Zoo Digital suffers fall in half year revenues

SHEFFIELD-based Zoo Digital today revealed that it had suffered a fall in half year revenues as the economic uncertainty continues.

The company also said that its full year results would not meet the board’s expectations.

Zoo Digital said that, while encouraging progress continued to be made in developing products, the turmoil and changing dynamics within the home entertainment industry had continued to affect the company’s financial performance.

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In a statement, the company said revenue for the six months to September 30 2011 was $5.9m - the figure in the same period last year was $8.1m - which has led to an operating loss of $1.087m for the first six months. In the same period last year, the company recorded a profit of $880,000.

The company said: “We have already reduced our US headcount and restructured our cost base to give a lower fixed overhead, better equipping us to deal with volatility in the market.

“Costs associated with this have caused our operating expenses to increase slightly compared with 2010, but the changes should result in an annualised reduction in our fixed costs of approximately $1.2m. Support from our shareholders and loan note holders helped us to redeem part and reschedule the remainder of the convertible loan note of $5.6m which had been due to mature in October 2011. This leaves us with a much stronger balance sheet and cash at the period end of $1.5m.”

The statement added: “The decrease in revenues from the production of DVDs has been caused, we believe, by a fundamental shift in consumers’ purchasing patterns accelerated by the poor economic environment, where a number of factors have led to consumers buying fewer disc based products as they move away from building physical libraries of filmed and TV entertainment.

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“While the studios have previously been confident that these declines could be arrested, we do not expect to see revenues generated from DVD work to return to previous levels. However, these same dynamics have also created many opportunities for Zoo, both through existing customers such as the film and TV studios that are looking to use our automated workflow tools to generate efficiencies in other areas of their businesses, and through our entry into new markets, such as eBook publishing and music where we previously had no presence.”

“The decline in our traditional revenues during the first half of the year was steeper than we had expected, and although we are now seeing increases in the new areas of business such as electronic sell through, Blu-ray and eBook production, the timing of these new revenue streams means that the full year results for the company will fall short of the board’s previous expectations.

“The board does remain confident that the work being undertaken to diversify the company’s revenue streams will improve the predictability and resilience of the business model while allowing the company to return to profitability. While the progress of these new initiatives has been slower than the board had hoped for, we look forward to updating shareholders on our progress in due course.

“The company’s ability to adapt its products and business model to meet the new opportunities presented by the radically changing nature of digital media preparation, marketing and consumption, coupled with the actions we have already taken to reduce our fixed cost base, give the board confidence in the future success of the company.”

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