7digital Trading Update and Notice of Results
7digital today issues a pre-close trading update ahead of its preliminary results for the year ended 31 December 2015, which will be released on 30 March 2016.
- Annualised monthly recurring revenues up by 72% to approximately £5.8m (£3.4m in 2014)
- Licensing revenues up by 21% to approximately £6.5m (£5.4m in 2014)
- EBITDA losses narrow in line with expectations
- Gross margins rise to 70%
2015 was a year of encouraging operational and financial progress, and the Board expects to report results for the year ended 31 December 2015 in line with management expectations, showing a substantial reduction in trading losses.
In 2015, 7digital continued the positive transformation of its revenue quality, with healthy increases in higher margin licensing revenues leading to a greater year end annualised monthly recurring revenue ("MRR"). Licensing revenues increased by c. 21% to approximately £6.5m (2014: £5.4 million); total annualised MRR for December 2015 grew to approximately £5.8m, an increase of c. 72% against the same month last year (December 2014: £3.4m). Production revenues grew by c. 49% to approximately £1.8m (2014: £1.2m) and content revenues reduced by c. 50% to approximately £2.0 million (2014: £4.0m), reflecting the deliberate move away from these low margin sales. Whilst the composition of the revenue base has been transformed, sales for the year to 31 December 2015 are expected to be broadly similar to the previous year (£10.4m).
Reflecting the business model's strong sales drop-through, gross margin improved to approximately 70% from 52% last year. The Company maintained strict control of its operating cost base, with total administration costs showing a small reduction against the previous year.
7digital continued to win good levels of business in its target sectors and geographies. In the second half of the year agreements with Mariposa for Oi and Algar Telecom, Onkyo, Technics, ROK Mobile, Tónlist, Imagination Technologies, Electric Jukebox, OurSound and Google CastTM increased the Company's customer base, extended its technology capability and widened the Company's global reach. The Company's marketplace and pipeline of opportunity continued to grow during the year, and the Board looks forward to announcing a number of exciting agreements over the coming months.
Since the year end 7digital has announced further progress in the provision of hi-res audio, which is already generating revenues for the Group and is expected to be an increasingly important growth segment for the music industry and 7digital. Earlier this month it was announced that the Company had become the first digital music platform provider to offer MQA high quality audio format for both downloads and streaming. This follows earlier announcements of contracts with Panasonic and Onkyo to create and manage new hi-res music services.
Most recently, 7digital also announces today a deal with eMusic, a leading music discovery and download-to-own destination. The deal will see 7digital power the eMusic service re-launch and will allow eMusic's new owners, TriPlay, to build new features into the service through use of 7digital's technology and content management platform. TriPlay's acquisition of eMusic (announced in October 2015) makes the combined entity one of the largest, most comprehensive digital music services in the world, comparable only to Apple iTunes and Amazon.
7digital's strategy includes fairly priced bolt on acquisitions that accelerate the Company's growth and improve its technical infrastructure, and the Company has since the year end announced the proposed acquisition of Snowite SAS, the leading French digital streaming music provider. This acquisition, which remains subject to approval by the French Commercial Court, is expected to further accelerate the Company's international expansion, bringing with it major French retail customers and a strong sales pipeline in French-speaking markets, while its platform and technology should benefit 7digital's own development roadmap and allow the Company to make cost savings in planned future platform investment. Negotiations in relation to the acquisition continue to be positive, with a further 5 year put-and-call arrangement over 67.5% of the consideration shares at a strike price of 8.75p having been agreed with the shareholders of Snowite.
Simon Cole, Chief Executive of 7digital, said:
"We are pleased with the progress made in 2015 - it was a year in which our business model was validated by the growth rate of our recurring licensing revenues. It is clear that, as the market for streamed music and radio services grows, so does 7digital. We remain on track to achieve profitability by the end of 2016 and look forward to continued growth this year and beyond."