Full Year Results

29 September 2020

7digital Group plc

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

Full Year Results

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

Financial Summary

· Revenue of £9.3m (2018: £19.9m)

· Revenue from continuing operations*: £8.2m (2018: £9.3m)

· Gross profit of £6.3m (2018: £14.7m)

· Gross margin of 67.7% (2018: 74.0%)

· Gross margin from continuing operations*: 64.0% (2018: 62.0%)

· Operating loss reduced by 54% to £5.6m (£12.1m)

· Adjusted EBITDA loss of £2.8m (2018 restated: £2.5m)

· Loss per share reduced by 84% to 0.47p (2018: 2.97p)

· Successfully delivered annualised cost savings of more than £6.0m, reducing operational cost run rate by over 50% since beginning of the year

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

Operational Highlights

· Received €4m settlement from MediaMarktSaturn over Juke contract and agreed sale of select unprofitable technology and staff to TDC Group for €1.375m

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

· £4.1 million invested in 2019, rising to £5 million in first 12 months since taking charge, to reposition the company, stabilise the business and secure future growth

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

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

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

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

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

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

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

Enquiries

About 7digital (www.7digital.com)

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

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

Operational Review

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

By contrast, in the first half of 2019, the Group was significantly impacted by the loss of its largest contract with European retailer MediaMarktSaturn ("MMS") to provide the music streaming service for its wholly-owned subsidiary, Juke Entertainment Gmbh ("Juke"). The Group had to take immediate action and agreed the sale of select technology from the Company and the transfer of staff to TDC Group for a total consideration of €1.375m in cash. This technology, which was only used by one customer, had become unprofitable to maintain.

As a result of the changes and progress made in the second half, the Board is pleased to report that the Group's revenue from operations (after adjusting for the loss of the Juke contract) declined only by 12% in 2019 to £8.2m. However, gross profit on the same basis increased by 2% to £5.2m. The statutory operating loss for 2019 decreased by 54% to £5.6m (£12.1m).

Investment and Refocused Strategy

From June 2019 onwards, the Group welcomed investment from a consortium comprising Magic Investment S.A. and Shmuel Koch Holdings Limited, led by Tamir Koch and David Lazarus who joined the Board as respectively Non-Executive Chairman and Non-Executive Director in July 2019. This group of successful entrepreneurs and business leaders has provided the required financial support to move the business forward, including a £5m cash injection in the first 12 months of taking charge of the Group. However, the new Board also recognised that a change of strategy and management team was required to suit the changing business environment. Paul Langworthy, the Group's former Chief Operating Officer, was appointed Chief Executive Officer and set about a plan to bring the business to break even as quickly as possible.

This new strategy recognised that 7digital is foremost a technology company rather than a media company. It has allowed the Group to considerably reduce its cost base by moving away from the development of a bespoke, customer-specific service to focus on delivering a highly productised technology offering. This contrasts with previous strategies where the Company implemented bespoke solutions for a diverse range of customers often with divergent needs, leading to unprofitable business at higher risk. From an operational standpoint, the new strategy has enabled 7digital to streamline its technology estate as well as the associated costs and staffing levels. The Group also retired a number of legacy radio technology services that were no longer strategic for 7digital and improved its technology efficiency through the use of cloud-based services. As a result, the Group was able to reduce its operational cost run rate by over 50% since the beginning of 2019 and successfully deliver annualised cost savings of over £6.0 million.

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

Winning New Business and Renewing Important Contracts

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

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

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

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

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

Financial Review

On 4 January 2019, the Group announced that its largest customer, MediaMarktSaturn, had indicated that it may wish to change the current arrangements and that this could involve 7digital taking more responsibility for certain aspects of the service or the service being closed with a resulting termination payment becoming due and payable to the Group. On 1 March 2019, 7digital announced that it had accepted settlement of, and release from, all outstanding contracts and commitments relating to the Juke music service for an immediate payment by Juke of €4,000,000. Further, Juke agreed to write off all interest payments and £250,000 of the principal amount of the convertible loan note issued to Juke (as announced on 26 October 2018). 7digital settled a further £500,000 balance of the convertible loan note principal amount from the proceeds of the Agreement.

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

The consideration was €1.375 million, of which £1.0 million was paid to 7digital in cash during 2019 being equivalent to the net value of the assets sold. The remainder of the cash consideration was retained by TDC to cover certain potential liabilities of which £47k was released by TDC to the Group in April 2020 to the extent that it is not required to meet such liabilities and is subject to customary post-closing adjustments. The annualised losses eliminated from the business totalled around £1.6 million. This sale meant that 7digital would focus its resources on its productised, cloud-hosted technology.

On 13 May 2019, Magic Investments S.A. (a technology investment holding company) ("Magic") bought the remaining loans from the existing shareholders at face value of £0.6 million.

On 7 June 2019, a consortium, comprising Magic and Shmuel Koch Holdings Limited ("SKH") subscribed for, an aggregate of, 634,132,641 shares at 0.01 pence per share, to raise £1.3 million (before expenses). On the same date, Magic agreed to capitalise the outstanding £585,932 principal and accrued interest of the Convertible Loan Notes at the Exchange Price of 0.02p into 332,915,704 shares with a discount of 12%. A number of changes to the Board were proposed, conditional upon the passing of the Resolutions at the General Meeting held on 25 June 2019.

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

On 20 September 2019, the Group announced that it had raised a further £1.88 million through a subscription of 937,900,000 new Ordinary shares of 0.01 pence to new and existing shareholders.

On 25 September 2019, the Group announced that it had completed an oversubscribed conditional Placing. The Placing of 130,848,460 new Ordinary Shares raised approximately £0.3 million (before expenses) at an issue price of 0.01 pence per share on 4 October 2019.

During the year, the Group secured a total of £4.1 million (gross) in funding.

Results and Financial Key Performance Indicators

The Group's revenue from operations (after adjusting for the loss of the Juke contract as shown on the table below) declined by 12% in 2019 to £8.2m (2018: £9.3m).

On-going gross profit% increased to 64.0%, a rise of 2 percentage points to £5.2m, as a result of growth in high-margin B2B licensing revenues which now represents a greater share of the total sales mix. The statutory operating loss for 2019 decreased 54% to £5.6m (2018: £12.1m). The adjusted EBITDA loss for 2019 increased 10% to £2.8m (2018: £2.5m) and this is reconciled to the operating loss in note 6.

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

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

Expenditure

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

Other Adjusting Items

Other adjusting items for the year totaled £1.8m of which £0.7m relates to corporate restructuring, £0.5m to legal fees relating to fund raising and contingency planning, £0.4m of expenses and provisions relating to the closure of the Danish business and £0.2m as a legal provision for an ongoing litigation issue.

Dividend

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

Shareholder Loans

On 8 February 2019, the Group received notice of conversion from one holder in respect of £193,858 (including interest) of the Facility at a conversion price of 1p pursuant to which 19,385,843 ordinary shares were issued. Following conversion, an aggregate of £1,311,691 of the facility remained outstanding.

On 1 March 2019, the Group agreed to a €4m settlement from MMS under the MMS Settlement Agreement noted above. Out of the loan payable of £0.75m plus accrued interest of £27k, £0.5m was settled against the above €4m and £0.25m, together with the accrued interest of £27k, was forgiven by MMS. Following settlement of MMS's share of the Facility, an aggregate of £561,691 of the facility remained outstanding.

On 11 April 2019 the Group received a notice from the holder in respect of a tranche of the Facility, due to non-payment of interest. The Notice related to outstanding Facility and interest amounting to £325,570. Following receipt of the Notice, the outstanding amount became due and payable by 3 May 2019. The remaining tranche under the Facility of £0.25m plus accrued interest remained outstanding to another loan note holder.

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

On 7 June 2019 Magic agreed to capitalise the outstanding £585,932 principal and accrued interest of the Facility held by it into 332,915,704 new Ordinary Shares (at a 12 per cent. discount to the Issue Price).

Cash and Cash Flow

As of 31 December 2019, the Group had a cash balance of £0.1m (2018: £0.5m).

Net cash outflows in 2019 totalled £0.3m (2018: outflow £6.4m). The reduction was largely driven from a decrease in operating cash outflow of 38% as a result of the effective cost reduction efforts implemented by the new management team, issuance of share capital to the consortium and the sale of the Danish platform. 

CONSOLIDATED INCOME STATEMENT AND STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2019

Consolidated Statement of Comprehensive Income

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2019

CONSOLIDATED CASHFLOW STATEMENT

Year ended 31 December 2019

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2019 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2019

NOTES TO THE FINANCIAL STATEMENTS

Year ended 31 December 2019

1. Accounting policies

General information

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

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

Basis of Preparation

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

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

New standards and interpretations

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

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

• IFRS 16 Leases (IFRS 16) refer note 14

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

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

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

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

Accounting Estimates and Errors (Amendment - Definition of Material)

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

• Revised Conceptual Framework for Financial Reporting

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

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

Going concern

Summary

On 21 February 2020, a short term loan of £500k was signed with CSS Alpha (BVI) Limited. The loan is repayable over 12 months in equal parts starting from 28 March 2020 with interest based on 1.5% of the outstanding balance. The loan is guaranteed by one of the Directors.

On 3 September 2020, 7digital annouced the placing of 266,666,667 new Ordinary Shares of 0.01p each, which raised £6m at an issue price of 2.25 pence per share. The net proceeds of the fundraising will be used to meet the immediate working capital requirements of the Group and support immediate and medium term commercial growth opportunities, in particular within home fitness, artist monetisation, and social media.

Background to and reasons for the placing and subscription

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

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

COVID-19

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

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

Brexit

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

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

Facility

On 28 September 2020, the Group secured a £1m revolving credit facility with Investec for a period of 36 months guaranteed by two of the Directors; this attracts 6% interest above Investec bank rate on the drawn portion of the facilty and 2% on the undrawn portion.

Conclusion

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

Having assessed the sensitivity analysis on cashflows including the funding of £6m and the security of the newly agreed credit facility, together with the significant current business momentum from new customers including Triller, the launch of eMusic Live and growing demand for streaming and digital music solutions, the Directors strongly believe 7digital will continue to operate as a going concern for the foreseeable future, being 12 months from their signing of the financial statements.

Basis of consolidation

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

All subsidiaries are controlled by the Group and are included in the consolidated financial statements; the Group controls an investee if, and only if, the Group has:

• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities

of the investee)

• Exposure, or rights, to variable returns from its involvement with the investee

• The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement(s) with the other vote holders of the investee

• Rights arising from other contractual arrangements

• The Group's voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.

Profit or loss and each component of OCI are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with the Group's accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value.

Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred In the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase Is recognised in profit or loss immediately. Transaction costs are expensed as incurred, except If related to the issue of debt or equity securities.

The consideration transferred does not include amounts related to the settlement of pre-exlstlng relationships, such amounts are generally recognised In profit or loss.

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

Subsidiaries

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

Loss of control

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

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated In the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Revenue

The group comprises of mainly three types of revenues

1) Licencing fees (also known as B2B sales)

a. Setup Fees

b. Monthly development and support fees

c. Usage fees

2) Content ("download") revenues (also know as B2C sales)

3) Creative revenues

Each type of revenue is detailed below

Revenue comprises of:

I. Licensing revenues

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

The description of the licence fees compromise three categories;

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

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

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

II. Content ("download") revenues

Content revenues are recognised at the value of services supplied and on delivery of the content. The group manages a number of content stores and the income is recognised in the month it relates to. Majority of the revenue converts directly to cash; any accrued revenue converts to trade receivables within 30days.

III. Creative revenues

Creative revenues relate to the sale of programmes and other content. 7digital also undertakes bespoke radio programming for its customers. As the programmes are being created the associated revenue is accrued/deferred until such time as the programme is delivered and accepted by the client. At this time the accrued revenue coverts to trade receivables. These mainly include the production of weekly radio programmes, as well as the one-off production of episodes. In case of one-off productions which required the Group to provide progress reports to its customers and where the company has no alternative use of the program produced, the group recognises revenue over the period i.e. based on percentage of completion, for

the rest of the regular programs and contents, where the company does not own the IP, the group measures the revenue based on delivery of the content i.e. at a point in time.

Contracts with multiple performance obligations

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

To determine whether to recognise revenue, the Group follows a 5-step process:

- Identifying the contract with customers

- Identifying the performance obligations

- Determining the transaction price

- Allocating the transaction price to the performance obligations

- Recognising revenue when/ as performance obligations are satisfied.

Performance Obligations and timing of revenue recognition

Revenue generated from B2B customer contracts often identify separate goods/services, with these generally being the access of the API license platform, and the associated monthly licence maintenance fees and content usage fees.

The list of obligations as per the contract that are deemed to be one performance obligation in case of licencing revenue are (B2B):

- The licenses provide access to the 7D platform

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

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

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

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

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

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

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

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

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

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

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

Determine transaction price and allocating to each performance obligation

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

Other adjusting items

Other adjusting items are those items the Group considers to be non-recurring or material in nature that should be brought to the readers' attention in understanding the Group's financial statements. Other adjusting items consist of one-off acquisition costs, costs related to non-recurring legal and statutory events, restructuring costs and other items which are not expected to re-occur in future years.

Foreign currency

For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in Pounds Sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions.

At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

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

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items are translated at the average monthly rate of exchange ruling at the date of the transaction, unless exchange rates fluctuate significantly during that month, in which case the exchange rates at the date of transactions are used.

Intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised on a straight-line basis over their useful economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to contractual/legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques.

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

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

- The intention to complete the intangible asset and use or sell it

- The ability to use or sell the intangible asset

- How the intangible asset will generate probable future economic benefits

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

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

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

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

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchased price, cost includes directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognised within provisions.

Depreciation is provision on all items of property, plant and equipment, so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

Property - 20% per annum straight line

Computer equipment - 33.33% per annum straight line

Fixtures and fittings - 33.33% per annum straight line

Impairment of tangible and other intangible assets

Impairment tests on goodwill and other intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest group of assets to which it belongs for which there are separately identifiable cash flows; its cash generating units ('CGUs'). Goodwill is allocated on initial recognition to each of the Group's CGUs that are expected to benefit from a business combination that gives rise to the goodwill.

Impairment charges are included in profit or loss, except to the extent they reverse gains previously recognised in other comprehensive income. An impairment loss recognised for goodwill is not reversed.

Cash and cash equivalent

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

Government grants

Government grants, including research and development credits are recognised when it is reasonable to expect that the grants will be received and that all related conditions will be met, usually on submission of a valid claim for payment. Grants of a revenue nature are credited to income so as to match them with the expenditure to which they relate.

Financial instruments

Financial assets and financial liabilities are recognised when a Company becomes a party to the contractual provisions of the instruments.

Initial Recognition:

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss and ancillary costs related to borrowings) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are charged to the Statement of Profit and Loss over the tenure of the financial assets or financial liabilities.

Classification and Subsequent Measurement: Financial Assets

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

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

• the contractual cash flow characteristics of the financial asset.

Amortised Cost:

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

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

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

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

Fair Value through OCI:

A financial asset shall be classified and measured at fair value through OCI if both of the following conditions are met:

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and

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

Fair Value through Profit or Loss:

A financial asset shall be classified and measured at fair value through profit or loss unless it is measured at amortised cost or at fair value through OCI.

All recognised financial assets are subsequently measured in their entirety at either amortised cost or fair value, depending on the classification of the financial assets.

For financial assets at FVTPL, net gains or losses, including any interest or dividend income, are recognised in the Statement of Profit and Loss.

Classification and Subsequent Measurement: Financial liabilities

Financial liabilities are classified as either financial liabilities at FVTPL or 'other financial liabilities'.

Financial Liabilities at FVTPL:

Financial liabilities are classified as at FVTPL when the financial liability is held for trading or is a derivative (except for effective hedge) or are designated upon initial recognition as FVTPL.

Gains or Losses, including any interest expense on liabilities held for trading, are recognised in the Statement of Profit and Loss.

Other Financial Liabilities:

Other financial liabilities (including borrowings and trade and other payables) are subsequently measured at amortised cost using the effective interest method.

The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost on initial recognition.

Interest expense (based on the effective interest method), foreign exchange gains and losses, and any gain or loss on derecognition is recognised in the Statement of Profit and Loss.

Impairment of financial assets:

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

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

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

De-recognition of financial assets and financial liabilities:

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

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

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

Financial liabilities and equity instruments:

• Classification as debt or equity

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

• Equity instruments

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

Derivative financial instruments:

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

Fair value measurement

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

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

hierarchy'):

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

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

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

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

Valuation techniques used to determine fair values

Specific valuation techniques used to value financial instruments Include

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

Share-based payments

The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest. Fair value is measured by use of an appropriate valuation model. The Black-Scholes option pricing model has been used to value the share options plans.

Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a charge attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.

The deferred tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the company operates and generates taxable income.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements and on unused tax losses or tax credits in the company. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.

The carrying amount of deferred tax assets are reviewed at each reporting date. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

Leases

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

• Leases of low value assets; and

• Leases with a duration of 12 months or less.

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

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease.

On initial recognition, the carrying value of the lease liability also includes:

• amounts expected to be payable under any residual value guarantee;

• the exercise price of any purchase option granted in favour of the group if it is reasonably certain to assess that option; and

• any penalties payable for terminating the lease, if the term of the lease has been estimated on the basis of termination option being exercised.

Right-of-use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for:

• lease payments made at or before commencement of the lease;

• initial direct costs incurred; and

• the amount of any provision recognised where the group is contractually required to dismantle, remove or restore the leased asset.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease.

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

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

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

1.1 Critical accounting judgements and key areas of estimation uncertainty

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

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

Content cost of sales

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

Creative revenue

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

Impairment of accounts receivables

The management and directors have made certain estimates and judgements in the application of IFRS 9 when measuring expected credit losses and the assessment of expected credit loss provisions required for accounts receivable balances. (see note 16).

Other adjusting items

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

2. Revenue

2.1 Revenue from contracts with customer

The Group has disaggregated revenue into various categories in the following table which is intended to:

· depict how the nature, amount, timing and uncertainity of revenue and cash flows are affected by economic data; and

· enable users to understand the relationship with revenue segments information provided in 2.2 below

The aggregate amount of the transaction price of the remaining performance obligations amounting to £335k (2018: £1,149k) are all expected to be released within the next 12 months; £7k (2018: £141k) released in the following year.

2.2 Business segments

For management purposes, the Group is organised into three continuing operating divisions - Licensing, Content and Creative. The principal activity of Licensing is the creation of software solutions for managing and delivering digital content. The principal activity of the Content division is the sales of digital music direct to consumers. The principal activity of Creative is the production of audio and video programming for broadcasters. These divisions comprise the Group's operating segments for the purposes of reporting to the Group's chief operating decision maker, the Chief Executive Officer.

Revenue from the Group's largest customer in the year was £1.0m (2018: £7.7m) and revenue from the second largest customer in the year was £0.5m (2018: £2.4m) . There were no other customers that formed greater than 10% of external revenues within the years ended 31 December 2019 and 2018.

2.3 Geographical information

The Group's revenue from external customers and information about its segments by geographical location is detailed below:

All revenues are derived from the provision of services.

3. Other adjusting items

(i) In 2018 the Group tested intangibles annually for impairment, or more frequently if there are indications that the assets might be impaired. Accordingly, certain bespoke applications have been impaired during the year resulting in a charge of £2,135k.

(ii) In 2018, due to the cessation of the French operations in Snowite SAS, a provision of £287k has been made for closing down the operations and an impairment of £705k for the intangible assets, as the directors consider these have a zero fair value.

(iii) In May 2019 the Group sold select technology from the Parent Company and its Denmark subsidiary, 24 -7 Entertainment ApS, and transferred staff to TDC Group, a large telecommunications company based in Denmark (see note 12). In 2019, a provision of £254k has been made for the closing down of the Danish operations. In 2018, fair value adjustments relating to goodwill of £688k and to customer lists of £418k were made (see note 12) and the 24-7 Entertainment ApS tangible assets of £131k were fully impaired (see note 13).

(iv) During the normal course of business the group would have capitalised £162k (2018: £2,715k) in respect of development costs associated with the Denmark platform, which was sold in 2019 as described in (iii) above. Due to the sale of this platform these costs have not been capitalised and are reflected in the profit and loss account.

(v) During 2019, the Group incurred costs of £649k (2018: £226k) to former directors on garden leave and for employee redundancies all relating to organisational restructuring.

(vi) In 2019 the Group incurred legal fees in relation to funding of £264k, legal costs relating to planning for supposed insolvency £120k and finalisation of the settlement agreement with Media-Saturn-Holding £80k.

(vii) During 2018 a civil action was brought by a former US customer against the parent company for failure to deliver services specified in their Term Sheet. No contract was ever put in place with this customer. The breach of contract claim is for: i) consequential damages for loss of future profits in an amount to be determined at trial; ii) compensatory damages including but not limited to the contract amount of USD200k; iii) punitive damages in an amount to be determined by a jury; (iv) attorney's fees, costs, and expenses; and (v) pre-and post-judgment interest. 7digital's legal team made a motion to dismiss the claims, however in the event that the claims are upheld, the Group estimates that damages would be in the region of USD300k/£228k, with an appropriate provision being made.

£1,582k (2018: £3,228k) of the Other adjusting items for the year ended 31 December 2019 are deductible for corporation tax purposes.

4. Operating loss for the year

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

5. Other operating income

In 2019, the Group agreed a settlement of €4m/£3.4m with Media-Saturn-Holding GmbH, of which £0.5m was used as payment for Shareholders fund (see note 18) and £1.9m cleared down outstanding trade-related balances; resulting in a net settlement income of £1,000k. As part of the settlement agreement Media-Saturn-Holding GmbH agreed to forgive £250k of outstanding loans plus associated unpaid interest of £27k. The total amount forgiven was £277k which is disclosed as a capital contribution (see note 18).

The remaining other operating income earned by the Group in the current year of £103k (2018: £371k) relates to Research & Development tax credits.

6. Reconciliation of non-IFRS financial KPIs

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

7. Auditor's remuneration

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

8. Staff costs

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

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

9. Finance income and cost