News blog
Zoo Digital
- BY: Andrew Hore |
- POSTED: 04/07/2010 |
Zoo Digital is starting to widen its customer base so it will not be so dependent on the Hollywood film studios.
Sheffield-based Zoo has developed software that speeds up the production and translation of DVDs and their packaging. It can also be used to design posters and point of sale materials. The software helps companies to save money.
An agreement with print-based packaging manufacturer Multi Packaging Solutions Inc and a strategic investment in Zoo by MPS should herald the start of a revenue stream coming from the customers of MPS. The two firms will jointly market Zoo’s software and services to MPS’s customer base, which includes firms involved in entertainment, pharmaceuticals and consumer goods. The pharma sector could be an important customer base because drug packaging needs to be translated into other languages and it must be accurate.
MPS is currently focused on North America with 14 factories under its ownership but it intends to expand in Europe and Asia.
MPS is investing $1.2m (£800,000) at 40p a share and will be issued with warrants to subscribe for 2.15m shares at 50p each. The warrants lapse at the end of June 2013. The venture needs to have generated revenues of between $5m and $10m for the warrants to be exercisable. Revenues will be in the form of software licences and usage fees.
Zoo has been increasing the amount of revenue it generates from existing customers as well as adding new ones. The accounts have switched from sterling to dollars. Revenues increased from $11.3m to $15.1m. Exchange rate movements have been a significant factor in the past couple of years. The reported figures show a swing from a profit to a loss. The underlying pre-foreign exchange loss fell from $1.9m to $600,000.
House broker FinnCap does not include any revenues from the MPS venture in its forecast for the year to March 2011. It still expects revenues to grow to $16.1m and a pre-foreign exchange profit of $900,000. There could still be some contribution from the MPS deal in the second half.
Zoo had net cash of $1m at the end of March 2010 with a further $1.2m to come from MPS. There is a $5.05m convertible loan which lasts until October 2011. The conversion price is 48.75p a share.
At 41.5p a share, Zoo is valued at £9.81m. The share price has nearly trebled over the past year. The shares are trading at 13 times prospective 2010-11 earnings.
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