Digital music firm 7digital announced in November that it was entering merger talks with radio group UBC Media, having secured £1m from the company as a convertible loan note in advance of the anticipated deal.
Now 7digital has published its financial results for 2012, which provide the context for its decision to seek such a deal. The results reveal that the parent company, 7digital Group, saw its turnover rise 41.5% year-on-year to £11.6m in 2012. However, its losses also increased from £745k in 2011 to £2.3m in 2012.
The company’s UK subsidiary, 7digital Limited, saw sales fell from just under £8m in 2011 to £7.3m in 2012, while that company’s losses increased from £696k in 2011 to just under £2m in 2012. 7digital Ltd ended the year with net liabilities of just under £4.1m.
“The company has seen a rise in its cost base and, combined with significant investment in new resources, has seen an increase in its operating loss and cash demands for the year,” explains the Directors’ Report.
“The directors expect this position to continue as the company strives for growth, and have prepared cash flow forecasts which, together with significant growth forecasts, demonstrate that further cash funding is required for the group as a whole.”
Hence the UBC Media talks, although the financials warn that if these fall through – an agreement was hoped for by 16 December for a deal to complete in the first quarter of 2014 – 7digital will have to seek other forms of funding.
“In the meantime, the company is also continuing to review other fundraising options from new partners and investors, which may provide further cash resources, if desirable or necessary,” explain the directors, warning that there is a “material uncertainty that may cast significant doubt upon the company’s ability to continue as a going concern” – even if they’re confident a deal will be struck.
Other stats from the financials include a rise in 7digital’s headcount from 64 to 105 during 2012; confirmation that it raised $10m of funding from strategic investors Imagination Technologies and Dolby Laboratories in October 2012; and that 50.9% of 7digital Group’s turnover came from the UK in 2012, versus 16.9% from the rest of the European Union, and 32.2% from the rest of the world.
The financials also outline HMV Group’s 35% stake in 7digital Group, with Imagination Technologies owning a further 16%.
7digital is hoping that joining UBC Media will provide it with a stable base for growth in the years ahead, with radio a particular emphasis. The merged company will have nearly 5m registered users, and have services preloaded on 50m mobile devices, with 7digital’s Samsung partnership a big factor in that.
“We will continue to develop and scale the platform, and to innovate with new products and features. Radio, in particular, is an area where we see a lot of future opportunities, and we are thrilled that our new strategic investor and partner, UBC, shares this vision,” said 7digital CEO Ben Drury at the time the merger was announced.
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