Final results for UBC Media Group

15 August 2014

7digital Group plc ("7digital" or "the Group")

Final results for UBC Media Group ("UBC Media" or the "Company")

7digital (AIM: 7DIG), the digital music and radio services company, reports final results for UBC Media Group, for the year ended 31 March 2014.

On 10 June 2014, UBC Media Group plc completed the reverse acquisition ("the Acquisition") of 7digital Group, Inc. and the Group was renamed as 7digital Group plc. These results cover pre-transaction historical trading for UBC Media and do not take into account any contribution from 7digital Group, Inc.

Following the Acquisition and re-admission to AIM, the Group changed its year-end to 31 December and expects to report its first set of results as a combined business on 30 September 2014, when it will release its figures for the half-year to 30 June 2014. That report will be a more accurate reflection of the current trading and future prospects of the new Group.

The Acquisition was completed for a consideration of £16.5m and as part of the process UBC Media completed a placing and subscription which, together with a bridging loan of £1m, raised a total of £7m to fund the combined business to a position of profitability. UBC Media carried out the transaction as part of its strategy to build a balanced business with experience in both digital music and radio as the two industries converge. The Acquisition has helped to create a business to business supplier of digital music services which currently provides nearly 100 customers in over 40 countries with a comprehensive set of products including on-demand music and radio streaming, music downloads, personalised radio, playlisting and curated content.

Simon Cole, Chief Executive of 7digital, commented:

"The combination of UBC Media and 7digital has created a business that is ideally positioned to benefit from the growth in digital music and the demand for radio streaming services. The synergies identified ahead of this deal have already begun to bear fruit, as evidenced by significant contract wins with the likes of Guvera, ROK Mobile and Onkyo, who were attracted by the comprehensive nature of the enhanced 7digital platform.

"As music is consumed across an increasing number of connected devices, 7digital is able to offer customers an independent and scalable platform that acts as the foundation for their digital music strategies. We are working hard to create a world leading digital music and radio platform and believe that the coming together of UBC Media and 7digital marks a major step towards fulfilling this ambition."

Chairman's statement

I am pleased to present my inaugural statement as Chairman of 7digital Group plc following 7digital Group, Inc's successful acquisition by UBC Media Group plc. The numbers contained within the annual report and financial statements are the historical pre-transaction results of the UBC Media group businesses and are, therefore, representative of a business which has, post the year end, been transformed by the transaction between 7digital and UBC.

At the time of the Acquisition there were a number of changes made to the Board and I would like to thank Tim Blackmore and Kelvin Harrison for their many years of service as non-executive directors to UBC Media Group plc, but also their significant help during the takeover of 7digital. In particular, I thank my predecessor, Paul Pascoe, who was Chairman of the Company throughout the period to which these accounts pertain.

I would also like to take this opportunity to welcome Ben Drury to the Board as Chief Strategy Officer as well as Sir Hossein Yassaie and Eric Cohen, who join the Board as Non-Executive Directors. Ben co-founded 7digital in 2003 having previously worked at BT as Head of Music and led the sale of the Dotmusic business to Yahoo. Sir Hossein has been Chief Executive Officer of Imagination Technologies plc since 1998 and Eric is Senior Vice President of corporate development at Dolby Laboratories, Inc. Both Sir Hossein and Eric bring a level of industry knowledge and understanding that will prove invaluable to the management team over the coming years.

It is also important to acknowledge that the success of the past few months would not have been possible without the tireless commitment of our staff. I would like to thank all of them for their hard work and for their continuing efforts to ensure a seamless transition as we bring the two companies together.

Sir Don Cruickshank

Chairman

15 August 2014

Chief Executive's review

As noted in our new Chairman's statement, the results contained herein are the historical results of UBC, and do not reflect the reverse acquisition of 7digital which has been transformational in changing the make-up of the group. Although financially not reflective of the new group, these historical results do show the driving logic behind the deal for UBC.

Two years ago, I noted in my Chief Executive's review that the future of the business lay within our Interactive division, as our content division would not be the engine of growth for UBC. This has continued to be the case. Although our Content businesses have continued to generate solid revenues, BBC budget cutting has led to a continuing decline in gross margins within the industry. On the other hand, the management team recognised that our Interactive division needed greater scale to compete effectively within the space.

Therefore it made sense for the business to undergo two transformational transactions which would allow UBC to use its cash and listing to support a combined group with expertise across the music and radio divide.

I refer to two transactions, as we have also completed a transformational deal with respect of our holding in Audioboo, the fast growing audio social network platform. We have been supporting Audioboo for three years, over which time we have seen considerable operational growth within the business. However, as a bleeding edge start-up it is inevitably cash hungry as it seeks to establish revenue streams. What started as a small investment was beginning to threaten to over-balance the group, as can be seen from these accounts; within the period we invested a further £783,000 in Audioboo and recorded an associated accounting loss of £542,000. Along with the other shareholders in Audioboo, we spent nearly a year searching for support from the VC and Private Equity communities both here in the UK and in the US; none was forthcoming as Audioboo was considered too "high risk". We did not control the company and other private shareholders made it clear that they were unwilling to continue support the company. UBC continued to believe strongly in Audioboo but we did not have the resources to offer the support necessary for its growth alone. Therefore the strategic decision was taken that Audioboo would be better placed in a listed vehicle of its own and on 20 May 2014, we sold our shares in Audioboo to One Delta Group plc, which subsequently changed its name to Audioboom Group plc. We continue to hold an 18.7% holding in Audioboom Group plc, with warrants at the original listing price, that can take that holding to 20%. The listing has been a great success and our original £1.8m investment now has a market value, including our warrants, of circa £6m. This means that we are still exposed to the upside of this emerging entity, but are protected from the continuing need to fund that growth.

Creating the separate listing for Audioboo, allowed us to focus on what the future could hold for our main business. Specifically, how we could lower our reliance on traditional low-growth content production and increase our focus on our interactive and digital skills and patents that have evolved in the last few years and which represent the future of our business.

The Radio and Music Industry

Consumers are more likely than ever to own multiple connected devices, all of which can be used to access both music and radio. The proliferation of smartphones in particular has led to a significant increase in demand for mobile streaming services as opposed to traditional download services in music. At the same time, there has been a rapid rise in listening to radio on these devices. Online and mobile streaming has become the fastest growing segment of the radio industry, with 25% of all listeners now saying that they listen to radio on their mobile phones at some time and nearly 6% of all listening being online or on mobile.

The markets for online music and streamed radio have therefore moved together significantly, with services like Pandora and iTunes Radio creating 'radio-like' music services where consumers are presented with 'curated' or 'playlisted' music rather than having to build their own collections. In turn, broadcasters are integrating their services with online music streaming - the BBC's "Playlister" service being perhaps the most high-profile example.

The Acquisition

As the number of people consuming digital music continues to increase, along with demand for radio-like services, the newly formed 7digital has brought together two companies with complementary assets in the digital music and radio sectors and created a business that provides investors with unique exposure to the systemic changes occurring in music delivery. The Acquisition combines 7digital's existing music technology and global music rights with UBC's radio industry experience and relationships with leading international broadcasting companies, proprietary content and patented digital content purchasing technology.

Outlook

The enlarged business is now in a strong position to capitalise on the rapid growth being experienced in the digital music industry. The future success of 7digital will be underpinned by growth in monthly recurring revenues, derived from license fees paid for use of the Group's music and radio platform. Demand for these services is expected to be driven by a number of factors including an increase in the number of connected devices, new customers coming to market, continued product innovation and international expansion.

One of the key strengths of the 7digital platform is that it is robust, open and scalable which means it can be used to build a music or radio service on any type of connected device and for customers that range from telecom and broadcasting companies to retailers and consumer brands. This helps to explain why recent contract wins include customers as diverse as Guvera and Sky Arts. It also increases the universe of potential customers, which bodes well for the future.

Another important driver for 7digital is the expected increase in the consumption of digital music over the next few years. The majority of digital music users to date have been early adopters. As consumers who currently listen to music via radio or CD embrace digital listening, there is likely to be increasing demand for streaming services that incorporate a radio-like element.

I am confident that 7digital is well positioned to benefit from current trends in the music and broadcasting industries and look to the future with optimism.

Simon Cole

Chief Executive

15 August 2014

Chief Financial Officer's review

This review covers the historical results of UBC Media Group plc before the transaction with 7digital Group, Inc., which completed on 10 June 2014. In the year to 31 March 2014, UBC revenues from continuing operations decreased by 24% to £2.86m (2013: £3.76m), mainly caused by the decision of BSkyB not to repeat its coverage of the Cambridge Folk Festival (CFF). The Content division revenues were down 29% to £2.19m (2013: £3.07m), where the effect of the CFF was £0.61m on revenue, and the Interactive division's revenues were down by 2% at £0.62m (2013: £0.64m). Gross profit decreased by 50% to £0.26m (2013: £0.52m), as the result of the BSkyB decision on CFF, and the continuing effects of the BBC squeezing margins within the industry, which leads to pressure on each re-commissioning decision. Underlying administrative expenses decreased by 5% to £0.97m (2013: £1.03m) as the business continues to find cost savings to offset the fall in profitability within the core businesses.

Pre-exceptional results

Pre-exceptional EBITDA (which excludes return on investments, taxation, share of the results of associates, depreciation of tangible assets, amortisation of intangible assets and exceptional items) was a loss of £708,000 (2013: loss of £503,000). The pre-exceptional operating loss widened by 36% to £784,000 (2013: loss of £578,000). After the share of the result of associate loss (Audioboo) of £542,000 (2013: £401,000) and interest income of £52,000 (2013: £42,000), UBC's pre-exceptional loss from continuing operations before tax was £1.27m (2013: loss of £937,000). After a tax credit of £nil (2013: £47,000), UBC's pre-exceptional loss for the period was £1.27m (2013: loss: of £890,000).

Exceptional items

UBC had exceptional costs of £545,000 during the year: a dilapidations provision was established of £200,000 to cover the costs of exiting our Lisson Street property and installing our staff at new premises, and £345,000 of costs (mainly professional fees) were recognised in relation to the acquisition, post year end, of 7digital Group, Inc. There were no exceptional items in the year to 31 March 2013.

Discontinued operations

During 2014 adjustments to the loss on disposal resulting from money received from previously written-off bad debts resulted in a credit of £7,000 (2013: loss of £192,000).

Statutory result

A reconciliation of the statutory loss for the period of £1.81m (2013: loss £1.08m) to the pre-exceptional operating profit and pre-exceptional EBITDA is shown below:

Reported earnings per share, including the profit from discontinued operations, was a loss of 0.91 pence per share (2013: loss of 0.56 pence).

Cash and cash flow

In the year to 31 March 2014 UBC had a cash outflow of £2.04m (2013: £928,000 outflow) including a cash outflow of £758,000 from operating activities (2013: £612,000 outflow). £1.45m was spent on investing activities (2013: £258,000). £nil was distributed as a dividend (2013: £139,000), £128,000 was spent on purchasing ordinary shares held in Treasury (2013: £60,000), and UBC received £200,000 from the sale of shares (2013: £141,000), and a further £100,000 from the issuance of a convertible loan (2013: £nil). At 31 March 2014, UBC had cash in the bank of £530,000 (2013: £2.57m). Post year end the enlarged Group raised funds of £7.00m (£5.70m net of costs) to fund the combined businesses following the acquisition of 7digital Group, Inc.

Dividend

During the year UBC did not pay an interim or final 2013 dividend (2013: paid the final 2012 dividend of 0.07 pence per share (total dividend £139,000)). The Board of Directors is not proposing a final dividend in the current year.

Chris Dent

Chief Financial Officer

15 August 2014

Other Shareholder Information

Preliminary Announcement

· Copies of this document are available from the Company's registered office at 69 Wilson Street, London, EC2A 2BB

· The preliminary results will be available on the 7digital Group plc website from 18 August 2014: http://about.7digital.com/financial-information

Annual General Meeting

· The Company's Annual General Meeting will be held at 15:00pm on Thursday 18th September 2014 at the offices of DAC Beachcroft, 100 Fetter Lane, London, EC4A 1BN.

· The notice of the AGM will be available from 18 August 2014 on the Company's website: http://about.7digital.com/financial-information

· Hard copy documents will be posted to shareholders on 26 August 2014 and will also be available from our registered office 69 Wilson Street, London, EC2A 2BB, from that date.

2014 Annual Reports and Accounts

· Copies of the 2014 Annual Reports and Accounts will be available from 18 August 2014 on the Company's website: http://about.7digital.com/financial-information

· Hard copy documents will be posted to shareholders on 26 August 2014 and will also be available from our registered office 69 Wilson Street, London, EC2A 2BB, from that date.

7digital Group plc (formerly UBC Media Group plc)

Consolidated Statement of Comprehensive Income

31 March 2014

7digital Group plc (formerly UBC Media Group plc)

Consolidated Statement of Financial Position

Year ended 31 March 2014

7digital Group plc (formerly UBC Media Group plc)

Consolidated Cash Flow Statement

Year ended 31 March 2014

7digital Group plc (formerly UBC Media Group plc)

Consolidated Statement of Changes in Equity

Year ended 31 March 2014

7digital Group plc (formerly UBC Media Group plc)

Notes to the financial statements

Year ended 31 March 2014

1. Accounting policies

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2014 or 2014, but is derived from those accounts. Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying their report and did not contain statements under s498(2) or (3) Companies Act 2006.

While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRSs), this announcement does not itself contain sufficient information to comply with IFRSs. The Company will publish full financial statements that comply with IFRSs in August 2014.

Principal risks and uncertainties

The Group is currently loss making and is reliant on continuing to win new B2B licensing business in order to drive the Group to profitability. There is a risk that management will be unable to secure new contracts or that the anticipated demand for the Group's services will not materialise. However, the directors believes that the Group is well placed to continue to grow the business in order to reach profitability in the medium term.

The market in which the Group operates is fragmented and competitive and new players may enter the market. Furthermore the Group is a B2B provider of services to customers which may be in competition with companies which 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.

The market in which the Group operates has seen a number of significant changes, such as the shift from physical sales, through to 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, as the broadcast radio industry and the recorded music industry continue to converge. There can, however, be no assurance that growth in the market for its products and services will occur, or occur at the rate envisaged by the Group.

The Group relies on a number of key customers. The business plan produced by management assumes new and continuing revenue strands by key customers. If existing contracts were to be terminated or new revenue strands failed to materialise, this could affect the projected growth of the Group. Furthermore, UBC's core production businesses are dependent on the BBC as a key client and as such are vulnerable to the retendering process and BBC budget cuts. Failure by the BBC, as well as other key clients, to fulfil or renew existing contracts or sign up to new revenue streams could have a material adverse effect on the financial condition of the Group.

The Group has a number of key suppliers of music content. The Group believe that these content rights which the Group has built up over a number of years are key to the success of the Group's business, and are also a significant barrier to entry to new competition within the market. There is no certainty that the rights holders will not limit or change the way or the price at which the Group is able to use the music content.

The Group depends on qualified and experienced employees, especially in relation to development staff, to enable it to generate and retain business. Should the Group be unable to attract new employees or retain existing employees this could have a material adverse effect on the Group's ability to grow or maintain its business. Retention of the key executives of the Group is recognised as a risk and is managed by the incentive and remuneration arrangements referred to on pages 17 and 37.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic review. The financial position of the Group, its cash flows and liquidity position are described in the Chief Financial Officer's review. In addition note 28 to the financial statements which can be found in the Group's Annual Report and Accounts includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.

The financial statements at 31 March 2014 show that the Group generated an operating loss for the period of £784,000 (2013: £578,000), and with cash used in operating activities of £758,000 (2013: £612,000) and a net decrease in cash and cash equivalents of £2.0m in the year (2013: £928,000). The Group balance sheet also showed cash reserves at 31 March 2014 of £530,000 (2013: £2,566,000).

Since the year end UBC completed the reverse acquisition of 7digital Group, Inc. and the Group was renamed 7digital Group plc. As part of this process the Group completed a placing and subscription which, together with a convertible bridging loan, raised a total of £7m (£5.7m net of costs) to fund the combined business to a position of profitability. This new funding means that the business has a strong balance sheet and funding position going forward.

The Board has concluded that no matters have come to its attention which suggest that the Group will not be able to maintain its current terms of trade with customers and suppliers. The Group's forecasts for the newly combined Group, including due consideration of the continued operating losses of the Group, and projections, taking account of reasonably possible changes in trading performance, indicate that the Group has sufficient cash available to continue in operational existence throughout the forecast period and beyond. The Board has considered various alternative operating strategies should these be necessary and are satisfied that revised operating strategies could be adopted if and when necessary. As a consequence, the Board believes that the Group is well placed to manage its business risks, and longer term strategic objectives, successfully. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.

2. Business and Geographical segments

Business segments

For management purposes, the Group is organised into two continuing operating divisions - Content, and Software and Interactive. The principal activity of the Content division is the production of audio and video programming for broadcasters and advertising to domestic markets. The principal activity of the Interactive division is the development and sale of software and data services to the radio industry both in the UK and overseas markets. 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.

In the year ended 31 March 2014, revenues of £1,598,783 (2013: £1,878,481) are included within the Content revenues from sales to the Group's single largest customer. No other customer formed greater than 10% of external revenues within the years ended 31 March 2014 and 2013.

Geographical information

The Group's operations and assets are located in the United Kingdom. The Group's sales outside the United Kingdom are predominantly made by the Software and Interactive division. The Group's revenue from external customers and information about its segments by geographical location is detailed below:

4. Exceptional items

During the year ending 31 March 2014 the Directors decided that the current building is no longer fit for purpose and the Group will be vacating the premises at the end of the lease in August 2014. At this point, the Group recognised a provision for dilapidation work that will need to be done in relation to the current building and lease. This has been classified as exceptional due to the material value and one-off nature of the provision.

During the year ending 31 March 2014 the Group entered into acquisition discussions with 7digital Group, Inc and subsequently incurred large, one-off professional expenses which have been classified as exceptional.

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

6. Investment in associate

The amounts included above represented the investments in Audioboo Limited, an audio content social media company incorporated in Great Britain and registered in England and Wales. At 31 March 2014, the Group held a strategic interest of 37.97% in Audioboo Ltd and is recognised it as an associate.

In addition to the investments in ordinary A shares in Audioboo Limited, the Group also had options to convert loans into an extra 1,810,915 ordinary A shares (2013: 70,381 shares). These options were held within the accounts at cost of £541,000 (2013: £109,000).

After the balance sheet date the shareholders of Audioboo accepted an offer by One Delta plc to acquire the total share capital of Audioboo Limited, funded by a share swap. The sale was finalised on 20 May 2014 when it was approved by the shareholders of One Delta plc. On completion of the transaction One Delta plc was renamed Audioboom Group plc. Prior to the acquisition, the Group converted its loans into equity and as a result of the transaction, the Group holds 18.7% of Audioboom Group plc along with warrants which can increase this holding to 19.7%. As of 20 May 2014, Audioboom Group plc is no longer held as an associate and is classified as an investment and will be fair valued, with any profit and loss being recognised in the Statement of Other Comprehensive Income.

7. Post balance sheet events

Since the balance sheet there have been significant developments in Audioboo which is an associate of 7digital Group plc (formerly UBC Media Group plc).

On 9 June 2014 the Group completed a 10-1 consolidation of its existing shares. This resulted in the number of ordinary shares in issue becoming 20,661,954.

On 10 June 2014 the Group concluded the acquisition of 7digital Group Inc, for consideration of £16.5m in ordinary shares (61,335,286 ordinary shares). This counted as a reverse acquisition under AiM Rules. As a consequence of this deal the Group was renamed 7digital Group plc. Concurrently with this deal the Group raised £7m of new funds (£5.7m net of costs) to fund the combined businesses through to profitability, through the issue of 26,329,100 shares.