Company Announcements

23 April 2021

Zinc Media Group plc ("Zinc Media" or the "Group")

Results for the 18 months ended 31 December 2020 and notice of AGM

Zinc Media Group plc today announces its results for the 18 months ended 31 December 2020.

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Headlines

With the actions it has taken the Group has successfully navigated the challenges presented by Covid-19.

·      H2 2020 revenues increased by 33% to £9.7m and adjusted EBITDA losses reduced by 40% to £0.5m compared to H1 2020

·      Gross cash increased to £6.8m at 31 December 2020 (30 June 2019: £3.2m) and was £6.6m at 13 April 2021

·      Net cash increased to £3.4m at 31 December 2020 (30 June 2019: Net debt of £0.5m) with net cash at 13 April 2021 of £3.2m

·      The Group has booked £12.2m of revenue which is forecast to deliver in 2021, an increase of £2.9m since January.  This includes a significant commission from a new customer, commissioned from new label Supercollider

·      TV gross margins have increased by almost 5% to 29.6% in the 18 months to December 2020.  They are currently tracking at 6% higher than FY 19 which equates to a £0.8m improvement in profitability based on FY 19 pre-Covid-19 revenues 

·      The Group has a healthy pipeline of new business totalling £39m for 2021 and £21m for 2022. For 2021 £6m is highly advanced, £17m in engaged conversation, and £16m in early discussion

·      All elements of the transformation plan laid out in September 2019 have now been activated

·      With all critical elements of the transformation plan activated, the Group is now confident it can be profitable and cash generative when revenues recover to pre-Covid levels

Financial Headlines

During the period, the Group's accounting reference date was changed from 30 June to 31 December and, as a result, this report contains the Group's results for the eighteen months to 31 December 2020. The prior year comparative figures relate to the 12 month period ended 30 June 2019.

Financial performance in the period was materially affected by Covid-19 restrictions which began halfway through the period and resulted in delayed productions and commissioning.

·      For the 18 months to December 2020 the Group generated revenue of £30.6m (FY 19: £23.2m) and a loss of £0.8m at Adjusted EBITDA* level (FY 19: profit of £0.2m) from continuing operations.

·      The Group has closed or significantly restructured two loss-making businesses, the Zinc Communicate CSR (Corporate Social Responsibility) division and the Manchester based TV business Blakeway North, which in total accounted for £0.5m or 40% of the total Adjusted EBITDA losses in the 18 month reporting period. The CSR business, which has been closed, accounted for £0.4m of this.

·      To help mitigate the impact of Covid-19 the Group immediately implemented a short-term cost reduction plan. Between April and June 2020 £0.7m of savings were generated from a combination of furloughing staff, staff being on reduced hours, non-executive Directors taking no pay and senior management, including the CEO and CFO, taking pay cuts of up to 40%. As a result of these savings the Covid-driven Adjusted EBITDA loss in the 18 month period was almost halved.

·      The Group has made significant structural changes to promote the long-term financial stability of the business. Between February and November 2020, the Company completed a balance sheet restructure that included:

o  £7.5m of new capital raised;

o  Conversion of all preference shares to ordinary shares;

o  Part conversion of the long-term debt and extension of the term of the remaining debt from December 2020 to December 2022;

o  A share consolidation at a ratio of 500:1; and

o  A court approved reduction of part of its share capital and share premium account and merger reserve which has resulted in the Group having positive distributable reserves at 31 December 2020.

·      The move to new headquarters in March 2020 aided cashflow due to the initial rent free period.

* Adjusted EBITDA defined as EBITDA before share based payment charge, loss on disposal of fixed assets and exceptional items.

Operational Headlines

·      Programmes delivered or transmitted in the period include:

o  Fighter Pilots: The Real Top Gun and The Station: Trouble on the Tracks both transmitted to great acclaim and ratings on ITV in their 9pm slot

o  King Tutankhamun in Colour was a three-way co-production between National Geographic, BBC and France TV

o  Emergency Helicopter Medics, More 4's successful documentary series

o  Critical Incident, a co-production between two Group companies, was produced during the period and illustrates the wider opportunity the Group has in aligning its geographical labels to win new commissions

o  Being Gail, BBC ONE and BBC Scotland's documentary series

o  The Curious Life and Death Of… is a six-part series for a new customer, the Smithsonian Channel in the USA

·      Titles transmitted since year end include:

o  The Blitz with Lucy Worsley, a follow-up to the BAFTA Award winning Suffragettes with Lucy Worsley, transmitted on BBC ONE in February 2021

o  Norma Percy's latest series Trump Takes on the World, a three-part series for the BBC and ARTE France and other international broadcasters, transmitted on BBC ONE to great acclaim

o  The Hunt for Gaddafi's Billions, a feature-length documentary for BBC, VPRO, ZDF/Arte, SVT, DR, TSR and several other broadcasters transmitted on BBC FOUR

·      The Group has been nominated for a BAFTA (following its BAFTA win in 2019) for Psychosis and Me, with Hollywood actor David Harewood for BBC TWO, and won multiple RTS awards, a Venice TV award and two Scottish BAFTAs

·      Made outside London (MoL) revenues increased to 58% of turnover

·      152 hours of TV were transmitted in the 12 months of 2020

Mark Browning, CEO of Zinc Media Group, said:

"The Group has successfully navigated the worst of the Covid crisis, which negatively impacted the whole television production market.  The bounce back in revenues in H2 2020 demonstrates the resilience of the Group and margins continue to improve.  We are winning new business and have a strong pipeline for 2021 and 2022. Our hardworking teams throughout the UK deserve huge credit for their creativity and perseverance, and we look forward to steadier times ahead."

Copies of the annual report and accounts

The annual report and accounts is available on the company's website at www.zincmedia.com and a hard copy will be posted to those shareholders registered to receive one. 

Notice of annual general meeting

Accompanying the accounts is notice of the Company's 2021 annual general meeting, which will take place at 10:00a.m. on Friday 28 May 2021 at the company's offices, 17 Dominion Street, London EC2M 2EF.

Please note that, to the extent there remain government measures in place as a result of Covid-19, shareholders, their proxies and corporate representatives may not be permitted to attend the AGM in person if those government measures prohibit it. The Company will continue to update shareholders on arrangements for the AGM through a regulatory information service and the Company's website at www.zincmedia.com/investors. Shareholders are advised to check the Company's website regularly for updates.  Accordingly, given the uncertainty, we strongly encourage shareholders to complete and return their proxy votes by the time required appointing the Chairman of the meeting as your proxy.

For further information, please contact:

Zinc Media Group plc                                                                           +44 (0) 20 7878 2311

Mark Browning, CEO / Will Sawyer, CFO

www.zincmedia.com 

N+1 Singer (NOMAD and Broker to Zinc Media)                                     +44 (0) 20 7496 3000

Mark Taylor / Sebastian Burke

About Zinc Media Group

Zinc Media Group plc is a leading television and content creation group.

The award-winning and critically acclaimed television labels comprise Blakeway, Brook Lapping, Films of Record, Red Sauce, Supercollider and Tern Television and produce programmes across a wide range of factual genres for UK and international channels.

Zinc Communicate specialises in developing cross-platform content for brands, businesses and partners.

For further information on Zinc Media please visit www.zincmedia.com 

CHAIRMAN'S STATEMENT

The new management and Board embarked on a transformation plan for the Group announced in September 2019.  This plan contained four priorities, detailed in the last annual report and reviewed in this year's CEO report.  Despite the significant challenges presented by Covid-19 in 2020 the key elements of this transformation plan were completed by September 2020, four months earlier than anticipated. These will enable the Group to deliver profitability and cash generation on the return to pre-Covid-19 revenue levels.

As we have seen from Broadcaster statements and production house announcements recently, the postponement of production and the delivery of shows has presented significant headwinds to an industry that is dependent upon human interaction. Covid-19 significantly impacted the Group in 2020 with revenues in H1 2020 down almost 50% to £7.3m (H2 2019: £14.2m), due to the nationwide lockdown which halted television production.  The encouraging news is that the Group saw revenues recover in the second half of 2020 to £9.7m. 

The Group has made substantial changes to deliver profitability and cash generation when revenues recover to pre-pandemic levels.  The timing of this recovery remains difficult to forecast with the result that the Group is unable to release forecasts into the market at this time. However, and in keeping with comments made by the Chief Executive, we are making all efforts to keep both our current shareholders, and future shareholders, as informed as possible via a number of different platforms. The Group will continue with ambitious change as it explores new revenue opportunities, brings new talent to the Group and explores opportunities to scale the Group in the near term.

The Board would like to thank the management team for successfully navigating the Group through the most difficult year in its 20-year history, the employees and freelancers for their professional and dedicated work, and our shareholders for their support.

CEO'S REPORT

Strategy and Outlook

The Group laid out a clear 4-point strategic plan in September 2019.  It has reported on the progress of this plan in a number of announcements through the Regulatory Information Services since then.  Despite the enormous challenges caused by Covid-19 it rigorously pursued the plan which aims to transform the Group to a position of profitability and cash generation. 

The Group has activated all critical elements of this plan with the following results:

1.   Improvement in London and Manchester TV gross margins

Gross margins of television production in London and Manchester TV increased from 24.7% in FY 19 to 29.6% in the 18 months to December 2020.  This equates to a £0.6m improvement based on FY 19 pre-Covid-19 revenues. 

Gross margins on the new workflow, underpinned by investment in new technology, changes in production management and improvements in financial reporting, are currently tracking at 6% higher than FY 19, which equates to a £0.8m improvement based on FY 19 pre-Covid-19 revenues. 

2.   Revenue Growth and Diversification

Despite Covid-19, the planned revenue diversification has progressed well: the Group won three new clients - UKTV, A&E networks and Smithsonian - and earned  £0.8m of new revenue from new commissioning departments in the BBC and Channel Four.  Further revenue diversification has followed in 2021.

Despite revenues declining in the period due to the Covid-19 pandemic which caused substantial delays to television production in 2020 and market uncertainty, the Group is well positioned for future revenue growth having repositioned itself in the market with new labels, divisions and senior hires.  A new popular factual TV label, Red Sauce, was launched in 2020 based in London and Manchester, and a new TV and branded content label, Supercollider, was launched in Q2 2021. Two new Zinc Communicate production divisions have been created to produce content for new buyers.  They are synergistic with the television businesses and will benefit from sharing workflows and infrastructure.  

3.   Cultural and Creative Renewal

The Group has undergone significant change in order to make it easier for clients and customers to engage with the Group, for duplication to be removed, and for creativity and communication to flourish.  The Group is now organised in two business units: Zinc Television and Zinc Communicate. 

Significant changes include:

a)   The creation of one single, collaborative television team in London and Manchester, operating under one Managing Director, where previously there were four. 

b)   The creation of a single, collaborative Zinc Communicate division, operating under one Managing Director, where previously there were two.

c)   The creation of a single unified workflow for creative development, financial reporting and forecasting. 

d)   The closure or significant restructuring of two previously loss-making businesses which accounted for £0.5m or 40% of the Group's total Adjusted EBITDA losses in the 18 months to December 2020. The CSR business, which has been closed, accounted for £0.4m of this.   

e)   The implementation of a performance management regime that rewards profitability and margin management. 

4.   Investment in operational excellence

The Group invested in improving operational excellence in a number of areas including:

a)   Investment of £0.5m in post-production facilities, enabling audio finishing and 4k production along with improved gross TV margins

b)   The relocation of the London businesses into a new creative HQ, saving the Group £0.1m per annum

c)   Investment in HR to drive continual improvements in performance, retain high performing talent, and deliver the required change management programme; this was a very timely investment given the hugely complex and demanding challenges associated with Covid-19

d)   Investment in improved financial practices, including the delivery of in-house payroll, new pipeline management and better management information to improve decision making.

With all critical elements of the transformation plan implemented, the Group is now confident it can be profitable and cash generative when revenues recover to pre-Covid-19 levels.  In the 12 months ending December 2019, the Group reported revenues of £28.9m and Adjusted EBITDA of £0.1m.  Following the changes made above, when the Group returns to revenues of this level, management believe that the Group will be able to generate significant profitability.

Five strategic priorities for 2021

The Group has five strategic priorities for 2021, which will form the basis of future reporting.  These are:

1.   Revenue growth and diversification

Rebuilding revenues to pre-Covid-19 levels is now the Group's primary priority.  Much of this will be market dependent.  The third lockdown at the start of 2021 has further delayed existing production and the speed of new commissions but this is expected to strengthen in H2 2021.  To maximise the probability of revenue recovery, and in anticipation of accelerated opportunity towards the end of 2021 and into 2022, the Group will continue to pursue new business winning hires as opportunities arise in the year ahead.

2.   Gross margin growth 

Margin management and further improvement to TV gross margins remains a strategic priority.  The Group aims to improve margins through further investment and improvements to production management, and through the recent appointment of a Group CTO who joins in the summer of 2021.  It is anticipated that this post will also create new revenue opportunities.

3.   Cash generation and cash management

Having improved television gross margins, closed loss making businesses and restructured divisions, the Group is better positioned to turn revenue growth into cash generation. The group will continue to explore investments in new talent and business winning personnel to maximise the opportunity for future cash generation, while remaining focused on short term cash management.

4.   Performance culture

A considerable amount of work has been completed in creating a new high-performance culture in the Group.  Strategic objectives are set for all employees for 2021 aligned to the overall Group strategy.  All senior business generating roles and cost management roles are aligned to, and rewarded by, the delivery of the strategic priorities of revenue generation, diversification and margin growth.  Performance management is now operating in every division in the Group to drive continued improvement and retain the best talent.

5. Shareholder engagement and communication

The Group is committed to regular engagement and dialogue with all investors.   There is increasing confidence in the market opportunity for Zinc Media Group to become a vehicle for accelerated growth and value creation in the years ahead and it is now working with Western Advisors to assist with investor relations and communication, and has begun holding events for investors on the Investor Meet Company platform.

Zinc is privileged to have long term and supportive shareholders, and the company would like to thank them for their support and guidance during the reporting period.

Market and Outlook

The Group has currently booked £12.2m of revenue which is forecast to deliver in 2021.  While this is not yet back to pre-Covid-19 levels, it continues to build.   

In television this includes a new returning series of Emergency Helicopter Medics for Channel 4, a new series for W, a UKTV channel, which is a new buyer for Zinc, and a significant production for another new customer.  Zinc's radio businesses continue to win new business and the Group has won its first ever commission for a brand new original series for Amazon Audible.  The new Zinc Communicate business is booking in line with 2021 targets in its digital publishing business and has secured three  partnerships for 2021 in its new video marketing business.  

The Group has a healthy pipeline of new business for delivery in 2021 totalling £39m.  £6m is highly advanced, £17m in engaged conversation, and £16m in early discussion.

A simpler and better structured Group

The Group has undergone significant change in order to make it easier for clients and customers to engage with the business, removing duplication and allowing for improved creativity and communication.  The Group is now organised in two business units: Zinc Television and Zinc Communicate. 

Zinc Television produces television programmes for the UK and international markets. These markets broadly fall in to three types of buyer:

·      Public Service Broadcasters (PSBs):  These channels are publicly funded as in the case of the BBC in the UK, or commercial PSBs which are predominantly funded by advertisers, as in the case of ITV, Channel 4 and Channel 5.  The majority of original commissioned hours come from this market.

·      Multi-channel networks: These channels sit on a variety of platforms including satellite and cable networks and are often owned and managed by large international broadcasters.  These channels include those owned by large global media owners including Sky, Comcast and Viacom, and includes channels such as Sky One, Smithsonian, Discovery and A+E.  These channels increasingly commission original content from the production sector.

·      Subscription Video on Demand (SVoD):  SVoD channels are primarily on demand channels rather than scheduled linear channels and are primarily funded by subscription rather than advertising.  These channels include Netflix, Disney+, Discovery+, Amazon and Apple TV alongside an increasing number of others.  These channels are increasingly commissioning original content from the production sector.

Zinc Communicate produces content for the commercial market driven by brands, advertisers, media owners and rights holders, currently delivered via three products:

·      Brand and advertiser funded content: Channel 4 and Sky are both examples of channels which commission content for television from the production sector in partnership with brands and advertisers, but many more clients commission content for distribution via digital and social channels or for their own platforms.

·      Corporate video:  This is video content for use by business and industry to promote products and services through business to business distribution or to engage the end consumer.

·      Digital publishing:  Brands, businesses, public bodies and institutions commission production services for digital and print solutions.

Demand for new content

As the vaccine rollout enables the UK and other geographies to put the Covid-19 pandemic behind them, there is pent up demand for original content in all the markets that Zinc targets.  The lingering concerns surrounding the pandemic and the lockdown at the start of 2021 have impacted market confidence and the speed of decision making from content buyers has remained slower than we would like.  In time, as the economy recovers and market confidence returns, Zinc is well placed for revenues to return and grow.

In the reporting period, 79% of Group TV production revenues came from the UK TV market and 21% came from international TV buyers.  Most UK revenues came from the UK PSBs, who were all impacted by Covid-19 with the subsequent knock-on to the independent production community.

The main UK commercial PSBs all saw their advertising revenues decline significantly in the first half of 2020 but recovered somewhat in the second half of the year, and Zinc's performance followed the same trend.  The BBC, which accounted for 36% of Zinc's TV production revenues in the reporting period, is undergoing further significant change in 2021.  These changes are likely to present new opportunities for Zinc, and it anticipates healthy revenues will be maintained from the BBC in the year ahead.  The commercial PSBs suffered substantially from reduced advertising revenues in 2020.  Zinc generated 41% of production revenue from the commercial PSBs in the period ending December 2020.  The UK PSBs remain the largest market for Zinc and present continued opportunity for growth in 2021.

The SVoDs and multi-channel networks showed more resilience to the Covid-19 crisis.  SVoDs saw their subscriber base increase during the lockdowns of 2020.  19% of Zinc's TV production revenues came from these buyers in the period, with the majority of this from the Group's London TV labels.  This market presents a growing opportunity for Zinc. 

Factual television remains a growing market for channels.  UK PSBs are facing increasing competition from the multi-channel networks and SVoDs, while at the same time seeing their advertising revenues decline.  Factual television provides them with high rating programmes with which to compete, but which are cheaper to commission than large scale dramas or sport.  SVoDs and multi-channels are increasingly looking to invest in original content to differentiate in a crowded market and factual television provides them with a more cost-effective way of doing this alongside expensive original dramas or sports rights.

Zinc Television is now positioned to serve all markets and price points in factual television.  It continues to pitch and win premium content with both UK PSBs and international broadcasters, as evidenced by the recent series for BBC1 on The Blitz with Lucy Worsley, and the recent series for Smithsonian titled The Curious Life and Death Of ….  At the lower price point the Group continues to win returning series for programmes including The Beechgrove Garden and Inside Edinburgh Zoo for the BBC and Bargain Loving Brits in the Sun for Channel 5.

The new Zinc Communicate is well positioned to benefit from economic recovery post Covid-19 and the Group anticipates steady growth from this division in the second half of 2021. The digital publishing business rebounded well in the second half of 2020 and is on track to grow revenues in 2021.  The video marketing business has secured three partnerships for 2021.       

Divisional performance in the 18 months ending December 2020

London & Manchester Television

London & Manchester Television was restructured in the period into a single division, developing, pitching and delivering television programmes for the UK and international market.  It now operates under one Managing Director, where previously there were four, supported by development and production management teams. 

Programmes are pitched and delivered through four distinct labels.  The labels serve two primary purposes.  They define the product proposition, and they bring credibility, familiarity and trust to their genre.

The new single organisational structure within London & Manchester Television has seen a renewed creative purpose, a clear sense of commercial rigour, improved communication, improved financial forecasting and analysis and increased opportunity for cross company collaboration, as evidenced by the recent Amazon Audible commission, which was an idea generated for television but pitched and commissioned as audio.

Brook Lapping - Current Affairs and Investigations

This label is highly trusted and respected by channels for its work in current affairs and investigations in both the UK and international market.

This period has seen the completion of a major political series for the BBC, ARTE and a variety of co-producers. Produced in the style of Inside Europe: Ten Years of Turmoil and Inside Obama's White House, Trump Takes on the World explored the major foreign policy decisions during Donald Trump's term as US President.  The programme secured access to the major political names from the world stage including presidents, prime ministers and ambassadors. Discussions are already underway about the next series from this production team for 2021/22.

Another major stand out programme produced in the period was The Hunt for Gaddafi's Billions.  This is a feature length documentary for the BBC, VPRO and international broadcasters and premiered to exceptional press and ratings in the Netherlands (the primary funding territory) and subsequently on the BBC. 

The label has continued to work with both the UK's leading Current Affairs brands: Dispatches and Panorama. A one-off special for Panorama titled Is your online habit killing the planet? aired on BBC ONE in November 2020.

Blakeway - Specialist Factual Television

Blakeway underwent significant change in the reporting period following the departure of the former Managing Director and the wider restructure.  This label is focused on premium specialist factual programming in the areas of History, Music, Science, Arts and Ancient History.

Strong relationships with UK terrestrial broadcasters have continued to bear fruit with programmes like The Sound of Music TV with Neil Brand transmitting on the BBC to both critical acclaim ("exactly what television should be" - Grayson Perry) and high ratings. A second series of Tony Robinson's History of Britain was produced in 2020 for transmission in 2021, and Barenboim in his Own Words was produced for the BBC.

The follow-up to the 2018/19 BAFTA winning series Suffragettes was produced in 2020. Blitz Spirit with Lucy Worsley is a factual drama, produced during the height of the Covid-19 pandemic, and transmitted in February 2021 on BBC ONE.  Further Lucy Worsley programmes are in discussion for 2021/22.

Revenue diversification into the SVoD and US markets has been gaining pace.  The Curious Life and Death Of… transmitted to an excellent response on Smithsonian Channel.  Two major commissioned developments have been delivered to Disney+ through the Group's relationship with National Geographic. A new feature is in final negotiations with Sky Documentaries and  marks the Company's move into the growth area of high value feature documentaries, which is a marked industry trend.

Films of Record - Access and Observational Documentaries

This label lay dormant until 2020 when, following the restructure of the London TV business, which brought greater clarity and purpose to the London labels, Films of Record saw a return to the market with its renewed focus on high quality documentaries.  This is a strategic growth area in the current market environment.

Building on the success of Fighter Pilot: The Real Top Gun for ITV, the label produced another high-profile access-based series for ITV titled The Station: Trouble on the Tracks.  This programme beat slot averages for factual on ITV. More developments are in discussion with ITV as follow-ups to these two successful series. 

A number of observational or access documentaries are in discussion with UK and international broadcasters, but these were hampered by Covid-19 in 2020 due to the challenges of gaining access to big companies and institutions under lockdown and social distancing restrictions.   It is likely that these programmes will return in 2021/22 as Covid-19 restrictions ease.

Red Sauce - Popular Factual

Red Sauce launched in September 2020 following the restructure of Reef TV in London and Blakeway North in Manchester.  Blakeway North accounted for 8% of Group revenues in the year ending June 2020 and 35% of the Group's losses.  With both Reef and Blakeway North serving similar markets in UK popular factual and Blakeway in London focusing on specialist factual, the creation of Red Sauce allowed for a repositioning of the Group's popular factual offering, under one label, from a new team and with a clear position in the market.

A new Creative Director was hired to lead this new label, along with a new Executive Producer based in Manchester.  A new bespoke development team was also recruited to drive creative renewal in this area of factual television. 

Red Sauce has inherited a slate of programmes which have performed strongly in this period. Police Code Zero transmitted on Channel Five in Autumn 2020, and comfortably exceeded its previous slot average. The programme was delayed due to Covid-19 as access to the emergency services were restricted during 2020, but conversations are ongoing about a returning series.  Critical Incident played on BBC ONE Daytime in November/December 2020 and was the highest rating show for that slot in the year. It has since been recommissioned for a third series to be produced in 2021. Bargain Loving Brits in the Sun, which is a regular returning series, transmitted in early 2021 and performed above slot average, whilst Bargain Loving Brits by the Sea is scheduled for transmission later in 2021.

Red Sauce has been pushing to diversify its programme and client base. Close work with the branded content team in Zinc Communicate has borne fruit, with one series in advanced discussions with both a broadcaster and a brand funder. Ideas are also in play with all of the UK terrestrial broadcasters.

Tern - Nations factual television, from Scotland and Northern Ireland

Operating from three sites in Glasgow, Belfast and Aberdeen, Tern continues to perform well for the Group.  It transmitted nearly 90 hours of television in the 12 months of 2020, much of this from a strong pipeline of high performing returning series.  The division is delivering well on its brief to be a first-choice factual producer for UK Nations and Regions' public service broadcasting (PSB) commissioning.  

Highlights from the period include the BBC ONE series A Very Country Christmas, Inside the Museums: Ulster Museum for BBC Four and Emergency Helicopter Medics, Britain's Wildest Weather and Britain's Best-Selling Toys for Channel 4.

Perhaps the most notable achievement is the number of returning series which include: David Wilson's Crime Files, Inside the Zoo, Emergency Helicopter Medics and Darren McGarvey's Class Wars from Tern Glasgow; Beechgrove, The Children's Hospital and Reflections at the Quay from Tern Aberdeen and Britain's Lost Masterpieces from Tern Belfast. 

Tern was nominated for a record seven Scottish BAFTA nominations and won awards for Being Gail Porter (Best Documentary) and The War Next Door: Scotland and The Troubles  (Best News & Current Affairs). 

Tern remains in a strong position to benefit from the BBC and Channel 4's out of London commissioning, offering good opportunities for co-productions across the Group. The Company is also expanding its portfolio of advertiser funded programming (AFP) and brand funded content alongside the new Zinc Communicate.

Zinc Communicate - televisual and digital production for brands, agencies, media owners and publishers

2020 was a year of significant change for Zinc Communicate.  In April 2020 the Group announced the closure of its loss-making CSR business, which accounted for approximately 35% of the Group's losses in the 18 months to December 2020.  The business closed in the summer of 2020 but the Group retains the IP in The Children's Traffic Club.

The Group launched its new Branded Content business in the summer of 2020 and its Video Marketing business in the autumn.  The Publishing business, which was moved under the management of the new Zinc Communicate in 2020, was significantly impacted during the lockdown between March and June 2020 when the construction and home building sector, which it relies on for a large proportion of its revenues, was shut down.  However, it was the fastest division in the Group to recover revenues in the second half of 2020. 

The new Zinc Communicate has three businesses supported by an in-house commercial team which includes a 30-strong classified ads sales team based in Macclesfield. 

Zinc Communicate - Branded Content

This is a new division within Zinc Communicate headed up by a new business winning team.  This team sells long form and short form televisual production alongside audio podcasts to brands, agencies, media owners and rights holders.  This may include AFP (Advertiser Funded Programmes), where a brand or advertiser creates television programmes for UK PSB channels.  Channel 4 does the largest amount of AFP work in the UK, and Zinc Communicate currently has two opportunities residing with buyers for AFP.  It may include deficit funded programming, where a brand or advertiser contributes part of the budget for a television show, where the channel is unable or unwilling to support the full production budget.  It may include digital short form production, where a brand or media owner commissions original content for distribution on their channels or via social networks, and it may include commercial podcasting where brands or agencies commission audio production as part of their media spend.  The branded content team works closely with the Group's television teams, and all production sits on the same workflow as television which helps drive higher margins through utilisation of existing Group infrastructure.

Zinc Communicate - Video Marketing

This is another new venture for Zinc Communicate similarly headed up by a new business winning team. This team sells televisual content supported by digital distribution to businesses in the B2B market.  The Group has won three partnerships with B2B associations to produce films for clients in sectors including renewable energy and transport. 

Zinc Communicate - Publishing

This business formerly reported as Ten Alps Communications and traded profitably in the year 2018/19. At the end of 2019 the division faced the possibility of closure as its largest partnership with the LABC terminated, and its second largest contract with the RIBA was put out to tender.  The Group won the RIBA tender on a new multi-year contract and developed its own product and commercial proposition to replace the LABC partnership. 

It faced significant challenges in early 2020 when the construction sector was closed in the first lockdown but bounced back to pre-Covid-19 levels of revenue in the summer of 2020.  It underwent a significant restructure and was assimilated into the new Zinc Communicate under one management team.  This division has been transformed to become a digital first publishing business and sales house.  This division is expected to increase its revenues in 2021.

CFO'S REPORT

Income statement

During the period, the Group's accounting reference date was changed from 30 June to 31 December. The change was undertaken to ensure consistency with generally accepted industry and sector practice. As a result this report contains the Group's results for the eighteen months to 31 December 2020, and all comparatives (FY 19) relate to the 12 month period.  Financial performance in the period was materially affected by Covid-19 restrictions which began halfway through the period and resulted in delays to productions and commissioning.

Revenue from continuing operations for the period was £30.6m (FY 19: £23.2m). 

Comparing calendar years, Group revenue from all operations reduced by 41% between 2019 and 2020.  This was mainly driven by the Covid-19 pandemic, but also a result of refreshing new business winning roles across the Group: new hires were made in London and Manchester TV and Zinc Communicate in particular, with three new businesses being launched. 

It is encouraging that, in the second half of 2020, revenues from all operations increased by 33% and losses reduced by 40% compared to the first half of the year as Covid-19 production protocols were established and lockdown restrictions eased. 

In the 18 month period, 91% of Group revenues came from television and 9% from Zinc Communicate.  The latter is expected to grow significantly in 2021.

Despite the significant downturn in revenues caused by Covid-19, Tern Television continued to perform well, booking £10.6m of revenue.  Its resilient performance is rooted in well established relationships with the BBC network, BBC Scotland, Channel 4 and More 4, and in long running returning series. 

London and Manchester's television labels generated £17.2m of revenue but were hit harder by the pandemic than other parts of the Group due to their dependence on more expensive programmes and the international market.  The new label Red Sauce was launched in September 2020 and is expected to deliver lower cost television with returnable series in the years ahead.

Total gross margin percentage increased during the period from 25.5% to 30.1%.  The increase in margin was driven by the increase in London and Manchester TV production gross margins, which increased from 24.7% to 29.6% as a result of the investment made in post-production equipment, changes in production management and improvements in financial management.  We expect a further increase in gross margins in 2021 as we get a full year's benefit from the changes made during the last eighteen months.   

Adjusted EBITDA (being earnings before interest, tax, depreciation, amortisation, share based payment charges, loss on disposal of fixed assets and exceptional items) from continuing operations was a £0.8m loss in the 18 month period (2019: £0.2m profit), driven by the reduction in revenues.

To help mitigate the impact of Covid-19 when it first hit in March 2020 the Group immediately implemented a short-term cost reduction plan. Between April and June 2020 £0.7m of savings were generated from a combination of furloughing staff, staff being on reduced hours, non-executive Directors taking no pay and senior management, including the CEO and CFO, taking monthly pay cuts of up to 40%. As a result of these savings the Adjusted EBITDA loss in the 18 month period was almost halved.

The Group also restructured two loss-making divisions: the Zinc Communicate CSR division and the Manchester based TV business Blakeway North.  The CSR division was closed in 2020 following the discontinuation of the high value TFL sponsorship of The Children's Traffic Club in December 2019.  The division's £0.6m loss in the 18 month period is disclosed within discontinued operations.  

The operating loss from continuing operations of £3.7m (2019: £1.4m) includes £0.6m of exceptional items.  £0.4m of these relate to reorganisation and restructuring costs, driven by personnel changes in London and Manchester TV. The taxation charge includes a £0.3m deferred tax asset write off made due to uncertainties as to when income will arise against which tax losses will be utilised.

The Board does not recommend the payment of a final dividend (2019: £nil).

Earnings per share

Basic and diluted loss per share from continuing operations in the period was 66.38p (2019: loss per share of 53.55p). These measures were calculated on the losses for the period from continuing operations attributable to Zinc Media Group shareholders of £4.3m (2019: loss of £1.5m) divided by the weighted average number of shares in issue during the period being 6,507,620 (2019: 2,799,182).

Statement of Financial Position

Assets

Cash at the end of December 2020 was £6.8m, having increased £3.6m during the period as a result of £7.5m of new capital raised (before costs), partially offset by cash outflows from operating activities, payment of deferred consideration to former Tern Television shareholders and capital purchases relating to the investments in post-production equipment and the new Group headquarters. 

Property, plant and equipment assets have increased to £0.9m (2019: £0.4m) as a result of investments in post-production equipment and the new Group headquarters.  The reduction in goodwill and intangibles to £4.5m (2019: £5.4m) reflects the amortisation of intangibles during the period.  

Prior to the current period, property leases were classified as operating leases, whereas in the current period, because of the adoption of IFRS 16, they are recognised as a right - of - use asset with a corresponding liability. The right-of-use asset at the end of the period was £1.3m (2019: £0).

Trade and other receivables have reduced by £2.6m to £4.3m (2019: £6.9m), due to a lower level of production activity at the year-end resulting from Covid-19.

Equity and Liabilities

The Group has made significant structural changes to ensure the long-term financial stability of the business. Between February and November 2020, the Company completed a balance sheet restructure that included:

·      £7.5m of new capital raised before costs;

·      Conversion of all preference shares to ordinary shares;

·      Part conversion of the long-term debt and extension of the term of the remaining debt from December 2020 to December 2022;

·      A share consolidation at a ratio of 500:1; and

·      A court approved reduction of part of its share capital and share premium account and merger reserve, which has resulted in the Group having positive distributable reserves at period end.

As a result of these changes called up share capital has reduced from £5.9m to £0.02m, the share premium account has reduced from £30.5m to £4.7m, the merger reserve has reduced from £0.9m to £0.03m, preference shares have reduced from £0.8m to zero and retained earnings have risen significantly from a £35.6m deficit to £1.2m credit. 

Current liabilities have reduced to £7.1m (2019: £9.0m), reflecting a lower level of production activity at the year end, the creation of IFRS 16 lease liabilities and payment of the prior year earnout consideration payable to the former Tern Television shareholders. 

Non-current liabilities mainly consist of the Group's long-term debt obligations and lease liabilities on properties. The Group had an outstanding balance on long-term debt of £3.4m at the year end (2019: £3.7m), held by two of the Company's shareholders and with no financial covenants relating to the debt.  The debt has been reduced via converting some of it to equity during the period. The repayment date on all the Group's long-term debt obligations is 31 December 2022. 

Cash Flows

The Group experienced a cash outflow of £0.7m (2019: £0.5m inflow) in its operations during the period due to a decrease in working capital offsetting a cash outflow of £1.7m. Other outflows include £0.8m paid to the former Tern Television shareholders as part of the earnout agreement and £1.0m invested in the fit out of the new London HQ and production equipment to drive increased gross margins in TV.  The move to new headquarters in March 2020 aided cashflow due to the initial rent-free period.

The cash outflows were more than offset by a £7.1m cash inflow from two equity fund raises (net of expenses), resulting in a net increase in cash of £3.5m in the period (2019: increase of £0.3m).

An overdraft facility of £0.6m was put in place during the period. 

Post Balance Sheet Events

There are no post balance sheet events to disclose. 

Key Performance Indicators (KPIs)

In monitoring the performance of the business, the executive management team uses a number of KPIs including:

·      TV production gross margins

·      Revenue growth

·      Revenue diversification

·      Pipeline and order book growth

·      Adjusted EBITDA

·      Cash generation

·      Audience and market response to programming content (viewing ratings, industry awards etc.)

These KPIs have been reported within the CEO's Report and CFO's Report.

Non-statutory Accounts

The financial information set out below does not constitute the Company's statutory accounts for the 18 months ended 31 December 2020 or 30 June 2019 but is derived from those accounts.  Statutory accounts for the year ended 30 June 2019 have been delivered to the Registrar of Companies and statutory accounts for the 18 months ended 31 December 2020 will be delivered to the Registrar of Companies in due course.

The Auditor has reported on those accounts and the text of the Auditor's reports can be found in the Company's full Annual Report and Accounts at www.zincmedia.com.

Consolidated income statement

Adjusted EBITDA is defined as EBITDA before share based payment charge, loss on disposal of fixed assets and exceptional items. The loss for the period attributable to equity holders from continued operations is £4,254k (2019: £1,483k) and the loss to equity holders from discontinued operations is £624k (2019: £1,241k).

The accompanying principal accounting policies and notes form part of these consolidated financial statements.

Consolidated statement of comprehensive income

Consolidated statement of financial position

The consolidated financial statements were authorised for issue and approved by the Board on 23 April 2021 and are signed on its behalf by Will Sawyer.

The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

Company registration number:  SC075133

Consolidated statement of cash flows