DGS.L Regulatory News (DGS)

14 July 2016

Digital Globe Services, Ltd.

(the "Company", the "Group" and together with its subsidiaries "DGS")

Trading Update

Digital Globe Services, Ltd. (AIM: DGS), a leading provider of digital marketing solutions for large, consumer-facing organisations, today provides an update on trading for the year ended 30 June 2016.

Trading in the second half of the year was robust and as a result, the Group expects to deliver revenue for the year of approximately $48.0m (FY15: $40.3m), marginally ahead of market expectations. The growth was driven by client wins in new verticals and increased volumes in the core business from the existing client base. Gross Margins experienced compression in the second half of the year due primarily to increased marketing spend. This was in part due to our entry into new industry verticals such as energy and utilities where we won new customers. EBITDA is expected to be below market expectations at approximately $3.1m, due to the lower gross margin on core business, new business, and direct labour costs associated with the acquisition of an on-shore call center to support new verticals that require on-shore fulfillment centres. Management expects gross margin to recover to historic levels as new business matures.

During the period under review, the Company has written down certain accrued revenues outstanding for over twelve months. This will represent a one-off non-cash expense of around $4.0m in aggregate. Management believes that a portion of this may be collectable but has written off the full amount.

During the year the Group made significant strides in the continued diversification of revenue through further expansion into new core clients and new verticals. New customer wins outside of the Group's core customer base include several national contracts with major North American retailers of energy and energy services as well as an additional satellite TV provider in the US. 7degrees, the Group's new offering in social media advertising for middle-market and large consumer advertisers, has made significant progress since launch in the second half of FY2016. The Board expects this, along with the new contracts, to contribute significant revenues in the new financial year and beyond.

The Company ended the year with a cash balance of approximately $0.6m with $1.5m drawn down under its $5m credit facility.

Jeff Cox, CEO of DGS, commented: "I am pleased with the overall growth of the business and am encouraged by the additional contracts that we have entered into towards the end of the fiscal year. While we saw margin pressures on some of the core business and new trading, we expect to see margins improve during the first half of the new financial year. We have made additional investments in infrastructure and technology that enables us to remain a leading provider of customers for our brand partners."

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Overview of DGS

Founded in 2008 with offices in London, Bermuda, Netherlands, USA and Ireland, DGS is a specialist provider of outsourced online customer, lead, and inquiry acquisition and digital media solutions for large, consumer-facing corporations. DGS delivers customers to its clients through optimised paid search, search engine optimization, mobile, integrated websites, e-mail, social media and contact centre support.

DGS is seeking to establish itself as the leading international provider of outsourced online customer, lead and inquiry acquisition, services, through its focus on having the premier technology platform in the industry. By using its optimising technology platform, dgSMART, and its experience of website management and digital media customer acquisition, efficient contact centre operations and other process expertise, DGS is able to acquire customers and achieve conversion rates that deliver profitable, high quality customers and valuable leads and inquiries to its clients.

DGS employs over 700 staff in Europe, North America and Asia. The Company currently has over 100 direct and indirect client relationships globally, many of which are with companies in the US Fortune 500.