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7digital posted operating profit in final quarter of 2016


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B2B digital-music firm 7digital posted an operating profit in the final quarter of 2016, according to a trading update for investors published this morning.

The company also saw its revenues grow by 7.2% to £11.1m in 2016.

“7digital performed well in the second half of the year; the Company delivered against the Board’s commitment to achieve profitability by the year-end, and returned an operating profit for the final quarter,” explained 7digital in its update.

We will have to wait for the company’s full financial results to be published to know what this meant in terms of a net loss for 2016, but 7digital said it “remains committed to being profitable at the operating level for the full year in 2017”.

Last September, 7digital reported its financials for the first half of 2016: a period in which its revenues rose 2% year-on-year to £5.2m, while its net loss narrowed from £6.6m in the first half of 2015 to £3.2m in the first half of 2016.

7digital ended 2016 with a cash balance of £730k, which may be cause for concern. That was down from £1.7m at the end of 2015, and £5.3m at the end of 2014 according to its last set of annual results.

Update: CEO Simon Cole has talked to Music Ally about this point. “Cash maths is that our burn is reducing and now we have got to break even (in fact profit in Q4) the burn is really slow.
The City predictions were that we would have a balance of zero at year and and in fact we had £730k in the bank,” said Cole.

“Remember also that we have zero bank debt currently. Cash at Half Year (June 16) was £1.1m so we have only burnt through around £300k in a period where we were increasing in profit dramatically. I have to say that the final quarter of last year was – a technical word here – stonking.”

According to today’s trading update, 7digital made £1m of annualised cost savings by the end of 2016, while winning new contracts worth £1.6m in the final quarter of the year.

During the final quarter, 7digital also signed a further label development deal so that it is now working with all three of the major record labels as clients,” explained the company.

“The New Year has started well with a particularly strong showing at CES in Las Vegas where the music and audio hardware industries came together to emphasise the importance this year of high quality streaming, one of our key strategic priorities,” said Cole in a statement.

“We remain confident that the Group will be profitable at the operating level for the full year 2017.”

2016 was also the year when 7digital’s main rival in the B2B sector, Omnifone, went out of business. However, in September Cole told Music Ally that 7digital was not in danger of a similar fate.

“Our move towards profitability shows we’re a different model. We made money in June. This company was actually quite nicely profitable in June, although that was partly because a number of payments came in for services we were starting that month,” he said.

“This company is on the brink of profitability: we are no longer burning through cash, and the inflection point for this business is just around the corner, thanks to the size and scale of the kind of customers we’re dealing with.”

Social app Musical.ly is one of those new clients, but in September Cole said 7digital was setting its sights on even bigger services.

“Who are the five global clients who need music? Does Snapchat need music? Does WhatsApp need music?” he said.

“Musical.ly has brought us so much attention in Silicon Valley, due to being able within weeks to get themselves legal and licensed, by working with 7digital. That has brought an enormous amount of interest from the Valley.”

Stuart Dredge

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