Company Announcements

Final Results

Source: RNS
RNS Number : 9960E
Zoo Digital Group PLC
13 July 2021
 

13 July 2021

 

ZOO DIGITAL GROUP PLC

("ZOO" the "Group" or the "Company")

 FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2021

A year of substantial sales growth, momentum carried into current year

ZOO Digital Group plc (AIM: ZOO), the leading provider of end-to-end cloud-based localisation and media services to the global entertainment industry, today announces its audited financial results for the year ended 31 March 2021.

HIGHLIGHTS

Key Financials

·     

Revenue grew by 33% to $39.5 million (FY20: $29.8 million)

·     

Adjusted EBITDA* more than doubled to $4.5 million (FY20: $2.1 million) - EBITDA* margin increased to 11.5% (FY20: 7.0%)

·     

Operating profit of $1.0 million (FY20: loss of $0.6 million)

 

·     

Reported loss before tax of $3.6 million (FY20: breakeven) after non-cash fair value movement on embedded derivative of $3.5 million

 

·     

Net cash at year end $2.9 million prior to receipt of proceeds of fundraising with no debt other than convertible loan notes (FY20: $1.2 million)

 

Operational Highlights

·     

Cloud software allowed ZOO to continue providing an efficient, secure and uninterrupted service to customers throughout the global pandemic

·     

Increased workflow from preparing back catalogue titles led to significant increase in demand for media services, more than compensating for the drop-off in new productions and resulting in sales for this segment in the period of $17.5 million, up 136% (FY20: $7.4 million)

·     

ZOO continued to lead the digital transformation of the sector, further enhancing current platforms, and launching newly developed platforms: ZOOmedia, and ZOOsign

·     

New services were launched for Asset Health Check, remote Automated Dialogue Replacement, and "Post to Platform"

·     

The freelancer network grew to 9,207 (FY20: 7,184, +28%)

·     

The business continued to establish a presence in key territories, increased the number of partner studios and vendors to 232 (FY20: 155, +50%)

·     

The high quality management team across ZOO was expanded through a global talent and advocate programme

·     

The group successfully maintained an ongoing high level of customer satisfaction - retained sales KPI was 98.5% (FY20: 97.3%)

 

 

Post Period End

·     

Placing raising £7.4 million ($10.3 million) in April 2021 to support growth and investment in R&D to maintain leading innovative position

 

 

Outlook

·     

Combined and accelerating market trends have presented an extraordinary opportunity for ZOO to seize market share and grow in an expanding market

·     

Trading in the first quarter of FY22 has been strong and ahead of the prior year period. Based on current visibility, we expect to deliver significant growth in the first half of FY22

·     

Business continues to receive significant orders for catalogue content with vast untapped archives of global content for streaming services that require the full range of services offered by ZOO

·     

Following the fundraise, multiple opportunities identified to establish hubs in India, Middle East and Southeast Asia, and hiring of additional talent is progressing well

·     

The Board remains confident of continuing growth

 

 

* Adjusted for share-based payments

 

Copies of the Report and Accounts for the year ended 31 March 2021 are available on the Group's website www.zoodigital.com and, in accordance with AIM Rule 20, will be distributed to shareholders in August 2021.

 

Stuart Green, CEO of ZOO Digital, commented,

"ZOO performed strongly during the year with revenues growing by a third to $39.5 million and making good progress towards our ambitious goal of $100 million of sales. Adjusted EBITDA more than doubled to $4.5 million. 

"In a year when the world stayed at home and watched more TV, ZOO worked from home to deliver more content, to more audiences than ever before.  We support major Hollywood studios and streaming services to globalise their new and catalogue content in all languages. The industry in which we operate is huge and is undergoing a structural shift which has markedly accelerated over the past 12 months.  ZOO is positioned well to continue to benefit from the unrelenting rise in streaming video.

"Looking forward, we continue to win new business as production of new titles is now resuming and significant orders for catalogue projects continue.  Our new financial year has begun well, maintaining the momentum achieved last year, and we remain confident of continuing growth and achieving market expectations."

 

For further enquiries please contact:

ZOO Digital Group plc

+44 114 241 3700

Stuart Green - Chief Executive Officer
Phillip Blundell
- Chief Finance Officer

 

 

Stifel Nicolaus Europe Limited

Fred Walsh/Luisa Orsini Baroni

 

+44 207 710 7600

Instinctif Partners

Matthew Smallwood/Rosie Driscoll

Hannah Campbell

+44 207 457 2020

zoo@instinctif.com

 

The Company further wishes to draw attention to the posting on its website (www.zoodigital.com) of a presentation to shareholders regarding its final results, and of an investor presentation (www.zoodigital.com/prelims2021) that will be live streamed on Tuesday 13th July at 5:00pm BST.

 

 

CHAIRMAN'S STATEMENT

I am pleased to report an excellent year for ZOO Digital, which has delivered strong growth throughout a period of significant disruption to the entertainment industry caused by the COVID-19 pandemic.

For several years the entertainment market has been undergoing a structural shift and we have seen this accelerate markedly over the last 12 months. The industry continues to be reshaped by the unrelenting rise in streaming video through which internationally sourced content is becoming accessible to consumers globally.

ZOO's role is pivotal, providing the essential services needed by the industry to take completed TV series or feature films and create the materials necessary for content to playout on streaming platforms in any language. ZOO operates as a one-stop-shop, delivering services powered by its proprietary cloud technology that has provided resilience during the pandemic.

ZOO has been able to operate as normal during the past year, despite the disruption to the wider industry. In a market segment that has shrunk slightly over the period, ZOO has delivered strong growth. Revenues are up by 33% over the prior year to $39.5 million, and adjusted EBITDA has increased 112% to $4.5 million.

For major media companies, business is becoming increasingly challenging due to the decline in traditional revenue sources of the box office and PayTV licensing, the launch of direct-to-consumer services, enlarged production programmes and expansion of streaming services globally. At ZOO, our mission is to make life easier for the people who entertain the world and be our customers' most trusted partner to deliver engaging, entertaining, and immersive content experiences to global audiences.

During a period when market commentator Slator reported* that media localisation market sales declined slightly, our strong growth implies that we have grown our market share. With the backdrop of the temporary halting of new title productions during the pandemic, we have proven ourselves to be reliable, adaptable, and capable of meeting all our customers' requirements. Our competitive advantage is particularly strong with global platform customers that have adopted our software solutions to manage their streaming production operations and enjoy significant productivity benefits as a result.

In April 2021, we completed a £7.4 million (approximately $10.3 million) fundraise to enable us to fully capitalise on the excellent opportunities available to us. This will allow us to accommodate an expanding order book, continue to deliver strong growth and boost our R&D capabilities to further build on our leading position in the market.

I would like to welcome the new shareholders who joined our register in the recent placing, and to thank all our investors and stakeholders for the support they have shown over the past year. In addition, I am grateful to the holders of ZOO's convertible unsecured loan stock, most of whom have continued their support since this was issued in 2007 and have since agreed to several extensions. With the instrument reaching the end of its term in October 2021, we look forward to redeeming the capital or converting the loan stock to equity at the option of individual holders.

There have been many obstacles to navigate over the past year, yet our people have performed magnificently, rising to every challenge that has been thrown at them. I would like to extend my gratitude not only to those employed by ZOO, but also to our growing community of over 9,000 freelance workers and over 200 partner studios and vendors who are crucial to delivering the high-quality services we offer. Today's results would not have been possible without their ongoing support and hard work. Thank you all.

With an expanding market and excellent customer relationships, the Board remains confident of continuing growth for the years ahead.

 

Gillian Wilmot
Chairman

* https://slator.com/data-research/slator-2021-language-industry-market-report/
 

STRATEGIC REPORT

Introduction

Our strategic report covers an extraordinary period for almost every business across all sectors around the world. There are few markets that have been unaffected by the global pandemic, and entertainment is certainly no exception. The suspension in production of feature films and TV series has had a detrimental effect on businesses that operate in production and post-production. The demand for media localisation in our sector is greatest in relation to newly produced titles and consequently the pandemic has had a big impact particularly on traditional dubbing businesses in its early months.

Despite this, ZOO has delivered strong growth of 33% year on year, fuelled by the expansion of its media services segment, and continued to play a leading role in the digital transformation of the sector. This is a testament to the Group's strategy, built on its proprietary technology and operational differentiators that have enabled it to adapt to the changing requirements of customers, and to the trusted status of the Company as a preferred vendor to six leading content producers and streaming platforms.

Market Overview

Changes to industry dynamics accelerated during 2020

 

Streaming video through Over-the-Top (OTT) delivery is now central to the strategy of every major media company across the entertainment industry. During the pandemic, major publishers including Disney, WarnerMedia and NBC Universal have pursued Premium Video on Demand (PVOD) offerings where new movies are shown on streaming services first. Netflix, Amazon and Disney+ have all reported significant growth in subscribers to their streaming services during the last year as the platforms are increasingly adopted. 

 

This rise in streaming services has further accelerated the decline in the PayTV market, where consumers are terminating expensive long-term PayTV packages ('cord-cutters') in favour of internet services combined with month-to-month subscriptions to streaming platforms. The loss of licensing and advertising revenue is expected to continue fuelling providers to move their best content away from PayTV to direct-to-consumer (DTC). This has been evidenced by Disney, who is pivoting its core strategy away from PayTV and recently announced its intention to close 100 international TV channels and migrate content to Disney+. Other major media companies including Comcast, WarnerMedia, ViacomCBS and Discovery have also launched DTC services over the past two years, driving consumers to switch to subscription video on demand (SVOD) offerings. SVOD subscriptions are expected to increase by 591 million between 2020-26 to reach 1.5 billion, an increase of 65% (Digital TV Research).

 

In addition, the recently announced divestment of WarnerMedia (that includes brands HBO, Cartoon Network and CNN) by AT&T will see it combine with Discovery to create one of the largest entities in entertainment, while Amazon intends to acquire MGM Studios to bolster the Amazon Prime video service with a large catalogue of content that will include James Bond, Rocky and Real Housewives to name a few. The acquisition also brings the talents and experience of a fully-fledged studio to Amazon, which should help in producing high quality originals like MGM's recent hits such as The Handmaid's Tale and Fargo.

 

Going forward, it is difficult to know whether simultaneous release on PVOD will become the norm to optimise revenues through earlier exploitation of streaming services. However, despite the pandemic, large media companies are committing to ever increasing budgets to create new programmes. Earlier this year, Netflix announced it will spend $17 billion on content in 2021; Amazon spent $11 billion on TV series, movies and music for its Prime services in 2020, an increase of 41% from 2019; while Disney expects to spend $8-9 billion on content for Disney+ by 2024 (excluding spend on feature films and TV shows distributed elsewhere that may also become available on the platform). At launch, Comcast pledged about $1 billion per year for four years on content and marketing to launch its Peacock service. WarnerMedia committed between $1.5 billion and $2 billion for content on its HBO Max platform in its first year, with $1 billion budgeted for each following year.

 

Globalisation of content

 

Netflix provides localised versions of content in 30 languages across 190 countries. Amazon Prime (available in over 200 countries) makes available a similar number of language versions. At launch, Disney+ original titles were available with subtitles and dubbed audio in 16 languages which has since been increased to 21 languages across 59 countries as Disney progresses the platform's global expansion.

 

Content is going increasingly global as non-English feature films and TV series become more and more popular amongst international audiences. Quality international content is in high demand and widely sought after by streaming platforms. In 2020, review website Rotten Tomatoes chose Netflix's first German-language show, Dark, as the best Netflix Original series. The second season of Iceland's Trapped was watched by 10 million people in the United Kingdom, Germany, France, and across Scandinavia. Distribution demand for the Spanish La Casa de Papel (Money Heist) soared and the show's fourth season in April 2020 was 32 times more in demand than popular English-language series like The Walking Dead, Westworld, and Game of Thrones. The opening of global markets for such content, which hitherto may have been accessible only in the country of origin, is providing vast archives of untapped programming that may, over time, find its way onto streaming services - a great opportunity for ZOO.

 

All global streaming companies are paying particular attention to the high growth markets in Asia where the increased penetration of broadband and wireless networks is creating significant demand for SVOD services. China's absolute growth is forecast to exceed that of the United States between 2018 and 2023 for the first time (at a CAGR of 7.7%), while Indonesia, Vietnam and the Philippines are expected to grow (according to the latest PwC Entertainment and Media Outlook) at 9.4%, 7.1%, and 6.1% respectively.

 

COVID-19

The impact of the global pandemic was felt early across the entertainment industry as many struggled to work from home while maintaining robust levels of data security. ZOO initially experienced a dramatic drop-off in the order book and increasing uncertainty as customers migrated to home working between February and April 2020 when their placement of orders was temporarily suspended. A large proportion of the work the Company processed at that time related to new original titles, the production of which was halted.

 

However, ZOO's cloud software platforms enabled the Company to transition seamlessly to working from home and continue to provide an efficient, secure and uninterrupted service. The pandemic highlighted the resilience of ZOO's model in contrast to the disruption experienced by traditional providers reliant on travel and people working in proximity. ZOO was also well positioned to adapt quickly to the changing focus of customers as their attention shifted to catalogue content. This was possible due to the end-to-end (E2E) service offering that ZOO provides, including a portfolio of media services that are required to prepare content for digital distribution. Over the course of the financial year, the significant temporary decline in demand for services around new original content was more than offset by the rise in demand for media services, a consequence of the accelerated drive by content owners to migrate catalogues to streaming for which such services are required to a greater extent.

 

ZOO's ability to continue to deliver services meant that the Company received a much higher level of customer enquiries in the period from April 2020. The Company worked to finish projects that had been begun by other vendors and on newly completed titles that would previously have been dubbed by traditional studios. For new customers, ZOO was able to demonstrate the benefits of its cloud-based dubbing service as not only a more efficient means to complete projects quickly but also to deliver high quality results.

 

The roll-out of vaccines has enabled some productions to resume, with Netflix now producing safely in every major market except Brazil and India. As a result, the Board anticipates that new titles will become ready for localisation in volume commencing in the third calendar quarter of 2021.

During this period, ZOO was also approached to work on Automated Dialogue Replacement (ADR) projects. ADR is the process of re-recording original dialogue after the filming process to improve audio quality, facilitate lip-sync dubbing and make changes to the originally scripted dialogue. It is a standard practice when creating premium scripted entertainment and its production has similarities to the process of dubbing. With screen actors unable to travel, customers turned to ZOO to enable the efficient production of ADR recordings using the Company's ZOOdubs platform. This experience enabled us to identify a new market opportunity and launch our remote ADR service offering during the year.

Strategy

ZOO is pioneering and innovating in the markets in which it operates. ZOO's strategy is to deliver significant competitive advantage by making operations more efficient, ensuring consistently high-quality results, and developing service capabilities specific to the needs of its customers and the market. The strategic plan is built on the foundations of five pillars: innovation, scalability, collaboration, customer, and talent. Good progress has been made in all areas during the past year.

Innovation

ZOO's services are performed and delivered predominantly using its own proprietary cloud computing platforms that give the Company competitive advantages through streamlining operations and automating administrative processes and technical functions to enable efficient collaboration over the internet. These platforms bring many benefits to ZOO, its customers, and collaborators, including efficiencies in working practices, reduced production times, security, quality assurance, and scalability. ZOO's ongoing commitment to product innovation provides it with strategic differentiation in its sector and the Board expects that this investment will continue to strengthen the Company's position as an E2E vendor in a growing market. Significant product innovations in the period include:

·   ZOOstudio - a secure platform that provides a centralised system to manage localisation and media service operations. It provides a single source of order and fulfilment and affords efficient collaboration, sharing of assets and reference materials, with in-built ERP functionality that is specific to the domain and configurable for each customer. ZOOstudio is licensed by a major streaming service where it is being used to manage all production operations. This platform has been developed further during the period in recognition of its strategic value in supporting a greater breadth and depth of integration with customers. During the period it has been enhanced through the addition of a wide range of new features, including integration with finance systems, support for invoicing, tools to assist with bulk order creation, report generation and integrated features to enable customer review of dubbed soundtracks.

·      ZOOdubs - enables the entire creative and technical tasks associated with dubbing to be orchestrated and performed in a distributed fashion. Greater functionality has been added to support new features, including simultaneous recording of multiple voices, integrations with industry tools, automated generation of cue sheets, automated generation of audio for Audio Description script review, enhancements for ADR, automated take editing and enhanced integrated video chat. In addition, a mobile application has been developed to support recording and playback.

·      ZOOmedia - a newly developed platform that provides a centralised service for source media management, including automated creation of personalised watermarks for each user and other security enhancements. Other cloud platforms including ZOOdubs, ZOOsubs (subtitling management and production) and ZOOscripts (original version script production and management) have been integrated with ZOOmedia to enable efficient handling of assets throughout the end-to-end (E2E) workflow.

·      ZOOsign - a new platform to support the electronic processing of complex legal documentation that must be created and managed for dubbing projects, including Assignment of Rights agreements.

We continue to be proactive in protecting the innovative aspects of our product developments and have filed two new patents during the period.

Scalability

The scalability of ZOO's offering arises through the capabilities of its cloud-based software platforms that provide automation features and facilitate efficient collaboration over the internet. In addition, scalability is due, in part, to a large community of freelance workers with which the Company works to fulfil customer projects in a cost-efficient way. Most of these freelancers are media localisation specialists, including translators, voice actors, script adapters and dubbing directors. By the end of the period under review the number of active contractors in our systems grew to 9,207, up from 7,184 a year ago and 8,272 at the half year point. We have expanded this pool across the growing number of languages that are being ordered by our customers, and to build capacity for dubbing ahead of the greater demand that we anticipate once lockdown restrictions are lifted and new title productions resume at pre-pandemic levels.

Collaboration

We have continued our strategy of working with local dubbing studios to establish a presence for ZOO in key territories particularly where this arrangement is requested by customers, with the number of partner studios and vendors across all service lines rising to 232 from 155 in FY20. We have a growing number of partners experienced in using ZOO's platforms to enable efficient management and recording of dubbing projects, including hybrid scenarios in which some voices are recorded in traditional studios while others are recorded at remote locations.

We have been strengthening our academic partnerships in both research and education. From a research standpoint, we have engaged on several collaborative projects with specialist groups at the University of Sheffield in the areas of speech and hearing technologies, natural language processing and linguistics. We expect that these will lead, in due course, to new assistive features in our platforms for enhancing the productivity of our staff and freelance workers. We also have several new initiatives in the pipeline to create innovative speech and hearing technologies that will commence in FY22 and which we expect will deliver competitive advantages in the future.

Experience of ZOO's platforms is being sought by students hoping to enter the sector. As part of a new initiative entitled ZOO Academy, several universities that offer media localisation courses and/or modules are now incorporating the use of ZOOsubs and ZOOdubs on their curricula. These include University College London, University of Sheffield, University of Essex, University of Malta, and Alicante University. To address the shortage of talent in certain disciplines and languages, we have also been working with an educational partner on the development of online training courses that we plan to launch in FY22.

Our collaborative initiatives in both research and education have the added benefit of enabling us to identify highly capable individuals who have the appropriate skills to join ZOO's ecosystem in the future.

Customer

ZOO's strategy is to target primarily the organisations that create significant volumes of original entertainment programming and seek to exploit that content through international distribution. These are mostly large media companies that take a multi-vendor approach to the sourcing of localisation and media services. Each such company operates its own framework for the selection and engagement of partners, which leads to the appointment of typically three or four preferred vendors. ZOO's aim is to secure preferred vendor status and, over recent years, has had a high success rate; the Company holds this status today with six major media companies and streaming services.

The relationship that ZOO has in place with a major streaming service provider (announced in 2019) continues to go from strength to strength. This customer has licensed ZOOstudio for managing procurement of the activities required to prepare both new and catalogue content for distribution through its streaming service. The enhancements made to this platform over the last year provide additional operational efficiencies and benefits to this customer, further strengthening the relationship between the two companies. As a result, ZOOstudio is used more widely within this organisation, including across multiple operating divisions. Performance metrics tracked monthly by this customer confirm that ZOO is performing at the highest levels in the industry.

During the period, ZOO was selected and has been operating as a vendor to support the international roll-out of an advertiser-supported video on demand service.

In the current period, ZOO was engaged by several content licensors to provide localisation and media services to prepare back catalogue content for global distribution on the Netflix platform. This follows the Company's appointment as a Netflix Preferred Fulfilment Partner in 2018.

This year, the Company was also selected as the sole subtitling and captioning vendor for a new video-based service that was launched in English-speaking countries, and which is expected to expand its distribution into other territories in the next year.

ZOO's retained sales KPI was 98.5% (FY20: 97.3%, FY21H1: 98.4%), which illustrates the high level of satisfaction of customers with the Company's performance.

Talent

ZOO seeks to attract, develop, and engage staff to grow capability and capacity across all functions. During the period, the Company launched its Advocates programme to engage with experienced and progressive practitioners of the dubbing market across several countries and territories, bringing the benefit of their insights, expertise, and contacts with local buyers as well as relationships with talent for voice acting, directing and script adaptation.

Our appointments over the past year are of individuals with great experience, a modern approach and outlook that complements ZOO's strategy, and include:

·     Teresa Alonso - appointed Dubbing Territory Manager for Spain and Portugal in February 2021. With more than 21 years of experience working for Sony Pictures Entertainment in Spain, Teresa brings extensive expertise to the newly created position at ZOO.

·     Dave Concors - appointed Head of Sound in October 2020. With more than 30 years of experience working on both features and episodic content, Dave is using his wealth of industry knowledge to refine dubbing services at ZOO. Based in Los Angeles, he has more than 20 years of experience with Disney, exclusively working on foreign theatrical releases, which included mixing work on Disney, Marvel, Pixar and Lucasfilm projects. He is an Emmy Award winner for 'outstanding sound mixing' for the long-running NBC show, ER.

·    Mariusz Jaworowski - appointed Creative Director for Central and Eastern European dubbing in January 2021. Mariusz is a leading name in the dubbing industry with more than 21 years of experience as executive creative director at Disney. In his previous role, Mariusz managed and supervised the creation of local versions of feature animation and live action films for both the theatrical market and TV series.

·     Andreas Kaj - appointed as Dubbing Territory Manager for the Nordics in January 2021. Andreas is responsible for delivering high-quality dubbed projects to ZOO's global clients from his territories, which include Sweden, Norway, Finland, and Denmark.

·    Abeer Shabo - appointed as Dubbing Territory Manager for Middle East in March 2021. With over 30 years experience in the dubbing industry, Abeer is enhancing intercultural exchange through media localisation between the Arabic region and other territories.

·      Ewa Zawadzka - appointed Head of Dubbing for EMEA in May 2021. With over 10 years in dubbing and localisation, Ewa brings a wealth of experience to ZOO. Her previous roles include dubbing management positions at both BTI Studios and Iyuno-SDI Group, most recently in the role of global client director.

Review of Operations

The Company's revenues are predominantly from the supply of services and fall into two key segments: Media Localisation, which includes subtitling and dubbing, and Media Services. In the past these have been delivered primarily through ZOO's facilities in the United States and United Kingdom. However, during the period we have expanded our facilities in London and Dubai to access the experienced talent available in those locations and grow our international footprint. A third segment, software solutions, relates primarily to recurring sales of legacy systems.

Media Localisation

The requirement for localisation in the entertainment industry exists for both newly produced titles and those that have been released previously ("catalogue titles"). Most newly produced titles are simultaneously distributed to international audiences and require localisation into many languages over a short period. In contrast, catalogue titles will usually have been previously localised into at least some languages and, therefore, repurposing them for streaming services will incur work in conforming pre-existing assets to the requirements of the destination platforms and quality control, but proportionally less origination of translations into additional languages.

Media localisation in the industry has been affected by the temporary halting of new title productions and ZOO's media localisation segment has followed the trend of the market more widely, delivering $20.3 million compared with $20.8 million in FY20.

The services that fall within this segment are subtitling, captioning (for the deaf and hard-of hearing), dubbing and audio description (for the visually-impaired).

Subtitling and captioning - orders were weaker than the prior year due to a reprioritisation of customer orders from new titles to catalogue during the pandemic, resulting in a reduced subtitling requirement. We expect orders to recover once new productions resume, which we expect to take place in the third calendar quarter of 2021. At the time of writing, since launching this service in 2014, ZOO has created and stored over 400 million subtitles and captions on behalf of customers.

Dubbing - ZOO received a greater number of orders for dubbing, particularly in the first half, despite the wider market being adversely affected by lockdowns. With more customers enjoying a favourable experience of working with ZOO, the Board expects that the Company will increase its market share for dubbing when new productions resume. During the period, the Company has undertaken dubbing projects for leading media companies and has been able to profile its work on The Whistlers for Magnolia Pictures, American Gods for Fremantle, Cleo and Cuquin for Animaccord and Pose for FX Networks. During the year, we observed a growth in demand for dubbing into English. The lack of established traditional infrastructure in the industry for English dubbing, coupled with the benefits afforded by the ZOOdubs platform and demonstrated to clients during the pandemic, mean that the Company is well placed to capitalise on this growing requirement.

Audio Description - the increasing importance of accessibility is leading to growth in demand for AD services, which are available on most Netflix Original titles and most of the content on Disney+. We have observed more companies making a commitment to accessibility features for their audiences and anticipate that we will continue to see a growing demand. ZOOdubs incorporates several features to enable the efficient production of AD streams which has been valuable to support the growth in demand we have seen for these services.

Media Services

Media Services incorporates several service lines that relate to the processing and packaging of TV and feature film content. Referred to as "Digital Packaging" in previous reports, the segment has been renamed to reflect the broadened scope of services that are now being requested by our customers.

ZOO's combined offer of localisation and media services qualifies the Company as one of the few "end-to-end" (E2E) vendors in the industry - a one-stop-shop for all activities that are required to prepare original content for distribution worldwide through OTT services. We refer to this as our "Post to Platform" offering, which provides the end-to-end technical and management services needed to fulfil content packages to all major streaming services in all territories, beginning after the completion of post-production and ending once the titles are accessible to consumers on streaming platforms. Our teams create or conform all the components required for each delivery package - including subtitles, metadata and graphics - accurately and compliant with each platform's unique specifications. The service is available 24/7 from our facilities in Los Angeles, Dubai, and London.

There is a growing preference of buyers within the sector to select E2E vendors due to the convenience and administrative ease of working with fewer, more capable suppliers. As with localisation, the requirements for media services apply whether content is new or catalogue. However, depending on the age of the content, the requirements can be significantly greater when working with catalogue titles which may need to be brought up to the technical specifications and quality standards required by modern streaming platforms. Consequently, the decline in availability of new content during the pandemic and the refocus of customers on back catalogues has led to a significant increase in demand for media services, resulting in sales for the period of $17.5 million (FY20: $7.4 million), a growth of 136%.

Two of the service lines that have grown significantly in the period are metadata preparation and "asset health checks." Content metadata is descriptive programming information, such as title, actors, description, release date, running time, and genre. It allows consumers to make selections of content for viewing and to perform searches. The large back catalogues of content that have migrated to OTT platforms over the past year have necessitated the preparation of compliant metadata, which is then localised into each language for which the content is available. ZOO's "asset health check" assesses materials to determine what work will be necessary to enable their preparation for OTT distribution and estimates the associated cost. One such assignment completed by ZOO in January 2021 involved 780,000 items of metadata across 13 languages. The Company is well placed to undertake such projects due to the proprietary cloud platforms it has developed, which bring efficiencies and scalability and enabled this project to be completed rapidly.

During the period ZOO provided for the first time ADR services in response to clients that were unable to complete projects in the traditional way due to lockdowns. We have since developed new features in ZOOdubs to streamline the ADR production process and anticipate further demand for these services once new productions resume.

Due to increased demand, we have made infrastructure investments and recruited additional staff to expand our capacity for mastering. Mastering is the process of finishing or finalising a programme after post-production to synchronise the video and audio tracks, conform to technical requirements of the target platforms, and perform compression and encoding of the audio-visual materials. We anticipate a growing demand for mastering services in FY22 and beyond, primarily because of the shift by customers to the E2E model.

Investing for future growth

The evolution of the broader market together with the demand for our services presents ZOO with a unique and significant opportunity to seize market share and grow. To support this, in March 2021 we undertook a non-pre-emptive fundraise by way of a placing of shares with new and existing shareholders, raising in April gross proceeds of £7.4 million (approximately $10.3 million).

The Board's intention is to use the net proceeds of the placing to accelerate the Company's commercial position by building balance sheet strength to further scale the business through the following key initiatives:

1.    Growing the R&D team - through our close working relationships with our customers, we recognise further significant opportunities to enhance our existing cloud platforms and develop new products and functionality that will deliver greater differentiation and maintain our competitive advantage over our peers. We intend to establish a longer-range research function to build on several initiatives we have already begun in the areas of machine learning and AI, and to expand our collaboration with academic research partners.

2.   Establishing regional hubs for media services - these will enable us to support our customers as they invest in international series and require media services for locally sourced content in key growth markets such as India, Middle East and Southeast Asia.

3.   Expanding international business development - with the establishment of regional hubs in key locations we will also expand our business development team to give us wider international coverage and support our customers as they seek to grow on a global scale.

4.   Expanding the service delivery teams - with the greater volumes of orders that we anticipate in the period ahead, we will expand certain delivery teams to ensure that we have sufficient capacity for oversight of projects. This will include project managers, quality control staff, video and audio specialists, and our in-house English team - responsible for overseeing the preparation of all English materials, the quality of which is critical to ensure the highest creative standards are upheld.

5.    Increasing capital expenditure - due to the greater volumes of work that we are receiving, we are upgrading our IT infrastructure at our existing production facilities in the United Kingdom and United States to give us greater data throughput and storage, and we will ensure that the IT facilities in place at our other locations are adequate and allow us to deliver a 24/7 service.

6.    Providing general working capital - having greater working capital at our disposal means that we can react quickly to our customers as their requirements unfold and change, and can continue to play our part in the transformation of the entertainment industry.

People

Our recruitment drive to expand our capacity and support future growth in all our facilities has been unrelenting. The past year represents the period of fastest addition of staff in ZOO's history, with total headcount across the Group at year end being 298 versus 228 in the prior year, an increase of 31%.

The excellent financial performance that we have delivered during a year of unprecedented challenge is a testament to the talent, adaptability, and passion of all those who work for and on behalf of ZOO to whom I express my heartfelt appreciation. The pandemic-related challenges have had an impact on every group within the Company, yet everyone has responded magnificently, adapting to new ways of working, collaborating, and recruiting. It has been no mean feat to have embraced a far greater number of customer projects than at any other time in our history, whilst consistently meeting or exceeding expectations. The performance metrics tracked by our customers confirm that ZOO is one of the leading vendors in the industry, for which we have our excellent team and freelance community to thank.

Our mission is to be the partner that makes globalisation easier for the world's best content creators. We take complex media content challenges and make them simpler by finding smarter and better ways of doing things. This is only possible due to the culture of ZOO which is lived every day by each of our people: we are open to learning; we look at things differently to find new and creative ways to take on any challenge; everyone is valued; we put ourselves in our customers' shoes to anticipate their future needs; we think big and bold, believing that disruption favours the brave; and we never underestimate the power of determination. New recruits are selected based on their alignment with this culture code, and its impact extends to every part of the business. Its embodiment in all our people is the ZOO secret sauce that makes us stand out in the market.

Outlook

Trading in the first quarter of FY22 has been strong and ahead of the prior year period, continuing the momentum built over the last year. Based on current visibility, we expect to deliver significant growth in the first half. We have started to see signs of new productions being completed although this is still some way from pre-pandemic levels. However, all indications are that the former levels of production volumes will resume and will likely be exceeded. The on-going investment being made in facilities, infrastructure and people will position us well to support our customers with greater volumes of business.

We continue to receive significant orders for project work relating to catalogue content not only because of titles being adapted for OTT for the first time, but also due to streaming platforms launching their services in new geographies. Given the global appeal of quality entertainment content that has already been demonstrated by leading OTT providers, there exist vast untapped archives of programmes that are likely to find their way to streaming services over many years ahead. This work in particular favours E2E vendors, given the diversity of services that are required to evaluate such content and undertake all that is necessary to deliver it to consumer audiences globally. ZOO is well placed to continue to grow its market share for such requirements.

Following the successful fundraise in April 2021, the Board is actively exploring several opportunities to establish regional hubs for delivering media services in the Middle East, India and Southeast Asia. Initiatives to expand our service and R&D teams and appoint territory managers in key locations are progressing well.

Given ZOO's strengthening position in the market for the services it supplies, the competitive advantages that derive from its proprietary software and the ever-growing market requirements, the Board remains confident, even at this early stage of the year, of continuing strong growth and meeting current market expectations.

 

Stuart Green
Chief Executive Officer

 

FINANCIAL REVIEW

Revenue

The Company achieved revenue growth of 33% in the financial year ended 31 March 2021, with total revenues of $39.5 million compared to $29.8 million in FY20. This demonstrates the real progress achieved as the business transitioned to one focused on localisation and media services for global entertainment streaming providers. The growth in revenue reflects the contract wins in 2019 to support the international launches of our customers.

Most of the Group's operations are in the United States, where revenues were up 34% at $34.0 million. The balance of work was performed in Europe which grew by 23% to $5.5 million. The split in geographical production illustrates the international launches of US based streaming services.

In FY21 we experienced an increase in customer concentration, as the revenue contribution from our largest client increased to 72% of sales as a consequence of circumstances relating to the pandemic (FY20: 56%), with the second largest accounting for 4%, down from 10% last year. This is a direct result of a contract win which resulted in us becoming the primary E2E vendor to a new global streaming service, a relationship that we expect will continue over the long-term.

The media localisation segment saw revenues drop by 2% in the year due to the global pandemic which restricted the production of new titles that are required to support localisation services. We expect growth in this segment to return once new title production resumes.

The media services segment, our other main segment, saw revenues increase by 136% as our service for OTT platforms was in big demand while global streaming services repurposed their back catalogues and launched them internationally to fill the gap left by the shutdown in new productions.

Software solutions, our third segment which has been a reducing proportion of our business, increased by 10% in the year to $1.8 million as a result of bespoke development work for a client.

Segment contribution

The Company reports gross profit after deducting both external and internal variable costs to reflect that an increasing proportion of our revenues is derived from the provision of services to our customers. To add clarity to our financial statements, we include a table of performance by our three key business segments. This shows that overall gross profit increased to $13.6 million in FY21 from $10.1 million in FY20, an increase of 35%.

Media localisation segment contribution fell in the year from $4.7 million to $2.9 million because of two main factors. The first of these was the revenue decrease of 2% which was attributed to the deferment of localisation projects throughout the year due to COVID-19, causing direct costs to be proportionally higher than expected. The second factor was a doubling of headcount to support the longer-term opportunity in dubbing that is not supported by the current level of revenues.

Media services segment contribution more than doubled in the year to $11.4 million. This is explained by a long-term contract secured to provide a variety of digital packaging services to a new global streaming service. Our unique blend of people and software positions us well in this high margin business. The segment contribution of 65% was lower than the previous year's margin of 74%, and this is due to the mix of services favouring activities that require a high level of translation services that have a lower gross margin.

Software solution segment gross contribution held steady at 94% in the year.

Overall gross profit increased by 35% to $13.6 million compared to $10.1 million in FY20. This represents a gross profit margin of 35%, up from 34% last year. The improvement is due higher margin Media services representing a bigger percentage of total sales, increasing to 44% compared to 25% in FY20.

Other operating expenses

Operational fixed costs, which are defined as operating expenses less share-based payments, depreciation and amortisation, have increased by 13% in the year as we invested heavily in people and IT to support our growth plans. Overall, operating expenses increased to $12.9 million, including share-based payments, depreciation and amortisation and after reclassifying property costs of $1.0 million to comply with IFRS 16. The 18% increase in operating expenses is explained by the above, the doubling of the share-based payment accrual and higher depreciation and amortisation costs, due to the expansion of office space and the increase in R&D.

Finance costs

The main component of the Group's finance costs relates to the 7.5% convertible loan note stock with a maturity date that was extended by one year after consultation with the holders in 2020 to October 2021. Interest on the principal in the year was $0.3 million, approximately the same as FY20. The other two components of finance costs are non-cash items. The first is the exchange loss on the conversion of the outstanding sterling-denominated debt at the year-end due to the strengthening of sterling relative to the United States Dollar in the year, which has given rise to an exchange loss of $0.4 million. The second is the increase in the fair value of the embedded derivative at year-end calculated with reference to the share price movement in the past 12 months and the expected value to loan note holders at the point of conversion. This has given rise to a non-cash $3.5 million loss.

These non-cash accounting entries have had an impact on the profit/loss before tax for the year ended March 2021, which was in total a loss of $3.6 million (FY20: loss of $0.1 million).

As a result of the increase in revenues coupled with the improved gross profit the operating profit of $1.0 million compares to a loss last year of $0.6 million. On the Company's preferred measure of profitability, being EBITDA before share-based payments, the profit was $4.5 million, up from $2.1 million in FY20, due to the reasons mentioned above.

Post balance sheet event

Since the end of the financial year, we are pleased to have completed a 10% placing of new equity raising a gross £7.4 million. This money will be used to accelerate our international growth brought about by the favourable market conditions. Exact details of the placing are that the Company has raised gross proceeds of £7.4 million (approximately $10.3 million) through the oversubscribed placing of 7,454,727 Ordinary Shares with certain existing and new institutional and other investors at a placing price of 100 pence per New Ordinary Share. The shares were admitted to trading on the 6 April 2021.

Statement of financial position

Non-current assets increased by 8% in the period which is mainly due an increase in the purchase of fixed assets such as computer equipment that totalled $2.1 million. The increase in expenditure was used to upgrade our production systems in both the United States and United Kingdom to cope with the increased volume of assets we are handling. The gross expenditure was partly offset by a larger depreciation charge relating to leasehold properties. The capitalisation of research and development costs increased by 41% to $1.2 million as we accelerated the product roadmap to support customer requirements. This also increased the depreciation charge resulting in the balance sheet asset increasing by only 7% to $2.5 million.

Trade and other receivables have increased 10% compared to last year to $10.2 million reflecting the strong sales performance in the second half of the year. This increase was mirrored in trade and other payables as work performed by suppliers and freelancers peaked to support our customer deliveries.

Current borrowings have increased from $4.4m to $5.0m. This is partly due to the appreciation of the UK currency making the convertible loan note more expensive in US dollars, consequently adding $0.4 million to the liability. In addition, we took out short term leases to fund some of the computer equipment acquired in the year with a $0.3 million impact on current liabilities. Also included in current liabilities is the separable embedded derivative which is attached to the loan notes and this instrument increased in value by $3.5 million due to the higher share price at the year-end compared to the previous year. This is a non-cash liability and will be reversed when the loan notes mature in October 2021.

Cash and cash equivalents of $2.9 million at year end, (FY20: $1.2 million) were up 142% reflecting the revenue and profit growth in the year.

Non-current liabilities fell in the year as our overdraft facility remained unused at the year end, compared to a $0.5m overdraft at the end of the year end 31 March 2020 and due to the reduction in the "right to use" liability as our property leases have a shorter time to run.

Consolidated statement of cash flows and going concern

Net cash generated from operating activities was $6.8 million, up from $1.3 million in FY20. The improvement of $5.5 million is attributable to the operating profit and an increase in trade payables. The inflow from operating activities was partly offset by a $2.1 million increase in investing activities and an increase of $1.0 million from financing the business. The investment outflow was attributable to our ongoing development programme and significant upgrades to our IT infrastructure. The financing outflow relates to the cost of repaying the office leases, interest on the leases and interest on the convertible loan notes.

Going forward the business remains confident that it has sufficient headroom to trade for the foreseeable future, as the recent placing gives us cash to fund operating activities and our investment in growth. This is further validated by the strong start to FY22, with record orders which we expect to deliver another operating profit for FY22 and has been stress tested by our financial modelling. For this reason, we continue to adopt the going concern basis in preparing the financial statements.

The Board and management remain confident in trading in line with FY22 expectations.

By order of the Board

 

Phillip Blundell
Chief Financial Officer and Secretary

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 March 2021

 

 

 

2021

 

2020

 

Note

$000

$000

Revenue

5

39,525

29,793

Cost of sales

 

(25,882)

(19,705)

Gross Profit

 

13,643

10,088

Other operating income

6

188

252

Other operating expenses

8

(12,869)

(10,896)

Operating profit/(loss)

 

962

(556)

Analysed as:

 

 

 

EBITDA before share based payments

 

4,534

2,138

Share based payments

8

(649)

(257)

Depreciation

8

(1,702)

(1,369)

Amortisation

8

(1,221)

(1,068)

 

 

962

(556)

 

 

 

 

Exchange (loss)/gain on borrowings

7

(359)

197

Fair value movement on embedded derivative

7

(3,474)

986

Finance cost

7

(700)

(674)

Total finance income

 

(4,533)

509

Loss before taxation

 

(3,571)

(47)

Tax credit

11

408

363

(Loss)/profit and total comprehensive income for the year attributable to equity holders of the parent

 

(3,163)

316

 

 

 

 

(Loss)/profit per share

13

 

 

 basic

 

(4.24) cents

0.42 cents

 diluted

 

(4.24) cents

0.39 cents

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 March 2021

 

 

 

2021

2020  (restated)

 

Note

$000

$000

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

14

4,362

3,633

Intangible assets

16

6,812

6,692

Deferred income tax assets

17

486

486

 

 

11,660

10,811

Current assets

 

 

 

Trade and other receivables

18

8,063

7,302

Contract assets

24

2,178

2,021

Cash and cash equivalents

19

2,949

1,218

 

 

13,190

10,541

Total assets

 

24,850

21,352

LIABILITIES

 

 

 

Current liabilities

 

 

 

Trade and other payables

23

(9,955)

(7,313)

Contract liabilities

24

(813)

(736)

Borrowings

22

(5,032)

(4,391)

Separable embedded derivative

22

(4,452)

(978)

 

 

(20,252)

(13,418)

Non-current liabilities

 

 

 

Borrowings

22

(1,759)

(2,637)

 

 

(1,759)

(2,637)

Total liabilities

 

(22,011)

(16,055)

Net assets

 

2,839

5,297

EQUITY

 

 

 

Equity attributable to equity holders of the parent

 

 

Called up share capital

21

1,010

1,010

Share premium reserve

 

41,003

41,003

Foreign exchange translation reserve

 

(997)

(992)

Convertible loan note reserve

 

42

42

Share option reserve

 

2,085

1,375

Capital redemption reserve

 

6,753

6,753

Interest in own shares

 

(46)

(46)

Other reserves

 

12,320

12,320

Accumulated losses

 

(59,331)

(56,168)

Attributable to equity holders

 

2,839

5,297

         

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2021

 

 

Ordinary shares

Share premium

reserve

Foreign exchange translation reserve

Convertible loan note reserve

Share option reserve

Capital redemption reserve

Other reserves

Accumulated losses

Interest in own shares

Total

 

$000

$000

$000

$000

$000

$000

$000

$000

$000

Balance at 1 April 2019

1,010

41,003

(992)

42

1,085

6,753

12,320

(58,484)

(53)

2,655

Share based payments

-

-

-

-

290

-

-

-

-

290

Transnactions with owners

-

-

-

-

290

-

-

-

-

290

Foreign exchange trans;ation adjustment

-

-

-

-

-

-

-

-

7

7

Profit for the year

-

-

-

-

-

-

-

316

-

316

Total comprehensive income for the year

-

-

-

-

-

-

-

316

-

316

Balance at 31 March 2020

1,010

41,003

(992)

42

1,375

6,753

12,320

(56,168)

(46)

5,297

Share options exercised

-

-

-

-

61

-

-

-

-

           61

Share based payments

-

-

-

-

649

-

-

-

-

649

Transactions with owners

-

-

-

-

710

-

-

-

-

710

Foreign exchange translation adjustment

-

-

(5)

-

-

-

-

-

-

(5)

Loss for the year

-

-

-

-

-

-

-

(3,163)

-

(3,163)

Total comprehensive income for the year

-

-

(5)

-

-

-

-

(3,163)

-

(3,168)

Balance at 31 March 2021

1,010

41,003

(997)

42

2,085

6,753

12,320

(59,331)

(46)

2,839

 

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 March 2021

 

 

 

2021

2020

 (restated)

 

Note

$000

$000

Cash flows from operating activities

 

 

 

Operating profit/(loss) for the year

 

962

(556)

Depreciation

14

1,715

1,383

Amortisation and impairment

16

1,221

1,068

Share based payments

 

649

290

Changes in working capital:

 

 

 

Increases in trade and other receivables

 

(918)

(1,220)

Increases in trade and other payables

 

2,719

860

Cash flow from operations

 

6,348

1,825

Tax received

 

408

363

Net cash inflow from operating activities

 

6,756

2,188

Investing activities

 

 

 

Purchase of intangible assets

16

(67)

(235)

Capitalised development costs

16

(1,274)

(901)

Purchase of property, plant and equipment

14, 19

(2,290)

(509)

Net cash outflow from investing activities

 

(3,631)

(1,645)

Cash flows from financing activities

 

 

 

Repayment of borrowings

 

(982)

(246)

Proceeds from borrowings

 

1,043

500

Repayment of principal under lease liabilities

 

(1,102)

(1,044)

Finance cost

 

(414)

(363)

Share options exercised

 

61

-

Net cash outflow from financing

 

(1,394)

(1,153)

Net increase/(decrease) in cash and cash equivalents

 

1,731

(610)

Cash and cash equivalents at the beginning of the year

 

1,218

1,828

Cash and cash equivalents at the end of the year

19

2,949

1,218

 

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 March 2021

 

 

1.     General information

 

ZOO Digital Group plc ('the company') and its subsidiaries (together 'the group') provide productivity tools and services for digital content authoring, video post-production and localisation for entertainment, publishing and packaging markets and continue with on-going research and development in those areas. The group has operations in both the UK and US.

 

The company is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is 7th Floor, City Gate, 8 St Mary's Gate, Sheffield.

 

The registered number of the company is 03858881.

 

The consolidated financial statements are presented in US dollars, the currency of the primary economic environment in which the company operates (note 2.4.1).

 

2.     Summary of significant accounting policies

 

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated.

 

2.1     Basis of preparation and going concern

These financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006.

 

The preparation of financial statements in accordance with international accounting standards in corformity with the requirements of the Companies Act 2006 requires management to make judgements, estimates and assumptions that effect the application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed in note 3.

 

A separate Statement of Comprehensive Income for the parent company has not been presented as permitted by section 408 (2) of the Companies Act 2006.

 

The directors have prepared trading and cash flow forecasts for the group for the period to 31 March 2023 which show a continuation of the growth in profitability and cash generation.  In line with industry practice in this sector the directors have had informal indications from major and smaller clients to substantiate a significant proportion of the forecast sales.  The directors have considered the consequences if the sales volume is less than the level forecast and they are confident that, in this eventuality, alternative steps could be taken to ensure that the group has access to sufficient funding to continue to operate. The group has a facility with Crestmark Bank which provides invoice financing of up to $2.5m against US clients invoices raised by ZOO Digital Production LLC. This facility was in place until 7 July 2021. In the UK there is an overdraft facility with a limit of £250,000 in place with HSBC.

 

The convertible unsecured loan notes totalling £2.6m  are in place until 31 October 2021. It is believed the loan will be repaid on or before the maturity date.

 

The directors believe the assumptions used in preparing the trading and cash flow forecasts to be realistic, and consequently that the group will continue in operational existence for the foreseeable future. The financial statements have therefore been prepared on a going concern basis.

 

The summary accounts set out above do not constitute statutory accounts as defined under section 434 of the Companies Act 2006. The Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consoloudated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the Notes to the Financial Statements for the year ended 31 March 2021 have been extracted from the Group's statutory financial statements upon wich (i) the auditor's opinion is unqualified and (ii) did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The audit report for the year ended 31 March 2020 did not contain statements under section 498(2) of the Companies Act 2006. The statutory financial statements for the year ended 31 March 2020 have been delivered to the Registrar of Companies. The 31 March 2021 accounts were approved by the directors on 12 July 2021, but have not yet been delivered to the Registrar of Companies.

 

Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained until the date that control ceases.

 

The consolidated financial statements of ZOO Digital Group plc include the results of the company and its subsidiaries.  Subsidiary accounting policies are amended where necessary to ensure consistency within the group and intra group transactions are eliminated on consolidation.

 

2.2     Segment reporting

 

Operating segments are reported in a manner consistent with the internal reporting regularly reviewed by the group's chief operating decision maker (chief executive) to make decisions about resource allocation to the segments and to assess their performance.

 

2.3     Foreign currency translation

 

2.3.1   Functional and presentation currency

 

Items included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in US dollars which is the company's functional and presentation currency. The functional currency of the company's subsidiaries is US dollars, therefore the majority of transactions between the company and its subsidiaries and the company's revenue and receivables are denominated in US dollars.

 

The US dollar/pound sterling exchange rate at 31 March 2021 was 0.726 (2020: 0.809).

 

2.3.2   Transactions and balances

 

Transactions in foreign currencies are recorded at the prevailing rate of exchange in the month of the transaction. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the year end exchange rates are recognised in the profit/(loss) for the year in the Consolidated Statement of Comprehensive Income.

 

2.3.3   Group companies

 

The results and financial position of all group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

 

-     assets and liabilities for each entity are translated at the closing rate at the year end date;

 

-     income and expenses for each Statement of Comprehensive Income are translated at the prevailing monthly exchange rate for the month in which the income or expense arose and all resulting exchange rate differences are recognised in other comprehensive income with the foreign exchange translation reserve.

 

 

3.     (Loss)/profit per share

Earnings per share is calculated by dividing the (loss)/profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.

 

 

      Basic and Diluted      

 

 

2021

2020

 

 

$000

$000

Profit/(loss) for the financial year

(3,163)

316

 

 

 

 

 

 

 

 

2021

2020

 

 

 

 

 

Number of shares

Number of shares

Weighted average number of shares for basic & diluted (loss)/profit per share

 

 

Basic

 

 

 

 

74,597,495

74,487,534

Effect of dilutive potential ordinary shares:

 

 

 

 

 

 

Convertible loan note

 

 

 

 

-

-

Share options

 

 

 

 

-

6,729,240

Diluted

 

 

 

 

74,597,495

81,216,774

 

 

 

 

 

 

 

2021

2020

 

 

 

 

 

Cents

Cents

 

 

 

Basic

 

 

 

 

(4.24)

0.42

 

 

 

 

 

 

 

Diluted

 

 

 

 

(4.24)

0.39

 

 

The convertible debt has not been included in the 2021 or 2020 diluted earnings per share calculations due to being anti-dilutive.

 

In 2021, the share options have been excluded from the diluted EPS calculation due to these being anti-dilutive and the Group incurred a loss in the year.

 

4.     Notes to the cash flow statement

 

4.1  Significant non-cash transactions

During the year the group acquired property, plant and equipment and computer software with a cost of $2,290,000 (2020: $509,000) of which $1,043,000 (2020: $nil) was acquired by the means of finance leases.

 

 

4.2 Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and balances with banks. Cash and cash equivalents included in the cash flow statement comprise the following consolidated and parent company statement of financial position amounts.

 

Group

Company

 

2021

2020

2021

2020

 

$000

$000

$000

$000

Cash on hand and balances with banks

2,949

1,218

89

25

 

The fair values of the cash and cash equivalents are considered to be their book value.

 

5.     Share capital and reserves for Group and Company

 

Called up share capital

 

 

2021

2020

 

$000

$000

Allotted, called-up and fully paid

 

 

74,837,271 (2020: 74,547,271) ordinary shares of 1p each

1,010

1,010

 

 

Reconciliation of the number of ordinary shares outstanding:

 

 

Opening balance

74,547,271

74,424,771

Share options exercised

290,000

122,500

Closing balance

74,837,271

74,547,271

 

 

During the year the group purchased nil (2020: nil) of its own shares through ZOO Employee Share Trust Limited. The total cost of the purchase was nil (2020: $nil). 

 

Reserves

The following describes the nature and purpose of each reserve within owner's equity:

Reserve

 Description and purpose

Share premium reserve

Represents the amount subscribed for share capital in excess of the nominal value.

Foreign exchange translation reserve

Cumulative exchange differences resulting from translation of foreign operations into the reporting currency.

Convertible loan note reserve

Represents the equity element of the convertible loan note.

Share option reserve

Cumulative cost of share options issued to employees.

Capital redemption reserve

Represents 32,660,660 deferred shares of 14p each created during the share reorganisation on 4 May 2017

Other reserves

Created as part of the reverse takeover between Kazoo3D plc and ZOO Media Corporation Ltd in 2001.

Accumulated losses

 

 

Cumulative net losses recognised in profit or loss.

6.     Borrowings

 

Group

Company

 

2021

2020

2021

2020

 

$000

$000

$000

$000

Non-current 

 

 

 

 

7.5% Unsecured convertible loan note stock

-

-

-

-

Right of use asset liabiity

1,175

1,845

-

59

Other bank borrowings

-

500

-

-

Lease liabilities

584

292

-

44

 

1.759

2,637

-

103

 

 

 

 

 

 

Current 

 

 

 

 

7.5% Unsecured convertible loan note stock

3,526

3,168

3,526

3,168

Amounts owed to subsidiary undertakings

-

-

9,701

9,701

Lease liabilities

528

260

44

64

 

4,054

3,428

13,271

12,933

Right of use asset liability

978

963

72

100

Borrowings

5,032

4,391

13,343

13,033

Separable embedded derivative

4,452

978

4,452

978

Total borrowings

11,243

8,006

17,795

14,114

 

The loan notes pay a coupon of 7.5% and the loan stock holder is entitled, before the redemption date of 31 October 2021, to convert all or part of the loan stock into fully paid ordinary shares on the basis of one ordinary share for every £0.48 of principal amount of loan stock.  The US dollar value of the loan notes at 31 March 2021 was $3,526,000 (2020: $3,168,000). On the 13 July 2020, it was approved by the Board of ZOO digital group plc and the loan noteholders to extend the redemption date of the loan notes by 1 year to 31 October 2021. All other terms of the loan notes remain the same.

 

The restructured convertible loan stock has two separate economic components within it; the holder is entitled to convert the loan note into equity at any point and the company is entitled to convert the loan note into equity if the 30 business day trailing average share price is above the level of £2.50 per share. In both instances the conversion is on the basis of one ordinary share for every £0.48 of principal amount of loan stock.  As at 31 March 2021, an independent valuation has been undertaken to measure the fair value of the two separate components as at the balance sheet date. For the year ended 31 March 2021 the valuation of the embedded derivatives resulted in a non-cash charge totalling $3,474,000 (2020: $(987,000)) which has an underlying value of $4,452,000.

 

The group has an arrangement with Crestmark Bank to provide an invoice financing facility of up to $2.5m against US client invoices raised by ZOO Digital Production LLC. This facility was in place until 7 July 2021. The principal outstanding at 31 March 2021 was $nil (2020: $500,000). This funding is secured against the US trade receivables of ZOO Digital Production LLC.

 

The UK banking partner, HSBC, continues to provide an overdraft  facility of £250,000.  The principal outstanding at 31 March 2021 was nil (2020: nil).  This line of funding has been secured as a floating charge over the assets of the UK companies. 

 

 

Annual report and Accounts

 

Copies of the Report & Accounts for the year ended 31 March 2021 are available to view on the Group's website www.zoodigital.com

 

The Report & Accounts for the year ended 31 March 2021, together with the notice of annual general meeting, are expected to be posted to shareholders during August 2021; an announcement to notify shareholders of this will be made in due course. Further copies will be available from the Company's Registered Office: Floor 7, City Gate, 8 St Mary's Gate, Sheffield S1 4LW.

 

Annual General Meeting

 

The Annual General Meeting of the Group will be held at ZOO's Sheffield offices on 20 September 2021 at 4pm.

 

 

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