Notes

1.  CORPORATE INFORMATION

The Directors of musicMagpie plc (the "Company") present their full year report and the audited Consolidated Financial Statements for the year ended 30 November 2023.

musicMagpie plc is a public limited company incorporated in the United Kingdom whose shares are publicly traded           on the AIM market of the London Stock Exchange and is incorporated and domiciled in the UK. Its registered office address is One Stockport Exchange, Railway Road, Stockport, Cheshire, SK1 3SW.

The Company's financial statements are included in the consolidated financial statements of musicMagpie plc, which can be obtained from its registered office address. The Company has taken advantage of the exemption permitted by Section 408 of the Companies Act 2006 not to present its own profit and loss account.

The Company, musicMagpie plc is the ultimate Group company of the consolidated Group.

Whilst the financial information included in this announcement has been prepared on the basis of UK-adopted International Accounting Standards ("Adopted IFRSs"), this announcement does not itself contain sufficient information to comply with Adopted IFRSs. The Group financial statements have been prepared and approved by the directors in accordance with UK-adopted International Accounting Standards.

The Group expects to publish full Consolidated Financial Statements in April 2024. The financial information set out in this announcement does not constitute the Group's Consolidated Financial Statements for the years ended 30 November 2023 or 2022 but is derived from those Financial Statements which were approved by the Board of Directors on 12 March 2024. The auditor, RSM UK Audit LLP, has reported on the Group's Consolidated Financial Statements and the report was unqualified and did not contain a statement under section 498 (2) or 498 (3) of the Companies Act 2006.

The statutory financial statements for the year ended 30 November 2023 have not yet been delivered to the Registrar of Companies and will be delivered following the Company's Annual General Meeting.

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group"). The Group financial statements are prepared on the historical cost basis except where UK-adopted International Accounting Standards require an alternative treatment.

The Group's accounting policies are set out in the 2022 Annual Report and Accounts and have been applied consistently in 2023

2.  ACCOUNTING POLICIES

2.1   Basis of Preparation

The consolidated financial statements have been prepared in accordance with UK adopted International Accounting Standards  and with those parts of the Companies Act 2006 applicable to companies reporting under International Accounting Standards. The Group has chosen to prepare the parent company financial statements in accordance with Financial Reporting Standard 101: Reduced Disclosure Framework ("FRS 101"). The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are measured at fair value through profit or loss.

The accounting policies that follow set out those policies that apply in preparing the financial statements for the year ended 30 November 2023 and the Group and Company have applied the same policies throughout the year.

The following exemptions from the requirements of IFRS have been applied in the preparation of the Company's financial statements and, where relevant, equivalent disclosures have been made in the Group accounts of the parent, in accordance with FRS 101:

·     Presentation of a Statement of Cash Flows and related notes;

·     Disclosure of the future impact of new International Financial Reporting Standards in issue but not yet effective at the reporting date;

·     Financial instrument disclosures;

·     A reconciliation of the number and weighted average exercise prices of share options, how the fair value of share-based payments was determined and their effect on profit or loss and the financial position;

·     Related party disclosures for transactions between the parent and  wholly owned members of the Group;

·     Disclosure of the objectives, policies and processes for managing capital.

Basis of Consolidation

A subsidiary is an entity that is controlled by the parent. The results of subsidiary undertakings are included in the consolidated statement of comprehensive income from the date that control commences until the date that control ceases. Control is established when the Group has the power to govern the operating and financial policies of an entity so as to obtain benefits from its activities. In assessing control, the musicMagpie Group takes into consideration potential voting rights that are currently exercisable.

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.

2.2  Going Concern

The financial statements are prepared on a going concern basis which the directors believe to be appropriate for the following reasons. The Group made a loss before taxation of £6,764,000 during the year ended 30 November 2023 (year ended 30 November 2022: loss of £1,457,000).  At the year-end date it had net current assets of £7,612,000 (year ended 30 November 2022: £8,760,000).  The Group has access to a £30m committed credit facility.  The drawings on the facility are controlled by two financial covenants: leverage, being adjusted EBITDA to net debt, and interest cover, being adjusted EBITDA divided by interest. The Group currently meets its day to day working capital requirements through cash reserves and from its' credit facility.

In reviewing its forecasts for going concern, the key consideration of the Group is whether it can demonstrate ongoing compliance with the financial covenants on the facility.  In completing their going concern assessment, the directors have reviewed the trading and cash flow forecasts for the period to the end of March 2025 and have incorporated reasonable downside sensitivities.  The downside sensitivities were based on reductions in adjusted EBITDA, the key covenant metric.  In the worse case scenarios mitigating actions available to the business were included in the assessments.  In these forecasts the directors have confirmed that the Group will be able to continue to meet quarterly covenant tests and remain within the borrowing limits set out within its bank facility agreement. 

Based on the forecasts and the downside scenarios modelled, the Directors believe there is a reasonable expectation that the Group can continue as a going concern for at least the next 12 months from the date of approval of the financial statements. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

2.3   Foreign currency

Transactions in foreign currencies are translated to the functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate ruling at that date.  The functional currency of the Company is sterling.

The assets and liabilities of foreign operations are translated to the presentational currency, sterling, at foreign exchange rates ruling at the reporting date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised in profit or loss.

2.4   Financial instruments

Financial assets

Financial assets comprise trade and other receivables (including intercompany balances) and cash and cash equivalents.

Trade receivables are initially measured at transaction price, and subsequently at their amortised cost subject to any impairment in accordance with IFRS 9.

Trade and other receivables are recognised initially at the amount of consideration that is unconditional. The Group holds these receivables with the objective of collecting contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.

Cash and cash equivalents comprise cash in hand, cash at bank, cash in transit and call deposits. Cash in transit comprise of cash collected from the customers by third party e-commerce platforms but not yet received by the Group. These balances are considered to be highly liquid, with minimal risk of default and are typically received within a week.

The assessment of impairment of trade receivables and other receivables, including intercompany balances is in accordance with IFRS 9. Impairment is assessed by reference to expected recoverability of assets, including the underlying profitability and cash flows from subsidiaries from whom intercompany balances are owed. A loss allowance for expected credit losses (ECL) is recognised on all receivable balances subsequently measured at amortised cost as follows:

For trade receivables, lifetime ECLs are recognised using the 'simplified approach' permitted under IFRS 9.

For other financial instruments, lifetime ECLs are recognised when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the loss allowance for that financial instrument is measured at an amount equal to 12-month ECL.

 Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date.

Credit risk on a financial instrument (including intercompany balances), is assumed not to have increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date. A financial instrument is determined to have low credit risk if:

·      the financial instrument has a low risk of default;

·      the debtor has a strong capacity to meet its contractual cash flow obligations in the near term; and;

·      adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.

Financial liabilities

Financial liabilities comprise trade and other payables, and interest-bearing loans. These are measured at initial recognition at fair value and subsequently at amortised cost using the effective interest rate method. Interest expense and foreign exchange gains and losses are recognised in profit or loss. Any gain or loss on derecognition is also recognised in profit or loss.

Classification of financial instruments issued by the Group

Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:

a)  they include no contractual obligations upon the Group to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially  unfavourable to the musicMagpie Group; and

b)  where the instrument will or may be settled in the Group's own equity instruments, it is either a non- derivative that includes no obligation to deliver a variable number of the musicMagpie Group's own equity instruments or is a derivative that will be settled by the musicMagpie Group's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.

To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified takes the legal form of the musicMagpie Group's own shares, the amounts presented in these financial statements for called up share capital and share premium account exclude amounts in relation to those shares.

Inter-company balances are classified as non-current in the financial statements.  In arriving at this classification, management have looked at the financial position of the subsidiary entities and  their relative ability to meet balances owing and considered scenarios where there are possible issues with repayment.

2.5   Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Property, plant and equipment includes assets rented to customers (Rental Assets) which, as we retain ownership of the device throughout the contractual term, the cost of the asset is capitalised and depreciated over its expected remaining useful economic life.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

The Company assesses at each reporting date whether property, plant and equipment are impaired. Equipment rented out to consumers are impaired to a residual value when the device is deemed to be unrecoverable, the residual value being the amount expected to be received when the debt is sold on to a 3^rd party.

Depreciation is charged to profit and loss over the estimated useful lives of each part of an item of Property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives. The estimated useful lives are as follows:

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

2.6   Business combinations

All business combinations are accounted for by applying the acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.

The Group measures goodwill at the acquisition date as:

•  the fair value of the consideration transferred; plus

•  the recognised amount of any non-controlling interests in the acquiree; plus

•  the fair value of the existing equity interest in the acquiree; less

•  the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.  Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred.

2.7   Intangible assets

Goodwill

Goodwill is stated at cost less any accumulated impairment losses. This represents Goodwill in the business as a whole and this is not amortised but is tested annually for impairment.

Research and development

Expenditure on development activities is capitalised if the product or process is technically and commercially feasible and the Group intends and has the technical ability and sufficient resources to complete development, future economic benefits are probable and if the Group can measure reliably the expenditure attributable to the intangible asset during its development. Development activities involve a plan or design for the production of new or substantially improved products or processes. The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development expenditure is stated at cost less accumulated amortisation and less accumulated impairment losses. Research and other development expenditure is expensed as incurred.

Other intangible assets

Expenditure on internally generated goodwill and brands is recognised in the income statement as an expense as incurred.

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and less accumulated impairment losses.

Amortisation

Amortisation is charged to the profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite. Intangible assets with an indefinite useful life and goodwill are systematically tested for impairment at each reporting date. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows:

•  Website development                                                                                    3 - 5 years

•  Capitalised IT development costs                                                                 3 - 5 years

•  Acquired intangibles (proprietary software)                                                10 years

•  Domains                                                                                                       10 years

2.8   Investments

Investments in subsidiaries are held at cost, less any provision for impairment.

2.9   Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is based on the first-in first-out principle. The cost of inventories includes the average cost of purchase and other costs, such as inbound delivery and direct labour, in bringing them to their existing location and condition.  Net realisable value is measured by reference to sales prices in the market or products that can be readily sold and by an assessment of the harvestable value of components of a device if sale is not possible.

2.10  Impairment of non-financial assets excluding inventories and deferred tax assets

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are Grouped together into the smallest Group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or Groups of assets (the "cash-generating unit"). For the purpose of impairment testing, goodwill is allocated to a single cash-generating unit, or ("CGU"), being the Group as a whole reflecting the lowest level  at which the business is monitored for internal reporting purposes.

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of the CGU are allocated first to reduce the carrying amount of any goodwill allocated to the units, and then to reduce the carrying amounts of the other assets in the unit (Group of units) on a pro rata basis.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.11  Employee benefits

Defined contribution plans

A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognised as an expense in profit or loss in the periods during which services are rendered by employees.

Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Share based payments

Share-based payment arrangements in which the Group receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.

The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair value of the awards granted is measured using either Monte Carlo option pricing model or Black Scholes model, taking into account the terms and conditions upon which the awards were granted. The amount recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date. See note 25 for details of employee share options incentive plans operated by the Group.

2.12 Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.

2.13 Revenue

Revenue is income generated from the sale or rental of goods in the ordinary course of the Group's business activities. In accordance with IFRS 15, revenue is recognised when any performance obligations in a contract with a customer has been satisfied.  The Group's revenues are derived from the supply of goods (technology, media and books) and the rental of mobile phones to customers.

Sale of goods

Revenue represents the fair value of amounts receivable for goods and is stated net of discounts, value added taxes and returns. The Group does not operate any loyalty programmes. The supply of goods contains a single performance obligation with the customer to deliver the goods and revenue is recognised on dispatch of goods to the customer. For goods sold direct to consumers, payment is usually received at the point of sale. For goods sold via wholesale channels, a sales invoice is raised on dispatch.

Revenues for goods and services are recognised on despatch to the customer instead of delivery to the customer for practical reasons.

Rental of devices

The Group earns rental income on devices rented to customers over fixed terms. The ownership of the devices does not pass to the customer at the end of the contract term and there is no option to purchase the device at any point during the contract term. Rental payments are received on a monthly basis and early termination charges are payable if the contract is terminated before the end of the term by the customer. The Group recognises revenue for these rental items on a straight-line basis over the period of the rent. Revenue for terminations is recognised at the point termination is agreed.

2.14  Financial expense

Financial expense includes interest payable on borrowings and other finance charges incurred.

2.15  Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets and liabilities are offset where there is a legally enforceable right to offset current tax assets and liabilities and where the deferred tax balances relate to the same taxation authority.