Annual
Report and
Accounts
digital Group plc
Contents
Overview
Chairman's Statement
Chief Executive Officer's Review
Chief Financial Officer's Review
Strategic Report
Section Statement
Board of Directors
Directors' Report
Corporate Governance Statement
Directors' Remuneration Report
Independent Auditors' Report to the Members of digital Group plc
Consolidated Income Statement and Statement of Comprehensive Income for the Group Consolidated Statement of Financial Position
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Parent Company Statement of Financial Position
Parent Company Statement of Changes in Equity
Notes to Parent Company Financial Statements
General Information and Advisors
digital Group PLC Annual Report and Accounts
digital Group plc
OVERVIEW
FINANCIAL HIGHLIGHTS
Year ended December
Group Revenue Gross Margin
. | million | . | per cent |
: | . m | : | . per cent |
Group Revenue from | Gross Margin from | ||
On going Operations | On going Operations | ||
. | million | . | per cent |
: | . m | : | . per cent |
Gross Profit | Operating Loss | ||
. | million | . | million |
: | . m | : | . m |
Adjusted EBITDA Loss
. million
- . m
ee n e age f defini i n
Loss Per Share
- pence
- . p
*af e | e cl | di g | he | |||
e | i | a i | f J | ke | ||
c | ac | ( | aj | c | e ) | |
d | i | g | he | ea |
NEW BOARD, INVESTMENT AND MANAGEMENT CHANGES
Newly appointed board leaders Tamir Koch and David Lazarus widely recognised for technology entrepreneurship and executive leadership
. million funding in , in cash and conversion of shareholders loans, to reposition the company, stabilise the business and secure future growth Paul Langworthy promoted to CEO and Michael Juskiewicz appointed CFO to oversee implementation of new strategy
SUCCESSFULLY EXECUTING THE NEW STRATEGY
Repositioned digital as a music technology company and the global leader in B B music solutions
Streamlining the technology offering - supporting both established markets and new business models and verticals with greater profit margins
Successfully delivered annualised cost savings of over . million, reducing
operational cost run rate by over since beginning of the year
New contract wins, contract expansions and renewals show growing demand for digital music services in new entertainment formats
digital Group plc
CHAIRMAN'S STATEMENT
Tamir Koch | With a more stable financial platform in place, the Group has |
Chairman | been able to focus on delivering a world-leading, cloud- |
based, music platform-as-a-service that provides true global | |
coverage at scale. By moving from bespoke modular | |
September | |
solutions to a highly productised technology offering, we are | |
now able to support a myriad of business use cases while | |
operating with much greater profit margins. | |
STAKEHOLDER ENGAGEMENT |
I am pleased to present my maiden Annual Report and Accounts which sets out how we've significantly advanced digital as a business by refocusing the strategy, securing the financial support and putting in place the right management team to execute on this strategy. Our excellent executive team and employees deserve the credit for delivering the financial and strategic results set out in this Annual Report.
We are proud of being a growing business and of the important contributions we make to the industry and wider society. At a time of uncertainty in the global economy, we believe business has an important role to play in creating opportunities across the globe. By growing and sustaining an economically strong and responsible business over the long- term, guided by a clear purpose, we make a positive and significant impact not just for our clients and our people, but also for the economy and society.
INVESTMENT AND REFOCUSED STRATEGY
I was proud to lead a group of successful entrepreneurs and business leaders in providing the required financial support to move the business forward. We have provided a cash injection of m in the first months of taking charge of the Group. However, we also recognised that a change of strategy and management team was required to suit the changing business environment. We were pleased to promote Paul Langworthy, the Group's former COO to take this business to the next level as the Chief Executive Officer. He has not disappointed us. Working together, we set about a plan to bring the business to break even as quickly as possible.
This new strategy, as described in greater detail on pages to , saw us considerably reduce our cost base by moving away from the development and support of bespoke, customer-specific services. From an operational standpoint, this has enabled us to streamline our technology estate as well as the associated costs and staffing levels. We also retired a number of legacy radio technology services that were no longer strategic for digital and improved our technology efficiency through the use of cloud-based services. As a result, we were able to reduce the Group's
operational cost run rate by over since the beginning of the year and successfully deliver annualised cost savings of over . million.
Regular engagement, dialogue with and feedback from digital's material internal and external stakeholders are important to the success of digital and a core element of its business model.
Understanding stakeholders' views informs and assists the decision-making processes and helps us to achieve our aims, objectives and strategy. In keeping with the requirements of
Section | of the UK Companies Act | , pages | to |
- record digital's key stakeholder groups, their material issues and how the Group engages with them. Each stakeholder group requires a tailored engagement approach to foster effective communication and mutually beneficial relationships.
COVID-
The rapid spread of the coronavirus and resulting COVID- 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. digital is now showing strong commercial momentum, a clearer and more defined strategy with significant refinancing.
Finally, I would like to thank Paul Langworthy, our CEO, Michael Juskiewicz, our CFO, and our Executive Team for their efforts. Many thanks to my Board colleagues for their considerable contribution. We all appreciate the dedication, skills and professionalism of our employees.
Mostly, I would like to thank our loyal shareholders for their ongoing support.
We all are committed to creating substantial value for our shareholders. digital is well positioned to benefit from growing markets, and I look forward to reporting on our progress.
digital Group PLC Annual Report and Accounts
digital Group plc
CHIEF EXECUTIVE OFFICER'S REVIEW
Paul Langworthy
Chief Executive Officer
September
Like the Chairman, I am also pleased to be reporting my maiden Annual Report and Accounts following my
appointment as Chief Executive Officer in July | . | The |
second half of | was a period of critical changes | and |
refocused resources required to make a turnaround for the company, customers and employees. By taking advantage of the core technology and industry relationships, the management team and the Board successfully worked together to lay the foundation for how we position, sell, develop and deliver our technology to current and future clients. The Group won new business, streamlined operations and is on a path to financial stability.
By contrast, in the first half of , the Group was
significantly impacted by the loss of our largest contract with European retailer MediaMarktSaturn to provide the music streaming service for its wholly owned subsidiary, Juke
Entertainment Gmbh "Juke" . The Group had to take
immediate action and agreed the sale of select technology from the company, and the transfer of staff to TDC Group
for a total consideration of . m. This technology, which
was only used by one customer, had become unprofitable to maintain.
As a result of the changes and progress made in the second half, I am pleased to report that the Group's revenue from operations after adjusting for the loss of the Juke contract
declined only by | in | to . m. However, gross | ||
profit | , on the same basis, increased by | to . m. The | ||
statutory operating loss for | decreased | to . m | ||
: | . m . |
WINNING NEW BUSINESS AND RENEWING IMPORTANT
CONTRACTS
In spite of a difficult year and poor market sentiment, we were able to renew existing customer contracts and sign new deals with a number of innovative companies in fast- growing sectors.
We signed an initial one-year deal with Dubset, a rights technology company that identifies and collects royalties within mix content. The Group also entered significant partnerships in other fast-growing sectors.
In a key validation of our technology platform, Fender and digital worked together to bring Fender Songs to market.
Launched in October , this new mobile app from global
music instruments manufacturer Fender allows aspiring musicians to practice and play along with chords and lyrics to millions of their favourite songs. The app uses digital's platform and audio fingerprinting service and global music catalogue to identify and access the music being played, extracting the chords for users in real time.
We were also awarded an initial one year-long contract to provide our music-as-a-service platform in support of an innovative new music streaming company. The full premium service was launched in a single European market and is in the process of rolling out to several additional countries.
This commercial momentum accelerated post year-end as the Group's music platform-as-a-service was used to launch jazzed, the world's first dedicated audio-visual streaming service for jazz and jazz-influenced music. This deal epitomises the growing opportunity for premium streaming services catering to more specific tastes, genres and geographies.
In addition to jazzed, we have signed multiple new contracts and contract renewals. This includes a new contract to power Single Music, a Shopify-integrated,direct-to-fan distribution platform, as well as a contract renewal with GrandPad, the first purpose-built tablet for people over the age of . The Group has also renewed its contract with Universal Music France to support its streaming service through French MVNO La Poste Mobile, and fan-facing music playlist service Digster.
digital Group PLC Annual Report and Accounts
digital Group plc
CHIEF EXECUTIVE OFFICER'S REVIEW
COVID- AND OUTLOOK
As the gravity and impact of the COVID- public health emergency became clear, our shift to virtualised applications and cloud-based storage ensured a seamless and secure transition to remote working. As a result, we retained our full client roster, although some new contracts and renewals in the pipeline were shifted from Q to Q or
- . The Group also took the prudent step to implement further cost-saving measures, which are
expected to | generate in-year savings | of approximately |
k in | . | |
Looking to the future, I am upbeat about | digital's prospects |
and the growing number of opportunities for us to capitalise on with our best-in-breed music platform. Streaming is being adopted by consumers at a staggering pace,
accounting for of all music sales in and driving a
fifth consecutive year of growth, according to the IFPI. The lockdowns implemented as a result of the coronavirus pandemic have only further accelerated this adoption, leading to a rise in home entertainment streaming as well as other formats.
In addition to new diversification of streaming services and models, we are seeing a number of trends emerge for which we have a strong product-market fit and we 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:
- Fitness and health: we are currently engaging with a number of fitness companies looking to incorporate new licensing models, digital content and music services, ranging from virtual cycling and running to more traditional gyms.
- Social media platforms: following the success of TikTok and the popularity of video and audio user- generated content, we are discussing opportunities with several global companies that are either similar services or more disruptive variances to the existing offering.
- Virtual live market: the rapidly emerging live stream market is attracting much attention and we expect servicing operators in this space to become a valuable new pillar in the digital ecosystem.
digital'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. With financially supportive majority shareholders and an extensive pipeline of deals, we are on track to achieve operational
profitability in the second half of and deliver value for our shareholders.
digital Group PLC Annual Report and Accounts
digital Group plc
CHIEF FINANCIAL OFFICER'S REVIEW
Michael Juskiewicz
Chief Financial Officer
September
INTRODUCTION | |
On January | , the Group announced that its largest |
customer, MediaMarktSaturn "MMS" , had indicated that it may wish to change the current arrangements and that this
could involve digital taking more responsibility for certain
aspects of the service or the service being closed with a resulting termination payment becoming due and payable
to the Group. On March , digital announced that it
had accepted settlement of, and release from, all outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of
- , . Further, Juke agreed to write off all interest
payments and | , | of the principal amount of the | ||
convertible loan note issued to Juke as announced on | ||||
October | . | digital settled a further | , | balance of |
the convertible loan note principal amount from the proceeds of the Agreement.
Following the loss of the MMS contracts, the platform was used by only one customer and had become unprofitable for
the Group to maintain. On May , the Group announced the sale of bespoke technology from the Danish business and transfer of staff to TDC Group "TDC" , the largest telecommunications company in Denmark. The sale transferred control of bespoke technology, and the resources to maintain it, to TDC.
The consideration was . | m, of which . m was paid to |
digital in cash during | being equivalent to the net value |
of the assets sold. The remainder of the cash consideration was retained by TDC to cover certain potential liabilities of
which k was released by TDC to the Group in April
to the extent that it is not required to meet such liabilities and is subject to customary post-closing adjustments. The annualised losses eliminated from the business totalled
around | . m. This sale meant that | digital would focus its | |
resources on its productised, cloud-hosted technology. | |||
On | May | , Magic Investments S.A. | a technology |
investment | holding company | Magic | bought the |
remaining loans from the existing shareholders at face value
of | . m. | |
On | June | , a consortium, comprising Magic and Shmuel |
Koch Holdings Limited "SKH" subscribed for, an aggregate
of, | , | , | shares at . | pence per share, to raise . |
million | before expenses . On the same date, Magic agreed | |||
to capitalise the outstanding | , | principal and accrued |
interest of the Convertible Loan Notes at the Exchange Price
of . p into , , shares with a discount of . A
number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the General Meeting
held on June | . |
On July | , Paul Langworthy, the Group s current Chief |
Operating Officer and key contributor to the revised business strategy, succeeded John Aalbers as Chief Executive Officer and as a Director of the Group. With my background as the CFO of eMusic, I took on the role of Chief Financial Officer and was appointed to the Board on
September | . | |||
On | September | , the Group announced that it had | ||
raised | a | further | . m through a | subscription of |
, | , | new Ordinary shares of . | pence to new and | |
existing shareholders. | ||||
On | September | , the Group announced that it had |
completed an oversubscribed conditional Placing. The
Placing | of | , | , | new | Ordinary | Shares | raised |
approximately . | million | before expenses | at an issue | ||||
price of . | pence per share on | October | . | ||||
During the year the Group secured a total of | . | million | |||||
gross | in funding. |
RESULTS AND FINANCIAL KEY PERFORMANCE INDICATORS
The Group's revenue from operations after adjusting for
the loss of the Juke contract as shown on the table on page
declined by | in | to . m | : | . | m . |
On-going gross profit | increased to | . | , | a rise of | |
percentage points to | . m, as a result of growth in high- |
margin B B licensing revenues which now represents a greater share of the total sales mix. The statutory operating
loss for | decreased | to . m | : | . m . The |
adjusted EBITDA loss for | increased | to | . m |
- . m and this is reconciled to the operating loss in
note on page . | |
The decrease in | statutory operating loss is due to |
decrease in administration expenses by . largely due to
the significant payroll and technology cost reductions implemented by the new management under Paul Langworthy, the incoming CEO, to align the business with the new strategy going forward.
The loss per share decreased by | to . pence | : |
. pence . |
digital Group PLC Annual Report and Accounts
digital Group plc
CHIEF FINANCIAL OFFICER'S REVIEW
Revenue | reported | ongoing* | reported | ongoing* | Change | Change |
ongoing* | ||||||
' | ' | ongoing* | ||||
' | ' | |||||
Licensing revenue | , | , | , | , | ||
Content | , | , | , | , | - | - |
Creative | , | , | , | , | - | - |
Total Revenues | , | , | , | , | - , | - |
Gross Margin | , | , | , | , | - | - |
Gross Margin
Expenditure | |||||||
Administrative expenses | ' | ' | Change | ||||
Underlying Administrative Expenses | , | , | - | , | - . | ||
Other Adjusted Administrative Expenses | , | , | - | , | |||
Total Administrative expenses | , | , | , | - . | |||
af e e cl ding he e mina i n f J ke c n ac maj c | me d | ing he ea |
OTHER ADJUSTING ITEMS | |
Other adjusting items for the year total | . m of which |
. m relates to corporate restructuring, | . m to legal fees |
relating to fund raising and contingency planning, . m of
expenses and provisions relating to the closure of the Danish
business and | . m | as a legal provision for an ongoing | ||
litigation issue. | ||||
DIVIDEND | ||||
During the year, | digital did not pay an interim or final | |||
dividend | : | no | interim or final | dividend . The |
Board of directors is not proposing a final dividend in the current year.
SHAREHOLDER LOANS | ||||
On | February | , the Group received notice of | ||
conversion from | one | holder in respect | of | , |
including interest | of the Facility at a conversion price of p | |||
pursuant to which , | , | ordinary shares were issued. | ||
Following conversion an aggregate of , | , | of the | ||
facility remained outstanding. | ||||
On | March | , the Group agreed to a | m settlement |
from MMS under the MMS Settlement Agreement noted
above. Out of the loan payable of . m plus accrued
interest of | k, . m was settled against the above m |
and . m, together with the accrued interest of | k, was |
forgiven by MMS. Following settlement of MMS's share of
the Facility, an aggregate of | , | of the facility |
remained outstanding. |
On April the Group received a notice from the
holder in respect of a tranche of the Facility, due to non- payment of interest. The Notice related to outstanding
Facility and interest amounting to , . Following
receipt of the Notice, the outstanding amount became due
and payable by | May | . The remaining tranche under | |
the | Facility of | . m | plus accrued interest remained |
outstanding to another loan note holder. | |||
On | May | the remaining Facility was sold to Magic. |
Magic entered into a standstill agreement with the Group pursuant to which it agreed not to seek early redemption or
conversion of the Facility before | June | except in |
certain limited | circumstances including a | major equity |
issuance or the insolvency of the Group . | ||
On June | Magic agreed to capitalise the outstanding |
- principal and accrued interest of the Facility held
by it into | , | , | new Ordinary Shares at a | per cent. |
discount to the Issue Price . | ||||
CASH AND CASH FLOW | ||||
As of | December | , the Group had a cash balance of | ||
. m | : | . m . | ||
Net cash outflows in | totalled . m | : outflow |
. m . The reduction was largely driven from a decrease in
operating cash outflow of as a result of the effective
cost reduction efforts implemented by the new management team, issuance of share capital to the consortium and the sale of the Danish platform.
digital Group PLC Annual Report and Accounts
digital Group plc
STRATEGIC REPORT
Strategy and Business model
digital is the global leader in B B end-to-end digital music solutions. The core of our business is the provision of robust and scalable technical infrastructure combined with extensive global music rights used to create music streaming and radio services for a diverse range of customers - including consumer and social media brands, online fitness companies, mobile carriers, broadcasters, automotive systems, record labels and retailers. We also offer radio production and music curation services.
Our strategy is to grow revenues, profitability and shareholder returns through:
- Offering flexible, productised, end-to-end music solutions;
- Increasing the number of clients we serve in strategic, well-funded market verticals;
- Improving the financial quality of our business by driving recurring SaaS and PaaS revenues;
- Expanding and leveraging our geographic coverage;
- Continued investment in market leading technology to meet shifting technology trends, user consumption, and client needs;
- Applying strict control of our cost base to ensure that revenue growth is quickly reflected in improved overall Group profitability; and
- Establishing and maintaining a partner channel program for scaling sales into the identified target market verticals.
digital's core platform provides its customers with access to cloud-based software. digital operates business-to-business technology and music services Licensing revenue , business-to-consumer music services under the digital brand Content revenue , and content production under the digital Creative brand.
Licensing
digital's core business is to provide an API for third parties that wish to create digital music services, either standalone or bundled within their own device or product offering. digital's platform simplifies access to music by offering a combination of a licensed music catalogue alongside the cloud-based technology platform and client- side software, being software hosted by digital's clients. These are needed to create on-demand music streaming and download services, radio style services and other services. The digital platform is open, with open-source code to reduce complexity and time to market for its potential customers and can be used for building products on any type of connected device
The Group's revised strategy has seen it aggressively target enterprise customers with large, existing consumer bases of their own. digital's primary offering to these
customers would be an API-based"turn-key" music services platform, which enterprises can leverage to service any model or business needs.
Typically, customers pay a set-up fee and monthly licence fees for using the digital platform and digital will also take a revenue share of any music-based revenue generated by the service, including transaction or subscription revenues.
In addition to providing an open API-based platform from which third parties can build their own services digital has obtained music licences in many countries in regions including North America, Latin America, Europe, Asia-Pacific and Africa. These licences are obtained from hundreds of individual record labels, music publishers and music collecting societies. Music licences vary from country to country and by usage type.
Content | |
digital.com is a licensed digital music store available in almost | countries. The digital.com music download store offers a |
catalogue of high-quality digital music from the major labels and independent aggregators in Europe, North America and parts of Asia-Pacific. Users have the option to download their purchases as zip files or by using the digital download manager to input directly into their media player of choice. digital has apps for different devices as well as an HTML , mobile optimised web store.
Creative | |
digital produces approximately , | hours of video and audio content every year. The content companies benefit from regular |
commissions from BBC's national radio networks as well as one-off commissions from other broadcasters, such as Sky Television.
Key programmes include 'Sounds of the Sixties' and 'Pick of the Pops' on Radio | , 'Radcliffe and Maconie Show' on Radio and |
'Folk Show' on Radio . Our Entertainment News content is distributed to around | commercial radio stations. |
digital Group PLC Annual Report and Accounts
digital Group plc
STRATEGIC REPORT
Principal risks and uncertainties | ||||||
The Group has received significant funding since the middle of | and early | . On September | , the Group raised m | |||
gross of new equity financing and on | September | secured a revolving credit facility of | m. This money will see the | |||
business reach profitability in the second half of | . |
There is a risk that the global pandemic could slow the anticipated demand for the Group's services or that customers may terminate their contracts. However, with the execution of the revised strategy, the directors believe that the Group is well placed to grow the business, even with a focus on reducing costs.
The Group is a "b b" provider of services to customers that may be in competition with companies that are seen as industry leaders. It is possible that developments by either the direct competition, or the competitors to customers, will render the Group's
current and proposed products and services obsolete. However, digital's position in the market and strong relationship with the
major record companies mean we have huge support to help grow the market by significantly lowering the barriers to entry for new services and formats for music consumption outside of the . All You Can Eat subscription service. The Group's product roadmap is regularly evaluated against the developing marketplace to ensure that we remain competitive.
The market in which the Group operates has seen a number of significant changes, such as the shift from physical sales, to digital downloads, and then onto streaming. The Group's competitors, or the competitors of the Group's customers, may announce or develop new products, services or enhancements that better meet the needs of customers or the end consumers. Further, new competitors, or alliances among competitors, could emerge. Increased competition may cause price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on the Group's business, financial condition and results of operations.
The directors believe that the overall market for the Group's products and services will continue to grow and that its success will be driven by how well it can execute in the market. The Group subscribes to the leading music market research service MIDiA and holds regular meetings with their leading analyst to monitor trends in the marketplace and therefore anticipate developments. There can, however, be no assurance that growth in the market for its products and services will occur at the rate envisaged by the Group.
digital Group PLC Annual Report and Accounts
digital Group plc
STRATEGIC REPORT
Section
Section of the Companies Act requires that a director of the Group is managing in the best interests of all stakeholders -
Customers, Suppliers, Employees and Shareholders.
In the spirit of above, the Directors of digital, strive to maintain a reputation for high but fair standards in the best interest of its stakeholders.
Our primary focus is on our customers and here we regard our relationships and channels of communications of paramount importance. We operate in a sensitive environment between Right holders and Service Providers, Commercial Entities and Brands, and as such ensure that we meet all the standards required by our Customers and our Suppliers, such as Privacy, Information Governance, Reporting and Rights Compliance.
The Board is focused on delivering value for Shareholders underpinned by motivated Employees delivering ahead of the curve technology solutions to market and above average delivery of service to customers. In achieving the foregoing, the Group focuses on continued strategic innovation via a policy of market validation and product development funded through organic investment plus capital raises, as agreed at shareholder meetings, and supported by clearly communicated vision and direction.
In our communication to Shareholders the Board is clear in terms of its short, medium and long-term strategy and maintains an open-door approach to Shareholders seeking additional clarity on any issue. The Board release notices on a regular basis informing Shareholders of developments in areas of business progress, non-confidential strategic decisions and any change to Group policy. Risks and opportunities are set out in this strategic review.
Employees
The Group is small and, while clear management structures are in place, all Employees, if required, have direct access to the Executive Directors daily and, if necessary, to the Chairman. The Group retains HR services to ensure the fair and equitable treatment of Employees. The Group promotes a policy of promoting from within supported by training and mentorship. We encourage diverse thinking and recognise strengths and contribution to the business. Finally, we recognise that as a responsible
organisation we identify and deliver on our social responsibility. In late , we have established an approach to engaging with
colleagues to take their perspectives into account in our decision making and planning and share with them our strategy and
progress in regular all hands meetings. Our employee opinion survey, first launched in | , told us that: |
- of employees say that they feel their colleagues are at a "high" or "good" engagement
- of employees say they feel valued
- feel that their work fits their strengths
The results from our employee opinion survey help shape how we run the business and the focus on areas that will make a real difference to our colleagues, such as managing stress, networking cross-company, and take advantage of reviews to improve cross-level communication. Finally, we recognise that as a responsible organisation we identify and deliver on our social responsibility.
Customers
We engage and build our relationships with our customers in a number of ways, from tech- and product-driven updates that improve efficiency and transparency in operations and standards of performance, to our face-to-face interactions with our "white
glove" standard customer service. In the last months, we developed new services to improve our engagement with clients
including quarterly business reviews to report on account performance, user and account level analytics, technology roadmap, and new partnerships supported. In addition, we have introduced a questionnaire to gather important feedback from the QBR and gain further insight into digital's performance to further deliver on specific customer interests.
Fundraising
During the year, as detailed in the Chief Financial Officer's Review on pages to , the Group raised . m through funding; . m of which was received in cash and . m was funded by the conversion of the principal and accrued interest balances of the Shareholder loans.
digital Group PLC Annual Report and Accounts
digital Group plc
STRATEGIC REPORT
Section
Cost control and cash management
As part of the comprehensive cost reduction programme and the Group reorganisation, headcount was reduced through employee redundancies and termination of contractors. Operational expenses were further reduced by the rationalisation of external vendors.
Approved by the Board of Directors and signed on behalf of the Board,
Paul Langworthy
CEO
Lower Lock, Water Lane, London, NW JZ
September
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Board of Directors
EXECUTIVE DIRECTORS presently in office :
Paul Langworthy, Chief Executive Officer (appointed | July | ) |
Paul Langworthy was appointed CEO of digital in | July | , to lead the restructuring and |
repositioning of the Group as a global leader in B B music solutions. Under his leadership, the Group has refocussed to capitalize on the flexibility and scalability of the digital platform
technology and catalogue to power unique and diversified customer experiences on behalf of enterprises and brands in the music streaming space. Previously COO, Paul was responsible for organizing the business to meet its strategic goals and objectives. Paul joined digital in April and has become a driving force in the Group s operations. Initially managing the Group s content supply chain, he later took leadership of digital s Client Operations teams. Paul also oversaw operations within the Production businesses that became part of digital Group plc following the
merger with UBC Media. With years of experience in digital and content operations, Paul has worked across all aspects of the digital supply chain including metadata, rights, scheduling, asset management and distribution. Prior to digital, Paul oversaw Content Operations at digital TV service YouView. He also spent over nine years with Universal Music Group within the label s
International Digital Supply Chain Management division. | |
Michael Jusekwicz, Chief Financial Officer (appointed September | ) |
Michael is an experienced technology, media and finance executive who currently also holds the
position of CFO Head of Corporate Development at eMusic. Michael spent over years working
in investment banking, mergers acquisitions, and capital markets at the TMT groups of Bank of America Merrill Lynch, Nomura, and Cyndx. Michael has also acted as interim CFO of Export Now, a cross border focused e-commerce company, and gained experience working for the international accounting firm BDO. He holds an MBA from the University of Chicago Booth School of Business and a Bachelor of Science with a double major in both Accounting and Economics from Tel Aviv
University. Michael was appointed the Group Company Secretary on September | . |
.
NON-EXECUTIVE DIRECTORS presently in office :
Tamir Koch, Chair (appointed July )
Koch is President TriPlay Inc. an online music and audiobook store and brand which started trading
in and is focused on discovery and sales of independent music and artists. Most recently Tamir
has led the eMusic Blockchain Project, seeking to provide a decentralised approach to music distribution and rights management to facilitate the utilisation of blockchain within the music industry. Tamir has previously founded several successful start-ups including Orca Interactive and
Dotomi. Orca was sold to Emblaze Systems in | , which then floated Orca on AIM. It was | ||
subsequently acquired by France Telecom in | . Dotomi was acquired by ValueClick in | . | |
David Lazarus, (appointed July | ) |
David is an industrialist and international entrepreneur. David spent six years at Lloyds of London as an accredited Lloyds Broker attending to Insurance and Re-Insurance. David is currently an Executive Director of the RAM Hand-to-Hand Couriers Group, a leader in the Courier, Logistics and Express
Parcel Industry in Southern Africa. The RAM Group operates from approximately | hubs, with | |
approximately , | vehicles and over , | staff across Southern Africa. David is also a member of |
the Young Presidents Organisation. David has been involved in several international businesses, including having knowledge of the various investments of Magic.
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Board of Directors
INDEPENDENT NON-EXECUTIVE DIRECTORS presently in office :
Mark Foster
Mark has spent much of his career in the music industry, in a succession of Marketing and International roles for all three major labels, including time in Paris as Marketing Director for Warner Music France. Returning to London as Vice President of European Marketing, Foster oversaw pan-regional marketing strategy before founding Warner Music International's New Media Division. After leaving Warner, he launched and ran Deezer in the UK and Ireland, then was
appointed CEO for Arts Alliance, a leading global player in Event Cinema. Since , he has developed a portfolio of NED and chair roles for a range of businesses, including highly respected entertainment analysts MIDiA Research, and has led the digital transformation strategy for Moat Homes, a major Housing Association. In addition, he acts as advisor and brand ambassador for a number of start-ups and scale-ups in the digital entertainment and creative industries.
Helen Patricia Gilder (appointed February )
Helen brings a wealth of experience from her time as CFO at AIM-listed ZOO Digital Group plc, where she was part of the team taking the business from tech start up to success in the
international entertainment industry. Since leaving ZOO in Helen has built a portfolio of NED
and advisory roles in a range of businesses and is chairperson of a small charity. Helen qualified
with the Institute of Chartered Accountants in England and Wales in | . |
PREVIOUS EXECUTIVE DIRECTORS who served during part of the year :
John Aalbers, Chief Executive Officer (appointed April | resigned | July | ) |
John has an extensive track record, specialising in building early and mid-stage technology companies. His most recent role was as CEO of Arts Alliance Media where he established the company as the undisputed leader in operational support software for the cinema industry, before managing the successful sale to Luxin Rio of China. Prior to that, John was in the Telecommunications sector where he held roles including CEO of Volubill and numerous senior positions with CGI and Intec Telecom Systems now CSG International .
Julia Hubbard, Chief Financial Officer (appointed April | resigned September | ) |
She is an accomplished CFO with experience in building high-growth companies and managing strategic turnarounds. Julia has valuable expertise in business direction, financial strategy, debt and equity fundraising, investor and stakeholder relationship management, and M A management. Julia has held senior positions throughout the TMT, travel, construction, engineering and publishing sectors, including roles at AIM-listedAmino Technologies, lastminute.com Group, CSC Media and TV Travel Group, among others.
Simon Cole, Chief Executive Officer (resigned April | ) | |
Simon co-founded The Unique Broadcasting Company Limited in | in partnership with Tim Blackmore, having pioneered the |
market for national sponsored programmes whilst at Piccadilly Radio, where he was Head of Programmes. Unique floated on the
London Stock Exchange as part of UBC Media Group plc with Simon as Chief Executive and in , UBC merged with digital via a
reverse takeover. Simon has been awarded a fellowship of the Radio Academy and is also a Non-executive Director at Melody VR
which is a part of EVR Holdings plc. Simon was appointed as an advisor of the Group from June | . |
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Board of Directors
Pete Downton, Deputy Chief Executive Officer (resigned March | ) |
Pete joined digital in June | , assuming overall responsibility for its commercial strategy. He brings over years of operational |
and strategic experience within the heart of the nascent digital music and consumer technology businesses to the role. Prior to digital, Pete held key leadership roles at Imagination Technologies, including responsibility for content and consumer experiences across both the Imagination Technologies and PURE businesses. Before joining Imagination, Pete spent over a decade working for Warner Music Group, holding senior management positions in the company s International Marketing and Business Development teams.
PREVIOUS INDEPENDENT NON-EXECUTIVE DIRECTORS
who served during part of the year :
Sir Donald Cruickshank, Chair (resigned June | ) | ||||||||||
Don has served as a director of Qualcomm Incorporated from June | to June | . Don's career has included assignments at | |||||||||
McKinsey | Co. Inc., Times Newspapers, Virgin Group plc, Wandsworth Health Authority and the National Health Service in | ||||||||||
Scotland. He served as Director General of Oftel from | to | . He has been chair of the following: Action | - | , | |||||||
SMG plc | - | , The London Stock Exchange | - | , Clinovia Group Limited | - | , Formscape Group Limited | |||||
- | . Don was a member of the Financial Reporting Council | - | . He holds an MA degree in Law and an honorary | ||||||||
LLD degree from the University of Aberdeen and an MBA degree from Manchester Business School. | |||||||||||
Eric Cohen (resigned | June | ) |
Eric is currently Chief Development Officer at InterDigital, Inc. Previously, he served as Senior Vice President, Corporate Development at Dolby Laboratories, Inc., where he oversaw corporate development, mergers and acquisitions activities, and corporate strategy. Prior to that, Eric was formerly a Managing Director and senior member of the technology investment banking team at Cowen and Company. Eric, held the position of Managing Director at J.P.Morgan and also worked for years at Credit Suisse First Boston. Eric holds a BS degree from Brown University and an MBA degree from Stanford University.
Anne de Kerckhove (resigned August | ) |
Anne has over | years experience in leading some of the fastest growing technology, media and entertainment companies in |
Europe. Anne is currently the CEO of Freespee, the conversation platform company. Previously, Anne was CEO of Iron Group and Iron Capital an investment fund and payment enabler in the subscription economy. Before that Anne was the Managing Director EMEA for Videology, one of world's largest ad technology platforms where she drove expansion in over countries in just under years and was Global Director of Reed Elsevier, responsible for the B B Entertainment Division, which included leading events
such as MIPCOM. From | to | , Anne was COO and International Managing Director at Inspired Gaming Group, overseeing | ||
the company from its launch to IPO and expansion into | countries. Anne has a Bachelor of Commerce from McGill University and | |||
an MBA from INSEAD. Anne is an angel investor in over | companies, including Andela and metail. Anne also sits on the board | |||
of | .com. |
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Directors' Report
The Board of Directors present their annual report and the audited financial statements for the year ended | December | . | |
The Corporate Governance Statement on pages to | forms part of this report. | ||
Business review and future developments | |||
The Chief Executive's Review is contained on pages | to , the Chief Financial Officer's Review is contained on pages to | and | |
Governance Report on pages | to ; these reviews and reports, together with the information contained within the Directors' |
Report constitute the Business Review. The Business Review has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for these strategies to succeed.
The Business Review contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
Results and dividends
The Group's financial results for the year are shown in the Consolidated Income Statement on page . As in the previous year, the
Board of Directors is not proposing a final dividend for the year ended December | . |
Directors' indemnities
The Group has made qualifying third-party indemnity provisions for the benefit of its directors that were made during the year and remain in force at the date of this report. Directors' and officers' indemnity insurance with an annual limit of million is maintained.
Substantial shareholders | |||||
At September | notification of beneficial interests in | or more of the Company's issued share capital are as follows: | |||
Number of Shares | of issued share capital | of voting rights | |||
Magic Investments S.A. Limited | , | , | . | . | |
Shmuel Koch Holdings | , | , | . | . | |
Mr Joseph D Samberg | , | , | . | . | |
Hargreaves Lansdown PLC | , | , | . | . | |
Interactive Investor Trading | , | , | . | . | |
LAS Investments | , | , | . | . | |
Mr Noam Band | , | , | . | . |
Capital structure
The Group is primarily funded through readily available cash and working capital management.
Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the year, are shown in note .
During , the Company carried out a Capital subdivision of shares. This created new class of Ordinary . p shares that carry
full voting rights; and Deferred . p shares, along with the existing Deferred p shares, that carry limited voting rights. The Ordinary shares carry no right to fixed income. Each Ordinary share carries the right to one vote at general meetings of the Company. Details of the share capital can be found in note .
There are no specific restrictions on the size of a holding or on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note .
No person has any special right of control over the Company's share capital and all issued shares are fully paid.
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Directors' Report
(continued)
With regards to the appointment and replacement of directors, the Company is governed by its Articles of Association, the
Companies Act and related legislation. The Articles themselves may be amended by special resolution of the shareholders.
The powers of directors are described in the Main Board Terms of Reference, copies of which are available on request and the Corporate Governance Statement on pages to .
Please refer to the post balance sheet note .
Financial risk management
Consideration of principal risks and uncertainties are included on pages to of the Strategic Report including the management of financial risks. These are also outlined further in note .
Re-election of directors
The directors who retire by rotation in accordance with the Articles of Association will offer themselves for re-election at the Company's Annual General Meeting "AGM" . The Board has considered the requirements of the QCA Corporate Governance Code in respect of these matters and believes that these members continue to be effective and to demonstrate their commitment to their role, the Board and the Group. Brief particulars of all directors can be found on pages to .
Going concern
S mma | |
On February | , a short term loan of |
in equal parts starting from March one of the Directors.
k was signed with CSS Alpha BVI Limited. The loan is repayable over months with interest based on . of the outstanding balance. The loan is guaranteed by
On September | , digital annouced the placing of | , | , | new Ordinary Shares of . p each, which raised m at an |
issue price of . | pence per share. The net proceeds of the fundraising will be used to meet the immediate working capital |
requirements of the Group and support immediate and medium term commercial growth opportunities, in particular within home fitness, artist monetisation, and social media.
Background to and reasons for the placing and subscription
The music industry is undergoing a period of change and opportunity whereby revenue sources are changing. and growing. Whereas five years ago revenues were dominated mainly by music sales and live performances, today streaming has displaced
download music sales and COVID- has shut down live performances for much of 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.
digital 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- 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 . In particular digital has identified potentially significant emerging opportunities within social media, home fitness and artist monetisation channels.
Social Media
Music is becoming the driving force behind the growth of user-generated content UGC social media platforms and the global success of Tik Tok is shifting the paradigm in how fans discover, share and create music. The Directors believe that social media enterprises will continue to develop new models to extend their reach and in doing so will need a partner in providing new user experiences.
digital is able to provide access to its global catalogue, platform scale, rights and reporting to serve the sizeable and rapidly- growing user demand for world-wide social enterprises. Its platform enables users of social media platforms to access, sample and stream from its global catalogue while also ensuring accurate reporting back to record labels and rights holders.
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Directors' Report
(continued)
The Company recently announced a new contract with Triller and the Directors believe that the platform will be of interest to other social media enterprises as music is integrated into new services.
Home Fitness | ||
The fitness industry is a | billion global industry with an estimated | million paying subscribers. Hardware and digital bundled |
offerings like Peloton have popularised app-based training, and, as COVID- has closed gyms, there has been an accelerated shift to on-demand online fitness. This has presented a trend for which the Company has a strong product-market fit. The Directors also anticipate the pandemic will create interest from non-traditional companies in fitness and sport/leisure retail wanting to participate in digital music services to drive loyalty.
digital s offering is a total fitness solution that includes a pre-licensed fitness music catalogue, content delivery, reporting and rightsholder payments, curation and playback of playlists for recording live classes. The Directors expect to announce a platform/licensing contract with in-home cycling providers and have a pipeline of potential additional high-profile global companies.
Artist Monetisation | |
With the shutdown of the live music industry in | in response to the spread of COVID- , digital and eMusic are partnering to |
create a platform that creates new ways for artists to engage with music fans and recoup the income lost from ticket sales. eMusic Live, a new livestream platform built to make online performances commercially viable for music artists, will appeal to artists, managers and labels looking for new ways to monetise music consumption through sponsorships, music and merchandise. eMusic
Live will be powered using digital s technology platform, which provides access to the Company s global catalogue of music tracks in standard and hi-res audio. As the platform expands it is expected to also utilise digital s expertise in B B music solutions and
flexible services, combined with eMusic s B C technology and functionality, to introduce new solutions for the live music industry. The platform will offer an integrated artist-specific digital storefront to enable artists to sell their music catalogue or promote their latest release, thereby facilitating more exposure for their music and more value from sales.
On September | , the Group secured a m overdraft facility with Investec for a period of months guaranteed by two of | ||
the Directors; this attracts | interest above Investec bank rate on the drawn portion of the facilty and | on the undrawn | |
portion. |
COVID
In March , the World Health Organisation declared a global pandemic due to the COVID- 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 on page | , the COVID- pandemic has had a minimal impact on our business and the Board believes that the business | |||
is well positioned to be able to navigate through the impact of COVID- | due to the strength and flexibility of its service proposition. | |||
B e i | ||||
The United Kingdom | 'UK' | formally left the European Union 'EU' on | January | . The period of time from when the UK voted |
to exit the EU on June | 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 | , which ratified the Withdrawal Agreement, as agreed between the UK and the EU. |
The transition period is currently due to end on December | 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.
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Directors' Report
(continued)
C ncl i n
The Directors have reviewed digital's going concern position taking account of its current business activities, financial forecasts and factors likely to affect its future financial position, as set out in this Annual report which include digital's objectives, policies and processes for managing its capital and its financial risk management objectives. Considering the global coronavirus COVID- 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 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, no new contracted sales revenue and cost reductions.
Having assessed the sensitivity analysis on cashflows including the funding of m and the security of the newly agreed credit facility, together with the significant current business momentum from new customers such as Triller, the launch of eMusic Live and growing demand for streaming and digital music solutions, the Directors strongly believe digital will continue to operate as a going concern for the foreseeable future, being months from their signing of their financial statements.
Environmental policy
In appreciating the importance of good environmental practice, the Group seeks to ensure that its operations cause minimum detrimental impact on the environment. The Group's objective is to comply with all relevant environmental legislation and to promote effective environmental management throughout its businesses.
Policy and practice on payment of creditors
Each Group Company is responsible for agreeing the details of terms and conditions relating to transactions with its suppliers where goods and services have been supplied in accordance with the relevant terms and conditions of the contract. Trade creditors
for the Group at December | represented | days of purchases | December | : | days of purchases . |
Auditor | |||||
BDO LLP were reappointed as the auditors for the year ended December | . |
Directors' statement as to the disclosure of information to the auditor
Each of the persons who is a director at the date of approval of this annual report confirms that:
- so far as the directors are aware, there is no relevant audit information of which the Group's auditor is unaware; and
- the directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the Group's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of s | of the Companies Act | . |
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare Group and Parent Company financial statements for each financial year. Under that law, the directors are required to prepare Group financial statements in accordance with International Financial Reporting Standards IFRS as adopted by the European Union and Article of the IAS Regulation and have elected to prepare the Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice United Kingdom Accounting Standards and applicable law . The Parent Company financial statements are required by law to give a true and fair view of the state of affairs of the Company. Under company law, the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing the Group financial statements, International Accounting Standard requires that directors:
- properly select and apply accounting policies;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
- provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity s financial position and financial performance; and
- make an assessment of the Company's ability to continue as a going concern.
digital Group PLC Annual Report and Accounts
digital Group plc
GOVERNANCE
Directors' Report
(continued)
In preparing the Parent Company financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and accounting estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act . They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Approved by the Board of Directors and signed on behalf of the Board,
Mark Foster
Director
Lower Lock, Water Lane, London, NW JZ
September
digital Group PLC Annual Report and Accounts
digital Group plc
Governance
Corporate Governance Statement
For the purposes of AIM Rule , the recognised corporate governance code that the Board has decided to apply is the Quoted
Companies Alliance Corporate Governance Code 'QCA Code' . The Board believes the QCA Code provides the most
appropriate framework of governance arrangements for the Company, considering the size and stage of development of the Company's business. The following information is provided to explain how the Company complies with the QCA Code.
The Board supports the principles and aims of the Code and intends to ensure that the Group observes the provisions of the Code as it grows, as far as is practical.
Board Composition | ||
The Company is controlled through a Board of Directors, which at | December | comprised four directors: two executive |
directors, one non-executive director and one independent non-executive director. Short biographies of each director are set out
on pages | to . The role of the Chair and that of the Chief Executive are separate. Mark Foster and Helen Gilder appointed post |
year-end | are considered independent by the Board. |
Tamir Koch, the Chair, is not considered by the Board to be independent by virtue of the fact that he is Executive Chair of Triplay Inc. which is a substantial shareholder. David Lazarus is not considered by the Board to be independent by virtue of the fact that he is Executive Chair of Magic Investments SA which is a substantial shareholder.
Board Role
The chair is responsible for the leadership of the Board, ensuring its effectiveness in all aspects of its role and setting its agenda. The chair also ensures that the directors receive accurate, timely and clear information and that there is effective communication with shareholders. The chair also facilitates the effective contribution of the other non-executive directors and ensures constructive relations between executive and non-executive directors. The Chief Executive's responsibilities are concerned with managing the Group's business and implementing Group strategy.
The Board's role is to provide entrepreneurial leadership of digital within the framework of prudent and effective controls that enable risk to be assessed and managed. The Board is responsible for setting the Company's strategic aims and for ensuring the financial and human resources are in place for the Company to meet its objectives and to review management performance. The Board is also responsible for setting the Company's values and standards and ensuring that its obligations to its shareholders are understood and met. The Board dispatches its role by holding regular meetings, at which:
- the monthly management accounts, including budgets and prior year comparatives, are reviewed;
- strategy is set and policy is debated;
- all significant investment and acquisition opportunities are reviewed and, if appropriate, approval is given; and
- any proposed changes to internal control and operating policies are debated.
Skills and Expertise
The non-executive directors bring a wide range of experience and expertise to the Group's affairs, which allow them to constructively challenge and help develop proposals and strategy, scrutinise performance and controls and take decisions objectively in the interests of the Group.
Strategy and Corporate Governance
An updated description of the Company's business model is provided in the strategic report and is included in this report at pages to . The Company's Board composition and the areas of skill and expertise detailed above have been designed to support the
Company's next stage of growth.
The Board is responsible for maintaining a sound system of internal control to safeguard shareholders' investments and the Company's assets. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Board has considered the need for an internal audit function and has concluded that the internal control systems in place are appropriate for the size and complexity of the Company.
The Board is also responsible for the identification and evaluation of major risks faced by the Group and for determining the appropriate course of action to manage those risks. The Board has put in place the procedures necessary to implement and comply with the guidance; Internal Control: Guidance for Directors as issued by the Financial Reporting Council Revised . The directors performed an informal review of the Group's control systems during the financial year.
digital Group PLC Annual Report and Accounts
digital Group plc
Governance
Corporate Governance Statement
(continued)
The Group carries insurance to indemnify directors for claims made against them in relation to their duties, with the exception of
any losses incurred as a result of their wilful negligence. Cover with an annual limit of | million is maintained. |
Board Evaluation and Re-election
Procedures around performance evaluation of the Board are conducted informally while individual director evaluation is conducted formally by the chair. The Board continues to evaluate the current balance of skills and determine whether the Board composition is appropriate for the business, and in order to propel the Company to further growth as anticipated. Progress as to this process will be reported in due course to shareholders, and further updates provided.
One-third of the directors must retire from office by rotation at each annual general meeting AGM and all directors appointed since the date of the last AGM must put themselves forward for re-election.
Meeting Frequency | ||||||
During the year, the total number of formal meetings of the Board of | digital Group plc was . The attendance at formal scheduled | |||||
meetings of the Board was as follows: | ||||||
Number of Board | Number of eligible Board Meetings | |||||
Meetings | ||||||
attended | ||||||
P Langworthy | A | in ed J | l | |||
M Juskiewisz | A | in ed Se | embe | |||
T Koch | A | in ed J | l | |||
D Lazarus | A | in ed J | l | |||
M Foster | ||||||
J Aalbers | A | in ed A | il | Re igned J | l | |
J Hubbard | A | in ed A | il | Re igned Se | embe | |
S Cole | Re igned A | il | ||||
P Downton | Re igned Ma ch | |||||
D Cruickshank | Re igned J ne | |||||
E Cohen | Re igned J ne | |||||
A de Kerckhove | Re igned A g | |||||
D Holmwood | Re igned A | il |
In addition, there were a number of informal meetings of the Board.
The Company has adopted the Market Abuse Regulation for Directors' dealings as applicable to AIM companies.
The Executive Directors are full time employees and the Non-Executive Directors are required to devote sufficient time to discharge the duties of their office.
Financial reporting
The Board places considerable emphasis on ensuring that all communications with shareholders present a balanced and transparent assessment of the Group's position and prospects. The Board or a subcommittee of the Board reviews and approves results announcements, interim reports, annual reports, the chair's AGM statement and trading updates prior to their release. The
Statement of Directors' Responsibility in respect of the preparation of financial statements is set out on pages | to | and the |
auditor's statement on the respective responsibilities of directors and the auditor is included within their report on pages | to . |
Committees of the Board
The Board has two standing committees, being the Audit Committee and the Remuneration Committee each of which operates within defined terms of reference.
digital Group PLC Annual Report and Accounts
digital Group plc
Governance
Corporate Governance Statement
(continued) | |||
Audit Committee | |||
The Audit Committee consists of Mark Foster the Chair until February | and Helen Gilder appointed February | ; Chair | |
from February | . The Audit Committee has primary responsibility for monitoring the integrity of the financial statements of |
the Group; reviewing the Group's internal financial controls; ensuring that the financial performance of the Group is properly measured and reported on; and for reviewing reports from the Group's auditor relating to the Group's accounting and internal financial controls. The Chief Financial Officer and other senior management also attend committee meetings by invitation. The Committee has unrestricted access to the Company's auditor. The Audit Committee met formally three times during the period. The Committee reviews arrangements by which staff of the Company may raise in confidence concerns about improprieties in matters of financial reporting or other matters and investigates appropriate follow-up action.
The Audit Committee recommends to the Board the appointment, re-appointment or removal of the external auditor. During the Audit Committee made the decision to re-engage BDO for a third year of service.
Remuneration Committee | |||
The Remuneration Committee consists of Mark Foster, as chairman, Tamir Koch and Helen Gilder | appointed February | . | |
Further details of the Committee's remit are contained in the Directors' Remuneration Report on pages | to . The Remuneration | ||
Committee did not formally meet during the period. | |||
Risk Register | |||
A risk register has been implemented in Q | to improve process, enhance and strengthening internal controls and managing | ||
risk. |
Relations with shareholders
The Company recognises that shareholder support is instrumental in the future growth of the Company. The Board is committed to maintaining and further developing communications with shareholders. The Chief Executive and Chairman maintained a regular dialogue with institutional shareholders throughout the year, with further opportunities for shareholder contact during the presentation rounds prior to the cash fundraise. In addition, the executive directors give presentations to analysts and hold one- to-one formal meetings with the Group's key shareholders immediately following the announcement of the Group's full year and interim results. The Group obtains independent feedback on these meetings through its corporate brokers, and this feedback is disclosed to the Board.
The Company responds formally to all queries and requests for information from existing and prospective shareholders. In addition, the non-executive directors are available to shareholders to ensure that any potential concerns can be raised directly. The Group's Annual Report and Accounts, final and interim announcements, trading statements and press releases are available on its website at about. digital.com.
Further, the Company has invested in shareholder analysis by analysts Orient Capital to enable further shareholder outreach and dialogue.
Constructive use of the AGM
The Board uses the Annual General Meeting to communicate with both institutional and private shareholders. Resolutions are proposed on each substantially separate issue and the agenda includes a resolution to adopt the Group's Annual Report and Accounts. Details of the proxy votes for and against each resolution are announced after the result of the hand votes is known. Before the formal business of the AGM is undertaken, the Chair invites shareholders' questions to the Board.
digital Group PLC Annual Report and Accounts
digital Group plc
Governance
Directors' Remuneration Report
As an AIM-listed company, digital Group plc is not required to disclose a Directors' Remuneration Report; however, the Company has opted to make a voluntary disclosure.
Remuneration Committee
The Board has established a Remuneration Committee with formally delegated duties and responsibilities. The Remuneration
Committee consists of Mark Foster, as chairman, Tamir Koch and Helen Gilder appointed February . The provisions of the QCA Code recommend that as Company Chairman, Tamir Koch, should not be a member of the Committee. However, it was considered that Tamir's experience and knowledge is of considerable value to the Committee and as a result he has been appointed a member of the Committee. The Remuneration Committee has responsibility for determining executive directors' terms and conditions of service, including remuneration and grant of options under the Share Option Schemes.
Remuneration policy for executive directors
The Company's policy on executive director remuneration is to:
- Attract and retain high-quality executives by paying competitive remuneration packages relevant to each director's role, experience and the external market; and
- Incentivise directors to maximise shareholder value through share options and the payment of an annual bonus.
The remuneration of each of the directors | as audited for the year ended | December | for the digital Group was as follows: | |||||||||||
Salary & | Share based | Settle- | Taxable | Pension | Total | Total | ||||||||
Fees | payments | ment | Bonus | benefits | contribution | |||||||||
' | ' | ' | ' | ' | ' | ' | ||||||||
Executive | - | |||||||||||||
P Langworthy | - | - | ||||||||||||
S.A. Cole | - | - | ||||||||||||
J Aalbers | - | - | - | - | - | |||||||||
J Hubbard | - | - | - | - | ||||||||||
P Downton | - | - | - | |||||||||||
M Juskiewicz | - | - | - | - | - | |||||||||
Non-executive | - | |||||||||||||
M Foster | - | - | - | |||||||||||
D Cruickshank | - | - | - | - | - | |||||||||
A de Kerckhove | - | - | - | - | - | |||||||||
E Cohen | - | - | - | - | ||||||||||
H Gilder | - | - | - | - | - | |||||||||
Total | , | |||||||||||||
M Foster received a fee of | , | ; his annual fee rose from | . k to | k per annum in August | . He is owed a fee | |||||||||
payable in shares of | , | , | , | shares . | ||||||||||
D Cruickshank received a fee of | , | for the period | January | up to his date of resignation. | ||||||||||
A de Kerckhove received a fee of | , | and a non-executive fee of | , | for her role as President of | digital SAS, both | |||||||||
were for the period | January | up to her date of resignation. | ||||||||||||
E Cohen received a fee of | , | for the period January | up to his date of resignation. He is owed a fee payable | |||||||||||
in shares of , | , , | shares .. | ||||||||||||
( ) H Gilder received a fee of | , | for the last two months of the year prior to appointment in February | . | |||||||||||
P McGowan, a director who resigned in | , has a fee payable in shares of | , | , | , | shares . | |||||||||
Total employer national insurance contributions relating to Directors' remuneration were | , . . |
digital Group PLC Annual Report and Accounts
digital Group plc
Governance
Directors' Remuneration Report
(continued) | |||||||||||||||
Directors and their interests | |||||||||||||||
The directors who held office at | December | had the following interest in the ordinary share capital of the Company at the | |||||||||||||
end of the year: | |||||||||||||||
Number of | Ordinary shares | Number of | Ordinary shares | ||||||||||||
ordinary shares | under options | ordinary shares | under options | ||||||||||||
D Lazarus | , | , | - | - | - | ||||||||||
T Koch | , | , | - | - | - | ||||||||||
M Foster | , | - | , | - | |||||||||||
P Langworthy | , | , | , | , | , | , | |||||||||
At | December | , the following directors' interests were also noted: | |||||||||||||
. | , | , | were held by Magic Investments SA of which D Lazarus is a director. | ||||||||||||
. | , | , | were held by a Shmuel Koch Holdings, of which T Koch is a director. | ||||||||||||
During the year no shares were issued to Non-executive Directors in lieu of remuneration. At December | , | , | : | ||||||||||||
, | shares are due to be issued. | ||||||||||||||
Accrued gross | Shares issued | Shares forfeited | Shares accrued | Accrued gross | |||||||||||
number of ordinary | during year in lieu | during year due | during the year in | number of ordinary | |||||||||||
shares remaining | of remuneration | to resignations | lieu of | shares remaining | |||||||||||
due at | Dec | remuneration | due at | Dec | |||||||||||
D Cruickshank | , | - | , | - | - | ||||||||||
A de Kerckhove | , | - | , | - | - | ||||||||||
M Foster | , | - | - | , | , | , | , | ||||||||
E Cohen | , | - | - | , | , | , | |||||||||
Total | , | - | ( | , ) | , | , | , | , |
The Company has established a tax efficient EMI option scheme, an "unapproved" share option scheme and a French Share Award Scheme pursuant to which the CEO, CFO and other members of staff have been or may be granted share options. Options granted under these schemes have a vesting schedule and for Senior Management, performance criteria are defined.
The number, exercise price and earliest and latest dates of exercise of options over ordinary shares in the Company held by Directors at the end of the year were as follows:
Share Options | Currently | Exercise | Earliest | Latest exercise | ||||
P Langworthy | , | , | Exercisable | price | exercise date | date | ||
. p | Aug | Aug | ||||||
S A Cole | , | , | . p | Aug | Aug | |||
There are a number of performance conditions relating to the financial periods ending December | , | , | and |
attached to these options. Of these options granted, the table below shows the options issued, exercised, lapsed or forfeited during
: | |||||
Share Options | Issued | Forfeited | Lapsed | Share Options | |
held at | held at | ||||
December | December | ||||
Paul Langworthy | , , | - | , | , | , , |
digital Group PLC Annual Report and Accounts
FINANCIAL
STATEMENTS
FOR THE YEAR ENDED DECEMBER
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Opinion
We have audited the financial statements of digital Group plc the 'parent company' and its subsidiaries the 'group' for the year
ended December which comprise the consolidated income statement and statement of comprehensive income, the
consolidated statement of financial position, the consolidated cash flow statement, the consolidated statement of changes in equity, the parent company statement of financial position, the parent company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard Red ced Di cl e F ame k United Kingdom Generally Accepted Accounting Practice .
In our opinion:
- the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at
December | and of the group's loss for the year then ended; |
- the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
- the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• | the financial statements have been prepared in accordance with the requirements of the Companies Act | . |
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing UK ISAs UK and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
digital Group PLC Annual Report and Accounts
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs UK require us to report to you where:
- the Directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
- the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group or the parent company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement whether or not due to fraud we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter | How we addressed the key audit matter in the audit |
Revenue Recognition
See accounting policy in note and note Revenue
As explained in the accounting policy, the group has a number of revenue streams for which the accounting treatment must be individually considered.
The majority of the revenues are from licences for B B streaming contracts held, where the significant risk of material misstatement arises from the existence of revenue recognised for set up fees and monthly recurring fees due to the judgement requirement in determining when performance obligations are satisfied.
With content revenue the significant risk is over-statement of revenue recognised.
With creative revenue, the significant risk is cut-off at the year-end, with judgement being applied to the amount of revenue to be recognised and accrued or deferred at the year-end.
Our audit procedures included assessing the appropriateness of the revenue recognition policies implemented in accordance with adoption of applicable accounting standards over the different revenue streams.
For licence revenue a sample of key contracts were selected for testing, assessing whether the revenue existed by agreeing to contract and licence keys issued and determining whether revenue was recognised in accordance with the contractual terms, the group's revenue recognition policy and applicable accounting standards.
For content revenue, we agreed a sample of receipts from the third party service providers' statements to the relevant bank statements.
For creative revenue, for a sample of contracts entered into during the current period we calculated a revenue expectation and compared to the revenue recognised by the group. For revenue spanning the year end, the accrued and deferred revenue elements were recalculated by reference to the contract and the actual work completed at the year- end date.
Key observations:
Based on the procedures performed we consider that revenue has been recognised appropriately in accordance with the group's revenue recognition accounting policy.
digital Group PLC Annual Report and Accounts
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Valuation of content cost of sales and related content
accruals
See key estimates and judgements in note
The group's content cost comprises amounts payable to music label suppliers and publishers. This is an area with a high level of complexity in calculating and monitoring the royalty rates payable to the artists or writers of the songs played/sold, due to varied pricing structures, resulting in a blended rate being applied. Consequently, there is a risk that the liability within the financial statements is incorrectly estimated leading to the content cost in the consolidated income statement and the content cost accrual at the year-end being materially misstated.
The accrued balance for content costs is . m | : |
. m . |
We have assessed managements estimates in calculating the content cost of sale and associated accrual by:
- reference to the prior year, checking a consistent estimation approach was adopted by management
- verifying the reasonableness of the blended gross margin rate applied to arrive at the content cost of sale, based on historical label content invoices received
- assessing the accuracy and completeness of the content sales by comparing to the sales reports from the third party service providers and cash receipts testing on a sample basis
- Recalculating the content costs of sales using the above blended gross margin rate and total content sales
- For a sample of content supplier invoices received during the year and post year end, compared the invoice to the subsequent utilisation or estimated content accrual respectively to assess the valuation of the content accrual.
Key observations:
Based on the procedures performed, we found the estimates relating to the contest cost and related accrual to be reasonable.
digital Group PLC Annual Report and Accounts
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Going Concern
As detailed in note , the Group has undertaken a significant fundraise during the year and subsequent to the balance sheet date. The unprecedented impact of COVID- on the business and wider world economies has resulted in uncertainties on the ability of companies to continue operating as going concerns, and has raised additional audit risks. As a result, the Directors have considered the impact of the recent Covid- outbreak as part of the Group's going concern analysis and have modelled a range of reasonably possible outcomes with the new fundraising and bank overdraft facility obtained during the time of the pandemic,
including an extreme stress test scenario.
Considering, the recent pandemic and the group continuing to incur losses, the directors have successfully secured a
fundraise of | . m | net | through placement and |
subscription of | shares | and a | m overdraft facility to |
sustain its immediate working capital needs.
Due to the significance of this matter and given the judgements involved in forecasting cash flows of the group we determined that going concern is a key audit matter.
We challenged management's modelled scenarios covering a period of at least months form the date of approval of the financial statements including the stress test scenario, which was based on significantly reduced trading for a period of months.
We agreed the cash of | . million received on | Sept |
- following the Group's fundraise through placement and subscription of shares to the bank statement.
We examined the terms of the new | m overdraft facility |
secured by the Group, focusing on the convents per the | |
agreement, to check that the | Group could remain |
compliant for the next | months, when considering the |
stress test model prepared. |
We assessed the integrity of the cash flow model and
agreed cash at hand within the Group at September
to bank statement, supporting the modelled scenarios prepared by management.
We assessed the assumptions made for the renewal of contracts and new customer contract wins for reasonableness, by reference to historical renewal rates and new wins.
We reviewed the mitigating actions being undertaken by directors to manage and conserve cash for reasonableness.
We assessed management's disclosures in relation to the COVID- pandemic and its potential impact checking that these are consistent with management's stress test scenario and the Board's view of the current market conditions.
digital Group PLC Annual Report and Accounts
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. For planning, we consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Ma e iali
Materiality for the group as a whole was set at k : k , which represents : of group revenue. For the Group,
revenue provides a consistent year on year basis for determining materiality due to the group making losses each year and has been determined to be the most relevant performance measure to the stakeholders of the group.
Materiality for the parent company was set at k : k , which represents : of adjusted expenditure :
revenue . The basis for materiality has been amended as the parent company is no longer a trading entity and is purely the holding company for the group.
Pe f mance Ma e iali
Based upon our assessment of the risks within the group and the group's control environment, performance materiality for the group
financial statements was set at | k | : | k , being | : | of materiality. Performance materiality for the parent | |||||||
company was set at | k | : k , being | of materiality. | |||||||||
Component materiality levels applied ranged from | k to | k | : | k to | k . | |||||||
Re | ing Th e h | ld | ||||||||||
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of k | : k , | |||||||||||
which is | : | of materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative | ||||||||||
grounds. |
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements at the group level.
In determining the scope of our audit we considered the size and nature of each component within the group to determine the level of work to be performed at each in order to ensure sufficient assurance was gained to allow us to express an opinion on the financial statements of the group as a whole.
We obtained an understanding of the internal control environment related to the financial reporting process and assessed the appropriateness, completeness and accuracy of group journals and other adjustments performed on consolidation.
The group consists of six trading entities. Four of the trading entities, one being the holding company, are based in the UK and were considered significant components for the purposes of our audit. Full scope audits were performed for these entities. Further to this there are two non-significant trading entities, one within the US and one in France as well as other non-trading entities for which analytical procedures were performed. All audit procedures were performed by the group audit team. The significant components
audited for the group reporting purposes accounted for | of the group's revenue and | of the group's total assets. |
digital Group PLC Annual Report and Accounts
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts other than the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act
In our opinion, based on the work undertaken in the course of the audit:
- the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
- the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
We have nothing to report in respect of the following matters in relation to which the Companies Act | requires us to report to |
you if, in our opinion: |
- adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
- the parent company financial statements are not in agreement with the accounting records and returns; or
- certain disclosures of directors' remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the statement of directors' responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's and the parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs UK will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities.This description forms part of our auditor's report.
digital Group PLC Annual Report and Accounts
digital Group plc
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DIGITAL GROUP PLC
Use of our report
This report is made solely to the parent company's members, as a body, in accordance with Chapter of Part of the Companies
Act . Our audit work has been undertaken so that we might state to the parent company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Nicole Martin Senior Statutory Auditor
For and on behalf of BDO LLP, Statutory Auditor
London, UK
September
BDO LLP is a limited liability partnership registered in England and Wales with registered number OC | . |
digital Group PLC Annual Report and Accounts
digital Group plc
CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME Year ended December
Year to | Dec | Year to | Dec | |||||||||||||||
Notes | ' | |||||||||||||||||
Revenue | ( | , | , | ) | , | |||||||||||||
Cost of sales | , | |||||||||||||||||
Gross profit | , | , | ||||||||||||||||
Other Income | ( | , | , | ) | ||||||||||||||
Administrative expenses | , | |||||||||||||||||
Adjusted operating loss | ( | , | ) | , | ||||||||||||||
- Share based payments | ( | ) | ||||||||||||||||
- Foreign exchange | ( | ) | ||||||||||||||||
- Other adjusting items | ( | , | ) | , | ||||||||||||||
Operating loss | ( | , | ) | , | ||||||||||||||
Finance income | - | |||||||||||||||||
Finance cost | ( | ) | ||||||||||||||||
Loss before tax | ( | , | ) | , | ||||||||||||||
Taxation on continuing operations | ( | ) | ||||||||||||||||
Loss for the year attributable to owners of the parent | ( | , | ) | , | ||||||||||||||
company | ||||||||||||||||||
Loss per share (pence) | ( | . | ) | |||||||||||||||
Basic and diluted | . | |||||||||||||||||
Consolidated Statement of Comprehensive Income | ||||||||||||||||||
Notes | Year to | Dec | ' | Year to | Dec | |||||||||||||
Loss for the year | ( | , | ) | , | ||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||
Exchange differences on translation of foreign operations | ||||||||||||||||||
Other comprehensive loss | ( | , | ) | , | ||||||||||||||
Total comprehensive loss attributable to owners of the | ( | , | ) | , | ||||||||||||||
parent company | ||||||||||||||||||
The notes from pages to form part of the financial statements.
digital Group PLC Annual Report and Accounts
digital Group plc
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
December
Notes | ' | |||||||||||||
Assets | ||||||||||||||
Non-current assets | ||||||||||||||
Intangible assets | - | , | ||||||||||||
Property, plant and equipment | ||||||||||||||
Right-of-use assets | , | - | ||||||||||||
, | , | |||||||||||||
Current assets | , | |||||||||||||
Trade and other receivables | , | |||||||||||||
Contract assets | ||||||||||||||
Cash and cash equivalents | ||||||||||||||
, | , | |||||||||||||
Total assets | , | , | ||||||||||||
Current liabilities | , | ) | ||||||||||||
( | ||||||||||||||
Trade and other payables | , | |||||||||||||
- | ||||||||||||||
Loans and borrowings | , | |||||||||||||
Derivative liability | - | |||||||||||||
Contract liabilities | ( | ) | , | |||||||||||
Lease liability | ( | ) | - | |||||||||||
Provisions for liabilities and charges | ( | ) | ||||||||||||
( | , | ) | , | |||||||||||
( | , | ) | ||||||||||||
Net current liabilities | , | |||||||||||||
Non-current liabilities | ( | ) | ||||||||||||
Other payables | , | |||||||||||||
Contract liabilities | ( ) | |||||||||||||
Lease liability | ( | , | ) | - | ||||||||||
Provisions for liabilities and charges | - | |||||||||||||
( | , | ) | , | |||||||||||
Total liabilities | ( | , | ) | , | ||||||||||
Net liabilities | ( | , | ) | , | ||||||||||
Equity | , | |||||||||||||
Share capital | , | |||||||||||||
Share premium account | , | , | ||||||||||||
Other reserves | ( | , | ) | , | ||||||||||
Retained earnings | ( | , | ) | , | ||||||||||
Total deficit | ( | , | ) | , |
The financial statements were approved by the Board and authorised for issue on | September | and are signed on its |
behalf by: | ||
September | ||
Director | ||
The notes from pages to form part of the financial statements. |
digital Group PLC Annual Report and Accounts
digital Group plc
CONSOLIDATED CASHFLOW STATEMENT
Year ended December
Year to | Dec | Year to | Dec | |||||||||
Notes | ' | |||||||||||
Loss for the year | ( | , | ) | , | ||||||||
Adjustments for: | ||||||||||||
Taxation | ||||||||||||
Finance Cost | ( | ) | ||||||||||
Profit on sale of fixed assets | ||||||||||||
Foreign exchange | ||||||||||||
Amortisation of intangible assets | , | |||||||||||
Amortisation of right-of-use asset | - | |||||||||||
Depreciation of fixed assets | - | |||||||||||
Impairment of intangible fixed assets | , | |||||||||||
Impairment of tangible fixed assets | - | |||||||||||
Share based payments | ||||||||||||
Increase/ decrease | in provisions | ( | , | ) | ||||||||
Decrease in accruals and deferred income | , | |||||||||||
Decrease in trade and other receivables | , | |||||||||||
Decrease /increase in trade and other payables | ( | , | ) | , | ||||||||
Cash flows used in operating activities | ( | , | ) | , | ||||||||
Taxation | - | |||||||||||
Interest income received | ||||||||||||
Interest expense paid | ( | ) | ||||||||||
Net cash used in operating activities | ( | , | ) | , | ||||||||
Investing activities | ||||||||||||
Purchase of property, plant and equipment, and intangible assets | , | - | , | |||||||||
Proceeds from sale of intangible and tangible fixed assets | ||||||||||||
Net cash generated/(used) in investing activities | , | |||||||||||
Financing activities | ||||||||||||
Proceeds from issuance of share capital net | , | - | ||||||||||
Proceeds from issuance of shareholder loans | - | , | ||||||||||
Principal paid on lease liabilities | ( | ) | - | |||||||||
Net cash generated from financing activities | , | , | ||||||||||
Net decrease in cash and cash equivalents | ( | ) | , | |||||||||
Cash and cash equivalents at beginning period | ( | ) | , | |||||||||
Effect of foreign exchange rate changes | ||||||||||||
Cash and cash equivalents at end of year | ||||||||||||
The notes from pages | to | form part of the financial statements. |
digital Group PLC Annual Report and Accounts
digital Group plc | |||||||||||||||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | |||||||||||||||
Year ended | December | ||||||||||||||
Foreign | |||||||||||||||
Reverse | exchange | ||||||||||||||
Share | acquisition | translatio | Merger | Shares to | |||||||||||
Share | premium | reserve | n reserve | reserve | be issued | Retained | |||||||||
Notes | capital | account | (note | ) | (note ) | (note ) | (note ) | earnings | Total | ||||||
' | ' | ' | ' | ' | ' | ' | ' | ||||||||
At | December | , | , | , | , | ( , | ) | ||||||||
Comprehensive income/(loss) for the year | - | - | - | - | - | - | , | ( | , | ) | |||||
Loss for the year | |||||||||||||||
Other comprehensive income | - | - | - | - | - | - | |||||||||
Total comprehensive income/(loss) for the year | - | - | - | - | - | ( | , | ) | ( | , | ) | ||||
Contributions by and distributions to owners | - | , | |||||||||||||
Share issued net of costs | , | - | - | - | - | - | |||||||||
Share based payments | - | - | - | - | - | - | |||||||||
Capital contribution | - | - | - | - | - | - | |||||||||
Total contributions by and distributions to | , | - | - | - | , | ||||||||||
owners | |||||||||||||||
At | December | , | , | ( , | ) | ( | , | ) | ( | , | ) | ||||
The notes from pages to form part of the financial statements. |
digital Group PLC Annual Report and Accounts
digital Group plc
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Year ended December
At December as previously stated
Adjustment on the adoption of IFRS Prior year adjustments
January | as restated |
Comprehensive loss for the year
Loss for the year
Other comprehensive loss
Total comprehensive loss for the year
Contributions by and distributions to owners
Share issued
Share based payments
Total contributions by and distributions to owners
At December
Foreign | ||||||||||||||
Reverse | exchange | |||||||||||||
Share | acquisition | translatio | Merger | Shares to | ||||||||||
Share | premium | reserve | n reserve | reserve | be issued | Retained | ||||||||
Notes | capital | account | (note | ) | (note | ) | (note ) | (note ) | earnings | Total | ||||
' | ' | ' | ' | ' | ' | ' | ' | |||||||
, | , | , | , | , | ||||||||||
- | - | - | - | - | - | |||||||||
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The notes from pages to form part of the financial statements.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Accounting policies
General information
digital Group plc is a public company, limited by shares and incorporated in the United Kingdom England and Wales under
the Companies Act | . The address of the registered office is given on page . |
The Group prepares its consolidated financial statements in accordance with International Financial Reporting Standards "IFRS" as adopted by the EU. The financial statements have been prepared on the historical cost basis, except for the revaluation of financial instruments. The principal accounting policies set out below have been consistently applied to all the periods presented in these financial statements; except as stated below.
Basis of Preparation | ||
Statutory accounts for the year ended December | have been delivered to the Registrar of Companies. The financial | |
information for the year ended December | contained in these results has been audited. |
The financial information contained in these results has been prepared using the recognition and measurement
requirements of International Financial Reporting Standards IFRSs as adopted by the EU. The accounting policies adopted
in these results have been consistently applied to all the years presented and are consistent with the policies used in the
preparation of the financial statements for the year ended | December | . New standards, amendments and | ||||||
interpretations to existing standards, which have been adopted by the Group for the year ended | December | , have | ||||||
been listed below. | ||||||||
New standards and interpretations | ||||||||
a New standards, interpretations and amendments effective from | January | . | ||||||
New standards impacting the Group that have been adopted in the annual financial statements for the year ended | ||||||||
December | , and which have given rise to changes in the Group's accounting policies are: | |||||||
IFRS | Lea e | IFRS | refer note | |||||
The Group adopted IFRS | using the modified retrospective approach, with recognition of transitional adjustments on | |||||||
the date of initial application | January | , without restatement of comparative figures. The Group elected to apply | ||||||
the practical expedient to not reassess whether a contract is or contains a lease at the date of initial application. | ||||||||
Contracts entered into before the transition date that were not identified as leases under IAS | and IFRIC were not |
reassessed. The definition of a lease under IFRS was applied only to contracts entered into or changed on or after
January .
b New standards, interpretations and amendments not yet effective.
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future accounting periods that the group has decided not to adopt early. The most significant of these is:
IAS | Presentation of Financial Statements and IAS Accounting Policies, Changes in |
Accounting Estimates and Errors Amendment - Definition of Material | |
IFRS | Business Combinations Amendment - Definition of Business |
Revised Conceptual Framework for Financial Reporting
New and amended standards and Interpretations issued by the IASB that will apply for the first time in the next annual financial statements are not expected to impact the Group as they are either not relevant to the Group's activities or require accounting which is consistent with the Group's current accounting policies.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS Year ended December
-
Accounting policies (continued)
Going concern
S mma | ||
On February | , a short term loan of | |
months in equal parts starting from | March | |
guaranteed by one of the Directors. |
k was signed with CSS Alpha BVI Limited. The loan is repayable over with interest based on . of the outstanding balance. The loan is
On September | , digital annouced the placing of | , | , | new Ordinary Shares of . p each, which raised m |
at an issue price of . | 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.
Backg nd and ea n f he lacing and b c i i n
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- has shut down live performances for much of 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.
digital 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- 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 . In particular digital has identified potentially significant emerging opportunities within social media, home fitness and artist monetisation channels.
COVID
In March , the World Health Organisation declared a global pandemic due to the COVID- 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 on page | , the COVID- | 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- | due to the strength and flexibility of its service | ||||
proposition. | |||||
B e i | |||||
The United Kingdom | 'UK' | formally left the European Union 'EU' on | January | . The period of time from when the | |
UK voted to exit the EU on | June | 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 | , which ratified the Withdrawal Agreement, | |
as agreed between the UK and the EU. The transition period is currently due to end on | December | 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.
Facili | |||
On September | , the Group secured a m overdraft facility with Investec for a period of months guaranteed | ||
by two of the Directors; this attracts | interest above Investec bank rate on the drawn portion of the facilty and | on | |
the undrawn portion. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Accounting policies (continued)
C ncl i n
The Directors have reviewed digital's going concern position taking account of its current business activities, financial
forecasts and factors likely to affect its future financial position, as set out in this Annual report which include digital's objectives, policies and processes for managing its capital and its financial risk management objectives. Considering the
global coronavirus COVID- 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 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 m 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 digital will
continue to operate as a going concern for the foreseeable future, being | months from their signing of their financial |
statements. |
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at
December .
All subsidiaries are controlled by the Group and are included in the consolidated financial statements; the Group controls an investee if, and only if, the Group has:
- Power over the investee i.e., existing rights that give it the current ability to direct the relevant activities of the investee
- Exposure, or rights, to variable returns from its involvement with the investee
- The ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
- The contractual arrangement s with the other vote holders of the investee
- Rights arising from other contractual arrangements
- The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non- controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets including goodwill , liabilities, non- controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Accounting policies (continued)
Business combinations
The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred In the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase Is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except If related to the issue of debt or equity securities.
The consideration transferred does not include amounts related to the settlement of pre-exlstlng relationships, such amounts are generally recognised In profit or loss.
Any contingent consideration payable is measured at fair value at the acquisition date, if an obligation to pay contingent consideration that meets the definition of a financial instrument is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, other contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognised In profit or loss.
Subsidiaries
Subsidiaries are entitles controlled by the Group, the Group controls an entity when it is exposed to, or has rights to, variable returns from its Involvement with the entity and has the ablity to affect those returns through its power over the entity. The financial statements of subsidiaries are included In the consolidated financial statements from the date on which control commences until the date on which control ceases.
Loss of control
When the Group loses control over a subsidiary, it de-recognlses the assets and liabilities of the subsidiary, and any non- controllng interests and other components of equity. Any resulting gain or loss is recognised in the profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group s interest in the investee. Unrealised losses are eliminated In the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Revenue
The group comprises of mainly three types of revenues Licencing fees also known as B B sales - Setup Fees
- Monthly development and support fees
- Usage fees
Content "download" revenues also know as B C sales
Creative revenues
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Accounting policies (continued)
Each type of revenue is detailed below
Revenue comprises of:
I Licen ing e en e
digital defines licensing revenues as fees earned both for access to the company's platform and for development work on that platform in order to adapt functions to customer needs. The Board considers that the provision of Technology Licensing Services comprises three separately identifiable components:
The description of the licence fees compromise three categories;
- 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.
-
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.
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 C n en d nl ad e en e
Content revenues are recognised at the value of services supplied and on delivery of the content. The group manages a number of content stores and the income is recognised in the month it relates to. Majority of the revenue converts directly to cash; any accrued revenue converts to trade receivables within days.
III C ea i e e en e
Creative revenues relate to the sale of programmes and other content. digital also undertakes bespoke radio programming for its customers. As the programmes are being created the associated revenue is accrued/deferred until such time as the programme is delivered and accepted by the client. At this time the accrued revenue coverts to trade receivables. These mainly include the production of weekly radio programmes, as well as the one-off production of episodes. In case of one-off productions which required the Group to provide progress reports to its customers and where the company has no alternative use of the program produced, the group recognises revenue over the period i.e. based on percentage of completion, for
the rest of the regular programs and contents, where the company does not own the IP, the group measures the revenue based on delivery of the content i.e. at a point in time.
C n ac | i h m l i le e f mance bliga i n |
Many of the Group s contracts include a variety of performance obligations, including Licencing revenue set-up fees, monthly revenue for using digital's API licence platform and usage fees , however may not be distinct in nature. Under IFRS , 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 -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.
Pe f mance Obliga i n and iming f e en e ec gni i n
Revenue generated from B B 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.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Accounting policies (continued)
The list of obligations as per the contract that are deemed to be one performance obligation in case of licencing revenue are B B :
- | The licenses provide access to the D 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 digital 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; digital's only performance obligation would be to produce the content.
In the case of one-off productions for an identifiable customer contract where digital 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 digital platform. In the case of creative revenues, the payment terms are generally 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.
De e mine an ac i n ice and all ca ing each e f mance bliga i n
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 digital's customer contracts. The transaction price included in digital's contracts is generally easily identifiable and is for cash consideration.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Accounting policies (continued)
Other adjusting items
Other adjusting items are those items the Group considers to be non-recurring or material in nature that should be brought to the readers' attention in understanding the Group's financial statements. Other adjusting items consist of one-off acquisition costs, costs related to non-recurring legal and statutory events, restructuring costs and other items which are not expected to re-occur in future years.
Foreign currency
For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items, are included in profit and loss for the year.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average monthly rate of exchange ruling at the date of the transaction, unless exchange rates fluctuate significantly during that month, in which case the exchange rates at the date of transactions are used.
Intangible assets
Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives.
Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.
Intangible assets Bespoke Applications arising from the internal development phase of projects is recognised if, and only if, all of the following have been demonstrated: - The technical feasibility of completing the intangible asset so that it will be available for use or sale
- The intention to complete the intangible asset and use or sell it
- The ability to use or sell the intangible asset
- How the intangible asset will generate probable future economic benefits
- The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and
- The ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred.
Internally generated intangible assets are amortised over their useful economic lives on a straight-line basis, over 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.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Accounting policies (continued)
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 | - | per annum straight line |
Computer equipment | - . | per annum straight line |
Fixtures and fittings | - . | per annum straight line |
Impairment of tangible and other intangible assets
Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount i.e. the higher of value in use and fair value less costs to sell , the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units CGUs . Goodwill is allocated on initial recognition to each of the Group s CGUs that are expected to benefit from a business combination that gives rise to the goodwill.
Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.
Cash and cash equivalent
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Government grants
Government grants, including research and development credits are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.
Financial instruments
Financial assets and financial liabilities are recognised when a Company becomes a party to the contractual provisions of the instruments.
Ini ial Rec gni i n
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities other than financial assets and financial liabilities at fair value through profit or loss and ancillary costs related to borrowings are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are charged to the Statement of Profit and Loss over the tenure of the financial assets or financial liabilities.
Cla ifica i n and S b e en Mea emen Financial A e
The Company classifies financial assets as subsequently measured at amortised cost, Fair Value through Other Comprehensive Income "FVOCI" or Fair Value through Profit or Loss "FVTPL" on the basis of following:
the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.
Am i ed C
A financial asset shall be classified and measured at amortised cost if both of the following conditions are met:
the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Accounting policies (continued)
In case of financial assets classified and measured at amortised cost, any interest income, foreign exchange gains or losses and impairment are recognised in the Statement of Profit and Loss.
Fai Val e h gh OCI
A financial asset shall be classified and measured at fair value through OCI if both of the following conditions are met: the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows
and selling financial assets and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Fai Val e h gh P fi L
A financial asset shall be classified and measured at fair value through profit or loss unless it is measured at amortised cost or at fair value through OCI.
All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.
For financial assets at FVTPL, net gains or losses, including any interest or dividend income, are recognised in the Statement of Profit and Loss.
Cla ifica i n and S b e en Mea emen Financial liabili ie
Financial liabilities are classified as either financial liabilities at FVTPL or 'other financial liabilities'.
Financial Liabili ie a FVTPL
Financial liabilities are classified as at FVTPL when the financial liability is held for trading or is a derivative except for effective hedge or are designated upon initial recognition as FVTPL.
Gains or Losses, including any interest expense on liabilities held for trading, are recognised in the Statement of Profit and Loss.
O he Financial Liabili ie
Other financial liabilities including borrowings and trade and other payables are subsequently measured at amortised cost using the effective interest method.
The effective interest rate is the rate that exactly discounts estimated future cash payments including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts through the expected life of the financial liability, or where appropriate a shorter period, to the amortised cost on initial recognition.
Interest expense based on the effective interest method , foreign exchange gains and losses, and any gain or loss on derecognition is recognised in the Statement of Profit and Loss.
Im ai men f financial a e
Expected credit losses are recognized for all financial assets subsequent to initial recognition other than financial assets in
FVTPL category. For financial assets other than trade receivables, as per IFRS , the Group recognises month expected
credit losses for all originated or acquired financial assets if at the reporting date the credit risk of the financial asset has not increased significantly since its initial recognition. The expected credit losses are measured as lifetime expected credit losses if the credit risk on financial asset increases significantly since its initial recognition.
Impairment provisions for trade receivables are recognised based on the simplified approach within IFRS using the lifetime expected credit losses. During this process the probability of the non-payment of the trade receivables is assessed. Thus probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within cost of sales in the consolidated statement of comprehensive Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Accounting policies (continued)
The impairment losses and reversals are recognised in Statement of Profit and Loss.
De ec gni i n f financial a e and financial liabili ie
The Company de-recognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the financial asset and also recognises an associated liability for amounts it has to pay.
On de-recognition of a financial asset, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in OCI and accumulated in equity is recognised in the Statement of Profit and Loss.
The Company de-recognises financial liabilities when and only when, the Company's obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability de-recognised and the consideration paid and payable is recognised in the Statement of Profit and Loss.
Financial liabili ie and e i in | men |
Classification as debt or equity |
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a Company are recognised at the proceeds received.
De i a i e financial in men
The Company enters into derivative financial instruments viz. a residual of the convertible loan instrument. The Company does not hold derivative financial instruments for speculative purposes. Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately.
Fai al e mea emen
A number of assets and liabilities included in the Group's financial statements require measurement at, and/or disclosure of, fair value.
The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are the 'fair value
hierarchy' :
- Level | : Quoted prices in active markets for identical items unadjusted |
- Level | : Observable direct or indirect inputs other than Level inputs and |
- Level | : Unobservable inputs i.e. not derived from market data . |
The classification of an item into the above levels is based on the lowest level of the inputs used that has a significant effect on the fair value measurement of the item. Transfers of items between levels are recognised in the period they occur.
Valuation techniques used to determine fair values
Specific valuation techniques used to value financial instruments Include
ξ current liabilities level - Monte-Carlo model
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Accounting policies (continued)
Share-based payments
The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of an appropriate valuation model. The Black-Scholes option pricing model has been used to value the share options plans.
Taxation
The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a charge attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.
The deferred tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company operates and generates taxable income.
Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and on unused tax losses or tax credits in the company. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.
The carrying amount of deferred tax assets are reviewed at each reporting date. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
Leases of low value assets; and
Leases with a duration of months or less.
IFRS | was adopted January | without restatement of comparative figures. |
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease.
On initial recognition, the carrying value of the lease liability also includes: amounts expected to be payable under any residual value guarantee;
the exercise price of any purchase option granted in favour of the group if it is reasonably certain to assess that option; and
any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
lease payments made at or before commencement of the lease; initial direct costs incurred; and
the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Accounting policies (continued)
The effect of adoption of IFRS | as at | January | : | |||||||
Assets | ' | |||||||||
Right-of-use asset | , | |||||||||
Less accruals net | ||||||||||
T | al a e | , | ||||||||
Liabilities | ||||||||||
Lease liability | , | |||||||||
T | al liabili ie | ( , | ) | |||||||
The present value of the lease payments is based on applying a discount rate which is either the interest rate implicit in | ||||||||||
the lease or the incremental borrowing rate. The lease liabilities as at January | can be reconciled to the operating | |||||||||
lease commitments as of Decemer | as follows: | |||||||||
' | ||||||||||
Operating lease commitments as at | December | , | ||||||||
Removal of elements not relevant to IFRS | service charges | |||||||||
, | ||||||||||
Weighted average incremental borrowing rate as at | January | . | ||||||||
Discounted operating lease commitments at | January | , | ||||||||
Lease liability recognised at | January | , |
- 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.
C n en c f ale
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.
C ea i e e en e
Management considers the detailed criteria for the recognition of creative revenue as set out in the Group's accounting policy, in particular whether the Group determines the appropriate apportionment of revenue to the correct accounting period and subsequent amount accrued or deferred at the year end.
Im ai men f acc n ecei able
The management and directors have made certain estimates and judgements in the application of IFRS when measuring expected credit losses and the assessment of expected credit loss provisions required for accounts receivable balances. see note .
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Accounting policies (continued)
- Critical accounting judgements and key areas of estimation uncertainty (continued)
O he adj ing i em
The management and directors considers items of income and expenses as other adjusting items where the nature of the item, or its magnitude, is material and likely to be non-recurring in nature so as to assist the user of the financial statements to better understand then results of the core operations of the group. Details of other adjusting items are shown in note
.
- Revenue
. Revenue from contracts with customer
The Group has disaggregated revenue into various categories in the following table which is intended to:
- depict how the nature, amount, timing and uncertainity of revenue and cash flows are affected by economic data; and
ξ | enable users to understand the relationship with revenue segments information provided in . | below | ||||||||||||||||
Licensing | Content | Creative | Total | |||||||||||||||
' | ' | ' | ' | |||||||||||||||
P ima | Ge g a hical Ma ke | , | , | |||||||||||||||
UK | , | , | , | |||||||||||||||
USA | , | , | - | , | , | |||||||||||||
Germany | , | , | - | - | , | , | ||||||||||||
Denmark | - | , | - | , | - | - | - | , | ||||||||||
France | - | - | - | - | ||||||||||||||
Other | , | , | , | , | ||||||||||||||
, | , | , | , | , | , | , | , | |||||||||||
P | d c | T | e | |||||||||||||||
Set-up fees | - | - | - | - | ||||||||||||||
Monthly service fees | ||||||||||||||||||
and usage fee | , | , | - | - | - | - | , | , | ||||||||||
Production | - | - | - | - | , | , | , | , | ||||||||||
Download/streaming | - | - | , | , | - | - | , | , | ||||||||||
, | , | , | , | , | , | , | , | |||||||||||
C | n ac | C | n e a | ie | ||||||||||||||
Direct to consumer | ||||||||||||||||||
online | - | - | , | , | - | - | , | , | ||||||||||
B B | , | , | - | - | , | , | , | , | ||||||||||
, | , | , | , | , | , | , | , | |||||||||||
Timing | f | an fe | f g d | and e | ice | |||||||||||||
Over time | , | , | - | - | - | , | , | |||||||||||
Point in Time on | ||||||||||||||||||
delivery | - | - | , | , | , | , | , | , | ||||||||||
, | , | , | , | , | , | , | , |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS Year ended December
- Revenue (continued)
. Revenue from contracts with customer (continued)
Contract balances
At January
Cumulative catch-up adjustment
January Restated
Transfers in the period from the contract assets to trade receivables
Amounts included in contract liabilities that were recognised as revenue during the period
Contract | Contract | Contract | Contract | ||||
Assets | Assets | Liabilities | Liabilities | ||||
' | ' | ' | ' | ||||
( | , | ) | , | ||||
- | - | - | |||||
( | , | ) | , | ||||
( | ) | - | - | ||||
- | - | , | , |
Excess of revenue recognised over cash or | - | - | ||||||||
rights to cash being recognised during the | ||||||||||
period | ||||||||||
Cash received in advance of performance | - | - | ( | ) | ||||||
and not recognised as revenue during the | ||||||||||
period | , | |||||||||
( | ) | |||||||||
The aggregate amount of the transaction price of the remaining performance obligations amounting to | k | : | ||||||||
, | k are all expected to be released within the next | months; k | : | k released in the following year. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Revenue (continued)
. Business segments
For management purposes, the Group is organised into three continuing operating divisions - Licensing, Content and Creative. The principal activity of Licensing is the creation of software solutions for managing and delivering digital content. The principal activity of the Content division is the sales of digital music direct to consumers. The principal activity of Creative is the production of audio and video programming for broadcasters. These divisions comprise the Group's operating segments for the purposes of reporting to the Group's chief operating decision maker, the Chief Executive Officer.
Licensing | Content | Creative | Total | ||||||||||||||||
' | ' | ' | ' | ||||||||||||||||
Revenue from external | , | , | |||||||||||||||||
customers | , | , | , | , | , | , | |||||||||||||
Segment s result gross | , | , | |||||||||||||||||
profit | , | , | , | ||||||||||||||||
Depreciation | ( ) | ( ) | ( ) | ( | ) | ||||||||||||||
Amortisation | ( | ) | , | - | - | - | - | ( | ) | , | |||||||||
Impairment | - | , | - | - | - | - | - | , | |||||||||||
Other adjusted cost- | |||||||||||||||||||
development costs | ( | ) | , | - | - | - | - | ( | ) | , | |||||||||
expensed see note | |||||||||||||||||||
Settlement income | , | , | - | ||||||||||||||||
included in Other | |||||||||||||||||||
Income | |||||||||||||||||||
Segment profit/ loss | , | , | , | , | , | ||||||||||||||
Remainder of other | |||||||||||||||||||
income | |||||||||||||||||||
Amortisation of right to | ( | ) | - | ||||||||||||||||
use asset | |||||||||||||||||||
Corporate expenses | ( | , | ) | , | |||||||||||||||
Financing income | - | ||||||||||||||||||
Financing costs | ( | ) | |||||||||||||||||
Tax charge | ( | ) | |||||||||||||||||
Loss for the year | ( | , | ) | , | |||||||||||||||
Other segment items: | ' | ||||||||||||||||||
Capital additions | - | , | |||||||||||||||||
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
. | Revenue (continued) | |||||
Revenue from the Group's largest customer in the year was | . m | : . m and revenue from the second largest | ||||
customer in the year was . m | : . m | . There were no other customers that formed greater than | of external | |||
revenues within the years ended | December | and | . |
. Geographical information
The Group's revenue from external customers and information about its segments by geographical location is detailed below:
Revenue | Non-current assets | |||||||||
Continuing Operations | ' | ' | ||||||||
United Kingdom | , | , | , | , | ||||||
United States of America | , | , | - | - | ||||||
Germany | , | , | - | - | ||||||
Denmark | - | , | - | - | ||||||
France | - | - | ||||||||
Rest of Europe | , | , | - | - | ||||||
Rest of World | , | - | - | |||||||
, | , | , | , | |||||||
All revenues are derived from the provision of services. | ||||||||||
. | Other adjusting items |
Impairment of intangibles i | |
Costs/impairment relating to closure of French business ii | |
Costs/impairment relating to closure of Denmark business | iii |
Development costs expensed on legacy Denmark platform | iv |
Corporate restructuring releases/ provision v | |
Exceptional legal fees vi | |
Legal provision vii |
' | ' | |||
- | ( | , | ) | |
- | ( | ) | ||
( | ) | ( | , | ) |
( | ) | ( | , | ) |
( | ) | ( | ) | |
( | ) | - | ||
( | ) | - | ||
( , | ) | ( | , | ) |
i | In | the Group tested intangibles annually for impairment, or more frequently if there are indications that | ||||
the assets might be impaired. Accordingly, certain bespoke applications have been impaired during the year | ||||||
resulting in a charge of , k. | ||||||
ii | In | , due to the cessation of the French operations in Snowite SAS, a provision of | k has been made for | |||
closing down the operations and an impairment of | k for the intangible assets, as the directors consider | |||||
these have a zero fair value. | ||||||
iii | In May | the Group sold select technology from the Parent Company and its Denmark subsidiary, | - | |||
Entertainment ApS, and transferred staff to TDC Group, a large telecommunications company based in Denmark | ||||||
see note | . In | , a provision of | k has been made for the closing down of the Danish operations. In | |||
, fair value adjustments relating to goodwill of | k and to customer lists of | k were made see note | ||||
and the | - Entertainment ApS tangible assets of | k were fully impaired see note | . |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Other adjusting items (continued)
iv | During the normal course of business the group would have capitalised | k | : | , k in respect of | ||||||
development costs associated with the Denmark platform, which was sold in | as described in | iii above. Due | ||||||||
to the sale of this platform these costs have not been capitalised and are reflected in the profit and loss account. | ||||||||||
v | During | , the Group incurred costs of | k | : | k | to former directors on garden leave and for | ||||
employee redundancies all relating to organisational restructuring. | ||||||||||
vi | In | the Group incurred legal fees in relation to funding of | k, legal costs relating to planning for supposed | |||||||
insolvency | k and finalisation of the settlement agreement with Media-Saturn-Holding | k. | ||||||||
vii | During | a civil action was brought by a former US customer against the parent company for failure to | ||||||||
deliver services specified in their Term Sheet. No contract was ever put in place with this customer. The breach | ||||||||||
of contract claim is for: i consequential damages for loss of future profits in an amount to be determined at | ||||||||||
trial; ii | compensatory damages including but not limited to the contract amount of USD | k; iii | punitive | |||||||
damages in an amount to be determined by a jury; | iv attorney's fees, costs, and expenses; and | v pre-and | ||||||||
post-judgment interest. digital's legal team made a motion to dismiss the claims, however in the event that | ||||||||||
the claims are upheld, the Group estimates that damages would be in the region of USD | k/ | k, with an | ||||||||
appropriate provision being made. | ||||||||||
, | k | : | , | k of the Other adjusting items for the year ended | December | are deductible for corporation |
tax purposes.
- Operating loss for the year
Operating loss for the year has been arrived at after charging:
Net foreign exchange loss
Amortisation of intangible assets
Amortisation of right to use asset see note
Depreciation of property, plant equipment
Profit on sale of fixed assets
Operating lease payments - land and buildings see note Share-based payment expense see note
'
,
-
-
)
-,
- Other operating income
In | , the Group agreed a settlement of | m/ | . m with Media-Saturn-Holding GmbH, of which | . m was used as | ||
payment for Shareholders fund | see note | and | . m cleared down outstanding trade-related balances; resulting in a | |||
net settlement income of , | k. As part of the settlement agreement Media-Saturn-Holding GmbH agreed to forgive | |||||
k of outstanding loans plus associated unpaid interest of | k. The total amount forgiven was | k which is | ||||
disclosed as a capital contribution see note | . | |||||
The remaining other operating income earned by the Group in the current year of | k | : | k relates to | |||
Research Development tax credits. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Reconciliation of non-IFRS financial KPIs
This note reconciles the adjusted operating loss to the adjusted EBITDA loss. This note reconciles these key performance indicators to individual lines in the financial statements. In the Directors' view it is important to consider the underlying performance of the business during the year. Therefore, the directors have used certain alternative performance measures AMPs which are not IFRS compliant metrics. The main effect has been that the APMs exclude other adjusting items, amortisation, foreign exchange, depreciation and share based payments to reflect the underlying cash utilisation for the performance of the business. The APMs are consistent with those established within the prior year annual report and their derivation is set out in the table below.
Reconciliation of adjusted operating loss and adjusted EBITDA loss | ' | ||||
Statutory operating loss | ( | , | ) | , | |
Other adjusting items see note | , | , | |||
Foreign exchange | |||||
Share-based payment expense | |||||
Adjusted operating loss | ( | , | ) | , | |
Profit on sale of fixed assets | ( | ) | - | ||
Depreciation and amortisation | , | ||||
Adjusted EBITDA loss | ( | , | ) | , |
- Auditor's remuneration
' | ' | ||||
Fees payable to the Company's auditor for the audit of the Company's annual | |||||
accounts | |||||
Fees payable to the Company's auditor for other services to the Group | - | - | |||
The audit of the Company s subsidiaries pursuant to legislation | |||||
T | al a di fee | ||||
Non-audit fees: | - | - | |||
Other services | |||||
T | al n n a di fee | - | - |
Total fees payable to Company's auditor
A description of the work of the Audit Committee is set out in the Corporate Governance Statement and includes an explanation of how auditor's objectivity is safeguarded when non-audit services are provided by the auditor.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Staff costs
The average monthly number of persons employed by the Group during the year, including executive directors, was - . Staff costs in the Group are presented in administrative expenses.
No.No.
Number of production, R D, and sales staff
Number of management and administrative staff
Wages and salaries Redundancy payments Social security costs Other pension costs Share-based payments note
'
,,
,,
Details of the directors' remuneration are provided in the Directors Remuneration Report on pages | to . |
- Finance income and cost
' | |||||
Bank interest receivable | - | ||||
Rental deposit retained | - | ||||
Other income | - | ||||
Finance income | - | ||||
' | |||||
Shareholders interest payable | ( | ) | |||
Other charges similar to interest | ( | ) | |||
Interest expenses on leased liability see note | ( | ) | - | ||
( | ) |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS Year ended December
- Tax
Corporation tax is calculated at | : . |
Current tax
UK corporation tax on the results for the year
Foreign tax suffered
Adjustment in respect of prior period
Total current tax charge/(credit)
Deferred tax
Origination and reversal of timing differences
Adjustments in respect of prior periods
Total deferred tax charge/(credit)
of the estimated assessable profit for the year.
'
--
-
' | ' | ||
- | ( | ) | |
- | |||
- | ( | ) |
Tax on loss on ordinary activities | ( ) |
The charge for the year can be reconciled to the profit per statement of comprehensive income as follows:
' | ' | ||||||||
Loss before tax | ( | , | ) | ( | , | ) | |||
Tax at UK corporation tax rate of | : . | ( | , | ) | ( | , | ) | ||
Fixed asset differences | - | ||||||||
Expenses not deductible for tax purposes | |||||||||
Income not taxable for tax purposes | ( | ) | ( | ) | |||||
Additional deduction for R D expenditure | ( | ) | ( | ) | |||||
Adjustments to R D in respect of previous periods | - | ||||||||
Adjustments to tax charge in respect of previous periods | - | ( ) | |||||||
Adjustments to tax charge in respect of previous periods - deferred tax | - | ||||||||
Adjust closing deferred tax to average rate of | : | - | |||||||
Adjust opening deferred tax to average rate of | : | ( | ) | ( | ) | ||||
Deferred tax not recognised | , | ||||||||
Foreign taxation | |||||||||
Difference in tax rates | ( ) | ( | ) | ||||||
Tax credit receivable | |||||||||
Deferred tax movement on business combinations | - | ( | ) | ||||||
Tax credit / credit | ( | ) |
At the balance sheet date, the Group has unrecognised deferred tax assets of , , at a rate of : , ,
in respect of unused trading tax losses which have not been recognised on the grounds that there is insufficient evidence that these will be recoverable. These assets will be recovered when future tax charges are sufficient to absorb these tax benefits.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Earnings per share
Basic earnings per share is calculated by dividing the loss attributable to shareholders by the weighted average number of
ordinary shares in issue during the year. IAS requires presentation of diluted EPS when a company could be called upon
to issue shares that would decrease earnings per share, or increase the loss per share. For a loss-making company with outstanding share options, net loss per share would be decreased by the exercise of options. Therefore the antidilutative potential ordinary shares are disregarded in the calculation of diluted EPS. Total potential ordinary shares which are
outstanding at December are , , : , , which relate to the employee share options and
shares to be issued to the non-executive directors under the terms of their service contracts see Directors Report, Directors
Remuneration Report and note | . |
Reconciliation of the profit and weighted average number of shares used in the calculation are set out below:
Dec | |||||
Weighted average | |||||
Loss | number of shares | Per share amount | |||
Basic and Diluted EPS | ' | Thousand | Pence | ||
Loss attributable to shareholders: | ( , ) | , , | ( . ) | ||
Dec | |||||
Basic and Diluted EPS | ' | Thousand | Pence | ||
Loss attributable to shareholders: | , | , | . |
- Intangibles
Bespoke | |||||||||
applications | Customer list | Goodwill | Total | ||||||
Cost | ' | ' | ' | ' | |||||
, | , | ||||||||
At | January | - | - | ||||||
Additions | |||||||||
At | December | , | , | ||||||
Disposals | , | , | |||||||
At | December | , | - | - | , | ||||
Accumulated Amortisation | and | ||||||||
impairment | , | - | , | ||||||
At | January | ||||||||
Charge for the year | , | - | , | ||||||
Impairment losses | , | , | |||||||
At | December | , | - | - | , | ||||
Charge for year | , | , | |||||||
Disposals | |||||||||
At | December | , | - | - | , | ||||
Net book value | |||||||||
At | December | - | - | - | - | ||||
At | December | , | - | - | , | ||||
At | December | , | , | ||||||
Useful lives | - years | - years |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Intangibles (continued)
Amortisation charges are included within the administrative expenses within the Income Statement. The useful life of each group of intangible assets varies according to the underlying length of benefit expected to be received.
On May | the Danish Platform, with a carrying value of | k was sold to a Danish communications company, TDC |
Group for | k. The customer list and goodwill, initially originating from the acquisition of Danish Platform, were deemed | |
disposed. |
- Property, plant and equipment
Fixture | |||||||||||
Computer | and | ||||||||||
Property | equipment | fittings | Vehicle | Total | |||||||
Cost | ' | ' | ' | ' | ' | ||||||
, | , | ||||||||||
At | January | - | - | - | |||||||
Additions | |||||||||||
Acquisitions | - | - | - | - | - | ||||||
Released on disposals | - | - | |||||||||
At | December | , | - | , | |||||||
Released on disposals | - | - | |||||||||
At | December | , | - | , | |||||||
Accumulated depreciation | |||||||||||
and amortisation | , | , | |||||||||
At | January | - | |||||||||
Charge for year | |||||||||||
Impairment losses | - | - | - | ||||||||
Released on disposals | - | - | |||||||||
At | December | , | - | , | |||||||
Charge for year | - | - | - | ||||||||
Released on disposals | - | - | |||||||||
At | December | , | - | , | |||||||
Net book value | |||||||||||
At | December | - | - | - | |||||||
At | December | - | - | - | |||||||
At | December |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Leases
The Group leased a property that originally ran until April | . In February | , on agreement with the landlord the lease |
was terminated, and the Group vacated the premises. The Group has adopted IFRS | on the date of application and |
determined the value of the lease and the right to use asset based on the rental payments from the period January
to April | . | ||||
Right-of-use asset | Land and | ||||
buildings | |||||
Right-of-use asset | ' | ||||
, | |||||
Less accruals net | |||||
As at | January | , | |||
Amortisation | |||||
At | December | , | |||
Lease liability | Land and | ||||
buildings | |||||
' | |||||
As at | January | , | |||
Interest expense | |||||
Lease payments | |||||
At | December | , | |||
Anal | ed | ||||
Current | , | ||||
Non-current | |||||
Total | , | ||||
The group terminated the existing lease contract in February | and in August | , it signed a new lease for years | |||
see note | . |
- Investment in subsidiary undertakings
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is given in note E to the Parent Company financial statements.
. | Trade and other receivables | |||||
' | ' | |||||
Trade receivable for the sale of goods | , | , | ||||
Less: Provision for impairment of trade receivables | ( , | ) | ||||
Net trade receivables | , | |||||
Other debtors | ||||||
R D credits receivable | ||||||
Prepayments | - | |||||
Total financial assets at amortised cost excluding cash | cash | |||||
equivalents | , | , |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Trade and other receivables (continued)
The average credit period taken on sales of goods and services is days : days . No interest is charged on
receivables. Trade receivables are provided for based on estimated irrecoverable amounts from the sale of goods and services, determined by reference to past default experience and likelihood of recovery as assessed by the directors. Before accepting any new material customer, the Group uses an external credit scoring system to assess the potential customer's credit quality and defines credit limits by customer. The directors believe that the trade receivables that are past due but not impaired are of a good credit quality. The Group adopts a policy that each new customer is analysed individually for credit worthiness before the Group's standard payment and delivery terms and conditions are offered.
The management assessed the requirement for general bad debt provision under IFRS . The expected loss rates are based
on the combination of the Group's historical credit losses experienced over the three-year period prior to the period end coupled with forward looking information. Management also note that the Group generally has a consistent recovery rate on trade and other receivables, due to a significant amount of work being completed for reputable businesses. However, Management does note that dealings with smaller businesses can be difficult at times to recover funds owed and as such, provisions have been raised based on historic knowledge of each client's credit risk. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.
Included in the Group's trade receivable balance are debtors with a carrying amount of . m : . m , which are
past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The
average age of these receivables is | days | : | days . During the year the Group provided for certain accounts | ||||||
receivable balances relating to revenue recognised during | , where the collection of the outstanding amounts is | ||||||||
uncertain. | |||||||||
As at December | the lifetime expected loss provision for trade receivables is: | More | More | ||||||
More than | than | than | |||||||
days | days past | days past | Total | ||||||
Expected loss rate | Current | past due | due | due | ' | ||||
Gross carrying amount | , | , | |||||||
Loss provision | , | ||||||||
Customers that represent more than | of the total balance of trade receivables are: | ||||||||
Customer A | ' | , | |||||||
Customer B | |||||||||
Customer C | |||||||||
Customer D | |||||||||
Customer E | |||||||||
Customer F | - | ||||||||
Movement in the allowance for doubtful debts: | |||||||||
' | |||||||||
Balance at the beginning of the period | , | ||||||||
Impairment losses recognised | |||||||||
Written off as bad debt | ( ) | , | |||||||
Balance at the end of the period | , |
In determining the recoverability of trade receivables the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
. | Trade and other payables | ||||
Current Liabilities | |||||
' | |||||
Trade payables | , | , | |||
Other taxes and social security | |||||
Other payables | |||||
Accrued costs | , | , | |||
Corporation tax | - | ||||
, | , | ||||
Non-Current Liabilities | |||||
Other payables | , | ||||
, |
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs. The average
credit period taken for trade purchases is : days . The Group has financial risk management policies in place to ensure that all payables are paid within the credit time frame.
In March the Group acquired Snowite SAS now digital 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 . m . m .
Terms of repayment were also agreed to be over years starting on th April | . For the first two years repayments | |||
were set at | of the debt and then at | for each year thereafter. No interest is payable. The parent company has | ||
guaranteed the repayments of | k. | |||
A total amount of . m | : | . m remains repayable under this agreement at the balance sheet date. Of this balance, | ||
. m | : . m falls due for repayment after more than one year. On | September | the Group received | |
confirmation that the long term portion of | K was forgiven by the French authorities. |
The directors consider that the carrying amount of trade payables approximates to their fair value.
. | Financial Liabilities | ||
' | |||
Current | |||
Convertible debt | - | , | |
Embedded derivative | - | ||
- | , |
During the year the convertible loan from shareholders including the derivative instrument have been converted and forgiven, through the below series of events:
On | February | , | , | including interest of , | of the . million Shareholder loan facility was converted to |
, | , | ordinary shares of | p each. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Financial Liabilities (continued)
On January | , Juke GmbH, a wholly owned subsidiary of Media-Saturn-Holding GmbH, decided to discontinue their |
music services and their contract with the Group. On March | , a settlement was agreed on the termination of all |
outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of
. m. Further, Juke agreed to forgive | , | of the principal amount of the convertible loan, the balance of the | |||||
principal amount of | , | was paid from the proceeds of the termination settlement and all associated interest | |||||
payments totalling | , | were forgiven. The total amount forgiven of | k is accounted and disclosed as a capital | ||||
contribution in the statement of changes in equity. | |||||||
On | June | , the remaining | , | including interest | , | of the . million facility was converted to | |
, | , | ordinary shares of . | p each. |
- Provisions
Provision for | ||||||||||
closure of | Legal | Other | ||||||||
Dilapidation | business | provision | provisions | Total | ||||||
' | ' | ' | ' | ' | ||||||
At | January | - | ||||||||
Increase in provision | - | |||||||||
Release of provision | - | - | - | ( | ) | |||||
At | December | |||||||||
Of which is: current | ||||||||||
Of which is: non-current | - | - | - | - | - |
A dilapidations provision is held to cover the estimated costs of returning the Group's main office space to as it was at the commencement of the lease see note .
On October | , the Danish entity was liquidated by the local authorities; a provision has been made of | k for | |
possible associated outstanding liabilities. | |||
In | a provision of | k relating to the closing of operations in Snowite SAS was made; during | k of this |
provision has been utilised. | |||
During | a civil action was brought by a former US customer against the parent company for failure to deliver services |
specified in their Term Sheet. No contract was ever put in place with this customer. The breach of contract claim is for: i | |
consequential damages for loss of future profits in an amount to be determined at trial; ii compensatory damages including | |
but not limited to the contract amount of USD k; iii punitive damages in an amount to be determined by a jury; iv | |
attorney's fees, costs, and expenses; and v pre-andpost-judgment interest. | digital's legal team made a motion to dismiss |
the claims, however in the event that the claims are upheld, estimate | that damages would be in the region of |
USD k/ k.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Deferred tax
The deferred taxation provision included in the Statement of Financial Position, together with the charge/ credits made to the Income Statement is set out below:
Deferred tax | ||
liability | ||
At | January | - |
Charge/ credit to income | - | |
At | December | - |
At | January | |
Credit to income | ||
At | December | - |
- Share capital
No. of shares | No. of shares | ||||||||||||||||||||||||
Allotted, called up and fully paid: | |||||||||||||||||||||||||
Ordinary shares of | . | p each | , | , | , | - | |||||||||||||||||||
Ordinary shares of | . | each | - | , | , | ||||||||||||||||||||
Deferred shares of | . | p each | , | , | - | ||||||||||||||||||||
Deferred shares of | . | each | , | , | , | , | |||||||||||||||||||
Allotted, called up and fully paid | ' | ||||||||||||||||||||||||
At | January | , | , | ||||||||||||||||||||||
Shares issued in the period | - | ||||||||||||||||||||||||
Capital fundraising | - | ||||||||||||||||||||||||
Issued to employees/directors in lieu of salary | |||||||||||||||||||||||||
Share options exercised | - | ||||||||||||||||||||||||
At | December | , | , | ||||||||||||||||||||||
i. | On | February | , | , | including interest of the | . million Shareholder loan facility was converted in | |||||||||||||||||||
to | , | , | ordinary shares of p each. | ||||||||||||||||||||||
ii. | In order for the Company to lawfully allot the shares as described in iii and iv below, all the | , | , | shares | |||||||||||||||||||||
of p each were converted into | , | , | deferred shares of | . p each and | , | , | ordinary shares of | ||||||||||||||||||
. | p each on | June | . The deferred shares of . p each carry limited voting rights. | ||||||||||||||||||||||
iii. | On | June | , | , | including interest | of the | . million Shareholder loan facility was converted to | ||||||||||||||||||
, | , | ordinary shares of | . p each; share premium was increased by | , | . | ||||||||||||||||||||
iv. | On | June | , a number of shareholders, including Magic Investments S.A. | a tech investment holding | |||||||||||||||||||||
company | "Magic" | and Shmuel Koch Holdings Limited | "SKH" | subscribed for, an aggregate of, | , | , | |||||||||||||||||||
ordinary shares at | . | p each, to raise | . | million | before expenses . Share premium was increased by | ||||||||||||||||||||
, | , | . |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Share capital (continued)
v. | On September | , | , , | shares of | . p each were issued to the market to raise , k before |
expenses ; share premium was increased , | , . |
vi. | On October | , a further | , |
share premium was increased by |
, | ordinary shares of . p were issued to the market to raise | , ; |
- net of share issue expenses.
- Other reserves
The Reverse acqusition reserve was created upon the application of reverse acqusition accounting relating to the purchase
of digital Group Inc, by UBC Media plc on | June | . | ||
The Foreign exchange translation reserve of | k profit | : | k loss relates to cumulative foreign exchange | |
differences on translation of foreign operations. |
The Merger reserve relates to the difference between the nominal value of shares issued as part of an acquistion and the fair value of the assets transferred.
The Shares to be issued includes | k | : increase | k relating to the fair value at grant date of the share options |
that can be exercised in future years and k | : | k for the fair value of the shares to be issued to Non-Executive | |
directors in lieu of salary as at December | see Directors' Remuneration Report pages to and note | . |
- Operating lease arrangements
The only lease has been accounted for under IFRS | see note | . There are no short term operating leases. |
- Defined contribution pension schemes
The Group operates defined contribution retirement benefit schemes for qualifying employees. The total cost charged to | ||||||||||
income of | k | : | k | represents contributions payable to these schemes by the Group at rates specified in the | ||||||
rules of the plans. As at | December | , contributions due in respect of the current reporting period of | k had not | |||||||
been paid over to the schemes | : | k . | ||||||||
. | Related party transactions | |||||||||
During the year, the Group paid | . k | : | . k | to MIDiA Research for music market research services, a company of | ||||||
which Mark Foster was a director during | . At | December | , the Group owed | nil | : . k . | |||||
During the year, the Group invoiced and recognised | k of revenue to eMusic a subsidiary of TriPlay Inc. , a group which | |||||||||
Tamir Koch was a director of during | . At | December | , the Group was owed | k; | k of this amount has | |||||
been provided for at the year end. |
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the Group, is set out below in aggregate for
each of the categories specified in IAS | Related Party Disclosures. Further information about the remuneration of |
individual directors is provided in the audited part of the Directors' Remuneration Report on pages | to . |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Related party transactions (continued)
Wages and salaries | ' | |||||
Social security costs | ||||||
Pension costs to defined contribution scheme | ||||||
Share-based payments | - | |||||
, | ||||||
. | Share-based payments | |||||
members of staff hold options to subscribe for shares in the Company under the | digital Group plc enterprise | |||||
management incentive scheme approved by the Board on | June | . The Performance Share Plan is a "free" share | ||||
award with an effective exercise price of nil. All awards are subject to an Earnings per Share | EPS performance condition. | |||||
The performance period is three years. Further details of these conditions are set out in the Directors' Report. Awards are | ||||||
normally forfeited if the employee leaves the Group before the awards vest. |
Weighted | Weighted | ||||||||||||||||
average | average | ||||||||||||||||
exercise price | exercise price | ||||||||||||||||
Outstanding at the beginning of the | Options | (pence) | Options | pence | |||||||||||||
, | , | - | - | ||||||||||||||
period | , | , | |||||||||||||||
Granted during the period | - | - | , | , | - | ||||||||||||
Forfeited during the period | ( , | , | ) | - | , | , | - | ||||||||||
Exercised during the period | - | - | , | - | |||||||||||||
Outstanding at the end of the period | , | , | - | , | , | - | |||||||||||
Exercisable at the end of the period | - | - | - | - | |||||||||||||
During the period, nil shares were exercised | : | , | . There are , | , | options outstanding at | December | |||||||||||
: | , | , | of which nil | : nil | are exercisable. Their remaining weighted average contractual life is | ||||||||||||
days | : | , | days . |
The fair value of the share options has been calculated using the Black-Scholes model at the grant date. The key inputs into the Black-Scholes model are detailed below:
Options | ||||||
Share price at date of grant | . | p | ||||
Exercise price | . | p | ||||
Volatility | ||||||
Option life | yrs. | |||||
Risk-free interest rate | . | |||||
At | December | k | : | k was accrued for shares to be issued to non executive directors under the terms of | ||
their service contracts and as disclosed within the Directors' Report and Directors' Remuneration. | ||||||
Also included within these charges are equity settled share based payment charges of nil | : | k reflecting share | ||||
awards to non-executive directors during the year. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Share-basedpayments (continued)
The total expense recognised for the year ending | December | arising from equity-settledshare-based payment | |||||||
transactions amounted to | k | - | k and the share-based payment reserve as at December | amounted | |||||
to | k | - | k . |
The issuance of shares relates to the shares issued to some non-executive directors in lieu of their remuneration. Further
details can be found in the Directors' Remuneration Report on pages | to . |
- Post balance sheet events
On February , a short term loan of
months in equal parts starting from March guaranteed by one of the Directors.
k was signed with CSS Alpha | BVI Limited. The loan is repayable over |
with interest based on . | of the outstanding balance. The loan is |
On | August | , following the termination of the old lease | see note | , a new lease agreement was signed with Labs | ||
relating to a property in Camden, NW . The initial period of the agreement is for months starting from July | , | |||||
with a total cost of | . m. | |||||
On | September | , digital annouced the placing of | , | , | new Ordinary Shares of . p each, which raised | m |
at an issue price of | . 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 | September | the Group received confirmation that the long term portion of | K was forgiven by the French | |
authorities. | ||||
On | September | , the Group secured a m overdraft facility with Investec for a period of months guaranteed | ||
by two of the Directors; this attracts | interest above Investec bank rate on the drawn portion of the facilty and | on | ||
the undrawn portion. |
The rapid spread of the coronavirus and resulting COVID- 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.
-
Financial instruments
Ca i al i k managemen
The Group manages its capital to ensure that entities in the Group will be able to meet their financial obligations as they arise while maximising the return to stakeholders. The capital structure of the Group consists of cash and cash equivalents
and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes and . The Group has external liabilities by way of the debts owed on the purchase of Snowite SAS
in March and as disclosed in note . It does not have access to committed borrowing facilities, and is not subject to
externally imposed capital requirements.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
- Financial instruments (continued)
Ca eg ie f financial in | men | |||
Financial assets at amortised cost | ' | |||
Cash and cash equivalents | ||||
Trade and other receivables | , | , | ||
Financial liabilities at amortised cost | ||||
Trade and other payables | ( , | ) | , | |
Borrowings Convertible Loan Note | - | , | ||
Put options | ( | ) | ||
Financial liabilities at fair value through profit and loss | ||||
Embedded derivative see note | - |
- O i n
As part of the | acquisition of Snowite, the Group agreed with three of the original institutional shareholders that if | ||||||||
they are unable to sell the , | , | shares in digital Group they received | in the public market, | digital Group plc would | |||||
purchase | of their shares at a strike price of . | p over a | -year period starting from March | , | in year | and | |||
then c. . | each year thereafter. As at December | , the three institutional shareholders still retain all their shares | |||||||
in digital Groupl plc. The value of the options at | December | is | k | : | k . Adjustments to this provision | ||||
are taken directly to the Consolidated Income Statement within Administrative expenses. In | this credit was | k | |||||||
: | k . The financial liability is included in note . |
The carrying amounts of financial assets and financial liabilities not carried at FVTPL approximate their fair values.
Financial in men mea ed a fai | al e |
Level | ' |
Embedded derivative see note | - |
The embedded derivative liabilty has been converted/forgiven during the year as described in note .
Financial and ma ke i k managemen bjec i e
It is, and has been throughout the year under review, the Group's policy not to use or trade in derivative financial instruments. The Group's financial instruments comprise its cash and cash equivalents and various items such as trade debtors and trade creditors that arise directly from its operations. The main purpose of the financial assets and liabilities is to provide finance for the Group's operations in the year.
C enc i k managemen
The Group has exposure to foreign currency risk due to subsidiaries in France, Denmark and United States. The Group manages the risk by holding cash in numerous currencies to avoid foreign exchange charges on payments and receipts.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Financial instruments (continued)
The carrying value of the Group's short-term foreign currency denominated assets and liabilities are set out below
GBP BU's | USD BU's | DKK BU's | |||||||||||||
Assets/ Liabilities | |||||||||||||||
GBP | - | - | - | - | - | - | - | , | , | ||||||
USD | , | , | , | , | - | - | - | - | , | , | |||||
EUR | , | , | , | , | , | - | - | , | , | ||||||
Other | , | , | , | , | , | , | - | - | - | ||||||
Totals | , | , | , | , | , | , | , | , | - | , | , |
The majority of the Group's financial assets are held in Sterling but movements in the exchange rate of the Euro and US dollar against Sterling have an impact on both the result for the year and equity. Sensitivity to reasonably possible movement in the Euro and US dollar exchange rates can be measured on the basis that all other variables remain constant.
The effect on profit and equity of strengthening or weakening of the Euro or US dollar in relation to Sterling by | would | ||||||
result in a movement of /- | k | : | k in relation to the Euro and /- | k | : | k in relation to the US dollar. | |
In e e a e i k managemen | and | en i i i |
The Group's policy is to ensure that it maximises the interest income on surplus cash. This involves placing cash in a mix of fixed rate and floating rate short-term deposits. There is no prescribed ratio of fixed to floating rate. Due to the current level of cash and the current rates of interest the Group is not exposed to any significant interest rate risk.
C edi i k managemen
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties, as a means of mitigating the risk of financial loss from defaults. The Group only transacts with entities after assessing credit quality using independent rating agencies and if not available, the Group uses other publicly available financial information and its own trading records to rate its major customers. The Group's exposure is continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits.
On going credit evaluation is performed on the financial condition of accounts receivable. The credit risk on liquid funds is limited because the counterparties are banks with high credit-rating assigned by international credit-rating agencies. The carrying amount of financial assets recorded in the financial statements, which is net impairment losses, represents the Group's maximum exposure to credit risk.
Li idi i k managemen
The Group's policy throughout the year has been to ensure continuity of funds. The Group manages liquidity risk by maintaining adequate reserves and banking facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Li idi and in e e i k able
All trade and other payables are non-interest bearing and fall due within one month. The agreed term of repayment of the
loan relating to the purchase of Snowite SAS is over years starting th April | , payable in equal instalments with no |
interest. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE FINANCIAL STATEMENTS
Year ended December
-
Financial instruments (continued)
The following table sets out the contractual maturities representing the undiscounted contractual cash-flows of financial liabilities:
Within | months | ' | |||
Trade payables | , | , | |||
Other payables | |||||
Lease liability | - | ||||
, | , | ||||
More than months | ' | ' | |||
Other payables | , | ||||
Lease liability | - | ||||
, | |||||
Fai al e | f financial in | men |
The fair value of other non-derivative financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions.
Ca h a bank and h | e m bank de i | ||||
Cash is held within the following institutions: | |||||
' | ' | ' | |||
Barclays Bank | , | ||||
HSBC Bank | |||||
Bank of West | |||||
CIC Bank | |||||
Others | - | , | |||
- Contingent liabiities
The group does not have any contingent liabilities.
digital Group PLC Annual Report and Accounts
digital Group plc
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
For the year ended December
Assets | Notes | ' | ' | |||
Non-current assets | ||||||
Intangibles | B | - | , | |||
Tangibles | C | |||||
Right-of-use asset | D | , | - | |||
Fixed asset investments | E | - | , | |||
, | , | |||||
Current assets | ||||||
Trade and other receivables | F | , | ||||
Contract assets | - | |||||
Cash at bank and in hand | ||||||
, | ||||||
Current liabilities | ||||||
Trade and other payables | H | ( | , | ) | , | |
Loans and borrowings | I | - | , | |||
Derivative liabilities | I | - | ||||
Contract liabilities | - | |||||
Lease liability | D | ( | ) | - | ||
Provision for liabilities and charges | J | ( | ) | |||
( | , | ) | , | |||
Net current liabilities | ( | , | ) | , | ||
Total assets less current liabilities | ( | , | ) | , | ||
Non-current liabilities | - | |||||
Other payables | H | |||||
Lease liability | ( | , | ) | - | ||
Provision for liabilities and charges | J | - | ||||
( | , | ) | ||||
Total liabilities | ( | , | ) | , | ||
Net liabilities | ( | , | ) | , | ||
Capital and reserves | ||||||
Called up share capital | K | , | , | |||
Share premium account | , | , | ||||
Shares to be issued | ||||||
Profit and loss account | ( | , | ) | , | ||
Shareholders' deficit | ( | , | ) | , |
Result for the year | ||||||
As permitted by section | of the Companies Act | the Company has not prepared its own profit and loss account for the year. | ||||
digital Group plc reported a loss for the financial year ended December | of , k | : loss | , | k . | ||
This Company Statement of Financial Position and related notes were approved by the Board of Directors on | September | |||||
and were signed on its behalf by |
Paul Langworthy, Director
digital Group PLC Annual Report and Accounts
digital Group plc | ||||||||||||||
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY | ||||||||||||||
For the years ended | December | and | ||||||||||||
Statement of changes in Equity for the year ended | December | |||||||||||||
Share | Profit | |||||||||||||
Share | premium | Shares to | and Loss | Total | ||||||||||
capital | account | be issued | account | |||||||||||
' | ' | |||||||||||||
At | January | , | , | ( | , | ) | ( | , | ) | |||||
Comprehensive loss for the year | - | - | - | , | ( | , | ) | |||||||
Loss for the year | ||||||||||||||
Total comprehensive loss for the year | - | - | - | ( | , | ) | ( | , | ) | |||||
Contributions by and distributions to | ||||||||||||||
owners | , | - | - | , | ||||||||||
Shares issued | ||||||||||||||
Share based payments | - | - | - | |||||||||||
Capital contribution | - | - | - | |||||||||||
Total contributions by and | ||||||||||||||
distributions to owners | , | , | ||||||||||||
At | December | , | , | ( | , | ) | ( | , | ) | |||||
Statement of changes in Equity for the year ended | December | |||||||||||||
Share | Shares | Profit | ||||||||||||
Share | premium | to be | and Loss | Total | ||||||||||
capital | account | issued | account | |||||||||||
' | ' | |||||||||||||
At | January | , | , | ( | ) | , | ||||||||
Comprehensive loss for the year | ( | ) | ||||||||||||
Prior year adjustments | ||||||||||||||
Change in accounting policy - IFRS | - | - | - | , | ( | , | ) | |||||||
Financial In men | ee n | e G | ||||||||||||
At | January | , | , | ( | , | ) | , | |||||||
Comprehensive loss for the year | - | - | - | , | ( | , | ) | |||||||
Loss for the year | ||||||||||||||
Total comprehensive loss for the | - | - | - | ( | , | ) | ( | , | ) | |||||
year | ||||||||||||||
Contributions by and distributions to | ||||||||||||||
owners | - | - | ||||||||||||
Shares issued | ||||||||||||||
Share based payments | - | - | - | |||||||||||
Total contributions by and | ||||||||||||||
distributions to owners | - | |||||||||||||
At | December | , | , | ( | , | ) | ( | , | ) | |||||
The notes from pages | to | form part of the financial statements. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
A. | Principal accounting policies | ||
digital Group plc is a company incorporated in the United Kingdom England and Wales under the Companies Act | . | ||
The parent company financial statements are presented as required by the Companies Act | . They have been prepared |
in accordance with applicable law and accounting standards in the United Kingdom. The Company balance sheet and related notes have been prepared under the historical cost convention and in accordance with Financial Reporting
Standards Application of Financial Reporting Requirements FRS and Reduced Disclosures Framework. The
company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permittd
by FRS | Reduced disclosure framework: | ||||||||||||||||||
ξ | the requirements of paragraphs | b | and | to | of IFRS | Sha e ba ed | a men | ||||||||||||
ξ | the requirements of IFRS | Financial In | men | Di cl | e | ||||||||||||||
ξ | the requirements of paragraphs | to | of IFRS | Fai | al e mea | emen | |||||||||||||
ξ | the requirement in | paragraph | of IAS | P e en a i n | f | Financial | S a emen | to | present | comparative | |||||||||
information in respect of: | |||||||||||||||||||
o | paragraph | a | iv of IAS | : | |||||||||||||||
o | paragraph | e of IAS | In angible A | e | |||||||||||||||
ξ | the requirements of paragraphs | d , | f , | , | A, | B, | C, | D, | A, | B, | C, | D and | of IAS | ||||||
P e en a i n f financial | a emen | ||||||||||||||||||
ξ | the requirements of paragraphs | to | of IAS | P e ena i n | f financial | a emen | ; | ||||||||||||
ξ | the requirements of IAS | S a emen | f Ca hfl | ||||||||||||||||
ξ | the requirements of paragraphs | and | of IAS | Acc | n ing | licie | change in acc | n ing e | ima e and | ||||||||||
e | |||||||||||||||||||
ξ | the requirement of paragraphs and | A of IAS | Rela ed | a | di cl | e | |||||||||||||
ξ | the requirements in IAS | Rela ed | a | di cl | e to disclose related party transactions entered into between | ||||||||||||||
two or more members of a group; and | |||||||||||||||||||
ξ | the requirements of paragraphs | d | to | f and | c | to | e of IAS | Im ai men | f a e | ||||||||||
These financial statements are separate financial statements. | |||||||||||||||||||
Where required, equivalent disclosures are given in the Group's consolidated financial statements in notes | to . |
Foreign currency
Transactions in currencies other than the entity's functional currency foreign currencies are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit and loss for the year.
Intangible assets
Intangible assets acquired as part of acquisition of a business are stated at fair value less accumulated amortisation and any impairment losses are stated at cost less accumulated depreciation and impairment losses, if any.
Intangible assets Bespoke applications arising from the internal or external development phase of projects is recognised if, and only if, all of the following have been demonstrated:
- The technical feasibility of completing the intangible asset so that it will be available for use or sale;
- The intention to complete the intangible asset and use or sell it;
- The ability to use or sell the intangible asset;
- How the intangible asset will generate probable future economic benefits;
- The availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset; and
- The ability to measure reliably the expenditure attributable to the intangible asset during its development.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
-
Principal accounting policies (continued)
The amount initially recognised for internally generated intangible assets is the sum of the expenditure incurred from the
date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognised, development expenditure is charged to profit or loss in the period in which it is incurred. Internally and externally generated intangible assets are amortised over their useful economic lives on a straight-line basis, typically over years.
Research expenditure is recognised as an expense in the period in which it is incurred.
Impairment of tangible and other intangible assets
The Company reviews, at least annually, the carrying amounts of its tangible and intangible assets compared to the recoverable amounts to determine whether those assets have suffered an impairment loss. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss had been recognised for the asset in prior years.
Cash and cash equivalent
Cash and cash equivalents comprise cash on hand and demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
Fixed asset investments
Investments in subsidiaries are accounted for at cost less impairment in the Company's financial statements.
Classification
Financial instruments are classified and accounted for according to the substance of the contractual arrangement, as financial assets, financial liabilities or equity instruments. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities. Where shares are issued, any component that creates a financial liability of the company is presented as a liability on the balance sheet. The corresponding dividends relating to the liability component are charged as interest expenses in the profit and loss account.
Recognition and measurement
All financial assets and liabilities are initially measured at transaction price including transaction costs , except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value which is normally the transaction price excluding transaction costs , unless the arrangement constitutes a financing transaction. If an arrangement constitutes a financing transaction, the financial asset or financial liability is measured at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.
Impairment
Assets, other than those measured at fair value, are assessed for indicators of impairment at each balance sheet date. If there is objective evidence of impairment, an impairment loss is recognised in profit or loss.
Share-based payments
The Company issues equity settled share based payments to certain Directors and employees, which have included grants of shares and options in the current year. The fair value determined at the grant date is expensed on a straight-linebasis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of an appropriate valuation model. The Black-Scholesoption pricing model has been used to value the share options plans.
Going concern
These financial statements have been prepared on the going concern basis. Please refer to the Directors Reports on pages to for further going concern commentary.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Principal accounting policies (continued)
IFRS | "Financial Instruments" |
IFRS | Financial Instruments replaces the existing guidance in IAS Financial Instruments Recognition and Measurement |
IFRS | Includes revised guidance on the classification and measurement of financial Instruments, including a new expected |
loss model for calculating impairment on financial assets as is set out in the Group's accounting policy on page number to .
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward- looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased significantly since initial recognition of the financial asset, twelve month expected credit losses along with gross interest income are recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest income on a net basis are recognised.
Leases
All leases are accounted for by recognising a right-of-use asset and a lease liability except for:
Leases of low value assets; and
Leases with a duration of months or less.
IFRS | was adopted January | without restatement of comparative figures. |
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease.
On initial recognition, the carrying value of the lease liability also includes: amounts expected to be payable under any residual value guarantee;
the exercise price of any purchase option granted in favour of the group if it is reasonably certain to assess that option; and
any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.
Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:
lease payments made at or before commencement of the lease; initial direct costs incurred; and
the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease. When the group revises its estimate of the term of any lease.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Company accounting policies, which are described above, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revisions affect only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Principal accounting policies (continued)
Investment in subsidiary is carried at cost under IAS in the financials are to be tested for impairment at each reporting date as per IAS . The impairment standard requires the management to estimate the recoverable amount of the asset and compare it with the carrying value in the books to measure any impairment. For estimating the recoverable amount of the "Investment in subsidiary" the management relies upon; the net asset position of the subsidiary as on the balance sheet date, which brings the necessary assurance about the recoverability of the investment.
There are no critical judgements, apart form those involving estimates, that directors have made in the process of applying the Company's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Employees | ||||
The average number of employees throughout | was | : | . Staff costs amounted to . m | : . m . |
Information about the remuneration of directors is provided in the audited part of the Directors' Remuneration Report on
pages | to | of the consolidated financial statements. |
- Intangibles
Bespoke | ||||||
applications | ||||||
Cost | ' | |||||
, | ||||||
At | January | |||||
Disposals | , | |||||
At | December | - | ||||
Amortisation | ||||||
At | January | |||||
Charge for year | , | |||||
Disposals | ||||||
At | December | - | ||||
Net book value | ||||||
At | December | - | ||||
At | December | , | ||||
At | December | , | ||||
On | May | the Danish Platform, with a carrying value of | k was sold to a Danish communications company, TDC | |||
Group see note | for | k. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Tangibles
Computer
equipment
'
Cost | |
At January | and at December |
Depreciation
At January
Charge for year
At December
Net book value
At December
At December
At December | - |
- Leases
The Company leased a property that originally ran until April . In February , on agreement with the landlord the
lease was terminated, and the Company vacated the premises. The Company has adopted IFRS on the date of application and determined the value of the lease and the right to use asset based on the rental payments from the period January
to April | . | ||||
Land and | |||||
Right-of-use asset | buildings | ||||
Right-of-use asset | ' | ||||
, | |||||
Less accruals | net | ||||
As at | January | , | |||
Amortisation | |||||
At | December | , | |||
Land and | |||||
Lease liability | buildings | ||||
' | |||||
As at | January | , | |||
Interest expense | |||||
Lease payments | |||||
At | December | , | |||
Anal | ed | ||||
Current | , | ||||
Non-current | |||||
Total | , | ||||
The company terminated the existing lease contract in February | and in August | , it signed a new lease for | |||
years | see note . |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Fixed asset investments
Cost | ' | ||
At | January | and at December | , |
Provision for impairment | |||
At | January | , | |
Impairment during the year | , | ||
At | December | , | |
Net book value at | December | - | |
Net book value at | December | , | |
Net book value at | December | , |
Related subsidiaries, joint ventures and associates
Ordinary shares | |||||||||
held at | Country of | ||||||||
December | Principle activity | incorporation | Registered office | ||||||
Subsidiaries | Music streaming | ||||||||
and download | |||||||||
digital Limited | services | England and Wales | |||||||
digital Creative Limited | Radio production | England and Wales | |||||||
digital Trading Limited | HR Services | England and Wales | |||||||
Holding | Delaware, | Pine Street, Suite | , | ||||||
digital Group, Inc. | company | United States of America | San Francisco, CA | USA | |||||
Music streaming | |||||||||
and download | Delaware, | Pine Street, Suite | , | ||||||
digital, Inc | services | United States of America | San Francisco, CA | USA | |||||
Rue Aristade Briand | |||||||||
Espace Aristide | |||||||||
digital SAS | Non-trading | France | Vanves France | ||||||
D- , Polite Hermitage, Sec | |||||||||
Shivtej Nagar, Chinchwad | |||||||||
digital Wing India Private Limited | Non-trading | India | Pune MH | India | |||||
Smooth Operations Productions Limited | Dormant | England and Wales | |||||||
Unique Interactive Limited | Dormant | England and Wales | |||||||
Oneword Radio Limited - dissolved | January | Dormant | England and Wales | ||||||
UBC Interactive Limited - dissolved | January | Dormant | England and Wales | ||||||
digital ApS - dissolved | October | ||||||||
SD Music Stores Limited - dissolved | February | ||||||||
digital Projects Limited - dissolved | October | ||||||||
indicates indirect investment of the company | |||||||||
ceased trading on | March | . | |||||||
non trading from January | , dissolved with its immediate holding company, digital Group, Inc, on | May | . | ||||||
registered office is Lower Lock, Water Lane, London UK NW JZ. | |||||||||
The directors subjected the carrying value of investments to an impairment test at the year end. The director's assessment | |||||||||
indicated that the carrying value of the investments in subsidiaries should be fully impaired at | December | . |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Debtors
Due within one year: | ' | ' |
Trade Debtors | - |
- D credits receivable Other debtors
Prepayments | - | |
Amounts owed by group undertakings | - | , |
, | ||
- Amounts owed by related parties
The directors have reviewed the amounts owed by related parties and believe there are significant doubts as to the future
recoverability of these balances, and as such, a provision for doubtful debts impairment loss of . m : k has been raised in the Company statement of financial position.
- Trade and other payables:
Current Liabilities | ' | ' | |||
Trade creditors | , | ||||
Other taxes and social security | |||||
Other creditors | |||||
Accruals | , | ||||
Amounts owed to group undertakings | - | ||||
, | , | ||||
Non-Current Liabilities | |||||
Other payables | - | ||||
- | |||||
I. | Loans and borrowings |
' | ' | ||||||
Current | |||||||
Convertible debt | - | , | |||||
Embedded derivative | - | ||||||
- | , | ||||||
On | February | , | , | including interest of , | of the . million Shareholder loan facility was converted to | ||
, | , | ordinary shares of | p each. |
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Loans and borrowings (continued)
On January | , Juke GmbH, a wholly owned subsidiary of Media-Saturn-Holding GmbH, decided to discontinue their |
music services and their contract with the Group. On March | , a settlement was agreed on the termination of all |
outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of
. m. Further, Juke agreed to forgive | , | of the principal amount of the convertible loan, the balance of the principal | ||||
amount of | , | was paid from the proceeds of the termination settlement and all associated interest payments | ||||
totalling | , | were forgiven. The total amount forgiven of | k is accounted and disclosed as a capital contribution in | |||
the statement of changes in equity. | ||||||
On June | , the remaining | , | including interest | , | of the . million Shareholder loan facility was | |
converted to | , | , | ordinary shares of . | p each. |
- Provision for liabilities and charges
Provision | |||||||||||||
for closure | |||||||||||||
of | Legal | ||||||||||||
businesses | Other | provision | Total | ||||||||||
note a | provisions | note b | |||||||||||
' | |||||||||||||
At | January | - | |||||||||||
Provision for closure of Danish operations | - | - | ( | ) | |||||||||
Reduction in partial guarantee of subsidiary loan | - | - | |||||||||||
Release of provision for closure of French operations | - | - | ( | ) | |||||||||
Litigation provision | - | - | |||||||||||
Other | - | - | |||||||||||
At | December | ||||||||||||
Of which is: current | |||||||||||||
Of which is: non-current | - | - | - | - | |||||||||
N | e a | ||||||||||||
On | October | , the Danish entity was liquidated by the local authorities; a provision has been made of | k for | ||||||||||
possible associated outstanding liabilities. | |||||||||||||
In | a provision was made in the standalone books of the parent company, as the parent company has guaranteed all | ||||||||||||
the half yearly repayments of a loan in the French entry Snowite SAS up to | April | . During the year the guarantee | |||||||||||
provision was reduced by | k representing the amounts paid against the loan in | by the French entity. At the year | |||||||||||
end, the parent company still guaranteed | k/ | k of future payments. | |||||||||||
In | a provision of | k relating to the closing of operations in Snowite SAS was made; during | k of this | ||||||||||
provision has been utilised. | |||||||||||||
N | e b | ||||||||||||
During | a civil action was brought by a former US customer against the parent company for failure to deliver services |
specified in their Term Sheet. No contract was ever put in place with this customer. The breach of contract claim is for: i consequential damages for loss of future profits in an amount to be determined at trial; ii compensatory damages including but not limited to the contract amount of USD k; iii punitive damages in an amount to be determined by a jury; iv
attorney's fees, costs, and expenses; and v pre-andpost-judgment interest. digital's legal team made a motion to dismiss the claims, however in the event that the claims are upheld, estimate that damages would be in the region of
USD k/ k.
digital Group PLC Annual Report and Accounts
digital Group plc
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
For the year ended December
- Share capital
' | ' | |||||||||||
Allotted, called up and fully paid: | ||||||||||||
, | , | , | ordinary shares of | . | p each | : nil | - | |||||
, | , | deferred shares of | . | p each | : nil | , | - | |||||
Nil ordinary shares of p each | : | , | , | - | , | |||||||
, | , | deferred shares of | p each | : | , | , | , | , |
i. | On | February | , | , | including interest of the | . million Shareholder loan facility was converted in | |||||||
to | , | , | ordinary shares of | p each. | |||||||||
ii. | In order for the Company to lawfully allot the shares as described in iii and iv below, all the | , , | shares | ||||||||||
of | p each were converted into | , , | deferred shares of | . p each and | , , | ordinary shares of | |||||||
. | p each on | June | . The deferred shares of . p each carry limited voting rights. | ||||||||||
iii. | On | June | , | , | including interest | of the | . million Shareholder loan facility was converted to | ||||||
, | , | ordinary shares of . | p each; share premium was increased by | , . | |||||||||
iv. | On | June | , a number of shareholders, including Magic Investments S.A. a tech investment holding | ||||||||||
company | "Magic" | and Shmuel Koch Holdings Limited | "SKH" | subscribed for, an aggregate of, | , , | ||||||||
ordinary shares at | . | p each, to raise | . | million | before expenses . Share premium was increased by |
- , .
v. | On | September | , | , | , | shares of | . p each were issued to the market to raise , | k before |
expenses ; share premium was increased | , | , . | ||||||
vi. | On | October | , a further | , | , | ordinary shares of . p were issued to the market to raise | , ; | |
hare premium was increased by | , . |
- Post balance sheet events
Refer to the Group's post balance sheet events in note on page .
digital Group PLC Annual Report and Accounts
digital Group plc
GENERAL INFORMATION AND ADVISORS
For the years ended December
Registered office
Lower Lock
nd Floor
-
Water Lane London
NW JZ
Country of Incorporation
England and Wales
Registered number
Nominated adviser and broker
Arden Partners plc
Old Broad Street
London
EC N AR
Solicitors
Charles Russell Speechlys LLP
Fleet Place
London
EC M RD
Principal bankers
Barclays Bank plc
United Kingdom House
Oxford Street
London
W D EA
Registrars
Link Market Services Limited
The Registry
Beckenham Road
Beckenham
Kent
BR TU
Auditor
BDO LLP
Baker Street
London
W U EU
digital Group PLC Annual Report and Accounts
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7digital Group plc published this content on 28 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 September 2020 14:44:05 UTC