Zoo Digital shares on the rise as profits set to beat expectations

The Sheffield-based firm, which works with major Hollywood studios including Walt Disney, Warner Bros and Sony Pictures, said underlying profits and revenues will be "significantly ahead" of market hopes, sending its shares up by as much as 16 per cent. Its shares eventually closed the day up 6.6 per cent at 32.5p and analysts said "momentum is clearly in Zoo's favour".

Zoo said it expects to report turnover of $15m (9.7m) and earnings before interest, tax, depreciation and amortisation (EBITDA) of $1.6m (1m).

"I am delighted with this performance in a very tough economic climate," said chief executive Stuart Green. "Our ability to deliver outstanding quality software to reduce our clients' costs and time to market is more compelling than it has ever been. "

The group also announced the departure of chairman Christopher Honeyborne after 10 years. He will be replaced by technology expert Roger Jeynes. Dr Green thanked Dr Honeyborne for his "excellent stewardship and wisdom".

Dr Honeyborne, who is also chairman of struggling Sheffield high-tech materials firm Dyson, said: "I am very pleased with the progress that Zoo has made and I leave confident that the company is well placed for continued, profitable expansion."

Zoo's unique technology allows quick design of software for interactive DVDs and video titles at a fraction of the normal cost, by reducing the time needed and staffing cost of DVD production.

In recent months the firm has increasingly been diversifying and growing revenues. Last month it won a contract to supply American TV giant CBS Home Entertainment with its DVD production software.

CBS will use Zoo's products to design and produce DVD titles in-house, rather than outsourcing this work. CBS Home Entertainment manages the worldwide DVD and Blu-ray businesses for the CBS Corporation for programmes including NCIS and 90210, as well as classic series from the CBS library.

"It's all really coming together now," said Dr Green. "It's taken a little while to get everything in place but I think we've got the right technology, and at a time when everyone wants to save time and costs, it's very well received."

The group bought Los Angeles firm Scope Seven in 2007 to give it access to the lucrative Hollywood film industry. Dr Green said revenues are growing as the group embeds itself more deeply into the industry.

"Each of the major studios presents a significant opportunity to grow revenues," he said. "Initially when we start to do deals, they will use the software in a reasonably constrained way. As it beds in they start to increase the scope of it."

Dr Green said over the next year growth will come from increasing relationships with existing customers, winning new ones, and developing new software. It plans to launch two new software tools over the next year or so.

Zoo added it expects to report a year end cash position of $1.2m (780,000), which is also significantly ahead of expectations.

However, it plans to make an exceptional provision for the impairment of intangible assets of around $0.8m (0.5m).

Analysts at house brokers FinnCap said Zoo is at a "launch point" and the profits upgrade pushes the company 42 per cent ahead of its forecast.

"This outperformance compounds the good news of the recent new contract/client wins, and while customer diversification is still an issue which the company is confronting, the benefits of the sale of further licence/software-as-a-service subscriptions is clear," they said.

"We look forward to pushing out forecasts to March 2011 once we have detail of the outperformance in the current year, but in the meantime momentum is clearly in Zoo's favour.

"The company is now expected to be close to adjusted net income break even and therefore the developing momentum adds all the more to generating a maturing multiple context. "

A NEW PLAYER IN TECHNOLOGY SECTOR

Zoo's new chairman, Roger Jeynes, has more than 20 years' experience in the technology sector.

His most recent executive position was chief operating officer at AIM-listed technology merchant bank Interregnum, where he worked on the boards of more than a dozen technology companies during the dotcom boom.

"We went through an extensive process to find the right candidate," said chief executive Stuart Green. "Interregnum were very active on transactions in the technology sector.

"While we have no plans for acquisitions at the moment, with his experience that would put us in a very good position."

Mr Jeynes' experience covers senior sales, marketing and general management roles in the UK, Italy and the USA with IBM, Pyramid Technology Inc and EMC Corporation.

Mr Jeynes, 57, is currently a director of five other companies, including media and technology advisory and valuation firm Charborough Capital.