News

ZOO Digital Group plc, the provider of subtitling and digital distribution services for the global entertainment industry, today announces its audited financial results for the year ended 31 March 2017.

HIGHLIGHTS

Operational highlights

  • Large increase in revenue and client numbers, with dependency on the single largest client reduced to 44% of total despite an increase in that client’s spend with ZOO
  • Increasing volume of over the top (OTT) consumption reducing seasonal weighting
  • Approved vendor status for a number of large content creators and key digital platforms
  • Critical acclaim for new product launches which should lead to additional revenue streams

Key Financials

  • Revenue increased by 42% to $16.5 million (2016: $11.6 million)
  • EBITDA showed a significant improvement to $1.8 million (2016: $0.2 million)
  • Profit Before Tax of $0.5 million (2016: loss of $1.5 million)

Post Period End

  • Placing and Subscription raising £2.58 million with new and existing institutional shareholders
  • £1.1 million of debt capitalised
  • Extension of the maturity date of the remaining convertible loan note

Copies of the Report and Accounts for the year ended 31 March 2017 are available to view on the Group's website.

Stuart Green, CEO of ZOO Digital, commented, “ZOO made considerable progress with a strongly improved financial performance driven by the strength of our differentiated services enabled by our innovative cloud technology. The improvement experienced through the second half of the year has carried on into the new financial year and the current pipeline of work is considerably stronger than at the corresponding prior period.

“The Group has a more diverse client base and is becoming increasingly recognised as an innovative provider of vital solutions for an industry in which distribution channels and needs have been fundamentally transformed.  With approved vendor status for a number of key digital platforms, ZOO is an obvious choice for content owners looking to maximise their reach.

“The Group has a stronger balance sheet and the increased funding that it has secured, along with an enlarged sales team, should enable it to take advantage of the market opportunity. With continuing momentum for the Group’s existing tools and a number of exciting new solutions to clients’ localisation and security needs, the board looks to the current year and beyond with confidence.”

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. 

CHAIRMAN’S STATEMENT

The Board is very pleased with the progress that continues to be made by the Group. The large increase in revenue, significant expansion of the client base and improvement in profitability described in this report are very tangible signs of the transformation that has been accomplished by management during the last few years.

ZOO is now positioned as one of the most innovative providers of software-driven localisation services to the major producers and distributors of TV and movie content around the world. Demand for our services is growing rapidly, driven by the increase in digital entertainment content, the expansion of distribution channels, and disruptive innovation in the sector by vendors such as Amazon, Hulu, Apple and Google. The board is therefore delighted with the support provided by our stakeholders post year end in May 2017 which has enabled the Group to reduce significantly its debt and increase its cash resources, thereby equipping us to capitalise on this exciting growth opportunity.

Roger D Jeynes
Chairman

STRATEGIC REPORT

Operational review

Introduction

I am pleased to be able to report that the year under review was one of considerable progress for ZOO, both from a financial and an operational perspective. Revenue for the year increased by 42% to $16.5 million (2016: $11.6 million) and earnings before interest, tax, depreciation and amortisation (EBITDA) showed a significant improvement to $1.8 million (2016: $0.2 million). The Group pleasingly returned to profit at the pre-tax level of $0.5 million from a loss of $1.5 million in the prior year.

This follows on from the success of winning new clients in the previous year and is the result of those wins starting to have an effect on both the top and bottom lines. As previously mentioned, the Group’s client list now includes all of the six major Hollywood studios as well as other leading producers of feature film and episodic TV programmes in North America and Europe. Whilst our largest client increased its total spend with ZOO during the year, it reduced as a percentage of total sales to 44% (2016: 60%), a trend that the Directors would expect to continue given the current sales momentum with a more diverse client base. This is due to increased revenues from other existing clients and a growth of 25% in the number of clients invoiced during the year.

Key Drivers

The bulk of the growth came from localisation services, of which subtitling remains a key tenet. ZOO’s services are delivered using its innovative cloud technology and allow TV and movie content to be subtitled in any language and prepared for sale with all major online retailers as well as on optical disc. The volume of work on physical products, namely DVD and Blu-ray, increased in the year but the main driver was undoubtedly the growth in content for sale through digital platforms now widely available from a growing number of “Over-The-Top” (OTT) providers. This follows Apple’s selection of ZOO in February 2016 as an iTunes aggregation service provider for TV series and, in May 2016, the award of approved vendor status by another of the largest online entertainment retailers in the industry.

The transition towards digital consumption of entertainment has been the greatest single change to the industry in modern times and now that this form of delivery has been widely welcomed and adopted by the mass market it is difficult to envisage such a cultural change again any time soon. There are several advantages for ZOO in this regard. Firstly, it is easier for content owners to reach a much wider audience through digital rather than physical products as the supply chain is much simplified. Consequently, content has become commercially available in more and more geographies and as the territorial reach increases so does the need for subtitling into additional languages. A TV series that was previously translated into fewer than ten major European languages will now potentially be translated into 50 or more, which increases the scope of work for ZOO.  A second benefit has been the dilution of seasonal weighting in the business. Preparation of products for physical distribution is typically geared towards release at specific times in the calendar when retailers experience increased footfall and gifting seasons such as Thanksgiving and Christmas. This means that content owners place the majority of orders during the summer months, and therefore sales for ZOO have in the past been weighted more towards the first half of the year than the second. Our experience in the year under review, where revenues in the second half of the financial year were stronger than in the first, is in part a reflection of the fact that digital consumption continues at a similar pace throughout the calendar year and there is therefore reduced seasonal fluctuation in the demand for our services.

Investment in products and people

The improved financial performance is the result of investments made in previous years in the Group’s proprietary technology platforms. This focus on R&D has continued with further resources for the continued development of existing platforms and investment in two new propositions: ZOOdubs and ZOOscreen.

With a strategic approach that parallels that of our subtitling platform, ZOOdubs is designed to improve the dubbing workflow for TV and movie content owners by accelerating time-to-market, enhancing quality and enabling greater affordability in the creation of localised materials that are essential for fulfilling regional consumer expectations across the world. Officially launched at the National Association of Broadcasters (“NAB”) event in the USA in 2017, ZOOdubs was awarded a ‘best of Show’ accolade. Although not planned to be formally released for revenue generation until late 2017, the level of interest shown from clients and prospects at NAB was highly encouraging and market data reaffirms the Board’s belief in its potential to lead to significant revenues. According to research in June 2017 from the Media & Entertainment Services Alliance (MESA) Europe, the Total EMEA market in 2016 for entertainment localisation (subtitling, captioning and dubbing) was estimated at around $2 billion, with 70% of that attributable to dubbing services. The market value is forecast to grow by 8%-10% per annum, primarily due to two factors:

  • the overall growth in OTT consumption (streaming video on demand and download services); and
  • the increase in geographical expansion.

ZOOscreen is designed to stream and showcase video materials and screening copies securely and privately to clients, voice actors, prospects and judging panels. This system, which is an essential building block of our dubbing workflow, is currently in trials with major film studios and remains on course to be released in 2017. Although adoption of this platform will require the approval of a number industry groups and security protocols, client feedback on ZOOscreen has so far been favourable and has confirmed the Board's belief that the system fulfils an important requirement in the market.

With both of these new platforms the Board believes that the strength of its existing relationships and its increasing reputation as a technological innovator in the industry will help it to cross sell these services into its client base as well as attracting additional new clients. In February 2017, ZOO was named by the organisers of TVConnect, a leading industry event for the entertainment industry, as one of the top ten innovators of 2016, alongside major global brands such as Amazon, Sky, Google, BBC and Apple and was the only company involved in localisation amongst the 25 names recognised.

To support the sales initiative, Tony Ferkranus has been appointed as Vice President of Sales for the Americas to focus on developing ZOO's client base in key territories across the USA, Canada and South America. Tony previously held the same position at both Visual Data Media Services and Deluxe Entertainment.

In the UK, the Group moved into new headquarters in Sheffield, primarily to meet the stringent content security standards required by major US studios. It is pleasing to announce that ZOO has been certified as compliant with the Content Protection and Security standard administered by the Content Delivery and Security Association (CDSA) which clears a hurdle to securing further work.

I would like to extend my sincere thanks to all members of the ZOO team in the UK and US for their innovative spirit, can-do attitude and teamwork which have been pivotal to achieving the significant progress that the Group has made over the period.

Affiliate Partnerships

The affiliate partner network has continued to expand throughout the year and currently consists of 10 partners in emerging markets, with further additions expected to be announced in the coming months. This network has been formed to meet the evolving needs of the entertainment industry, offering global online retailers a local partner in key territories. Each member will benefit from ZOO's cloud computing systems to enable efficient collaboration and provide localisation and digital distribution services. ZOO expects to receive licensing income and access to resources in each territory.

Fundraising and Conversion of Debt

Post the period end, in May 2017, the Group raised £2.6 million of gross proceeds from the Placing and Subscription of New Ordinary Shares, whilst also further strengthening the Group’s balance sheet by capitalising £1.1 million of debt. On behalf of the Board I would like to welcome the new shareholders to the register at an exciting time for ZOO and also thank existing holders for their continued support. The additional funds will enable the Group to take on further human resources to meet the demand for its subtitling services, particularly in the field of translation, and progress is already being made on that front.

Outlook and Prospects

The improvement experienced through the second half of the year has carried on into the new financial year and the current pipeline of work is considerably stronger than at the corresponding prior period.

The Group has a more diverse client base and is becoming increasingly recognised as an innovative provider of vital solutions for an industry in which distribution channels and needs have been fundamentally transformed.  With approved vendor status for a number of key digital platforms, ZOO is an obvious choice for content owners looking to maximise their reach.

The Group has a stronger balance sheet and the increased funding that it has secured, along with an improved sales team, will enable it to take advantage of the market opportunity. With continuing momentum for the Group’s existing tools and a number of exciting new solutions to clients’ localisation and security needs, the Board looks to the current year and beyond with confidence.

Stuart Green
Chief Executive Officer