7digital : 2020 Annual Report

Annual Report and Accounts 2020

7digital Group plc

Contents

2020 Overview	2
Chairman's Statement	3
Chief Executive Officer's Review	4
Chief Financial Officer's Review	6
Strategic Report	8
Section 172 Statement	10
Board of Directors	12
Directors' Report	14
Corporate Governance Statement	18
Directors' Remuneration Report	21
Independent Auditors' Report to the Members of 7digital Group plc	24
Consolidated Income Statement and Statement of Comprehensive Income for the Group	31
Consolidated Statement of Financial Position	32
Consolidated Cash Flow Statement	33
Consolidated Statement of Changes in Equity	34
Notes to the Consolidated Financial Statements	36
Parent Company Statement of Financial Position	70
Parent Company Statement of Changes in Equity	71
Notes to Parent Company Financial Statements	72
General Information and Advisors	81

7digital Group PLC Annual Report and Accounts 2020

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7digital Group plc

2020 OVERVIEW

FINANCIAL SUMMARY

Year ended 31 December 2020

Group Revenue	Gross Margin	Adjusted EBITDA Loss
£6.5 million	71.1 per cent	£1.4 million
(2019: £8.2m)1	(2019: 64.0 per cent)1	(2019 restated: £2.8m)2
		(See note 6 on page 52 for definition)
Gross Profit	Operating Loss	Loss Per Share
£4.6 million	£2.1 million	0.05 pence
(2019: £5.2m)1	(2019 restated: £5.7m)	(2019 restated: 0.46p)2

1 From continuing operations after excluding the termination of Juke contract (major customer) during 2019

2 For detail on the restatement of the 2019 accounts, see note 1 on page 47

SUCCESSFUL STRATEGIC EXECUTION

• Repositioned 7digital as the leading global B2B music platform-as-a-service company built to enable innovation and growth in the music industry
• Implemented new product, commercial and marketing strategies to sign and expand traditional B2B music services

• 1. Contract expansions or renewals with 16 existing clients including Soundtrack Your Brand, GrandPad, ROXI and Moodagent
• Expanded into new growth markets of home fitness, social media and artist monetisation
• 1. Built an end-to-end solution for fitness brands to seamlessly incorporate music in their services - signed contracts with Apex Rides and, post period, with FORME and multiple others

1. New contracts signed with social music video app Triller, a global technology company, streaming service jazzed and, post period, Chinese social giant Kuaishou

• 1. Launched eMusic Live, a first-of-its-kind virtual concert and artist monetisation platform, in collaboration with eMusic, which has partnered with artists, venues and artist management agencies such HarrisonParrott and hosted more than 120 performances globally
• Raised £6m in oversubscribed equity placing and £1m credit facility to drive growth in immediate commercial opportunities

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7digital Group plc

2020 CHAIRMAN'S STATEMENT

Tamir Koch

Chairman

29 June 2021

In a challenging 2020, we successfully pivoted our strategy to focus on key verticals that offer substantial opportunities going forward. We began executing on this strategy during the year, with a number of milestones already achieved. While our revenues were impacted by the global uncertainty

caused by the COVID-19 pandemic, we succeeded in continuing to narrow our losses in 2020 and in reaching EBITDA positivity towards the end of the year. There is still work to be done, but we believe that we have now set ourselves on the path for significant growth in 2021 and beyond.

Capitalising on expanding areas of demand

Amid a year of worldwide upheaval, 2020 was a period of transition for the Group in which we refocused our strategy and put the right structure in place to move towards sustainable growth. While our sales were impacted by the pandemic as our customers delayed purchasing or contract renewal decisions, it also threw up new opportunities for companies such as ours, accelerating trends that were already apparent pre-lockdowns. Thanks to the strength of our platform combined with our significant industry expertise and experience, we were able to capitalise on these exciting growth opportunities to emerge from the year more focused and positioned to become the dominant music solutions provider in our target markets.

During the first half of the year, we strengthened our business by moving from bespoke modular solutions to a highly productised technology offering based on our world-leading, cloud-based,music platform-as-a-servicethat provides true global coverage at scale. At the same time, we established our new strategy that is focused on particular verticals, namely: the home fitness industry, social media platforms and artist monetisation. In these growing markets, our superior technology and service offering can offer real value to our customers and support them with their own expansion.

We began executing on this strategy in the second half of the year, developing an offer aimed at fitness and social brands and launching eMusic Live in partnership with our eMusic sister company. As Paul Langworthy discusses in the Chief Executive Officer's Review, we succeeded in winning several clients in our new target markets in the second half of 2020; and this progress has been accelerated in the current year.

Stakeholder engagement

Regular engagement, dialogue with and feedback from 7digital's material internal and external stakeholders are important to the success of 7digital and a core element of its business model. Understanding stakeholders' views informs and assists the decision- making processes and helps us to achieve our aims, objectives and strategy. In-keeping with the requirements of Section 172 (1) of the UK Companies Act 2006, pages 10 to 11 record 7digital's key stakeholder groups and how we engage with them. Each stakeholder group requires a tailored engagement approach to foster effective communication and mutually beneficial relationships.

Positioned for growth

As noted, with the onset of COVID-19, we pivoted the Group's strategy to take advantage of the emerging trends within the home fitness industry, social media platform usage and artist monetisation. We have already made excellent progress in implementing this strategy. As a result, after a disappointing revenue performance in 2020, we are confident that we will achieve significant revenue growth in 2021 and we expect an even stronger 2022 as we deliver on the contracts that were delayed from last year and continue to expand our pipeline.

I would like to thank Paul Langworthy, our CEO, and Michael Juskiewicz, our CFO, for their tremendous efforts in navigating the disruption caused by the pandemic. Many thanks, also, to our senior management team and my Board colleagues for their considerable contribution as well as to all of our employees. Their dedication, skills and professionalism are greatly appreciated.

Mostly, I would like to thank our loyal shareholders for their ongoing support. During the year, we were delighted to receive the backing from both existing shareholders and a substantial number of new institutions that enabled us to complete a successful, oversubscribed £6m fundraise.

As a Board, we all are committed to creating value for our shareholders and we believe that we are well positioned to deliver this. I look forward to reporting on our progress.

7digital Group PLC Annual Report and Accounts 2020

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7digital Group plc

2020 CHIEF EXECUTIVE OFFICER'S REVIEW

Paul Langworthy

Chief Executive Officer

29 June 2021

Against a backdrop of global economic uncertainty and following a period of critical change in 2019, 7digital established its new strategy and commenced delivery during the year, which has accelerated post period. Capitalising on our core technology, industry relationships and leading global music

catalogue, our strategy is focused on emerging trends and new entertainment formats in three key areas: home fitness, social media and e-music/artist monetisation via our new venture, eMusic Live. These are areas of significant and growing demand for digital music services to enhance customer experience and engagement.

7digital's operations were impacted by the COVID-19 pandemic, especially in Q2 and the early part of Q3 2020, as new deals and renewals were pushed to H2 2020 and H1 2021. In total, we signed five new contracts, four expansions and eight renewals in 2020, but the delay in some contracts meant that revenue for FY 2020 was £6.5m (2019 ongoing: £8.2m). However, as a result of solid trading in Q4 2020 and our efforts to lower costs, we were able to narrow our losses for the full year - for the second year running

• and, importantly, achieve EBITDA positivity towards the end of the year for the month of December. As a much leaner and more flexible business, with significantly lower overheads, and supported by a revolving credit facility secured during the year, 7digital was able to successfully navigate the immediate market uncertainty and pivot towards new prospects based around our cloud- based technology service for the music industry. In particular, we have built up - and begun delivering on - a substantial pipeline of new business opportunities across the areas of home fitness, social media and artist monetisation.

Music as a motivator, a source of pleasure and a facilitator for human communication was proven throughout the pandemic. It has always provided a backdrop to public and private events from coronations to state funerals, 21st birthdays to concerts. It creates emotional responses that enhance the quality of life. Pre-pandemic, music streaming was already being adopted by consumers at a staggering pace, accounting for 56% of all music sales in 2019 and driving a fifth consecutive year of growth, according to the IFPI. For businesses, it played an increasingly integral role in customer engagement, partly because of demand from new Millennials and Generation Z-ers. With the arrival of lockdowns, this trend accelerated. People, confined to the home, sought new ways to keep fit, be entertained and connect with others.

The success of 7digital's strategy is evidenced by a raft of new contracts signed across our target areas in H2 2020 and so far in 2021. In addition to winning new business, I am pleased to report a high rate of client retention.

Home Fitness

Music has a key role in exercise - maximising enjoyment, motivating and keeping customers returning. With the advent of lockdowns and gym closures, its importance further increased as people adopted the home-workout. Last year, we developed an offer for the fitness industry, utilising our music platform-as-a-service, that is designed to make it easy for fitness brands to maximise the benefits of music. Our solution combines end-to-end global rights and reconciliation management, in real-time via built-in integrations with HFA and MFI, with access to our global catalogue and an easy-to-use playlisting tool. We believe this advanced offering positions 7digital to be a dominant music solution provider to the fitness industry.

In September 2020, 7digital signed a 12-month contract with Apex Rides. The smart bike and in-home fitness platform is using 7digital's catalogue and playlisting tool to provide instructors with access to fully cleared and compliant music for programming their classes, making it easy to create custom playlists curated by genre, tempo or music theme. We are also providing the backend label and publishing reporting.

Since year end, we have continued to add to our growing roster of home fitness clients. At the end of February 2021, we signed a 24-month contract with FORME, a premium home fitness system that delivers one-on-one fitness experiences through elegant, full-length mirrors that transform into immersive personal training studios. FORME, which is using our end-to-end rights management solution, described 7digital's support and knowledge as 'second to none'. We have also signed a 24-month contract with a new client in the home fitness sector serving the US market.

Social Media

User generated content (UGC) social media platforms are shifting the paradigm of how fans discover, share and create music. 7digital enables social platforms to provide their users with access to rights-cleared music that can be used for audio streaming or embedding into UGC while also assisting in tracking usage and reporting to labels. Collectively, across all 7digital's contracts in this space, we enable an average of one billion monthly active social media users to access one of the largest music catalogues in the world.

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