In addition, the firm said today that James Livingstone, non-executive director and portfolio manager at Foresight Group, bought 4,240 shares - representing 0.01 per cent of the capital.

The firm's largest shareholder is Herald Investment Trust with a 20.1 per cent stake.

Zoo said the poor economic environment also meant consumers buying fewer disc based products, with revenues overall falling to $5.9 million in the six months to September from $8.1 million.

The Sheffield-based firm, which supplies audio/visual software for all forms of creative media, said a reduction in the number in the number of DVDs being made generally had meant a drop in the number of titles being processed. 

There was a rise in the number of titles prepared using software for both Blu-ray and Electronic Sell Through (EST) platforms, a trend that the firm expects to continue, although this was not sufficient to offset the decline in the DVD market. 

The volume of work carried out by ZOO as a percentage of clients' overall throughput had not decreased, it added, while it is also targeting the fast growing e-book market.

For the six months, the group posted a loss of US$1.3 million against a profit of US$388,000.

The group has restructured its US cost base to give a lower fixed overhead, but the timing of new revenue streams such as Electronic Sell Through, Blu-ray and eBook means that full year results will also fall short of expectations, it added. 

Zoo said it remains confident moves to diversify its revenue streams will improve the predictability and resilience of the business model and return it to profitability.

Final results for ZOO Digital Group (LON:ZOO) show that the software firm’s adjusted operating profit for the 12 months to the end of March increased by 64 per cent to US$1.3 million over that for 2010.

Smaller revenues of US$14 million, compared with US$15 million for 2010, reflected a change in the sales mix to higher margin services, said Zoo.

The firm’s pre-tax profit during the year was US$511,000 (2010: US$868,000 loss), and at the year-end its cash balance was US$0.6 million (March 2010: US$1.2 million).

ZOO also announced a fundraising of £1.7 million via a placing of approximately 4.25 million new shares at a price of 40 pence each. In addition, the firm is restructuring its loan notes: £3.54 million of debt was due to mature on 31 October this year, but £1.77 million of this being converted into just over 4.4 million shares while the remaining £1.77 million of loan notes are being extended to 31 October 2013.

ZOO said the net proceeds of the placing will be deployed toward accelerating the adoption of the company’s software in new markets, particularly e-books. The firm’s management is targeting its software at the production of media-rich e-books, including picture books, comics, graphic novels, cookery books, travel guides and encyclopaedias.

ZOO’s software is used by clients to manage a range of processes that are common in the creative media industry. Hollywood movie studios are key clients, currently.

Since the end of its last financial year, ZOO has signed its first significant contract with a leading video game publisher and it recently completed another share placing, for US$2.8 million, in order to help it pursue the e-books market.

“I am pleased to be able to report further progress for the group, against the backdrop of great upheaval in the filmed entertainment industry,” said Stuart Green, ZOO’s chief executive officer. “It is a great credit to ZOO that it came through this period with increased profits, which underlines the strength of our business. New opportunities continue to present themselves and it has become ever more apparent that our solutions are relevant to a wide range of industries outside of our traditional stronghold of Hollywood.”

Shares in the firm were flat at 39.5 pence by 8:40 this morning.

Zoo Digital (LON:ZOO), the multimedia software expert, is taking its novel technology into the world of book publishing with an ‘eBook Builder’ that will provide an efficient and cost effective way to repackage traditional books for sale online.

The company revealed today it has already begun working with ‘a number of traditional [book] publishers in the US and Europe to enable high quality adaptation of existing products for sale online”.

The eBook Builder will find application across a wide range of genres including picture books, comics, travel guides, cookery books and reference publications.

Zoo is hoping the technology will enable it to tap into an eBook market that, according to Futuresource Consulting, grew by 200% in 2010 alone, giving it a value of $900m.

The foray into electronic book publishing company extends its presence in the ‘Electronic Sell Through’ (EST) market, which refers to the sale of media content, such as video, over the internet via downloading. It follows on from its announcement last September that a major Hollywood studio had adopted its iTunes production toolset to publish ‘iTunes Extra’ content for a range of catalogue titles, which can be downloaded and stored permanently on a computer hard drive or portable device.

‘iTunes Extra’ content has additional DVD-like functionality, such as menus and chapter selection as well as special features like deleted scenes, exclusive interviews, and behind-the-scenes footage.

Since announcing the availability of its toolset for iTunes production, ZOO has been working with a number of film studios, including Warner Bros., to adapt video content for sale through Apple's iTunes store and has expanded the range of services it offers to content owners for EST production.

The music industry, where publishers are beginning to promote their products with value-added materials using Apple's iTunes LP format, presents another interesting target for ZOO. It is keen to leverage further into the format, which lets listeners hear an album and view lyrics, liner notes, band photos, performance videos, and more.

An interactive content editor has been created to enable the creation of EST packages to which iTunes LP support has been added.  Initial customers include a number of music publishers in the US, UK and France.

According to Strategy Analytics, digital music revenues in 2012 will reach US$2.8 billion and surpass physical sales for the first time.

Stuart Green, CEO of ZOO commented: "The Electronic Sell Through market is clearly one of the most exciting developments in recent history for all forms of media sales, and we're delighted to be playing an increasing role. The incredible growth in the electronic books market has been well documented of late and we believe that there are also substantial opportunities within the music industry."

Zoo Digital shares opened on 48p this morning, valuing the company at £11.45m. 

Software provider ZOO Digital (LON:ZOO) has expanded its customer base beyond the film industry with a new packaging agreement with an international videogame publisher.

The deal has come through the company's relationship with the firm Multi Packaging Solutions ("MPS") which is already working with this publisher in the US.

This agreement will see ZOO's products - the Translation Management System (TMS) and its Media Adaption Tool (MAT) - used to customise the publisher's sales outside North America.

They will be used to adapt the publisher's videogames for various languages and regions.

CEO of ZOO Digital Stuart Green said it was a "significant" step, which expanded the firm's customers beyond the film industry.

"This announcement is further proof that our tools, with only modest adaption, are applicable to a number of different industries beyond Hollywood," he said.

Marc Shore, CEO of MPS, added: "We expect this to be the first of many new business relationships for the application of ZOO's product set in the packaging industry."

Andrew Darley, analyst at finncap, said the new agreement highlights the potential for the application of ZOO's tools and services across further businesses than the core market for filmed entertainment. Although the first customer is a video games publisher, Darley sees the pharmaceuticals sector as another target market.

He added: "ZOO's products will enable the customisation of packaging for markets outside the US, co-ordinating local translation through the TMS but centralising packaging production and bringing benefits in time, cost, and multiple international packaging relationships for the client."

Last month ZOO Digital, which supplies software and services to the creative media industry, announced it had won a licensing deal with Global Digital Media Xchange – a major player in the provision of production technologies to the film, television and other entertainment industries.

GDMX will use ZOO’s systems to create Blu-ray disc and digital products for ‘video on demand’ (VOD) providers more quickly and efficiently in order to reduce both costs and time to market.

It came after the company announced in April this year that its profitability for the year would be in line with market expectations. It said that earnings before interest, tax, depreciation and amortisation (EBITDA) would be around US$2.2 million, with operating profit of approximately US$1.3 million.

Adds broker comment...

ZOO Digital (LON:ZOO), which supplies software and services to the creative media industry, has won a licensing deal with Global Digital Media Xchange – a major player in the provision of production technologies to the film, television and other entertainment industries.

House broker FinnCap said the deal adds “a further significant customer in Hollywood” and is positive since it helps ZOO’s drive to customer diversification.

GDMX will use ZOO’s systems to create Blu-ray disc and digital products for ‘video on demand’ (VOD) providers more quickly and efficiently in order to reduce both costs and time to market.

ZOO’s systems provide an automated method for the preparation of digital content, its regionalisation into multiple languages and its assembly for full compliance with Blue-ray and EST (electronic sell through) platforms.

ZOO says its toolset can also be used to adapt audio and video materials that have been prepared for physical disc products so that they can be downloaded digitally in a quick and easy fashion.

“The adoption of ZOO's systems within our proven workflows will enable us to increase our throughput while reducing our costs, bringing significant benefits and improvements to our services,” said Brian McKay, head of GDMX’s production operations.

This latest deal comes after ZOO announced last month that its profitability for the year would be in line with market expectations. It said that earnings before interest, tax, depreciation and amortisation (EBITDA) would be around US$2.2 million, with operating profit of approximately US$1.3 million.

At the end of last year, the company had a cash balance of US$0.6 million that, in addition to a bank overdraft facility of US$0.8 milllion, it believes gives it sufficient working capital for the foreseeable future.

FinnCap expects Zoo to deliver sales this year of US$14 million and adjusted pre-tax profits of US$0.8 million. The firm has set a target price of 75 pence for the shares, which were up 9.2 per cent at 47 pence at 2.30pm.

ZOO Digital (LON:ZOO), which supplies software and services to the creative media industry, has won a licensing deal with Global Digital Media Xchange – a major player in the provision of production technologies to the film, television and other entertainment industries.

GDMX will use ZOO’s systems to create Blu-ray disc and digital products for ‘video on demand’ (VOD) providers more quickly and efficiently in order to reduce both costs and time to market.

ZOO’s systems provide an automated method for the preparation of digital content, its regionalisation into multiple languages and its assembly for full compliance with Blue-ray and EST (electronic sell through) platforms. ZOO says its toolset can also be used to adapt audio and video materials that have been prepared for physical disc products so that they can be downloaded digitally in a quick and easy fashion.

“The adoption of ZOO's systems within our proven workflows will enable us to increase our throughput while reducing our costs, bringing significant benefits and improvements to our services,” said Brian McKay, head of GDMX’s production operations.

This latest deal comes after ZOO announced last month that its profitability for the year would be in line with market expectations. It said that earnings before interest, tax, depreciation and amortisation (EBITDA) would be around US$2.2 million, with operating profit of approximately US$1.3 million. At the end of last year, the company had a cash balance of US$0.6 million that, in addition to a bank overdraft facility of US$0.8 milllion, it believes gives it sufficient working capital for the foreseeable future.

The group has no debt other than a convertible loan note of £3.5 million, and the overdraft facility helps to provide a working capital buffer to fund the growth of the business.

In response to today's announcement, finnCap acknowledged Zoo's strong interims, saying "With continuing progress in the core film media business and further potential from the MPS relationship, ZOO’s consistent improvement continues."

"After previous results announcements we have looked for new customer wins, and these are being successfully delivered: we now look forward to the revenue development from those new contractual framework relationships which will further strengthen the growing base of repeat business. Forecasts for EBITDA growth of 28% from revenue growth of 7% are materially unchanged," the broker said.

The company stated that the system enabled entertainment companies to improve operating efficiencies and had applications in other markets where consistency of branding across multiple language versions is important, including customer products, videogames and publishing.

“In the past, style-guides - those all important standard, style and format-setting documents for product packaging and marketing campaigns - have been created manually. Now with our new automated system, these documents can be produced more quickly and easily, saving time and cost and providing greater centralised control,” said chief executive of ZOO Digital Stuart Green.

In June, broker FinnCap revised its projections for the company after it reported better than expected preliminary results, forecasting sales reach US$16.2 million in 2011, up from US$15.1 million in 2010 and US$11.3 million in 2009. The EV (enterprise value)/EBITDA (earnings before interest, taxes, depreciation and amortisation) has been projected at 7.7x for 2011 compared to 10.3x in 2010.

ZOO achieved its goal for the year of winning new customers, having recently signed agreements with a major Hollywood studio and Multi Packaging Solutions (MPS), while the revenue from the existing significant customer jumped by 72%.

ZOO takes a two-pronged approach to its business, with two distinct business lines. It licenses-out its software, primarily charged with a SaaS (Software as a Service) style per-use structure. Separately, the company has its own production facility, utilising the same propriety software from which it provides a full-service creative and production service. The company has stated that a mixed offering enables it to generate recurring revenues from most clients which increase as its software products become established components of their internal systems and workflows.

ZOO achieved its goal for the year of winning new customers, having recently signed agreements with a major Hollywood studio and Multi Packaging Solutions (MPS), while the revenue from the existing significant customer jumped by 72%. FinnCap said that a placing and partnership agreed with MPS would provide an “avenue into additional industry verticals beyond ZOO’s legacy market.” The broker expects this to launch in H2 2011, noting that the partnership could create a further 2.1 million warrants to subscribe for shares at 50 pence.

The broker said: "We have not forecast revenue from the unmodelled new MPS partnership, yet we had previously included dilution from warrants triggered by MPS revenue hurdles. We take the opposrtunity to correct this, improving adjusted diluted EPS by 9%" for 2011 to 4.8 US cents.

Sales are forecast to reach US$16.2 million in 2011, up from US$15.1 million in 2010 and US$11.3 million in 2009. The EV (enterprise value)/EBITDA (earnings before interest, taxes, depreciation and amortisation) has been projected at 7.7x for 2011 compared to 10.3x in 2010.

These estimates do not include dilution from the achievement of revenue hurdles, which would be in the range of US$5-10 million by July 2013, as finnCap said it would be unreasonable without including the revenue uplift from the MPS agreement. The forecasts are assuming dilution from the existing customer potential of 525,000 warrants only, a change from the previous reporting basis.

The figures also do not account for dilution from the £3.5 million convertible loan notes, which is considered debt until conversion. The report said that this would transform net debt to net cash and generate a further 7.3m shares in issue, moving EV/EBITDA FY 2011E to 7.5x.

Interest from the loan is payable at 6% and its removal will benefit the March 2012 income statement, as yet unmodelled.

ZOO takes a two-pronged approach to its business, with two distinct business lines. It licenses-out its software, primarily charged with a SaaS (Software as a Service) style per-use structure. Separately, the company has its own production facility, utilising the same propriety software from which it provides a full-service creative and production service.

ZOO has said that this mixed offering enables it to generate recurring revenues from most clients which increase as its software products become established components of their internal systems and workflows.

Shares in the company have surged from 15 pence in March to the current level of around 44 pence.

Earlier in the month the company announced that a major Hollywood film studio adopted its recently launched automated authoring software for the Blu-Ray disc format, which enables entertainment products to be created more efficiently for multiple languages and territories.

Yesterday, ZOO Digital reported another contract win from a second major Hollywood studio, this time for its media collaboration platform. Zoo said that the film studio, which was not named for contractual purposes, was one of Hollywood's largest studios and the deal represented a very significant development for the company.

“The media collaboration platform, which includes the Media Adaptation Tool for rapid generation of localised data, legal and commercial, speeds up the potential distribution of home entertainment products and is encouraging in its adoption of the platform as opposed to specific products: it will be used across multiple formats including online, printed and optical disc media, across the customers entire home entertainment business,” FinnCap said in its note.

Also this month, the company licensed its highly successful Media Adaptation Tool (MAT) to HudsonYards, the creative pre-media division of privately-held visual communication and marketing services company The CAPS Group, opening up what it called a new and unexpected area of business.

ZOO Digital highlighted that its products are being used increasingly to centralise studio functions and drive efficiencies with each new product providing incremental recurring revenue potential from existing and new customers.

The company undertakes a two-pronged approach to its business, with two distinct business lines. It licenses-out its software, primarily charged with a SaaS (Software as a Service) style per-use structure. Separately, the company has its own production facility, utilising the same propriety software from which it provides a full-service creative and production service.

FinnCap said that ZOO’s preliminary results, which are due to be released late this month, would clarify “the shape of forecasts,” providing more details on “outperformance” highlighted in a trading update released in April.
“...but this is clearly continuing strongly positive momentum for ZOO,” concluded FinnCap.

ZOO reaffirmed in an April trading statement that it would meet market expectations and would end the year with cash balances of some £2 million, which boosted its shares by 72%. The company further added that it continued to strengthen and grow its sales team, and had seen an increase in interest for its products.
Shares in the company added a further 9% in late morning trade today.

Zoo said that an existing Hollywood studio client has adopted the software to create Blu-ray titles for recent and catalogue films for release in international territories. ZOO’s products are being used increasingly to centralise studio functions and drive efficiencies with each new product providing incremental recurring revenue potential from existing and new customers.

“The major studios are continually looking for ways to make the release of a product more efficient and cost effective, and we're delighted that our approach to these issues is continuing to resonate and gain traction. Most of our solutions provide an alternative way of looking at an established problem, and our Blu-ray software is a good example of this. We're delighted to be entering this exciting marketplace,” said chief executive of ZOO Stuart Green.

Blu-ray is a rapidly growing new generation optical disc format for high definition video. Consumer sales jumped 94% year-on-year for Q1 2010, according to figures recently released by the Digital Entertainment Group Europe.
Earlier this month, ZOO announced it had licensed its “highly successful” Media Adaptation Tool (MAT) to HudsonYards, the premedia division of The CAPS Group.

In the six months to 30 September 2009, ZOO achieved a 31% year on year increase in revenues to US$8.1 million and swung to profits, going from a loss of US$0.5 million in H1 2008 to a profit of US$0.4 million. The cash balance at the end of the period amounted to US$0.5 million.

ZOO is focused on the worldwide creative media production markets and in particular video production for entertainment applications, with customers including major film studios and other producers and publishers of video-based consumer products.

Shares in ZOO Digital jumped 17.5% on the news.

The improvement was driven largely by significant organic growth from its existing major customers, the Hollywood film studios, where its primary focus on penetrating deeper and broader into their operations has continued to prove successful, the company said in a statement.

Trading in the current year has started well, with turnover improved over the same period in the previous year and profits significantly higher when compared on a fixed currency basis.

Stuart Green, CEO of ZOO Digital, commented: “These are good results and demonstrate that our focus on providing quality products and service to our major customers, the Hollywood studios, is bearing fruit. There is an increasing focus among our customers on efficiencies and cost savings and I am confident that we will continue to grow profitability in 2009.”

FinnCap issued a broker note after ZooDigital’s results statement, saying the reassuring results display evidence of transition from development to sales, as products become essential to customer processes.

“The automation of specialist labour intensive procedures delivers substantial savings to customers in both time and cost, while reduced consumer demand puts pressure on clients’ own revenue streams and creates incentives for efficiency and dependence on ZOO products,” the broker said.

Shareholder support is strong and management has the opportunity to substantially exceed expectations with the addition and build of revenue streams from further customers, it added.

In a trading update for the period to end-March 2009, it forecast a pretax profit of around £0.2 million after an exceptional right-off of intangible assets of £0.4 million compared to a loss of £2.1 million in the previous full year.

Cash position at year-end was approximately £989,000, compared to £675,000 at March 31 2008.

The focus on ZOO’s principal customers, the major film studios, has continued to prove successful and significant progress has been made in increasing the number of business units using ZOO's products and services.

Significant progress has been achieved over the last 12 months and as ZOO's products become more widely adopted and demand for production services increases, visibility of forward production volumes for the coming year is improving. Despite the difficulties in the current climate the board is confident of continued progress, the company added.

ZOO services major content providers like film studios, television networks and corporate clients who publish and market media for global distribution.

ZOO is focused on the worldwide creative media production markets and in particular video and print production for entertainment, games and education applications, with customers including major Hollywood studios and other producers and publishers of video-based consumer products.