TIDMZOO
RNS Number : 9960E
Zoo Digital Group PLC
13 July 2021
13 July 2021
ZOO DIGITAL GROUP PLC
("ZOO" the "Group" or the "Company")
FINAL RESULTS FOR THE YEARED 31 MARCH 2021
A year of substantial sales growth, momentum carried into
current year
ZOO Digital Group plc (AIM: ZOO), the leading provider of
end-to-end cloud-based localisation and media services to the
global entertainment industry, today announces its audited
financial results for the year ended 31 March 2021.
HIGHLIGHTS
Key Financials
-- Revenue grew by 33% to $39.5 million (FY20: $29.8 million)
-- Adjusted EBITDA* more than doubled to $4.5 million (FY20:
$2.1 million) - EBITDA* margin increased to 11.5% (FY20:
7.0%)
-- Operating profit of $1.0 million (FY20: loss of $0.6
million)
-- Reported loss before tax of $3.6 million (FY20: breakeven)
after non-cash fair value movement on embedded derivative
of $3.5 million
-- Net cash at year end $2.9 million prior to receipt of
proceeds of fundraising with no debt other than convertible
loan notes (FY20: $1.2 million)
Operational Highlights
-- Cloud software allowed ZOO to continue providing an efficient,
secure and uninterrupted service to customers throughout
the global pandemic
-- Increased workflow from preparing back catalogue titles
led to significant increase in demand for media services,
more than compensating for the drop-off in new productions
and resulting in sales for this segment in the period
of $17.5 million, up 136% (FY20: $7.4 million)
-- ZOO continued to lead the digital transformation of the
sector, further enhancing current platforms, and launching
newly developed platforms: ZOOmedia, and ZOOsign
-- New services were launched for Asset Health Check, remote
Automated Dialogue Replacement, and "Post to Platform"
-- The freelancer network grew to 9,207 (FY20: 7,184, +28%)
-- The business continued to establish a presence in key
territories, increased the number of partner studios
and vendors to 232 (FY20: 155, +50%)
-- The high quality management team across ZOO was expanded
through a global talent and advocate programme
-- The group successfully maintained an ongoing high level
of customer satisfaction - retained sales KPI was 98.5%
(FY20: 97.3%)
Post Period End
-- Placing raising GBP7.4 million ($10.3 million) in April
2021 to support growth and investment in R&D to maintain
leading innovative position
Outlook
-- Combined and accelerating market trends have presented
an extraordinary opportunity for ZOO to seize market
share and grow in an expanding market
-- Trading in the first quarter of FY22 has been strong
and ahead of the prior year period. Based on current
visibility, we expect to deliver significant growth in
the first half of FY22
-- Business continues to receive significant orders for
catalogue content with vast untapped archives of global
content for streaming services that require the full
range of services offered by ZOO
-- Following the fundraise, multiple opportunities identified
to establish hubs in India, Middle East and Southeast
Asia, and hiring of additional talent is progressing
well
-- The Board remains confident of continuing growth
* Adjusted for share-based payments
Copies of the Report and Accounts for the year ended 31 March
2021 are available on the Group's website www.zoodigital.com and,
in accordance with AIM Rule 20, will be distributed to shareholders
in August 2021.
Stuart Green, CEO of ZOO Digital, commented,
"ZOO performed strongly during the year with revenues growing by
a third to $39.5 million and making good progress towards our
ambitious goal of $100 million of sales. Adjusted EBITDA more than
doubled to $4.5 million.
"In a year when the world stayed at home and watched more TV,
ZOO worked from home to deliver more content, to more audiences
than ever before. We support major Hollywood studios and streaming
services to globalise their new and catalogue content in all
languages. The industry in which we operate is huge and is
undergoing a structural shift which has markedly accelerated over
the past 12 months. ZOO is positioned well to continue to benefit
from the unrelenting rise in streaming video.
"Looking forward, we continue to win new business as production
of new titles is now resuming and significant orders for catalogue
projects continue. Our new financial year has begun well,
maintaining the momentum achieved last year, and we remain
confident of continuing growth and achieving market
expectations."
For further enquiries please contact:
ZOO Digital Group plc +44 114 241 3700
Stuart Green - Chief Executive Officer
Phillip Blundell - Chief Finance Officer
Stifel Nicolaus Europe Limited
F red Walsh/Luisa Orsini Baroni +44 207 710 7600
Instinctif Partners +44 207 457 2020
Matthew Smallwood/Rosie Driscoll zoo@instinctif.com
Hannah Campbell
The Company further wishes to draw attention to the posting on
its website ( www.zoodigital.com ) of a presentation to
shareholders regarding its final results, and of an investor
presentation ( www.zoodigital.com/prelims2021 ) that will be live
streamed on Tuesday 13(th) July at 5:00pm BST.
CHAIRMAN'S STATEMENT
I am pleased to report an excellent year for ZOO Digital, which
has delivered strong growth throughout a period of significant
disruption to the entertainment industry caused by the COVID-19
pandemic.
For several years the entertainment market has been undergoing a
structural shift and we have seen this accelerate markedly over the
last 12 months. The industry continues to be reshaped by the
unrelenting rise in streaming video through which internationally
sourced content is becoming accessible to consumers globally.
ZOO's role is pivotal, providing the essential services needed
by the industry to take completed TV series or feature films and
create the materials necessary for content to playout on streaming
platforms in any language. ZOO operates as a one-stop-shop,
delivering services powered by its proprietary cloud technology
that has provided resilience during the pandemic.
ZOO has been able to operate as normal during the past year,
despite the disruption to the wider industry. In a market segment
that has shrunk slightly over the period, ZOO has delivered strong
growth. Revenues are up by 33% over the prior year to $39.5
million, and adjusted EBITDA has increased 112% to $4.5
million.
For major media companies, business is becoming increasingly
challenging due to the decline in traditional revenue sources of
the box office and PayTV licensing, the launch of
direct-to-consumer services, enlarged production programmes and
expansion of streaming services globally. At ZOO, our mission is to
make life easier for the people who entertain the world and be our
customers' most trusted partner to deliver engaging, entertaining,
and immersive content experiences to global audiences.
During a period when market commentator Slator reported* that
media localisation market sales declined slightly, our strong
growth implies that we have grown our market share. With the
backdrop of the temporary halting of new title productions during
the pandemic, we have proven ourselves to be reliable, adaptable,
and capable of meeting all our customers' requirements. Our
competitive advantage is particularly strong with global platform
customers that have adopted our software solutions to manage their
streaming production operations and enjoy significant productivity
benefits as a result.
In April 2021, we completed a GBP7.4 million (approximately
$10.3 million) fundraise to enable us to fully capitalise on the
excellent opportunities available to us. This will allow us to
accommodate an expanding order book, continue to deliver strong
growth and boost our R&D capabilities to further build on our
leading position in the market.
I would like to welcome the new shareholders who joined our
register in the recent placing, and to thank all our investors and
stakeholders for the support they have shown over the past year. In
addition, I am grateful to the holders of ZOO's convertible
unsecured loan stock, most of whom have continued their support
since this was issued in 2007 and have since agreed to several
extensions. With the instrument reaching the end of its term in
October 2021, we look forward to redeeming the capital or
converting the loan stock to equity at the option of individual
holders.
There have been many obstacles to navigate over the past year,
yet our people have performed magnificently, rising to every
challenge that has been thrown at them. I would like to extend my
gratitude not only to those employed by ZOO, but also to our
growing community of over 9,000 freelance workers and over 200
partner studios and vendors who are crucial to delivering the
high-quality services we offer. Today's results would not have been
possible without their ongoing support and hard work. Thank you
all.
With an expanding market and excellent customer relationships,
the Board remains confident of continuing growth for the years
ahead.
Gillian Wilmot
Chairman
*
https://slator.com/data-research/slator-2021-language-industry-market-report/
STRATEGIC REPORT
Introduction
Our strategic report covers an extraordinary period for almost
every business across all sectors around the world. There are few
markets that have been unaffected by the global pandemic, and
entertainment is certainly no exception. The suspension in
production of feature films and TV series has had a detrimental
effect on businesses that operate in production and
post-production. The demand for media localisation in our sector is
greatest in relation to newly produced titles and consequently the
pandemic has had a big impact particularly on traditional dubbing
businesses in its early months.
Despite this, ZOO has delivered strong growth of 33% year on
year, fuelled by the expansion of its media services segment, and
continued to play a leading role in the digital transformation of
the sector. This is a testament to the Group's strategy, built on
its proprietary technology and operational differentiators that
have enabled it to adapt to the changing requirements of customers,
and to the trusted status of the Company as a preferred vendor to
six leading content producers and streaming platforms.
Market Overview
Changes to industry dynamics accelerated during 2020
Streaming video through Over-the-Top (OTT) delivery is now
central to the strategy of every major media company across the
entertainment industry. During the pandemic, major publishers
including Disney, WarnerMedia and NBC Universal have pursued
Premium Video on Demand (PVOD) offerings where new movies are shown
on streaming services first. Netflix, Amazon and Disney+ have all
reported significant growth in subscribers to their streaming
services during the last year as the platforms are increasingly
adopted.
This rise in streaming services has further accelerated the
decline in the PayTV market, where consumers are terminating
expensive long-term PayTV packages ('cord-cutters') in favour of
internet services combined with month-to-month subscriptions to
streaming platforms. The loss of licensing and advertising revenue
is expected to continue fuelling providers to move their best
content away from PayTV to direct-to-consumer (DTC). This has been
evidenced by Disney, who is pivoting its core strategy away from
PayTV and recently announced its intention to close 100
international TV channels and migrate content to Disney+. Other
major media companies including Comcast, WarnerMedia, ViacomCBS and
Discovery have also launched DTC services over the past two years,
driving consumers to switch to subscription video on demand (SVOD)
offerings. SVOD subscriptions are expected to increase by 591
million between 2020-26 to reach 1.5 billion, an increase of 65%
(Digital TV Research).
In addition, the recently announced divestment of WarnerMedia
(that includes brands HBO, Cartoon Network and CNN) by AT&T
will see it combine with Discovery to create one of the largest
entities in entertainment, while Amazon intends to acquire MGM
Studios to bolster the Amazon Prime video service with a large
catalogue of content that will include James Bond, Rocky and Real
Housewives to name a few. The acquisition also brings the talents
and experience of a fully-fledged studio to Amazon, which should
help in producing high quality originals like MGM's recent hits
such as The Handmaid's Tale and Fargo.
Going forward, it is difficult to know whether simultaneous
release on PVOD will become the norm to optimise revenues through
earlier exploitation of streaming services. However, despite the
pandemic, large media companies are committing to ever increasing
budgets to create new programmes. Earlier this year, Netflix
announced it will spend $17 billion on content in 2021; Amazon
spent $11 billion on TV series, movies and music for its Prime
services in 2020, an increase of 41% from 2019; while Disney
expects to spend $8-9 billion on content for Disney+ by 2024
(excluding spend on feature films and TV shows distributed
elsewhere that may also become available on the platform). At
launch, Comcast pledged about $1 billion per year for four years on
content and marketing to launch its Peacock service. WarnerMedia
committed between $1.5 billion and $2 billion for content on its
HBO Max platform in its first year, with $1 billion budgeted for
each following year.
Globalisation of content
Netflix provides localised versions of content in 30 languages
across 190 countries. Amazon Prime (available in over 200
countries) makes available a similar number of language versions.
At launch, Disney+ original titles were available with subtitles
and dubbed audio in 16 languages which has since been increased to
21 languages across 59 countries as Disney progresses the
platform's global expansion.
Content is going increasingly global as non-English feature
films and TV series become more and more popular amongst
international audiences. Quality international content is in high
demand and widely sought after by streaming platforms. In 2020,
review website Rotten Tomatoes chose Netflix's first
German-language show, Dark, as the best Netflix Original series.
The second season of Iceland's Trapped was watched by 10 million
people in the United Kingdom, Germany, France, and across
Scandinavia. Distribution demand for the Spanish La Casa de Papel
(Money Heist) soared and the show's fourth season in April 2020 was
32 times more in demand than popular English-language series like
The Walking Dead, Westworld, and Game of Thrones. The opening of
global markets for such content, which hitherto may have been
accessible only in the country of origin, is providing vast
archives of untapped programming that may, over time, find its way
onto streaming services - a great opportunity for ZOO.
All global streaming companies are paying particular attention
to the high growth markets in Asia where the increased penetration
of broadband and wireless networks is creating significant demand
for SVOD services. China's absolute growth is forecast to exceed
that of the United States between 2018 and 2023 for the first time
(at a CAGR of 7.7%), while Indonesia, Vietnam and the Philippines
are expected to grow (according to the latest PwC Entertainment and
Media Outlook) at 9.4%, 7.1%, and 6.1% respectively.
COVID-19
The impact of the global pandemic was felt early across the
entertainment industry as many struggled to work from home while
maintaining robust levels of data security. ZOO initially
experienced a dramatic drop-off in the order book and increasing
uncertainty as customers migrated to home working between February
and April 2020 when their placement of orders was temporarily
suspended. A large proportion of the work the Company processed at
that time related to new original titles, the production of which
was halted.
However, ZOO's cloud software platforms enabled the Company to
transition seamlessly to working from home and continue to provide
an efficient, secure and uninterrupted service. The pandemic
highlighted the resilience of ZOO's model in contrast to the
disruption experienced by traditional providers reliant on travel
and people working in proximity. ZOO was also well positioned to
adapt quickly to the changing focus of customers as their attention
shifted to catalogue content. This was possible due to the
end-to-end (E2E) service offering that ZOO provides, including a
portfolio of media services that are required to prepare content
for digital distribution. Over the course of the financial year,
the significant temporary decline in demand for services around new
original content was more than offset by the rise in demand for
media services, a consequence of the accelerated drive by content
owners to migrate catalogues to streaming for which such services
are required to a greater extent.
ZOO's ability to continue to deliver services meant that the
Company received a much higher level of customer enquiries in the
period from April 2020. The Company worked to finish projects that
had been begun by other vendors and on newly completed titles that
would previously have been dubbed by traditional studios. For new
customers, ZOO was able to demonstrate the benefits of its
cloud-based dubbing service as not only a more efficient means to
complete projects quickly but also to deliver high quality
results.
The roll-out of vaccines has enabled some productions to resume,
with Netflix now producing safely in every major market except
Brazil and India. As a result, the Board anticipates that new
titles will become ready for localisation in volume commencing in
the third calendar quarter of 2021.
During this period, ZOO was also approached to work on Automated
Dialogue Replacement (ADR) projects. ADR is the process of
re-recording original dialogue after the filming process to improve
audio quality, facilitate lip-sync dubbing and make changes to the
originally scripted dialogue. It is a standard practice when
creating premium scripted entertainment and its production has
similarities to the process of dubbing. With screen actors unable
to travel, customers turned to ZOO to enable the efficient
production of ADR recordings using the Company's ZOOdubs platform.
This experience enabled us to identify a new market opportunity and
launch our remote ADR service offering during the year.
Strategy
ZOO is pioneering and innovating in the markets in which it
operates. ZOO's strategy is to deliver significant competitive
advantage by making operations more efficient, ensuring
consistently high-quality results, and developing service
capabilities specific to the needs of its customers and the market.
The strategic plan is built on the foundations of five pillars:
innovation, scalability, collaboration, customer, and talent. Good
progress has been made in all areas during the past year.
Innovation
ZOO's services are performed and delivered predominantly using
its own proprietary cloud computing platforms that give the Company
competitive advantages through streamlining operations and
automating administrative processes and technical functions to
enable efficient collaboration over the internet. These platforms
bring many benefits to ZOO, its customers, and collaborators,
including efficiencies in working practices, reduced production
times, security, quality assurance, and scalability. ZOO's ongoing
commitment to product innovation provides it with strategic
differentiation in its sector and the Board expects that this
investment will continue to strengthen the Company's position as an
E2E vendor in a growing market. Significant product innovations in
the period include:
-- ZOOstudio - a secure platform that provides a centralised
system to manage localisation and media service operations. It
provides a single source of order and fulfilment and affords
efficient collaboration, sharing of assets and reference materials,
with in-built ERP functionality that is specific to the domain and
configurable for each customer. ZOOstudio is licensed by a major
streaming service where it is being used to manage all production
operations. This platform has been developed further during the
period in recognition of its strategic value in supporting a
greater breadth and depth of integration with customers. During the
period it has been enhanced through the addition of a wide range of
new features, including integration with finance systems, support
for invoicing, tools to assist with bulk order creation, report
generation and integrated features to enable customer review of
dubbed soundtracks.
-- ZOOdubs - enables the entire creative and technical tasks
associated with dubbing to be orchestrated and performed in a
distributed fashion. Greater functionality has been added to
support new features, including simultaneous recording of multiple
voices, integrations with industry tools, automated generation of
cue sheets, automated generation of audio for Audio Description
script review, enhancements for ADR, automated take editing and
enhanced integrated video chat. In addition, a mobile application
has been developed to support recording and playback.
-- ZOOmedia - a newly developed platform that provides a
centralised service for source media management, including
automated creation of personalised watermarks for each user and
other security enhancements. Other cloud platforms including
ZOOdubs, ZOOsubs (subtitling management and production) and
ZOOscripts (original version script production and management) have
been integrated with ZOOmedia to enable efficient handling of
assets throughout the end-to-end (E2E) workflow.
-- ZOOsign - a new platform to support the electronic processing
of complex legal documentation that must be created and managed for
dubbing projects, including Assignment of Rights agreements.
We continue to be proactive in protecting the innovative aspects
of our product developments and have filed two new patents during
the period.
Scalability
The scalability of ZOO's offering arises through the
capabilities of its cloud-based software platforms that provide
automation features and facilitate efficient collaboration over the
internet. In addition, scalability is due, in part, to a large
community of freelance workers with which the Company works to
fulfil customer projects in a cost-efficient way. Most of these
freelancers are media localisation specialists, including
translators, voice actors, script adapters and dubbing directors.
By the end of the period under review the number of active
contractors in our systems grew to 9,207, up from 7,184 a year ago
and 8,272 at the half year point. We have expanded this pool across
the growing number of languages that are being ordered by our
customers, and to build capacity for dubbing ahead of the greater
demand that we anticipate once lockdown restrictions are lifted and
new title productions resume at pre-pandemic levels.
Collaboration
We have continued our strategy of working with local dubbing
studios to establish a presence for ZOO in key territories
particularly where this arrangement is requested by customers, with
the number of partner studios and vendors across all service lines
rising to 232 from 155 in FY20. We have a growing number of
partners experienced in using ZOO's platforms to enable efficient
management and recording of dubbing projects, including hybrid
scenarios in which some voices are recorded in traditional studios
while others are recorded at remote locations.
We have been strengthening our academic partnerships in both
research and education. From a research standpoint, we have engaged
on several collaborative projects with specialist groups at the
University of Sheffield in the areas of speech and hearing
technologies, natural language processing and linguistics. We
expect that these will lead, in due course, to new assistive
features in our platforms for enhancing the productivity of our
staff and freelance workers. We also have several new initiatives
in the pipeline to create innovative speech and hearing
technologies that will commence in FY22 and which we expect will
deliver competitive advantages in the future.
Experience of ZOO's platforms is being sought by students hoping
to enter the sector. As part of a new initiative entitled ZOO
Academy, several universities that offer media localisation courses
and/or modules are now incorporating the use of ZOOsubs and ZOOdubs
on their curricula. These include University College London,
University of Sheffield, University of Essex, University of Malta,
and Alicante University. To address the shortage of talent in
certain disciplines and languages, we have also been working with
an educational partner on the development of online training
courses that we plan to launch in FY22.
Our collaborative initiatives in both research and education
have the added benefit of enabling us to identify highly capable
individuals who have the appropriate skills to join ZOO's ecosystem
in the future.
Customer
ZOO's strategy is to target primarily the organisations that
create significant volumes of original entertainment programming
and seek to exploit that content through international
distribution. These are mostly large media companies that take a
multi-vendor approach to the sourcing of localisation and media
services. Each such company operates its own framework for the
selection and engagement of partners, which leads to the
appointment of typically three or four preferred vendors. ZOO's aim
is to secure preferred vendor status and, over recent years, has
had a high success rate; the Company holds this status today with
six major media companies and streaming services.
The relationship that ZOO has in place with a major streaming
service provider (announced in 2019) continues to go from strength
to strength. This customer has licensed ZOOstudio for managing
procurement of the activities required to prepare both new and
catalogue content for distribution through its streaming service.
The enhancements made to this platform over the last year provide
additional operational efficiencies and benefits to this customer,
further strengthening the relationship between the two companies.
As a result, ZOOstudio is used more widely within this
organisation, including across multiple operating divisions.
Performance metrics tracked monthly by this customer confirm that
ZOO is performing at the highest levels in the industry.
During the period, ZOO was selected and has been operating as a
vendor to support the international roll-out of an
advertiser-supported video on demand service.
In the current period, ZOO was engaged by several content
licensors to provide localisation and media services to prepare
back catalogue content for global distribution on the Netflix
platform. This follows the Company's appointment as a Netflix
Preferred Fulfilment Partner in 2018.
This year, the Company was also selected as the sole subtitling
and captioning vendor for a new video-based service that was
launched in English-speaking countries, and which is expected to
expand its distribution into other territories in the next
year.
ZOO's retained sales KPI was 98.5% (FY20: 97.3%, FY21H1: 98.4%),
which illustrates the high level of satisfaction of customers with
the Company's performance.
Talent
ZOO seeks to attract, develop, and engage staff to grow
capability and capacity across all functions. During the period,
the Company launched its Advocates programme to engage with
experienced and progressive practitioners of the dubbing market
across several countries and territories, bringing the benefit of
their insights, expertise, and contacts with local buyers as well
as relationships with talent for voice acting, directing and script
adaptation.
Our appointments over the past year are of individuals with
great experience, a modern approach and outlook that complements
ZOO's strategy, and include:
-- Teresa Alonso - appointed Dubbing Territory Manager for Spain
and Portugal in February 2021. With more than 21 years of
experience working for Sony Pictures Entertainment in Spain, Teresa
brings extensive expertise to the newly created position at
ZOO.
-- Dave Concors - appointed Head of Sound in October 2020. With
more than 30 years of experience working on both features and
episodic content, Dave is using his wealth of industry knowledge to
refine dubbing services at ZOO. Based in Los Angeles, he has more
than 20 years of experience with Disney, exclusively working on
foreign theatrical releases, which included mixing work on Disney,
Marvel, Pixar and Lucasfilm projects. He is an Emmy Award winner
for 'outstanding sound mixing' for the long-running NBC show,
ER.
-- Mariusz Jaworowski - appointed Creative Director for Central
and Eastern European dubbing in January 2021. Mariusz is a leading
name in the dubbing industry with more than 21 years of experience
as executive creative director at Disney. In his previous role,
Mariusz managed and supervised the creation of local versions of
feature animation and live action films for both the theatrical
market and TV series.
-- Andreas Kaj - appointed as Dubbing Territory Manager for the
Nordics in January 2021. Andreas is responsible for delivering
high-quality dubbed projects to ZOO's global clients from his
territories, which include Sweden, Norway, Finland, and
Denmark.
-- Abeer Shabo - appointed as Dubbing Territory Manager for
Middle East in March 2021. With over 30 years experience in the
dubbing industry, Abeer is enhancing intercultural exchange through
media localisation between the Arabic region and other
territories.
-- Ewa Zawadzka - appointed Head of Dubbing for EMEA in May
2021. With over 10 years in dubbing and localisation, Ewa brings a
wealth of experience to ZOO. Her previous roles include dubbing
management positions at both BTI Studios and Iyuno-SDI Group, most
recently in the role of global client director.
Review of Operations
The Company's revenues are predominantly from the supply of
services and fall into two key segments: Media Localisation, which
includes subtitling and dubbing, and Media Services. In the past
these have been delivered primarily through ZOO's facilities in the
United States and United Kingdom. However, during the period we
have expanded our facilities in London and Dubai to access the
experienced talent available in those locations and grow our
international footprint. A third segment, software solutions,
relates primarily to recurring sales of legacy systems.
Media Localisation
The requirement for localisation in the entertainment industry
exists for both newly produced titles and those that have been
released previously ("catalogue titles"). Most newly produced
titles are simultaneously distributed to international audiences
and require localisation into many languages over a short period.
In contrast, catalogue titles will usually have been previously
localised into at least some languages and, therefore, repurposing
them for streaming services will incur work in conforming
pre-existing assets to the requirements of the destination
platforms and quality control, but proportionally less origination
of translations into additional languages.
Media localisation in the industry has been affected by the
temporary halting of new title productions and ZOO's media
localisation segment has followed the trend of the market more
widely, delivering $20.3 million compared with $20.8 million in
FY20.
The services that fall within this segment are subtitling,
captioning (for the deaf and hard-of hearing), dubbing and audio
description (for the visually-impaired).
Subtitling and captioning - orders were weaker than the prior
year due to a reprioritisation of customer orders from new titles
to catalogue during the pandemic, resulting in a reduced subtitling
requirement. We expect orders to recover once new productions
resume, which we expect to take place in the third calendar quarter
of 2021. At the time of writing, since launching this service in
2014, ZOO has created and stored over 400 million subtitles and
captions on behalf of customers.
Dubbing - ZOO received a greater number of orders for dubbing,
particularly in the first half, despite the wider market being
adversely affected by lockdowns. With more customers enjoying a
favourable experience of working with ZOO, the Board expects that
the Company will increase its market share for dubbing when new
productions resume. During the period, the Company has undertaken
dubbing projects for leading media companies and has been able to
profile its work on The Whistlers for Magnolia Pictures, American
Gods for Fremantle, Cleo and Cuquin for Animaccord and Pose for FX
Networks. During the year, we observed a growth in demand for
dubbing into English. The lack of established traditional
infrastructure in the industry for English dubbing, coupled with
the benefits afforded by the ZOOdubs platform and demonstrated to
clients during the pandemic, mean that the Company is well placed
to capitalise on this growing requirement.
Audio Description - the increasing importance of accessibility
is leading to growth in demand for AD services, which are available
on most Netflix Original titles and most of the content on Disney+.
We have observed more companies making a commitment to
accessibility features for their audiences and anticipate that we
will continue to see a growing demand. ZOOdubs incorporates several
features to enable the efficient production of AD streams which has
been valuable to support the growth in demand we have seen for
these services.
Media Services
Media Services incorporates several service lines that relate to
the processing and packaging of TV and feature film content.
Referred to as "Digital Packaging" in previous reports, the segment
has been renamed to reflect the broadened scope of services that
are now being requested by our customers.
ZOO's combined offer of localisation and media services
qualifies the Company as one of the few "end-to-end" (E2E) vendors
in the industry - a one-stop-shop for all activities that are
required to prepare original content for distribution worldwide
through OTT services. We refer to this as our "Post to Platform"
offering, which provides the end-to-end technical and management
services needed to fulfil content packages to all major streaming
services in all territories, beginning after the completion of
post-production and ending once the titles are accessible to
consumers on streaming platforms. Our teams create or conform all
the components required for each delivery package - including
subtitles, metadata and graphics - accurately and compliant with
each platform's unique specifications. The service is available
24/7 from our facilities in Los Angeles, Dubai, and London.
There is a growing preference of buyers within the sector to
select E2E vendors due to the convenience and administrative ease
of working with fewer, more capable suppliers. As with
localisation, the requirements for media services apply whether
content is new or catalogue. However, depending on the age of the
content, the requirements can be significantly greater when working
with catalogue titles which may need to be brought up to the
technical specifications and quality standards required by modern
streaming platforms. Consequently, the decline in availability of
new content during the pandemic and the refocus of customers on
back catalogues has led to a significant increase in demand for
media services, resulting in sales for the period of $17.5 million
(FY20: $7.4 million), a growth of 136%.
Two of the service lines that have grown significantly in the
period are metadata preparation and "asset health checks." Content
metadata is descriptive programming information, such as title,
actors, description, release date, running time, and genre. It
allows consumers to make selections of content for viewing and to
perform searches. The large back catalogues of content that have
migrated to OTT platforms over the past year have necessitated the
preparation of compliant metadata, which is then localised into
each language for which the content is available. ZOO's "asset
health check" assesses materials to determine what work will be
necessary to enable their preparation for OTT distribution and
estimates the associated cost. One such assignment completed by ZOO
in January 2021 involved 780,000 items of metadata across 13
languages. The Company is well placed to undertake such projects
due to the proprietary cloud platforms it has developed, which
bring efficiencies and scalability and enabled this project to be
completed rapidly.
During the period ZOO provided for the first time ADR services
in response to clients that were unable to complete projects in the
traditional way due to lockdowns. We have since developed new
features in ZOOdubs to streamline the ADR production process and
anticipate further demand for these services once new productions
resume.
Due to increased demand, we have made infrastructure investments
and recruited additional staff to expand our capacity for
mastering. Mastering is the process of finishing or finalising a
programme after post-production to synchronise the video and audio
tracks, conform to technical requirements of the target platforms,
and perform compression and encoding of the audio-visual materials.
We anticipate a growing demand for mastering services in FY22 and
beyond, primarily because of the shift by customers to the E2E
model.
Investing for future growth
The evolution of the broader market together with the demand for
our services presents ZOO with a unique and significant opportunity
to seize market share and grow. To support this, in March 2021 we
undertook a non-pre-emptive fundraise by way of a placing of shares
with new and existing shareholders, raising in April gross proceeds
of GBP7.4 million (approximately $10.3 million).
The Board's intention is to use the net proceeds of the placing
to accelerate the Company's commercial position by building balance
sheet strength to further scale the business through the following
key initiatives:
1. Growing the R&D team - through our close working
relationships with our customers, we recognise further significant
opportunities to enhance our existing cloud platforms and develop
new products and functionality that will deliver greater
differentiation and maintain our competitive advantage over our
peers. We intend to establish a longer-range research function to
build on several initiatives we have already begun in the areas of
machine learning and AI, and to expand our collaboration with
academic research partners.
2. Establishing regional hubs for media services - these will
enable us to support our customers as they invest in international
series and require media services for locally sourced content in
key growth markets such as India, Middle East and Southeast
Asia.
3. Expanding international business development - with the
establishment of regional hubs in key locations we will also expand
our business development team to give us wider international
coverage and support our customers as they seek to grow on a global
scale.
4. Expanding the service delivery teams - with the greater
volumes of orders that we anticipate in the period ahead, we will
expand certain delivery teams to ensure that we have sufficient
capacity for oversight of projects. This will include project
managers, quality control staff, video and audio specialists, and
our in-house English team - responsible for overseeing the
preparation of all English materials, the quality of which is
critical to ensure the highest creative standards are upheld.
5. Increasing capital expenditure - due to the greater volumes
of work that we are receiving, we are upgrading our IT
infrastructure at our existing production facilities in the United
Kingdom and United States to give us greater data throughput and
storage, and we will ensure that the IT facilities in place at our
other locations are adequate and allow us to deliver a 24/7
service.
6. Providing general working capital - having greater working
capital at our disposal means that we can react quickly to our
customers as their requirements unfold and change, and can continue
to play our part in the transformation of the entertainment
industry.
People
Our recruitment drive to expand our capacity and support future
growth in all our facilities has been unrelenting. The past year
represents the period of fastest addition of staff in ZOO's
history, with total headcount across the Group at year end being
298 versus 228 in the prior year, an increase of 31%.
The excellent financial performance that we have delivered
during a year of unprecedented challenge is a testament to the
talent, adaptability, and passion of all those who work for and on
behalf of ZOO to whom I express my heartfelt appreciation. The
pandemic-related challenges have had an impact on every group
within the Company, yet everyone has responded magnificently,
adapting to new ways of working, collaborating, and recruiting. It
has been no mean feat to have embraced a far greater number of
customer projects than at any other time in our history, whilst
consistently meeting or exceeding expectations. The performance
metrics tracked by our customers confirm that ZOO is one of the
leading vendors in the industry, for which we have our excellent
team and freelance community to thank.
Our mission is to be the partner that makes globalisation easier
for the world's best content creators. We take complex media
content challenges and make them simpler by finding smarter and
better ways of doing things. This is only possible due to the
culture of ZOO which is lived every day by each of our people: we
are open to learning; we look at things differently to find new and
creative ways to take on any challenge; everyone is valued; we put
ourselves in our customers' shoes to anticipate their future needs;
we think big and bold, believing that disruption favours the brave;
and we never underestimate the power of determination. New recruits
are selected based on their alignment with this culture code, and
its impact extends to every part of the business. Its embodiment in
all our people is the ZOO secret sauce that makes us stand out in
the market.
Outlook
Trading in the first quarter of FY22 has been strong and ahead
of the prior year period, continuing the momentum built over the
last year. Based on current visibility, we expect to deliver
significant growth in the first half. We have started to see signs
of new productions being completed although this is still some way
from pre-pandemic levels. However, all indications are that the
former levels of production volumes will resume and will likely be
exceeded. The on-going investment being made in facilities,
infrastructure and people will position us well to support our
customers with greater volumes of business.
We continue to receive significant orders for project work
relating to catalogue content not only because of titles being
adapted for OTT for the first time, but also due to streaming
platforms launching their services in new geographies. Given the
global appeal of quality entertainment content that has already
been demonstrated by leading OTT providers, there exist vast
untapped archives of programmes that are likely to find their way
to streaming services over many years ahead. This work in
particular favours E2E vendors, given the diversity of services
that are required to evaluate such content and undertake all that
is necessary to deliver it to consumer audiences globally. ZOO is
well placed to continue to grow its market share for such
requirements.
Following the successful fundraise in April 2021, the Board is
actively exploring several opportunities to establish regional hubs
for delivering media services in the Middle East, India and
Southeast Asia. Initiatives to expand our service and R&D teams
and appoint territory managers in key locations are progressing
well.
Given ZOO's strengthening position in the market for the
services it supplies, the competitive advantages that derive from
its proprietary software and the ever-growing market requirements,
the Board remains confident, even at this early stage of the year,
of continuing strong growth and meeting current market
expectations.
Stuart Green
Chief Executive Officer
FINANCIAL REVIEW
Revenue
The Company achieved revenue growth of 33% in the financial year
ended 31 March 2021, with total revenues of $39.5 million compared
to $29.8 million in FY20. This demonstrates the real progress
achieved as the business transitioned to one focused on
localisation and media services for global entertainment streaming
providers. The growth in revenue reflects the contract wins in 2019
to support the international launches of our customers.
Most of the Group's operations are in the United States, where
revenues were up 34% at $34.0 million. The balance of work was
performed in Europe which grew by 23% to $5.5 million. The split in
geographical production illustrates the international launches of
US based streaming services.
In FY21 we experienced an increase in customer concentration, as
the revenue contribution from our largest client increased to 72%
of sales as a consequence of circumstances relating to the pandemic
(FY20: 56%), with the second largest accounting for 4%, down from
10% last year. This is a direct result of a contract win which
resulted in us becoming the primary E2E vendor to a new global
streaming service, a relationship that we expect will continue over
the long-term.
The media localisation segment saw revenues drop by 2% in the
year due to the global pandemic which restricted the production of
new titles that are required to support localisation services. We
expect growth in this segment to return once new title production
resumes.
The media services segment, our other main segment, saw revenues
increase by 136% as our service for OTT platforms was in big demand
while global streaming services repurposed their back catalogues
and launched them internationally to fill the gap left by the
shutdown in new productions.
Software solutions, our third segment which has been a reducing
proportion of our business, increased by 10% in the year to $1.8
million as a result of bespoke development work for a client.
Segment contribution
The Company reports gross profit after deducting both external
and internal variable costs to reflect that an increasing
proportion of our revenues is derived from the provision of
services to our customers. To add clarity to our financial
statements, we include a table of performance by our three key
business segments. This shows that overall gross profit increased
to $13.6 million in FY21 from $10.1 million in FY20, an increase of
35%.
Media localisation segment contribution fell in the year from
$4.7 million to $2.9 million because of two main factors. The first
of these was the revenue decrease of 2% which was attributed to the
deferment of localisation projects throughout the year due to
COVID-19, causing direct costs to be proportionally higher than
expected. The second factor was a doubling of headcount to support
the longer-term opportunity in dubbing that is not supported by the
current level of revenues.
Media services segment contribution more than doubled in the
year to $11.4 million. This is explained by a long-term contract
secured to provide a variety of digital packaging services to a new
global streaming service. Our unique blend of people and software
positions us well in this high margin business. The segment
contribution of 65% was lower than the previous year's margin of
74%, and this is due to the mix of services favouring activities
that require a high level of translation services that have a lower
gross margin.
Software solution segment gross contribution held steady at 94%
in the year.
Overall gross profit increased by 35% to $13.6 million compared
to $10.1 million in FY20. This represents a gross profit margin of
35%, up from 34% last year. The improvement is due higher margin
Media services representing a bigger percentage of total sales,
increasing to 44% compared to 25% in FY20.
Other operating expenses
Operational fixed costs, which are defined as operating expenses
less share-based payments, depreciation and amortisation, have
increased by 13% in the year as we invested heavily in people and
IT to support our growth plans. Overall, operating expenses
increased to $12.9 million, including share-based payments,
depreciation and amortisation and after reclassifying property
costs of $1.0 million to comply with IFRS 16. The 18% increase in
operating expenses is explained by the above, the doubling of the
share-based payment accrual and higher depreciation and
amortisation costs, due to the expansion of office space and the
increase in R&D.
Finance costs
The main component of the Group's finance costs relates to the
7.5% convertible loan note stock with a maturity date that was
extended by one year after consultation with the holders in 2020 to
October 2021. Interest on the principal in the year was $0.3
million, approximately the same as FY20. The other two components
of finance costs are non-cash items. The first is the exchange loss
on the conversion of the outstanding sterling-denominated debt at
the year-end due to the strengthening of sterling relative to the
United States Dollar in the year, which has given rise to an
exchange loss of $0.4 million. The second is the increase in the
fair value of the embedded derivative at year-end calculated with
reference to the share price movement in the past 12 months and the
expected value to loan note holders at the point of conversion.
This has given rise to a non-cash $3.5 million loss.
These non-cash accounting entries have had an impact on the
profit/loss before tax for the year ended March 2021, which was in
total a loss of $3.6 million (FY20: loss of $0.1 million).
As a result of the increase in revenues coupled with the
improved gross profit the operating profit of $1.0 million compares
to a loss last year of $0.6 million. On the Company's preferred
measure of profitability, being EBITDA before share-based payments,
the profit was $4.5 million, up from $2.1 million in FY20, due to
the reasons mentioned above.
Post balance sheet event
Since the end of the financial year, we are pleased to have
completed a 10% placing of new equity raising a gross GBP7.4
million. This money will be used to accelerate our international
growth brought about by the favourable market conditions. Exact
details of the placing are that the Company has raised gross
proceeds of GBP7.4 million (approximately $10.3 million) through
the oversubscribed placing of 7,454,727 Ordinary Shares with
certain existing and new institutional and other investors at a
placing price of 100 pence per New Ordinary Share. The shares were
admitted to trading on the 6 April 2021.
Statement of financial position
Non-current assets increased by 8% in the period which is mainly
due an increase in the purchase of fixed assets such as computer
equipment that totalled $2.1 million. The increase in expenditure
was used to upgrade our production systems in both the United
States and United Kingdom to cope with the increased volume of
assets we are handling. The gross expenditure was partly offset by
a larger depreciation charge relating to leasehold properties. The
capitalisation of research and development costs increased by 41%
to $1.2 million as we accelerated the product roadmap to support
customer requirements. This also increased the depreciation charge
resulting in the balance sheet asset increasing by only 7% to $2.5
million.
Trade and other receivables have increased 10% compared to last
year to $10.2 million reflecting the strong sales performance in
the second half of the year. This increase was mirrored in trade
and other payables as work performed by suppliers and freelancers
peaked to support our customer deliveries.
Current borrowings have increased from $4.4m to $5.0m. This is
partly due to the appreciation of the UK currency making the
convertible loan note more expensive in US dollars, consequently
adding $0.4 million to the liability. In addition, we took out
short term leases to fund some of the computer equipment acquired
in the year with a $0.3 million impact on current liabilities. Also
included in current liabilities is the separable embedded
derivative which is attached to the loan notes and this instrument
increased in value by $3.5 million due to the higher share price at
the year-end compared to the previous year. This is a non-cash
liability and will be reversed when the loan notes mature in
October 2021.
Cash and cash equivalents of $2.9 million at year end, (FY20:
$1.2 million) were up 142% reflecting the revenue and profit growth
in the year.
Non-current liabilities fell in the year as our overdraft
facility remained unused at the year end, compared to a $0.5m
overdraft at the end of the year end 31 March 2020 and due to the
reduction in the "right to use" liability as our property leases
have a shorter time to run.
Consolidated statement of cash flows and going concern
Net cash generated from operating activities was $6.8 million,
up from $1.3 million in FY20. The improvement of $5.5 million is
attributable to the operating profit and an increase in trade
payables. The inflow from operating activities was partly offset by
a $2.1 million increase in investing activities and an increase of
$1.0 million from financing the business. The investment outflow
was attributable to our ongoing development programme and
significant upgrades to our IT infrastructure. The financing
outflow relates to the cost of repaying the office leases, interest
on the leases and interest on the convertible loan notes.
Going forward the business remains confident that it has
sufficient headroom to trade for the foreseeable future, as the
recent placing gives us cash to fund operating activities and our
investment in growth. This is further validated by the strong start
to FY22, with record orders which we expect to deliver another
operating profit for FY22 and has been stress tested by our
financial modelling. For this reason, we continue to adopt the
going concern basis in preparing the financial statements.
The Board and management remain confident in trading in line
with FY22 expectations.
By order of the Board
Phillip Blundell
Chief Financial Officer and Secretary
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2021
2021 2020
Note $000 $000
============================================= ===== ========= =========
Revenue 5 39,525 29,793
Cost of sales (25,882) (19,705)
============================================= ===== ========= =========
Gross Profit 13,643 10,088
Other operating income 6 188 252
Other operating expenses 8 (12,869) (10,896)
============================================= ===== ========= =========
Operating profit/(loss) 962 (556)
============================================= ===== ========= =========
Analysed as:
EBITDA before share based payments 4,534 2,138
Share based payments 8 (649) (257)
Depreciation 8 (1,702) (1,369)
Amortisation 8 (1,221) (1,068)
============================================= ===== ========= =========
962 (556)
============================================= ===== ========= =========
Exchange (loss)/gain on borrowings 7 (359) 197
Fair value movement on embedded derivative 7 (3,474) 986
Finance cost 7 (700) (674)
============================================= ===== ========= =========
Total finance income (4,533) 509
============================================= ===== ========= =========
Loss before taxation (3,571) (47)
Tax credit 11 408 363
============================================= ===== ========= =========
(Loss)/profit and total comprehensive
income for the year attributable to equity
holders of the parent (3,163) 316
============================================= ===== ========= =========
(Loss)/profit per share 13
========================= === ============= ===========
basic (4.24) cents 0.42 cents
========================= === ============= ===========
diluted (4.24) cents 0.39 cents
========================= === ============= ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2021
2021 2020 (restated)
Note $000 $000
======================================= ===== ========= ================
ASSETS
Non-current assets
Property, plant and equipment 14 4,362 3,633
Intangible assets 16 6,812 6,692
Deferred income tax assets 17 486 486
======================================= ===== ========= ================
11,660 10,811
======================================= ===== ========= ================
Current assets
Trade and other receivables 18 8,063 7,302
Contract assets 24 2,178 2,021
Cash and cash equivalents 19 2,949 1,218
======================================= ===== ========= ================
13,190 10,541
======================================= ===== ========= ================
Total assets 24,850 21,352
======================================= ===== ========= ================
LIABILITIES
Current liabilities
Trade and other payables 23 (9,955) (7,313)
Contract liabilities 24 (813) (736)
Borrowings 22 (5,032) (4,391)
Separable embedded derivative 22 (4,452) (978)
======================================= ===== ========= ================
(20,252) (13,418)
======================================= ===== ========= ================
Non-current liabilities
Borrowings 22 (1,759) (2,637)
--------------------------------------- ----- --------- ----------------
(1,759) (2,637)
======================================= ===== ========= ================
Total liabilities (22,011) (16,055)
======================================= ===== ========= ================
Net assets 2,839 5,297
======================================= ===== ========= ================
EQUITY
Equity attributable to equity holders
of the parent
Called up share capital 21 1,010 1,010
Share premium reserve 41,003 41,003
Foreign exchange translation reserve (997) (992)
Convertible loan note reserve 42 42
Share option reserve 2,085 1,375
Capital redemption reserve 6,753 6,753
Interest in own shares (46) (46)
Other reserves 12,320 12,320
Accumulated losses (59,331) (56,168)
======================================= ===== ========= ================
Attributable to equity holders 2,839 5,297
======================================= ===== ========= ================
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2021
Foreign Convertible
Share exchange loan Share Capital Interest
Ordinary premium translation note option redemption Other Accumulated in own
shares reserve reserve reserve reserve reserve reserves losses shares Total
$000 $000 $000 $000 $000 $000 $000 $000 $000 $000
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= =============
Balance at
1 April 2019 1,010 41,003 (992) 42 1,085 6,753 12,320 (58,484) (53) 2,655
Share based
payments - - - - 290 - - - - 290
--------------- --------- -------- ------------ ------------ -------- ----------- --------- ------------ --------- -------------
Transnactions
with owners - - - - 290 - - - - 290
Foreign
exchange
trans;ation
adjustment - - - - - - - - 7 7
Profit for
the year - - - - - - - 316 - 316
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= =============
Total
comprehensive
income for
the year - - - - - - - 316 - 316
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= =============
Balance at
31 March
2020 1,010 41,003 (992) 42 1,375 6,753 12,320 (56,168) (46) 5,297
Share options
exercised - - - - 61 - - - - 61
Share based
payments - - - - 649 - - - - 649
--------------- --------- -------- ------------ ------------ -------- ----------- --------- ------------ --------- -------------
Transactions
with owners - - - - 710 - - - - 710
--------------- --------- -------- ------------ ------------ -------- ----------- --------- ------------ --------- -------------
Foreign
exchange
translation
adjustment - - (5) - - - - - - (5)
Loss for
the year - - - - - - - (3,163) - (3,163)
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= =============
Total
comprehensive
income for
the year - - (5) - - - - (3,163) - (3,168)
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= =============
Balance at
31 March
2021 1,010 41,003 (997) 42 2,085 6,753 12,320 (59,331) (46) 2,839
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= =============
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2021
2020
2021 (restated)
Note $000 $000
================================================ ===== ======== =============
Cash flows from operating activities
Operating profit/(loss) for the year 962 (556)
Depreciation 14 1,715 1,383
Amortisation and impairment 16 1,221 1,068
Share based payments 649 290
Changes in working capital:
Increases in trade and other receivables (918) (1,220)
Increases in trade and other payables 2,719 860
================================================ ===== ======== =============
Cash flow from operations 6,348 1,825
Tax received 408 363
================================================ ===== ======== =============
Net cash inflow from operating activities 6,756 2,188
================================================ ===== ======== =============
Investing activities
Purchase of intangible assets 16 (67) (235)
Capitalised development costs 16 (1,274) (901)
14,
Purchase of property, plant and equipment 19 (2,290) (509)
================================================ ===== ======== =============
Net cash outflow from investing activities (3,631) (1,645)
================================================ ===== ======== =============
Cash flows from financing activities
Repayment of borrowings (982) (246)
Proceeds from borrowings 1,043 500
Repayment of principal under lease liabilities (1,102) (1,044)
Finance cost (414) (363)
Share options exercised 61 -
Net cash outflow from financing (1,394) (1,153)
================================================ ===== ======== =============
Net increase/(decrease) in cash and cash
equivalents 1,731 (610)
================================================ ===== ======== =============
Cash and cash equivalents at the beginning
of the year 1,218 1,828
================================================ ===== ======== =============
Cash and cash equivalents at the end
of the year 19 2,949 1,218
================================================ ===== ======== =============
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2021
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 both the UK and US.
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 7(th)
Floor, City Gate, 8 St Mary's Gate, 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).
2. 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.
2.1 Basis of preparation and going concern
These financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006.
The preparation of financial statements in accordance with
international accounting standards in corformity with 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. The
areas involving a higher degree of judgement or complexity, or
areas where assumptions or estimates are significant to the
financial statements are disclosed in note 3.
A separate Statement of Comprehensive Income for the parent
company has not been presented as permitted by section 408 (2) of
the Companies Act 2006.
The directors have prepared trading and cash flow forecasts for
the group for the period to 31 March 2023 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 Crestmark Bank which provides invoice financing of
up to $2.5m against US clients invoices raised by ZOO Digital
Production LLC. This facility was in place until 7 July 2021. In
the UK there is an overdraft facility with a limit of GBP250,000 in
place with HSBC.
The convertible unsecured loan notes totalling GBP2.6m are in
place until 31 October 2021. It is believed the loan will be repaid
on or before the maturity date.
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.
The summary accounts set out above do not constitute statutory
accounts as defined under section 434 of the Companies Act 2006.
The Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Financial Position, the Consoloudated
Statement of Changes in Equity, the Consolidated Statement of Cash
Flows and the Notes to the Financial Statements for the year ended
31 March 2021 have been extracted from the Group's statutory
financial statements upon wich (i) the auditor's opinion is
unqualified and (ii) did not contain a statement under either
section 498(2) or 498(3) of the Companies Act 2006. The audit
report for the year ended 31 March 2020 did not contain statements
under section 498(2) of the Companies Act 2006. The statutory
financial statements for the year ended 31 March 2020 have been
delivered to the Registrar of Companies. The 31 March 2021 accounts
were approved by the directors on 12 July 2021, but have not yet
been delivered to the Registrar of Companies.
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.
2.2 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting regularly reviewed by the group's chief
operating decision maker (chief executive) to make decisions about
resource allocation to the segments and to assess their
performance.
2.3 Foreign currency translation
2.3.1 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 2021 was
0.726 (2020: 0.809).
2.3.2 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.
2.3.3 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 and all resulting
exchange rate differences are recognised in other comprehensive
income with the foreign exchange translation reserve.
3. (Loss)/profit per share
Earnings per share is calculated by dividing the (loss)/profit
attributable to equity holders of the company by the weighted
average number of ordinary shares in issue during the year.
Basic and Diluted
2021 2020
$000 $000
Profit/(loss) for the financial year (3,163) 316
======================================= =============== ========
2021 2020
Number Number
of shares of shares
Weighted average number of shares for basic
& diluted (loss)/profit per share
================================================= =========== ===========
Basic 74,597,495 74,487,534
Effect of dilutive potential
ordinary shares:
Convertible loan note - -
Share options - 6,729,240
Diluted 74,597,495 81,216,774
================================================= =========== ===========
.
2021 2020
Cents Cents
Basic (4.24) 0.42
Diluted (4.24) 0.39
============= ======= ======
The convertible debt has not been included in the 2021 or 2020
diluted earnings per share calculations due to being
anti-dilutive.
In 2021, the share options have been excluded from the diluted
EPS calculation due to these being anti-dilutive and the Group
incurred a loss in the year.
4. Notes to the cash flow statement
4.1 Significant non-cash transactions
During the year the group acquired property, plant and equipment
and computer software with a cost of $2,290,000 (2020: $509,000) of
which $1,043,000 (2020: $nil) was acquired by the means of finance
leases.
4.2 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 and parent company
statement of financial position amounts.
Group Company
2021 2020 2021 2020
$000 $000 $000 $000
--------------------------- ------ ------ ----- -----
Cash on hand and balances
with banks 2,949 1,218 89 25
--------------------------- ------ ------ ----- -----
The fair values of the cash and cash equivalents are considered
to be their book value.
5. Share capital and reserves for Group and Company
Called up share capital
2021 2020
$000 $000
=============================================== ====== ======
Allotted, called-up and fully paid
74,837,271 (2020: 74,547,271) ordinary shares
of 1p each 1,010 1,010
----------------------------------------------- ------ ------
Reconciliation of the number of ordinary shares
outstanding:
Opening balance 74,547,271 74,424,771
Share options exercised 290,000 122,500
------------------------------------------------- ----------- -----------
Closing balance 74,837,271 74,547,271
------------------------------------------------- ----------- -----------
During the year the group purchased nil (2020: nil) of its own
shares through ZOO Employee Share Trust Limited. The total cost of
the purchase was nil (2020: $nil).
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
translation reserve from translation of foreign operations into
the reporting currency.
Convertible loan Represents the equity element of the convertible
note reserve loan note.
Share option reserve Cumulative cost of share options issued
to employees.
Capital redemption Represents 32,660,660 deferred shares of
reserve 14p each created during the share reorganisation
on 4 May 2017
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.
6. Borrowings
Group Company
2021 2020 2021 2020
$000 $000 $000 $000
Non-current
----------------------------- ------ ------ ----- -----
7.5% Unsecured convertible
loan note stock - - - -
Right of use asset liabiity 1,175 1,845 - 59
Other bank borrowings - 500 - -
Lease liabilities 584 292 - 44
----------------------------- ------ ------ ----- -----
1.759 2,637 - 103
----------------------------- ------ ------ ----- -----
Current
------------------------------- ------- ------ ------- -------
7.5% Unsecured convertible
loan note stock 3,526 3,168 3,526 3,168
Amounts owed to subsidiary
undertakings - - 9,701 9,701
Lease liabilities 528 260 44 64
------------------------------- ------- ------ ------- -------
4,054 3,428 13,271 12,933
Right of use asset liability 978 963 72 100
------------------------------- ------- ------ ------- -------
Borrowings 5,032 4,391 13,343 13,033
Separable embedded derivative 4,452 978 4,452 978
------------------------------- ------- ------ ------- -------
Total borrowings 11,243 8,006 17,795 14,114
------------------------------- ------- ------ ------- -------
The loan notes pay a coupon of 7.5% and the loan stock holder is
entitled, before the redemption date of 31 October 2021, to convert
all or part of the loan stock into fully paid ordinary shares on
the basis of one ordinary share for every GBP0.48 of principal
amount of loan stock. The US dollar value of the loan notes at 31
March 2021 was $3,526,000 (2020: $3,168,000). On the 13 July 2020,
it was approved by the Board of ZOO digital group plc and the loan
noteholders to extend the redemption date of the loan notes by 1
year to 31 October 2021. All other terms of the loan notes remain
the same.
The restructured convertible loan stock has two separate
economic components within it; the holder is entitled to convert
the loan note into equity at any point and the company is entitled
to convert the loan note into equity if the 30 business day
trailing average share price is above the level of GBP2.50 per
share. In both instances the conversion is on the basis of one
ordinary share for every GBP0.48 of principal amount of loan stock.
As at 31 March 2021, an independent valuation has been undertaken
to measure the fair value of the two separate components as at the
balance sheet date. For the year ended 31 March 2021 the valuation
of the embedded derivatives resulted in a non-cash charge totalling
$3,474,000 (2020: $(987,000)) which has an underlying value of
$4,452,000.
The group has an arrangement with Crestmark Bank to provide an
invoice financing facility of up to $2.5m against US client
invoices raised by ZOO Digital Production LLC. This facility was in
place until 7 July 2021. The principal outstanding at 31 March 2021
was $nil (2020: $500,000). This funding is secured against the US
trade receivables of ZOO Digital Production LLC.
The UK banking partner, HSBC, continues to provide an overdraft
facility of GBP250,000. The principal outstanding at 31 March 2021
was nil (2020: nil). This line of funding has been secured as a
floating charge over the assets of the UK companies.
Annual report and Accounts
Copies of the Report & Accounts for the year ended 31 March
2021 are available to view on the Group's website
www.zoodigital.com
The Report & Accounts for the year ended 31 March 2021,
together with the notice of annual general meeting, are expected to
be posted to shareholders during August 2021; an announcement to
notify shareholders of this will be made in due course. Further
copies will be available from the Company's Registered Office:
Floor 7, City Gate, 8 St Mary's Gate, Sheffield S1 4LW.
Annual General Meeting
The Annual General Meeting of the Group will be held at ZOO's
Sheffield offices on 20 September 2021 at 4pm.
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END
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