IFRS 15 guidance and update on Q1 trading

ZOO Digital Group plc (AIM: ZOO), a leading provider of end-to-end cloud-based localisation and media services to the global entertainment industry, today provides guidance on its interpretation of IFRS 15 ahead of full year results, which are now expected to be announced in early August 2023, and an update on Q1 trading.

IFRS 15 guidance

As part of the audit work for the year-end 31 March 2023 the Company has received revised guidance from its auditors with regards to the interpretation of IFRS 15. Specifially, that third party costs should not be matched with revenue, as per the Company’s existing accounting policies, but rather as supplier invoices are received. Revenues are not affected by this change.

Subject to finalisation of audit procedures and technical review, the effect of this accounting policy change is expected to be an increase in adjusted EBITDA for FY23 of approximately $2 million and an expected downwards restatement to adjusted EBITDA of approximately $1.2 million in FY22.

Update on Q1 trading

First quarter FY24 trading has been impacted due to a well publicised hiatus in the normal flow of orders across the industry, resulting in lower revenues than previous management expectations in a quarter that the Board already expected to be weaker than the previous year.

This has been caused by two short-term market factors that are affecting the wider industry. Firstly, several of ZOO’s major streaming company clients have for some months been implementing cost-saving measures and reorganising their operations as the industry evolves and confronts higher levels of competition, leading to the deferment of some costs. Secondly, the Writers Guild of America strike is in its third month and this is now having an impact on the levels of localisation and media services work on new titles.

Despite the short term industry-wide uncertainly alluded to above, ZOO expects to be in an even stronger position with several customers following a rationalisation of their supplier bases with ZOO selected as one of a smaller number of vendors. Consequently, the Board expects the Company to take further share of the media localisation market once former business levels resume. It is reasonable to expect this to be in the second half of the current financial year, and on this basis the Board currently expects revenue growth to return in the second half of FY24.

The Group is financially strong with net cash of $23 million as at 30 June 2023.

ZOO continues to have positive, advanced discussions with a leading Japanese technology company regarding the acquisition of its localisation subsidiary.

In the TV interview below CEO Stuart Green provides an overview of the 6 months to 30 September 2022 and an outlook for the group