contents, where the Group
does not own the IP, the group measures the revenue based on
delivery of the content i.e., at a point in time.
Contracts with multiple performance obligations
Many of the Group's contracts include a variety of performance
obligations, including Licensing revenue (set-up fees, monthly
revenue for using 7digital's API licence platform and usage fees),
however these may not be distinct in nature. Under IFRS 15, the
Group evaluates the segregation of the agreed goods or services
based on whether they are 'distinct', if both the customer benefits
from them either on its own or together with other readily
available resources, and it is 'separately identifiable' within the
contract.
To determine whether to recognise revenue, the Group follows a
5-step process:
- Identifying the contract with customers
- Identifying the performance obligations
- Determining the transaction price
- Allocating the transaction price to the performance obligations
- Recognising revenue when/ as performance obligations are satisfied.
Performance Obligations and timing of revenue recognition
Revenue generated from B2B customer contracts often identify
separate goods/services, with these generally being the access of
the API licence platform, and the associated monthly licence
maintenance fees and content usage fees.
The list of obligations as per the contract that are deemed to
be one performance obligation in case of Licensing revenue are
(B2B):
- The licences provide access to the 7digital platform
- The development and support fees which cover the costs of
developer and customer support time
- Usage fees which cover certain variable costs like bandwidth and content.
A key consideration is whether Licensing fees give the customer
the right to use the API Licence as it exists when the licence is
granted, or access to API which will, amongst other considerations,
be significantly updated during the API licence period.
The Group grants the customer a limited, revocable,
non-exclusive and non-transferable licence in the Territory during
the Term, to use the 7digital API and the content to enable the
provision of the Music Service to the End Users via
Application.
Set-up fees represent an obligation under the contract, which is
not a distinct performance obligation, as the customer is not able
to access the platform without them. These are therefore spread
over the period of the contract agreed initially with the
customers.
Monthly licence maintenance fees indicate service contracts that
provide ongoing support over a period of time. Revenue is
recognised over the term of the contract on a straight-line
basis.
In the case of Creative Revenue, the sole performance obligation
is to deliver the content specified as per contract, whether this
be the delivery of regular content throughout the period (e.g., a
radio series), or the production of a longer, one-off episode.
The only obligation for the Group is to deliver the content
production agreed in the contract. Control and risks are passed to
the customer on delivery of the episode produced, news bulletins
etc. The right to the IP varies from project to project. If the
customer suggests a specific programme idea to tender, they will
then own the underlying rights of the recordings and the IPR is
exclusive to the customer; 7digital's only performance obligation
would be to produce the content.
In the case of one-off productions for an identifiable customer
contract where 7digital is required to update the client on the
progress of work completed, the Group applies an output method to
determine the stage of completion and amount of revenue to
recognise.
Payment terms vary depending on the specific product or service
purchased. With licence fees, the set-up fees element is invoiced
and paid upfront, while monthly maintenance revenues and usage fees
are normally invoiced on a monthly basis. In the case of download
sales, the cost is paid immediately by the customer upon download
of the music/songs content from the 7digital platform. In the case
of creative revenues, the payment terms are generally 50% on
signing with the balance on delivery. All contracts are subject to
these standard payment terms, to the extent that the parties
involved expressly agree in writing that the conflicting terms of
any agreement shall take precedence.
In the case of fixed-price contracts, the customer pays the
fixed amount based on a monthly schedule. If the services rendered
by the Group exceed the payment, a contract asset (Accrued Income)
is recognised; if the payments exceed the services rendered, a
contract liability (Deferred Revenue) is recognised.
Determine transaction price and allocating to each performance
obligation
The transaction price for Licensing fees (set-up fees and
monthly licence fee) is fixed as per contract and is explicitly
noted in the contract. In the case of usage fees, the per gigabyte
fee is determined and agreed in the contract. In the case of
creative revenue, the transaction fees for radio services and
one-off series are determined by taking into account the length of
the production (this may vary for commercials, radio programs, tv
shows, series, etc.). Any variations in transaction price are
agreed and charged additionally depending on the obligations to be
performed. None of the five factors (i.e., variable consideration,
constraining estimates of variable consideration, the existence of
a significant financing component in the contract, non-cash
consideration, and consideration payable to a customer identified)
are particularly relevant to 7digital's customer contracts. The
transaction price included in 7digital's contracts is generally
easily identifiable and is for cash consideration.
Other adjusting items
Other adjusting items are those items the Group considers to be
non-recurring or material in nature that should be brought to the
readers' attention in understanding the Group's financial
statements. Other adjusting items consist of one-off acquisition
costs, costs related to non-recurring legal and statutory events,
restructuring costs and other items which are not expected to
re-occur in future years.
Foreign currency
For the purpose of the consolidated financial statements, the
results and financial position of each Group company are expressed
in Pounds Sterling, which is the functional currency of the
Company, and the presentation currency for the consolidated
financial statements.
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
balance sheet date, monetary assets and liabilities that are
denominated in foreign currencies are retranslated at the rates
prevailing on the balance sheet date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not
retranslated.
Exchange differences arising on the settlement of monetary items
and on the retranslation of monetary items, are included in profit
and loss for the period.
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 - 33.33% per annum straight line
Computer equipment - 33.33% per annum straight line
Fixtures and fittings - 33.33% per annum straight line
Impairment of tangible and other intangible assets
Impairment tests on goodwill and other intangible assets with
indefinite useful economic lives are undertaken annually at the
financial year end. Other non-financial assets are subject to
impairment tests whenever events or changes in circumstances
indicate that their carrying amount may not be recoverable. Where
the carrying value of an asset exceeds its recoverable amount
(i.e., the higher of value in use and fair value less costs to
sell), the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of
an individual asset, the impairment test is carried out on the
smallest group of assets to which it belongs for which there are
separately identifiable cash flows; its cash generating units
('CGUs'). Goodwill is allocated on initial recognition to each of
the Group's CGUs that are expected to benefit from a business
combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the
extent they reverse gains previously recognised in other
comprehensive income. An impairment loss recognised for goodwill is
not reversed.
Leases
All leases are accounted for by recognising a right-of-use asset
and a lease liability except for:
-- Leases of low value assets; and
-- Leases with a duration of 12 months or less.
Lease liabilities are measured at the present value of the
contractual payments due to the lessor over the lease term, with
the discount rate determined by reference to the rate inherent in
the lease.
On initial recognition, the carrying value of the lease
liability also includes:
-- amounts expected to be payable under any residual value
guarantee;
-- the exercise price of any purchase option granted in favour
of the group if it is reasonably certain to assess that option;
and
-- any penalties payable for terminating the lease, if the term
of the lease has been estimated on the basis of termination option
being exercised.
Critical accounting judgements and key areas of estimation
uncertainty
In the application of the Group accounting policies, which are
described above, the Directors are required to make judgements,
estimates and assumptions about the carrying amount of assets and
liabilities that are not readily apparent from other sources. The
estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period which the estimate is revised if the revisions affect
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Content cost of sales
The API platform has the ability to analyse the usage reports
derived from download sales and which are distributed to the
publishers on a quarterly basis. These usage reports assist
management in calculating publisher cost of sales and publisher
accruals. There is some uncertainty with regards the publisher
accrual as publisher costs are based on complex annual calculations
taking into account market share which are primarily determined by
the publishing suppliers. Management considers the usage reports
for the publisher element to be the most effective method of
determining the true cost of publisher content. Using data usage
reports, historical invoicing patterns and supplier confirmations,
management have determined that there was no adjustment for prior
periods.
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.
Capitalsation of internally developed software
Distinguishing the research and development phases of a new
customised software project and determining whether the recognition
requirements for the capitalisation of development costs are met,
requires judgement. After capitalisation, management monitors
whether the recognition requirements continue to be met and whether
there are any indicators that capitalised costs may be
impaired.
2. Revenue
2.1. 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 six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
GBP'000 GBP'000 GBP'000
Revenue
Licensing 2,489 1,713 3,797
Content 1,182 1,033 2,073
Creative 270 524 862
Total 3,941 3,270 6,732
Gross profit
Licensing 2,394 1,580 3,512
Content 197 156 334
Creative 177 312 477
Total 2,768 2,048 4,323
Operating profit attributable
to revenue streams
Licensing 2,252 1,503 3,308
Content 192 151 318
Creative 175 309 470
Total 2,619 1,963 4,096
Amortisation of right to use
of asset - (203) (328)
Corporate expenses (2,852) (3,607) (7,414)
Financing income & costs (97) (62) (273)
Taxation - 0 0
Loss for the period (330) (1,909) (3,919)
============ ============ ===========
2.2. Geographical information
Revenue
------------ ------------ -----------
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
GBP'000 GBP'000 GBP'000
Continuing operations
United Kingdom 688 922 1,674
United States of America 1,544 1,026 2,229
Europe 1,151 1,011 2,018
Rest of World 558 311 811
3,941 3,270 6,732
============ ============ ===========
2.3. On-going operations
Unaudited
Unaudited six
six months months
ended ended
30 June 30 June
2022 2021 Var Var
GBP'000 GBP'000 GBP'000 %
Revenue
Licensing 2,489 1,713 776 45%
Content 1,182 1,033 149 14%
Creative 270 524 (254) -48%
------------ ---------- -------- ------
Total 3,941 3,270 671 21%
Gross profit
Licensing 2,394 1,580 814 52%
Content 197 156 41 26%
Creative 177 312 (135) -43%
------------ ---------- -------- ------
Total 2,768 2,048 720 35%
Gross profit%
Licensing 96% 92% 4%
Content 17% 15% 2%
Creative 66% 60% 6%
------------ ---------- -------- ------
Total 70% 63% 7%
Corporate expenses (2,736) (3,080) 344 -11%
------------ ----------
Adjusted EBITDA 32 (1,032) 1,064 -103%
============ ========== ======== ======
3. Other adjusting items
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
GBP'000 GBP'000 GBP'000
Consultancy costs - - (153)
Provision for uncertain recoverability
of cash advances - - (112)
Exceptional legal fees (32) (43) (93)
Corporate restructuring provision - (63) (65)
Technology provision - - (86)
(32) (106) (509)
============ ============ ===========
4. Operating loss
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
GBP'000 GBP'000 GBP'000
Net foreign exchange (profit)/loss (41) 62 54
Amortisation of intangible assets 120 57 173
Amortisation of right to use
asset - 203 328
Depreciation of property, plant
& equipment 28 28 54
Profit on sale of right-of-use
asset - - 5
Share-based payment expense 126 359 556
------------ ------------ -----------
5. 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 period. Therefore, the directors have used
certain alternative performance measures (APMs) 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
profit/loss:
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31
June 2022 June 2021 Dec 2021
GBP'000 GBP'000 GBP'000
Statutory operating loss (233) (1,847) (3,646)
Other adjusting items 32 106 509
Foreign exchange (41) 62 54
Share-based payment expense 126 359 556
------------ ------------ -----------
Adjusted operating loss (116) (1,320) (2,527)
Profit on sale of right-of-use
asset - - 5
Depreciation and amortisation 148 288 382
Adjusted EBITDA profit/loss 32 (1,032) (2,140)
============ ============ ===========
6. Staff costs
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
No. No. No.
Number of production, R&D, and
sales staff 37 43 39
Number of management and administrative
staff 14 14 12
51 57 51
============ ============ ===========
GBP'000 GBP'000 GBP'000
Wages and salaries 1,656 1,683 3455
Redundancy payments - 63 63
Social security costs 186 197 364
Other pension costs 53 55 109
Share-based payments 126 359 556
2,021 2,357 4,547
============ ============ ===========
7. Finance income and charges
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
GBP'000 GBP'000 GBP'000
Interest receivable - - 7
Interest expenses on leased liability - (28) (49)
Other charges similar to interest (97) (34) (231)
Finance costs (97) (62) (273)
============ ============ ===========
8. Earnings per share
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
Basic and Diluted EPS
Loss attributable to shareholders
- continuing operations: (GBP'000) (330) (1,909) (3,919)
Weighted average number of shares
(Nos) 2,722,085,961 2,722,085,961 2,722,085,961
Per share amount - continuing
operations (pence) (0.01) (0.07) (0.14)
Per share amount - loss attributable
to ordinary equity holders (pence) (0.01) (0.07) (0.14)
-------------- -------------- --------------
9. Intangible assets
Bespoke
applications
GBP'000
Cost
At 1 January 2021 3,522
Additions 185
At 30 June 2021 3,707
Additions 260
At 31 December 2021 3,967
Additions 264
--------------
At 30 June 2022 4,231
==============
Amortisation
At 1 January 2021 3,235
Charge for the period 57
At 30 June 2021 3,292
Charge for the period 116
At 31 December 2021 3,408
Charge for the period 120
--------------
At 30 June 2022 3,528
==============
Net book value
At 30 June 2022 703
==============
At 30 June 2021 415
==============
At 31 December 2021 559
==============
Additions relate to internally developed software relating to
the 7digital platform. Amortisation charges are included within the
administrative expenses within the Income Statement. The useful
life of each group of intangible assets varies according to the
underlying length of benefit expected to be received.
10. Tangible assets
Computer
equipment
& capitalised
software
GBP'000
Cost
At 1 January 2021 236
Additions 19
At 30 June 2021 255
Additions - restated 53
Disposals (110)
At 31 December 2021 - restated 198
Additions 10
---------------
At 30 June 2022 208
===============
Amortisation
At 1 January 2021 139
Charge for the period 28
At 30 June 2021 167
Charge for the period - restated 27
Disposals (110)
At 31 December 2021 - restated 84
Charge for the period 28
---------------
At 30 June 2022 112
===============
Net book value
At 30 June 2022 96
===============
At 30 June 2021 88
===============
At 31 December 2021 114
===============
There was a misanalysis between additions and charge for the
year in the 31 December 2021 financial statements; the net book
value of GBP114k remains unchanged.
11. Leases
On 1 July 2020, the Group entered into a lease that was expected
to run until August 2023. During 2021, the Group successfully
negotiated an exit agreement in regard to this lease which required
the Group to pay GBP500k as a settlement over 15 months to December
2022. The GBP500k settlement was shown in provisions for
liabilities and charges and GBP105k remains un-invoiced at 30 June
2022 (see note 15).
As from October 2021, the Group is using service-office space on
an as-and-when basis.
Right-of-use assets Land and
buildings
GBP'000
At 1 January 2021 1,184
Addition 44
Amortisation (202)
-----------
At 30 June 2021 1,026
Changes to initial lease 79
Disposal (963)
Amortisation (142)
-----------
At 31 December 2021 -
Disposal -
Amortisation -
-----------
At 30 June 2022 -
===========
Lease liability Land and
buildings
GBP'000
At 1 January 2021 1,330
Interest expense 28
Lease payments (96)
-----------
At 30 June 2021 1,262
Changes to initial lease 109
Provision created on termination
of property lease (500)
Disposal (958)
Interest expense 19
Lease payments 68
-----------
At 31 December 2021 -
Interest expense -
Lease payments -
-----------
At 30 June 2022 -
===========
Analysed:
Current -
Non-current -
-----------
Total -
===========
12. Trade and other receivables
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
GBP'000 GBP'000 GBP'000
Trade receivable for the sale
of goods 2,307 1,569 1,721
Less: Provision for impairment
of trade receivables (1,151) (972) (1,173)
Net trade receivables 1,156 597 548
Other debtors 146 283 84
Total financial assets at amortised
cost (excluding cash & cash equivalents) 1,302 880 632
Prepayments 120 106 66
Total trade and other receivables 1,422 986 698
Less: non-current portion - other - (80) -
debtors
---------- ---------- --------
Current portion 1,422 906 698
========== ========== ========
13. Trade and other payables
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
GBP'000 GBP'000 GBP'000
Current Liabilities
Trade payables 2,332 1,102 1,752
Other taxes and social security 1,460 1,324 1,429
Other payables 144 20 107
Accrued costs 1,546 1,536 1,493
---------- ---------- --------
5,482 3,982 4,781
========== ========== ========
Non-Current Liabilities
Other payables - - -
---------- ---------- --------
- - -
========== ========== ========
14. Loans and borrowings
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
GBP'000 GBP'000 GBP'000
Bank loans repayable within one
year 50 - -
========== ========== ========
Bank loans repayable over one
year 2,000 1,000 2,000
========== ========== ========
On 28 September 2020, the Group secured a GBP1m revolving loan
facility with Investec for a period of 36 months guaranteed by two
of the Directors. The arrangement allows a maximum of 4 draw downs
in any 12 month period of no less than GBP250k per draw down. As at
30 June 2021 the whole facility had been drawn down. The total loan
Interest , payable quarterly, is calculated at 6% above Investec
bank rate on the drawn portion of the facilty and 2% on the undrawn
portion. An arrangement fees of GBP30k was agreed and payable in
5,437,883 warrants.
On 18 October 2021, the Group secured a further GBP1m revolving
loan facility with Investec for the period to 28 September 2023
guaranteed by two of the Directors. The arrangement allows a
maximum of 4 draw downs in any 12 month period of no less than
GBP250k per draw down. An arrangement fees of GBP30k was agreed, of
which GBP4k was payable at the time of this draw down and GBP26k
payable in 1,382,488 warrants. As at 31 December 2021 the whole
facility had been drawn down during the year. The total loan
Interest , payable quarterly, is calculated at 6% above Investec
bank rate on the drawn portion of the facilty and 2% on the undrawn
portion.
As at 30 June 2022, a total of GBP2,000k of capital and GBP31k
interest (which is included in accrued costs) was due to
Investec.
On 23 June 2022, the Group received GBP50k as part of a drawdown
from the previously annouced shareholder loan. The amount will be
refunded by the end of September 2022 as disclosed in the Group's
announcement of 23 September 2022.
15. Provisions
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
GBP'000 GBP'000 GBP'000
Current
Provision for closure of business 49 180 101
Legal provision - 372 -
Property provision 105 - 225
Other provisions 379 227 371
---------- ---------- --------
533 779 697
========== ========== ========
Of which is: current 533 737 697
========== ========== ========
Of which is: non-current - 42 -
========== ========== ========
At 30 June 2022, the provision for closure of business of GBP49k
relates to the French entity, which was liquidated on 16 September
2020; the balance is being paid off in four instalments of GBP10k
to September 2022 and 3 instalments thereafter of GBP3k to December
2022.
During 2021, the Group successfully negotiated an exit agreement
in regard to a lease signed in July 2020. The settlement required
the Group to pay GBP500k over 15 months to December 2022. At 30
June 2022, GBP105k represents the final two payments of GBP52.5k
each (net of VAT) due to be paid at end of September 2022 and
December 2022. An extra GBP52.5k (GBP63k gross) is included in
trade payables at 30 June 2022 and paid in July 2022.
At 30 June 2022, other provisions consist of GBP234k provision
for technology costs that may become due and GBP145k payroll taxes
on share options.
16. Share capital
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
No. of No. of No. of
shares shares shares
Allotted, called up and fully
paid:
Ordinary shares of 0.01p each 2,722,085,961 2,722,085,961 2,722,085,961
Deferred shares of 0.99p each 419,622,489 419,622,489 419,622,489
Deferred shares 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 14,844 14,844 14,844
============== ============== ==============
17. Related party transactions
During the six month period, the Group invoiced and recognised
GBP46k (31 December 2021: GBP100k) of revenue to eMusic (a
subsidiary of TriPlay Inc.), a company of which Tamir Koch is a
director. At 30 June 2022, the Group was owed GBP279k (31 December
2021: GBP208k), of which GBP208k was provided for at 30 June 2022
(31 December 2021: GBP208k).
During the six month period, the Group paid GBPnil (31 December
2021: GBP5.0k) to MIDiA Research for music market research
services, a company of which Mark Foster is a director. At 30 June
2022, the Group owed GBPnil (31 December 2021: GBPnil).
During the period, the Group paid GBPnil (31 December 2021:
GBP112k) to eMusic for the new venture eMusic Live. At 30 June
2022, the Group was owed GBP112k (31 December 2021: GBP112k) of
which GBP112k (31 December 2021: GBP112k) was provided for.
During the period, the Group paid fees of GBP65k (31 December
2021: GBP252k) to MJ Advisory which is Michael Juskiewicz's
personal service company based in the US. At 30 June 2022, the
Group owed GBP13k (31 December 2021: GBPnil).
Transactions between the Parent Company and its subsidiaries,
which are related parties, have been eliminated on consolidation
and are not disclosed in this note.
18. Share-based payments
On 27 May 2021, the Group granted 65,477,778 share options to
all staff which were valued at GBP818k. The fair value of the share
options has been calculated using the Black-Scholes model at the
grant date. The key inputs into the Black-Scholes model are
detailed below:
2021
Options
Share price at date
of grant 1.13p
Exercise price 0.00p
Volatility 100%
Option life 10 yrs.
Risk-free interest
rate 0.5%
The total expense recognised for the periods arising from
equity-settled share-based payment transactions is summarised as
below:
Unaudited Unaudited Audited
six months six months full year
ended 30 ended 30 to 31 Dec
June 2022 June 2021 2021
GBP'000 GBP'000 GBP'000
Shares options 112 313 503
Employer contribution payable
on share options 9 46 76
Provision made/(released) for
shares to be issued for remuneration 5 - (23)
126 359 556
============ ============ ===========
The share-based payment reserve is detailed below:
Unaudited Unaudited Audited
30 June 30 June 31 Dec
2022 2021 2021
GBP'000 GBP'000 GBP'000
Shares options 1,050 820 938
Share warrants 56 - 56
1,106 820 994
========== ========== ========
19. Post balance sheet events
On 23 September 2022, the Group entered into an agreement with
Magic Investments S.A., a significant shareholder represented by
David Lazarus who is a director of the Group, for a loan of
GBP500k. The loan is repayable on or before 1 October 2023;
attracts interest at 5% per annum, payable on a quarterly basis;
the Principal Amount will be repayable in one lump sum on the
Repayment Date; and is unsecured.
The funds will be used by the Group for working capital purposes
and to fully repay the GBP50k previously drawn on a loan from Tamir
Koch, announced on 30 June 2022, which has now been terminated with
no accrual of interest.
20. Contingent liabilities
The Group does not have any contingent liabilities.
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END
IR SEUEFWEESESU
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September 28, 2022 02:02 ET (06:02 GMT)
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