20 August 2024

ZOO Digital Group plc

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

 Final Results for the Year Ended 31 March 2024

 ZOO recovery gathers pace following year of industry-wide disruption

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 2024.

SUMMARY

FY24 was an extremely challenging year for the film and television entertainment industry and all those businesses that operate in this wider ecosystem. ZOO was on a strong growth trajectory before the industry disruption, reaching over $90 million in sales in FY23. The significant decline in revenues and profits reported for FY24 is a direct result of the industry-wide hiatus in new productions.

Recent market research* and insights provided by ZOO's customers are consistent and point to a gradual and extended period of recovery through to late 2025, at which point a return to former levels of industry output is expected. The structural dynamics continue to move in ZOO's favour such that the Company remains well positioned for recovery, able to respond quickly to increased customer demand, leading to long-term growth.

HIGHLIGHTS

Key Financials

·      Revenue decreased by 55% to $40.6 million (FY23: $90.3 million) due to the industry-wide disruption of 2023 and the hiatus in media production and orders that followed.

·      Operating loss of $19.1 million (FY23: profit of $8.1 million).

·      Reported loss before tax of $20.5 million (FY23: profit of $7.9 million).

·      Net cash at year-end of $5.3 million (FY23: $11.8 million), being significantly higher than previous market expectations and which, together with the Company's debt facilities, providing sufficient working capital for FY25.

Operational Highlights

·      ZOO selected by major film and TV distributor as a primary vendor for dubbing and subtitling in FY24; orders now being received, and meaningful contribution expected from FY25.

·      Media localisation revenues decreased by 52% in the year to $27.2 million (FY23: $56.6 million), as a direct result of the industry strikes.

·      Media services revenues decreased by 63% to $11.9 million (FY23: $32.1 million), also because of the industry strikes and the associated lack of new content releases.

·      Worldwide freelancer network grew by 4% to 11,952 (FY23: 11,467).

·      Strategic progress in global growth initiative with further investments in India, Turkey and South Korea, in addition to launches in Spain and Italy. 

·      Opened new facility in Chennai providing a platform to expand capacity in India in support of the Company's 'follow-the-sun' strategy.

Market Highlights

·      Hollywood writers' and actors' strikes resolved in September and November 2023 respectively with gradual subsequent resumption in new productions.

·      Total Hollywood content cash spend declined by 8% in 2023 due to the strikes, forecast to recover by 2025 to levels of the full year pre-strike period of 2022*.

·      Media companies continue to increase focus on episodic programming, international content, and multiple monetisation models.

Current Trading and Outlook

·      Improved trading in FY25Q1 with sales up 35% over the prior quarter.

·      Cost reductions implemented in FY24 led to an EBITDA profit for FY25Q1.

·      Major customers have not yet provided full order schedules for Q3; however, expect further revenue growth and an EBITDA profit in H1.

·      On track to meet market expectations for the full year.

·      Well positioned in new market environment to deliver long-term growth.

·      A further update will be provided at the AGM on 26 September 2024.

* Research by market commentator MoffetNathanson

Stuart Green, CEO of ZOO, commented:

"It has been a year of unprecedented challenges for the entire film and television entertainment industry as the Hollywood writers and actors strikes brought new productions to a standstill. This has required difficult decisions to conserve cash while positioning the business for the market recovery that is in progress. Customer demand has improved recently as delayed 2023 productions have completed, with ZOO's technology platforms, global reach and trusted reputation positioning us well as the recovery continues. 

"We view the market disruption as a symptom of a sector undergoing structural change away from linear and towards streaming on demand. With this comes a preference for vendors that can deliver multi-platform, multilingual content across international markets. As one of the few end-to-end vendors with the scale and skillset required by major media companies, we believe that ZOO's model is strategically aligned with the future direction of film and TV streaming. These structural dynamics of the industry continue to move in ZOO's favour such that the Board remains optimistic for the long-term prosperity of the Group."

For further enquiries please contact:

Analyst presentation

Stuart Green, Chief Executive Officer, and Phillip Blundell, Chief Financial Officer, will host an online presentation for sell-side equity analysts, followed by Q&A, at 10:00 BST today. Analysts wishing to join should register their interest by contacting: ZOO@instinctif.com.

Investor engagement

Management will hold an online presentation for private investors at 17:00 BST today. For those interested in joining, please register via the following link: https://www.zoodigital.com/prelims2024. A recording of the webinar will be made available via the Company's website afterwards.

CHAIRMAN'S STATEMENT

The past year will be remembered as an extremely challenging period for the film and television entertainment industry and all those businesses that operate in this wider ecosystem. The first joint strike of Hollywood actors and writers in 60 years amounted to a black swan event that halted new productions overnight and is only now feeding through to a gradual recovery. This was compounded by a realignment of content budgets as media companies revise their business models to address the longer-term impact of streaming.

The industry disruption caused revenues to fall by 55% to $40.6 million leading to an operating loss of $19.1 million (FY23 profit of $8.1 million). While this performance is disappointing, it can be directly attributed to the perfect storm of industrial action and strategic realignments by key customers.

Against this uncertain backdrop, we took the necessary measures to restructure the organisation and reduce our cost base, while retaining the flexibility to take on orders as the market rebounds. The Group's cash position was further supported by the £12.5 million ($15.5 million) equity placing in May 2023 for the acquisition of a partner in Japan, which was subsequently postponed considering the industry disruption.

It is thanks to these efforts that ZOO is now well placed to capitalise on the market recovery and structural trends that sit in our favour. Indeed, the first quarter of FY25 has just recorded revenue growth of 35% over FY24Q4 which resulted in an EBITDA profit on a reduced cost base. The Board expects the industry recovery to continue gradually through 2024 and to reach former levels of output in late 2025, providing continued positive signs for the years ahead. The restoration of former levels of industry output will pave the way for the business to return to levels of performance achieved in FY23, which marked an extended period of growth in which Group revenues increased by a compound annual growth rate of over 34% to more than $90 million between FY16 and FY24.

More broadly, the transition to streaming marks a fundamental shift in how we all enjoy our favourite film and television programmes. As is often the case, this transformation has been accompanied by disruption as the studios adapt to the new consumption model. The industry is now moving to a more mature stage in the cycle as streaming services transition to profitable growth. This is likely to result in some consolidation and a greater focus on maximising returns on content spend, both of which should benefit ZOO as the recovery gathers pace.

The Board is confident that the investments we have made over the past few years give ZOO a competitive advantage and will enable the business to grow. ZOO is one of few companies in the world with the capability and scale to operate as an end-to-end vendor to major media groups, and we have built on this advantage by establishing local hubs in key markets. Furthermore, we have been appointed as a primary vendor for dubbing and a global vendor for subtitling by another major film and TV distributor as we continue to grow and diversify our customer base.

As with our investment decisions, we take a long-term approach to technology and recruitment. The recent advances in Generative Artificial Intelligence and Large Language Models have rightly brought the focus on their potential impact and, indeed, opportunities for businesses. As an innovator in its sector, ZOO has been actively working with AI technologies for many years and has developed tools to provide automated assistance to our established practices. The Board believes the Company will benefit from the advantages that AI can bring over the long term. We plan to publish a formal whitepaper in October 2024 on our approach in this field. 

Meanwhile, ZOO Academy continues to go from strength to strength and is doing valuable work training the next generation of audiovisual localisation talent. The Academy has grown to 50 partners across 25 countries, plugging gaps in vital skills and languages required by the industry.

Our teams are fundamental in making life easier for the people who entertain the world. I would like to take this opportunity to express my gratitude to all my colleagues for their hard work and resilience over a testing period for the business, and indeed the wider industry.

While we do not expect the industry recovery to be straightforward, we remain confident in the structural market opportunity as ZOO plays an important role in helping media companies to adopt profitable, sustainable streaming models. This gives us confidence in ZOO's ability to return to strong growth over the long term.

Gillian Wilmot, CBE
Chairman

STRATEGIC REPORT

Introduction

ZOO's FY24 marks a period of unprecedented changes within the film and TV entertainment industry. Whilst the strikes by Hollywood writers and actors brought US productions to a standstill for months, the unrelenting shift of consumption away from linear and towards streaming on demand delivery has far-reaching implications. Like almost every participant in the wider entertainment ecosystem this disruption has had a detrimental impact on ZOO over the short term. However, the Company's strategy is aligned with the structural changes that are taking place and, as these adjustments conclude, the Board believes ZOO will secure a strong competitive position within a recovering industry that will return it to sustainable growth.

The Company continues to fulfil a pivotal and highly specialised need of film and TV content producers and distributors to transform original entertainment products so that they can be delivered on any platform and in any language. ZOO has achieved prominence through a combination of its ability to deliver first rate quality services to major entertainment brands, enabled through the deployment of its proprietary cloud technology. The Company is one of a small number of elite players in the sector referred to as 'End-to-End' (E2E) vendors, having the ability to operate as a 'one-stop shop', delivering the full complement of technical and creative services required. The E2E approach is a relatively new model of engagement in the industry yet one that is gaining traction rapidly due to the benefits it affords large buyers.

An important component of the Company's software capability is its ZOOstudio platform. This has been adopted by some major media companies to enable them to engage with ZOO and its peers in a way that simplifies workflows, enhances visibility, and streamlines operations, allowing customers to reduce their costs. ZOOstudio is a specialised and unique offering in the market that gives ZOO competitive advantage and provides strategic alignment with major customers.

In the early months of FY25 the Board has seen stabilisation followed by the early stages of recovery of the order book. While disruption continues, the situation is expected to improve and the industry to return to former levels towards the end of calendar 2025. In the meantime, cost reductions and restructuring previously implemented by the Board should result in more efficient operations going forward, leading in due course to margin enhancement.

Over the past few years, the Board has invested to strengthen its competitive position as a service provider both in terms of supporting efficient scale-up of its proposition as well as building its capability and capacity for dubbing in key languages. In May 2023 the Company completed an equity placing from which it successfully raised £12.5 million ($15.5 million) net of expenses specifically to pursue the acquisition of a partner in Japan. However, given the industry disruption that soon followed, the Board took the prudent decision to postpone this transaction pending improved visibility. The strengthened balance sheet resulting from this injection of capital subsequently proved to be beneficial through the protracted industry hiatus that followed. Whilst the planned acquisition in Japan continues to be on hold, the Board remains in regular dialogue with the vendor and in the meantime will continue to explore small opportunistic investments in territories that provide strategic value at an attractive price.

Market Overview

For contextualising the recent disruptions in Media and Entertainment (M&E) and how the industry may evolve in the future, it is worth reflecting on a comparable transformation that took place in the recorded music business. Music, like M&E, evolved over decades to exploit many channels of distribution (vinyl, 8-track, cassette tape, Mini-disc, CD, MP3, radio, etc.). The advent of streaming brought about a step change.

When compared with predecessor distribution formats, streaming music services such as Spotify represent a differentiated and attractive offer to consumers, giving access to an enormous catalogue of material in return for a monthly subscription. The rapid adoption of such services had repercussions on the wider music industry, causing publishers and artists alike to rethink their business models and monetisation strategies. This was a painful transition for many participants as well-established revenues, such as retail sales of Compact Discs, declined rapidly, yet today the industry is thriving. According to Spotify, the platform hosts about 11 million artists and creators, reflecting substantial growth in the music industry. This can be attributed to the rise of music streaming services and digital platforms that make it easier for new artists to distribute their music globally. There are more artists than ever before producing collectively more recorded music every year, with consumption at an all-time high.

The M&E industry is currently undergoing a comparable transition, and the period of ZOO's FY24 witnessed an inflection point for Direct-to-Consumer (D2C) services. Like the music business, over decades there have been many distribution formats and channels for M&E (cinema, linear TV, Video on Demand, VHS, Laserdisc, DVD, Blu-ray, etc.) and here too the advent of streaming has brought about a step change in consumption. Compared with relatively costly Pay TV packages, streaming offers consumers a convenient and cost-effective way to access large catalogues of on demand film and TV content.

For large M&E companies that have launched D2C services, the accelerating shift of consumption from linear to streaming, and the consequential rapid decline in traditional revenue sources, prompted a re-evaluation of business models during calendar 2023. In most cases this has included cost reductions to streamline operations. Many have also implemented changes in their content production and acquisition strategies to maximise return on investment in their catalogues.

The decline in traditional models of consumption has created market entry opportunities for 'new media' operators that can establish scalable and cost-effective distribution platforms without the need to maintain legacy broadcast TV infrastructure. Netflix, Amazon and Apple, with their global offerings, are all early movers in this market, alongside a slew of domestic operators especially in Asia, such as India's JioTV and Hotstar. There is also disruption from new content producers, with a burgeoning creator economy fuelling more programming delivered through new channels on YouTube and Free Advertising-supported Streaming Television (FAST) and increasing competition for consumer attention. We can expect this evolution of the M&E landscape to continue over the coming years.

Launching a D2C service turns an M&E company from a wholesaler of titles to a retailer of a service. General entertainment streaming services need diverse programming with broad appeal to attract subscribers, and regular new additions to retain them. Content strategies that worked well for a wholesale model may need to be modified for retail so that capital is deployed appropriately. A premium feature film might cost perhaps $200 million to produce, while a premium episodic drama series $2 million per episode, and an unscripted show perhaps $100,000 per episode. Therefore, with a budget of $200 million a studio could produce one 90-minute movie, or 10 scripted drama series each with 10 one-hour episodes per season, or 400 unscripted TV shows each having 10 episodes of 30 minutes per season. Content strategies that will yield greater volumes of content at a lower cost of production have the benefit of giving more diversity. This explains partly why the number of feature films being made is declining in some markets (for example, according to the BFI the number of feature films made in the UK prior to the strikes in Q1 2023 was 74, down from 105 a year before), while unscripted episodic content production has been growing (TTV News reported that production of unscripted programming, particularly reality TV formats, grew in 2022 and 2023, driven by platforms' demand for fresh content).

As a first mover in the market, having launched its streaming service in 2007, Netflix now reaches over 270 million subscribers, has a monthly churn rate of under 2% (lower than its major competitors for which the weighted average is 5.3%), and is cash generative. During 2023 D2C services from other leading studios were reconfigured to accelerate this same outcome. While some changes, such as reducing headcount, may be implemented relatively quickly, others, such as modifying strategies for content acquisition, may take months or even years to come to fruition. This explains in part the prolonged period over which the current recovery is expected to occur.

Recent research from MoffetNathanson indicates that although there was an 8% decline in 2023 of total Hollywood content cash spend because of the strikes, this is forecast to recover by 2025 to the level of the full year pre-strike period of 2022. The findings suggest that overall Hollywood content budgets over the long term will be undiminished and highlight that 'new media' companies (such as Netflix, Amazon and Apple) will account for a growing proportion of this spend.

According to PwC's Global Entertainment and Media Outlook, the shift in consumer preferences towards streaming services and their associated business models are driving companies to invest more in episodic content. This aligns with evolving consumption patterns and technological advancements, indicating a significant pivot towards producing more serialised TV content compared to previous years. This is beneficial to ZOO since most titles localised by the Company are episodic programmes; the average run time of each title processed since 2019 has been less than 40 minutes, with fewer than 15% of titles having a duration over 60 minutes.

In their quest to improve the return on investment in original programming, all leading streaming companies continue to pursue sourcing of programming from international producers. There are countless examples now of hugely successful international titles that have come to our screens, with Ampere Analysis reporting that over the past four years there has been a 24% rise in the proportion of consumers in English-speaking markets engaging with international TV shows and films. Such content may be less costly to acquire than equivalent English titles, and greatly expands the pool of potential programming accessible to streamers. The attraction of such content across worldwide markets emphasises the necessity for localisation as reported by Ampere Analysis: "the rise in international content consumption underscores the importance of adapting to regional preferences".

Consumers in many markets have choices for where they watch entertainment content, including services that are monetised by Subscription Video on Demand (SVOD), Advertising Video on Demand (AVOD) and FAST. This wide choice and competition have elevated consumer expectations of choice and quality, consequently the leading streaming providers seek to assemble catalogues of a high standard. This in turn leads to the need for high quality localisation since international audiences require sensitively and authentically adapted dialogue into many languages and cultures, thereby driving demand for premium localisation services as provided by ZOO. The KPIs tracked by ZOO's largest customer report a perfect score of 100% across 22 independent measures for each of the last three quarters, indicating that the Company is consistently achieving the highest quality standards across the industry.

Following their quest to reduce overheads through changes implemented in 2023, large buyers of media services and localisation are now working with fewer suppliers than previously, and choosing those that can provide a broad range of services and languages. For example, one major studio has reduced its pool of vendors to just five partners, of which ZOO is one. Consequently, providers such as ZOO that operate an E2E model and demonstrate excellent KPIs are increasingly favoured, while smaller and more niche vendors are becoming marginalised.

The industry disruption of FY24 had a damaging effect on ZOO's business in the short term. However, market trends and evolved operating practices of major customers point to an enhanced opportunity and favourable market dynamics for ZOO over the long term. Global industry content cash spend, which is a useful albeit crude indicator of market size, will return to growth; adapted content acquisition strategies will likely result in greater volumes of original content created, thereby increasing demand for ZOO's services; international appeal will be a key consideration for programme makers, and therefore accessibility to global audiences is key, necessitating multi-lingual localisation as supplied by ZOO; the drive for higher quality content will similarly create demand for high standards of localisation that ZOO is qualified to deliver; and the trend for operating E2E vendor engagements will concentrate spend on a small number of providers such as ZOO.

Strategy

The Company's strategy is built upon five pillars:

Innovation

ZOO's in-house R&D team, ZOO Digital Labs, develops proprietary software technology that provides a differentiator in the market and delivers competitive advantage. Despite the industry slow-down during FY24, the team maintained its productivity and delivered enhancements across several cloud platforms. This included integrations of ZOOstudio with internal systems of customers to deliver more efficient user experiences, and the development of a new platform - ZOOflux. This is an AI-enabled tool that provides significant productivity benefits to support the Company's workflows for creating accurate, high-quality scripts.

Scalability

This is focused on ZOO's ability to flex resources quickly and easily and provide high levels of availability to customers. During the period the Company made great strides in the implementation of its 'follow-the-sun' approach to the fulfilment of media services after establishing a new facility in Chennai in the south of India and the complete acquisition of the former Whatsub Pro business in South Korea. Together with existing operations in Los Angeles, Sheffield/London, Dubai and Mumbai, ZOO is now able to migrate urgent projects from one facility to another coinciding with normal business hours in different time zones to deliver cost-effective 'always on' services. In addition, further steps were taken to strengthen the Company's multi-lingual dubbing offering following investments in partners in Istanbul, Milan and Berlin. Due to the subdued demand for localisation during the period, the recruitment of additional freelancers, through which ZOO benefits from variable costs, was temporarily halted, resulting in a number largely unchanged over the period of 11,952 (FY23: 11,467).

Collaboration

ZOO continued to collaborate with partners to provide cost-effective access to specialised expertise. ZOO Academy, the Company's programme to support the development of new and existing industry talent, expanded its relationships with academic partners to 50 in number in the areas of subtitling and dubbing with the ZOOsubs and ZOOdubs cloud platforms used for teaching purposes. ZOO Academy expanded significantly the online training courses it offers across media services and localisation skillsets, most of which are targeted at ZOO's internal staff and collaborators, with one new major course - Subtitling From a Template - made available to the public. ZOO Digital Labs continues to collaborate with research partners, particularly to further its initiatives in the areas of AI and Machine Learning.

Customer Focus

The Company continues to focus primarily on major M&E industry producers and distributors. ZOO was successful in securing a subtitling and dubbing mandate from a leading US-based studio which the Board expects will begin to make a meaningful contribution during FY25. Despite atypically lower volumes of orders placed across the industry due to the disruption, ZOO has strengthened its relationship with some clients which places it in good stead to expand its share of their spend as the market reopens.

Talent

Operating in a specialised field where high quality and rapid time-to-market are demanded by its customers, the engagement of the right talent, which is critical to ZOO, is achieved through the selection of experienced practitioners and leaders in each of the Company's operating locations. The hiatus in orders led the Board to implement significant cost savings during the period, resulting in direct staff costs in the first quarter of FY25 being 30% below the prior year period. While the Company is committed to its follow-the-sun strategy and will therefore continue to operate teams in entertainment centres in Los Angeles and London, its new facility in Chennai provides the opportunity to expand certain service lines in this location as demand requires, resulting in lower operating costs and enhanced margins.

Review of Operations

The Group manages on an internal basis the following KPIs which assist in measuring progress against the Group's strategy.

Financial

·      Revenue decreased 55% to $40.6 million (FY23: $90.3 million) due to the industry-wide disruption of 2023 and the hiatus in media production and orders that followed. Revenue is considered a KPI as it is the headline demonstration of services provided to customers, and of confidence of customers to utilise our services.

·      EBITDA margin adjusted for share-based payments was (33.5)% (FY23: 17.1%) due to the abrupt decline in orders together with staff costs and overheads that were built to support revenues exceeding $100 million. EBITDA margin is a KPI (and an Alternative Performance Measure) and considered a key metric as this closely approximates to the cash generated from operations, considered to be a key indicator of the general health of the Group.

·      OPEX as a % of revenue 61.2% (FY23: 28.7%). This is considered a KPI as this demonstrates the operational gearing of the business.

·      Operating (Loss)/Profit margin (47.1)% (FY23: 9.0%). Operating profit is considered a KPI as this is a key measure of how value is added to the Group's net assets.

Operational

·      Number of freelancers 11,952 (FY23: 11,467). This measure, which is the number of active freelance workers in ZOO's systems who are engaged directly, is a lead indicator on capacity within the business.

·      Retained Sales 92.3% (FY23: 98.5%) fell slightly due to many customers having no new titles to publish because of the strikes. This measure, which represents the proportion of client revenues retained from one year to the next, provides a quality indication that helps to assess customer satisfaction.

·      Employee engagement score 78% (FY23: 81%). This measures the overall score from the Group's employee engagement survey and gives an indication on how engaged staff are productive. Given the high level of redundancies in the period it is no surprise that the score has fallen, and it is a priority in FY25 to rebuild engagement.

The disruption of FY24 was triggered by an industry-specific event which was unexpected and unprecedented. Whilst its effect was always certain to be temporary, the duration of disruption was difficult to predict given the deep cost cutting and reorganisations that took place at major M&E companies, together with the protracted industrial disputes between film/TV studios and the unions representing writers and actors.

The impact of the industry disruption was felt by ZOO throughout the entirety of FY24. This began with customers pausing plans while they reconfigured their businesses for streaming, and led to strikes by writers and actors in Hollywood that lasted six months. During this time very little new content was produced, significantly reducing ZOO's order pipeline. Some productions resumed in the final weeks of 2023, but order flow remains at historically low levels due to an extended industry recovery period.

During the year, the Board implemented cost saving measures primarily through redundancies at its facilities in the UK and US, whilst being mindful of preserving sufficient capacity when orders return, resulting ultimately in year-on-year cost reductions of around 30%. By the end of the final quarter of FY24 some of ZOO's customers had provided their first guidance on future order flow for many months, giving visibility for the first half of FY25. This indicated that with the reduced cost base the first quarter of FY25 would be profitable at EBITDA level with sufficient capacity to support continued growth.

During FY24 media localisation and media services were both affected adversely as a direct consequence of the disruption. Since dubbing services are primarily performed on newly produced titles (rather than catalogue products), dubbing assignments declined to a greater degree during the period than subtitling and media services. Current indications are that some customers are proceeding more cautiously in their commissioning of dubbing, however, demand for the major European dubbing languages of French, Italian, German and Spanish remains. Consequently, the Board has continued with small opportune investments in partners to strengthen its market position ready for the scale up of orders.

ZOO introduced a TV mastering capability to complement its media services offering in FY22. Although orders here also declined due to the disruption, it has nonetheless proven to be a successful and strategic addition as customers are increasingly bundling work for TV and streaming distribution as part of the same order.

As the Company entered FY25 and following the end of strikes, with market conditions that increasingly favour ZOO and the cost reductions and restructuring now implemented, the Board believes that ZOO has built an efficient platform to capitalise on the industry recovery. Since the disruption began ZOO has retained all its customers which, in some cases, have reduced their vendor pools, has strengthened some relationships and added new customers. It has continued its global growth initiative by making investments in partners located in South Korea, Spain, Italy, Turkey and Germany, thereby expanding dubbing capacity and capability in the associated key languages. It has opened a new facility in Chennai which not only extends the Company's follow-the-sun programme for media services through access to cost-efficient resources but serves as a hub for dubbing of languages spoken in southern India. The reduction in overall headcount in the UK and USA, needed to realign costs with revenues in the short to medium term, has significantly lowered the break-even position which, combined with the new facility in India, results in improved efficiency by decreasing unit cost of production, thereby enhancing ZOO's operational gearing.

Proposed Task Force on Climate-related Financial Disclosures

This section sets out ZOO's climate related financial disclosures as required by The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 and the Task Force on Climate-related Financial Disclosures, (TCFD). This requirement is not yet in scope however we want to start the process to provide the recommended disclosures.

Our work in this area is overseen by the ESG management committee with regular updates to the Board. We are still working towards further integration of our climate change risks into the overall risk management processes.

Given the disruption to the business over the last twelve months which is detailed in the strategic report, progress has been slow, however, over the coming year we will improve our disclosures to meet best practise. Our progress to date is summarised below.

Artificial Intelligence

ZOO Digital is a premium localisation vendor known for its innovation in the industry. With its expertise, ZOO is well-positioned to take advantage of AI in various aspects of subtitling, dubbing and media services. Over the past two years, ZOO has been actively exploring new technologies to improve its services and offer added value as an E2E vendor.

Quality and timely delivery are the highest priority requirements of ZOO's clients. The Company is committed to developing AI responsibly with these priorities as its focus and within legal and ethical guidelines. Rather than removing human talent such as specialist media translators, actors, and directors, ZOO aims to use AI to enhance traditional processes. With its cloud-based systems, ZOO has an AI-ready architecture and infrastructure and can incorporate these technologies seamlessly, allowing for testing and improvement while maintaining a reliable workflow. Consequently, the AI revolution presents an opportunity for ZOO to expand its capabilities and solidify its leadership position in the industry.

ZOO has investigated using Large Language Models (LLMs) and tools such as ChatGPT to see if these could help automate some of its services. In localisation, it is important to understand the differences between creating literal, written translations - which ChatGPT performs well - and creating authentic dialogue adaptations. The latter involves considering factors like culture, speaker motivation, ethnicity, and social dynamics. Simply using a transcript of spoken words will not capture the context needed for authentic adaptations.

ZOO's clients are major players in streaming and premium entertainment and have the highest expectations for quality localisation and media services. While technologies like ChatGPT might work well for certain types of content where the translation can be literal, they are not currently viable for premium content such as the scripted dramas ZOO deals with. Indeed, in some cases commercial agreements stipulate that AI technologies, such as machine translation, may only be used at the customer's explicit request.

AI holds potential for ZOO's business, but this continues to be alongside traditional practices and the use of creative talent. ZOO's heritage as an innovator and trusted partner to the leading names in the industry means that it is well-placed to become a leader in the field.

Currently ZOO deploys AI as a supporting technology in its pipeline and processes to make services more efficient and has identified potential applications in several areas, including speech to text for transcription; text to speech (speech synthesis) and speech to speech (voice cloning) in specific circumstances; picture manipulation (where such is approved by the customer); machine translation to enhance media workflows; separating dialogue from music and effects to facilitate lip synchronised dubbing of catalogue content; automated conforming of audio and subtitles; quality control across several workflows; enhanced workflow management; and enhanced asset management.

The Company intends to publish a whitepaper providing a deep dive into the application of AI in its business in October 2024.

Outlook

We are beginning to benefit from the step-by-step recovery following the disruption of the strikes last year which effectively shut down the industry in which we operate.  Most recently, in Q1 2025, our order book expanded by 35% over the prior quarter as work delayed from 2023 was eventually completed and we were profitable at EBITDA level as the improvement in revenue coupled with the cost reductions implemented in FY24 came through. With a stronger year-end cash position than previous market expectations combined with its renewed debt facilities, the Company has sufficient working capital for FY25.

Our major customers have not yet provided full order schedules for Q3 onwards; however, the Board expects further revenue growth and an EBITDA profit in H1 2025, putting us on track to meet market guidance for the full year.

Market analysts forecast recovery continuing until late 2025 as the strategic changes implemented by major media companies, which include those relating to content commissioning and acquisition, start to work through, at which point a return to former levels of content spend, both globally and in Hollywood, is anticipated.

The Board believes that the Company's technological capability, coupled with the industry-leading performance of its services, position it well to continue to play a leading role as an E2E vendor, and remains optimistic for the future prosperity of the Group.

A further update on trading will be provided at the AGM to be held on 26 September 2024.

Stuart Green
Chief Executive Officer

FINANCIAL REVIEW

Introduction

FY24 was a very challenging period for both ZOO and its wider industry, as reflected in this set of financial results. The writers' and actors' strikes resulted in a major reduction in new titles being made and completed, which has had a significant impact on ZOO. This was compounded by the difficulty in anticipating the duration of the strikes which resulted in overhead cost cutting being later than, with the benefit of hindsight, would have been the case. Fortunately, due to the strong cash position at the end of March 2023, followed by a fundraise in May 2023, ZOO had the cash reserves to weather the storm and remains in a good position to take advantage of the industry recovery in 2024 and 2025.  

During the year, the Company continued its plan to acquire assets in strategic markets with investments in South Korea, Turkey, Italy and Germany. The total cost of these investments was $4.5 million and sets the business up to take advantage of dubbing opportunities in future years. The financial performance in the year was disappointing with revenues falling 55% to $40.6 million. This translated into an operating loss of $19.1 million (FY23 profit of $8.1 million) and contributing to Net Assets falling to $27.7 million (FY23: $35.1 million) and a net cash balance on 31 March 2024 of $5.3 million (FY23: $11.8 million).

Revenue

In the financial year ended 31 March 2024, total revenues declined 55% to $40.6 million (FY23: $90.3 million). This reflects the disruption caused by the actors' and writers' strikes that lasted six months and strategic re-evaluations by the global entertainment streaming providers. ZOO's customers have been concentrating on profitability over subscriber growth which has delayed international launches and, in some cases, prompted them to reconsider distribution strategies in certain markets.

Most of the Group's operations are in the United States, where revenues were down 57% at $31.2 million. The balance of work was performed in Europe and Asia which fell by 49% to $9.4 million.

Customer concentration reduced during the period with the revenue contribution from the Company's two largest clients falling to 58% of sales (FY23: 78%). This was primarily a consequence of a significant drop in orders from the largest US customer.

The Company reports two revenue segments: media production and software solutions. The media production segment is split into localisation and media services to give readers more transparency on margins.

Media localisation revenues decreased by 52% in the year to $27.2 million (FY23: $56.6 million), as a direct result of the strikes.

Media services revenues decreased by 63% to $11.9 million (FY23: $32.1 million) again because of the industry strikes and the lack of new content releases.

Software solutions, the segment that has been a reducing proportion of the business, decreased by 6% in the year to $1.5 million, however, licences paid by Group companies are expected to grow as our media localisation business recovers.

Segment contribution

The Company reports gross profit after deducting both external and internal variable costs to reflect that most of its revenues are derived from the provision of services to our customers. The overall gross profit fell by 84% to $5.5 million (FY23: $33.9 million). This represents a gross profit margin of 13%, down from 38% last year, driven by fall in revenue and a phased plan to cut capacity.

Media localisation contribution dropped in the year from $18.9 million to $6.2 million, a decrease of 67% driven by the revenue contraction in both subtitling and dubbing.

Media services contribution fell to $4.3 million down 78% on last year. This is again due to the revenue drop but without a corresponding reduction in staff costs. The Board is confident that the business will recover and achieve in due course similar margins to those in FY23 due to the industry returning to normal and significant cost cutting in the ZOO business.

Software solution segment contribution fell 5% to 79% in the year, because of the drop in revenues.

Administrative expenses

Operational fixed costs, which are defined as operating expenses less share-based payments, depreciation and amortisation, increased by 3% in the year as a reduction in headcount was offset by higher wages and IT costs. Overall, operating expenses increased to $24.8 million, including share-based payments, depreciation and amortisation. The 4% decrease in operating expenses is explained by the reversal of the share based payments for the last two years being partly offset by higher depreciation on previously acquired fixed assets.

Non-operating income and costs and loss for the year

Share of (loss)/profit of associates and JVs decreased from a profit of $0.1 million to a loss of  $0.9 million due to a full year contribution from Turkey and Spain, as well as a revaluation of South Korea when the Company acquired the remaining 49% of the entity's equity being offset by the impairment of the Korean acquisition. The impairment of the Korean acquisition has arisen due to the consideration being mainly in shares which were fixed at the point of agreement with the sellers and the share price rising significantly by the date the investment was contracted.

Finance costs were flat in the year at $0.6 million as the exchange loss on borrowings was offset by lower banking fees.

As a result of the decrease in revenues and a major drop in gross profit, the Company reported an operating loss of $19.1 million compared to a profit of $8.1 million in FY23.

Loss before tax was $20.5 million compared to a profit of $7.9 million last year for the reasons highlighted above.

The Group has reviewed the recent performance of its US subsidiary and the expected growth in profits over the next two years and has concluded that it is appropriate to reduce the deferred tax asset by $1.3 million in this year's results to reflect the unused tax losses in the US subsidiary over the next two years. This has resulted in a profit and loss debit of $1.3 million (FY23: credit of $0.2 million).

Statement of financial position

Non-current assets decreased by 4% in the period. The decrease is due to the investments in international assets in the period being offset by the reduction in the deferred tax asset, the impairment of investments in associates and the write back of the right of use asset relating to the Sheffield office due to the termination of the lease.

The capitalisation of research and development costs increased by 25% to $2.7 million as we accelerated the product roadmap to support customer requirements and upgraded our internal production systems. This also increased the amortisation charge resulting in the balance sheet asset increasing by 20% to $3.9 million.

Trade and other receivables decreased 30% to $11.5 million (FY23: $16.5 million) reflecting the weak sales performance in the second half of the year. This decrease was mirrored in trade and other payables as work performed by suppliers and freelancers dropped by 28%. Contract assets, which represent work in progress and sales accruals on customer projects, decreased by 47% to $2.6 million as the volume of projects straddling the year-end reduced.

Current borrowings were flat compared to last year at $1.4 million and represent the lease rental commitments over the next 12 months.

Cash and cash equivalents of $5.3 million at year end (FY23: $11.8 million) were down 55% because of the drop in profitability. However, despite challenging market conditions the cash balance throughout the period has remained robust and, together with its debt facilities, is believed to provide sufficient working capital for FY25.

Non-current liabilities decreased in the year due to the reduction in the "right to use" liability on our property lease in Los Angeles having one less year to run and the write back of the right of use liability on the Sheffield office.

Consolidated statement of cash flows

Net cash generated from operating activities was an outflow of $12.1 million, down from an inflow of $15.5 million in FY23. The decrease of $27.6 million is attributable to the operating loss. The outflow from operating activities was increased by a $9.0 million spend on investing activities, which was an increase of $0.8 million on FY23. The increase was due to the extra spend on R&D and investments in international assets partly offset by a 54% reduction in the purchase of property, plant and equipment.

In May 2023 the Group received $15.5 million gross through an equity raise, this offset most of the outflows from operating and investing activities and resulted in the Group having a net outflow of $6.4 million compared to inflow of $5.9 million in FY23.

Post balance sheet events and going concern

Going forward, the Company remains confident that it has sufficient headroom to trade for the foreseeable future, as the renewal of the $3 million invoice discounting facility from HSBC to August 2025, gives us the working capital headroom for the next phase of our recovery. The budget for FY25 and FY26 has been stress tested by our financial modelling. For this reason, we continue to adopt the going concern basis in preparing the financial statements.

Principal risks and uncertainties

Company law requires the Group to report on principal risks and uncertainties facing the business, which the Directors believe to be as follows:

International business

While the Group is domiciled in the UK, its main country of operations is the US and over 79% of ZOO's revenues come from overseas clients. As with most small international businesses cash flow and exchange rate fluctuations management present a risk. The Group continues to focus closely on conservative cash management and monitors currency transactions taking proactive actions when appropriate.

Political uncertainty

The political climates in the UK and US are currently challenging due to the global economic environment.  Although the terrible situation in the Ukraine is having a major impact on the world economy, the current impact on ZOO is negligible. The Directors monitor emerging news and trends and remain alert to any potential impact on the trading of the Group.

Technology conservation

The Group continues with a patent protection policy, with 16 patents granted and a further three pending, having allowed some legacy patents which are no longer beneficial to lapse. These active patents are integral to the business in the protection of our unique technologies.

Operational risks

The main operational risk is managing any unexpected peaks or troughs in production orders and ensuring that the appropriate levels of resource are available to provide the quality of services expected by our clients.  This risk is managed by having a core of highly skilled permanent staff along with a pool of temporary staff that can be brought in at short notice to help at times of high volume.  In the current year we have supplemented these resources by engaging international businesses to operate within our technology platform, giving us further variable cost capacity. The use of technology helps mitigate this risk by streamlining processes as much as possible and enabling efficient access to a large, global and scalable pool of independent contractors. The Company is actively implementing artificial intelligence where appropriate to help with reducing costs and managing capacity.

Cyber Risks

Like most digital businesses, the Group faces cyber risks in four key areas: Intellectual Property Theft refers to unauthorised access and use of the Group's own software and data that could undermine its competitive position; Data Breaches refers to exposure of sensitive data, such as client information and unreleased media which could result in disclosure of confidential information, leading to reputational and financial damage; Ransomware Attacks,  caused by malicious software that could prevent us from accessing our IT systems and the data stored on them, could disrupt our operations and delay project completions; and Social Engineering, which refers to manipulating people so they give up confidential information (e.g. the fraudulent practice of Phishing where messages are sent purporting to be from reputable people and companies in order to induce individuals to reveal personal information such as passwords), could compromise our systems and data security. Although we assess our risk level as medium/low compared to more prominent industry players, the potential impact of these risks remains high. To mitigate these threats, we have implemented industry-standard security tools, managed by reliable third parties. ZOO's proprietary cloud-based software has been designed from the outset with high levels of security in mind and incorporates a range of measures to protect confidential data throughout end-to-end workflows, incorporating features that include encryption, multi-factor authorisation and watermarking. In June 2024 the Company completed a third-party Trusted Partner Network (TPN) security audit, which involved a thorough evaluation of ZOO's security protocols, infrastructure, and practices, earning a Gold Shield for the ZOOsubs, ZOOdubs and ZOOscripts platforms. TPN is the leading, global, industry-wide film and television content security initiative. Designed to assist companies in preventing leaks, breaches, and hacks of movies and television shows prior to their intended release, TPN seeks to raise security awareness, preparedness, and capabilities within the industry. TPN is owned and managed by the Motion Picture Association. Cyber security is a key focus of management and our IT team, and we ensure all staff are continuously trained to maintain a security-first approach.

Artificial Intelligence

Third party software products and services have emerged that make use of Artificial Intelligence, which refers to the ability of a machine-based system to apply analysis and logic-based techniques to solve problems, perform tasks and improve as more data is analysed. This includes applications in which the Company provides services, including the creation of closed captions, inter-lingual subtitles, audio description and dubbing. Such technologies have the potential to displace the services currently offered by the Company. The Directors monitor emerging technologies, evaluate third party products where applicable and remain alert to any commercial implications they may have. The Group's internal Research and Development department has actively developed and enhanced such technologies over several years with some already incorporated into the Company's cloud platforms. As an innovator in its sector the Directors believe that the Group is well positioned to assess where AI technologies are viable in its business and to capitalise on these, thereby mitigating any apparent threat.

Loss of the Group's key clients

Client relationships are crucial to the Group and the strength of them is key to its continued success. The Group mitigates this risk by a diverse number of contacts working closely with the largest clients across different business units and seeking to secure long term contractual agreements for supply of technology and services.  The Group focusses on providing high quality services to all clients to ensure an attractive and differentiated offering thereby reducing the likelihood of client loss.

Corporate activity within key clients

Merger and acquisitions within key clients represent a risk as they can disrupt sales.  This risk is mitigated by ensuring an awareness of news in the market and focussing on diversifying the client base.

Financial risks

The main financial risks faced by the Group are in relation to foreign currency and liquidity.  The Directors regularly review and agree policies for managing these risks.

The functional currency and presentation currency of the Company are US dollars as the majority of the Group's transactions are undertaken in US dollars, however, the Consolidated Statement of Financial Position can be affected by movements between pound sterling and the US dollar as the parent company and UK subsidiaries have some pound sterling debtors and creditors. Foreign currency risk is managed by matching payments and receipts in foreign currency to minimise exposure. Further information on the financial risks is given in note 28 to the accounts.

The Group is exposed to the usual credit risk and cash flow risk associated with selling on credit and manages this through credit control procedures. The Group regularly monitors cash flows and cash resources and has the ability to draw down funds from financing facilities in the UK and the US.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 March 2024

    Other comprehensive income

(Loss)/profit and total comprehensive (loss)/profit for the year is all attributable to the owners of the Parent Company

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 March 2024

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2024

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 March 2024

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 March 2024

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 the UK, US and India.

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). Monetary amounts in these financial statements are rounded to the nearest $000.

2.   Statement of compliance

The financial information set out in this preliminary announcement does not constitute the Group's statutory financial statements for the period ended 31 March 2024 or 31 March 2023 as defined in section 435 of the Companies act 2006 (CA 2006) but is derived from those audited financial statements. Statutory financial statements for 2023 have been delivered to the Registrar of Companies and those for 2024 will be delivered in due course. The auditors reported on those accounts; their reports were unqualified and did not contain a statement under either Section 498(2) or Section 498(3) of the Companies Act 2006.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group.

3.             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.

3.1     Basis of preparation and going concern

The Group's statutory financial statements

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

The preparation of financial statements in accordance with international accounting standards and 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.

Going concern

The directors have prepared trading and cash flow forecasts for the group for the period to 31 August 2025 which show a return to 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 $3m against US clients invoices raised by ZOO Digital Production LLC. This facility is in place until 31 August 2025.

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.

3.1.1 Standards and interpretations in issue at 31 March 2024 but not yet effective and have not yet been adopted early by the Group

At the date of authorisation of these financial statements, the following standards and interpretations, which have not yet been applied in these financial statements, were in issue but not yet effective (and in some cases had not yet been adopted by the UK Endorsement Board):

Effective dates refer to periods commencing on or after this date. The Group's reported financial results are not expected to be materially affected by any standard. However, the presentation and disclosure of its results are expected to be impacted by the adoption of IFRS S1 and IFRS 18 which are both predominantly disclosure-only standards. Given this impacts only disclosures, the Directors do not expect there to be an impact on the reported profits or net assets of the Group from adopting these standards. As these are disclosure-led standards, the Directors have not presented a list of impacts on the financial statements.

3.2  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. However, such fair values and all associated accounting entries are subject to revision during a period not exceeding 12 months following the date of acquisition, insofar as the accounting for the business combination is incomplete by the end of the first reporting period date. As a result, ZOO Digital Group plc revises any provisional amounts retrospectively to reflect further evidence received in respect of acquisition date values. There have been no revisions in the current year.

3.3     Foreign currency translation

3.3.1               Functional and presentation currency

Items included in the financial statements of each of the group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in US dollars which is the parent company and Group's functional and presentation currency. The functional currency of the company's primary operating 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 2024 was 0.794 (2023: 0.813).

In 2009 the Group changed its functional currency from Pound Sterling to US Dollars, creating a translation reserve at this date. Following a review of the reserve at that date, the Directors have determined that the continued existence of this does not support the clarity of the financial statements, and that the reserve is better utilised in the ongoing translation of new foreign subsidiaries that do not have the US Dollar as functional currency. Accordingly, in the current year the brought forward element of the reserve has been reclassified in its entirety to retained earnings.

3.3.2               Transactions and balances

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

3.3.3               Group companies

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

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

·      income and expenses for each Statement of Comprehensive Income are translated at the prevailing monthly exchange rate for the month in which the income or expense arose.

4.             Earnings per share

Basic earnings per share ("EPS") 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.

Diluted EPS is calculated by dividing the profit attributable to the equity holders of the Parent by the weighted average number of ordinary shares outstanding plus the weighted average number of shares that would be issued on conversion of all the dilutive share options into ordinary shares.

* 2023 has been restated as the effect of dilutive potential ordinary shares exceeded the total number of options outstanding. Please refer to the details in the accounting policies note 3.2 "Share-based payments"

Diluted earnings per share is calculated by adjusting the earnings and number of shares for the effects of dilutive options. In the event that a loss is recorded for the year, share options are not considered to have a dilutive effect.

5   Notes to the cash flow statement

5.1 Significant non-cash transactions

During the year the group acquired property, plant and equipment and computer software with a cost of $2,634,000 (2023: $5,392,000) of which $449,000 (2023: $686,000) was acquired by means of a lease. In addition, the derecognition of the Sheffield office lease (detailed in note 16) has resulted in a profit to the Consolidated Statement of Comprehensive Income of $256,000.

5.2 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.

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

6. Share capital and reserves for Group and Company

Called up share capital

Reserves

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

*In the prior year the Directors reviewed the converted loan note reserve and concluded that the losses within here represent realised retained profits to which the Group and Company have unconditional entitlement. As such, the reserve was transferred to offset against accumulated losses.

7. Borrowings

The group has renewed on 1 June 2024 with HSBC Bank US an invoice financing facility of up to $3.0 million against US client invoices raised by ZOO Digital Production LLC. The facility is in place until the renew date of 31 August 2025.

The UK banking partner, HSBC, continues to provide an overdraft facility of £250,000.  The principal outstanding at 31 March 2024 was nil (2023: 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. 

Lease liabilities

Lease liabilities are payable as follows:

The lease periods range from between 1 and 10 years, with options to purchase the asset at the end of the term if applicable. Lease liabilities are secured against the leased assets.

Annual report and Accounts

Copies of the Report & Accounts for the year ended 31 March 2024 will shortly be available to view on the Group's website www.zoodigital.com.

The Report & Accounts for the year ended 31 March 2024, together with the notice of annual general meeting, are expected to be posted to shareholders in early September 2024; 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 Instinctif Partners, 1^st Floor 65 Gresham Street, London EC2V 7NC on 26th September 2024 at 5pm.