7digital : 2022 Half Year Report

28 September 2022

7digital Group plc

("7digital", "the Group" or "the Company")

7digital (AIM: 7DIG), the global leader in B2B end-to-end digital music solutions, announces its interim results for the six months ended 30 June 2022.

Financial Highlights

• • Total revenue increased by 21% to £3.9m (H1 2021: £3.3m), including licensing revenue growth of 45%
    to £2.5m (H1 2021: £1.7m)
  • Gross margin improved to 70.2% (H1 2021: 62.6%)
  • Achieved adjusted positive EBITDA of £0.03m (H1 2021: loss of £1.0m)*
  • Operating loss reduced to £0.2m (H1 2021: £1.9m)
  • Cash and cash equivalents of £0.03m as at 30 June 2022 (H1 2021: £0.5m); as at 27 September 2022, cash and cash equivalents were £0.6m**
• Adjusted to exclude other adjusting items, amortisation, foreign exchange, depreciation and share-based payments (see note 5 to the financial statements)
• Including fundraising announced on 23 September 2022

Operational Highlights

• Secured 5 new licensing customers and 3 contract expansions or extensions, including: o A new contract worth at least £1m with a pan-Asian consumer services company o A contract expansion worth at least €2.2m with a B2B music streaming service
  o Further progress in social media industry with a new two-year contract with Lomotif, one of the top worldwide social video-sharing apps
• Sustained ramp-up in licensing revenue post period; as at 27 September 2022 the total contracted licensing revenue for full year 2022 is 43% greater than that generated in 2021

Paul Langworthy, CEO of 7digital, said:

"This was a great six months for 7digital. We delivered strong revenue growth and achieved adjusted EBITDA profitability as the new and expanded contracts we won last year and in the early part of this year began to ramp up. We continued to win new customers and sign renewals with existing customers, many of which are multi-year agreements. Some of these deals also include significant usage terms, which we expect to drive further increases in revenue as these clients scale their own services.

"We entered the second half of the year delivering against a strong contracted order book and with a solid new business pipeline. The business has already secured a 43% increase in contracted platform licensing revenue for FY 2022 over FY 2021. As a result, we are on track to deliver strong revenue growth for 2022 and we look forward to reporting on our further progress."

About 7digital(www.7digital.com)

7digital is the global leader in B2B end-to-end digital music solutions. The core of its business is the provision of robust and scalable technical infrastructure and extensive global music rights used to create music streaming and radio services for a diverse range of customers - including consumer brands, mobile carriers, broadcasters, automotive systems, record labels and retailers. 7digital also offers radio production and music curation services, editorial strategy and content management expertise.

7digital fosters industry growth and innovation by simplifying access to music for clients. From years of being the largest independent producer of programming for the BBC and powering services for partners like Soundtrack Your Brand, Global Eagle, GrandPad and Fender, 7digital is perfectly positioned to lead innovation at the intersection of digital music and next-generation radio services.

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Operational Review

The six months to 30 June 2022 was a strong period for the Group as it delivered a significant increase in revenue to £3.9m (H1 2021: £3.3m) and achieved adjusted EBITDA profitability of £0.03m (H1 2021: loss of £1.0m). This growth was driven by the Group's licensing business, based on new customers won in the prior year coming on stream as well as contract renewals and expansions with existing customers during the period. The Group also continued to win new licensing customers. Many of these new and renewed contracts are multi-year agreements, which enhances visibility over future revenues.

During the period, the Group secured 5 new licensing customers, which included a new two-year contract worth at least £1m with a pan-Asian consumer services company. The new customer will be using several unique services provided by 7digital's music-as-a-service platform, which was selected after a competitive tender, to deliver an app-based music streaming service to enhance its engagement with its customers.

In further success in the social media industry, one of the Group's core target segments, 7digital won a new two-yearcontract with Singapore-basedLomotif, one of the top worldwide social video-sharingapps. The Group's music-as-a-serviceplatform will provide music used by creators in the Lomotif app globally. The initial contract will cover licenced major label content in the app's current territories and will accommodate expansion in content from newly licenced labels as well as usage. As such, this contract also reflects the increasing transitioning of the Group's pricing model to align revenue with usage that expands as the customer grows.

The Group signed a long-term contract with Utopia Music AG, a B2B music fintech company that exists to build technology and data accounting to improve the way the music industry pays royalties to the creators for the music copyrights consumption, as well as a two-year contract with a new music and data B2B platform designed to better meet the monetisation needs of the rightsholder community. Using 7digital's global music database capabilities, in addition to Utopia's existing data capabilities, Utopia's customers will be able to monitor and measure the consumption of their music copyrights globally. In so doing, Utopia's customers can leverage data for faster, more accurate payouts of royalties to copyright holders.

In progress with existing licensing customers, the Group secured 3 contract renewals or expansions during the first half of the year (H1 2021: 4), reflecting the value of 7digital's platform and services to its customers. This included a contract expansion with a B2B music streaming service customer, worth a minimum of €2.2m over a three-year period. 7digital has been providing services to the customer since 2016, with contract renewals on an annual basis. This latest contract expands the relationship to a long-term agreement, providing the Group with greater visibility over revenue.

Outside of licensing, eMusic Live, the Company's live streaming platform in partnership with eMusic.com, livestreamed Hangout Music Festival and Cali Vibes Festival, festivals of the world's largest entertainment company, AEG Presents. eMusic Live also livestreamed the iHeartCountry Festival of iHeartMedia, the largest audio company in the US. At the end of the period, as announced on 30 June 2022, the Group entered into an agreement with eMusic.com that expands 7digital's potential revenue generating opportunities with eMusic Live to include a portion of net revenue derived from all activity on the platform rather than just from providing the digital music tracks for download in the eMusic Live experience. The Group does not, however, anticipate generating revenue under this new agreement in the current year.

Board Changes

As announced on 23 September 2022, Mark Foster, who has been a Non-executive Director of the Group since April 2015, has been appointed Interim Chairman following the resignation of Tamir Koch, who stepped down from his role as Chairman to focus more time on the development of eMusic Blockchain. Tamir Koch remains on the Board as a Non-executive Director. Alongside this, and as described further in the Financial Review below, the Group has terminated the loan that had previously been secured with Tamir Koch, as announced on 30 June 2022, with no accrual of interest.

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Financial Review

Revenue for the first half of 2022 increased by 21% to £3.9m compared with £3.3m for the first half of the prior year, reflecting significant growth in licensing revenue and good growth in content revenue. Licensing revenue continued to be the largest contributor to Group revenue, accounting for 63% (H1 2021: 52%), with 30% provided by Content (H1 2021: 32%) and 7% by Creative (H1 2021: 16%). The reduction in creative revenue, which was more than offset by the growth elsewhere in the business, is primarily due to H1 2021 benefitting from a rollover of projects that had been delayed due to COVID-19.As at 30 June 2022, the Group had deferred licensing revenue relating to set up fees of £345k of which £183k is expected to be received by the Group in H2 2022, £131k in the year ending 31 December 2023 and £31k in future periods.

Gross margin for the first half of 2022 improved substantially to 70.2% (H1 2021: 62.6%), reflecting the higher margin nature of the Group's licensing business. Gross profit for the period increased to £2.8m (H1 2021: £2.0m), reflecting the increase in revenue and gross margin.

Adjusted administrative expenses were reduced by 11% to £2.7m (H1 2021: £3.1m). This decrease of £0.3m was attributable to salary savings of £0.2m and a reduction in bad debt provision of £0.1m.

The Group achieved a substantial reduction in operating loss of 87% to £0.2m (H1 2021: £1.8m), which is primarily a combination of:

• £0.7m increase in revenue;
• £0.3m reduction in adjusted administrative expenses;
• £0.1m reduction in depreciation and amortisation due to the removal of right-of-use assets;
• £0.2m decrease in share-based payments; and
• £0.1m reduction in both non-operating expenses and FX expenses.

As a result, the Group achieved adjusted EBITDA profitability of £0.03m compared with a loss of £1.0m for the first half of the prior year (adjusted for other adjusting items, amortisation, foreign exchange, depreciation and share-based payments).

Loss per share was 0.01 pence (H1 2021: 0.07 pence loss).

As at 30 June 2022, the Group had cash and cash equivalents of £0.03m (30 December 2021: £0.4m). Post period, the Group has received £0.5m in the form of a loan, as announced on 23 September 2022, from Magic Investments S.A., a significant shareholder represented by David Lazarus who is a Non-executive Director of the Group, that has been fully drawn. Alongside entering the new loan, and as noted above, the Group terminated a shareholder loan that had been previously secured with Tamir Koch, as announced on 30 June 2022. The Group will fully repay the £50k that had been drawn under the loan from Tamir Koch, which has been terminated with no accrual of interest. As at 27 September 2022, the Group had cash and cash equivalents of £0.6m.

Outlook

7digital entered the second half of 2022 with a strong contracted order book as well as a solid new business pipeline, some of which has transitioned to contract since period end. Accordingly, the Group is on track to deliver strong total revenue growth for the full year.

The licensing business is expected to continue to be the key contributor to Group revenue and to drive growth. Contracted licensing revenue for full year 2022 is 43% higher than that generated in 2021. The Group also expects content and creative revenue to remain constant year-on-year.

As a result, the Board remains confident in 7digital's prospects and looks forward to reporting on the Company's progress.

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