Final Results for the year ended 31 March 2014

29 August 2014

ZOO DIGITAL GROUP PLC

("ZOO" or "the Group")

 

FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2014

 

ZOO Digital Group plc, the provider of cloud-based media production services and software to global creative organisations, today announces its financial results for the year ended 31 March 2014.

HIGHLIGHTS

 

Operational highlights

 

·      Launch of the ZOOsubs subtitling and captioning services delivered using proprietary Cloud-based systems.

·      Products and services more focused and differentiated, serving a greatly diversified client base.

·      Now serving five of the six major Hollywood studios either directly or indirectly through intermediaries, plus second tier film and TV producers.

·      Monthly billings increased in the second half, a trend which has continued into the new year.

·      Agreed an extension of the term of £1.77m convertible loan notes by four years to October 2017.

 

 

Key Financials

·      Revenues of $9.6m (2013: $10.4m)

·      Adjusted EBITDA loss of $0.4m (2013:  Profit of $0.7m)*

·      Adjusted operating loss of $2.1m (2013:  $0.9m)*

·      Year-end cash balance $0.1m (2013: $1.0m)

 

* Adjusted EBITDA and operating loss are stated before share based payments of $0.03m (2013: $0.1m).

 

 

 

Stuart Green, CEO of ZOO Digital, commented,

"At the time of our interim results I stated that we had succeeded in creating a more flexible and focused business but that the Board's primary aim was to build sustainable growth in revenues. I am glad to report that I believe ZOO is well on this path. Billings in the second half were an improvement on the first half, a trend which I am pleased to confirm has continued into the new financial year.

 

"The Company has succeeded in diversifying both its client base and revenue mix as well as reducing its exposure to the production of physical media. With the ability to deliver across all formats of digital content and increasing customer diversification, the Board believes that we have the right platform for sustainable growth and, as we look forward, are cautiously optimistic about our prospects."

 

 

For further enquiries please contact:

 

ZOO Digital Group plc	0114 241 3700
Stuart Green - Chief Executive Officer
Helen Gilder - Group Finance Director
FinnCap	020 7220 0500
Ed Frisby / Henrik Persson
Newgate Threadneedle	020 7653 9850
Josh Royston / Hilary Millar

 

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 year under review has been a transitional one for the Group and I am pleased to report that it has ended with ZOO having a more focused set of differentiated products and services, increased sales and marketing resources, and a greatly diversified customer base. We have made the difficult transition from traditional software licensing and a heavy dependence on one major customer to a business model where a range of different customers use our software and services, and we are pleased at the momentum now building in these continuing revenue streams.  

 

The main focus of the year has been on the development and deployment of ZOOsubs, the Group's subtitling and captioning services delivered using our proprietary cloud-based production and management systems. ZOOsubs was developed in response to feedback from customers who wished to create and manage localisation services through our technology.  Our offering now includes subtitling, captioning and dubbing services - all huge markets which can be efficiently addressed by our technology platforms. It has been particularly pleasing to see the early enthusiasm for these differentiated services translate into live deployments serving five of the six major Hollywood film studios, as well as several tier-two studios and other corporations.

 

One of the real strengths of ZOOsubs is that it delivers localisation services across all of the formats of digital content delivery, not just in our traditional area of filmed entertainment. These include physical media, broadcast, streaming and download. The Board believes that this will position the Group well for sustainable growth and shelter us from the decline in the production of physical media for filmed entertainment.

 

Revenues in the second half of the year were stronger than in the first half with a total for the year of $9.6m, which reflects the fact that monthly billings increased through the second half. I am pleased to report that this trend has continued into the new financial year as our ZOOsubs and ZOOcore systems achieve deeper and wider deployments in a number of different markets around the world.

 

 

Roger D Jeynes

Chairman

 

 

 

 

 

 

OPERATIONAL REVIEW

Introduction

At the time of the interim results I stated that we had succeeded in creating a more flexible and focused business but that the Board's primary aim was to build sustainable growth in revenues. I am glad to report that I believe ZOO is well on this path. Revenues for the year were $9.6m, with the second half of the year showing an improvement on the first half, whilst the adjusted EBITDA* loss of $0.4m follows a period of significant investment in our new subtitling and dubbing propositions, particularly ZOOsubs, the Group's innovative service delivered through our proprietary cloud-based subtitle production and management system.

The Company also concluded the extension of its convertible loan notes of £1.77m by four years to 31 October 2017, with all the other terms of the notes remaining unchanged. This support from our loan note holders enables us to build on the current momentum within the business unhindered, and on behalf of the Board, I would like to thank the loan note holders for their continued support.

This momentum has been created by the Board's focus on its key strategic goals, including further development and deployment of ZOOsubs and ZOOcore.

ZOOsubs

Progress with ZOOsubs has continued in line with the Board's expectations. At the half year stage, three of the six major Hollywood studios were utilising ZOO's subtitling production and management system and I am pleased to report that this had increased to five, either directly or indirectly, as well as a growing number of second tier film and television makers shortly following the end of the financial year. As well as these new client additions, ZOOsubs has also continued to see increased volumes of throughput from existing clients.

Use of ZOOsubs by our clients is biased more towards recurring outsourced delivery of services which use our software, rather than per-user software licensing. Although this results in lower initial payments from clients, it provides much greater visibility and sustainability of the Company's revenues. The Board is pleased to report that the revenue run rate from ZOOsubs services clients continues to develop, providing a strong trajectory of future growth and driving further diversification in client mix, a trend which the Board expects to continue in the new financial year.

ZOOcore

As well as an essential component of ZOO's subtitling and captioning services and a defining feature of other production services we provide, ZOOcore, the cloud-based workflow and collaboration system continues to be deployed as a stand-alone project management solution. This technology platform enables customers to track creative processes and projects from start to finish. In the case of our subtitling services, each client is provided with a customised ZOOcore system through which to submit localisation work orders and track them through all stages until completion on a 24/7 basis. Prospects for all parts of this business remain strong and continue to contribute to ZOO's recurring revenues.

Staff

On behalf of the Board I would like to thank all of our staff for their continued contribution and hard work over the past year and also the growing community of language specialists who work closely with us.

Outlook

The Board's focus on ZOOsubs and ZOOcore has already succeeded in diversifying the Company's client base and revenue mix and has placed the Group in a strong position to provide increasing volumes of localisation services across all delivery platforms.

As well as showing increased revenues in the second half of the year over the first half, the Board is pleased to announce that the trend of increasing monthly billings has continued into the new financial year.

 

Stuart A Green
CEO

 

FINANCIAL REVIEW

The financial results for the year illustrate the Group's transition from being a supplier of traditional software licenses towards supplying customers with a service on a recurring basis.

 

Consequently, where we had previously tended to report stronger results in the first half of the year, the second half of this year has instead been comparable, if slightly ahead, of the first with turnover at $4.9m compared to $4.7m in the first half. Our variable cost base is shifting accordingly too, with gross margin achieved in the second half being slightly lower than the first at $3.7m compared to $4.2m, reflecting the increased use of outsourced language translation as the ZOOsubs business has gained momentum.

 

Other operating costs are higher at $4.4m compared to $3.9m, due predominantly to an expansion of the sales and marketing resource which is bearing fruit in regards broadening our customer base and growing revenue streams.

 

The customer diversification was much improved in the year with the dependence on the largest customer reducing from 87% in the prior year to 68% in the current year, a downward trend which is continuing into the new financial year.  The Group is now working with five out of the six major Hollywood studios, compared to three in the prior year, as well as several tier-two studios and other corporations.  Although customer relationships continue to be excellent, it has been a key focus to reduce the concentration of our revenues from particular customers, and this significant progress is very pleasing. 

 

As would be expected for a company transitioning from a license fee model towards a service model, our working capital resources have been constrained during the year. We have taken steps during the year, including arranging an external invoice financing facility of up to $1.5m and, as previously disclosed, an extension to the standby loan arrangement with the wife of Dr. Stuart Green, to provide cover for fluctuations in our working capital requirements. We are also pleased that the extension in the term of our convertible loan notes to October 2017 is allowing us more time to complete the transition of the business and to capitalise on the achievements of the past year.

 

 

Helen P Gilder

Group Finance Director

FINANCIAL INFORMATION

 

The financial information set out here for the year ended 31 March 2014 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 2014 were approved by the directors on 27 August 2014, 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 2014

 

		2014	2013
	Note	$000	$000
Revenue		9,562	10,363
Cost of sales		(1,708)	(745)
Gross Profit		7,854	9,618
Other operating income		34	293
Other operating expenses		(8,383)	(9,278)
(Loss)/ profit before interest, tax, depreciation and amortisation		(495)	633
Depreciation		(279)	(260)
Amortisation and impairment		(1,317)	(1,425)
Total operating expenses		(9,979)	(10,963)
Operating loss		(2,091)	(1,052)
Exchange (losses)/ gains on borrowings		(254)	142
Finance cost		(332)	(286)
Total finance cost		(586)	(144)
Loss before taxation		(2,677)	(1,196)
Tax on loss		(15)	106
Loss and total comprehensive income  for the year attributable to equity holders of the parent		(2,692)	(1,090)

 

 

 

 

Loss per share	3
basic		(8.24) cents	(3.34) cents
diluted		(8.24) cents	(3.34) cents

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 March 2014

 

		2014		2013
	Note	$000		$000
ASSETS
Non-Current Assets
Property, plant and equipment		509		419
Intangible assets		8,598		9,260
Deferred income tax assets		486		486
		9,593		10,165
Current Assets
Trade and other receivables		3,207		2,103
Cash and cash equivalents	4	122		960
		3,329		3,063
Total Assets		12,922		13,228
LIABILITIES
Current Liabilities
Trade and other payables		(2,971)		(3,014)
Borrowings	6	(147)		(2,864)
		(3,118)		(5,878)
Non-current Liabilities
Borrowings	6	(5,238)		(115)
Total Liabilities		(8,356)		(5,993)
Net Assets		4,566		7,235
EQUITY
Equity attributable to equity holders of the parent
Called up share capital	5	7,236		7,236
Share premium reserve		37,014		37,014
Other reserves		12,293		12,293
Share option reserve		302		276
Warrant reserve		-		523
Convertible loan note reserve		42		42
Foreign exchange translation reserve		(992)		(992)
Accumulated losses		(51,306)		(49,138)
		4,589		7,254
Interest in own shares		(23)		(19)
Attributable to equity holders		4,566		7,235

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2014

 

	Ordinary shares	Share premium reserve	Foreign exchange translation reserve	Convertible loan note reserve	Share option reserve	Share warrant reserve	Other reserves	Accumulated losses	Interest in own shares	Total
	$000	$000	$000	$000	$000	$000	$000	$000	$000	$000
Balance at 1 April 2012	7,236	37,014	(992)	42	248	440	12,293	(48,053)	(81)	8,147
Share based payments					37	83				120
Forfeited share options					(9)			5		(4)
Purchase of own shares									(13)	(13)
Disposal of own shares									75	75
Transactions with owners					28	83		5	62	178
Loss for the year								(1,090)		(1,090)
Total comprehensive income for the year								(1,090)		(1,090)
Balance at 31 March 2013	7,236	37,014	(992)	42	276	523	12,293	(49,138)	(19)	7,235
Share based payments					29					29
Forfeited share options					(3)			1		(2)
Lapsed share warrants						(523)		523		-
Purchase of own shares									(2)	(2)
Transactions with owners					26	(523)		524	(2)	25
Foreign Exchange translation adjustment									(2)	(2)
Loss for the year								(2,692)		(2,692)
Total comprehensive income for the year								(2,692)	(2)	(2,694)
Balance at 31 March 2014	7,236	37,014	(992)	42	302	-	12,293	(51,306)	(23)	4,566

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 March 2014

 

		2014	2013
	Note	$000	$000
Cash flows from operating activities
Operating loss for the year		(2,091)	(1,052)
Depreciation		279	260
Amortisation and impairment		1,428	1,425
Share based payments		27	116
Purchase of own shares		(2)	(13)
Disposal of own shares		-	75
Disposal and de-recognition of intangible assets		-	15
Disposal of property, plant and equipment		-	3
Exchange loss on foreign operations		(2)	-
Changes in working capital:
(Increases)/ decreases in trade and other receivables		(1,104)	262
(Decreases)/ increases in trade and other payables		(43)	292
Cash flow from operations		(1,508)	1,383
Tax (paid)/ received		(15)	106
Net cash flow from operating activities		(1,523)	1,489
Investing Activities
Purchase of intangible assets		(766)	(1,213)
Purchase of property, plant and equipment		(369)	(252)
Net cash flow from investing activities		(1,135)	(1,465)
Cash flows from financing activities
Repayment of borrowings		(200)	(336)
Proceeds from borrowings		2,327	304
Finance cost		(307)	(266)
Net cash flow from financing		1,820	(298)
Net decrease in cash and cash equivalents		(838)	(274)
Cash and cash equivalents at the beginning of the year		960	1,234
Cash and cash equivalents at the end of the year	4	122	960

 

 

 

 

 

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 March 2014

 

 

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 The Tower, 2 Furnival Square, Sheffield.

 

The registered number of the company is 3858881.

 

The consolidated financial statements are presented in US dollars, the currency of the primary economic environment in which the company operates (note 2.2.1).

 

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 2017 which show a recovery from the current position and cautious growth in profitability.  In line with industry practice in this sector the directors have had informal indications from major and smaller customers 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. During the year ended 31 March 2014 the group entered into an agreement with Crestmark Bank to provide an invoice financing facility of up to $1.5m against US customers invoices raised by ZOO Digital Production LLC. This facility will be in place until 31 January 2016, with the option to continue for an additional year. The directors have forecast that the loan from this facility will be fully repaid by this date.

 

Also during the year ended 31 March 2014 Sara Green, the wife of Dr. Stuart Green, CEO of the company, provided financial support to the company with a loan of $1,015,000 (£600,000). The directors have forecast that this loan will be fully paid by 31 March 2017.

 

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.

 

 

2.2     Foreign currency translation

 

2.2.1   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 pound sterling/US dollar exchange rate at 31 March 2014 was 0.5998 (2013: 0.6577).

 

 

3.     Loss per share

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

		Basic and Diluted
		2014	2013
		$000	$000
Loss for the financial year		(2,692)	(1,090)

 

					2014	2013
					Number of shares	Number of shares
Weighted average number of shares for basic & diluted loss per share
Basic					32,660,660	32,660,660
Effect of dilutive potential ordinary shares:
Convertible loan note					3,688,542	3,688,542
Share options					2,859,411	2,634,342
Share warrants					915,231	2,673,642
Diluted					40,123,844	41,657,186

 

The basic and diluted earnings per share are the same due to the group being loss making and the average share price during the period being lower than the conversion price or exercise prices of the convertible loan note and share options and warrants.

 

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 $452,000 (2013: $279,000) of which $413,000 (2013: $224,000) was acquired by the means of finance leases.

 

Following an agreement with the loan note holders in October 2013 the term of the 7.5% Convertible loan note was extended. The remaining £1,770,500 of the £3,541,000 loan note, issued in September 2006 and amended in September 2011, will now mature on the 31 October 2017.

 

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
	2014	2013	2014	2013
	$000	$000	$000	$000
Cash on hand and balances with banks	122	960	4	3

 

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

 

5.      Share capital and reserves

 

Called up share capital

 

	2014	2013
	$000	$000
Allotted, called-up and fully paid
32,660,660 (2013: 32,660,660) ordinary shares of 15p each	7,236	7,236

 

Reconciliation of the number of shares outstanding:
Opening balance and closing balance	32,660,660	32,660,660

 

During the year the group purchased 14,400 (2013: 48,600) of its own shares through ZOO Employee Share Trust Limited at an average price of $0.11 (7p) per share. The total cost of the purchase was $1,519 (2013: $13,548).

 

 

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.
Accumulated losses	Cumulative net losses recognised in profit or loss.
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.
Share warrant reserve	Cumulative cost of share warrants issued to customers.
Other reserves	Created as part of the reverse takeover between Kazoo3D plc and ZOO Media Corporation Ltd in 2001.

 

6.     Borrowings

	Group		Company
	2014	2013	2014	2013
	$000	$000	$000	$000
Non-current
Amounts owed to subsidiary undertakings	-	-	396	-
7.5% Unsecured convertible loan note stock	2,960	-	2,960	-
Connected person loan	1,015	-	1,015	-
Other bank borrowings	920	-	-	-
Finance lease liabilities	343	115	16	-
	5,238	115	4,387	-

 

Current
7.5% Unsecured convertible loan note stock	-	2,681	-	2,681
Amounts owed to subsidiary undertakings	-	-	9,701	9,701
Finance lease liabilities	147	183	3	-
	147	2,864	9,704	12,382
Total borrowings	5,385	2,979	14,091	12,382

 

 

 

On 27 September 2006 the group issued $5,062,000 6% Unsecured convertible loan note stock which was due to mature on 31 October 2011. The underlying value of the loan stock was £3,541,000. Following an agreement with the loan note holders in August 2011 to extend 50% of the loan note instrument for a further two years, the loan note was restructured. The loan note issued, as a result of the restructure, on 6 September 2011 was $2,823,000 7.5% Unsecured convertible loan note stock and was to mature on 31 October 2013. The underlying value of the restructured loan stock was £1,770,500.

 

On 31 October 2013 the maturity of the loan note was further extended to mature on 31 October 2017.

 

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 1 ordinary share for every $0.7654 (£0.48) of principal amount of loan stock.

 

The 50% of the Unsecured convertible loan note stock which was not extended converted into 4,426,250 ordinary shares on the basis of 1 ordinary share for every $0.6378 (£0.40) of principle amount of loan stock. This differed from the original conversion terms of 1 ordinary share for every $0.7774 (£0.4875) of principle amount of loan stock. The result of the modified terms was the issue of 794,455 additional shares. The market value of these shares at the time of conversion was $507,000 (£318,000). This loss arising on the increase in the conversion ratio was debited to the income statement as a finance cost.

 

The restructured convertible loan stock has been accounted for in accordance with IAS 39 (Financial instruments: Recognition and measurement). The fair value of the convertible loan note is considered to be the carrying value.

 

During the year ended 31 March 2014 the group entered into an agreement with Crestmark Bank to provide an invoice financing facility of up to $1.5m against US customers invoices raised by ZOO Digital Production LLC. This facility will be in place until 31 January 2016, with the option to continue for an additional year. Interest is payable on a monthly basis and is charged for each day on the outstanding balance at an interest rate of 2.75% in excess of the rate shown in the Wall Street journal as the prime rate, with a minimum interest of 6%. The principle outstanding at 31 March 2014 was $920,000. This funding is secured against the US trade receivables of ZOO Digital Production LLC.

 

Also during the year ended 31 March 2014 Sara Green, wife of Dr Stuart A Green, made a loan to the company of $1,015,000 with an interest rate of 10%. The underlying value of the loan was £600,000 and the full amount remained outstanding at 31 March 2014. This loan is secured as a floating charge over the assets of the group.

 

 

Annual report and Accounts

 

The Report & Accounts for the year ended 31 March 2014 are expected to be posted to shareholders during September 2014. Further copies will be available from the Company's Registered Office:

 

The Tower

2 Furnival Square

Sheffield

S1 4QL

 

Copies will also be available on the group's website www.zoodigital.com.

 

Annual General Meeting

 

The Annual General Meeting of the group will be held at the offices of ZOO Digital Group plc, The Tower, 2 Furnival Square, Sheffield S1 4QL on 30 September 2014 at 2pm.