Zoo Digital Regulatory News (ZOO)

11 August 2015

ZOO DIGITAL GROUP PLC

("ZOO" or "the Group")

FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2015

ZOO Digital Group plc, the provider of cloud-based media production software and services to global creative organisations, today announces its financial results for the year ended 31 March 2015.

HIGHLIGHTS

Operational highlights

· Significant growth in localisation with client numbers more than doubling in the period.

· Workflow management and centralised subtitling platform adopted by BBC Worldwide.

· Approved by Apple to deliver motion picture and television content directly to iTunes and appointed as one of four global partners to provide localisation and digital packaging services.

· New convertible loan note secured raising $1.2m (£0.8m) in new working capital support.

Key Financials

· Revenues of $11.5m (2014: $9.6m)

· EBITDA loss of $0.7m (2014: $0.4m)

· Operating loss of $2.1m (2014: $2.1m)

Stuart Green, CEO of ZOO Digital, commented,

"We are pleased with the substantial progress of the Group as evidenced by 20% increase in annual revenue and further diversification and expansion of our customer base. This was achieved despite significant disruption from corporate activity in one of our largest customers, which depressed trading during the second half.

"Although we have been impacted by continuing changes that have been taking place in the video entertainment industry, we believe that there is a growing demand for digital distribution, localisation and access services. Our technology platforms provide us with competitive advantage, the means to capitalise on this opportunity and deliver sustained growth, and we remain cautiously optimistic about the Company's prospects."

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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 results for the year ended 31 March 2015 reflect substantial progress by the Group, evidenced by the 20% increase in annual revenue to $11.5m (2014: $9.6m) and further diversification and expansion of our customer base. This was achieved despite significant disruption from corporate activity in one of our largest customers, which depressed trading during the second half and resulted in an EBITDA loss for year of $0.7m (2014: loss of $0.4m).

The Group's content localisation services, delivered using our proprietary ZOOsubs software, are now in use by five of the six largest film and TV studios in the United States, and by content creators, owners and publishers around the world - including BBC Worldwide, which has used ZOOsubs to create a centralised, searchable system to manage and repurpose BBC subtitling and captioning assets. Adoption by such leading organisations convinces the Board that there is a major shift occurring in the way in which content owners approach localisation of their content: they see that systems such as ZOOsubs can not only improve the speed and quality of localisation compared with traditional manual methods, but also offer substantial improvements in their ability to repurpose existing content and better manage these expensive but vital processes.

The Board is very conscious of the time and amount of investment which has been required to transform the business from one which provided software and services for production of physical media, predominantly in one large customer, to one where we provide a range of high value localisation services to many of the leading digital content producers and distributors. We are therefore once again grateful to our stakeholders who provided working capital support for the Group during the year and thereby supported this progress. We also fully appreciate the commitment and flexibility shown by our production, sales, development, and administration teams in the US and the UK and on whom the success of the business ultimately depends.

James Livingston stepped down from the Board in November 2014 after five years of valuable service as a non-executive director, and we are currently in discussions concerning appointment of a replacement director. I look forward to the Group building on the achievements of the 2015 financial year.

Roger D Jeynes

Chairman

.

CHIEF EXECUTIVE'S STATEMENT

Operational review

Introduction

At the time of our interim results we reported a strong first half with revenues up 47% and EBITDA up 38% over the comparative period in the prior year, but indicated that our second half was impacted by organisational changes in a major client. Consequently second half financial results were lower than first half but, despite this, we are pleased to report that revenue for the full year is 20% greater than prior year at $11.5m (2014: $9.6m). We delivered an EBITDA loss of $0.7m (2014: loss of $0.4m).

The organisational changes at our client referred to above have been protracted and, indeed, have continued to date. This has led to a prolonged period of revenue reduction from the major client but despite this, new client wins, primarily in the area of localisation services, have helped to reduce the shortfall.

Working Capital

On 24 November 2014 we announced that we had raised £800,000 in new working capital support by way of the issue of a new convertible loan note. The key terms of this financing are identical to the Company's existing Unsecured Convertible Loan Notes of £1,770,500, namely interest of 7.5 per cent. per annum (payable half-yearly) and a conversion price of 48 pence per ordinary share of 15 pence each.

Software and Services

The localisation services that we offer, for which the use of our proprietary cloud-based technology platforms give clear competitive advantages, continue to receive strong demand and the number of subtitling customers has more than doubled in the period. These include publishers (e.g. programme makers and film studios - our systems have been used to create subtitles for five of the six major Hollywood studios), intermediaries (e.g. post-production facilities) and distributors (e.g. Video on Demand service providers).

In February 2015 we announced that BBC Worldwide, the wholly owned commercial subsidiary of the BBC, had selected ZOO's cloud platforms to provide a pioneering new subtitling and closed captioning solution for its global operations. Subtitles are usually textual translations of dialogue into other languages while captions are native language text designed primarily to provide access for the deaf and hard of hearing. We have delivered a workflow management system and now provide associated subtitle and caption production services to BBC Worldwide. Our products provide a centralised, searchable system to manage and repurpose all BBC subtitling and captioning assets and are available to all BBC Worldwide teams across the globe to access, repurpose and download localised materials for local broadcast and digital distribution. The system automatically localises US English and Australian/New Zealand English versions of programs from the BBC's four UK terrestrial channels, making files immediately available to download in all technical delivery formats. We expect this deal will provide a recurring revenue stream over the long term.

We continue to develop our working relationship with Apple Computer Inc. in the area of professional services for video content publishing on the iTunes Store. We have been approved by Apple to deliver motion picture and television content directly to iTunes which means that our clients, including major Hollywood studios and global broadcasters, are able to benefit from a direct and efficient route to iTunes publishing, making content available for sale sooner in global territories. This elevated status is in recognition of our continuing ability to deliver consistent, outstanding quality content to the iTunes Store.

In a new initiative by Apple that enables small and medium sized publishers to distribute video content globally and cost effectively, ZOO has been appointed as one of four global partners to provide localisation and digital packaging services. This is offered through a new cloud-based management platform, ZOOstudio. This system guides content providers through the entire content delivery process; validating iTunes Store package contents to meet the required technical, metadata and quality standards of iTunes; localising media into multiple languages; and tracking the content through to delivery.

Growth Opportunities

We believe that there are three significant and converging trends that are contributing to conditions that should provide significant opportunities for ZOO to grow.

Firstly, every month new 'Over The Top' (OTT) platform operators are launching new services to deliver digital video entertainment to consumers. This is creating greater demand for captioning and subtitling services due to the global reach of these OTT platforms; by way of illustration, the iTunes store, one of the more mature of such platforms, is currently available in 126 countries/languages.

Secondly, US legislative requirements to provide captions with internet-delivered video became more demanding earlier this year. This, together with the fact that captions became mandatory for content in the US iTunes Store in June 2015, are giving rise to greater demand for captions. We can anticipate that the success of consumer groups campaigning for better access services for the deaf and hard of hearing will lead to a growth in demand in other countries over the coming years.

Thirdly, the consequences of copyright theft have led content owners to make dramatic reductions in the duration of video title release windows. The ultimate aim of this is 'day and date release', that is, availability of content in all formats for all languages on the same day. Such a goal implies significant operational and logistical challenges that ZOO, through its cloud automation platforms, is well placed to service.

Board Change

The Company announced that James Livingston, Non-executive director, stepped down from the Board with effect from 25 November 2014 after five years of service. The Group intends to appoint a replacement independent non-executive director in due course.

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.

Outlook

Although we have been impacted by continuing changes that have been taking place in the video entertainment industry, we believe that there is a growing demand for localisation and access services. Our technology platforms provide us with the means to capitalise on this opportunity and deliver sustained growth and we remain cautiously optimistic about the Company's prospects.

Stuart A Green

Chief Executive Officer

FINANCIAL REVIEW

Year ended 31 March 2015

The financial result for the year has been impacted by the organisational changes within a major customer as referenced above.

The turnover for the second half of the year was lower than the first half, as referred to in the Group's trading update. However, with an increase in new customers making up for the shortfall from this major client, the level of turnover was broadly in line with both the first and second halves of the prior year at $4.5m, bringing the turnover for the year to $11.5m.

The customer diversification was much improved in the year with the dependence on the largest customer reducing from 68% in the prior year to 53% in the current year. Although major customer relationships continue to be excellent, a key focus has been to reduce the concentration of our revenues from individual customers.

The operating expenses increased to $11.1m compared to the prior year of $10.0m. The main component of these increased overheads was staff costs which began increasing in the second half of the prior year to accommodate the greater level of service delivery. The staff levels continued to increase in the year just ended but action has been taken to reduce these in response to the impact from the organisational changes within a major customer.

Working capital has continued to be challenging but has been managed with the use of invoice financing facilities in the UK and the US. The invoice financing facility with Crestmark Bank for invoices raised by the US company remains in place with an increased facility level of $2.5m and a new UK invoice financing agreement with Santander Bank was entered into during the year. The Santander facility covers certain invoices raised by the UK company and has a maximum facility of $0.76m (£0.5m). The loan from the wife of Dr Stuart Green, the CEO, remains in place and, as mentioned in the operational review above, a new convertible loan note was introduced from one of our major investors on terms identical to the existing loan note, namely a conversion price of 48p and a coupon of 7.5%. The value of the new loan is $1.2m which equates to an underlying value of £0.8m.

The margin has been a key focus during the period with initiatives to use technology to deliver margin improvements. Progress has been made and this will continue to be a focus going forward.

Helen Gilder

Group Finance Director

FINANCIAL INFORMATION

The financial information set out here for the year ended 31 March 2015 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 2015 were approved by the directors on 10 August 2015, 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 2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 31 March 2015

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2015

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 March 2015

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 March 2015

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.

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

The full year results for the year ended 31 March 2015 have been extracted from the audited consolidated financial statements. The financial information set out in this preliminary announcement does not constitute statutory accounts but is derived from those accounts. While the financial information in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS.

The financial information shown in this announcement has been extracted from, and is consistent with, the audited financial statements for the year ended 31 March 2015. The auditors have reported on those accounts and their reports were unqualified and did not draw any attention to any matters by way of emphasis without qualifying their report. The Group has published its Annual Report for the year ended 31 March 2015 on its website.

The directors have prepared trading and cash flow forecasts for the group for the period to 31 March 2018 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 2015 the group entered into an agreement with Santander Bank to provide an invoice financing facility for some of the sales invoices raised by ZOO Digital Limited. The maximum facility is £500,000 and it is committed until February 2016. In addition there is a facility in place with Crestmark Bank to provide invoice financing of up to $2.5m 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.

On 21 November 2014 the group entered into a new £800,000 convertible loan note with a major investor. The terms of this loan note mirror those of the existing loan note in that they have a fixed interest rate of 7.5%, a maturity date of 31 October 2017 and a conversion price of 48p.

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 full amount of this loan remains outstanding at 31 March 2015.

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 US dollar/pound sterling exchange rate at 31 March 2015 was 0.6742 (2014: 0.5998).

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.

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 $139,000 (2014: $452,000) of which $59,000 (2014: $413,000) 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.

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

5. Share capital and reserves

Called up share capital

During the year the group purchased 35,600 (2014: 14,400) 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 $4,000 (2014: $2,000).

Reserves

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

6. Borrowings

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.

On 24 November 2014 a further loan note of $1,187,000 7.5% was issued. The underlying value of the new loan note is £800,000 and it is due 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 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.

The group has an agreement in place with Crestmark Bank to provide an invoice financing facility of up to $2.5m 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 2015 was $518,000 (2014: $920,000). This funding is secured against the US trade receivables of ZOO Digital Production LLC.

During the year ended 31 March 2015 the group entered into an agreement with Santander Bank to provide an invoice financing facility of up to $760,000 (£500,000) against certain customers' invoices raised by ZOO Digital Limited. This facility will be in place until February 2016 with an option to extend. The group can draw on funding from the bank up to the lower of 75% of its applicable UK company Trade receivables or £500,000. The principle outstanding at 31 March 2015 was nil. This funding is secured as a floating charge over the assets of the UK companies.

On 13 December 2013 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 2015. This loan is secured as a floating charge over the assets of the group.

Annual report and Accounts

Copies of the Report & Accounts for the year ended 31 March 2015 are available to view on the Group's website www.zoodigital.com

The Report & Accounts for the year ended 31 March 2015, together with the notice of annual general meeting, are expected to be posted to shareholders during September 2015; an announcement to notify shareholders of this will be made in due course. Further copies will be available from the Company's Registered Office:

The Tower

2 Furnival Square

Sheffield

S1 4QL

Annual General Meeting

The Annual General Meeting of the group will be held at the offices of finnCap, 60 New Broad Street, London EC2M 1JJ on 28 September 2015 at 10.30am.