REG - Zoo Digital Group - Final Results
07/07/2022 07:16
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RNS Number : 6061R Zoo Digital Group PLC 07 July 2022
7 July 2022
ZOO DIGITAL GROUP PLC
("ZOO" the "Group" or the "Company")
FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2022
Capturing significant opportunity, taking market share with a year of
outstanding, profitable growth
Significant progress towards medium term $100m target
ZOO Digital Group plc (AIM: ZOO), the leading provider of end-to-end ("E2E")
cloud-based localisation and media services to the global entertainment
industry, today announces its audited financial results for the year ended 31
March 2022.
HIGHLIGHTS
Key Financials
· Revenue grew organically by 78% to $70.4 million (FY21: $39.5
million)
· Adjusted EBITDA* grew to $8.3 million (FY21: $4.5 million) -
EBITDA* margin increased to 11.8% (FY21: 11.5%)
· Operating profit of $3.1 million (FY21: $1.0 million)
· Reported profit before tax of $1.1 million (FY21: loss of $3.6
million) after non-cash fair value movement on embedded derivative of $1.6
million
· Net cash at year end $6.0 million (FY21: $2.9 million)
· Completion of a $10.1 million placing in April 2021 to fund
accelerated growth, deployed in global expansion efforts, particularly Korea,
Turkey and India
· Conversion of the 7.5% unsecured convertible loan stock into
5,273,959 new shares, removing the majority of Group borrowings from balance
sheet and associated interest payments
Operational Highlights
· ZOOstudio deployment expanded by existing major media client and
adopted by a second multinational entertainment industry client
· Media services grew by 51% due to both catalogue content work and
regional launches of streaming platforms
· Media localisation grew by 108% as demand for new production work
rebounded strongly in H2 -dubbing revenue rose by more than 170% half-on-half
· The Company's worldwide freelancer network grew by 20% to 11,028
(FY21: 9,207) enabling and positioning for higher volumes
· The Group successfully maintained an ongoing high level of
customer satisfaction - retained sales KPI was 97.6%
· Strengthened end-to-end offering with the establishment of
mastering services division - as a result, commenced a significant engagement
with a leading media organisation in FY21H2
· Launched global growth initiative with investments in
fast-growing, high-demand regions, including India, South Korea, Turkey, and
Denmark with others in the pipeline
Broader Market Highlights
· Global spend on original programming reached $220 billion in 2021
and is expected to grow strongly in 2022 and beyond
· In 2021 27% of the world's 100 most popular titles were made
outside the US (2017: 15%)
· Three recently introduced global streaming services from major US
media companies are now working on their international rollouts
· In 2021 the average number of subscriptions per US household
reached 4.7 services
· The market is seeing unprecedented demand for media localisation
services
Outlook
· Trading in Q1 has been very strong with sequential growth over
FY22Q4 and significantly ahead of prior year
· Visibility through H1 indicates further significant progress
towards our 2020 goal of delivering $100 million in sales in the medium term
· H1 sales expected to exceed the second half of the prior year
which was in turn 60% ahead of FY22H1
· In dialogue with multiple streaming platform operators regarding
adoption of ZOOstudio
· Expect investments made in building multilingual dubbing
capability and capacity will result in strong growth in FY23
· The Board remains confident of continuing to deliver strong
growth
* Adjusted for share-based payments
Copies of the Report and Accounts for the year ended 31 March 2022 are
available on the Group's website www.zoodigital.com
(http://www.zoodigital.com) and, in accordance with AIM Rule 20, will be
distributed to shareholders in August 2022.
Stuart Green, CEO of ZOO Digital, commented:
"These results reflect an outstanding year of operational delivery and growth
across the whole business. ZOO is taking market share in a growing market,
benefitting from our cloud-based platforms, extensive freelancer network and
embedded client relationships. With our global scale and end-to-end offering,
we are one of the few vendors capable of meeting the requirements of major
media companies to take their content to international audiences.
"The streaming market continues to evolve as media companies invest billions
of dollars in content to capture and entertain international audiences. We are
scaling ZOO's operations to match continuing growing demand. During the year,
we introduced new services such as mastering and expanded our presence in some
of the fastest-growing regions for our customers, particularly across Asia.
These are strategic investments that strengthen our operations in some of the
most exciting territories for content expansion and will support our ambitious
growth plans.
"We are excited about the scale of the opportunity ahead and confident of
delivering further profitable growth."
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 +44 207 710 7600
Fred Walsh/Tom Marsh
Instinctif Partners +44 207 457 2020
Matthew Smallwood/Joe Quinlan zoo@instinctif.com
Investor engagement
The Company wishes to draw attention to the posting on its website
(www.zoodigital.com (http://www.zoodigital.com/) ) of a presentation to
shareholders regarding its final results, and of an investor presentation
(www.zoodigital.com/prelims2022 (http://www.zoodigital.com/prelims2022) ) that
will be live streamed on Tuesday 12(th) July at 6:00pm BST.
CHAIRMAN'S STATEMENT
It gives me great pleasure to report an outstanding year for ZOO Digital. The
Company has delivered organic revenue growth of 78% and EBITDA (excluding
share-based payments) growth of 84% during a period in which significant
investment has been made in people, infrastructure, offices, and international
operations.
In September 2020, we introduced for the first time our ambitious medium-term
target to reach $100 million in sales - a steppingstone towards our long-term
aspirations to become the largest vendor in our sector. This was accompanied
by a 'bridge' to indicate how we expected the gap to be filled by
contributions from our largest client and from others across our key revenue
sources of subtitling, dubbing and media services. At that time our revenue
for the full year to March 2020 was $29.8 million. Following each subsequent
results announcement and trading statement we have updated the market with a
revised bridge to indicate changes in our expectations. The most recent
version indicates FY22 sales achieved of $70.4 million, well ahead of initial
expectations at the beginning of the year.
Whilst FY22 has been a remarkable year for ZOO, we anticipate further
significant market developments which will continue to be favourable to the
Company in the year ahead. Indeed, we expect that the profound changes that
are taking place across our industry will vindicate ZOO's strategic plan and
the role the Company has played in bringing about a digital transformation in
the media localisation supply chain.
Three Direct to Consumer (DTC) streaming video platforms from leading US media
companies have recently begun their international rollouts, further
compounding the already record high volumes of premium localisation services
required by longer established participants. Consequently, demand is
outstripping supply, and the industry requires expansion in capacity that is
unlikely to be satisfied by traditional approaches alone. ZOO's scalable
cloud-based approach provides an efficient and effective solution to the
industry's evolving requirements.
Increased competition amongst consumer services, combined with subscribers
exercising greater caution over discretionary spend, has resulted in a
changing picture of the progress of the streaming video market. Our view,
consistent with independent commentators, is that the overall market will
continue to grow strongly, particularly in international markets, although the
relative market shares of leading participants may change. This heightened
competition will require media companies to invest more heavily in original
content and make this content go further by localising it for international
markets. As a vendor to all the major media companies, and as one of the few
service providers with the scale to deliver simultaneous, single-day global
launches, ZOO is optimally positioned to benefit from the evolving market
backdrop.
Upon raising £7.4 million ($10.1 million) in a share placing in April 2021,
the board outlined how market conditions were presenting a unique opportunity
for ZOO to seize market share. Our plan would invest the proceeds by growing
the R&D and service delivery teams, establishing regional hubs, expanding
international business development, and strengthening our infrastructure. I am
pleased to report that we have made significant progress on all fronts and
delighted that we have expanded our capabilities in Turkey, South Korea,
India, and Denmark during the period.
Together with my board colleagues, I would like to extend my appreciation to
our supportive former holders of loan notes who, in September 2021, agreed to
convert those notes into the share capital of ZOO, thereby eliminating all the
Company's long-term debt. This, combined with the proceeds of the fundraise,
leaves ZOO with a strong balance sheet and well placed for its continued rapid
growth.
I should like to take this opportunity to welcome the newest member of our
board. Nathalie Schwarz, who became a non-executive director in January 2022,
brings 20 years of board-level international experience. She has expertise in
the media and digital technology sectors with a career spanning broadcasting
(television and radio), mobile and digital interactive platforms and
information/data services. Nathalie will chair the Remuneration Committee from
summer 2022 and is an experienced Remuneration Committee chair.
Finally, I would like to express my sincere thanks to all my colleagues
globally, in the UK, USA, Europe, Middle East, South Asia and Southeast Asia
for their instrumental role in delivering such a successful year.
I look forward to reporting on the exciting period ahead and remain confident
in the Company continuing to deliver strong profitable growth.
Gillian Wilmot
Chairman
STRATEGIC REPORT
Introduction
This report covers an exceptional period for the Group, bringing into sharp
focus the strengths of its strategic plan. ZOO makes life easier for the
streaming companies who now lead in entertaining the world by providing a
comprehensive suite of software-enabled services to allow feature films and TV
series to be adapted for and delivered to global audiences. Our aim is to be
our customers' most trusted partner to help them deliver engaging,
entertaining, and immersive content experiences to their consumers around the
world.
ZOO's primary customers are major media organisations, predominantly in the
US, almost all of which now offer streaming services and seek to differentiate
their propositions through diverse catalogues of frequently updated premium
original entertainment content. With the rapid decline in demand for packaged
media (DVDs and Blu-ray discs) and PayTV which were previously significant
generators of cash and profits for major media organisations, the future of
these companies rests on monetising content through streaming. Both
Subscription Video on Demand (SVOD) and Advertising Video on Demand (AVOD) are
being variously pursued as the operators seek to maximise the return on their
substantial investments in entertainment content through the streaming market.
Most of this content, made up of episodic TV series and feature films, is
developed by independent production companies whose key deliverable in each
case is a 'master' of the audio-visual materials. Before a programme can be
streamed to consumers there is significant further work necessary. This work
falls into two broad categories: (1) the video, audio and other assets must be
converted into formats and combined into packages that meet the specific
technical requirements of the target platform(s) as well as certain creative
requirements of local markets and audiences (collectively referred to as
"media services"); and (2) the original dialogue in the programme must be
adapted into potentially many other languages through the creation of
culturally-sensitive subtitles and dubbed soundtracks (collectively, "media
localisation"). These services are highly specialised and demanding; their
complexity is illustrated by the number of deliverables required for each
original programme which can often be counted in thousands.
ZOO is one of very few 'End-to-End' (E2E) vendors in the industry with the
capability to deliver the full range of media and localisation services to the
high standards demanded of the major industry buyers, and with coverage of
over 40 languages that are now regularly required for global distribution. A
key differentiator of ZOO in the market is the cloud-based software systems
that have been developed by its in-house R&D team over many years,
bringing efficiency and scalability to the Company, its customers and its
large community of freelancers including specialist media translators,
directors, and actors.
In the past, it was common practice for large buyers to divide work amongst
many vendors, with each vendor providing a subset of the services required. In
the current market both the volume of original programmes produced each year
as well as the number of languages into which those programmes are delivered
are at record levels. The decline in their traditional sources of income has
led buyers to look for greater efficiencies in their internal operations, and
one strategy that has become popular is to outsource all media services and
localisation across a much smaller number of more capable vendors. Thus, there
is growing attraction to vendors such as ZOO that provide an E2E service.
A further strategy that may be employed by these buying organisations is the
adoption of Enterprise Resource Planning (ERP) software to support internal
staff in managing the complexity of these services and the high number of
deliverables. Generalised ERP systems are not well suited to the required
degree of specialism and the task is best served by special-purpose solutions
that are tailor made for this domain. ZOO has developed such a system called
ZOOstudio that it makes available to its customers as an integral component of
its offering.
From an ESG standpoint, we believe ZOO's strategy makes it environmentally
superior to its competitors given that the Group does not need to own and
operate dubbing facilities in every country nor require high levels of travel
by acting and directing talent. The Company has strengthened its ESG
credentials more broadly through several initiatives and has developed a
sustainability strategy around its three core value themes of 'think smarter',
'make it easier' and 'be better'. These include our ZOO Academy programme,
apprenticeships, university partnerships, innovation, employee engagement,
charity partnerships and our ZOOgooders initiative that are explained later in
this report.
Market Overview
Following a year in which new original title production was significantly
disrupted due to the global pandemic, the trend continued into the beginning
of FY22. Throughout this period the projects assigned to ZOO by customers were
predominantly related to titles that had already been produced prior to the
pandemic. A significant proportion of this work was to support the launch of
existing streaming services in new territories which entails (1) taking the
catalogue of titles available on a platform in other countries and producing
new language versions, and (2) preparing a range of content for distribution
in the languages of a region, usually through licensing of pre-existing
third-party content.
Production of new titles resumed during the year and resulted in associated
orders for media services and localisation returning in August 2021 at which
point the mix of catalogue versus new content began to shift. By the end of
the period, the work relating to new titles accounted for a much greater
proportion of the pipeline.
Three DTC streaming services were launched before or during the period of the
pandemic by major US media companies: HBO Max from Warner Bros Discovery (the
merger of AT&T's WarnerMedia unit and Discovery Inc. which was completed
in April 2022), Peacock from NBCUniversal (a subsidiary of Comcast) and
Paramount Plus from Paramount Global (formerly ViacomCBS, the merger of Viacom
and CBS which completed in December 2019). Following their availability in the
US and some English-speaking markets, these services have only recently begun
their international rollout. Although in this regard they lag the first of the
major DTC services, Disney+, by over two years, all three have publicly stated
their commitment to making their services available across many countries.
The growing availability of multiple global streaming services in many
countries is creating increased competition for viewers. The appeal of each of
these services rests entirely on the strength of the catalogue of content they
offer. To maximise this appeal the operators are discontinuing their licensing
of some or all owned content to other services so that these titles are
exclusively available on the operator's platform. This means that some high
value content that was previously included on other services is being
withdrawn, thereby potentially diminishing the perceived value of those other
services.
Since content is the key differentiator of one service from another, each
service is compelled to continue to add new, fresh, high-quality titles to
attract viewers and retain those who already use the service. This has
propelled the volume of new original programme production to an all-time high.
Market commentator Ampere Analysis reported that the global spend on original
programming reached $220 billion in 2021 and is expected to grow strongly in
2022 and beyond. Of this total, around $50 billion was estimated to have been
spent by major streaming services.
Major US media companies already generate most of their revenues outside their
domestic market. For example, two thirds of Netflix subscribers live outside
of the US and account for 55% of its revenue. Given that the US has high
household penetration of streaming services (around 85% according to data
analysis firm, Kantar), subscriber growth across the industry will come
predominantly from markets where penetration is much lower, such as Southeast
Asia, the Middle East and Africa. Consequently, those who commission and
license entertainment content increasingly make choices based on its appeal
across multiple international markets.
A separate study by Ampere Analysis notes that historically, US content has
tended to dominate on the global stage, while in individual countries local
content has often held the balance of power. But this is beginning to change.
In 2017, 15% of the world's 100 most popular titles were made outside the US
and by December 2021 that figure grew to 27%. Ampere's analysis shows that the
audience for internationally produced content is growing in the key
revenue-generating English-speaking and European markets. SVOD subscribers in
the US, UK, Australia, and Canada, in particular, are tuning in to content
produced overseas, and the major global SVOD platforms are driving this trend
by both commissioning high quality non-English language titles and increasing
the number of foreign language titles in their catalogues.
The pandemic offered a boost to internationally produced content as production
shutdowns and release delays led to locked-down viewers looking further afield
for shows and movies to watch. As the SVOD players expand geographically and
continue to make high production value titles in a multitude of global
markets, Ampere expects the demand for overseas produced content to further
increase.
With record volumes of new original content, which is required to be made
available in many countries, the market is seeing unprecedented demand for
media localisation services. Major media companies, especially those who are
at earlier stages of their international rollout, are finding that the
capacity for subtitling and dubbing in the market is inadequate to meet their
needs. As traditional bricks-and-mortar providers of these services reach
their capacity, for them, scaling up is a capital-intensive and slow process.
In contrast, the flexibility afforded by ZOO's cloud software delivers
unprecedented levels of capacity and access to talent all around the world.
Therefore, the Company is well placed to grow in part by servicing projects
that cannot be expediently satisfied by traditional vendors.
The attractiveness of the E2E model is also driving demand for ZOO's services.
We expect more of the large buyers to transition to this approach in the
future, thereby strengthening ZOO's position in the market as a leading
supplier. One effect of this is that more customers will take multiple service
lines offered by ZOO which plays to the strengths of the Company's proposition
and enables efficient execution through its technology-enabled offerings.
Growth in demand for the services offered by ZOO to media clients is being
fuelled by the competitive dynamics of the consumer market that is expanding
through new entrants. The principal competitive arena for global streaming
providers is in capturing viewers for their respective services. According to
research published by Kantar in January 2022, the average number of
subscriptions per US household reached 4.7 services in the final quarter of
2021 and is unchanged over the following quarter. Recent reports of subscriber
volatility have heightened competition, however, Kantar maintains that U.S.
streamers are not leaving the streaming category.
The second area of competition for major streaming services is in relation to
content. A differentiated and attractive catalogue that is updated regularly
is essential to win and retain viewers, and therefore the rights to highly
valued TV shows and feature films are selling to the highest bidder.
The board expects a third area of competition between streamers will likely
intensify over the period ahead, namely access to capacity for preparing
content for international distribution. This is a highly favourable dynamic
that supports the ongoing expansion of the ZOO business. In this regard, ZOO
is more closely aligned with the market dynamics of content production than
with the business of streaming and the number of consumers who view that
content.
Media Localisation Market Size
The market dynamics described above are giving rise to expansion of the market
for media localisation. In its Video Localisation Report published in July
2021, language industry intelligence company Slator estimated that video
localisation services and technology constitute a market that it estimates to
have been worth $4.97 billion in 2021.
In a recent quarterly earnings call, Netflix provided some statistics that
illustrate the level of spend on media localisation by large buyers in the
sector. The company disclosed that in 2021 it commissioned 7 million minutes
of subtitles and 5 million minutes of dubbed soundtracks. We estimate that
this corresponds to a spend of the order of $500 million, which equates to
just under 3% of the content budget disclosed by Netflix for the same period.
Netflix is long established in the industry and is progressive in the scope
and extent of localisation. Not all industry players are currently supporting
as many languages as Netflix, but to remain competitive it seems likely that
market participants will need to expand their propositions with a similar
international reach to Netflix, at which point 3% of content budgets may
become the appropriate level of expenditure necessary to support this
ambition.
Strategy
The increasing appeal of ZOO's proposition - as evidenced by the strong
organic growth in FY22 - is attributed to its strategy, built on the five
pillars of innovation, scalability, collaboration, customer, and talent, that
differentiate the Company amongst its competitors.
Innovation
During the period, the Company increased its resources in ZOO Digital Labs,
its research and development function, with headcount increasing by 33%. The
enlarged team has the capacity to develop its products more quickly as well as
to embark on internal research projects.
ZOOstudio, the Company's specialised ERP and procurement platform, has been a
major focus of development. A wide range of new features have been added to
create enhanced levels of integration between ZOO and its customers as well as
to continue to enable greater levels of efficiency through automation of
workflows and elevated security. The system now supports a range of financial
planning and management features, integrated capabilities for review and
approval of materials such as scripts and dubbed soundtracks, and support for
capacity planning.
The Company's cloud dubbing platform, ZOOdubs, is now being used for over 40
languages and has been enhanced further, particularly to support various
territory-specific requirements needed in different locations.
During the period, ZOO Digital Labs pursued further research projects, mostly
in collaboration with partners. These include several initiatives to develop
machine learning approaches that we envisage will deliver new product
capabilities and competitive advantages in the future.
Scalability
ZOO's network of independent freelancers provides the Company with flexibility
and scale. The number of freelancers grew by 20% in the period to over 11,000
individuals located around the world, each providing language-specific
expertise in the areas of translation, adaptation, direction and acting. To
continue to grow its capacity ZOO must increase the number of freelancers
across these disciplines in over 40 languages. The Company accelerated this
process during the period with the launch of its global growth initiative to
establish points of presence in several critical regions of the world.
During FY22 the Company made capital efficient investments in long-term
partners in South Korea and Turkey - two strategically important locations for
the industry due to their tradition of high-quality entertainment content
production - and established ZOO Korea and ZOO Turkey through close strategic
alignments with WhatSub Pro and Ares Media respectively. The Company acquired
the award-winning media services and localisation business of long-time
partner Vista India, based in Mumbai, to establish ZOO India. Finally, the
Company has established ZOO Denmark in Copenhagen to provide a Scandinavian
point of presence. Each of these operations provides a strategic hub in
fast-growing regions and will be pivotal to the expansion of ZOO's talent
pool.
The Company also launched ZOO Academy during the period, an important
strategic initiative that will help develop talent, particularly where there
is a shortage of certain services in particular languages. ZOO Academy will
provide a range of online courses, workshops, and other learning resources to
deliver both the support to equip new talent with the required industry
knowledge and skills, and the experience required to hone those skills and
become effective practitioners. The first ZOO Academy course has now launched
and teaches the skillset necessary to adapt scripts for dubbing. Several
further courses across multiple disciplines are in the pipeline and will be
launched in the current period.
Collaboration
An important component of the ZOO Academy programme is the educational
partnerships we have developed over several years which are being expanded and
accelerated. Our cloud platforms, including ZOOscripts, ZOOsubs and ZOOdubs,
are now being taught by educational providers around the world with
approaching 20 partners signed up to this programme, including teaching
centres in the UK, Europe, Latin America, and Southeast Asia.
ZOO Digital Labs continues to collaborate with our primary research partner,
the University of Sheffield, where we currently have active projects in the
areas of computer science and linguistics.
It is through our approach to collaboration that we were able to identify
highly suitable targets for our global growth initiative by building on the
long-term partnerships we have established with certain organisations. This
significantly de-risks these investments due to the strong and productive
working relationships that have already been established with management, and
the willingness to embrace a more technology enabled approach to the delivery
of localisation services (which is not the norm in our industry).
Customer
The strategic rationale for our ZOOstudio platform received a further
endorsement during the period: a major media company that adopted the system
in 2019 to support the roll-out of its global streaming video service has
deployed it more widely across its operations. ZOOstudio has now been adopted
by additional operating groups within this organisation and the new
functionality that has been added is being widely used. The platform has
proven to be highly effective in supporting the complex workflows and
processes associated with preparing content for distribution via streaming,
delivering operational efficiencies, providing visibility and transparency,
measuring the performance of vendors, and ensuring high levels of reliability
and accuracy.
Furthermore, a second multinational entertainment industry client adopted the
platform during the period and is now using it to support its operations.
Discussions with further customers regarding adoption of ZOOstudio are in
progress. These are highly significant developments since they result in the
embedding of ZOOstudio, an integral part of the Company's offering, within
customers' operations.
The period included the launch of an important addition to ZOO's service
offering: mastering, which involves optimising a digital original copy of
audio-visual materials for playback through specific channels, such as
broadcast and streaming. This new mastering service creates an additional
revenue stream and provides an important adjacent capability that was
requested by existing customers under the scope of E2E engagements. The costs
associated with the capital infrastructure to support this service and the
recruitment and training of a new team were incurred in H1. A significant
engagement with a leading media organisation was secured in H2 which has
delivered a new revenue stream during the period. This provides good
visibility into FY23, not only for the incremental mastering assignments but
also for the wider scope of work that is frequently bundled with such E2E
projects in the areas of localisation and media services.
Talent
In FY21 we launched our Advocate programme to engage with experienced and
progressive practitioners of the dubbing markets across key 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, mixing and script adaptation. Our advocates have been invaluable in
enabling us to expand our talent pool across their territories.
We strengthened our Advocate programme further in FY22 with several key
appointments in Japan, Singapore, Korea, and Dubai. Key appointments include:
· Anna Chew, a seasoned media localisation executive, has joined us
as Territory Manager for Southeast Asia. She has worked across Malaysia,
Singapore and Taiwan for companies including Disney, Nickelodeon and Blizzard.
· Through our acquisition of Vista India, Rajiv Raghunathan has
joined our senior management team. His career spans 25 years spent in digital
distribution, film production, post-production, and media localisation.
· In South Korea, we welcome to our team Jonghyun Oh. His company
has been a leading provider of media localisation services in the country.
· Our efforts in Turkey are led by Ender Albayrak and Emre
Sahinkanat who have each played leading roles in the localisation industry in
Istanbul.
During the period Chris Oakley was promoted to Chief Technology Officer for
the Company. In his 18 years with ZOO, Chris has helped spearhead flagship
platforms such as ZOOstudio, ZOOdubs and ZOOsubs. In his new role as CTO,
Chris will be responsible for continuing to grow the ZOO Digital Labs
technical centre of excellence to support and future-proof the globalisation
industry.
Our ZOO Academy programmes are being led by Ambrish Acharya who joined us as
Head of Education. He has over 10 years' experience working in audio
engineering and sound design for companies including Fox International, as
well as roles in audio-visual education at the Hong Kong Design Institute
where he received a Teaching Excellence Award.
During a year of significant growth, our headcount grew from 298 in April 2021
to 413 by the end of March 2022. This figure excludes the 75 staff who have
joined us through our Vista India acquisition.
Review of Operations
A significant contributing factor to the strong growth delivered in the period
has been the regional launches of our customers' streaming platforms in
Southeast Asia, Central and Eastern Europe and the Middle East and Africa.
This led to strong demand for localisation, particularly subtitling, and for a
range of activities that fall into ZOO's media services revenue stream.
Our global growth initiative has given the Company a presence in new
locations. This provides the opportunity to expand our operations in those
countries where it may be more convenient to have staff working locally, such
as in project management, and to access specialised industry skillsets such as
dubbing management. With an international footprint that now includes Turkey,
South Korea, Denmark, and India, we are shaping the future of the organisation
to capitalise on the benefits of having a presence in these locations.
KPIs
The Group manages on an internal basis the following KPIs which assist in
measuring progress against the Group's strategy.
Financial
· Revenue up 78% to $70.4 million (FY21: $39.5 million)
· EBITDA(1) 11.8% (FY21: 11.5%)
· OPEX as a % of Revenue improved by 5 points to 27% (FY21: 33%)
Operational
· Number of freelancers(2) 11,028 (FY21: 9,207)
· Retained Sales(3) 97.6% (FY21: 98.5%)
1. Adjusted for share-based payments
2. The number of active freelance workers in ZOO's systems who are
engaged directly
3. Proportion of client revenues retained from one year to the next
Media Localisation
Revenues generated from media localisation more than doubled in the period to
$42.2 million (FY21: $20.3 million). Dubbing revenues grew by 84% while
subtitling increased by 135%. Assignments relating to catalogue content, which
dominated the first half, typically include a lower requirement for dubbing
than new original titles. Consequently, the influx of new titles in the second
half led to half-on-half growth in dubbing revenue of over 170%.
With strong growth in non-English content production, we are now seeing
increasing demand for high quality dubbing services into English. Except for
content aimed at children, there has not been a significant requirement for
English dubbing in the past, but this is now changing. The limited number of
English dubbing studios in the UK and US means that capable providers are in
high demand, and this provides an excellent opportunity for ZOO to resource
this demand through its scalable proposition.
We have also seen significant growth in demand for Audio Description (AD)
services during the period. Whilst subtitles for the deaf and hard of hearing
have been commonplace in the entertainment industry (and, indeed, are mandated
to some countries including UK and US), streaming providers have been slow to
adopt AD and historically there have been relatively few titles that support
it. This is now changing with regulatory requirements for streaming platforms
also looking increasingly likely.
Media Services
Media services revenue grew by 51% during the period to $26.4 million, driven
by assignments relating to catalogue content as well as those to support
regional launches of streaming platforms. Service lines that grew particularly
strongly were digital packaging/post-production and metadata preparation.
As previously mentioned, we generated maiden revenues for our mastering
service following the recruitment of a Los Angeles-based team of specialists.
Having acquired the necessary infrastructure and recruited the team in the
first half, monthly revenues grew significantly through each month of the
second half. The levels of demand that we see for this service have led us to
expand the team further and to seek to extend our operations across some of
our other international locations.
We have grown our artwork services team during the period to satisfy the
growing demand from our customers for the processing of images that are used
in the user interfaces of streaming platforms. This is also an activity that
is increasingly included in E2E services and where we anticipate strong
growth.
Investing for future growth
The oversubscribed fundraise completed in April 2021 provided ZOO with
approximately $10 million net proceeds that we indicated we would invest to
support future growth. A proportion of the proceeds has been used to support
our working capital cycle for the much higher levels of business that we have
transacted. Our progress in the areas of investment has been:
Capital equipment
We have invested around $4.4 million in capital equipment to extend our
capacity. We have upgraded our internet connectivity at our sites in Los
Angeles, London, and Sheffield, thereby enabling a significantly higher
throughput of digital assets into our facilities and deliveries to our
clients. We have acquired computer systems and local storage devices to
support our new mastering service. Our Sheffield headquarters has been
relocated to larger, more suitable premises and we have refitted our
facilities in Los Angeles and London. New facilities in Dubai and Copenhagen
have been fitted out.
International locations
We have completed capital efficient investments in Ares Media (Turkey) and
WhatSub Pro (South Korea) and we have acquired the business of Vista India. A
hub for Scandinavian operations has been opened in Denmark. We have in our
pipeline several opportunities that we expect to complete and announce in due
course.
Expansion of services
We have recruited heavily throughout the period and have added a mastering
team in Los Angeles, and a larger business development team that now includes
advocates in Southeast Asia and the Middle East.
Expansion of capacity
We have expanded our R&D team in ZOO Digital Labs, including the new
position of Research Manager, such that we are now able to pursue internal
research projects. In anticipation of strong growth for dubbing, we have
enlarged our project management team significantly by recruiting ahead of
higher levels of orders being received. We have assembled a team to work on
mastering.
Outlook
Trading in the first quarter of FY23 has been very strong with sequential
growth over FY22Q4 and significantly ahead of the equivalent period in the
prior year. The period has included work that is related to ongoing territory
launches of major streaming platforms as well as the processing of a
significant volume of new original titles that have been completed and adapted
into an increasing number of languages for global distribution. Visibility
through until the end of H1 indicates further significant progress towards the
goal that we set in 2020 of delivering sales of $100 million. We expect H1
sales to exceed the second half of the prior year which was in turn 60% ahead
of FY22H1.
We are in dialogue with multiple streaming platform operators concerning the
adoption of ZOOstudio to manage global distribution operations and are
increasingly confident of adding to licensees during FY23.
We expect that the significant investments we have made in building our
multilingual dubbing capability and capacity across many languages will result
in strong growth in the year ahead in our localisation revenues. In the
previous period, this investment has had the temporary effect of incurring
inflated cost of sales for localisation while we have been building additional
capacity, but we now expect to both grow sales strongly and expand dubbing
margins.
The record levels of investment across the entertainment industry in new
original content is creating unprecedented demand for localisation and media
services. For some services and languages, this is already exposing shortages
in capacity that are prompting buyers to place orders with extended notice
periods. We expect that this will result in improving visibility of revenues
during FY23.
ZOO's scalable and efficient technology-enabled services place the company
well to capitalise on the industry's surplus demand. Consequently, the Board
remains confident of continuing to deliver strong growth in the year ahead.
Stuart Green
Chief Executive Officer
FINANCIAL REVIEW
Introduction
The last financial year has been truly transformative for the Group as we have
laid the financial foundations to truly scale the business to compete with the
largest suppliers to the global localisation market. In April 2021 we
completed a fundraise injecting $10.1 million of cash into the business. This
has allowed us to expand our global footprint through organic growth and also
taking strategic stakes in companies operating in the significant media
markets of the world. In September 2021 the 7.5% unsecured convertible loan
note stock was redeemed reducing future liabilities by $3.5 million and
eliminating future interest payments of roughly $0.3 million per annum. The
financial performance in the year has reinforced the financial strength of the
business with an operating profit of $3.1 million contributing to Net Assets
growing to $26.2 million (FY21: $2.8 million).
Revenue
The Company achieved revenue growth of 78% in the financial year ended 31
March 2022, with total revenues of $70.4 million compared to $39.5 million in
FY21. This reflects the success of our strategy to focus on being an
end-to-end supplier of localisation and media services to the global
entertainment streaming providers. As our customers concentrate on their
international launches, we have increased our capacity to support the
expansion in work required for both the initial launch and the ongoing
pipeline of new work required to grow their subscriber bases.
Most of the Group's operations are in the United States, where revenues were
up 80% at $61.2 million. The balance of work was performed in Europe which
grew by 67% to $9.2 million. The split in geographical production illustrates
the international launches of US-based streaming services.
In FY22 we experienced greater customer concentration with the revenue
contribution from our largest client increasing to 78% of sales as a
consequence of their international expansion being ahead of their US
competitors (FY21: 72%). The second largest customer accounted for 6%, up from
4% last year. These two contracts are expected to continue long-term due to
the close relationship and technology integration achieved by ZOO.
We report two revenue segments: media production and software solutions.
The media production segment has two revenue streams: localisation and media
services. Media localisation revenues increased by 108% in the year to $42.2
million, as the industry came out of the global pandemic and production of new
titles returned to normal levels. As other US streaming services launch their
international services and our expanded dubbing service gains traction, we
expect strong future growth in revenues.
Media services revenues increased by 51% as we launched new services including
mastering and continued to support further international launches by our
biggest customer.
Software solutions, the segment that has been a reducing proportion of our
business, decreased by 1% in the year to $1.8 million. We believe this segment
has another two years before it will reduce significantly.
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 a table of performance by our two key
reporting segments. This shows that overall gross profit increased to $22.1
million in FY22 from $13.6 million in FY21, an increase of 63%.
Media localisation contribution grew in the year from $2.9 million to $9.2
million, an increase of 217% driven by the revenue growth in both subtitling
and dubbing. The growth in contribution of this stream was higher than that of
the revenue as the significant revenue growth contributed to higher
utilisation of our staff. The contribution percentage of 22% still reflects
our investment in people to expand capacity and will trend upwards in future
years.
Media services contribution grew to $15.3 million up 35% on last year. The
contribution from this revenue stream of 58% was lower than the previous
year's margin of 65%, and this is due to the mix of services favouring
activities that require a high level of translation services that have a
slightly lower gross margin.
Software solution segment contribution held steady at 93% in the year.
Overall gross profit increased by 62% to $22.1 million compared to $13.6
million in FY21. This represents a gross profit margin of 31%, down from 35%
last year. The deterioration is due to a higher proportion of revenues coming
from dubbing and metadata services with a lower gross margin than the
mainstream media services that were the dominant revenue stream in FY21.
Other operating expenses
Operational fixed costs, which are defined as operating expenses less
share-based payments, depreciation, and amortisation, have increased by 50% in
the year as we invested heavily in people and IT to support our growth plans.
Overall, operating expenses increased to $19.2 million, including share-based
payments, depreciation, and amortisation and property costs of $1.0 million
under IFRS 16. The 49% increase in operating expenses is explained by the
above, higher depreciation and amortisation costs, due to the expansion of
office space and a provision for an onerous lease and the increase in R&D.
Finance costs
The main component of the Group's finance costs relates to the conversion into
equity of 7.5% convertible loan note stock as they matured in the year. This
gave rise to a final non-cash charge relating to the revaluation of the loan
stock on maturity which totalled $1.6 million. Interest on the principal in
the year was $0.2 million, down from $0.3 million in FY21. The other component
of finance costs is non-cash items, relating to the Right of Use asset
totalling $0.2 million calculated for IFRS16 purposes.
Despite the non-cash accounting entries, above, the profit before tax for the
year ended March 2022 was $1.1 million compared to a loss of $3.6 million for
FY21.
As a result of the increase in revenues and a slight leveraging of our costs,
the operating profit of $3.1 million is significantly better than the profit
last year of $1.0 million. On the Company's preferred measure of
profitability, being EBITDA before share-based payments, the profit was $8.3
million, up from $4.5 million in FY21, an increase of 84%.The Group has
reviewed the recent profitability of its US subsidiary and the expected growth
in profits over the next 2 years and has concluded that it is appropriate to
include a deferred tax asset of $1.3 million in this years results to reflect
the probable utilization of unused tax losses in the US subsidiary.
New equity raise
In April 2021 we completed a 10% placing of new equity raising a gross $10.1
million. This money has been used to accelerate our international growth
brought about by the favourable market conditions. The details of the placing
are that the Company raised gross proceeds of £7.4 million ($10.1 million)
through the oversubscribed placing of 7,454,727 Ordinary Shares with certain
existing and new institutional and other investors at a price of 100 pence
per New Ordinary Share. The shares were admitted to trading on 6 April 2021.
Statement of financial position
Non-current assets more than doubled in the period which is explained by three
strategic investments. Firstly, we invested in new premises in Sheffield to
accommodate the significant increase in headcount in the past two years and
also to provide expansion for the next ten years. This investment included
$2.1 million in leasehold improvements and $8.0 million increase in the ROU
asset. Secondly, we invested $2.3 million in computer equipment to expand our
production capacity and to support the uplift in staff. Thirdly, we invested
$4.3 million in international companies to expand our reach in key
geographical locations. This involved acquiring 100% of Vista India, 35% of
Vista USA, 51% of Whatsub Pro in South Korea and 20% of ARES in Turkey. In
addition, the deferred tax asset has been increased to reflect the probability
of utilising tax losses in the US over the next two years.
The capitalisation of research and development costs increased by 31% to $1.7
million as we accelerated the product roadmap to support customer requirements
and upgrade our internal production systems. This also increased the
depreciation charge resulting in the balance sheet asset increasing by only 1%
to $2.6 million.
Trade and other receivables have increased 211% compared to last year to $26.0
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. The
increase still only represents 88 debtor days and the majority of the balance
has been received in quarter one of FY23. Contract assets which represent work
in progress on customer projects increased 67% to $3.6 million reflecting the
increased activity in quarter four.
Current borrowings have decreased from $9.5m to $1.3 million (excluding lease
liabilities). This is due to the conversion of the 7.5% convertible loan stock
in September 2021 into equity which eliminated the loan liability and also
eliminated the embedded derivative.
Current liabilities have grown significantly in the period due to the high
level of sales in quarter four which has resulted in both trade payables and
accruals increasing to support the cost of sales figure. In addition, the
year-end bonus accrual has increased to $1.7 million (FY21: 0.8 million).
Cash and cash equivalents of $6.0 million at year end (FY21: $2.9 million)
were up 107% as a result of the proceeds from the fundraise not having been
completely invested in the capacity-increasing projects.
Non-current liabilities increased significantly in the year due to the
increase in the "right to use" liability as our property leases reflected the
long-term commitments arranged in the year in both Sheffield and Los Angeles.
The lease in Sheffield runs for 10 years and the new lease in Los Angeles for
6 years. Non-current leases increased from $1.8 million to $8.0 million as at
31 March 2022.
Consolidated statement of cash flows and going concern
Net cash generated from operating activities was $5.2 million, down from $6.8
million in FY21. The drop of $1.6 million is attributable to the increase in
trade receivables compared to last year only being offset by the increase in
trade payables and the increase in the operating profit. The inflow from
operating activities was more than offset by a $6.4 million increase in
investing activities, which included an additional $2.1 million spent on
property, plant and machinery and the investment in international expansion of
$3.9 million. These outflows were offset by the equity fundraise of
$9.6 million that closed in April 2021.
Going forward the business remains confident that it has sufficient headroom
to trade for the foreseeable future, as the recent completion of a $5 million
invoice discounting facility from HSBC gives us the working capital headroom
for the next phase of our expansion. This is further validated by the strong
start to FY23, with record orders which we expect to deliver another operating
profit for FY23 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.
By order of the Board
Phillip Blundell
Chief Financial Officer and Secretary
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2022
2022
2021
Note $000 $000
Revenue 70,403 39,525
Cost of sales (48,296) (25,882)
Gross Profit 22,107 13,643
Other operating income 204 188
Other operating expenses (19,165) (12,869)
Operating profit 3,146 962
Analysed as:
EBITDA before share based payments 8,326 4,534
Share based payments (513) (649)
Depreciation (net of grant) and impairment (3,008) (1,702)
Amortisation (1,659) (1,221)
3,146 962
Exchange loss on borrowings (5) (359)
Fair value movement on embedded derivative (1,567) (3,474)
Finance cost (519) (700)
Total finance costs (2,091) (4,533)
Profit/(loss) before taxation 1,055 (3,571)
Tax credit 1,573 408
Profit/(loss) and total comprehensive income for the year attributable to 2,628 (3,163)
equity holders of the parent
Profit/(loss) per share 3
basic 3.10 cents (4.24) cents
diluted 2.80 cents (4.24) cents
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2022
2022 2021
Note $000 $000
ASSETS
Non-current assets
Property, plant and equipment 13,317 4,362
Intangible assets 9,514 6,812
Equity accounted investments 4,154 -
Deferred income tax assets 1,846 486
28,831 11,660
Current assets
Trade and other receivables 25,992 8,063
Contract assets 3,647 2,178
Cash and cash equivalents 5,962 2,949
35,601 13,190
Total assets 64,432 24,850
LIABILITIES
Current liabilities
Trade and other payables (27,638) (9,955)
Contract liabilities (774) (813)
Borrowings 6 (1,313) (5,032)
Separable embedded derivative - (4,452)
(29,725) (20,252)
Non-current liabilities
Borrowings 6 (7,830) (1,759)
Other payables (619) -
(8,449) (1,759)
Total liabilities (38,174) (22,011)
Net assets 26,258 2,839
EQUITY
Equity attributable to equity holders of the parent
Called up share capital 5 1,174 1,010
Share premium reserve 55,665 41,003
Foreign exchange translation reserve (992) (997)
Convertible loan note reserve 5,471 42
Share option reserve 2,619 2,085
Capital redemption reserve 6,753 6,753
Interest in own shares (49) (46)
Other reserves 12,320 12,320
Accumulated losses (56,703) (59,331)
Attributable to equity holders 26,258 2,839
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2022
Ordinary shares Share premium Foreign exchange translation reserve Convertible loan note reserve Share option reserve Capital redemption reserve Other reserves Accumulated losses Interest in own shares Total
reserve
$000 $000 $000 $000 $000 $000 $000 $000 $000 $000
Balance at 1 April 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 - - - - - - - (3,163) - (3,163)
Balance at 31 March 2021 1,010 41,003 (997) 42 2,085 6,753 12,320 (59,331) (46) 2,839
Issue of Share Capital 164 14,662 - 5,429 - - - - - 20,255
Share options exercised - - - - 21 - - - - 21
Share based payments - - - - 513 - - - - 513
Transactions with owners 164 14,662 - 5,429 534 - - - - 20,789
Foreign exchange translation adjustment - - 5 - - - - - (3) 2
Profit for the year - - - - - - - 2,628 - 2,628
Total comprehensive income for the year - - 5 - - - - 2,628 (3) 2,628
Balance at 31 March 2022 1,174 55,665 (992) 5,471 2,619 6,753 12,320 (56,703) (49) 26,258
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 March 2022
2022 2021
Note $000 $000
Cash flows from operating activities
Operating profit for the year 3,146 962
Depreciation and impairment 3,022 1,715
Amortisation and impairment 1,659 1,221
Share based payments 513 649
Changes in working capital:
Increases in trade and other receivables (18,453) (918)
Increases in trade and other payables 15,337 2,719
Cash flow from operations 5,224 6,348
Tax received 258 408
Net cash inflow from operating activities 5,482 6,756
Investing activities
Purchase of intangible assets (58) (67)
Capitalised development costs (1,675) (1,274)
Purchase of Investments (953) -
Acquisition of subsidiaries (3,000) -
Purchase of property, plant and equipment (4,377) (2,290)
Net cash outflow from investing activities (10,063) (3,631)
Cash flows from financing activities
Repayment of borrowings (531) (982)
Proceeds from borrowings - 1,043
Proceeds from fund raise 10,107 -
Repayment of principal under lease liabilities (1,268) (1,102)
Finance cost (348) (414)
Share options exercised 21 61
Share issue costs (551) -
Issue of share capital 164 -
Net cash inflow/(outflow) from financing 7,594 (1,394)
Net increase/(decrease) in cash and cash equivalents 3,013 1,731
Cash and cash equivalents at the beginning of the year 2,949 1,218
Cash and cash equivalents at the end of the year 4 5,962 2,949
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 March 2022
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 Floor 2 Castle House, Angel Street,
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 UK adopted
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 conformity 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 2024 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 HSBC
Bank which provides invoice financing of up to $5m against US clients invoices
raised by ZOO Digital Production LLC. This facility is in place until 1 July
2023.
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 Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash Flows and the Notes to the Financial Statements for the year
ended 31 March 2022 have been extracted from the Group's statutory financial
statements upon which (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 2021 did not contain
statements under section 498(2) of the Companies Act 2006. The statutory
financial statements for the year ended 31 March 2021 have been delivered to
the Registrar of Companies. The 31 March 2022 accounts were approved by the
directors on 6 July 2022, but have not yet been delivered to the Registrar of
Companies.
New and revised standards that are effective for annual periods beginning on
or after 1 April 2021
There are no new or revised standards that will have a material impact on the
Group.
Standards and interpretations in issue at 31 March 2022 but not yet effective
and have not yet been adopted early by the Group
At the date of authorisation of these financial statements, there are no new,
but not yet effective, standard, amendments to existing standards, or
interpretations that have been published by the IASB that will have a material
impact on these 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.
The Group applies the acquisition method when accounting for business
combinations. The consideration transferred by the Group to obtain control of
a subsidiary is calculated as the sum of the acquisition-date fair values of
assets transferred, liabilities incurred and equity interests issued the
Group, which includes the fair value of any asset or liability arising from a
contingent consideration arrangement. Acquisition costs are expensed as
incurred.
Assets acquired and liabilities assumed are generally measured at their
acquisition date fair values.
2.3 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.
2.4 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 2022 was 0.762 (2021:
0.726).
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/(loss) per share
Earnings per share is calculated by dividing the profit/(loss) attributable to
equity holders of the company by the weighted average number of ordinary
shares in issue during the year.
Basic and Diluted
2022 2021
$000 $000
Profit/(loss) for the financial year 2,628 (3,163)
2022 2021
Number of shares Number of shares
Weighted average number of shares for basic & diluted (loss)/profit per
share
Basic 85,037,636 74,597,495
Effect of dilutive potential ordinary shares:
Convertible loan note - -
Share options 8,585,215 -
Diluted 93,622,851 74,597,495
.
2022 2021
Cents Cents
Basic 3.10 (4.24)
Diluted 2.80 (4.24)
The convertible debt has not been included in the 2021 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 $12,969,000 (2021: $2,290,000) of which $8,495,000
(2021: $1,043,000) was acquired by the means of a lease.
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
2022 2021 2022 2021
$000 $000 $000 $000
Cash on hand and balances with banks 5,962 2,949 30 89
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
2022 2021
$000 $000
Allotted, called-up and fully paid
88,335,079 (2021: 74,837,271) ordinary shares of 1p each 1,174 1,010
Reconciliation of the number of ordinary shares outstanding:
Opening balance 74,837,271 74,547,271
Shares issued 28,022 -
Vista Acquisition 636,100 -
Conversion of loan note 5,336,459 -
Fundraise 7,454,727 -
Share options exercised 42,500 290,000
Closing balance 88,335,079 74,837,271
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 converted 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
2022 2021 2022 2021
$000 $000 $000 $000
Non-current
Lease liabilities 7,830 1,759 2,527 -
7,830 1,759 2,527 -
Current
7.5% Unsecured convertible loan note stock - 3,526 - 3,526
Amounts owed to subsidiary undertakings - - 9,701 9,701
Lease liabilities 1,313 1,506 94 2,196
Borrowings 1,313 5,032 9,795 13,343
Separable embedded derivative - 4,452 - 4,452
Total borrowings 9,143 11,243 12,322 17,795
The group has recently signed with HSBC Bank US to provide an invoice
financing facility of up to $5.0 million against US client invoices raised by
ZOO Digital Production LLC. The facility is in place until the renew date of
30 June 2023
The UK banking partner, HSBC, continues to provide an overdraft facility of
£250,000. The principal outstanding at 31 March 2022 was nil (2021: nil).
This line of funding has been secured as a floating charge over the assets of
the UK companies and automatically renews on an annual basis.
In September and November 2021, the 7.5% unsecured convertible loan stock was
redeemed by the issue of 5,336,459 new ordinary shares in ZOO Digital Group
plc at a conversion price of 48p. This means that both convertible loan notes
under CLN1, have been redeemed in full and the Group is free of any
outstanding liability and future interest payments.
Lease liabilities
Lease liabilities are payable as follows:
At 31 March 2022 Group only Future minimum lease payments Interest Present value of minimum lease payments
$000 $000 $000
Less than one year 1,868 (555) 1,313
Between one and five years 9,394 (1,564) 7,830
11,262 (2,119) 9,143
The lease periods range from between 1 and 10 years, with options to purchase
the asset at the end of the term if applicable. Finance lease liabilities are
secured against the leased assets.
Annual report and Accounts
Copies of the Report & Accounts for the year ended 31 March 2022 are
available to view on the Group's website www.zoodigital.com
(http://www.zoodigital.com/)
The Report & Accounts for the year ended 31 March 2022, together with the
notice of annual general meeting, are expected to be posted to shareholders
during August 2022; an announcement to notify shareholders of this will be
made in due course. Further copies will be available from the Company's
Registered Office: 2(nd) Floor, Castle House, Angel Street, Sheffield S3 8LN.
Annual General Meeting
The Annual General Meeting of the Group will be held at
ZOO's Sheffield offices on 20 September 2022 at 4pm.
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