TIDMZOO
RNS Number : 8816S
Zoo Digital Group PLC
14 July 2020
14 July 2020
ZOO DIGITAL GROUP PLC
("ZOO" the "Group" or the "Company")
FINAL RESULTS FOR THE YEARED 31 MARCH 2020
ZOO Digital Group plc (AIM: ZOO), the provider of cloud-based
localisation and digital distribution services for the global
entertainment industry, today announces its audited financial
results for the year ended 31 March 2020.
HIGHLIGHTS
Key Financials
-- Revenue $29.8 million (FY19: $28.8 million)
-- Adjusted EBITDA* of $2.1 million (FY19: $0.4 million) - EBITDA* margin of 7.0% (FY19: 1.4%)
-- Operating loss of $0.6 million (FY19: loss of $1.3 million)
-- Reported loss/profit before Tax of $(0.1) million (FY19: $1.3 million)
-- Net cash at year end $0.7 million with no debt other than
convertible loan notes (FY19: $1.8 million, H1: $0.6 million)
Operational Highlights
-- Won competitive selection process and operating as a primary
vendor of localisation and digital packaging services for a major
OTT platform
-- ZOOstudio adopted by a major media company to manage its
localisation operations for OTT production
-- ZOOsubs served all major Hollywood studios and all leading OTT providers during the year
-- Increased overall number of dubbing clients to 29 ( FY19: 23 dubbing clients)
-- Freelancer network grown to 7,184 ( FY19: 6,556 freelancers)
-- London studio, offering voice capture facilities, training
services and audio mixing, opened and has proven instrumental in
securing significant orders during the year
-- Made considerable investment across cloud platforms,
enhancing and adding features and strengthening competitive
advantage
-- Observed an increasing demand in the market for integrated
digital packaging and localisation which plays to ZOO's
strengths
Outlook
-- Recent industry announcements confirm strong growth tailwinds
in the global home entertainment market, requiring an acceleration
in content creation and localisation
-- The impact of COVID-19 on the media localisation business has
seen a structural shift to cloud-based solutions and off-premise
voice recording that favours our world class technology and
services
-- COVID-19 has resulted in almost all ZOO staff working from
home with little productivity impact and has not hindered our
ability to recruit an extra 13 people since February
-- Recent contract wins and extensions have resulted in a
significant increase in demand for additional functionality and
services related to our technology platform
-- FY21 Q1 trading has remained robust with revenues expected to
be at least 15% ahead of FY20 Q1
-- Value of dubbing projects processed by the Group in Q1
entirely using ZOOdubs was over three times that in the
corresponding prior year period
-- Net cash has remained flat during the the first quarter of FY21
-- The term of ZOO's unsecured convertible loan notes of GBP2.6
million has been extended by one year to 31 October 2021
* adjusted for share-based payments; stated FY20 figure reflects
reclassification of operating leases as prescribed by IFRS 16
Copies of the Report and Accounts for the year ended 31 March
2020 are available to view on the Group's website
www.zoodigital.com and in accordance with AIM Rule 20 will be
distributed to shareholders in August 2020.
Stuart Green, CEO of ZOO Digital, commented,
"The financial year completed has been one of considerable
progress, in which we continued to demonstrate growth against our
key strategic priorities. We saw increasing traction within our
customer base, ongoing positive structural changes within the OTT
consumer video market and growing recognition of our cloud-based
systems and services, which was accelerated by the disruption
caused by the COVID-19 pandemic in the final weeks of the year.
"Trading in the first three months of FY21 has been strong, with
first quarter sales currently expected to be at least 15% ahead of
the equivalent prior year period. This is also reflected in similar
underlying growth in current order books for both localisation and
digital packaging services.
"Through our membership of the Netflix Preferred Fulfilment
Partner (NPFP) programme we have been adding new customers and
strengthening our relationship with some existing ones.
Additionally, we anticipate future growth driven by OTT country
launches.
"Whilst it is not usual for buyers in our industry to commit to
significant volumes of work in advance, the multiple significant
media companies and digital distributors that now regularly use our
services give us reason to expect that growth will continue
throughout the year ahead.
"The market has shown considerable resilience during this
challenging period and we are confident of continued momentum. We
are satisfied we have enough visibility, and sufficient
opportunities in our pipeline, to enable us to resume market
forecasts, and look to the future with optimism."
For further enquiries please contact:
ZOO Digital Group plc 0114 241 3700
Stuart Green - Chief Executive Officer
Phillip Blundell - Chief Finance Officer
Stifel Nicolaus Europe Limited
F red Walsh 020 7710 7600
Alma PR
Josh Royston / Helena Bogle 020 3405 0205
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/prelims2020 ) that will be live
streamed on Tuesday 14(th) July at 5:00pm BST.
CHAIRMAN'S STATEMENT
It gives me great pleasure to present my first report as
Chairman of ZOO following my appointment to the role in July
2019.
My sense when joining was of a company with a rare blend of
first mover innovation and long-standing reputation in a
relationship-dominated industry. The market ZOO serves has
undergone unparalleled change in recent years and that journey is
not yet complete, but the direction of travel is very clear. The
recent and forthcoming launches of direct-to-consumer, Over-The-Top
(OTT) platforms from some of the world's major media companies are
the latest steps forward. As these platforms broaden their reach
into different geographies, the need for localisation services
covering an expanding number of languages will grow, and with it,
the opportunity for ZOO. Our cloud-powered solutions are tailor
made for this environment and our appointment in H1 as a primary
vendor and technology partner for one of the major platforms is
testament to this strength and position.
Total revenues for the Group grew to $29.8 million, with H2 a
12% improvement over the first half of the year, despite a
temporary softening of sales caused by the COVID-19 pandemic as
customers implemented their business continuity processes. Full
year EBITDA before share-based payments was $2.1 million,
reflecting an improved product mix against a backdrop of continued
investment and the reclassification of operating leases as
prescribed by IFRS 16. The operating loss of $0.6 million, which
resulted from the gross profit improvement was significantly better
than the prior year. Profit before tax fell by $1.4 million as a
consequence of reducing the value of the embedded derivative
writeback to the Profit and Loss account by $1.7 million in FY20.
The Group was cash positive in the second half of the year, closing
with $1.2 million cash in the bank and borrowings of $3.7 million
excluding lease payments, right to use asset liability and
separable embedded derivative.
The health and safety of our people and partners has been our
primary focus throughout the pandemic, and we were able to
implement appropriate working practices swiftly, efficiently and in
line with official guidance across our operations. The integrity
and professionalism shown by our colleagues as they continue to
support customers has been particularly rewarding and speaks
volumes of the collegiate culture and shared sense of purpose
within our business. On behalf of the Board, we are enormously
grateful.
Evidence of the Group's progress can be seen against each of its
four strategic pillars:
Innovate - ZOOstudio started the year with high critical
acclaim, being awarded Product of the Year at the National
Association of Broadcasters (NAB) show in Las Vegas, which was soon
followed by its adoption by one of the major media companies. A
localisation operations management platform, ZOOstudio was
developed specifically to address our clients' needs to manage the
localisation process from end to end and accommodate multiple
vendors. Additional functionalities are being included in the
platform as we look to broaden its reach and build on its early
success.
Scale - We have continued to grow and develop our freelance
network of translators, voice actors, dubbing directors and audio
mixing engineers. A particular emphasis during the period has been
in establishing a resource pool to enable us to process dubbing
projects in the languages that are currently being targeted by
major OTT service providers.
Collaborate - We have continued to work with our in-territory
partners who have joined our ZOO-Enabled Dubbing Studio (ZEDS)
programme, delivering on our promise to offer more flexibility,
capacity and languages to our customers that require dubbing
services. Further enhancing our localisation capacity, we opened a
studio in London during the period, offering voice capture
facilities, training services and audio mixing, key for some of our
customers who require final mixing of localisation services
in-territory. This has already generated significant orders from
one global media content provider.
Build Long-term Client Partnerships - In addition to the
adoption of ZOOstudio described above, we were also confirmed as a
preferred vendor of localisation and digital packaging services for
a major OTT platform and we have seen increasing volumes of orders
since adoption. These are in addition to the previous year's
confirmation as a preferred fulfilment partner (NPFP) for Netflix,
allowing us to secure contracts for subtitling and media processing
of licensed content. We received the Broadcast Tech Innovation
Award 2019 for 'Excellence in Localisation for a Global TV
Project', which provides further testament to the quality of the
services we deliver for our customers and which is key to our
ability to build long-term client partnerships.
Due to the cloud-based platforms on which our services are
delivered, we have seen increased levels of client enquiries during
the lockdown period, particularly in relation to our dubbing
services, at a time when traditional providers of these services
have been unable to operate. This has proven to be a helpful
catalyst to engage with a wide range of clients on dubbing, both
existing and new, where we have been able to demonstrate the
benefits of our proposition which provides an effective solution
for business continuity. Whilst it is too early to judge the
long-term impact, we are optimistic of receiving a regular pipeline
of work from a more diverse client base than we experienced prior
to the COVID-19 pandemic.
We remain excited by the prospect of sustained growth for the
years ahead.
Gillian Wilmot
Chairman
STRATEGIC REPORT
Introduction
The financial year just completed was an important one
strategically for ZOO, with increasing traction within our customer
base, on-going positive structural changes within the OTT consumer
video market and growing recognition of our cloud-based systems and
services, accelerated by the disruption caused by the COVID-19
pandemic in the final weeks of the year.
In the first half of the year we were selected as a primary
vendor of localisation and digital packaging services for a major
OTT platform, and ZOOstudio was adopted by a major media company to
manage its localisation operations for OTT production. Both of
these relationships are progressing well and have led to increasing
throughput of projects as the year has progressed, notwithstanding
a period of brief stasis in the immediate weeks following the
outbreak of COVID-19 as customers implemented their business
continuity processes.
As envisaged, revenues associated with legacy DVD and Blu-ray
services, a significant component of our prior year sales, fell by
76%. In addition, a consequence of the lockdown was that a
significant value of projects that had begun in the period were
deferred until our FY21 year. Despite these factors, total revenue
showed an increase of 3% on the prior year to $29.8 million (FY19:
$28.8 million) with combined localisation and OTT digital packaging
revenues growing by 12% to $27.6 million. The Group started to see
the benefits of investments made in the prior year leading to an
improved revenue mix, with EBITDA before share-based payments
increasing to $2.1 million (FY19: $0.4 million) and cash at the
year-end of $1.2 million (FY19: $1.8 million).
COVID-19
As highlighted by the Chairman, our internal business continuity
processes were implemented seamlessly, and productivity has
remained impressive throughout the period since restrictions were
imposed. I would like to echo Gillian's thanks to all of our
colleagues for their utmost professionalism in migrating to working
from home for what has been a prolonged period. I am particularly
grateful to those who have returned to work in our office locations
to continue to deliver services that require access to specialist
equipment and facilities while observing strict guidelines on
social distancing and hygiene.
Following a temporary softening of sales as customers
implemented their business continuity processes and projects were
deferred, we soon witnessed a return to regular trading patterns
and normalised volumes for digital packaging and localisation
services. As the situation has progressed, we have seen increasing
levels of interest in ZOOdubs, the Group's proprietary cloud based
dubbing solution, together with the associated services. In the
period April to June 2020, the value of dubbing projects processed
by the Group entirely using ZOOdubs was more than three times that
in the corresponding prior year period and also well ahead of the
recent quarterly run rate. ZOOdubs was designed from the outset to
enable very high-quality dubbing (and associated services) to be
executed at distributed locations, as opposed to necessitating
voice actors, dubbing directors and ancillary staff to all attend
the same dubbing studio. Having received critical acclaim and
initial adoption, the interest in ZOOdubs was slowly growing in an
industry that is traditionally conservative and reluctant to adopt
change. The effect of the pandemic and the continuing restrictions
on gatherings has been twofold: firstly, it has accelerated the
desire to evaluate cloud dubbing as an effective solution by many
of the major media owners and OTT platforms, and secondly;
traditional dubbing service providers, who until recently have not
been advocates of remote dubbing, are now beginning to promote
their own alternatives. This has served to strengthen the
credibility of off-premise recording and therefore, given our
reputation and the years of investment, development and testing we
have made in our platform and service, we believe we are well
placed to benefit.
It is clear that once situations normalise there will continue
to be a requirement for traditional dubbing studios. At the same
time, we do believe that the volume of dubbing work performed in a
distributed way will likely remain significantly higher than it was
prior to the pandemic. We envisage that customers will increasingly
appreciate the unique features of ZOO's dubbing platform and
services, including quality, security and ease of use, and will
keep business continuity front of mind in order that they are able
to deal with whatever circumstances may arise.
The difficulties in assembling a cast and technical crew in the
same location due to social distancing restrictions globally will
continue to impact the ability within the entertainment industry to
create new, original content. This has been affecting the volume of
localisation and digital packaging work, on this type of title,
that our solutions are engaged for in the short term. The desire to
create new content has not diminished, with companies committing
greater levels of investment to original content creation to act as
a differentiator for their platforms, as evidenced this year
through increasing budgets from many of the leading players.
According to Wall Street firm BMO Capital Markets, five of the
global OTT services were collectively expected to exceed in 2020
their $31 billion of original content spend in 2019. During this
interim period between the intent to invest in content and the
ability of socially-distanced production locations to deliver, the
emphasis will once again switch to back catalogue material which,
in prior years, has represented the majority of ZOO's revenues to
date.
Strategy and market opportunity
The landscape for film and TV entertainment changed at pace in
the last 12 months with the launches of direct-to-consumer OTT
platforms from Apple, Disney and Warner Media, and the imminent
launch of a service from NBC Universal. These have received
recognition amongst consumers and evidence suggests healthy
subscriptions, further enhanced by the attractiveness of these
services during lockdown. In the first half of the fiscal year, ZOO
was selected as a primary vendor for a major OTT platform and
through the course of the year has seen growing volumes of work
through this relationship.
These platforms have mostly launched in the US initially with
some of them already delivering services across a range of
languages. As their distribution increases and, with it, the range
of content and number of languages needed for each title, so too
does the real opportunity for ZOO.
Increasingly, we are seeing companies looking for digital
packaging and localisation to be carried out as part of a
consolidated and integrated service. ZOO has been performing
digital packaging since 2007. This was originally for DVD and
subsequently for Blu-ray products, but the skillset, technical
expertise and systems needed are equally applicable and relevant
for the work required by the OTT platforms. While DVD and Blu-ray
related work has been declining in recent years and is no longer a
key focus area of the Group, our strength and reputation in the
digital media packaging field combined with our localisation
services is a strong competitive advantage and there is significant
room for growth in both service lines.
ZOOstudio was also adopted by a major media company to manage
its localisation operations for OTT productions and has become
increasingly embedded within that organisation, with highly
encouraging feedback. This adoption, together with our role as a
preferred or primary vendor for a growing number of major media
companies, supports our belief that the current market dynamics
favour our solutions and justify the investments made in our
proprietary technology. Furthermore, whilst the launch of multiple
new OTT platforms is significant in itself, to date the geographies
in which they are available and therefore the range of languages in
which they offer their content are at modest levels compared with
what can be expected over the years to come.
As these platforms steadily execute their roll-out plans and
expand their customer footprint, coupled with the increased budgets
for original content announced from Netflix, Amazon, Apple and
others, we believe we are well placed to benefit.
Subscription Video on Demand, the largest segment of the OTT
market by value, continues its rapid global expansion. According to
a report from Allied Market Research, the global OTT market was
valued at $97 billion in 2017 and is projected to reach $333
billion by 2025, a CAGR of 17%, with the Asia-Pacific region
registering the fastest growth rate of 21%. In the past year,
several media companies have each committed to spending billions of
dollars on content, with the global output of TV production being
at an all-time high.
Growth in global consumer video markets is creating greater
demand for professional localisation services to adapt content for
international audiences. According to recent research from Slator,
the global market for media localisation (not including access
services and digital packaging) was expected to have reached $2.4
billion in 2019, representing 9.8% of the global localisation
services market. This creates opportunity for providers like ZOO
that deliver the breadth of services needed to repurpose content
produced in one language into many other languages.
We remain confident that ZOO is well positioned to capture a
growing share of this expanding number of localisation projects due
to the following factors:
Software ZOO's innovative use of technology enables content
owners to distribute their products to additional territories at a
reduced time-to-market and to a consistently high quality compared
with what has previously been possible, with greater security and
at a competitive price. The Company continues to invest in
innovation to support efficient and effective delivery of
multilingual services, broaden our product portfolio and increase
wallet share within our customer base.
Freelancers ZOO's software enables the Company to collaborate
with a worldwide network of thousands of freelance workers,
including translators, voice actors and dubbing directors. In
addition, the software significantly reduces the human capital
requirements of service fulfilment, enabling the Company to scale
its capacity efficiently as demand increases and to capitalise on
the increasing trend for global distribution of international
content originating in a growing number of languages.
Quality Our expertise in digital packaging, which dates back to
2007 and was initially focused on first on DVD and then
subsequently Blu-ray releases, has now returned to the fore for OTT
production. It was this foundation that created the opportunity for
us to innovate and invest in localisation technology and services.
Over the nine years since we launched our subtitling proposition,
we have demonstrated our ability to deliver a service across all
global languages, at scale, at the highest levels of quality
achieved within the industry. We have become recognised as a
leading player and partner of choice for subtitling by some of the
largest media organisations. Our dubbing proposition, launched only
three years ago, is at a much earlier stage in its adoption.
Interest and initial projects have accelerated as a result of the
current environment, and the feedback we have received on our
performance has been very favourable. This gives us confidence to
believe that, given time, we will build a similar reputation for
quality in our dubbing service from which we can reasonably expect
accelerated, continued adoption will follow.
Partnership ZOO's long history of service and software provision
in the entertainment industry means it has an unrivalled depth of
both industry know-how and customer relationships. We are focused
on serving the needs of the large buyers in the market who, while
being demanding in their requirements for quality, scalability and
security, provide us with multilingual localisation projects
involving multiple service lines. Such relationships take time to
develop since vendor reputation is all important, but once
established have the potential to generate regular repeat business
over the long term. ZOO is already established as a preferred or
primary vendor of subtitling services for a number of major buyers.
We expect that we will achieve a similar status for dubbing
services in due course.
Review of Operations
We have continued to make considerable progress in all of the
service lines delivered through our proprietary cloud-based
platforms.
ZOOsubs: Subtitling
Our subtitling team, enabled by our proprietary end-to-end
subtitle production platform, ZOOsubs, continues to deliver
services of the highest standard and, during the year, has served
all major Hollywood studios and all leading OTT providers.
During the period, our largest subtitling customer in the prior
year changed its strategy for procuring localisation services which
resulted in a much reduced contribution from this customer in the
year to March 2020. However, this was offset by 42% year-on-year
growth in sales from other customers.
We have an established pool of experienced media translation
specialists that is sufficient to meet our requirements for all
languages that are regularly ordered by our customers. We have
introduced programmes to enhance our engagement with this pool and
to ensure that we have access to linguists as demand ebbs and
flows. We have continued our efforts to grow our freelancer
resources in languages that are currently less popular but where we
anticipate future growth driven by OTT country launches,
particularly in the MENA and APAC regions.
ZOOdubs: Dubbing
ZOO's dubbing service is significantly differentiated in the
market due to the distributed recording capability made possible by
our ZOOdubs platform, enabling the same work to be completed more
efficiently, securely and without compromising quality when
compared with the traditional studio-centred approach. Dubbing is
treated in the industry as a highly creative service, and major
buyers in the market have been reluctant to move away from the
language-centralised approach employed widely in the industry due
to their lack of familiarity with our technology-enabled service.
However, as mentioned previously, the global lockdowns that have
been enforced during the COVID-19 pandemic have prevented
traditional studios from operating normally and have served as a
catalyst for buyers to try out our services.
The change in procurement strategy by the customer mentioned
above also affected dubbing sales during the period under review.
In the prior year this client accounted for 64% of our dubbing
sales which fell to 6% in the current year. However, we have made
significant progress in delivering growth in dubbing from other
clients, with the overall number of dubbing clients increasing from
23 in the prior year to 29 in the period under review.
Our freelancer onboarding team has focused primarily on talent
for dubbing, with priority given to the languages that are being
regularly commissioned by multilingual buyers. We will continue
with this effort to enlarge the talent pool from which voices can
be cast for each language, as well as the number of script adapters
and dubbing directors who are critical to achieving high levels of
quality.
ZOOstudio: End-to-end localisation operations managerment for
OTT
During the period we launched our ZOOstudio platform which
provides the capability to manage requirements for delivery of
assets for OTT distribution, including placing the associated
purchase orders with vendors. We believe that this product will
help embed our technology at the heart of clients' processes. This
should allow us to develop and integrate additional ZOO services
into client workflows, and will help us keep client churn at the
current low levels. We were successful in securing a first
significant deployment of the platform which has been used to
manage operations for the launches of a major new streaming
platform across multiple international markets.
We have continued to develop ZOOstudio during the period, adding
new features and functions to broaden its scope and attractiveness
to major customers. The platform is being used on a daily basis to
commission and manage services related to all digital elements
required for OTT distribution, including captions, subtitles,
dubbed soundtracks, audio description, metadata production and
digital packaging.
Digital Packaging
Preparing and assembling assets for delivery to OTT platforms is
a complex and exacting process in order to meet each platform's
unique technical requirements. ZOO's experience over 13 years of
developing systems and workflows and delivering services in this
area has proven advantageous in securing new business at a time
when buyers are increasingly seeking partners who can offer an
integrated localisation/digital packaging solution.
While sales related to legacy DVD and Blu-ray platforms have
declined considerably during the period, there has been
considerable growth in these service lines in relation to OTT
platforms where annual sales have increased almost threefold.
Investing for future growth
ZOO's reputation has been built on its innovative approach and
we will continue to invest to broaden our offering. The strong
underlying market dynamics of exceptional growth in volume of
content consumed across different geographies and in different
languages, combined with our increasing traction within our
customer base presents us with the ideal opportunity to provide
additional relevant services.
The success of our innovation program is exemplified by the
adoption this year of ZOOstudio by a major media company to manage
its localisation operations for OTT production. ZOOstudio was only
launched last year yet received a Product of the Year award at the
National Association of Broadcasters (NAB) Show 2019. ZOO was also
awarded the Broadcast Tech Innovation Award 2019 for 'Excellence in
Localisation for a Global TV Project'. Further investment has been
made throughout the year to broaden the functionality of our cloud
platforms.
We have invested in talent with a particular focus in the second
half of the year on dubbing, adding both capabilities and capacity,
and will continue to do so given the current market conditions. In
particular, we will continue to augment the team with specialists
in the major languages that are most in demand by major OTT service
providers.
Further enhancing our localisation capacity, we opened a studio
in London during the period, offering voice capture facilities,
training services and audio mixing, key for some of our customers
who require final mixing of localisation services in-territory. The
initial feedback was overwhelmingly positive and instrumental in
securing significant orders from one global media content provider
during the year. This studio has not been operating during lockdown
and we expect to reopen the facility later in 2020.
Our freelancer network, which gives us scalability at variable
cost, grew modestly during the period and at the year-end stood at
approximately 7,200 individuals after we removed from our network a
number who do not have sufficient availability to meet our
requirements.
There has been considerable investment in our technology during
the year, resulting in enhanced features in our platforms, with
some of the more significant being the following:
-- We have added capabilities to our platforms to enable highly
efficient production of Audio Description (AD) soundtracks. These
are audio streams that incorporate a commentary to assist sight
impaired audiences which are increasingly in demand in certain
territories. We now regularly provide AD services to a number of
major studio customers.
-- We have continued to enhance ZOOstudio with further
capabilities to increase its value and attractiveness to our
existing major customer and new potential customers. The platform
now provides an Application Programming Interface (API) to enable
efficient exchange of information with third party vendors. We have
provided functionality to facilitate the management of existing
collections and catalogues of content. The system now supports the
reporting of multi-currency financial information, enabling
scenario modelling as well as tracking of costs for multiple
territories.
-- ZOOscripts, our scripting platform, has been enhanced to
support 'pivot languages' which are often used when working on
non-English original content, enabling the use of an intermediate
language for translation when there is a limited supply of
experienced media translators who work from the source language to
a particular target language. We have also added functionality to
deal with the particular requirements of dealing with song
lyrics.
-- We have enhanced our capability to produce individually
watermarked video streams for each user of all of our systems. This
enables us to deliver a much more cost-effective means for robust
security than was possible previously, based on a novel approach
for which we have applied for patents.
-- Our ZOOdubs dubbing platform has been enhanced with a number
of new features to address productivity and ease-of-use, as well as
to support new usage scenarios. This includes the support of
multiple voice actors working at the same physical location and
recording their parts together. We have implemented a closer
integration with Avid Pro Tools - the industry-standard
professional Digital Audio Workstation product which is widely used
by dubbing studios and post-production facilities. We have also
provided functionality to enable larger numbers of individuals to
simultaneously collaborate on projects.
This continued commitment to innovation sets us apart from our
competitors and has never been more relevant, as the current
environment highlights the inefficiencies and cumbersome nature of
traditional service providers. Our focus within our technology
roadmap is clearly on supporting revenue generating opportunities
and augmenting relationships with our customer base.
During the year we have continued with existing projects on the
application of machine learning to support lip-sync dubbing and
have also started to invest in new areas, focusing on translation
and speech recognition which could be utilised across our
localisation services. We look forward to further progress in this
field in the current financial year.
People
It has been a pleasure to work with Gillian Wilmot following her
appointment as Chairman last year and I value the perspective that
she has brought to the Board.
I would like to express my sincere gratitude to Roger Jeynes who
retired as Chairman following a tenure of nine years during which
the industry and the Company have undergone profound change. Roger
has provided wise counsel to me, both professionally and
personally, and I am indebted to him for his support and dedication
over the years.
Finally, I would like to extend my thanks to all of our staff,
freelancers and partners for their talent and commitment who have
enabled us to deliver the business we have today and who are
critical for the growth to which we aspire in the future.
Outlook
Trading in the first three months of FY21 has been strong, with
first quarter sales currently expected to be at least 15% ahead of
the equivalent prior year period. This is also reflected in similar
underlying growth in current order books for both localisation and
digital packaging services.
Through our membership of the Netflix Preferred Fulfilment
Partner (NPFP) programme we have been adding new customers and
strengthening our relationship with some existing ones. We have
been selected as the primary NPFP for two major studios and have
seen a significant uplift in sales through this channel in the
first quarter of FY21.
We anticipate future growth driven by OTT country launches,
particularly in the MENA and APAC regions. We continue to support
our clients with their plans to extend the reach of their
distribution into other countries and regions and expect to
continue to invest in our people and facilities, particularly in
the area of dubbing across a greater number of languages.
The impact of COVID-19 on the media localisation business has
seen a structural shift to cloud-based solutions and off-premise
voice recording that favours our world class technology and
services.
Whilst it is not usual for buyers in our industry to commit to
significant volumes of work in advance, the multiple significant
media companies and digital distributors that now regularly use our
services gives us reason to expect that growth will continue
throughout the year ahead. We look to the future with
confidence.
Stuart Green
Chief Executive Officer
FINANCIAL REVIEW
Revenue
The Company achieved revenue growth of 3% in the financial year
ended 31 March 2020, with total revenues of $29.8 million compared
to $28.8 million in FY19. This masks the real progress achieved as
the business finally transitioned to one focused on localisation
services for global entertainment streaming providers. Revenues
excluding DVD digital packaging and software services grew 12% to
$27.6 million driven by a significant increase in digital packaging
for OTT services. This growth was achieved despite two soft months
at the end of the year as our customers transitioned to working
from home in response to the global COVID-19 pandemic.
The majority of the Group's operations are in the USA, where
revenues were flat at $25.3 million. The balance of work was
performed in Europe which delivered 30% growth to $4.5 million. The
shift in geographical production is due to our customers seeking
content from new regions and the decline in our legacy DVD and
Blu-ray business.
In FY20 we experienced an increase in customer concentration, as
the revenue contribution from our largest client increased to 54%
of sales (FY19: 36%), with the second largest accounting for 12%,
down from 22% last year. This is a direct result of a contract win
which resulted in us becoming the primary end-to-end vendor to a
new global streaming service, a relationship that we expect will
continue over the long term.
Localisation is the key segment of company revenues, and
comprises subtitling, captioning and dubbing services. This segment
saw revenues fall 8% in the year due to one major client changing
its strategy in regard to sourcing content which had an adverse
impact on our business. Post year-end this client has made a
further change to its procurement approach, allowing us to resume
participation in their localisation operations.
Digital packaging, our other main segment, saw revenues increase
by 60% as our service for OTT platforms was chosen by one major
streaming service as their primary vendor and other OTT operators
promoted our service to their content providers. The growth in
digital packaging for OTT was actually much higher since the
increase of 60% was after a 75% decline in the DVD and Blu-ray
service revenue as content producers continue to withdraw from this
form of distribution.
Software licensing, our third segment which has been a reducing
proportion of our business, continued to decline, this year by 13%
to $1.6 million.
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 in our Annual Report a table of performance
by our three key business segments. This shows that overall gross
profit increased to $10.1 million in FY20 from $9.2 million in
FY19, an increase of 10%.
Localisation segment contribution fell in the year from $6.2
million to $4.7 million as a consequence of two main factors. The
first of these was the revenue drop of 8% which was attributed in
part to the deferment of localisation projects at year end due to
COVID-19, causing direct costs to be proportionally higher than
expected. The second factor was a 2% point fall in segment
contribution margin, explained by the nature of the dubbing
projects undertaken in the year where a higher proportion were
recorded in traditional studios. This adverse mix is expected to
reverse in FY21 as a greater proportion of dubbing projects will be
processed without the participation of traditional studios.
Digital packaging segment contribution more than doubled in the
year to $5.5 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 74% was an improvement from the 54% achieved in
FY19.
Software solution segment contribution held steady at 94% in the
year.
Overall gross profit, which is calculated after also deducting
unallocated variable costs, increased 10% to $10.1 million compared
to $9.2 million in FY19. This represents a gross profit margin of
34%, up 2% points from 32% last year. The improvement is due to the
sales mix favouring higher margin digital packaging sales.
Other operating expenses
Operational fixed costs, which are defined as operating expenses
less share-based payments, depreciation and amortisation, have
remained flat in the year as we invested heavily in the previous
year to support our growth plans. Overall, these costs increased by
2% to $10.9 million, including share-based payments, depreciation
and amortisation and after reclassifying property costs of $1.0
million to comply with IFRS 16. Otherwise the 2% increase in
operating expenses reflects mainly higher IT costs as we expand the
capacity of our cloud-based systems to support the actual and
expected demand from our customers.
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 has been
extended to October 2021 after the balance sheet date. Interest on
the principal in the year was $0.3 million, approximately the same
as FY19. The other two components of finance costs are non-cash
items. The first is the exchange gain on the conversion of the
outstanding sterling-denominated debt at the year-end due to the
weakening of sterling relative to the US Dollar in the year, which
has given rise to an exchange gain of $0.2 million. The second is
the reduction 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 $1.0
million gain.
These non-cash accounting entries have had an impact on the
profit/loss before tax for the year ended March 2020, which was a
loss of $0.1 million (FY19: $1.3 million).
As a result of the increase in revenues coupled with the
improved gross profit the operating loss has reduced from $1.3
million to $0.6 million. On the Company's preferred measure of
profitability, being EBITDA before share-based payments, the profit
was $2.1 million, up from $0.4 million in FY19, due to the reasons
explained above and the IFRS 16 change that had an impact of $1.0
million.
Post balance sheet event
Since the end of the financial year we are pleased to have
reached agreement with the holders of the convertible unsecured
loan notes totalling GBP2.6 million to extend the term by one
further year. This liability has been shown on the Consolidated
Statement of Financial Position as a current liability but on 13
July 2020 it was agreed to extend the maturity date to 31 October
2021. The US dollar value of the GBP2.6 million loan notes at 31
March 2020 was $3.2 million (FY19: $3.3 million). All other terms
of the loan notes remain unchanged, being principally that they
accrue interest at 7.5 per cent. per annum (payable half-yearly)
and that the conversion price remains 48 pence per ordinary share
of 1p each in the Company converted.
The participation in the extension of Stuart Green, as a
director of the Company, and of Herald Investment Trust, as a
substantial shareholder of the Company, comprise related party
transactions under the AIM Rules for Companies.
The Company's independent directors (being Gillian Wilmot,
Mickey Kalifa, Phillip Blundell and Gordon Doran), having consulted
with the Company's nominated adviser, Stifel Nicolaus Europe Ltd,
consider that the terms of the extension are fair and reasonable
insofar as the Company's shareholders are concerned.
Statement of financial position
The significant change in the statement of financial position
compared to the previous year has been the adoption of IFRS 16
which requires future lease commitments to be presented in this
statement. The impact on ZOO is to create a right of use asset
within property, plant and equipment of $2.8 million. It also
requires a corresponding liability to be created which is split
between current and non-current liabilities.
Trade and other receivables have increased 15% compared to last
year to $9.3 million reflecting the strong sales performance in the
second half of the year and the on-boarding of a new division of a
major customer. Since the year-end the higher than normal
receivables have unwound as this customer's new accounting process
has bedded in. 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 $0.2 million to $4.4 million as the convertible loan notes
became a current liability at 31 March 2020 and the creation of the
right of use asset liability of $1.0 million in accordance with
IFRS 16. On a comparable year basis, current borrowings have
remained flat at $0.3 million, representing short-term asset
financing. Also included in current liabilities is the separable
embedded derivative which is attached to the loan notes.
Cash and cash equivalents of $1.2 million at year end, (FY19:
$1.8 million) was down 33%, however, in the second half of the year
we generated net cash of $0.6 million through strong cash receipts
from customers.
Non-current liabilities, excluding the impact of IFRS 16, fell
significantly in the year due to the reclassification of the loan
notes and the separable embedded derivative in current liabilities.
This has been partly replaced by the creation of the right of use
asset long-term liability of $1.8 million in accordance with IFRS
16. In cash terms long-term liabilities have increased from $0.6
million in FY19 to $0.8 million due to utilising $0.5 million of a
facility with Crestmark Bank at the year-end.
Consolidated statement of cash flows and going concern
Net cash generated from operating activities was $1.3 miliion,
the same as FY19. This was adversely impacted by a major customer
having to set up new financial systems to support a new business
division, which resulted in a net outflow of $0.4 million in the
period. This is expected to be resolved shortly and should have a
positive impact on our working capital requirement in FY21. The
inflow from operating activities was offset by a $1.6 million cash
outflow from investing activities and a cash outflow of $0.3
million from financing. The investment outflow was attributable to
our ongoing development programme and upgrades to our IT
infrastructure. Most of the financing outflow relates to the
interest on the convertible loan notes.
Going forward the Board remains confident that the Group has
sufficient headroom to trade for the foreseeable future. As the
working capital requirement improves, the investment in capital
equipment can be funded by existing suppliers and the renewal of
the Crestmark invoicing facility of $2.5 million can help us manage
the peaks and troughs of our trading activities. The extension of
the convertible loan notes until October 2021 gives the business
additional flexibility regarding its future cash requirements. The
directors have tested rigorously the cash requirements of the
business using a financial model that allows a number of scenarios
relating to sales to be stress tested. This includes a worse case
of a 40% drop in future revenues and the actions required to remain
with our banking facilities. This would require reducing investment
activities, eliminating most discretionary spend and extending
credit facilities. These scenarios have supported our going concern
assessment, however, our business model and exposure to the home
entertainment industry make such planning unlikely, which is
evidenced by our unaudited financial performance over the past
three months, showing growth of 15% over the prior year and a
strong order book for the next quarter.
By order of the Board
Phillip Blundell
Chief Financial Officer and Secretary
FINANCIAL INFORMATION
The financial information set out here for the year ended 31
March 2020 does not constitute full statutory financial statements
as defined in section 434 of the Companies Act 2006 but has been
extracted from the Group's financial statements for that period.
Statutory financial statements for the year ended 31 March 2020
were approved by the directors on 13 July 2020, but have not yet
been delivered to the Registrar of Companies. Those financial
statements were reported upon without qualification by the
independent auditor and did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2020
2020 2019
Note $000 $000
===================================================== ========= =========
Revenue 29,793 28,818
Cost of sales (19,705) (19,624)
====================================================== ========= =========
Gross Profit 10,088 9,194
Other operating income 252 157
Other operating expenses (10,896) (10,671)
====================================================== ========= =========
Operating (loss)/profit (556) (1,320)
====================================================== ========= =========
Analysed as:
EBITDA before share based payments 2,138 409
Share based payments (257) (286)
Depreciation (1,369) (539)
Amortisation (1,068) (904)
====================================================== ========= =========
(556) (1,320)
===================================================== ========= =========
Exchange gain/(loss) on borrowings 197 275
Conversion of loan into equity - -
Fair value movement on embedded derivative 986 2,701
Finance cost (674) (392)
====================================================== ========= =========
Total finance income 509 2,584
====================================================== ========= =========
(Loss)/Profit before taxation (47) 1,264
Tax credit 363 368
====================================================== ========= =========
Profit and total comprehensive income
for the year attributable to equity holders
of the parent 316 1,632
====================================================== ========= =========
Profit/(loss) per share 3
========================= =========== ===========
basic 0.42 cents 2.19 cents
========================= =========== ===========
diluted 0.39 cents 2.02 cents
========================= =========== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2020
2020 2019
Note $000 $000
======================================= ===== ========= =========
ASSETS
Non-current assets
Property, plant and equipment 3,633 944
Intangible assets 6,692 6,624
Deferred income tax assets 486 486
======================================= ===== ========= =========
10,811 8,054
======================================= ===== ========= =========
Current assets
Trade and other receivables 9,323 8,103
Cash and cash equivalents 1,218 1,828
======================================= ===== ========= =========
10,541 9,931
======================================= ===== ========= =========
Total assets 21,352 17,985
======================================= ===== ========= =========
LIABILITIES
Current liabilities
Trade and other payables (8,049) (7,189)
Borrowings (4,391) (248)
Separable embedded derivative (978) -
======================================= ===== ========= =========
(13,418) (7,437)
======================================= ===== ========= =========
Non-current liabilities
Borrowings 6 (2,637) (3,899)
Separable embedded derivative 6 - (1,965)
======================================= ===== ========= =========
(2,637) (5,864)
======================================= ===== ========= =========
Total liabilities (16,055) (13,301)
======================================= ===== ========= =========
Net assets 5,297 4,684
======================================= ===== ========= =========
EQUITY
Equity attributable to equity holders
of the parent
Called up share capital 5 1,010 1,010
Share premium reserve 41,003 41,003
Foreign exchange translation reserve (992) (992)
Convertible loan note reserve 42 42
Share option reserve 1,375 1,085
Capital redemption reserve 6,753 6,753
Interest in own shares (46) (53)
Other reserves 12,320 12,320
Accumulated losses (56,168) (56,484)
======================================= ===== ========= =========
Attributable to equity holders 5,297 4,684
======================================= ===== ========= =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2020
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 2018 1,010 41,003 (992) 42 688 6,753 12,320 (58,116) (53) 2,655
Deferred
shares - - - - - - - - - -
Loan note
conversion - - - - - - - - - -
Share based
payments - - - - 397 - - - - 397
Purchase
of own shares - - - - - - - - - -
Issue of
ordinary
shares - - - - - - - - - -
Loss for
the year - - - - - - - 1,632 - 1,632
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= ======
Total
comprehensive
income for
the year - - - - - - - 1,632 - 1,632
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= ======
Balance at
31 March
2019 1,010 41,003 (992) 42 1,085 6,753 12,320 (56,484) (53) 4,684
Foreign
exchange
translation
adjustment - - - - - - - - 7 7
Share based
payments - - - - 290 - - - - 290
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
=============== ========= ======== ============ ============ ======== =========== ========= ============ ========= ======
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2020
2020 2019
Note $000 $000
============================================ ===== ======== ========
Cash flows from operating activities
Operating (loss)/profit for the year (556) (1,320)
Depreciation 532 553
Amortisation and impairment 1,068 904
Share based payments 290 397
Changes in working capital:
Increases in trade and other receivables (1,220) (691)
Increases in trade and other payables 860 1,082
============================================ ===== ======== ========
Cash flow from operations 974 925
Tax received 363 368
============================================ ===== ======== ========
Net cash inflow from operating activities 1,337 1,293
============================================ ===== ======== ========
Investing activities
Purchase of intangible assets (235) (29)
Capitalised development costs (901) (958)
Purchase of property, plant and equipment (509) (310)
============================================ ===== ======== ========
Net cash outflow from investing activities (1,645) (1,297)
============================================ ===== ======== ========
Cash flows from financing activities
Repayment of borrowings (246) (228)
Proceeds from borrowings 500
Finance cost (556) (349)
Issue of share capital - -
Net cash (outflow)/inflow from financing (302) (577)
============================================ ===== ======== ========
Net (decrease)/increase in cash and cash
equivalents (610) (581)
============================================ ===== ======== ========
Cash and cash equivalents at the beginning
of the year 1,828 2,409
============================================ ===== ======== ========
Cash and cash equivalents at the end
of the year 4 1,218 1,828
============================================ ===== ======== ========
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2020
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
These financial statements have been prepared in accordance with
IFRS as adopted by the European Union, and with those parts of the
Companies Act 2006 applicable to companies reporting under
IFRS.
The preparation of financial statements in conformity with IFRS
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 2022 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 is 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.
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.
In FY20 the Group has adopted new guidance for the recognition
of leases (see below). The new Standard has been applied using the
modified retrospective approach, with the cumulative effect of
adoption as at 1 April 2019 being recognised as a single adjustment
to retained earnings. Accordingly, the Group is not required to
present a third statement of financial position as of that
date.
New and revised standards that are effective for annual periods
beginning on or after 1 April 2019
The Group has adopted the new accounting pronouncements which
have become effective this year and are as follows:
IFRS 16 "Leases"
IFRS 16 "Leases" replaces IAS 17 "Leases" along with three
interpretations
The adoption of this new Standard has resulted in the Group
recognising a right-of-use asset and related lease liability in
connection with all former operating leases except those identified
as low-value or having a remaining lease term of less than 12
months from the date of the initial application.
The new Standard has been applied using the modified
retrospective approach, with the cumulative effect of adopting IFRS
16 being recognised in equity as an adjustment to the opening
balance of retained earnings for the current period. Prior periods
have not been restated.
For contracts in place at the date of initial application, the
Group has elected to apply the definition of a lease from IAS 17
and IFRIC 4 and has not applied IFRS 16 to arrangements that were
previously not identified as leases under IAS 17 and IFRIC 4.
The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in
existence at the date of initial application of IFRS 16, being 1
April 2019. At this date, the Group has also elected to measure the
right-of-use assets at an amount equal to the lease liability
adjusted for any prepaid or accrued lease payments that existed at
the date of transition.
Instead of performing an impairment review on the right-of-use
assets at the date of initial application, the Group has relied on
its historic assessment as to whether leases were onerous
immediately before the date of initial application of IFRS 16.
On transition, for leases previously accounted for as operating
leases with a remaining lease term of less than 12 months and for
leases of low-value assets the Group has applied the optional
exemptions to not recognise right-of-use assets but to account for
the lease expense on a straight line basis over the remaining lease
term.
For those leases previously classified as finance leases, the
right-of-use asset and lease liability are measured at the date of
initial application at the same amounts as under IAS 17 immediately
before the date of initial application.
The Group has benefited from the use of hindsight for
determining the lease term when considering options to extend and
terminate leases.
On transition to IFRS 16 a discount rate of 8.25% has been
applied. All new leases will be treated accordingly.
The following is a reconciliation of the financial statement
line items from IAS 17 to IFRS 16 at 1 April 2019:
IFRS 16
Carrying carrying
amount at amount
31 March at 1 April
2019 Remeasurement 2019
$'000 $'000 $'000
=============================== ==== =========== ============== ============
Property, plant and equipment 944 3,563 4,507
------------------------------------- ----------- -------------- ------------
Lease liabilities (798) (3,563) (4,361)
------------------------------------- ----------- -------------- ------------
TOTAL 146 - 146
===================================== =========== ============== ============
The following is a reconciliation of total operating lease
commitments at 31 March 2019 (as disclosed in the financial
statements to 31 March 2019) to the lease liabilities recognised at
1 April 2019:
Total operating lease commitments
disclosed at 31 March 2019 and
before discounting 4,629
-------------------------------------- --------
Discounted using incremental
borrowing rate (1,066)
-------------------------------------- --------
Operating lease liabilities 3,563
====================================== ========
Finance lease obligations 798
====================================== ========
Total lease liabilities recognised
under IFRS 16 at 1 April 2020 4,361
====================================== ========
2.1.1 Standards and interpretations in issue at 31 March 2020
but not yet effective and have not yet been adopted early by the
Group
At the date of authorisation of these financial statements,
several new, but not yet effective, Standards and amendments to
existing Standards, and Interpretations have been published by the
IASB. None of these Standards or amendments to existing Standards
have been adopted early by the Group.
Management anticipates that all relevant pronouncements will be
adopted for the first period beginning on or after the effective
date of the pronouncement. New Standards, amendments and
interpretations not adopted in the current year have not been
disclosed as they are not expected to have a material impact on the
Group's financial statements.
2.2 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.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the
internal reporting regularly reviewed by the group's chief
executive to make decisions about resource allocation to the
segments and to assess their performance.
2.4 Foreign currency translation
2.4.1 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 2020 was
0.809 (FY19: 0.763).
2.4.2 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.
2.4.3 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. Profit per share
Earnings per share is calculated by dividing the profit
attributable to equity holders of the company by the weighted
average number of ordinary shares in issue during the year.
Basic and Diluted
2020 2019
$000 $000
Profit for the financial year 316 1,632
================================ =========== ============
2020 2019
Number Number
of shares of shares
Weighted average number of shares for basic &
diluted profit per share
=================================================== =========== ===========
Basic 74,487,534 74,356,016
Effect of dilutive potential
ordinary shares:
Convertible loan note -
Share options 6,729,240 6,369,825
Diluted 81,216,774 80,725,841
=================================================== =========== ===========
.
2020 2019
Cents Cents
Basic 0.42 2.19
Diluted 0.39 2.02
============= ====== ======
The convertible debt has not been included in the FY20 or FY19
diluted earnings per share calculations due to being
anti-dilutive.
4. Notes to the cash flow statement
a. Significant non-cash transactions
During the year the group acquired property, plant and equipment
and computer software with a cost of $509,000 (FY19: $608,000) of
which $nil (FY19: $298,000) was acquired by the means of finance
leases.
b. 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
2020 2019 2020 2019
$000 $000 $000 $000
--------------------------- ------ ------ ----- -----
Cash on hand and balances
with banks 1,218 1,828 25 113
--------------------------- ------ ------ ----- -----
The fair values of the cash and cash equivalents are considered
to be their book value.
5. Share capital and reserves
Called up share capital
2020 2019
$000 $000
=============================================== ====== ======
Allotted, called-up and fully paid
74,547,271 (2018: 74,424,771) ordinary shares
of 1p each 1,010 1,010
----------------------------------------------- ------ ------
Reconciliation of the number of ordinary
shares outstanding:
Opening balance 74,424,771 73,773,655
Share options exercised 122,500 651,116
------------------------------------------ ----------- -----------
Closing balance 74,547,271 74,424,771
------------------------------------------ ----------- -----------
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
2020 2019 2020 2019
$000 $000 $000 $000
Non-current
-------------------------------- ------ ------- ----- -------
7.5% Unsecured convertible
loan note stock - 3,349 - 3,349
Other bank borrowings 500 - - -
Finance lease liabilities 292 550 44 108
-------------------------------- ------ ------- ----- -------
792 3,899 44 3,457
-------------------------------- ------ ------- ----- -------
Right of use asset liability 1,845 - 59 -
Separable embedded derivative - 1,965 - 1,965
-------------------------------- ------ ------- ----- -------
Current
------------------------------- ------ ------ ------- -------
7.5% Unsecured convertible
loan note stock 3,168 - 3,168
Amounts owed to subsidiary
undertakings - - 9,701 9,701
Finance lease liabilities 260 248 64 56
Right of use asset liability 963 - 100 -
Separable embedded derivative 978 - 978 -
------------------------------- ------ ------ ------- -------
5,369 248 14,011 9,757
------------------------------- ------ ------ ------- -------
Total borrowings 8,006 6,112 14,114 15,179
------------------------------- ------ ------ ------- -------
The 7.5% convertible loan notes pay a coupon of 7.5% and the
loan stock holder is entitled, before the redemption date,
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 2020 was $3,168,000 (FY19: $3,349,000).
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 For the year ended 31 March 2020 the valuation
of the embedded derivatives resulted in a non-cash writeback
to profit totalling ($986,000) (FY19: $2,701,000) which has
an underlying value of $3,168,000.
Post the balance sheet date, the remaining convertible loan
stock was extended for a further year until 31 October 2021.
All other conditions attached to the remaining convertible
loan notes were not altered.
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
will be in place until 7 July 2021. The structure of this
loan arrangement remains the same as last year. The principal
outstanding at 31 March 2020 was $500,000 (FY19: nil). This
funding is secured against the US trade receivables of ZOO
Digital Production LLC.
The group has HSBC as its UK banking partner which provides
an overdraft facility of GBP250,000. The principal outstanding
at 31 March 2020 was nil (FY19: 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
2020 are available to view on the Group's website
www.zoodigital.com
The Report & Accounts for the year ended 31 March 2020,
together with the notice of annual general meeting, are expected to
be posted to shareholders during August 2020; 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 23 September 2020 at 4pm.
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.
END
FR RJMMTMTMBTAM
(END) Dow Jones Newswires
July 14, 2020 02:00 ET (06:00 GMT)
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