Today’s year end trading update from ZOO points to the group’s strong market positioning and readiness to benefit from the expected significant demand for its premium services. The RNS confirms that revenues for FY 2019E will be in line with levels to which it guided in January, albeit slightly below our estimate. The January update stated that a steep decline in legacy “packaging” work (on DVD and Blu-ray) and the cancellation of one unusually large order were behind reduced guidance. We make a further small reduction to FY 2019E EBITDA as the latest update confirms that H2 will be around breakeven after ZOO reported $0.5m for H1. For the moment, we leave FY 2020E estimates unchanged as we await further detail in the final results announcement, scheduled for the week of 24 June 2019.
Total localisation revenues grew 5% in FY 2019E to $22.6m against a tough prior year comparator. The year saw subtitling revenues recover strongly from the H1 order hiatus from one major customer, and Cloud dubbing service revenues were up 17% albeit still presumably relatively modest in total. During the period, ZOO was engaged on initial projects for eight major TV and film production studios compared to four in the prior year.
Despite the previously-announced headwinds, which are still slightly evident in today’s news, ZOO has continued to invest in proprietary technology and capacity. The launch of ZOOstudio has been ‘well received in the market’ and earnt a ‘Product of the Year’ award at the prestigious NAB Show awards.
A continued focus on strict working capital management saw the group end the financial year with a cash balance of $1.8m, double the amount at the half year stage, and a strong performance on slightly-reduced EBITDA.
For FY 2019, we fine-tune our revenue estimate down by 3% to the $29m noted in the trading update and reduce our adjusted EBITDA estimate from $1.3m to reflect the suggested outcome of $0.5m. This latter is a disappointment given the January update, but appears to be largely driven by an even-faster-than-anticipated decline in the non-core content packaging business.
We note management’s continued confidence in the momentum of demand for enhanced localisation services; we continue to hope for news of material customer wins, and will look for further trading detail at the time of full results announcement in June.