REG - Zoo Digital Group - Final Results
14 July 2020
ZOO DIGITAL GROUP PLC
("ZOO" the "Group" or the "Company")
FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2020
ZOO Digital Group plc (AIM: ZOO), the provider of cloud-based localisation and digital distribution services for the global entertainment industry, today announces its audited financial results for the year ended 31 March 2020.
HIGHLIGHTS
Key Financials
· Revenue $29.8 million (FY19: $28.8 million)
· Adjusted EBITDA* of $2.1 million (FY19: $0.4 million) - EBITDA* margin of 7.0% (FY19: 1.4%)
· Operating loss of $0.6 million (FY19: loss of $1.3 million)
· Reported loss/profit before Tax of $(0.1) million (FY19: $1.3 million)
· Net cash at year end $0.7 million with no debt other than convertible loan notes (FY19: $1.8 million, H1: $0.6 million)
Operational Highlights
· Won competitive selection process and operating as a primary vendor of localisation and digital packaging services for a major OTT platform
· ZOOstudio adopted by a major media company to manage its localisation operations for OTT production
· ZOOsubs served all major Hollywood studios and all leading OTT providers during the year
· Increased overall number of dubbing clients to 29 (FY19: 23 dubbing clients)
· Freelancer network grown to 7,184 (FY19: 6,556 freelancers)
· London studio, offering voice capture facilities, training services and audio mixing, opened and has proven instrumental in securing significant orders during the year
· Made considerable investment across cloud platforms, enhancing and adding features and strengthening competitive advantage
· Observed an increasing demand in the market for integrated digital packaging and localisation which plays to ZOO's strengths
Outlook
· Recent industry announcements confirm strong growth tailwinds in the global home entertainment market, requiring an acceleration in content creation and localisation
· The impact of COVID-19 on the media localisation business has seen a structural shift to cloud-based solutions and off-premise voice recording that favours our world class technology and services
· COVID-19 has resulted in almost all ZOO staff working from home with little productivity impact and has not hindered our ability to recruit an extra 13 people since February
· Recent contract wins and extensions have resulted in a significant increase in demand for additional functionality and services related to our technology platform
· FY21 Q1 trading has remained robust with revenues expected to be at least 15% ahead of FY20 Q1
· Value of dubbing projects processed by the Group in Q1 entirely using ZOOdubs was over three times that in the corresponding prior year period
· Net cash has remained flat during the the first quarter of FY21
· The term of ZOO's unsecured convertible loan notes of £2.6 million has been extended by one year to 31 October 2021
* adjusted for share-based payments; stated FY20 figure reflects reclassification of operating leases as prescribed by IFRS 16
Copies of the Report and Accounts for the year ended 31 March 2020 are available to view on the Group's website www.zoodigital.com and in accordance with AIM Rule 20 will be distributed to shareholders in August 2020.
Stuart Green, CEO of ZOO Digital, commented,
"The financial year completed has been one of considerable progress, in which we continued to demonstrate growth against our key strategic priorities. We saw increasing traction within our customer base, ongoing positive structural changes within the OTT consumer video market and growing recognition of our cloud-based systems and services, which was accelerated by the disruption caused by the COVID-19 pandemic in the final weeks of the year.
"Trading in the first three months of FY21 has been strong, with first quarter sales currently expected to be at least 15% ahead of the equivalent prior year period. This is also reflected in similar underlying growth in current order books for both localisation and digital packaging services.
"Through our membership of the Netflix Preferred Fulfilment Partner (NPFP) programme we have been adding new customers and strengthening our relationship with some existing ones. Additionally, we anticipate future growth driven by OTT country launches.
"Whilst it is not usual for buyers in our industry to commit to significant volumes of work in advance, the multiple significant media companies and digital distributors that now regularly use our services give us reason to expect that growth will continue throughout the year ahead.
"The market has shown considerable resilience during this challenging period and we are confident of continued momentum. We are satisfied we have enough visibility, and sufficient opportunities in our pipeline, to enable us to resume market forecasts, and look to the future with optimism."
For further enquiries please contact:
ZOO Digital Group plc
0114 241 3700
Stuart Green - Chief Executive Officer
Phillip Blundell - Chief Finance Officer
Stifel Nicolaus Europe Limited
Fred Walsh
020 7710 7600
Alma PR
Josh Royston / Helena Bogle
020 3405 0205
The Company further wishes to draw attention to the posting on its website (www.zoodigital.com) of a presentation to shareholders regarding its final results, and of an investor presentation (www.zoodigital.com/prelims2020) that will be live streamed on Tuesday 14th July at 5:00pm BST.
CHAIRMAN'S STATEMENT
It gives me great pleasure to present my first report as Chairman of ZOO following my appointment to the role in July 2019.
My sense when joining was of a company with a rare blend of first mover innovation and long-standing reputation in a relationship-dominated industry. The market ZOO serves has undergone unparalleled change in recent years and that journey is not yet complete, but the direction of travel is very clear. The recent and forthcoming launches of direct-to-consumer, Over-The-Top (OTT) platforms from some of the world's major media companies are the latest steps forward. As these platforms broaden their reach into different geographies, the need for localisation services covering an expanding number of languages will grow, and with it, the opportunity for ZOO. Our cloud-powered solutions are tailor made for this environment and our appointment in H1 as a primary vendor and technology partner for one of the major platforms is testament to this strength and position.
Total revenues for the Group grew to $29.8 million, with H2 a 12% improvement over the first half of the year, despite a temporary softening of sales caused by the COVID-19 pandemic as customers implemented their business continuity processes. Full year EBITDA before share-based payments was $2.1 million, reflecting an improved product mix against a backdrop of continued investment and the reclassification of operating leases as prescribed by IFRS 16. The operating loss of $0.6 million, which resulted from the gross profit improvement was significantly better than the prior year. Profit before tax fell by $1.4 million as a consequence of reducing the value of the embedded derivative writeback to the Profit and Loss account by $1.7 million in FY20. The Group was cash positive in the second half of the year, closing with $1.2 million cash in the bank and borrowings of $3.7 million excluding lease payments, right to use asset liability and separable embedded derivative.
The health and safety of our people and partners has been our primary focus throughout the pandemic, and we were able to implement appropriate working practices swiftly, efficiently and in line with official guidance across our operations. The integrity and professionalism shown by our colleagues as they continue to support customers has been particularly rewarding and speaks volumes of the collegiate culture and shared sense of purpose within our business. On behalf of the Board, we are enormously grateful.
Evidence of the Group's progress can be seen against each of its four strategic pillars:
Innovate - ZOOstudio started the year with high critical acclaim, being awarded Product of the Year at the National Association of Broadcasters (NAB) show in Las Vegas, which was soon followed by its adoption by one of the major media companies. A localisation operations management platform, ZOOstudio was developed specifically to address our clients' needs to manage the localisation process from end to end and accommodate multiple vendors. Additional functionalities are being included in the platform as we look to broaden its reach and build on its early success.
Scale - We have continued to grow and develop our freelance network of translators, voice actors, dubbing directors and audio mixing engineers. A particular emphasis during the period has been in establishing a resource pool to enable us to process dubbing projects in the languages that are currently being targeted by major OTT service providers.
Collaborate - We have continued to work with our in-territory partners who have joined our ZOO-Enabled Dubbing Studio (ZEDS) programme, delivering on our promise to offer more flexibility, capacity and languages to our customers that require dubbing services. Further enhancing our localisation capacity, we opened a studio in London during the period, offering voice capture facilities, training services and audio mixing, key for some of our customers who require final mixing of localisation services in-territory. This has already generated significant orders from one global media content provider.
Build Long-term Client Partnerships - In addition to the adoption of ZOOstudio described above, we were also confirmed as a preferred vendor of localisation and digital packaging services for a major OTT platform and we have seen increasing volumes of orders since adoption. These are in addition to the previous year's confirmation as a preferred fulfilment partner (NPFP) for Netflix, allowing us to secure contracts for subtitling and media processing of licensed content. We received the Broadcast Tech Innovation Award 2019 for 'Excellence in Localisation for a Global TV Project', which provides further testament to the quality of the services we deliver for our customers and which is key to our ability to build long-term client partnerships.
Due to the cloud-based platforms on which our services are delivered, we have seen increased levels of client enquiries during the lockdown period, particularly in relation to our dubbing services, at a time when traditional providers of these services have been unable to operate. This has proven to be a helpful catalyst to engage with a wide range of clients on dubbing, both existing and new, where we have been able to demonstrate the benefits of our proposition which provides an effective solution for business continuity. Whilst it is too early to judge the long-term impact, we are optimistic of receiving a regular pipeline of work from a more diverse client base than we experienced prior to the COVID-19 pandemic.
We remain excited by the prospect of sustained growth for the years ahead.
Gillian Wilmot
Chairman
STRATEGIC REPORT
Introduction
The financial year just completed was an important one strategically for ZOO, with increasing traction within our customer base, on-going positive structural changes within the OTT consumer video market and growing recognition of our cloud-based systems and services, accelerated by the disruption caused by the COVID-19 pandemic in the final weeks of the year.
In the first half of the year we were selected as a primary vendor of localisation and digital packaging services for a major OTT platform, and ZOOstudio was adopted by a major media company to manage its localisation operations for OTT production. Both of these relationships are progressing well and have led to increasing throughput of projects as the year has progressed, notwithstanding a period of brief stasis in the immediate weeks following the outbreak of COVID-19 as customers implemented their business continuity processes.
As envisaged, revenues associated with legacy DVD and Blu-ray services, a significant component of our prior year sales, fell by 76%. In addition, a consequence of the lockdown was that a significant value of projects that had begun in the period were deferred until our FY21 year. Despite these factors, total revenue showed an increase of 3% on the prior year to $29.8 million (FY19: $28.8 million) with combined localisation and OTT digital packaging revenues growing by 12% to $27.6 million. The Group started to see the benefits of investments made in the prior year leading to an improved revenue mix, with EBITDA before share-based payments increasing to $2.1 million (FY19: $0.4 million) and cash at the year-end of $1.2 million (FY19: $1.8 million).
COVID-19
As highlighted by the Chairman, our internal business continuity processes were implemented seamlessly, and productivity has remained impressive throughout the period since restrictions were imposed. I would like to echo Gillian's thanks to all of our colleagues for their utmost professionalism in migrating to working from home for what has been a prolonged period. I am particularly grateful to those who have returned to work in our office locations to continue to deliver services that require access to specialist equipment and facilities while observing strict guidelines on social distancing and hygiene.
Following a temporary softening of sales as customers implemented their business continuity processes and projects were deferred, we soon witnessed a return to regular trading patterns and normalised volumes for digital packaging and localisation services. As the situation has progressed, we have seen increasing levels of interest in ZOOdubs, the Group's proprietary cloud based dubbing solution, together with the associated services. In the period April to June 2020, the value of dubbing projects processed by the Group entirely using ZOOdubs was more than three times that in the corresponding prior year period and also well ahead of the recent quarterly run rate. ZOOdubs was designed from the outset to enable very high-quality dubbing (and associated services) to be executed at distributed locations, as opposed to necessitating voice actors, dubbing directors and ancillary staff to all attend the same dubbing studio. Having received critical acclaim and initial adoption, the interest in ZOOdubs was slowly growing in an industry that is traditionally conservative and reluctant to adopt change. The effect of the pandemic and the continuing restrictions on gatherings has been twofold: firstly, it has accelerated the desire to evaluate cloud dubbing as an effective solution by many of the major media owners and OTT platforms, and secondly; traditional dubbing service providers, who until recently have not been advocates of remote dubbing, are now beginning to promote their own alternatives. This has served to strengthen the credibility of off-premise recording and therefore, given our reputation and the years of investment, development and testing we have made in our platform and service, we believe we are well placed to benefit.
It is clear that once situations normalise there will continue to be a requirement for traditional dubbing studios. At the same time, we do believe that the volume of dubbing work performed in a distributed way will likely remain significantly higher than it was prior to the pandemic. We envisage that customers will increasingly appreciate the unique features of ZOO's dubbing platform and services, including quality, security and ease of use, and will keep business continuity front of mind in order that they are able to deal with whatever circumstances may arise.
The difficulties in assembling a cast and technical crew in the same location due to social distancing restrictions globally will continue to impact the ability within the entertainment industry to create new, original content. This has been affecting the volume of localisation and digital packaging work, on this type of title, that our solutions are engaged for in the short term. The desire to create new content has not diminished, with companies committing greater levels of investment to original content creation to act as a differentiator for their platforms, as evidenced this year through increasing budgets from many of the leading players. According to Wall Street firm BMO Capital Markets, five of the global OTT services were collectively expected to exceed in 2020 their $31 billion of original content spend in 2019. During this interim period between the intent to invest in content and the ability of socially-distanced production locations to deliver, the emphasis will once again switch to back catalogue material which, in prior years, has represented the majority of ZOO's revenues to date.
Strategy and market opportunity
The landscape for film and TV entertainment changed at pace in the last 12 months with the launches of direct-to-consumer OTT platforms from Apple, Disney and Warner Media, and the imminent launch of a service from NBC Universal. These have received recognition amongst consumers and evidence suggests healthy subscriptions, further enhanced by the attractiveness of these services during lockdown. In the first half of the fiscal year, ZOO was selected as a primary vendor for a major OTT platform and through the course of the year has seen growing volumes of work through this relationship.
These platforms have mostly launched in the US initially with some of them already delivering services across a range of languages. As their distribution increases and, with it, the range of content and number of languages needed for each title, so too does the real opportunity for ZOO.
Increasingly, we are seeing companies looking for digital packaging and localisation to be carried out as part of a consolidated and integrated service. ZOO has been performing digital packaging since 2007. This was originally for DVD and subsequently for Blu-ray products, but the skillset, technical expertise and systems needed are equally applicable and relevant for the work required by the OTT platforms. While DVD and Blu-ray related work has been declining in recent years and is no longer a key focus area of the Group, our strength and reputation in the digital media packaging field combined with our localisation services is a strong competitive advantage and there is significant room for growth in both service lines.
ZOOstudio was also adopted by a major media company to manage its localisation operations for OTT productions and has become increasingly embedded within that organisation, with highly encouraging feedback. This adoption, together with our role as a preferred or primary vendor for a growing number of major media companies, supports our belief that the current market dynamics favour our solutions and justify the investments made in our proprietary technology. Furthermore, whilst the launch of multiple new OTT platforms is significant in itself, to date the geographies in which they are available and therefore the range of languages in which they offer their content are at modest levels compared with what can be expected over the years to come.
As these platforms steadily execute their roll-out plans and expand their customer footprint, coupled with the increased budgets for original content announced from Netflix, Amazon, Apple and others, we believe we are well placed to benefit.
Subscription Video on Demand, the largest segment of the OTT market by value, continues its rapid global expansion. According to a report from Allied Market Research, the global OTT market was valued at $97 billion in 2017 and is projected to reach $333 billion by 2025, a CAGR of 17%, with the Asia-Pacific region registering the fastest growth rate of 21%. In the past year, several media companies have each committed to spending billions of dollars on content, with the global output of TV production being at an all-time high.
Growth in global consumer video markets is creating greater demand for professional localisation services to adapt content for international audiences. According to recent research from Slator, the global market for media localisation (not including access services and digital packaging) was expected to have reached $2.4 billion in 2019, representing 9.8% of the global localisation services market. This creates opportunity for providers like ZOO that deliver the breadth of services needed to repurpose content produced in one language into many other languages.
We remain confident that ZOO is well positioned to capture a growing share of this expanding number of localisation projects due to the following factors:
Software ZOO's innovative use of technology enables content owners to distribute their products to additional territories at a reduced time-to-market and to a consistently high quality compared with what has previously been possible, with greater security and at a competitive price. The Company continues to invest in innovation to support efficient and effective delivery of multilingual services, broaden our product portfolio and increase wallet share within our customer base.
Freelancers ZOO's software enables the Company to collaborate with a worldwide network of thousands of freelance workers, including translators, voice actors and dubbing directors. In addition, the software significantly reduces the human capital requirements of service fulfilment, enabling the Company to scale its capacity efficiently as demand increases and to capitalise on the increasing trend for global distribution of international content originating in a growing number of languages.
Quality Our expertise in digital packaging, which dates back to 2007 and was initially focused on first on DVD and then subsequently Blu-ray releases, has now returned to the fore for OTT production. It was this foundation that created the opportunity for us to innovate and invest in localisation technology and services. Over the nine years since we launched our subtitling proposition, we have demonstrated our ability to deliver a service across all global languages, at scale, at the highest levels of quality achieved within the industry. We have become recognised as a leading player and partner of choice for subtitling by some of the largest media organisations. Our dubbing proposition, launched only three years ago, is at a much earlier stage in its adoption. Interest and initial projects have accelerated as a result of the current environment, and the feedback we have received on our performance has been very favourable. This gives us confidence to believe that, given time, we will build a similar reputation for quality in our dubbing service from which we can reasonably expect accelerated, continued adoption will follow.
Partnership ZOO's long history of service and software provision in the entertainment industry means it has an unrivalled depth of both industry know-how and customer relationships. We are focused on serving the needs of the large buyers in the market who, while being demanding in their requirements for quality, scalability and security, provide us with multilingual localisation projects involving multiple service lines. Such relationships take time to develop since vendor reputation is all important, but once established have the potential to generate regular repeat business over the long term. ZOO is already established as a preferred or primary vendor of subtitling services for a number of major buyers. We expect that we will achieve a similar status for dubbing services in due course.
Review of Operations
We have continued to make considerable progress in all of the service lines delivered through our proprietary cloud-based platforms.
ZOOsubs: Subtitling
Our subtitling team, enabled by our proprietary end-to-end subtitle production platform, ZOOsubs, continues to deliver services of the highest standard and, during the year, has served all major Hollywood studios and all leading OTT providers.
During the period, our largest subtitling customer in the prior year changed its strategy for procuring localisation services which resulted in a much reduced contribution from this customer in the year to March 2020. However, this was offset by 42% year-on-year growth in sales from other customers.
We have an established pool of experienced media translation specialists that is sufficient to meet our requirements for all languages that are regularly ordered by our customers. We have introduced programmes to enhance our engagement with this pool and to ensure that we have access to linguists as demand ebbs and flows. We have continued our efforts to grow our freelancer resources in languages that are currently less popular but where we anticipate future growth driven by OTT country launches, particularly in the MENA and APAC regions.
ZOOdubs: Dubbing
ZOO's dubbing service is significantly differentiated in the market due to the distributed recording capability made possible by our ZOOdubs platform, enabling the same work to be completed more efficiently, securely and without compromising quality when compared with the traditional studio-centred approach. Dubbing is treated in the industry as a highly creative service, and major buyers in the market have been reluctant to move away from the language-centralised approach employed widely in the industry due to their lack of familiarity with our technology-enabled service. However, as mentioned previously, the global lockdowns that have been enforced during the COVID-19 pandemic have prevented traditional studios from operating normally and have served as a catalyst for buyers to try out our services.
The change in procurement strategy by the customer mentioned above also affected dubbing sales during the period under review. In the prior year this client accounted for 64% of our dubbing sales which fell to 6% in the current year. However, we have made significant progress in delivering growth in dubbing from other clients, with the overall number of dubbing clients increasing from 23 in the prior year to 29 in the period under review.
Our freelancer onboarding team has focused primarily on talent for dubbing, with priority given to the languages that are being regularly commissioned by multilingual buyers. We will continue with this effort to enlarge the talent pool from which voices can be cast for each language, as well as the number of script adapters and dubbing directors who are critical to achieving high levels of quality.
ZOOstudio: End-to-end localisation operations managerment for OTT
During the period we launched our ZOOstudio platform which provides the capability to manage requirements for delivery of assets for OTT distribution, including placing the associated purchase orders with vendors. We believe that this product will help embed our technology at the heart of clients' processes. This should allow us to develop and integrate additional ZOO services into client workflows, and will help us keep client churn at the current low levels. We were successful in securing a first significant deployment of the platform which has been used to manage operations for the launches of a major new streaming platform across multiple international markets.
We have continued to develop ZOOstudio during the period, adding new features and functions to broaden its scope and attractiveness to major customers. The platform is being used on a daily basis to commission and manage services related to all digital elements required for OTT distribution, including captions, subtitles, dubbed soundtracks, audio description, metadata production and digital packaging.
Digital Packaging
Preparing and assembling assets for delivery to OTT platforms is a complex and exacting process in order to meet each platform's unique technical requirements. ZOO's experience over 13 years of developing systems and workflows and delivering services in this area has proven advantageous in securing new business at a time when buyers are increasingly seeking partners who can offer an integrated localisation/digital packaging solution.
While sales related to legacy DVD and Blu-ray platforms have declined considerably during the period, there has been considerable growth in these service lines in relation to OTT platforms where annual sales have increased almost threefold.
Investing for future growth
ZOO's reputation has been built on its innovative approach and we will continue to invest to broaden our offering. The strong underlying market dynamics of exceptional growth in volume of content consumed across different geographies and in different languages, combined with our increasing traction within our customer base presents us with the ideal opportunity to provide additional relevant services.
The success of our innovation program is exemplified by the adoption this year of ZOOstudio by a major media company to manage its localisation operations for OTT production. ZOOstudio was only launched last year yet received a Product of the Year award at the National Association of Broadcasters (NAB) Show 2019. ZOO was also awarded the Broadcast Tech Innovation Award 2019 for 'Excellence in Localisation for a Global TV Project'. Further investment has been made throughout the year to broaden the functionality of our cloud platforms.
We have invested in talent with a particular focus in the second half of the year on dubbing, adding both capabilities and capacity, and will continue to do so given the current market conditions. In particular, we will continue to augment the team with specialists in the major languages that are most in demand by major OTT service providers.
Further enhancing our localisation capacity, we opened a studio in London during the period, offering voice capture facilities, training services and audio mixing, key for some of our customers who require final mixing of localisation services in-territory. The initial feedback was overwhelmingly positive and instrumental in securing significant orders from one global media content provider during the year. This studio has not been operating during lockdown and we expect to reopen the facility later in 2020.
Our freelancer network, which gives us scalability at variable cost, grew modestly during the period and at the year-end stood at approximately 7,200 individuals after we removed from our network a number who do not have sufficient availability to meet our requirements.
There has been considerable investment in our technology during the year, resulting in enhanced features in our platforms, with some of the more significant being the following:
§ We have added capabilities to our platforms to enable highly efficient production of Audio Description (AD) soundtracks. These are audio streams that incorporate a commentary to assist sight impaired audiences which are increasingly in demand in certain territories. We now regularly provide AD services to a number of major studio customers.
§ We have continued to enhance ZOOstudio with further capabilities to increase its value and attractiveness to our existing major customer and new potential customers. The platform now provides an Application Programming Interface (API) to enable efficient exchange of information with third party vendors. We have provided functionality to facilitate the management of existing collections and catalogues of content. The system now supports the reporting of multi-currency financial information, enabling scenario modelling as well as tracking of costs for multiple territories.
§ ZOOscripts, our scripting platform, has been enhanced to support 'pivot languages' which are often used when working on non-English original content, enabling the use of an intermediate language for translation when there is a limited supply of experienced media translators who work from the source language to a particular target language. We have also added functionality to deal with the particular requirements of dealing with song lyrics.
§ We have enhanced our capability to produce individually watermarked video streams for each user of all of our systems. This enables us to deliver a much more cost-effective means for robust security than was possible previously, based on a novel approach for which we have applied for patents.
§ Our ZOOdubs dubbing platform has been enhanced with a number of new features to address productivity and ease-of-use, as well as to support new usage scenarios. This includes the support of multiple voice actors working at the same physical location and recording their parts together. We have implemented a closer integration with Avid Pro Tools - the industry-standard professional Digital Audio Workstation product which is widely used by dubbing studios and post-production facilities. We have also provided functionality to enable larger numbers of individuals to simultaneously collaborate on projects.
This continued commitment to innovation sets us apart from our competitors and has never been more relevant, as the current environment highlights the inefficiencies and cumbersome nature of traditional service providers. Our focus within our technology roadmap is clearly on supporting revenue generating opportunities and augmenting relationships with our customer base.
During the year we have continued with existing projects on the application of machine learning to support lip-sync dubbing and have also started to invest in new areas, focusing on translation and speech recognition which could be utilised across our localisation services. We look forward to further progress in this field in the current financial year.
People
It has been a pleasure to work with Gillian Wilmot following her appointment as Chairman last year and I value the perspective that she has brought to the Board.
I would like to express my sincere gratitude to Roger Jeynes who retired as Chairman following a tenure of nine years during which the industry and the Company have undergone profound change. Roger has provided wise counsel to me, both professionally and personally, and I am indebted to him for his support and dedication over the years.
Finally, I would like to extend my thanks to all of our staff, freelancers and partners for their talent and commitment who have enabled us to deliver the business we have today and who are critical for the growth to which we aspire in the future.
Outlook
Trading in the first three months of FY21 has been strong, with first quarter sales currently expected to be at least 15% ahead of the equivalent prior year period. This is also reflected in similar underlying growth in current order books for both localisation and digital packaging services.
Through our membership of the Netflix Preferred Fulfilment Partner (NPFP) programme we have been adding new customers and strengthening our relationship with some existing ones. We have been selected as the primary NPFP for two major studios and have seen a significant uplift in sales through this channel in the first quarter of FY21.
We anticipate future growth driven by OTT country launches, particularly in the MENA and APAC regions. We continue to support our clients with their plans to extend the reach of their distribution into other countries and regions and expect to continue to invest in our people and facilities, particularly in the area of dubbing across a greater number of languages.
The impact of COVID-19 on the media localisation business has seen a structural shift to cloud-based solutions and off-premise voice recording that favours our world class technology and services.
Whilst it is not usual for buyers in our industry to commit to significant volumes of work in advance, the multiple significant media companies and digital distributors that now regularly use our services gives us reason to expect that growth will continue throughout the year ahead. We look to the future with confidence.
Stuart Green
Chief Executive Officer
FINANCIAL REVIEW
Revenue
The Company achieved revenue growth of 3% in the financial year ended 31 March 2020, with total revenues of $29.8 million compared to $28.8 million in FY19. This masks the real progress achieved as the business finally transitioned to one focused on localisation services for global entertainment streaming providers. Revenues excluding DVD digital packaging and software services grew 12% to $27.6 million driven by a significant increase in digital packaging for OTT services. This growth was achieved despite two soft months at the end of the year as our customers transitioned to working from home in response to the global COVID-19 pandemic.
The majority of the Group's operations are in the USA, where revenues were flat at $25.3 million. The balance of work was performed in Europe which delivered 30% growth to $4.5 million. The shift in geographical production is due to our customers seeking content from new regions and the decline in our legacy DVD and Blu-ray business.
In FY20 we experienced an increase in customer concentration, as the revenue contribution from our largest client increased to 54% of sales (FY19: 36%), with the second largest accounting for 12%, down from 22% last year. This is a direct result of a contract win which resulted in us becoming the primary end-to-end vendor to a new global streaming service, a relationship that we expect will continue over the long term.
Localisation is the key segment of company revenues, and comprises subtitling, captioning and dubbing services. This segment saw revenues fall 8% in the year due to one major client changing its strategy in regard to sourcing content which had an adverse impact on our business. Post year-end this client has made a further change to its procurement approach, allowing us to resume participation in their localisation operations.
Digital packaging, our other main segment, saw revenues increase by 60% as our service for OTT platforms was chosen by one major streaming service as their primary vendor and other OTT operators promoted our service to their content providers. The growth in digital packaging for OTT was actually much higher since the increase of 60% was after a 75% decline in the DVD and Blu-ray service revenue as content producers continue to withdraw from this form of distribution.
Software licensing, our third segment which has been a reducing proportion of our business, continued to decline, this year by 13% to $1.6 million.
Segment contribution
The company reports gross profit after deducting both external and internal variable costs to reflect that an increasing proportion of our revenues are derived from the provision of services to our customers. To add clarity to our financial statements we include in our Annual Report a table of performance by our three key business segments. This shows that overall gross profit increased to $10.1 million in FY20 from $9.2 million in FY19, an increase of 10%.
Localisation segment contribution fell in the year from $6.2 million to $4.7 million as a consequence of two main factors. The first of these was the revenue drop of 8% which was attributed in part to the deferment of localisation projects at year end due to COVID-19, causing direct costs to be proportionally higher than expected. The second factor was a 2% point fall in segment contribution margin, explained by the nature of the dubbing projects undertaken in the year where a higher proportion were recorded in traditional studios. This adverse mix is expected to reverse in FY21 as a greater proportion of dubbing projects will be processed without the participation of traditional studios.
Digital packaging segment contribution more than doubled in the year to $5.5 million. This is explained by a long-term contract secured to provide a variety of digital packaging services to a new global streaming service. Our unique blend of people and software positions us well in this high margin business. The segment contribution of 74% was an improvement from the 54% achieved in FY19.
Software solution segment contribution held steady at 94% in the year.
Overall gross profit, which is calculated after also deducting unallocated variable costs, increased 10% to $10.1 million compared to $9.2 million in FY19. This represents a gross profit margin of 34%, up 2% points from 32% last year. The improvement is due to the sales mix favouring higher margin digital packaging sales.
Other operating expenses
Operational fixed costs, which are defined as operating expenses less share-based payments, depreciation and amortisation, have remained flat in the year as we invested heavily in the previous year to support our growth plans. Overall, these costs increased by 2% to $10.9 million, including share-based payments, depreciation and amortisation and after reclassifying property costs of $1.0 million to comply with IFRS 16. Otherwise the 2% increase in operating expenses reflects mainly higher IT costs as we expand the capacity of our cloud-based systems to support the actual and expected demand from our customers.
Finance costs
The main component of the Group's finance costs relates to the 7.5% convertible loan note stock with a maturity date that has been extended to October 2021 after the balance sheet date. Interest on the principal in the year was $0.3 million, approximately the same as FY19. The other two components of finance costs are non-cash items. The first is the exchange gain on the conversion of the outstanding sterling-denominated debt at the year-end due to the weakening of sterling relative to the US Dollar in the year, which has given rise to an exchange gain of $0.2 million. The second is the reduction in the fair value of the embedded derivative at year-end calculated with reference to the share price movement in the past 12 months and the expected value to loan note holders at the point of conversion. This has given rise to a non-cash $1.0 million gain.
These non-cash accounting entries have had an impact on the profit/loss before tax for the year ended March 2020, which was a loss of $0.1 million (FY19: $1.3 million).
As a result of the increase in revenues coupled with the improved gross profit the operating loss has reduced from $1.3 million to $0.6 million. On the Company's preferred measure of profitability, being EBITDA before share-based payments, the profit was $2.1 million, up from $0.4 million in FY19, due to the reasons explained above and the IFRS 16 change that had an impact of $1.0 million.
Post balance sheet event
Since the end of the financial year we are pleased to have reached agreement with the holders of the convertible unsecured loan notes totalling £2.6 million to extend the term by one further year. This liability has been shown on the Consolidated Statement of Financial Position as a current liability but on 13 July 2020 it was agreed to extend the maturity date to 31 October 2021. The US dollar value of the £2.6 million loan notes at 31 March 2020 was $3.2 million (FY19: $3.3 million). All other terms of the loan notes remain unchanged, being principally that they accrue interest at 7.5 per cent. per annum (payable half-yearly) and that the conversion price remains 48 pence per ordinary share of 1p each in the Company converted.
The participation in the extension of Stuart Green, as a director of the Company, and of Herald Investment Trust, as a substantial shareholder of the Company, comprise related party transactions under the AIM Rules for Companies.
The Company's independent directors (being Gillian Wilmot, Mickey Kalifa, Phillip Blundell and Gordon Doran), having consulted with the Company's nominated adviser, Stifel Nicolaus Europe Ltd, consider that the terms of the extension are fair and reasonable insofar as the Company's shareholders are concerned.
Statement of financial position
The significant change in the statement of financial position compared to the previous year has been the adoption of IFRS 16 which requires future lease commitments to be presented in this statement. The impact on ZOO is to create a right of use asset within property, plant and equipment of $2.8 million. It also requires a corresponding liability to be created which is split between current and non-current liabilities.
Trade and other receivables have increased 15% compared to last year to $9.3 million reflecting the strong sales performance in the second half of the year and the on-boarding of a new division of a major customer. Since the year-end the higher than normal receivables have unwound as this customer's new accounting process has bedded in. This increase was mirrored in trade and other payables as work performed by suppliers and freelancers peaked to support our customer deliveries. Current borrowings have increased from $0.2 million to $4.4 million as the convertible loan notes became a current liability at 31 March 2020 and the creation of the right of use asset liability of $1.0 million in accordance with IFRS 16. On a comparable year basis, current borrowings have remained flat at $0.3 million, representing short-term asset financing. Also included in current liabilities is the separable embedded derivative which is attached to the loan notes.
Cash and cash equivalents of $1.2 million at year end, (FY19: $1.8 million) was down 33%, however, in the second half of the year we generated net cash of $0.6 million through strong cash receipts from customers.
Non-current liabilities, excluding the impact of IFRS 16, fell significantly in the year due to the reclassification of the loan notes and the separable embedded derivative in current liabilities. This has been partly replaced by the creation of the right of use asset long-term liability of $1.8 million in accordance with IFRS 16. In cash terms long-term liabilities have increased from $0.6 million in FY19 to $0.8 million due to utilising $0.5 million of a facility with Crestmark Bank at the year-end.
Consolidated statement of cash flows and going concern
Net cash generated from operating activities was $1.3 miliion, the same as FY19. This was adversely impacted by a major customer having to set up new financial systems to support a new business division, which resulted in a net outflow of $0.4 million in the period. This is expected to be resolved shortly and should have a positive impact on our working capital requirement in FY21. The inflow from operating activities was offset by a $1.6 million cash outflow from investing activities and a cash outflow of $0.3 million from financing. The investment outflow was attributable to our ongoing development programme and upgrades to our IT infrastructure. Most of the financing outflow relates to the interest on the convertible loan notes.
Going forward the Board remains confident that the Group has sufficient headroom to trade for the foreseeable future. As the working capital requirement improves, the investment in capital equipment can be funded by existing suppliers and the renewal of the Crestmark invoicing facility of $2.5 million can help us manage the peaks and troughs of our trading activities. The extension of the convertible loan notes until October 2021 gives the business additional flexibility regarding its future cash requirements. The directors have tested rigorously the cash requirements of the business using a financial model that allows a number of scenarios relating to sales to be stress tested. This includes a worse case of a 40% drop in future revenues and the actions required to remain with our banking facilities. This would require reducing investment activities, eliminating most discretionary spend and extending credit facilities. These scenarios have supported our going concern assessment, however, our business model and exposure to the home entertainment industry make such planning unlikely, which is evidenced by our unaudited financial performance over the past three months, showing growth of 15% over the prior year and a strong order book for the next quarter.
By order of the Board
Phillip Blundell
Chief Financial Officer and Secretary
FINANCIAL INFORMATION
The financial information set out here for the year ended 31 March 2020 does not constitute full statutory financial statements as defined in section 434 of the Companies Act 2006 but has been extracted from the Group's financial statements for that period. Statutory financial statements for the year ended 31 March 2020 were approved by the directors on 13 July 2020, but have not yet been delivered to the Registrar of Companies. Those financial statements were reported upon without qualification by the independent auditor and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2020
2020
2019
Note
$000
$000
Revenue
29,793
28,818
Cost of sales
(19,705)
(19,624)
Gross Profit
10,088
9,194
Other operating income
252
157
Other operating expenses
(10,896)
(10,671)
Operating (loss)/profit
(556)
(1,320)
Analysed as:
EBITDA before share based payments
2,138
409
Share based payments
(257)
(286)
Depreciation
(1,369)
(539)
Amortisation
(1,068)
(904)
(556)
(1,320)
Exchange gain/(loss) on borrowings
197
275
Conversion of loan into equity
-
-
Fair value movement on embedded derivative
986
2,701
Finance cost
(674)
(392)
Total finance income
509
2,584
(Loss)/Profit before taxation
(47)
1,264
Tax credit
363
368
Profit and total comprehensive income for the year attributable to equity holders of the parent
316
1,632
Profit/(loss) per share
3
basic
0.42 cents
2.19 cents
diluted
0.39 cents
2.02 cents
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2020
2020
2019
Note
$000
$000
ASSETS
Non-current assets
Property, plant and equipment
3,633
944
Intangible assets
6,692
6,624
Deferred income tax assets
486
486
10,811
8,054
Current assets
Trade and other receivables
9,323
8,103
Cash and cash equivalents
1,218
1,828
10,541
9,931
Total assets
21,352
17,985
LIABILITIES
Current liabilities
Trade and other payables
(8,049)
(7,189)
Borrowings
(4,391)
(248)
Separable embedded derivative
(978)
-
(13,418)
(7,437)
Non-current liabilities
Borrowings
6
(2,637)
(3,899)
Separable embedded derivative
6
-
(1,965)
(2,637)
(5,864)
Total liabilities
(16,055)
(13,301)
Net assets
5,297
4,684
EQUITY
Equity attributable to equity holders of the parent
Called up share capital
5
1,010
1,010
Share premium reserve
41,003
41,003
Foreign exchange translation reserve
(992)
(992)
Convertible loan note reserve
42
42
Share option reserve
1,375
1,085
Capital redemption reserve
6,753
6,753
Interest in own shares
(46)
(53)
Other reserves
12,320
12,320
Accumulated losses
(56,168)
(56,484)
Attributable to equity holders
5,297
4,684
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2020
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
$000
Balance at 1 April 2018
1,010
41,003
(992)
42
688
6,753
12,320
(58,116)
(53)
2,655
Deferred shares
-
-
-
-
-
-
-
-
-
-
Loan note conversion
-
-
-
-
-
-
-
-
-
-
Share based payments
-
-
-
-
397
-
-
-
-
397
Purchase of own shares
-
-
-
-
-
-
-
-
-
-
Issue of ordinary shares
-
-
-
-
-
-
-
-
-
-
Loss for the year
-
-
-
-
-
-
-
1,632
-
1,632
Total comprehensive income for the year
-
-
-
-
-
-
-
1,632
-
1,632
Balance at 31 March 2019
1,010
41,003
(992)
42
1,085
6,753
12,320
(56,484)
(53)
4,684
Foreign exchange translation adjustment
-
-
-
-
-
-
-
-
7
7
Share based payments
-
-
-
-
290
-
-
-
-
290
Profit for the year
-
-
-
-
-
-
-
316
-
316
Total comprehensive income for the year
-
-
-
-
-
-
-
316
-
316
Balance at 31 March 2020
1,010
41,003
(992)
42
1,375
6,753
12,320
(56,168)
(46)
5,297
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2020
2020
2019
Note
$000
$000
Cash flows from operating activities
Operating (loss)/profit for the year
(556)
(1,320)
Depreciation
532
553
Amortisation and impairment
1,068
904
Share based payments
290
397
Changes in working capital:
Increases in trade and other receivables
(1,220)
(691)
Increases in trade and other payables
860
1,082
Cash flow from operations
974
925
Tax received
363
368
Net cash inflow from operating activities
1,337
1,293
Investing activities
Purchase of intangible assets
(235)
(29)
Capitalised development costs
(901)
(958)
Purchase of property, plant and equipment
(509)
(310)
Net cash outflow from investing activities
(1,645)
(1,297)
Cash flows from financing activities
Repayment of borrowings
(246)
(228)
Proceeds from borrowings
500
Finance cost
(556)
(349)
Issue of share capital
-
-
Net cash (outflow)/inflow from financing
(302)
(577)
Net (decrease)/increase in cash and cash equivalents
(610)
(581)
Cash and cash equivalents at the beginning of the year
1,828
2,409
Cash and cash equivalents at the end of the year
4
1,218
1,828
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2020
1. General information
ZOO Digital Group plc ('the company') and its subsidiaries (together 'the group') provide productivity tools and services for digital content authoring, video post-production and localisation for entertainment, publishing and packaging markets and continue with on-going research and development in those areas. The group has operations in both the UK and US.
The company is a public limited company which is listed on the AIM Market of the London Stock Exchange and is incorporated and domiciled in the UK. The address of the registered office is 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
These financial statements have been prepared in accordance with IFRS as adopted by the European Union, and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that effect the application of policies and reported amounts in the financial statements. The areas involving a higher degree of judgement or complexity, or areas where assumptions or estimates are significant to the financial statements are disclosed in note 3.
A separate Statement of Comprehensive Income for the parent company has not been presented as permitted by section 408 (2) of the Companies Act 2006.
The directors have prepared trading and cash flow forecasts for the group for the period to 31 March 2022 which show a continuation of the growth in profitability and cash generation. In line with industry practice in this sector the directors have had informal indications from major and smaller clients to substantiate a significant proportion of the forecast sales. The directors have considered the consequences if the sales volume is less than the level forecast and they are confident that, in this eventuality, alternative steps could be taken to ensure that the group has access to sufficient funding to continue to operate. The group has a facility with Crestmark Bank which provides invoice financing of up to $2.5m against US clients invoices raised by ZOO Digital Production LLC. This facility is in place until 7 July 2021. In the UK there is an overdraft facility with a limit of £250,000 in place with HSBC.
The convertible unsecured loan notes totalling £2.6m are in place until 31 October 2021.
The directors believe the assumptions used in preparing the trading and cash flow forecasts to be realistic, and consequently that the group will continue in operational existence for the foreseeable future. The financial statements have therefore been prepared on a going concern basis.
In FY20 the Group has adopted new guidance for the recognition of leases (see below). The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adoption as at 1 April 2019 being recognised as a single adjustment to retained earnings. Accordingly, the Group is not required to present a third statement of financial position as of that date.
New and revised standards that are effective for annual periods beginning on or after 1 April 2019
The Group has adopted the new accounting pronouncements which have become effective this year and are as follows:
IFRS 16 "Leases"
IFRS 16 "Leases" replaces IAS 17 "Leases" along with three interpretations
The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with all former operating leases except those identified as low-value or having a remaining lease term of less than 12 months from the date of the initial application.
The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.
For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as leases under IAS 17 and IFRIC 4.
The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 April 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.
Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.
On transition, for leases previously accounted for as operating leases with a remaining lease term of less than 12 months and for leases of low-value assets the Group has applied the optional exemptions to not recognise right-of-use assets but to account for the lease expense on a straight line basis over the remaining lease term.
For those leases previously classified as finance leases, the right-of-use asset and lease liability are measured at the date of initial application at the same amounts as under IAS 17 immediately before the date of initial application.
The Group has benefited from the use of hindsight for determining the lease term when considering options to extend and terminate leases.
On transition to IFRS 16 a discount rate of 8.25% has been applied. All new leases will be treated accordingly.
The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 April 2019:
Carrying amount at 31 March 2019
Remeasurement
IFRS 16 carrying amount at 1 April 2019
$'000
$'000
$'000
Property, plant and equipment
944
3,563
4,507
Lease liabilities
(798)
(3,563)
(4,361)
TOTAL
146
-
146
The following is a reconciliation of total operating lease commitments at 31 March 2019 (as disclosed in the financial statements to 31 March 2019) to the lease liabilities recognised at 1 April 2019:
Total operating lease commitments disclosed at 31 March 2019 and before discounting
4,629
Discounted using incremental borrowing rate
(1,066)
Operating lease liabilities
3,563
Finance lease obligations
798
Total lease liabilities recognised under IFRS 16 at 1 April 2020
4,361
2.1.1 Standards and interpretations in issue at 31 March 2020 but not yet effective and have not yet been adopted early by the Group
At the date of authorisation of these financial statements, several new, but not yet effective, Standards and amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards or amendments to existing Standards have been adopted early by the Group.
Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, amendments and interpretations not adopted in the current year have not been disclosed as they are not expected to have a material impact on the Group's financial statements.
2.2 Consolidation
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is obtained until the date that control ceases.
The consolidated financial statements of ZOO Digital Group plc include the results of the company and its subsidiaries. Subsidiary accounting policies are amended where necessary to ensure consistency within the group and intra group transactions are eliminated on consolidation.
2.3 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting regularly reviewed by the group's chief executive to make decisions about resource allocation to the segments and to assess their performance.
2.4 Foreign currency translation
2.4.1 Functional and presentation currency
Items included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in US dollars which is the company's functional and presentation currency. The functional currency of the company's subsidiaries is US dollars, therefore the majority of transactions between the company and its subsidiaries and the company's revenue and receivables are denominated in US dollars.
The US dollar/pound sterling exchange rate at 31 March 2020 was 0.809 (FY19: 0.763).
2.4.2 Transactions and balances
Transactions in foreign currencies are recorded at the prevailing rate of exchange in the month of the transaction. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the year end exchange rates are recognised in the profit/(loss) for the year in the Consolidated Statement of Comprehensive Income.
2.4.3 Group companies
The results and financial position of all group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- assets and liabilities for each entity are translated at the closing rate at the year end date;
- income and expenses for each Statement of Comprehensive Income are translated at the prevailing monthly exchange rate for the month in which the income or expense arose and all resulting exchange rate differences are recognised in other comprehensive income with the foreign exchange translation reserve.
3. Profit per share
Earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.
Basic and Diluted
2020
2019
$000
$000
Profit for the financial year
316
1,632
2020
2019
Number of shares
Number of shares
Weighted average number of shares for basic & diluted profit per share
Basic
74,487,534
74,356,016
Effect of dilutive potential ordinary shares:
Convertible loan note
-
Share options
6,729,240
6,369,825
Diluted
81,216,774
80,725,841
.
2020
2019
Cents
Cents
Basic
0.42
2.19
Diluted
0.39
2.02
The convertible debt has not been included in the FY20 or FY19 diluted earnings per share calculations due to being anti-dilutive.
4. Notes to the cash flow statement
a. Significant non-cash transactions
During the year the group acquired property, plant and equipment and computer software with a cost of $509,000 (FY19: $608,000) of which $nil (FY19: $298,000) was acquired by the means of finance leases.
b. Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks. Cash and cash equivalents included in the cash flow statement comprise the following consolidated and parent company statement of financial position amounts.
Group
Company
2020
2019
2020
2019
$000
$000
$000
$000
Cash on hand and balances with banks
1,218
1,828
25
113
The fair values of the cash and cash equivalents are considered to be their book value.
5. Share capital and reserves
Called up share capital
2020
2019
$000
$000
Allotted, called-up and fully paid
74,547,271 (2018: 74,424,771) ordinary shares of 1p each
1,010
1,010
Reconciliation of the number of ordinary shares outstanding:
Opening balance
74,424,771
73,773,655
Share options exercised
122,500
651,116
Closing balance
74,547,271
74,424,771
Reserves
The following describes the nature and purpose of each reserve within owner's equity:
Reserve
Description and purpose
Share premium reserve
Represents the amount subscribed for share capital in excess of the nominal value.
Foreign exchange 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
2020
2019
2020
2019
$000
$000
$000
$000
Non-current
7.5% Unsecured convertible loan note stock
-
3,349
-
3,349
Other bank borrowings
500
-
-
-
Finance lease liabilities
292
550
44
108
792
3,899
44
3,457
Right of use asset liability
Separable embedded derivative
1,845
-
-
1,965
59
-
-
1,965
Current
7.5% Unsecured convertible loan note stock
3,168
-
3,168
Amounts owed to subsidiary undertakings
-
-
9,701
9,701
Finance lease liabilities
Right of use asset liability
260
963
248
-
64
100
56
-
Separable embedded derivative
978
-
978
-
5,369
248
14,011
9,757
Total borrowings
8,006
6,112
14,114
15,179
The 7.5% convertible loan notes pay a coupon of 7.5% and the loan stock holder is entitled, before the redemption date, to convert all or part of the loan stock into fully paid ordinary shares on the basis of one ordinary share for every £0.48 of principal amount of loan stock. The US dollar value of the loan notes at 31 March 2020 was $3,168,000 (FY19: $3,349,000).
The restructured convertible loan stock has two separate economic components within it; the holder is entitled to convert the loan note into equity at any point and the company is entitled to convert the loan note into equity if the 30 business day trailing average share price is above the level of £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 For the year ended 31 March 2020 the valuation of the embedded derivatives resulted in a non-cash writeback to profit totalling ($986,000) (FY19: $2,701,000) which has an underlying value of $3,168,000.
Post the balance sheet date, the remaining convertible loan stock was extended for a further year until 31 October 2021. All other conditions attached to the remaining convertible loan notes were not altered.
The group has an arrangement with Crestmark Bank to provide an invoice financing facility of up to $2.5m against US client invoices raised by ZOO Digital Production LLC. This facility will be in place until 7 July 2021. The structure of this loan arrangement remains the same as last year. The principal outstanding at 31 March 2020 was $500,000 (FY19: nil). This funding is secured against the US trade receivables of ZOO Digital Production LLC.
The group has HSBC as its UK banking partner which provides an overdraft facility of £250,000. The principal outstanding at 31 March 2020 was nil (FY19: nil). This line of funding has been secured as a floating charge over the assets of the UK companies.
Annual report and Accounts
Copies of the Report & Accounts for the year ended 31 March 2020 are available to view on the Group's website www.zoodigital.com
The Report & Accounts for the year ended 31 March 2020, together with the notice of annual general meeting, are expected to be posted to shareholders during August 2020; an announcement to notify shareholders of this will be made in due course. Further copies will be available from the Company's Registered Office: Floor 7, City Gate, 8 St Mary's Gate, Sheffield S1 4LW.
Annual General Meeting
The Annual General Meeting of the Group will be held at ZOO's Sheffield offices on 23 September 2020 at 4pm.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDFR RJMMTMTMBTAM
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