Zoo returns to the black

The Sheffield-based company, which is diversifying into eBooks after Hollywood studios reduced the number of DVDs they produce, said trading for the second half of its financial year has progressed in line with expectations and it expects to report turnover of £6.9m for the year to March 31.

Zoo said measures to reduce costs and increase the proportion of sales from its more advanced toolkits has led to improved adjusted earnings of £620,000 in the second half, up from a loss of £250,000 in the first half.

Adjusted operating profits rose to £125,000 in the second half, from a loss of £550,000 in the first half.

The group now expects full year earnings of £370,000 and an operating loss of £495,000.

Chief executive Stuart Green said: “We are pleased to report a stronger second half of the financial year.

“2011 was a very difficult year for the home entertainment industry due to the significant changes that have taken place in consumer markets.

“The innovation and diversification within our business has helped Zoo to broaden its offering into complementary markets and we believe that the business is in a strong position to take advantage of growth in a number of areas.”

The company had a gross cash balance of £740,000 at the end of its financial year on March 31.

While the group is making progress in eBooks and publishing, the turmoil and changing dynamics within the home entertainment industry hit its financial performance in the first half.

The group reported revenues of £3.8m for the six months to September 30, down from £5.2m the previous year.

This led to a pre-tax loss of £830,000, down from a profit of £250,000 last year.

Zoo’s large Hollywood studio customers are reducing the number of titles being released on DVD.

This is due to a combination of the difficult economy and customers switching from a physical library of DVDs to a digital one.

Last summer, Zoo was particularly hit by a reduction in TV releases on DVD, which have made up the majority of its volumes.

The group has reduced its US headcount and restructured its cost base to give a lower fixed overhead, better equipping it to deal with volatility in the market.

In contrast to the decline in the group’s traditional business, there has been an increase in the number of titles using Zoo’s software for both Blu-ray and Electronic Sell Through platforms.

Zoo has changed its business model over the past few years and is now making rapid progress in the eBook market.

Some US publishers have reported that 20 per cent of their total sales now come from eBooks.

It is forecast that one in five titles sold in Western Europe will be an eBook by 2015.

Zoo’s software allows publishers to produce a much wider range of eBooks such as children’s fiction, travel and cookery.

The leading players in the industry, such as Amazon (Kindle), Apple (iPad) and Barnes & Noble (Nook), are investing in better products and new formats.

Mr Green said that Kindle, iPad and Nook all use different technical formats and Zoo’s eBook Builder software has been designed with this in mind.