TIDMZOO
RNS Number : 8725I
Zoo Digital Group PLC
10 August 2023
10 August 2023
ZOO DIGITAL GROUP PLC
("ZOO" the "Group" or the "Company")
FINAL RESULTS FOR THE YEARED 31 MARCH 2023
Fourth successive year of strong revenue growth with improved
margins and profitability
ZOO Digital Group plc (AIM: ZOO), the leading provider of
end-to-end ("E2E") cloud-based localisation and media services to
the global entertainment industry, today announces its audited
financial results for the year ended 31 March 2023.
HIGHLIGHTS
Key Financials
-- Revenue grew by 28% to $90.3 million (FY22: $70.4 million).
o 3% of sales were from newly acquired operations.
-- Adjusted EBITDA* grew to $15.5 million (FY22 restated: $7.1 million).
o EBITDA* margin increased to 17.1% (FY22 restated: 10.0%).
-- Operating profit has quadrupled to $8.1 million (FY22 restated: $1.9 million).
-- Reported profit before tax of $7.9 million (FY22 loss restated: $0.2 million).
-- Net cash generated from operations up 197% to $15.5 million (FY22: $5.2 million).
-- Net cash at year-end of $11.8 million (FY22: $6.0 million).
* Adjusted for share-based payments
Operational Highlights
-- ZOO selected as a key vendor by a second major content
producer with ZOOstudio adopted to support its content localisation
across vendors.
-- Media localisation segment sales grew by 34% to $56.6 million
(FY22: $42.2 million) - subtitling increased by 15% and dubbing by
73%.
-- Media services grew by 22% to $32.1 million (FY22: $26.4 million).
-- Worldwide freelancer network grew by 4% to 11,467 (FY22: 11,028).
-- Leading standard of customer satisfaction maintained -
retained sales KPI was 98.5% (FY22: 97.6%).
-- Strong progress in global growth initiative with further
investments across hubs in India, South Korea, Denmark and
Spain.
Broader Market Highlights
-- Global content investment totalled $238 billion in 2022 and
is forecast to reach $242 billion in 2023.
-- Non-English digital originals grew from 5.9% to 8.5% as a
percentage of the total demand for streaming original shows in the
period 2020 to 2022.
-- Media localisation spend with major suppliers estimated by
Nimdzi to have grown by more than 280% between 2018 and 2022, from
$420 million to $1.6 billion.
Outlook and Post Period events
-- Raised GBP12.5 million gross ($15.5 million) via an
oversubscribed placing in April 2023 to fund the proposed
acquisition of a partner company in Japan with which ZOO continues
to have positive, advanced discussions.
-- Current trading has been impacted by several major streaming
companies carrying out strategic reviews to refocus on
profitability and the first simultaneous strike of US writers and
actors in 60 years. This has created short-term market disruption
and temporarily lower volumes of localisation and media services
work.
-- The Board has been taking steps to adjust the cost base to
reduce the impact of the temporary industry slow-down on ZOO's
business while there remains uncertainty around the timing of the
resumption of former levels of production and orders. The Group
remains financially strong with net cash at 30 June 2023 of $23
million.
-- ZOO expects to emerge in an even stronger position once
certain customers have rationalised their supplier bases, resulting
in ZOO taking further market share once former order levels resume.
It is reasonable to expect this will be in H2 FY24.
-- The Board remains confident in ZOO's medium and long-term
fundamentals and expects to deliver revenue growth over FY23 in the
following years. Our guidance for FY24 remains unchanged and our
2030 strategy remains on track.
Stuart Green, CEO of ZOO Digital, commented:
"ZOO delivered a fourth successive year of double-digit revenue
growth and margin improvement in FY23 and we expanded our footprint
in strategically important, high-growth regions. We generated
strong cashflows and delivered record pre-tax profitability,
demonstrating the benefits of the operational leverage in the
business.
"The market has evolved rapidly over recent years as global
audiences transition from traditional linear programming to
streaming platforms. In this context, we view our customers'
strategic reviews and the Hollywood strikes as evidence that the
industry is now recognising the structural nature of changes in how
modern audiences watch film and television. Localisation is one of
the most cost-effective ways to bring new content to global
audiences, while also providing access to new markets and millions
of additional subscribers. This is why we are investing ahead of
the curve to expand our footprint in key international territories,
most notably APAC which is a high-priority region for all global
streaming services.
"While the current disruption is frustrating, the Board remains
confident that ZOO is fundamentally well positioned to continue our
growth once the hiatus concludes. Over the medium and long-term, we
expect to emerge stronger and take further market share as
customers reduce their pool of vendors to those few with global
end-to-end capabilities."
For further enquiries please contact:
ZOO Digital Group plc +44 114 241 3700
Stuart Green - Chief Executive Officer
Phillip Blundell - Chief Finance Officer
Kam Bansil - Investor Relations
Stifel Nicolaus Europe Limited (Nominated Adviser
and Joint Broker)
F red Walsh / Erik Anderson / Tom Marsh / Richard
Short +44 20 7710 7600
Singer Capital Markets (Joint Broker)
S haun Dobson / Asha Chotai +44 20 7496 3000
Instinctif Partners +44 20 7457 2020
Matthew Smallwood / Joe Quinlan zoo@instinctif.com
Analyst presentation
Stuart Green, Chief Executive Officer, and Phillip Blundell,
Chief Financial Officer, will host an in-person presentation for
sell-side equity analysts, followed by Q&A, at 09:30 BST today.
Analysts wishing to join should
register their interest by contacting: ZOO@instinctif.com .
Investor engagement
Management will hold an online presentation for private
investors at 17:00 BST today. For those interested in joining,
please register via the following link:
www.zoodigital.com/prelims2023 . A recording of the webinar will be
made available via the Company's website afterwards.
CHAIRMAN'S STATEMENT
I am pleased to report another year of significant progress and
profitable growth as the business scaled its international
operations and continued to take share of the media localisation
market. This has been achieved against a challenging economic
backdrop and a dynamic marketplace as the behemoths of the
streaming market compete for market share globally, demonstrating
the strength and resilience of ZOO's offering to customers.
The Company increased revenues by 28% to $90.3 million and grew
operating profit more than four-fold to $8.1 million with improved
margins, compared to a restated operating profit in FY22 of $1.9
million. The growth without the restatement, which was due to a
misstatement of cost of sales relating to work-in-progress at the
year-end, was 120%. We have benefitted from the in-built operating
leverage in our model which is now starting to come through,
together with increasing cash generation. Year-end cash stood at
$11.8 million, up from $6.0 million in FY22, and was over $23
million at the end of June 2023 following a successful $15.5
million equity placing.
At ZOO's Capital Markets Day in October 2022, we outlined our
longer-term aspiration to reach $400 million of revenue by 2030.
This is predicated on taking a greater share of a growing market.
The Board estimates that ZOO's addressable market may double from
$1.5 billion currently to $3 billion by the end of the decade,
based on the industry's investment in original content and
international expansion by major US media companies. Given our
global, end-to-end offering and embedded operations with several of
these media companies, we believe ZOO is well positioned to
increase market share from 6% currently to our target of
approximately 14% by the end of the decade.
These assumptions are underpinned by the strength of our
services. ZOO is one of only five companies in the world with the
capability and scale to operate as a primary end-to-end vendor to
major media groups. Importantly, our ZOOstudio platform is now
embedded in the operations of two major media companies following
our selection in February 2023 as a key supplier to support another
high-profile streaming provider with its global roll-out.
For the major US media companies that are seeking to deliver
their streaming services globally, competition remains intense. The
recent relative slowdown in subscriber growth from established
markets has led to an increased focus on profitability and return
on investment from content spend. The Board believes that ZOO can
benefit from this trend as media companies outsource greater
volumes of work to a smaller number of trusted vendors.
Furthermore, localisation is proven to be one of the most
cost-efficient ways to increase viewership while scaling streaming
services to reach new international audiences.
To capture this demand, the Company has continued to invest in
establishing hubs in key international locations. These investments
have significantly increased our capacity across India and South
Korea as well as Turkey, Scandinavia and most recently Spain,
helping us to win new business and attract talent.
In May 2023, the Company successfully completed an
oversubscribed placing of GBP12.5 million ($15.5 million) for the
proposed acquisition of a trusted partner in Japan, another
strategic growth market for content and localisation budgets. The
fundraise included investment from existing and new shareholders,
as well as giving existing retail investors the opportunity to
participate, with several new institutional investors joining the
register. I would like to thank all our shareholders for their
ongoing support in accelerating our growth ambitions.
ZOO is proudly a future-facing business. The first course from
ZOO Academy - developed in partnership with the University of
Sheffield last June - has already started to deliver the next
generation of talent in the highly specialised field of script
adaptation for dubbing. Our teams are also constantly innovating
and drawing on the latest technologies to improve processes, such
as AI, which we plan to apply to complement traditional practices
and creative talent.
We have welcomed many new team members over the last year,
particularly across our international hubs. I would like to express
my sincere gratitude to all my colleagues for the passion they show
in delivering for clients and building a better business for
everyone.
Our mission remains to be the entertainment industry's most
trusted globalisation service provider. We have made good progress
over the last year and remain well positioned to capture future
demand. Despite some customers currently reviewing their content
strategies in the short term, and industrial action in the US
temporarily disrupting new content production, the structural
drivers for international, multilingual content remain firmly in
ZOO's favour. Our leading position in the localisation market
ensures the business is well positioned to deliver strong growth
over the medium-term.
Gillian Wilmot, CBE
Chairman
STRATEGIC REPORT
Introduction
The year ended 31 March 2023 covered a period during which ZOO
continued to grow strongly, underpinned by structural market
drivers despite challenging macroeconomic conditions that have
created operational challenges for several customers. As the
competitive landscape for consumer streaming services intensifies,
the industry is committing enormous sums of capital to produce
original content which has been increasing year-on-year, and with
it the demand for premium localisation and media services has grown
across many languages. The Board believes that ZOO's innovative
strategy and its approach to global growth provide strong
differentiators and competitive advantage that will lead to an
increasing market share over time. Progress during the period under
review includes important milestones on that journey.
Market Overview
The period included some significant developments within the
industry and a continuation of several important trends that are
reshaping the media and entertainment landscape. Despite the
current short-term disruption, the Board is confident that the
market backdrop presents significant opportunities for ZOO over the
long term.
The changing dynamics of TV entertainment
Prior to the emergence of on-demand services, the business of TV
was straightforward for distributors and consumers alike. The TV
set in the living room was the hub of consumption, to which cable
and satellite operators served their audiences by broadcasting
content across terrestrial channels.
Watching video content today is a very different experience now
that Over-the-Top services ("OTT") - the delivery of programming
over the internet - and Video-on-Demand ("VOD") enable individuals
to watch content of their choosing at a time and on a device that
is convenient to them. The expectations of consumers today have led
to a much more complex economic environment for the production and
global delivery of content.
The launch of Netflix in 2007 marked the beginning of this new
era. Except for 2020, traditional TV has declined every year since
2013, although it was as recently as 2022 that the hours spent by
US adults watching digital video exceeded traditional TV for the
first time. This trend is projected to continue, and with it the
decline in revenues generated by media companies from both the
carriage fees they charge distributors and their share of
advertising income.
Some media and entertainment companies are not yet delivering
returns from streaming sufficient to offset the declines in
traditional TV. Streaming represents the future of home
entertainment, yet many media companies are still optimising their
commercialisation of content to enhance the return on investments
made its production.
Consumer preference for on-demand services
The shift from traditional TV to streaming has been good for
consumers. In developed markets expensive bundles of channels have
been replaced by low cost, on-demand packages. With most
subscription VOD ("SVOD") services charged monthly in advance, the
flexibility of these offerings has led to a higher level of
consumer churn, with content providers developing strategies to
minimise it, partly through careful selection of the content they
supply.
Audience growth in emerging markets such as India and China has
made APAC a high priority region for all global streaming services.
This is further underpinned by the rapid increase in smartphone
adoption, which is substantially increasing the addressable market.
Selection of content is a crucial factor that will determine the
success of streaming services in emerging markets. For example, in
India, services have found success by focusing on original content
across genres, targeting niche audiences, and catering to the
country's multiple languages. Local content has been shown to be
particularly important in growing and retaining local audiences,
and as a result global streaming providers are sourcing content
from many countries.
Investment in content production
The industry's annual spend on producing original programming
has been growing year-on-year, although there are signs that this
is slowing. In a March 2023 research report, Moffett Nathanson
forecasted that total media-industry content cash spend will grow
just 1% to $136.4 billion in 2023, with global content investment
in the same year forecast by research firm Ampere Analysis to be
$242 billion. Moffett Nathanson expects Disney to continue to be
the leader with $26.4 billion in 2023, followed by NBCUniversal
($22.5 billion), Warner Bros Discovery ($18.4 billion), Paramount
($15.9 billion), Netflix ($15.2 billion), Amazon ($8.5 billion) and
Apple ($6.1 billion).
2022 was the year in which most media companies reassessed their
strategies for streaming subscriber growth and after two years of
strong double-digit content budget expansion, total spend in 2023
is expected to grow by just 2% as more companies shift their focus
away from solely increasing subscriber numbers to delivering
profitability.
Several major media companies that operate streaming platforms
have revisited their content investment plans in 2023 in the face
of greater competition and the higher levels of consumer churn
mentioned previously. Some organisations have indicated that they
do not plan to increase content spend above current levels, while
others have signalled that they will trim their content budgets in
2023. The investment in content by genre is changing also;
according to an April 2023 research report by K7 Media, the
production of unscripted titles, which are in general much less
expensive to produce than scripted programmes, increased in 2022
compared with other genres and there was an increased number of
unscripted format launches across both local and global
platforms.
It is unclear whether the wider market will see a shift to lower
budget titles or a retracement in the number of hours of
entertainment content produced annually, but it seems possible that
global levels of spend on content production have plateaued for the
time being.
Streaming profitability
In the face of declining revenues from linear TV, several
leading players have announced plans to reduce operating costs to
restore profitability. In May 2023, Disney announced that a
cost-cutting strategy involving budgetary and labour reductions is
on track to "meet or exceed" its $5.5 billion savings target.
Warner Bros. Discovery announced plans in late 2022 to find more
than $3 billion in cost savings. According to the Wall Street
Journal, Netflix, which operates a profitable service, has
developed plans to reduce 2023 spending by $300 million through
layoffs, real estate reductions, and rationalisation of cloud
computing resources. Paramount Global announced in May 2023 its
intention to lay off 25% of staff in its domestic cable
networks.
Platform consolidation
The fierce competition amongst streaming services is leading to
early stages of consolidation of some platforms. In April 2023
Warner Bros. Discovery announced a new streaming service called
'Max' which merged the HBO Max service with Discovery+, combining
the content provided by these two offerings. In May 2023 Disney
announced plans to combine content from its Disney+ and Hulu
services in the US. These efforts help to provide subscribers with
a broader offering and greater appeal, which highlights the
diversity and range of fresh content across a wide range of genres
that will be required for success.
Alternative monetisation models - AVOD and FAST
The commercial propositions of streamers continue to evolve,
both through refinements in pricing by country and in their
approach to monetisation. For example, in 2022 both Disney and
Netflix introduced advertising-supported tiers allowing subscribers
to access content at a lower price.
Consumers in the US are adopting Advertising Video on Demand
("AVOD") at a faster rate than their non-ad-based counterparts, a
recent report has found. According to Comscore, AVOD services are
seeing adoption at a faster rate than SVOD, with a 29% increase in
US households streaming AVODs in 2022 compared to 2020 compared
with a 21% increase during the same period for SVODs.
Having become well-established in the US over the past two
years, Free Ad-supported Streaming Television ("FAST") - a category
of OTT services for delivering subscription-free digital channels
that stream advertising supported content via Connected TV devices
- is now becoming popular around the world. On FAST channels,
content plays according to a pre-set schedule with advertising
breaks and simulates the linear viewing experience of traditional
television. "[FAST] is the fastest growing segment of the viewing
economy," said Evan Shapiro, a veteran television executive. "There
are people who think it's basically going to eclipse cable before
too long."
FAST channels provide another avenue for producers to monetise
content, particularly catalogue titles, as well as delivering
incremental income through a revenue-share arrangement. In January
2023, Warner Bros. Discovery announced deals with streaming
services Roku and Tubi to license 2,000 hours of movies and TV
series for the launch of Warner Bros. branded FAST channels. The
deal marks an evolution of Warner Bros. Discovery's approach to
streaming, which once reserved the studio's movies and series for
its own subscription services. Now, the studio has begun selling
movies and TV shows to third parties. Similarly, Amazon announced
in May 2023 that it will distribute its original films and TV shows
to media outlets outside its Prime Video service for the first
time. A February 2023 report by Bloomberg claimed that Disney is
exploring the possibility of licensing film and TV properties to
rival media outlets, shifting from Disney's current streaming
strategy of keeping its films and TV shows exclusive to the Disney+
service.
Other providers have been operating FAST channels for some time,
for example, Paramount Global operates its own FAST service,
PlutoTV, launched in 2014, which already has an international
footprint that spans 25 countries throughout the US, Europe, and
Latin America. Amazon has operated a free-to-view ad-supported
streaming service Freevee since 2019, currently available in the
US, UK, and Germany.
Global streaming services
There are only a small number of services that have truly global
reach, namely Amazon Prime Video (200 countries), Netflix (190
countries), Apple TV+ (over 100 countries) and Disney+ (60
countries). Three other major US media companies have created their
own direct-to-consumer platforms that were initially available in
North America only, namely NBC Universal with its Peacock service,
Paramount Global with Paramount+ and Warner Bros. Discovery's Max.
All three organisations are now in the process of establishing
international distribution of their original content, in some cases
by launching their own service in multiple countries, in others
through partnerships with local operators.
International Content
Streaming services have been investing heavily in global content
production and licensing of third-party programmes as
English-speaking audiences have grown more interested in foreign
content. As a percentage of the total demand for streaming original
shows in the period 2020 to 2022, non-English digital originals
grew from 5.9% to 8.5%, according to Parrot Analytics' data. An
objective here is to create hit shows that are successful around
the world following the success of titles such as Money Heist
(Spain), Squid Game (South Korea) and Dark (Germany).
In March 2023 Netflix shared data that revealed the rising
popularity of non-English language content on its platform. In the
UK, viewing of non-English language programmes on Netflix increased
by 90% over the previous three years. In 2022, more than 70% of
global Netflix viewing came from members watching a title from a
country other than their own.
Over the last few years, the makeup of demand for foreign
content in the US has been in transition. Content in European
languages including Spanish, German and French has been growing in
popularity for some time, but in the past two years demand for
Asian titles has soared. In the period from 2020 to 2022, the
consumption of Netflix shows in Japanese, Korean, Chinese, and
Hindi grew from 35.4% to 59.8%, with Japanese programming becoming
the most in-demand foreign language in the US in the last quarter
of 2021. Of particular significance here is Anime, a leading genre
of Japanese content.
Korean-language programming is set to become the second most
in-demand foreign language for streaming originals in 2023. The
demand for Korean shows is largely driven by the popularity of
K-pop, which has exploded in recent years, especially among younger
audiences. This has helped to drive interest in other forms of
Korean media, largely benefiting Korean dramas. The demand for
Korean content more than doubled during 2021 after the release of
Squid Game. More than 70% of the audience for Japanese shows and
60% of the audience for Korean titles is made up of people under
30.
Industrial action in the US
Since early May 2023, 11,500 screenwriters have been on strike
against Hollywood studios and entertainment companies for the first
time in 15 years in a battle for higher pay and better working
conditions. This is the culmination of a dispute between the
Writers Guild of America (WGA) and the Alliance of Motion Picture
and Television Producers (AMPTP), a trade association that
represents over 350 American television and film production
companies.
As a result of the wholesale shift of the industry away from TV
and towards streaming, the WGA has warned that the future of the
profession is at stake. When producing for streaming platforms, in
general fewer episodes of each show are ordered, there are fewer
writers working on each project and streaming service operators
typically limit the residual payments that have traditionally been
made to compensate writers for the reuse of their credited work.
The writers are also campaigning for restrictions on the use of
artificial intelligence.
While initially it was just the short turn productions, such as
late-night shows, that were affected by the strike, it's now the
case that most productions in Los Angeles have been disrupted by
picketing writers. This situation has been considerably worsened by
a strike by US actors which commenced in July 2023, marking the
first time in 60 years that both writers and actors have
simultaneously taken industrial action. This more recent strike,
organised by the Screen Actors Guild - American Federation of
Television and Radio Artists (SAG-AFTRA), is likely to have
far-reaching reverberations across the industry while actors seek
higher pay and safeguards against unauthorised use of their images
and voices through artificial intelligence. It has brought all US
production of new content to a halt and, while all sides in the
dispute are motivated to reach a resolution quickly, it is
currently unclear how long this will take.
Impact of market developments on ZOO
The market developments described above are expected to provide
enhanced opportunities for ZOO to continue to grow and win market
share in the medium term.
1. Resilient content spend
Despite cost-cutting by some major media companies, the
expectation is that the already substantial content budgets will
not diminish in the medium term, supported by competition between
streaming services and structural demand for new content. ZOO's
proposition is closely aligned with new content production, and
this implies that, once the short term hiatus is over, its
addressable market will remain strong.
2. Increasing reliance on trusted vendors
The cost cutting at several significant media companies will
result in fewer internal staff to process similar volumes of
content, necessitating greater reliance on vendors such as ZOO that
offer a comprehensive end-to-end (E2E) service. We envisage a
continuation of the trend of large buyers working with a fewer
number of global service providers, since this simplifies the
internal operations required to manage these relationships.
3. Demand from new streaming models
The launch of advertising-supported and free-to-view streaming
services provides a greater number of channels through which
content is delivered to consumers. The need to maximise the size of
the audiences for these services highlights the importance of
localisation, which is the most cost-effective way of expanding
viewership. The Board estimates that major media companies today
spend as little as 1% to 3% of content budgets on localisation.
4. Localisation unlocks ROI and profitability
To maximise the return on investment in content, producers and
distributors are increasingly looking for titles and genres that
are attractive internationally, irrespective of the source
language, and this too highlights the importance of and need for
localisation to and from many languages, performed to a standard
that is consistent with that of the original programmes.
5. Concentrating outsourcing on end-to-end vendors
For major US media companies, the streaming era has brought a
change in the practices of adapting content for international
audiences, with this being increasingly overseen by the company
itself through a central function rather than by many third parties
in territory. This has resulted in the buying of multi-lingual
services becoming more concentrated on a smaller number of vendors,
particularly those with an E2E capability such as ZOO, that can
fulfil this remit in-house.
The prolonging of the Hollywood industrial action is now
affecting the pipeline of titles that require localisation and
media services to prepare them for global streaming distribution.
Whilst negotiations are making slow progress, it is reasonable to
expect that a compromise will be reached, and normal operations
will resume. In the meantime, streaming companies may refocus their
short-term content acquisition plans to other countries that are
unaffected by the Hollywood strikes, and/or on migrating more
titles from their expansive back catalogues as was their practice
during the period of the pandemic.
Media Localisation Market Size
Localisation market research firm Nimdzi provides an annual
index of the top 100 vendors of localisation services across all
verticals. Combining the revenues of specialist media localisation
providers in the top 100 positions indicates that revenues for the
segment grew by over 280% in the period 2018 to 2022, from $420
million to $1.6 billion. Across all verticals ZOO ranks 28 in the
2023 report, up from 35 in 2022 and 44 in 2021; in the media
localisation vertical ZOO ranks 6 in 2023.
In its annual Language Industry Market Report published in May
2023, market commentator Slator estimated the media localisation
vertical at $2.97 billion, up 11% in 2022 over the prior year. The
Board continues to hold the view that ZOO's addressable market,
corresponding to the proportion spent by major global media
organisations, is around half of this figure.
Strategy
As a provider of premium media services and localisation, ZOO is
one of only five companies in the world with the capability and
scale to operate as a primary E2E vendor to major media and
entertainment companies. ZOO's differentiation is the result of a
strategy consisting of five pillars: innovation, scalability,
collaboration, customer focus and talent.
Innovation
ZOO's leading services are delivered using its proprietary
technology. Developed by a team of over 70 in-house specialists,
the software provides efficient and scalable solutions for the
delivery of premium localisation and media services.
During the period under review the team has prioritised the
further development and enhancement of ZOOstudio - its
globalisation management platform designed to be used by ZOO's
customers. These new developments extend the capability of the
platform in many areas, including finance reporting, order history
analysis and data entry automation. Such functionality can result
in the platform becoming embedded more broadly and deeply within
customer operations thereby enhancing the strategic value that ZOO
delivers and its competitive differentiation.
Amazon Web Services (AWS) has been for some time one of the
Company's strategic partners to support the cost-efficient
deployment of its cloud-based software services. During the period
ZOO joined the AWS Partner Network, having successfully completed
the foundational technical review of its ZOOdubs dubbing services
platform. This network is a global community of AWS partners that
leverages programmes, expertise, and resources to build, market and
sell customer offerings, with membership indicating the observance
of best practices to reduce risks around security, reliability, and
operational excellence. ZOO's membership of the AWS Partner Network
provides customers with a further proof point of the calibre of its
technology.
Scalability
ZOO's cloud-based platforms form the foundation of the
scalability in capacity that the Company can offer to its
customers. These platforms enable an expansive ecosystem of
partners that, in combination, provide the creative resources
needed to fulfil localisation and media services at scale across
many languages. Two of the key components of this ecosystem are
firstly, the extensive pool of freelancers across multiple
disciplines, and secondly, a small number of hubs in key strategic
locations.
The freelancer pool consists predominantly of individuals that
provide specialised linguistic skills, each delivering localisation
of entertainment content into their mother tongue. This includes
translators of subtitles, adapters of scripts for dubbing, voice
actors and dubbing directors, each of whom receives and performs
work through an intuitive web browser interface. The Company
performed a rigorous review of its freelancer database during the
period and removed those individuals who, for various reasons, are
no longer eligible for work. This resulted in a small net increase
in the available number of freelancers to 11,467 (up 4%).
ZOO's global growth initiative - the strategy of establishing
hubs in key locations - is designed to ensure the company is
positioned well to deliver its services across global languages
with high availability. The period just completed marks the first
full year of the integration of ZOO India following the acquisition
of Vista India Mumbai in March 2022. This has provided the Company
with a capability both for subtitling and dubbing into several
leading languages spoken in the country, and for the processing of
a range of media services. The facility positions ZOO very well to
operate as a partner for customers that are targeting India as a
market for streaming services as well as a source of original
content that is attractive in other markets.
Following the success of its investment in 51% of a Seoul-based
partner in March 2022, the Company announced in April 2023 the
acquisition of the remaining shares in ZOO Korea. The venture has
helped to address the growing global demand for Korean content and
distribution of non-Korean titles in the country with premium and
secure provision of dubbing, subtitling, quality control and media
services. The Board estimates that $4.5 million of incremental
revenues were recognised across the Company in FY23 because of ZOO
Korea and that it will generate significant incremental revenue in
future years through its own operations in South Korea as well as
services it provides to assist ZOO in the US and UK.
In April 2022 the Company launched ZOO Denmark, based in
Copenhagen, to act as its Nordic hub. Content from Scandinavian
countries continues to see critical and commercial success around
the world, with the region building a reputation for high-quality
content with global appeal. Post the period end, the Company
launched an Iberian hub through a strategic investment in
established dubbing and localisation company, AM Group. The
investment brings new facilities in Madrid and Valencia and offers
increased capacity and expertise in Spain and Portugal, both of
which are territories that hold high strategic importance for ZOO's
major studio clients.
Collaboration
Its partnerships with third parties enable ZOO to deliver
capability and capacity in a cost-effective way.
The Company is helping to address the shortage of talent in the
industry in certain disciplines and languages through various
initiatives delivered through ZOO Academy. These include a
partnership programme with universities and other educational
establishments where ZOO is making its proprietary cloud platforms
available for teaching purposes to support the education of
translators, script adapters and aspiring dubbing professionals. In
the period, 17 new institutions partnered with ZOO, bringing the
total number to 32 across Europe, Asia, and the Americas, with a
strong pipeline of further candidates currently in discussion.
Students who complete the courses offered by these organisations
will be trained in the use of ZOO's platforms, which assists the
Company's talent recruitment efforts.
In a separate ZOO Academy initiative, the Company is
co-developing with academic and industry experts a series of online
courses and training programmes to equip learners with the
knowledge and practical experience to participate in work for our
industry. The first such course, developed in partnership with
University of Sheffield and covering the discipline of adapting
scripts for dubbing, was launched in June 2022 and has since
delivered new talent in this important and highly specialised
field.
The Company has for some time partnered in many countries with
traditional dubbing studios and businesses where the management
teams are progressive and willing to embrace ZOO's cloud-based
platforms and methodologies. In addition to their help with access
to talent, this approach provides the Company with the opportunity
to work closely with partners to inform investment and acquisition
decisions. Both ZOO India and ZOO Korea were former partners that
have become wholly owned subsidiaries, now fully integrated into
the Group.
Customer focus
ZOO's aim is to operate as a primary vendor to the largest
buyers of localisation and media services in the entertainment
industry. Target companies are predominantly US based organisations
that produce original content and distribute to global audiences
through streaming services and other channels.
A key strategy employed by the Company to strengthen its
relationship with customers is through its ZOOstudio platform. This
provides, amongst other features and benefits, a means for
customers to manage the complex business of planning, procuring,
and tracking services placed with multiple providers. ZOOstudio was
adopted by a major global streaming service in 2019 and was
selected subsequently by another media company. During the period
under review, a further major streaming service adopted ZOOstudio
ahead of its global rollout. This represents another success story
for ZOO as a strategic technology partner. While longer-term
contractual arrangements are still being finalised, a significant
number of revenue-generating projects for this client are already
underway, and work volumes are expected to increase materially
during FY24. Despite the industry headwinds, the Company is in
ongoing dialogue with other key players regarding the use of
ZOOstudio and the platform forms a key part of tenders for
framework agreements with key global strategic target customers.
This ongoing dialogue and interest further underpins our belief
that localisation is a
key focus for global streaming companies and despite the short
term disruptions localisation remains a key priority for the
industry.
Talent
While ZOO's platforms enable the Company to deliver services in
an efficient and scalable way, there remains a requirement for
talent, particularly to support the production of premium
subtitling and dubbing. The Board has sought to expand internal
resources to enable the business to process higher volumes of work
required by customers.
The acquired facility in Mumbai has provided an effective base
from which to expand capacity not only for fulfilment of Indian
language production but also for the cost-effective processing of a
range of media services. Since the acquisition, headcount in India
has increased over the period by 85% to 120, and plans are at an
advanced stage to establish a second facility in Chennai which will
become a hub from which to deliver services for the different
languages spoken in southern India.
As part of the investment in AM Group in May 2023, we have
welcomed to the ZOO family Víctor Martínez, Managing Director of AM
Group, and his team of media localisation specialists. The team
will support the scaling up of capacity and capability in Castilian
and other dialects of Spanish as well as European Portuguese.
Review of Operations
The Group manages on an internal basis the following KPIs which
assist in measuring progress against the Group's strategy.
Financial
-- Revenue increased 28% to $90.3 million (FY22: $70.4 million)
-- Adjusted EBITDA(1) margin up to 17.1% (FY22 restated: 10.0%)
-- OPEX as a % of revenue 28.7% (FY22: 27.2%)
-- Operating Profit margin 9.0% (FY22 restated: 2.7%)
Revenue is considered a KPI as it is the headline demonstration
of services provided to customers, and of confidence of customers
to utilise our services. Operating profit is considered a KPI as
this is a key measure of how value is added to the group's net
assets, whilst the EBITDA(1) margin is a KPI (and also an
Alternative Performance Measure) and considered a key metric as
this closely approximates to the cash generated from operations,
considered to be a key indicator of the general health of the
group.
Operational
-- Number of freelancers(2) 11,467 (FY22: 11,028)
-- Retained Sales(3) 98.5% (FY22: 97.6%)
The operational KPIs have been adopted by the business because
they give indicative measures of quality and capacity which are
both important to our customers.
(1) Adjusted for share-based payments (as explained in note 11
to the financial statements).
(2) The number of active freelance workers in ZOO's systems who
are engaged directly.
(3) Proportion of client revenues retained from one year to the
next.
The financial KPIs indicate excellent progress towards the
long-term aspiration that the Board outlined at a Capital Markets
event in October 2022 to generate revenues of $400 million by 2030.
Revenue increased year-on-year by 28%, of which 25% was organic
(after excluding continuing sales transacted through ZOO India),
this being more than the compound annual growth rate required to
achieve the stated long-term aspiration. EBITDA margin, adjusted
for share-based payments, showed an improvement over FY22 at 17.1%,
up by 7.1 points. Operational expenditure expressed as a percentage
of revenue increased to 28.7% from 27.2% in the prior year, as the
Board committed to invest in expanding capacity across IT,
property, and international operations in support of the next phase
of growth. Operating profit also showed an improvement growing from
a restated 2.7% of revenues to 9.0%.
Revenue in the year was strongly weighted to the first half due
to two significant factors. Firstly, the Board estimates that
around $5 million of H1 sales was associated with work to support
the launch of a global streaming service in new countries. Unlike
the typical usual month-to-month flow of work orders from major
clients, such launch-related work is one-off in nature and no such
work occurred in H2. Going forward the Board anticipates that
international launches by new global customers may result in
further instances of such non-repeating revenues, however, as the
business scales, these should result in lower levels of
variability.
Secondly, a major client commenced a restructuring programme
during ZOO's FY23Q4 which caused a hiatus in the volume of orders
from this client, resulting in weaker than expected sales during
February and March 2023. Ongoing conversations with the customer
are positive and although the restructuring programme is ongoing,
we expect this to complete during ZOO's FY24Q2 and have received
initial indications that, once the current industrial action has
come to an end, orders will return to former levels in due course.
In the medium term the Board expects the restructuring to benefit
ZOO due to its role as an E2E vendor.
As noted previously, the net number of individuals that make up
ZOO's freelancer pool continued to grow. As of 31 March 2023, the
number was around 11,500.
The 'retained sales' KPI is a proxy for customer satisfaction
since it provides a measure of the proportion of client revenues
retained from FY22 to FY23. This metric improved to 98.5%
indicating very high levels of customer satisfaction. This is
further evidenced by the performance metrics reported to ZOO by
several of its customers; over the period under review ZOO's
average monthly performance measure as reported by the Company's
largest customer was 99.53% which the Board believes places it as
one of the best vendors in the industry. The equivalent measure was
99.50% in FY22 and 99.46% in FY21 indicating the consistency of
this high level of performance. The quality and reliability of
vendors are considerations that are highly important when customers
assign projects to their selected partners and ZOO's performance
ensures that it is viewed favourably.
The Company announced in February 2023 that it was selected as a
key vendor for a major Hollywood content producer to support its
content localisation needs. This client will also use ZOOstudio to
manage localisation work across all of its vendors. Following its
adoption in 2019 by a first major streaming customer, ZOOstudio is
now a proven solution for delivering the volume and scale required
for an international, multi-language streaming platform. The
Company is in dialogue with further major streaming companies
concerning the adoption of ZOOstudio.
During the period the Company made good progress on delivering
its global growth initiative, first announced in October 2021.
Through this initiative, which involves establishing hubs in key
locations to support the world's biggest content creators and
streaming services as they serve new audiences, ZOO has already
significantly enhanced its footprint around the globe.
With accelerating growth in the international distribution of
regional content and the roll-out of global direct-to-consumer
platforms, ZOO has been pursuing a series of strategic investments
that enhance its operations in the key content sourcing and
distribution locations. Countries announced previously were Turkey,
South Korea, and India, which have complemented ZOO's established
operations in Los Angeles, London, Sheffield, and Dubai.
ZOO is one of few global vendors with the proven capability to
deliver complete E2E services to prepare content for audiences in
all languages and formats, thanks to its cloud-based technology and
its ecosystem consisting of a collaborative network of independent
dubbing studios, vendor partners and freelance actors and
translators. The global investments make ZOO even better placed to
address its clients' challenges of localising and fulfilling huge
volumes of content, as well as supporting the increasing need to
prepare locally acquired TV shows and movies for streaming services
around the world.
The Company has taken a low-risk approach in its investments and
acquisitions by targeting long-established businesses that have
been affiliate partners of ZOO for several years. These companies,
which include media services providers and localisation vendors,
have accumulated extensive experience of working in the cloud-based
technology that ZOO operates throughout its global ecosystem of
partners and freelancers. The all-encompassing approach supports
unrestricted creativity while enforcing high standards of
production quality, workflow efficiency and content security across
the entire global Group.
Following an initial March 2022 investment in 51% of a partner
in Seoul and a very successful first year of operation, ZOO
acquired the remaining shares in April 2023. During the prior 12
months ZOO Korea expanded to deliver an in-territory servicing hub
for the most prestigious names in entertainment. The venture has
helped to address the growing global demand for Korean content and
distribution of non-Korean titles in the country by supplying
premium and secure dubbing, subtitling, quality control and media
services. In the period, two global streaming platforms worked with
ZOO Korea and further significant new opportunities are in the
pipeline.
Due to the increased volumes of work, additional investment in
people and infrastructure was required to support demand and
capture the growing in-territory market for ZOO Korea's services.
The Board's view was that it was commercially advantageous for ZOO
Korea to become a wholly owned subsidiary of the Group. While in
FY23 ZOO Korea generated $1.2 million revenue and $0.1 million
profit, the Board estimates that $4.5 million of incremental
revenues were recognised across the Group in the year because of
ZOO Korea. The Board expects that the hub will generate significant
incremental Group revenue in future years through its own
operations in country as well as through servicing clients in the
US and UK.
In April 2023, the Company announced that it had entered a
formal process to acquire 100% of the share capital of one of its
trusted partners in Japan - a media localisation subsidiary of a
leading Japanese technology company. An equity fundraise was
completed to provide sufficient capital to fully finance this
proposed acquisition.
ZOO was chosen by the vendor as the preferred bidder for the
purchase of the target which has been a trusted partner of ZOO for
many years and already works in the Company's cloud-based
platforms. These platforms will enable significant
capital-efficient expansion of capacity to fulfil Japanese language
services at scale. Japan is a leading growth market for all global
streaming services and, along with South Korea, is a key target
country in the South-East Asia region. Japanese subtitling is
charged at the highest rate of any language, and Japanese dubbing
is the sixth most expensive. Delivering media localisation services
in Japanese requires operations in the country due to cultural
factors, and consequently ZOO has to date fulfilled Japanese
language services through outsourcing to partners in the
country.
This proposed acquisition will provide the Company with
experience and capability to deliver these services from within the
Group, enabling synergies due to margin enhancement resulting from
this move from outsourcing to in-house. Consequently, the Board
anticipates that expansion of orders from ZOO's clients will follow
in line with the precedents in India and South Korea. The valuation
and timing of the acquisition are under negotiation as a
consequence of the current industry challenges.
The countries in which dubbing has been established the longest
are France, Italy, Germany, and Spain ("FIGS"). Originally the
practice of dubbing in these countries arose through a combination
of economic, cultural, ideological, and political factors, with the
tradition now deeply rooted in their societies. As a result, the
dubbing industries of those countries are unionised, and employment
legislation requires certain practices to be observed such that
ZOO's capability and capacity for delivering Parisian French,
Italian, German and Castilian Spanish will benefit greatly from
having hubs in each country. The Company's cloud-based platforms
enable a flexible approach to the delivery of dubbing services that
affords substantially greater throughput from and flexibility of
physical facilities than can be achieved by the traditional process
alone.
In May 2023, ZOO announced that it had acquired a 30 per cent.
stake in AM Group for a total consideration of EUR 825,000 payable
in cash. The investment marks the continued expansion of ZOO's
geographic footprint in EMEA, with AM Group acting as a primary hub
for ZOO's operations in Spain and Portugal. It will deliver dubbing
services as part of ZOO's global E2E offering for major studios and
streaming services in Iberia, while also supporting local content
creators to expand their reach to global audiences.
Founded in 2004, AM Group has been a partner of ZOO since 2021
and is an approved service provider under the industry-wide Trusted
Partner Network. AM Group generated EUR 352,000 in profit before
tax for the year ended 31 December 2022. It boasts state-of-the-art
facilities in both Madrid and Valencia with an adjoining dubbing
school that actively provides practical training for voice talent,
with courses in dubbing, voiceover, and vocal technique.
Iberia is an increasingly important market for global content
producers with Spain having become established as a key European
hub for audio-visual production and distribution. Building on the
success of international hits such as Money Heist, Netflix launched
its first European hub in Madrid in 2019 and has since doubled the
size of its operations. Other major US media companies have located
their European headquarters in the country. As well as
strengthening capacity for Castilian Spanish and European
Portuguese, ZOO's presence in Iberia will facilitate localisation
into the co-official Spanish languages, bringing content from
around the world to life in Valencian, Catalan, Galician and
Euskera.
The Company is in advanced stages of negotiations to establish
hubs in the other FIGS locations, as well as in a select few
countries where a physical presence will be commercially
advantageous.
Media Localisation
The services that fall into ZOO's media localisation segment are
predominantly subtitling and dubbing. Both services performed
strongly: subtitling grew by 15% over the prior year and dubbing by
73% to deliver segment sales of $56.6 million, up from $42.2
million in FY22. This reflects underlying expansion of business,
increase in market share and, in the case of dubbing, greater
penetration of ZOO's proposition across additional languages.
Gross margins for media localisation also improved. ZOO's cost
of sales includes components that are external (freelancers and
partner studios) and internal (staff directly engaged in fulfilling
these services). While subtitling delivered an incremental
improvement with margins up to 40% from 33% in the prior year, the
period marked a step change in the development of the dubbing
service with gross margin improving from a restated 3% to 26%. This
excellent performance was due to several factors including sales
being significantly improved and operations gaining the benefit of
greater scale, a larger proportion of direct-to-talent projects as
opposed to outsourcing to traditional studios, and the investments
in capacity that were made in earlier periods becoming
productive.
Included in dubbing is the production of Audio Description
("AD"), a form of narration used to provide information surrounding
key visual elements in media for the benefit of blind and visually
impaired audiences. Like subtitles for the deaf and hard of
hearing, there is greater demand to provide AD for more content not
only in English-speaking countries (US, UK, and Australia) but
increasingly for other regions. In the period ZOO fulfilled for the
first time AD orders for Latin Spanish, Brazilian Portuguese,
Castilian Spanish, Turkish, Italian, German and French.
Media Services
The media services segment includes a range of different
activities in which the most significant categories are digital
packaging, metadata preparation and artwork. The segment overall
delivered $32.1 million in sales, up 21.5% from $26.4 million in
the prior year. Sales relating to artwork production grew
particularly strongly, while metadata, for which demand is greatest
when delivering territory launches, declined. Overall gross margin,
after the FY22 restatement, improved from 55% to 61%, without the
Fy22 restatement margins would have remained flat at 58%.
The period delivered strong growth of the mastering service
introduced in the prior year, which involves optimising a digital
original copy of audio-visual materials for playback through
specific channels, such as broadcast and streaming. Revenues have
grown from $0.9 million in FY22 to $6.5 million in FY23. This
service provides good visibility, not only for the incremental
mastering assignments but also for the wider scope of work that is
frequently bundled with such E2E projects in the areas of
localisation and media services.
ESG
After setting up our social responsibility committee in FY22 and
publishing our purpose statement, we have spent the last 12 months
setting up subgroups to manage our 16 objectives relating to our
ESG strategy. This has resulted in the publication of our
Environment statement, Innovation statement and Diversity Equity
and Inclusion statement, all of which can be found on our website.
We have taken steps to codify our approach to our local
communities' involvement through the launch of our ZOOgooders
programme which allows all staff two working days a year to devote
to the charity of their choice. In addition, we have partnered with
the RNIB to support greater accessibility for all to media and
entertainment. A similar scheme is being finalised with the Braille
Institute of America. Finally, we are calculating our carbon
footprint and producing a plan to both reduce the footprint and
look at ways to offset the impact.
Investing for future growth
On 27 April 2023, to support its proposed acquisition of a
Japanese partner, the Company successfully completed an
oversubscribed placing of GBP12.5 million ($15.5 million) through
the issue of 7,812,500 new ordinary shares in the Company with
existing and new institutional and other investors at a price of
160 pence per share. This price represented a discount of
approximately 13.5% per cent. to the middle market closing price on
26 April 2023. The shares placed represented approximately 8.7% per
cent. of the issued share capital of the Company prior to the
placing. The Board, having consulted with several major
shareholders prior to the placing, was pleased by the support
received from both existing and new shareholders and is delighted
to welcome several new institutional investors to the share
register.
Alongside the placing the Company undertook a retail offer to
enable existing shareholders to participate which raised additional
gross proceeds of GBP0.16 million, for which a total of 101,742 new
ordinary shares were issued at 160 pence per share.
The Board intends to use the proceeds of the placing and retail
offer to finance the acquisition of a partner in Japan and to
provide capital to fund several further investments and
acquisitions that are in the pipeline, each of which will provide a
hub in another key location.
In the year capital expenditure grew 7% to $4.7 million compared
to $4.4 million in FY22. The bulk of the spend was on computer
equipment to support our growth plans especially in media
processing and mastering. This expenditure totalled $3.4 million
and covered our locations in Los Angeles, London, Dubai, Mumbai and
Seoul. The expenditure on leasehold improvements dropped
significantly to $0.8 million from $2.1 million as we upgraded both
Sheffield and Los Angeles in FY22.
The Board expects that by the end of FY24, through a combination
of minority investments, acquisitions and organic growth
initiatives, the Company will have established hubs in each of the
key territories that will be pivotal to enabling continuing strong
growth and the furtherance of the Company's mission to be the
entertainment industry's most trusted globalisation service
provider.
ZOO's proprietary cloud platforms are central to the operation
of all its international locations, delivering consistency of
service offerings, high quality, efficiency, security, and
scalability. This ensures that the Company can flex quickly and
efficiently and adapt to changing volume requirements of customers
as new industry developments unfold and further direct-to-consumer
streaming services from US media companies move ahead with their
global roll-out.
Artificial Intelligence
Whilst Artificial Intelligence (AI) is a branch of computing
that has been growing in applicability over recent years, the level
of media coverage and widespread interest in it increased
substantially following the launch in November 2022 of ChatGPT, an
AI chatbot developed by OpenAI. ChatGPT is technology built on a
Large Language Model (LLM), which is a computing system inspired by
the biological neural networks in human brains, that has been
'trained' on enormous volumes of text. LLMs are general purpose
models which excel at a wide range of tasks, as opposed to being
trained for one specific task.
One of the areas where ChatGPT performs well is in natural
language translation. A combination of the sophistication of its
underlying neural network, the expansiveness of the text data used
for training purposes and the enormous computing resources that
have been deployed for building its LLM and operating the ChatGPT
service have led to translation performance and quality that
outstrips many popular dedicated machine translation systems.
The Company has investigated the application of ChatGPT and,
indeed, LLMs more generally, to determine their suitability for
providing some degree of automation to the services delivered by
ZOO.
In the area of translation, it is important to recognise the
profound differences between the tasks of, on the one hand,
producing convincing literal translations of the written word - an
area where ChatGPT performs well - and on the other hand producing
authentic adaptations of dialogue. The latter is characterised by
being highly contextual and where the capability (whether human or
computer) required to perform it entails an appreciation of
culture, the motivation of speakers, ethnicity, social dynamics,
and a host of other considerations. Consequently, a process that
works only with a transcript of the words spoken will be devoid of
the broad scope of information that is essential for producing
authentic adaptations.
ZOO's target customers are major global operators of streaming
services and producers of premium entertainment content and
therefore the quality expectations for localisation and media
services to fulfil their requirements are the highest in the
industry. Here, quality includes the authenticity of a language
adaptation of an entertainment product and the extent to which it
resonates with an audience that speaks another language and
operates within a different culture. At present, while technologies
such as ChatGPT may be effective in processing certain genres of
media content (such as documentaries, where the commentary may suit
a literal translation) or low value catalogues (such as
user-generated content or old materials that will be distributed
through FAST channels in emerging markets), they are not viable for
the type and calibre of content processed by ZOO. However, the
Company has since 2020 been actively exploring opportunities to
adapt such technologies to provide productivity and other benefits
in certain scenarios where such use may be beneficial.
There are other applications of AI that may be suitable for
ZOO's business and, indeed, another emerging area of commercial
activity is in various approaches designed to perform what has been
termed 'automated dubbing'. These too are areas where the quality
of output is improving rapidly due to advances in the application
of neural networks, but where the technology is not currently
capable of displacing traditional practices for premium
entertainment content.
Whilst the standard of these automated dubbing approaches
applied to generalised content falls a long way short of the
quality requirements of ZOO's clients, the Board believes that
there may be applications of these technologies that can provide
some operational benefits to augment and complement the process of
dubbing, rather than as a replacement for the creative human
efforts that are crucial to the production of authentic language
adaptations. Indeed, the Company is actively engaged in several
projects to develop capabilities that are applicable to ZOO's
business, including through the exploitation of third-party tools,
and where the approach is to augment rather than displace
established practices.
In summary, AI is an exciting field of computing that is being
developed at pace and holds much potential, including in the field
of ZOO's business. Its successful application in media and
entertainment, particularly for premium content, will inevitably be
alongside traditional practices and the use of creative talent, and
where ZOO's heritage as an innovator and trusted partner to the
leading names in the industry places it well to become a leader in
the field. Consequently, the Board regards AI as an opportunity for
ZOO's business rather than a threat.
Outlook
Two recent and ongoing market developments mentioned previously
have created a temporary reduction in the production of new
entertainment content and its localisation across the industry.
The first of these is the cost-saving measures that were
initiated by several of ZOO's largest clients beginning early 2023.
These have resulted in headcount reductions and operational
reorganisation in major US media organisations that have caused a
temporary disruption of new title production and its distribution
across streaming platforms.
The second is the industrial action by writers and actors which
is unresolved as of the date of this document. It is not possible
to have certainty yet of when the strikes will end and there is
media speculation they may continue until October 2023. This is
causing a delay in completing new programmes which is temporarily
having an impact on the current volume of localisation and media
services work on new titles that is being commissioned.
However, despite this short-term industry-wide uncertainly, ZOO
expects to be in an even stronger position with several customers
following a rationalisation of their supplier bases and to take
further share of the media localisation market once former order
levels resume. At this stage, it is reasonable to expect this will
be in H2 of our financial year.
Subsequent to the period end the Board has been taking steps to
adjust the cost base to reduce the impact of the temporary industry
slow-down on ZOO's business while there remains uncertainty around
the timing of the resumption of former levels of production and
orders. The Group remains financially strong with net cash at 30
June 2023 of $23 million.
ZOO continues to have positive, advanced discussions with a
leading Japanese technology company regarding the acquisition of
its localisation subsidiary.
The Board remains confident in the medium- and long-term
fundamentals of the Company and expects to return to profitable
growth once market conditions normalise.
Stuart Green
Chief Executive Officer
FINANCIAL REVIEW
Introduction
During the year the Group built on the success of the financial
foundations of the prior year to scale the business and increase
margins providing confidence of our long-term ambitions. We are now
recognised as one of the major suppliers to the global localisation
market.
Our acquisition in India has exceeded our initial projections
and we are in the process of scaling up its capacity to more than
double revenues in FY24. After the year-end in April 2023, we
completed a fundraise injecting $15.5 million of cash into the
business to further expand our global footprint which we expect to
use to acquire one of the Company's trusted partners in Japan to
act as a hub to assist us to achieve our medium-term financial
goals. This will allow us to support our major customers in
strategic markets and cement long-term supply agreements. The
financial performance in the year has reinforced the strength of
the business with an operating profit of $8.1 million (FY22
restated $1.9 million) contributing to Net Assets growing to $35.1
million (FY22: $25.0 million) and a net cash balance of $11.8
million (FY22: $6.0 million).
The FY22 cost of sales has been restated to reflect the correct
interpretation of IFRS 15. More details can be found in note 8.
Revenue
In the financial year ended 31 March 2023, total revenues grew
28% to $90.3 million (FY22: $70.4 million). This reflects the
success of our strategy to focus on being an end-to-end supplier of
localisation and media services to the global entertainment
streaming providers. As our customers concentrate on their
international launches, we have increased our capacity to support
the expansion in work required for both the initial launch and the
ongoing pipeline of new work required to support their subscriber
bases.
Most of the Group's operations are in the United States, where
revenues were up 16% at $71.2 million. The balance of work was
performed in Europe which grew by 85% to $17.0 million and India
which made an initial contribution to work of $2.1 million. The
split in geographical production reflects the international
launches of US based streaming operators.
Customer concentration reduced during the period with the
revenue contribution from our largest client falling slightly to
74% of sales (FY22: 78%) as a consequence of growth in orders from
four US based content owners. The second largest customer accounted
for 4%, down slightly from 6% last year. These two contracts are
expected to continue over the long-term due to the close
relationship and technology integration achieved by ZOO.
We report two revenue segments: media production and software
solutions.
The media production segment has two revenue streams:
localisation and media services. Media localisation revenues
increased by 34% in the year to $56.6 million (FY22: $42.2
million), as our dubbing service gained further commercial traction
in the market. As other US streaming services launch their
international services, we expect future growth in revenues from
new customers.
Media services revenues increased by 22% to $32.1 million (FY22:
$26.4 million) as our mastering service delivered a full year's
contribution which offset a drop in services related to
international launches.
Software solutions, the segment that has been a reducing
proportion of our business, decreased by 13% in the year to $1.6
million. We expect this segment will continue to decline in future
years.
Segment contribution
The Company reports gross profit after deducting both external
and internal variable costs to reflect that an increasing
proportion of our revenues are derived from the provision of
services to our customers. To add clarity to our financial
statements we include a table of performance by our two key
reporting segments. This shows that overall gross profit grew by
63% to $33.9 million (FY22 restated: $20.8 million). This
represents a gross profit margin of 38%, up from 30% last year,
driven by increased gross profit of the dubbing service.
Media localisation contribution grew in the year from $8.8
million to $18.9 million an increase of 115% driven by the revenue
growth in both subtitling and dubbing and the improvement in
project profitability as well as the restatement of costs
contributing 8%. The growth in contribution of this segment was
higher than that of the revenue as the significant revenue growth
contributed to a higher utilisation of our staff. The contribution
percentage of 33% is in line with our long-term ambitions.
Media services contribution grew to $19.5 million up 35% on last
year. The contribution from this revenue stream of 61% was up 6% on
the previous year due to the restatement, prior to the restatement
margins were flat at 58%. This is expected to improve in future
years as metadata work reduces leading to an increase in the
contribution margin.
Software solution segment contribution fell 9% points to 84% in
the year, as a result of the drop in revenues.
Other operating expenses
Operational fixed costs, which are defined as operating expenses
less share-based payments, depreciation and amortisation, have
increased by 32% in the year as we invested heavily in people and
IT to support our future growth plans. Overall, operating expenses
increased to $25.9 million, including share-based payments,
depreciation and amortisation. The 35% increase in operating
expenses is explained by the above, higher depreciation, and a
one-off charge for share based payments.
Finance costs
Finance costs dropped considerably in the year from $2.1 million
in FY22 to $0.4 million in FY23. The major reason for the decrease
was the redemption of the loan notes in FY22 which gave rise to a
non-cash charge of $1.6 million in that year. There was also an
exchange gain of $0.2 million in the year which further improved
presentation of finance costs.
As a result of the increase in revenues and a major improvement
in gross profit, the operating profit increased 330% to $8.1
million compared to a restated $1.9 million last year. On the
Company's preferred measure of profitability, being EBITDA before
share-based payments, the profit was $15.5 million, up from a
restated $7.1 million in FY22, an increase of 119%.
Profit before tax was $7.9 million compared to a restated loss
of $0.2 million, resulting from the revenue growth, the improvement
in margins and the absence of a fair value provision offsetting the
increase in overheads.
The Group has reviewed the recent profitability of its US
subsidiary and the expected growth in profits over the next two
years and has concluded that it is appropriate to include a
deferred tax asset of $1.7 million in this year's results to
reflect the probable utilisation of unused tax losses in the US
subsidiary. This has resulted in a profit and loss credit of $0.2
million (FY22: $1.3 million).
Statement of financial position
Non-current assets increased by 8% in the period. The Company
invested $4.7 million in computer equipment to expand production
capacity and increased lease commitments by $0.8 million to support
the uplift in staff.
The capitalisation of research and development costs increased
by 29% to $2.2 million as we accelerated the product roadmap to
support customer requirements and upgraded our internal production
systems. This also increased the depreciation charge resulting in
the balance sheet asset increasing by 25% to $3.3 million. The
deferred Tax asset increased by $0.2million reflecting the
recoverability of net operating losses in the US.
Trade and other receivables decreased 28% to $16.5 million (FY22
restated: $23.0 million) reflecting the strong sales performance in
the first half of the year. This decrease was mirrored in trade and
other payables as work performed by suppliers and freelancers
peaked in H1 to support our customer deliveries. Contract assets,
which represent work in progress and sales accruals on customer
projects, increased by 33% to $4.8 million as certain projects had
not completed at year-end and were invoiced in April and May
2023.
Current borrowings increased by 7% to $1.4 million and represent
the lease commitments over the next 12 months.
Current liabilities have fallen significantly in the period due
to the lower level of sales in FY23Q4 which has resulted in both
trade payables and accruals decreasing due to the pause in customer
orders.
Cash and cash equivalents of $11.8 million at year end (FY22:
$6.0 million) were up 97% as a result of the improvement in
profitability and strong cash collections.
Non-current liabilities decreased in the year due to the
reduction in the "right to use" liability on our property leases
with both Sheffield and Los Angeles having one less year to
run.
Consolidated statement of cash flows
Net cash generated from operating activities was $15.5 million,
up from $5.2 million in FY22. The increase of $10.0 million is
attributable to the decrease in trade receivables compared to last
year offsetting the increase in trade payables and the increase in
the operating profit. The inflow from operating activities was
reduced by a $8.2 million spend on investing activities, which was
a reduction of $2.1 million on FY22. The reduction was due to the
acquisitions in FY22.
Overall, the Group had a net inflow of $6.0 million compared to
$3.0 million in FY22 as the cash flow from operations more than
offset the fundraise in FY22.
Post balance sheet events and going concern
On the 5(th) April 2023, we completed the acquisition of the
remaining 49% of ZOO Korea that was owned by minority shareholders.
We issued 550,000 ordinary shares in ZOO Digital Group plc to the
exiting shareholders of ZOO Korea and made a one-off payment of
$200,000 in consideration for their 49 per cent stake. The
acquisition reflects the success of the initial investment and the
outlook for media localisation in the region.
In April 2023 we completed a placing and retail offer of new
equity raising a gross $15.8 million to fund the proposed
acquisition of a business in Japan and accelerate our international
footprint. The Company raised gross proceeds of GBP 12.7 million
($15.8 million) through the oversubscribed placing of 7,914,242
Ordinary Shares with certain existing and new institutional and
other investors at a price of 160 pence per New Ordinary Share. The
shares were admitted to trading on 4 May 2023 and 12 May 2023.
On the 4(th) May we acquired 30% of AM Group in Spain for
EUR825,000. T he investment marks the continued expansion of ZOO's
geographic footprint in EMEA, with AM Group acting as a primary hub
for ZOO's operations in Spain and Portugal. It will deliver dubbing
services as part of ZOO's global end-to-end offering for major
studios and streaming services in Iberia, while also supporting
local content creators to expand their reach to global
audiences.
Going forward the business remains confident that it has
sufficient headroom to trade for the foreseeable future, as the
recent fundraise coupled with the renewed $5 million invoice
discounting facility from HSBC gives us the working capital
headroom for the next phase of our expansion. The budget for FY24
has been stress tested by our financial modelling. For this reason,
we continue to adopt the going concern basis in preparing the
financial statements.
Principal risks and uncertainties
Company law requires the Group to report on principal risks and
uncertainties facing the business, which the Directors believe to
be as follows:
International business
While the Group is domiciled in the UK, its main country of
operations is the US and over 79% of ZOO's revenues come from
overseas clients. As with most small international businesses cash
flow and exchange rate fluctuations management present a risk. The
Group continues to focus closely on conservative cash management
and monitors currency transactions taking proactive actions when
appropriate.
Political uncertainty
The political climates in the UK and US are currently
challenging due to the global economic environment. Although the
terrible situation in the Ukraine is having a major impact on the
world economy, the current impact on ZOO is negligible. The
Directors monitor emerging news and trends and remain alert to any
potential impact on the trading of the Group.
Technology conservation
The Group continues with a patent protection policy, with 16
patents granted and a further three pending, having allowed some
legacy patents which are no longer beneficial to lapse. These
active patents are integral to the business in the protection of
our unique technologies.
Operational risks
The main operational risk is managing any unexpected peaks or
troughs in production orders and ensuring that the appropriate
levels of resource are available to provide the quality of services
expected by our clients. This risk is managed by having a core of
highly skilled permanent staff along with a pool of temporary staff
that can be brought in at short notice to help at times of high
volume. In the current year we have supplemented these resources by
engaging international businesses to operate within our technology
platform, giving us further variable cost capacity. The use of
technology helps mitigate this risk by streamlining processes as
much as possible and enabling efficient access to a large, global
and scalable pool of independent contractors.
Loss of the Group's key clients
Client relationships are crucial to the Group and the strength
of them is key to its continued success. The Group mitigates this
risk by a diverse number of contacts working closely with the
largest clients across different business units and seeking to
secure long term contractual agreements for supply of technology
and services. The Group focusses on providing high quality services
to all clients to ensure an attractive and differentiated offering
thereby reducing the likelihood of client loss.
Corporate activity within key clients
Merger and acquisitions within key clients represent a risk as
they can disrupt sales. This risk is mitigated by ensuring an
awareness of news in the market and focussing on diversifying the
client base.
Financial risks
The main financial risks faced by the Group are in relation to
foreign currency and liquidity. The Directors regularly review and
agree policies for managing these risks.
The functional currency and presentation currency of the Company
are US dollars as the majority of the Group's transactions are
undertaken in US dollars, however, the Consolidated Statement of
Financial Position can be affected by movements between pound
sterling and the US dollar as the parent company and UK
subsidiaries have some pound sterling debtors and creditors.
Foreign currency risk is managed by matching payments and receipts
in foreign currency to minimise exposure. Further information on
the financial risks is given in note 28 to the accounts.
The Group is exposed to the usual credit risk and cash flow risk
associated with selling on credit and manages this through credit
control procedures. The Group regularly monitors cash flows and
cash resources and has the ability to draw down funds from
financing facilities in the UK and the US.
Phillip Blundell
Director and Secretary
9th August 2023
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2023
Restated*
2023 2022
Note $000 $000
===================================================== ========= ============
Revenue 90,260 70,403
Cost of sales (56,327) (49,562)
====================================================== ========= ============
Gross Profit 33,933 20,841
Other operating income 8 204
Other operating expenses (25,860) (19,165)
====================================================== ========= ============
Operating profit 8,081 1,880
====================================================== ========= ============
Analysed as:
EBITDA before share based payments 15,466 7,060
Share based payments (1,650) (513)
Depreciation (net of grant) and impairment (3,973) (3,008)
Amortisation (1,762) (1,659)
====================================================== ========= ============
8,081 1,880
===================================================== ========= ============
Share of profit of associates and JVs 146 -
============================================== ====== ========= ============
Finance income 8 -
Exchange gain/(loss) on borrowings 247 (5)
Fair value movement on embedded derivative - (1,567)
Finance cost (620) (519)
====================================================== ========= ============
Total finance costs (365) (2,091)
====================================================== ========= ============
Profit/(loss) before taxation 7,862 (211)
Tax credit 370 1,573
====================================================== ========= ============
Profit and total comprehensive income
for the year attributable to equity holders
of the parent 8,232 1,362
====================================================== ========= ============
Profit per share 4
================== =========== ===========
basic 9.30 cents 1.60 cents
================== =========== ===========
diluted 8.30 cents 1.50 cents
================== =========== ===========
*see note 8 for details regarding the prior period
restatement.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2023
Restated*
2023 2022
Note $000 $000
======================================= ===== ========= ====== ==========
ASSETS
Non-current assets
Intangible assets 10,341 9,870
Property, plant and equipment 14,736 13,317
Equity accounted investments 4,300 4,154
Deferred income tax assets 1,664 1,490
======================================= ===== ========= ====== ==========
31,041 28,831
======================================= ===== ========= ====== ==========
Current assets
Trade and other receivables 16,532 22,972
Contract assets 4,836 3,647
Cash and cash equivalents 11,839 5,962
======================================= ===== ========= ====== ==========
33,207 32,581
======================================= ===== ========= ====== ==========
Total assets 64,248 61,412
======================================= ===== ========= ====== ==========
LIABILITIES
Current liabilities
Trade and other payables (19,746) (25,884)
Contract liabilities (693) (774)
Borrowings 7 (1,408) (1,313)
--------------------------------------- ----- --------- ------ ----------
(21,847) (27,971)
======================================= ===== ========= ====== ==========
Non-current liabilities
Borrowings 7 (6,968) (7,830)
Other payables (300) (619)
(7,268) (8,449)
======================================= ===== ========= ====== ==========
Total liabilities (29,115) (36,420)
======================================= ===== ========= ====== ==========
Net assets 35,133 24,992
======================================= ===== ========= ====== ==========
EQUITY
Equity attributable to equity holders
of the parent
Called up share capital 6 1,179 1,174
Share premium reserve 55,797 55,665
Foreign exchange translation reserve (992) (992)
Converted loan note reserve - 5,471
Share option reserve 4,391 2,619
Capital redemption reserve 6,753 6,753
Interest in own shares (49) (49)
Other reserves 12,320 12,320
Accumulated losses (44,266) (57,969)
======================================= ===== ========= ====== ==========
Attributable to equity holders 35,133 24,992
======================================= ===== ========= ====== ==========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2023
Total
equity
attributable
Foreign Converted Interest to the
Share exchange loan Share Capital in owners
Ordinary premium translation note option redemption Other Accumulated own of the
shares reserve reserve reserve reserve reserve reserves losses shares Parent
$000 $000 $000 $000 $000 $000 $000 $000 $000 $000
=============== ========= ======== ============ ========== ======== =========== ========= ============ ====== ==================
Balance
at 1 April
2021 1,010 41,003 (997) 42 2,085 6,753 12,320 (59,331) (46) 2,839
Issue of
Share Capital 164 14,662 - 5,429 - - - - - 20,255
Share options
exercised - - - - 21 - - - - 21
Share based
payments - - - - 513 - - - - 513
--------------- --------- -------- ------------ ---------- -------- ----------- --------- ------------ ------ ------------------
Transactions
with owners 164 14,662 - 5,429 534 - - - - 20,789
--------------- --------- -------- ------------ ---------- -------- ----------- --------- ------------ ------ ------------------
Foreign
exchange
translation
adjustment - - 5 - - - - - (3) 2
Profit for
the year
(restated) - - - - - - - 1,362 - 1,362
=============== ========= ======== ============ ========== ======== =========== ========= ============ ====== ==================
Total
comprehensive
income for
the year
(restated) - - - - - - - 1,362 - 1,362
=============== ========= ======== ============ ========== ======== =========== ========= ============ ====== ==================
Balance
at 31 March
2022
(restated) 1,174 55,665 (992) 5,471 2,619 6,753 12,320 (57,969) (49) 24,992
--------------- --------- -------- ------------ ---------- -------- ----------- --------- ------------ ------ ------------------
Balance
at 31 March
2022 as
originally
presented 1,174 55,665 (992) 5,471 2,619 6,753 12,320 (56,703) (49) 26,258
Prior period
adjustment - - - - - - - (1,266) - (1,266)
After restated
total equity
as at 31
March 2022 1,174 55,665 (992) 5,471 2,619 6,753 12,320 (57,969) (49) 24,992
--------------- --------- -------- ------------ ---------- -------- ----------- --------- ------------ ------ ------------------
Issue of
Share Capital 5 - - - - - - - - 5
Share options
exercised - 132 - - 122 - - - - 254
Share based
payments - - - - 1,650 - - - - 1,650
Transfer
of converted
loan note
reserve - - - (5,471) - - - 5,471 - -
=============== ========= ======== ============ ========== ======== =========== ========= ============ ====== ==================
Transactions
with owners 5 132 - - 1,772 - - - - 2,672
--------------- --------- -------- ------------ ---------- -------- ----------- --------- ------------ ------ ------------------
Foreign
exchange
translation
adjustment - - - - - - - - - -
Profit for
the year - - - - - - - 8,232 - 8,232
=============== ========= ======== ============ ========== ======== =========== ========= ============ ====== ==================
Total
comprehensive
income for
the year - - - - - - - 8,232 - 8,232
Balance
at 31 March
2023 1,179 55,797 (992) - 4,391 6,753 12,320 (44,266) (49) 35,133
=============== ========= ======== ============ ========== ======== =========== ========= ============ ====== ==================
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2023
Restated*
2023 2022
Note $000 $000
================================================ ===== ======== ==========
Cash flows from operating activities
Operating profit for the year 8,081 1,880
Other income 8 -
Depreciation and impairment 3,973 3,022
Amortisation and impairment 1,762 1,659
Share based payments 1,650 513
Changes in working capital:
Increases in trade and other receivables 5,251 (15,433)
(Decrease)/Increase in trade and other
payables (5,219) 13,583
================================================ ===== ======== ==========
Cash flow from operations 15,506 5,224
Tax received 196 258
================================================ ===== ======== ==========
Net cash inflow from operating activities 15,702 5,482
================================================ ===== ======== ==========
Investing activities
Purchase of intangible assets (60) (58)
Capitalised development costs (2,163) (1,675)
Purchase of Investments - (953)
Acquisition of subsidiaries - (3,000)
Purchase of property, plant and equipment (4,706) (4,377)
Payment of deferred consideration (1,300) (300)
================================================ ===== ======== ==========
Net cash outflow from investing activities (8,229) (10,363)
================================================ ===== ======== ==========
Cash flows from financing activities
Repayment of borrowings (477) (231)
Proceeds from fund raise - 10,107
Repayment of principal under lease liabilities (748) (1,268)
Finance cost (630) (348)
Share options exercised 254 21
Share issue costs - (551)
Issue of share capital 5 164
Net cash (outflow)/inflow from financing (1,596) 7,894
================================================ ===== ======== ==========
Net increase in cash and cash equivalents 5,877 3,013
================================================ ===== ======== ==========
Cash and cash equivalents at the beginning
of the year 5,962 2,949
================================================ ===== ======== ==========
Cash and cash equivalents at the end
of the year 5 11,839 5,962
================================================ ===== ======== ==========
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2023
1. General information
ZOO Digital Group plc ('the company') and its subsidiaries
(together 'the group') provide productivity tools and services for
digital content authoring, video post-production and localisation
for entertainment, publishing and packaging markets and continue
with on-going research and development in those areas. The group
has operations in the UK, US and India.
The company is a public limited company which is listed on the
AIM Market of the London Stock Exchange and is incorporated and
domiciled in the UK. The address of the registered office is Floor
2 Castle House, Angel Street, Sheffield.
The registered number of the company is 03858881.
The consolidated financial statements are presented in US
dollars, the currency of the primary economic environment in which
the company operates (note 2.4.1). Monetary amounts in these
financial statements are rounded to the nearest $000.
2. Statement of compliance
The financial information set out in this preliminary
announcement does not constitute the Group's statutory financial
statements for the period ended 31 March 2023 or 31 March 2022 as
defined in section 435 of the Companies act 2006 (CA 2006) but is
derived from those audited financial statements. Statutory
financial statements for 2022 have been delivered to the Registrar
of Companies and those for 2023 will be delivered in due course.
The auditors reported on those accounts; their reports were
unqualified and did not contain a statement under either Section
498(2) or Section 498(3) of the Companies Act 2006.
Selected explanatory notes are included to explain events and
transactions that are significant to an understanding of the
changes in financial position and performance of the Group.
3. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been applied consistently to all the years presented, unless
otherwise stated.
3.1 Basis of preparation and going concern
Group financial statements
These financial statements have been prepared in accordance with
UK adopted international accounting standards and the requirements
of the Companies Act 2006.
The preparation of financial statements in accordance with
international accounting standards and the requirements of the
Companies Act 2006 requires management to make judgements,
estimates and assumptions that effect the application of policies
and reported amounts in the financial statements.
Going concern
The directors have prepared trading and cash flow forecasts for
the group for the period to 31 March 2025 which show a continuation
of the growth in profitability and cash generation. In line with
industry practice in this sector the directors have had informal
indications from major and smaller clients to substantiate a
significant proportion of the forecast sales. The directors have
considered the consequences if the sales volume is less than the
level forecast and they are confident that, in this eventuality,
alternative steps could be taken to ensure that the group has
access to sufficient funding to continue to operate. The group has
a facility with HSBC Bank which provides invoice financing of up to
$5m against US clients invoices raised by ZOO Digital Production
LLC. This facility is in place until 1 June 2024.
The directors believe the assumptions used in preparing the
trading and cash flow forecasts to be realistic, and consequently
that the group will continue in operational existence for the
foreseeable future. The financial statements have therefore been
prepared on a going concern basis.
New and revised standards that are effective for annual periods
beginning on or after 1 April 2022
There are no new or revised standards that will have a material
impact on the Group.
3.1.1 Standards and interpretations in issue at 31 March 2023
but not yet effective and have not yet been adopted early by the
Group
At the date of authorisation of these financial statements,
there are no new, but not yet effective, standard, amendments to
existing standards, or interpretations that have been published by
the IASB that will have a material impact on these financial
statements.
3.2 Consolidation
Subsidiaries are all entities (including structured entities)
over which the group has control. The group controls an entity when
the group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is obtained until the
date that control ceases.
The consolidated financial statements of ZOO Digital Group plc
include the results of the company and its subsidiaries. Subsidiary
accounting policies are amended where necessary to ensure
consistency within the group and intra group transactions are
eliminated on consolidation.
The Group applies the acquisition method when accounting for
business combinations. The consideration transferred by the Group
to obtain control of a subsidiary is calculated as the sum of the
acquisition-date fair values of assets transferred, liabilities
incurred and equity interests issued the Group, which includes the
fair value of any asset or liability arising from a contingent
consideration arrangement. Acquisition costs are expensed as
incurred.
Assets acquired and liabilities assumed are generally measured
at their acquisition date fair values. However, such fair values
and all associated accounting entries are subject to revision
during a period not exceeding 12 months following the date of
acquisition, insofar as the accounting for the business combination
is incomplete by the end of the first reporting period date. As a
result, ZOO Digital Group plc revises any provisional amounts
retrospectively to reflect further evidence received in respect of
acquisition date values.
3.3 Foreign currency translation
3.3.1 Functional and presentation currency
Items included in the financial statements of each of the
group's entities are measured using the currency of the primary
economic environment in which the entity operates ('the functional
currency'). The consolidated financial statements are presented in
US dollars which is the company's functional and presentation
currency. The functional currency of the company's subsidiaries is
US dollars, therefore the majority of transactions between the
company and its subsidiaries and the company's revenue and
receivables are denominated in US dollars.
The US dollar/pound sterling exchange rate at 31 March 2023 was
0.813 (2022: 0.762).
3.3.2 Transactions and balances
Transactions in foreign currencies are recorded at the
prevailing rate of exchange in the month of the transaction.
Foreign exchange gains or losses resulting from the settlement of
such transactions and from the translation of monetary assets and
liabilities denominated in foreign currencies at the year end
exchange rates are recognised in the profit/(loss) for the year in
the Consolidated Statement of Comprehensive Income.
3.3.3 Group companies
The results and financial position of all group entities that
have a functional currency different from the presentation currency
are translated into the presentation currency as follows:
- assets and liabilities for each entity are translated at the
closing rate at the year end date;
- income and expenses for each Statement of Comprehensive Income
are translated at the prevailing monthly exchange rate for the
month in which the income or expense arose.
4. Earnings per share
Basic earnings per share ("EPS") is calculated by dividing the
profit/(loss) attributable to equity holders of the company by the
weighted average number of ordinary shares in issue during the
year.
Diluted EPS is calculated by dividing the profit attributable to
the equity holders of the Parent by the weighted average number of
ordinary shares outstanding plus the weighted average number of
shares that would be issued on conversion of all the dilutive share
options into ordinary shares.
Basic and Diluted
Restated
2023 2022
$000 $000
Profit for the financial year 8,232 1,362
================================ ========== =============
2023 2022
Number Number
of shares of shares
Weighted average number of shares for basic
& diluted profit per share
================================================= =========== ===========
Basic 88,835,890 85,037,636
Effect of dilutive potential
ordinary shares:
Share options 10,451,983 8,585,215
Diluted 99,287,873 93,622,851
================================================= =========== ===========
Restated
2023 2022
Cents Cents
Basic 9.30 1.60
Diluted 8.30 1.50
============= ====== =========
5. Notes to the cash flow statement
5.1 Significant non-cash transactions
During the year the group acquired property, plant and equipment
and computer software with a cost of $5,392,000 (2022: $12,969,000)
of which $686,000 (2022: $8,495,000) was acquired by means of a
lease.
5.2 Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances
with banks. Cash and cash equivalents included in the cash flow
statement comprise the following consolidated statement of
financial position amounts.
Group
2023 2022
$000 $000
--------------------------- ------- ------
Cash on hand and balances
with banks 11,839 5,962
--------------------------- ------- ------
The fair values of the cash and cash equivalents are considered
to be their book value.
6. Share capital and reserves for Group and Company
Called up share capital
2023 2022
$000 $000
=============================================== ====== ======
Allotted, called-up and fully paid
89,285,291 (2022: 88,335,079) ordinary shares
of 1p each 1,179 1,174
----------------------------------------------- ------ ------
Reconciliation of the number of ordinary shares
outstanding:
Opening balance 88,335,079 74,837,271
Shares issued 185,545 28,022
Vista Acquisition - 636,100
Converted loan note - 5,336,459
Fundraise - 7,454,727
Share options exercised 764,667 42,500
------------------------------------------------- ----------- -----------
Closing balance 89,285,291 88,335,079
------------------------------------------------- ----------- -----------
Reserves
The following describes the nature and purpose of each reserve
within owner's equity:
Reserve Description and purpose
---------------------- ------------------------------------------------------
Share premium reserve Represents the amount subscribed for share capital
in excess of the nominal value.
Foreign exchange Cumulative exchange differences resulting from
translation reserve the Group changing reporting currency from pounds
sterling to USD.
Converted loan note Represents the gain recognised on conversion
reserve of historic loan notes. *
Share option reserve Cumulative cost of share options issued to employees.
Capital redemption Represents 32,660,660 deferred shares of 14p
reserve each created during the share reorganisation
on 4 May 2017.
Interest in own This arises from ZEST and concerns historical
shares transactions as part of the Group's employee
benefit trust.
Other reserves Created as part of the reverse takeover between
Kazoo3D plc and ZOO Media Corporation Ltd in
2001.
Accumulated losses Cumulative net losses recognised in profit or
loss.
* In the current year the Directors have reviewed the converted
loan note reserve and concluded that the losses within here
represent realised retained profits to which the Group and Company
have unconditional entitlement. As such, the reserve has been
transferred to offset against accumulated losses.
7. Borrowings
Group
2023 2022
$000 $000
Non-current
------------------- ------ ------
Lease liabilities 6,968 7,830
------------------- ------ ------
6,968 7,830
------------------- ------ ------
Current
---------------------------- ------ ------
Amounts owed to subsidiary
undertakings - -
Lease liabilities 1,408 1,313
---------------------------- ------ ------
Borrowings 1,408 1,313
Total borrowings 8,376 9,143
---------------------------- ------ ------
The group has renewed on 1 June 2023 with HSBC Bank US an
invoice financing facility of up to $5.0 million against US client
invoices raised by ZOO Digital Production LLC. The facility is in
place until the renew date of 1 June 2024.
The UK banking partner, HSBC, continues to provide an overdraft
facility of GBP250,000. The principal outstanding at 31 March 2023
was nil (2022: nil). This line of funding has been secured as a
floating charge over the assets of the UK companies and
automatically renews on an annual basis.
Lease liabilities
Lease liabilities are payable as follows:
Present
Future value
minimum of minimum
lease lease
At 31 March 2023 Group only payments Interest payments
$000 $000 $000
----------------------------- ---------- --------- ------------
Less than one year 1,941 (533) 1,408
Between one and five years 8,187 (1,219) 6,968
10,128 (1,752) 8,376
============================= ========== ========= ============
The lease periods range from between 1 and 10 years, with
options to purchase the asset at the end of the term if applicable.
Lease liabilities are secured against the leased assets.
8. Restatement of prior period
The Board has made two prior year restatements, one related to
an incorrect basis of accounting for revenue and contract assets /
costs at the year end, and one related to the conclusion of fair
values on a business combination (as expected under IFRS 3).
Incorrect basis of accounting
During 2023 the Group identified an error relating to its
application of IFRS 15 'Revenue from Contracts with Customers' in
respect of the recognition of costs incurred on partially completed
contracts, where performance obligations were not wholly satisfied
as at the reporting date. Under IFRS 15, as the Group applies the
output method to account for its partially completed performance
obligations, the costs should be expensed in the period in which
they were incurred; previously, the Group had incorrectly performed
a matching exercise such that costs were accrued or deferred to
match the revenue recognised under the output method.
This has resulted in a material understatement of cost of sales
in 2022, and a material overstatement in accruals and prepayments.
As a result, the prior year has been adjusted as per below
(decrease in profit of $1,266,000).
Consolidation of statement of comprehensive Increase/ Restated
income (extract) 2022 decrease 2022
$000 $'000 $000
============================================= ========= ========== =========
Revenue 70,403 - 70,403
Cost of sales (48,296) (1,266) (49,562)
--------------------------------------------- --------- ---------- ---------
Gross profit 22,107 (1,266) 20,841
--------------------------------------------- --------- ---------- ---------
Increase/ Restated
2022 decrease 2022
$000 $'000 $000
========================== ====== ========== ===========
Profit/(loss) before tax 1,055 (1,266) (211)
Tax on profit/(loss) 1,573 - 1,573
-------------------------- ------ ---------- -----------
Profit for the year 2,628 (1,266) 1,362
-------------------------- ------ ---------- -----------
Consolidated statement of financial position Increase/ Restated
(extract) 2022 decrease 2022
$000 $'000 $000
============================================== ======= ========== ==========
Trade and other receivables 25,992 (3,020) 22,972
35,601 (3,020) 32,581
---------------------------------------------- ------- ---------- ----------
Total currents assets 64,432 (3,020) 61,412
---------------------------------------------- ------- ---------- ----------
Increase/ Restated
2022 decrease 2022
$000 $'000 $000
========================== ========= ========== ==========
Trade and other payables (27,638) 1,754 (25,884)
(29,725) 1,754 (27,971)
-------------------------- --------- ---------- ----------
Net assets 26,258 (1,266) 24,992
---------------------------------------------- --------- ---------- ---------
Consolidated statement of financial position Increase/ Restated
(extract) 2022 decrease 2022
$000 $'000 $000
============================================== ========= ========== =========
Accumulated losses (56,703) (1,266) (57,969)
---------------------------------------------- --------- ---------- ---------
Attributable to equity holders 26,258 (1,266) 24,992
---------------------------------------------- --------- ---------- ---------
Increase/ Restated
Income Tax (extract) 2022 decrease 2022
$000 $'000 $000
================================================ ====== ========== ===========
Profit/(loss) before tax 1,055 (1,266) (211)
------------------------------------------------ ------ ---------- -----------
Tax calculated at standard rate of corporation
tax of 19% 200 (200) (40)
(deducted from)/accumulation of unrecognised
losses brought forward (200) 200 40
------------------------------------------------ ------ ---------- -----------
We have assessed the impact of the misstatement and conclude
that no material changes to the tax charge in
2022 are required. As the Group has significant tax losses no
tax would be provided for.
There is no change to net cash inflow from operating activities
as a result of this prior period adjustment. However, movements in
trade and other receivables decreased from a position of
$18,453,000 by $3,020,000 to $15,433,000 and movements in trade and
other payables decreased from $15,337,000 by $1,754,000 to
$13,583,000.
The correction to profit has been shown through the Consolidated
Statement of changes in equity.
The correction to prepayments and accruals as at 31 March 2022
can be seen in the Consolidated statement of financial position on
page 20, and has also had consequential amendments on other notes
to the financial statements, most notably the segmental analysis
and the earnings per share .
Basic and diluted earnings per share for the prior year have
been restated. The amounts of the correction for basic and diluted
earnings per share was a decrease of 1.5 and 1.3 cents per share
respectively.
Annual report and Accounts
Copies of the Report & Accounts for the year ended 31 March
2023 will shortly be available to view on the Group's website
www.zoodigital.com .
The Report & Accounts for the year ended 31 March 2023,
together with the notice of annual general meeting, are expected to
be posted to shareholders during August 2023; an announcement to
notify shareholders of this will be made in due course. Further
copies will be available from the Company's Registered Office:
2(nd) Floor, Castle House, Angel Street, Sheffield S3 8LN.
Annual General Meeting
The Annual General Meeting of the Group will be held at
Instinctif Partners, 1(st) Floor 65 Gresham Street, London EC2V 7NC
on 28th September 2023 at 5pm.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR SFFSSSEDSEDA
(END) Dow Jones Newswires
August 10, 2023 02:00 ET (06:00 GMT)
Zoo Digital (LSE:ZOO)
Historical Stock Chart
From Jul 2024 to Aug 2024
Zoo Digital (LSE:ZOO)
Historical Stock Chart
From Aug 2023 to Aug 2024