ZOO has delivered H1 results in line with the group’s commentary at the recent AGM – revenues largely flat y/y, but with a strong EBITDA performance. We take the opportunity in this document to reflect on recent changes in ZOO’s end markets, and conclude that the opportunity is both growing and becoming more tangible. We make no changes to forecasts, other than to reflect IFRS 16 adjustments, but take material reassurance from the strong first half and the emerging evidence of success.
The group has delivered revenue overall down 4% to $14.2m, but excluding the end-of-life DVD/Blu-ray business, sales were up some 7%. Adjusted EBITDA of $1.8m included a c$0.6m benefit from IFRS16 adoption, but even prior to this boost the figure of $1.2m reached half of our pre-existing $2.4m forecast and compares very strongly to the prior year’s $0.5m. Cash had drifted to $0.6m at the end of September ($0.9m in the prior year), but H2 cash flow is expected to be positive.
The H1 result was driven by a number of different factors – the demise of DVD/Blu-ray work, offset by a very strong performance from subtitling and digital packaging, but a subdued revenue level from the still-nascent dubbing business. The increased gross profit (up nearly $1m y/y) benefited from this sales mix effect (subtitling and digital packaging carry high margins). The group has also announced a number of material contract wins or extensions to relationships – see page 3 (H1 performance) for further detail.
We describe below a number of changes under way in the content market overall (where a number of players are moving “in” to Netflix’s space) and in the localisation supplier landscape. These developments, we suggest, have led to material disruption to ZOO’s revenue opportunity during the past 18 months, but the periods ahead should benefit as both the end markets stabilise, and customers’ procurement processes rapidly mature and become more predictable. We continue to believe that ZOO’s technology-enabled, secure and highly efficient platforms will find favour across the industry, and a degree of disruption may be a positive catalyst for change in this regard.