ZOO Digital Group plc (ZOO.L) Earnings Call Transcript & Summary

ZOO FY '25 Full Year Results Presentation. I'm Stuart Green. I'm the CEO, Co-Founder of the business. I became CEO in 2006, and I'm also a 12% shareholder having put capital into the business myself. And I'm joined by the new boy.

So I'm Rob Pursell. I'm the new CFO. I joined yesterday, so this is day 2. So please be kind or gentle. I originally qualified as an accountant in 1999 with PwC and since then, I've worked in a variety of technology companies. For the last 12 years and the last 3 roles, I've been a CFO. And yes, I'm really, really excited to be here. I think ZOO is a great company. It's delivering a value product to a fantastic customer base. And I think with the changes in the market that we'll discuss and the more reliance that our customers are going to be putting on technology, I think is in a fantastic position to really capitalize on that with the investment and the experience they've had over the last 10, 15 years. And so yes, really, really glad to be here and great to be speaking to you all as well.

And great to have you, Rob. Okay. Let's just open up the presentation. I'll leave this important legal notice on the screen for a few things, so you can all read it. But meanwhile, I'll just bring your attention to the tab on the right. So if you're listening to this as a live stream, then on the right, you should find a questions tab. And in that tab, you can submit at any point during the presentation any question that you might have for us. And the presentation will last 30 to 40 minutes, I would guess. And then with the time we have remaining, we'll just work our way through those questions. And hopefully, we can answer any queries that you might submit to us. So, if we run out of time, we'll just have to cut it up, but we'll try and get through as many as we can. So, for the benefit of those new to the story, and there are some names on the list that I don't recognize. So, we'll assume a low level of knowledge and understanding of the business. And I'll just give you a quick intro to ZOO and what we do. So, we provide services to customers who are streaming companies and also big producers of entertainment content. And what we do for them is allow them to distribute their content widely by getting it on to streaming services and making it available in many different languages. And the way in which we go about doing that is using some proprietary technology. So, we're a tech-enabled business, and the technology is one of the key differentiators for ZOO. Just a quick thumbnail on the last year, and obviously, we'll dive into this in more detail in a moment. But I should say, first of all, that we are what's known in our sector as an end-to-end vendor. And that's to say that having -- once someone makes a program, we can do everything that's needed with those materials to get it on to different streaming services and available in different languages. And as an end-to-end vendor, we're one of the relatively few players in the industry that are capable of doing that. And consequently, the services we've provided over the years have been in high demand. However, there's been a good deal of disruption in the entertainment industry. I'm sure many of you are aware of that, and I'll elaborate on that a little bit more in a second. But over the course of that year, our FY '25 ending in March of this year, we've gone through a period of transition as a result of these changes that we've been seeing in our customer organizations. And a key focus of ours during that period has been to implement savings of fixed costs in order to position ZOO so that we can trade profitably and generate cash in our FY '26 and more of that in a moment. What we believe is that with the strategy that we have, the way that we operate, the fact that we're tech-enabled means that we're actually in a great position to be able to support our customers as they come through the other side of this disruption and return to growth. So, we think that as we come through the other side of this, we'll actually be in a stronger position. At the bottom of this slide, you see some logos of some of our customers that we work for. And why do customers choose us? Well, it's because we're very good at what we do. As a tech-enabled business, it means we can provide these services very efficiently and also in a very scalable way. And as a result, the quality of the services, which is all important to our clients is very high. And one point of evidence on that is an award that we were granted in the course of FY '25 from Netflix. We were named as their Partner of the Year for the Americas. Again, down to the quality of the services that we deliver. For all our customers, security is an absolute paramount importance. We're dealing with very valuable intellectual property, and it's crucial that we can safeguard that. So, for us, security is something that we built into our systems from the ground up right from the very beginning. And again, also, we are regularly audited by our customers and by independent bodies and achieve high levels of alignment with the principles of those security programs. We also have points of presence in some key territories in the world that are increasingly important for our customers as locations from which they are sourcing entertainment. And they include Turkey, Middle East, Korea and India. And finally, because of the strategy that we have that we refer to as our follow-the-sun approach, we can provide a 24/7 service to our customers. So, we can provide them with access to project managers at all hours of the day, and we do that by moving projects through project managers at each of our international locations. Now we have confidentiality agreements in place with our customers. So, I can't name them, or I can't actually take you through the detail of this slide, but a couple of things you can take away from what you see here. The first of which is that these are all large media organizations. Secondly, as you can see, we've been working with them for a long time. So, we are trusted, and we provide great services to these companies on an ongoing basis. You can also see that for most of them, we provide all of our main service lines. So that's subtitling, dubbing and media services. And I'll elaborate in a moment on what those are about. Although from a project-to-project basis, obviously, what a customer requires will change, in the main, our customers look to us to provide this wide range of services. So just looking at where we fit within the value chain, our work begins when a program has been made usually by a production company working on behalf of a studio. So, we take those materials from the production company, and we do work both creative work and technical work to prepare that material so that it can then be delivered onto the streaming platforms. So, we will -- once we've completed this work, we'll deliver it straight into Netflix or Disney+, or wherever it is destined depending on what our customer requirements are. And as I say, we do all of that. All the services we provide there are powered by the proprietary technology that we've created that makes us very efficient and scalable. So just to kind of elaborate on those services a little bit. They fall into 2 broad camps. The first is localization, which generally are creative services. The most prominent services in that category are subtitling where you pay over latex on screen and dubbing where you replace the soundtrack. But there are actually many other elements to localization that are needed to make sure that content is suitable and adapted appropriately for its audience in different countries and cultures and languages. Media Services is, it's really predominantly a range of technical services. The most -- and the one area here that where we probably generate the most revenue at the moment is in mastering. So, this has to do with essentially technical things to make sure that these materials are in the right technical formats. They are compatible with the target platform, whether that's a streaming service like Netflix, for example. And they are synchronized so that the audio and the picture properly play out together. So, these are basically, again, a few different services that fall into this camp, but these are the two broad areas of service. And we'll come back to this when we talk about margins because these different service lines have different margin profiles associated with them. And with that, I'll hand over to Rob to cover the results.

Fantastic. Thank you. Okay. So, we released our numbers this morning. And what we want to do here is just take you through a summary of some of the key highlights and some of the key information that we have there. Now this is a summary slide, and I think there's really 2 key messages that are contained here. And the first is that after a difficult FY '24, FY '25 revenue, we've returned to growth. So, revenue up from $40 million up to just under $50 million, and that's a growth of 22%. The good thing there is that we've seen growth across all the segments, certainly helped by the end of the actors and the writers' strike in the end of calendar year '23, but also showing the work that's been done in developing our relationships with our customers, which has given us access to new opportunities and some new programs, some of which have delivered revenue in FY '25 and some of which will come through in FY '26. So, a good story from the top line, the growth in revenue, but also we've really restructured and had a look at the cost base of the business. And in doing that, we've taken out $8.4 million of fixed costs within FY '25. And we're expecting another $2.5 million to then come out in addition to that in FY '26 as well. Now what that's allowed us to do is if we look at our EBITDA, which is a key profitability measure for us, we've been able to increase that profit by $14.7 million. So, we've gone from a loss in FY '24 of $13.6 million to a profit of $1.1 million in FY '25. So really substantial change, growth in revenue reduction in costs. Now that EBITDA figure then flows through into our other reported profit lines. So, you can see there that our operating loss has shrunk from $19.1 million in FY '24 to $6.5 million in FY '25. And also, the loss before tax has shrunk from $20.4 million to $8.3 million. And as we said, we think that the changes that have been made to the organization will mean that in FY '26, we will be profitable at an operational level, and we will also be generating cash. And you can see there in terms of cash, so at the end of the year, we had $2.7 million in our bank account. And it's worth remembering that the company has access to around $6 million of bank facilities with HSBC, none of which were drawn on at the end of the year. So hopefully, that gives you some idea of really the key messages, the key summaries that we've got in terms of the finances. But I think the main one is to say that we are now on a pathway to profitability. As we discussed, we realigned the business. This means that we can be more efficient, we can be more flexible. We can respond to changes in our -- from our customers, requests from our customers, changes in the market, and we can do so in a more cost-effective way. There were 2 parts to that, the reduction in the fixed costs, which was primarily focused on looking at headcount and also where certain roles were being performed. But also, we were able to move, and we accelerated our plans to move services to our facilities in India, which we've been looking and building and investing in over the last couple of years. Now what that does both those things, it allows us that efficiency. And the main way you can see this is if you look at our gross margin. So how much money do we make on the sales and the services that we're delivering. And in the year, we delivered a gross margin of 36.4%. To put that in context, in FY '24, that was down at 13.4%, so a significant increase in gross margins. We actually put a comparator there to FY '23 when it was at 37.6%. Now the reason we've put that there is that that was a year just prior to all the disruption, as Stuart was referring to, but also when we had revenues of around $90 million. So the company being able to get back to that level of gross margin on $49 million, $50 million of revenues is a real accomplishment. And as we say, this now positions us to go into FY '26 with an expectation of profitability and generating cash. And that's even potentially looking at lower revenue basis or still some challenging conditions. So, to look into the detail -- look into the detail a little bit more. And this is -- sort of gives a bit of context to our income statement. You can see there that the numbers are a summary from the results that we put out this morning. On our top line, that revenue figure going up 22%. The text on the left-hand side is really showing you how that breaks down in terms of the segments that we look at. So, the first one is localization. As Stuart said, this is more to do with the subtitling, the dubbing the creative side of what we do, and we see that, that was up 11%. Media services, more the technical side of what we do is up at 54%. So really driving that growth. And the good thing about media services, and we'll see on the next slide is that's a higher-margin business for us. A point to note, we do have a very small segment, which we refer to as licenses. It was only about $1 million in FY '25. So, it's about 2% of our revenue base, and that's a legacy product from about 10 years ago, and that will slowly wind down over time. So, we've seen a really good growth across localization and media services, the 2 main categories, which really supports this idea of being an end-to-end provider, being able to do all the services that our customers could need. I think quite remarkably, even though revenue has grown, if we look at the cost of delivering that revenue, it's actually fallen by 10% from $35 million to just over $31 million. Now within there, we've got a mixture of fixed costs, so people employed and to deliver those services. We also have some variable costs using freelancers and some other resources. And we can see that those direct staff costs are down by 23.6%. So, this is giving us a more flexible, more nimble cost base to operate from. Within that, we've also reduced operating expenses. That's more the overheads of the cost of running the business. If you look in the income statement, you'll see administrative expenses looked fairly flat at $24 million. In reality, the cash cost of that has gone down by about $2 million. It's just that in FY '24, there was a benefit from share-based payments and some share option accounting was really to do with cash that generated an extra $1.7 million in 2024. So, whether that's in the cost of sales or the cash cost of those administrative expenses, we've seen a really good improvement in the year. To give you a little bit more information on those segments. So, this allows us to look at the actual revenues by those segments and the margins. You can see there localization up by 11%, media services up by 53%. And so, media services really has started to increase its share in the business and increase the mix that we see there. And if you look at the gross profit numbers at the bottom there, what you'd be able to see, I mean, you probably have to get a calculator out to work at the moment, but you'll see that both localization and media services, we've seen an improvement in profit in the year. So, localization has gone from 23% to 30% in terms of the margin, the profit we make of that. And media services has gone up from 36% to 67%, so done incredibly well. There are some other costs. So, if you look at those numbers in the gross profit table, they don't quite add up to the total, and we put a little note at the bottom. So, there are some costs that we can't allocate to those various segments. But even looking at that, what we can see is that those costs have reduced from FY '24 from $6.2 million down to about $4.3 million in FY '25. So, looking at that as a percentage of revenue, that's a reduction of 15% to 7%. So, really some good movement in the mix tending towards those more profitable media services, but also just general improvements in margins across the board. This gives you a quick summary of our balance sheet. I won't spend too long on this. But really, what you can see is that most of the assets have moved in line as we'd expect with an increase in revenues. Probably the assets, the line at the top has gone down the most. That reflects what we call noncurrent assets or investments in the business. There were a lot of investments made in '22 and '23. And so, we've been able to control that CapEx a little bit more to help conserve cash but also leverage the investments that were made previously. There is a point and if you look through the numbers we released this morning, you'll see that included in that there's an impairment of an investment of about $1.5 million. This was an investment that the company made in an Indian company called Vista Inc. a couple of years ago, I believe. Now the reason why that's been impaired, it effectively means we've looked at that and said, well, it's not worth as much as we thought it was previously. But that's because there was a contract with Netflix that was coming through that company. We only own 35% of that company. And we've moved that contract to the ZOO Group. So now we get 100% benefit of that contract, but it means that, that subsidiary is worth less than it was before. So that impairment has come through in these assets. You'll see that on the income statement at the bottom as well. But we generally consider that to be a net positive move for the group as a whole. And then finally, so we look at the balance sheet then on to cash. Really, the key number is right at the bottom there. So, thinking about that increase in revenue, the reduction in costs, the really close management of working capital, making sure that we're trying to get paid as quickly as possible. What we've been able to do is in terms of our operating activities, the work that we're doing, we've been able to go from a cash outflow, so losing $12 million in FY '24 to a cash inflow, so making nearly $1.5 million of cash in FY '25. So again, a really good improvement in terms of the cash generation in the business. Overall, our cash balance did drop from 5.3 million to 2.7 million because after making that 1.5 million, we spent 2.2 million in investing activities, which is really the R&D, the capitalization of some R&D costs and purchasing some hardware and some assets. And we also spent $1.8 million on financing activities, which is the payment down of some leases we have in the company as well as some financing costs. So, in terms of overall cash generation, we did reduce the cash a little bit in the year. So, we went down to $2.7 million, but a substantial increase from where we were in 2024 and also putting us on that path to make sure that we actually generate cash in FY '26. Last point really here is to talk about liquidity. So, this is about how do we have enough funds and facilities to keep on trading? Well, we've got that $2.7 million in the bank anyway. But on top of that, we have some really good financing facilities from HSBC, and they come in 3 chunks. So, the first one is we have a $3 million facility in the U.S. We have GBP 2 million in the U.K. and GBP 250,000 overdraft facility in the U.K., which altogether gives us around $6 million of financing. And that's on top of the $2.7 million that we've got -- we had in the bank at the end of the year. And it's something we can use to help fund growth -- to use as we need. And we will use that during the year to -- as part of our working capital management. But just to be clear on that, it was completely unused. Nothing was drawn down at the end of FY '25. Thank you.

Thanks very much, Rob. I'll just give you -- I've got a couple of slides now really to update on the market and how things have been moving. So, first of all, talking about sort of the backdrop to streaming, consumer behavior and so on and how that's been trending. So essentially, the whole of entertainment and home entertainment is moving over to streaming. So actually, in May of this year, streaming eclipsed the combined share of broadcast and cable in the U.S. So that's the first time that, that it's kind of tipped over and that streaming has become dominant over those traditional forms of distribution into the home. Also, there are only 7% of people -- adults who are now regularly watching -- primarily watching traditional linear TV. So, everyone else is getting their content through streaming. Obviously, it has been a challenging time for the last couple of years. And the reason for those challenges has been that primarily the traditional large media companies have taken stock and have made changes to their strategies to ensure that their streaming operations are profitable and sustainable and which, by and large, they have all successfully managed to navigate their way through that -- to that in the last couple of years. But what the knock-on effect that we have seen is that as these organizations have changed their strategies around what kind of content they make, where they source it from. Whether it's episodic TV or feature films and so on. Whilst they're in transition, we've seen a much lower level of new original programs being completed by and for our major customers. And that, in turn has given rise to a reduction in demand for the services that we provide. And this is especially true of dubbing because dubbing is a service that is almost always only commissioned for new content. And what we've seen over -- in recent times has been that some of our customers who for the moment, are producing a lower volume of new original programming of their own, they have chosen to source additional content by licensing third-party materials. In some cases, episodic TV series going back decades. And when they do that, they will very rarely commission dubbing for that kind of content. On the other hand, that kind of content does require a very high level of media services, which, as Rob explained is a higher-margin service line for ZOO. So, in summary, we've gone through a period where there has been subdued demand for our services. We expect that, that will recover in time. Certainly, customers will resume the output of new original content in the future. We do expect that. And with that, we think that our market will similarly recover over time. But for the moment, it has been subdued, and dubbing has been affected to a greater degree than our other service lines. If you look at the -- despite all of that, what market commentators and there's some data coming from PwC here pointing to is an ongoing growth in the media and entertainment industry. So, PwC forecast a 4% CAGR growth through until 2028. If you look more specifically at media localization, the one main commentator there, slater estimates that the current value of the media localization segment is about $5 billion. Our own estimates of the addressable market to ZOO is somewhere in the range of $1.5 billion to $2 billion. So, a sizable niche value segment that we're targeting. So, the question is what is -- what are our customers doing about these major shifts in the market and demand expectations coming from consumers? Well, we're seeing -- we have been seeing lots of changes, some of which I've alluded to already but changes in monetization models. For example, greater adoption of advertising as a revenue source, greater diversity of the kinds of content that are coming on to streaming services, so more live and near-live events and also more partnerships. A number of them are suggested here. A recent one was Disney announced a partnership with ITV. So we're seeing traditional broadcasters aligning themselves with streaming companies, global streaming organizations that will -- that should result in more content that previously would have been available on broadcast channels coming on to streaming platforms. So just to elaborate on some of the trends there a little bit more. So, a couple of things I'd just like to highlight are that we're in the early days of subscription video-on-demand, services like Netflix, there were no adverts. These days, every leading streaming service incorporates advertisements as a key strategy to generate revenues. So that's a change in the way in which organizations are operating now all in response to ensuring that they're maximizing revenues from the service that they offer. What I should say about that is as far as ZOO is concerned, it really makes no difference how our customers choose to monetize the content that they make. If they're making content that has global appeal, then whether it's monetized through adverts or through subscriptions, they still need to make it available in different countries and languages. We're seeing an ongoing trend for sourcing a much greater proportion of non-English original content. So, programming that's coming from lots of different countries and is coming to our screens. And of course, all of that requires localization. We're seeing other genres of content coming to streaming. So since around 2021, sports have started to appear on these global streaming platforms. So, by way of example, in November last year, Netflix live streamed a boxing match between Mike Tyson and Jake Paul. They reported that it was viewed simultaneously by 108 million households, and it became the biggest live streamed sporting event of all time. So, what that does for a company like Netflix, of course, is provide them with new subscribers, provides them with an opportunity to be able to say advertising into those audiences. And -- but what it also does is give them properties that will have appeal globally and for which there will be a need to localize that content, but on much faster turnaround times than has been traditionally the case for the kind of content that you found on streaming. And there are other genres too, that are coming to streaming that have that same characteristic where content that is timely, time-sensitive, things like current affairs programs, talk shows and so on, where there will be a need for very fast turnaround localization. Now the reason that's important to us, of course, is that as a tech-enabled business, we are in prime position to be able to provide very fast turnaround services. And indeed, in FY '25, I provide services to major streamers to give -- to grow them with accelerated subtitles and do soundtracks. There are a few other trends listed here as well. Maybe just pick out the last one. So, what we're seeing now is more -- in addition to those big global general entertainment platforms like Netflix and Disney+ and so on, we're also starting to see some niche content platforms that are -- that have global appeal. So Crunchy Roll is an example. This is a platform that's focused pretty much exclusively on anime. So, a very particular style of animation that comes out of Japan. It's incredibly popular. I think they already have 12 million subscribers. And of course, as they're looking to enlarge their audiences and reach people in different markets, they have the need for localization. So, all of these trends that I've highlighted here, we believe all will have a beneficial effect on ZOO in terms of enlarging the addressable market. And then I can't not mention artificial intelligence. And I'll start by saying that we see AI very much as being a net benefit to ZOO. We are an innovator. Our origins are in software product development. We've been active in looking at evaluating AI for many years. We've adopted it relatively recently, but that's really a function of the stage of development of those technologies. And we really feel that in the last year or 2, they started to reach the point where they actually look interesting and viable for certain applications within our -- the services that we offer. So, AI is a net positive. We are already using AI in a number of different areas, and we will continue to use it more. We see it very much as technology to assist specialists to do their jobs more efficiently, more scalably rather than a kind of technology that's going to displace completely some of these traditional disciplines. AI for dubbing, for example, is already being used in certain segments, particularly amongst creators on YouTube and so on. At the moment, dubbing AI hasn't really reached the point of maturity where it is good enough to do the kind of content -- to work on the kind of content that we work on. However, we're obviously tracking it very closely. We're adopting it where it makes sense. And in due course, we would anticipate AI taking -- being deployed by us in more areas as it reaches maturity and gets to the point where it really is interesting. So just a slide on our strategic progress, which we track against 5 key pillars, our 5 pillars in our strategy, the ones listed here. So, starting with innovation, obviously, which is fundamental to what we do and how we work. The key areas we've worked on in the last year are ones I've mentioned, AI and its adoption and integration with our platforms, but also developing our fast track proposition, which essentially is the service that we now offer and are actively delivering to customers to turn around localization of projects on a very quick turnaround, a few hours for subtitling and typically 24 hours for dubbing. In scalability, we have developed further our follow-the-sun strategy. So, we now have -- we can now offer a 24/7 service to our customers, and we achieved that by moving project management from one of our locations to the next over the course of the day. In collaboration, we're now working with over 50 academic institutions who are using our software to train the next generation of talent, which, of course, will be important in this industry, especially as things return to growth. On the customer front, we have actually secured a number of new accounts in the course of last year, which we expect to begin to make a contribution -- a meaningful contribution in the course of FY '26, one of which we announced was being appointed as a preferred vendor for Amazon Prime Video. And then finally, we have now 2 facilities in India, and we are increasingly using those facilities as a way to fulfill services in a very cost-effective way. So just to wrap up with an outlook. So, what we can tell you is that our first quarter of FY '26, we have seen actually revenues lower than the equivalent period in the prior year, but that is primarily a function of the state of play and demand in the market of dubbing at the moment. If you put dubbing aside and then across all our other service lines, we've seen strong growth over the course of the last 3 quarters ending in the first quarter of FY '26. We've taken you through the cost reductions that we've implemented and those have led to generating an EBITDA profit and a cash breakeven in Q1 of FY '26. And we are continuing to pursue those cost reductions wherever we can and have already identified and committed to a further $2.5 million of annual savings in FY '26. And of course, we see an emerging opportunity for fast-track localization arising because of this move of content that's coming from broadcast onto streaming services. We think that will grow and could be a meaningful component of our revenues in the years to come. So, just to finally wrap up with the investment summary. Obviously, as this industry returns to growth, and already market commentators are forecasting that the spend on entertainment content will continue to grow for years to come, and that should lead to a greater volume of original content coming to the market. As that happens and as that plays out, we're in a great position to be able to capitalize on that and to take market share by virtue of the tech-enabled proposition that we have and the scalable service that we can operate. Enabled by all the automation that we've implemented in our systems, including adoption of AI. We've secured new engagements in the course of FY '25. We expect that those will deliver meaningful revenues in FY '26. And they should also assist greatly in the diversification of our revenue sources across different customers. So, with a leaner operating model that we've now implemented through the changes that we've described, that all supports our priority to be profitable and cash generative in our FY '26.

Thank you very much. So, with that, what I'll do now is I'll jump over to the questions. So, we have a few here. But as I said, by all means, continue to enter questions as we're going through, and we'll use the time we have available, about 20 minutes or so, to take you through them. So, the first one comes from Paul Lin. What's your outlook for cost inflation, particularly wages in India, over the next 5 years? And Paul observes that wage inflation has been high for skilled people in India. And how much does it eat into the current savings? Is that one that you've got an opinion on?

I mean I think India over the last few years has seen inflation. I think what we're trying to do though, is look at the ways that we are moving, particularly media services, that technical service to India, and that's being able to substitute in the Indian resources for other resources around the globe. And I think we've been creating videos to help training to make sure that everyone is doing things the same way and to the same quality, which has been very successful. So yes, we have to keep an eye on wage inflation, but I think the structural change within the business and that ability to move costs and services to India should, in many ways, offset that.

Next question from Chris. How much has the R&D budget been reduced by from '24, '25, and then into '26? Is that a number you've got?

Yes. So, it was around -- you said this in the accounts, in terms of looking at the costs that we effectively capitalize. So, this is where we're doing development work on projects, and we can capitalize that. And that's gone down by around $1 million from FY '24 to FY '25. That's published numbers, we haven't published a number for '26. So, I think it's really important there to say we are definitely keeping and we're making sure that we still are investing in R&D. As Stuart said, we're very actively looking at AI and how we can use our workflow management to do fast-track dubbing, which is something that we don't believe anyone else can do. But also, there has been a lot of investment in the previous years. So, investment often goes in cycles, and we feel that this is over this year and potentially next year as well, that we'll be on a lower part of that cycle. But it certainly doesn't mean that we've in any way stopped investing in this. I think we still capitalized around $1.5 million of development costs in FY '25. So, there's still a significant amount of spend within that area.

Another question from Chris. How much control does ZOO have in terms of driving its segmental revenue, i.e., driving media services ahead of localization? Well, that's a good question because you could say, well, since media services is a much higher-margin service, then let's do more of that and less of the localization. But in fact, we have relatively little control over this because it's a function of what our customers need to get their content onto the streaming platforms. And that depends on the type of content, where it's provenance, how old it is, with this new content or old content, and a whole range of different factors, and we can be successful as a player in the market because we can offer this full range, this end-to-end service offering. That means that customers know they can come to us and say, here you go, here's a title, and we'll take care of it and do everything that's needed. So, in effect, the mix of the services that come with an order is entirely determined by our customer. What we've seen periods of time when the mix has shifted, and we're seeing that at the moment. So right now, obviously, as we've explained, we're seeing less dubbing more media services. And that's, again, a consequence of just the change in the kind of content that at the moment is being added to streaming services, but that will change as we move forward. The next question, 2 questions from Freddie. So, I'll take this one at a time. First part is what specific market indicators or customer behaviors are you seeing that support the expectation of normalization and recovery in content production? So, there is market data that supports that. And I can -- certainly, some that we cited in the prelim statement that you can look to. So, PwC has some forecast on this. Another market commentator whose name I can't remember off the top of my head, but we've referenced somewhere, pointing to ongoing growth in spend on production of new entertainment content globally. Now for us, that is actually quite a crude proxy for our market because just because you're spending more doesn't necessarily mean you're making more. And it's important to note that what we can charge our customers is in no way related to how much it costs our customers to make that content. So, what that means is all things being equal, if we were to work on a 90-minute movie that costs them $200 million to make, we would charge just the same as if we were working on 3, 30-minute episodes of the reality TV show that costs next to nothing to make. So, what matters to us is the volume of content that is created in the industry. And in fact, whilst there are commentators who can tell you estimate what the spend is on content, there is no research that we're aware of that will forecast how much content is being made. Now what we think, based on public statements by some of our customers, we think that they have made shifts in their content strategies that will lead to them using budget in ways that would reduce in higher volumes of content, even if the monetary value of their budget actually declines. So, for example, making fewer feature films and instead making more episodic TV series. And these are the kind of strategies that make more sense when your primary proposition now is a streaming -- a general entertainment streaming service. So, I think these are the kind of things that are changing as a consequence of this wholesale shift to streaming and for our major customers, traditional studios being less reliant on those long-standing source of revenue from broadcast and cable. Then the second part of Freddie's question is, what is the projected timeline for this recovery? And how is it factored into your FY '26 profitability and cash generative outlook? Well, perhaps if I take the first part of that, and then you can cover the second part. So, the projected timeline for this recovery, I mean, we are based on the sense of what we get from speaking with customers and market commentary and so on, we think through this calendar year, we should start to see an uplift, and that should continue into the next year and beyond. However, for the purposes of planning, we've been very cautious in our expectations for the current year. Perhaps you can add to that.

Yes. And I still think we see that there are definitely challenges out there in the market, particularly as Stuart said, with dubbing, that's really in Q1 this year, that was at quite a low level. All the other areas of the business had increased and increased for 3 quarters, but dubbing was still low. So, we're still really waiting to see that recovery come through. When we look at sort of FY '26 and what we think may happen, I mean, there is a note out there by Progressive, which you could sort of go and have a look and they've done some analysis and put some forecasts out there that may help. But what I could say is that the actions that we've already taken in FY to reduce those costs within the business and the ones that we are anticipating taking in FY '26 would allow us to be cash generative and operationally profitable at lower levels of revenue than we've reported in FY '25. So, I think we are being cautious about the recovery. But in there, we are there also making sure that we have the flexibility in our cost base to respond -- if the challenging conditions continue, we'll be able to cope with that. But equally, if we start to see that recovery come sooner, that we certainly make sure that we haven't done anything to the business that wouldn't be able to capitalize on that improvement as well.

Rob, I think probably the next one, maybe one for you. How much can your top line grow before you need to make investments in fixed costs.

Well, I don't think that would be a complete sort of stepped chart if we were to draw that out. I think that with the work that was done towards the end of FY '24 and in FY '25, if I look at the cost of providing the services, about half of them are fixed now, and half are variable. And that's probably quite a well-balanced mix. And what that means is that as the revenues can go up or down, it means that we've still got half of that cost base that can potentially be flexed up and down with that as well. I think as we start to see and as we start to get more confidence in that recovery and those revenues coming through, it is an ongoing conversation to look at the resources that we have and say, okay, where should we invest in getting those fixed costs of retaining those services and those resources versus the reliance on the more variable costs, the freelancers and other types of resources. So I can't really answer that sort of specifically. I kind of feel right now that kind of a 50-50 split is a pretty balanced and reasonable place to be. You don't want to go too low on fixed-cost because then you start to erode the capabilities within the organization. But equally, you can't be too high because then you can't respond to the movements in the market. Fixed costs may go a little bit under that 50% in FY '26. But I think we're broadly there. And if we started to see that revenue significantly recover, I think we would be investing in fixed costs at the same time that we saw that revenue come through as well.

Thanks, Rob. Question from Gary. When do you anticipate revenue to start increasing to the levels seen in '23 at $70 million? And equally, your goal was to have $100 million in revenue, do you think it's still achievable? Well, obviously, I don't want to provide any forecast here, but I guess I would maybe just point to a few factors that one might think about in coming to one's own conclusion about the thing. I guess the first thing is that the demand for great entertainment content is insatiable, and there are more people in the world who are getting access to services through which they can consume this kind of content. It's all moving to streaming. So, what market commentators are looking to is increasing spend on entertainment content. So that all points to more content being made. So, the next question is, are the streaming companies going to be able to successfully monetize their propositions? And the good news there is that all but one of the major services over the course of the last 2 years has made changes that has led to a situation where they are now profitable. So, I think that's very encouraging as well. So, will they be spending money on localization? Well, obviously, if you're investing in creating original content, then clearly, you want to make content that has appealed to as bigger audience as possible. And a simple way to do that is to ensure that it has appeal beyond the boundaries of a single country, and therefore, it would require localization into different languages. So our expectation is that the requirement for localization will continue. Will the localization -- will there continue to be demand for dubbing? So, just as a note, as a rule of thumb, it costs about 10x as much to dub something as it does to subtitle it. So clearly, there are lots of value in this market. For us is in the dubbing segment and the spend that takes place there, which, as we've said, is depressed at the moment. Well, there are countries where their expectation is absolutely that there must be dubbing. And indeed, there is a legislation in certain countries that requires broadcasters, including streamers to localize to dub into the local language. So in France, in Italy, in Germany, for example, that is the case. So we do think that absolutely there will continue to be great demand for that. Are there going to be many more players who can fulfill these services? Well, because of the trend that we have seen amongst our customers, the preference is increasingly to work with end-to-end vendors. There are very few of those. And to be an end-to-end vendor requires quite a bit of investment in terms of capability, locations, and I would argue, these days, a technology enablement. So the barriers to entry for newcomers are quite high. You can say, obviously, there are lots of newcomers in the area of AI. However, those AI innovations are predominantly coming from tech companies, not from companies that have a heritage and a real understanding of language-based services in industry. So, we don't see -- again, as I said, we see AI is supplementing these traditional services. So I think when you kind of stand back from all of these things, I'm not directly answering the question here. But you would say that those circumstances would suggest that companies like ZOO should see a growing demand in the periods ahead. And obviously, in our FY '23, which was our peak year when we did $90 million of sales, in that year, one of things to be mindful of is, of course, that there was sort of one-off launch-type activity going on. So, we were working with our customers to get their platforms up and running in new countries. And obviously, there's a lot of initial work that needs to be done for that. So, you would say, that $90 million of sales we did in FY '23, a proportion of that was not regular run rate work. It was a spike due to that particular circumstance. So, I'll leave you to form your own opinion of that. Gary asked the following question, which is; What revenue point do you expect to return to positive free cash flow?

Well, we expect to return to positive free cash flow in FY '26. And as I think I said previously that, that could be on a lower revenue base than we were reporting for FY '25.

Thanks. Chris asks, have you lost any major competitors during the last couple of years of strikes and disruption? So, we haven't lost any -- our major competitors are still intact. They, like ZOO have all had to scale back. So, they've all cut costs and taken out staff. We've seen quite a few smaller players that have gone out of business through this period, others that are up for sale. So certainly, for some players in the industry, it has been a tough time for all of us, but it's had an existential threat for certain companies in the ecosystem. Paul asks, I've been following assembly buying shares. What I'm surprised about is that all the reports from the company show that it is doing well, but the shares have been dropping substantially. Is there an explanation for this? Do you want to take that?

Well, yes, I think there's obviously a limit to what we can say about this. I think all the information that is available on the company, is put out through the normal channels, and people are taking their view on that. So yes, I can't really comment on why share prices move or certainly have moved. I mean, like I said, I've only been here a couple of days. But I don't think there can be any real commentary that goes against that unless Stuart.

No, I think so. Okay. And then the last question on my screen is another one from Chris. Please can you confirm Phil B will not be leaving with any share options here granted him as CFO. So, for those new to the story, Phil is our exiting CFO, who's been with the business for 8 years or so. And he is a shareholder, so he has purchased shares, and obviously, he'll retain those. I don't believe that there are any share options that he will continue to benefit from after his departure. There are a few more that have popped in earlier. So, another question from Paul. When do you hope to start paying dividends?

Yes, that's certainly not something that we are looking at in the near-term. I think in terms of the opportunity we see in the market, and Stuart has already commented about the size of the market. You've got these significant changes, you've got AI. You've got the fantastic work the team have done in terms of fast tracking the speed at which and how we can use technology to speed up the services that we provide. I think there's plenty of scope for investing to help participate and deliver value from that growth. So yes, I think that have to be our answer for that one.

Noel asked, do you anticipate consolidation in your industry to a few major players? And do you believe yourself to one of those who could benefit from any consolidation? So, yes, I think over a period of years, the market has shifted to one where there were many suppliers, where each supplier generally was providing a subset of services, and the market has moved to a situation where the buyers are really primarily interested in working with vendors who can operate as a one-stop shop. So, operate as end-to-end vendors, which is in that category. There are actually very few with that capability today. And we expect that those will be the businesses that can secure the largest share of spend by the major streaming companies and content producers. Gary asks, will the cost savings be maintained when the recovery takes place?

Yes. I mean, I would definitely say that the margins will be maintained, and it's the cost savings that have delivered those margins. And as I said before, it's very much a question of balancing sort of investment in the fixed cost and the capabilities of the organization plus the more the variable resources that we use. And I think we'll continually be looking at that. And there is a chance with increased revenues, there's often a chance that you can increase those margins as well. So yes, I think the discipline that the company has shown in terms of managing its cost base and the way that has been implemented over the last 12 months, that ethos will absolutely be maintained.

As a follow-on question from Gary. is Fast Track attributed to AI? The answer to that is not presently. And in fact, I should say that our customers are very cautious about the use of AI by vendors due to the potential risk. Well, a number of reasons, but one of which is a potential risk of copyright infringement. So right now, we're not, but we would anticipate that we would be utilizing for certain aspects of those services, some AI technologies in the future. And how much of FY '26 guidance will be attributed to new AI services?

So, I think with that, again, I have to be not too specific on that. I think what we are looking at is to say, well, where can we use AI with our customers in a way that benefits them and us, and there may be some ways that can happen, and that could potentially help in terms of maintaining those margins or even potentially improving them. So, I don't think we can say how much is attributed to it other than it's something that we are looking at and the company has been looking at for a while now. And it's something that we will probably communicate more on in the future as things start to become real and we can actually quantify what that might be.

Great. The last question we'll take, because we're just about to run out of time is from Ian. You presented to institutions this morning. What was the reaction? So, in the presentations that we've done so far, I would say that they have gone well. They've been well received. I think the questions have been in the areas that you would expect, and indeed, the areas that there have been questions this evening. So, I feel comfortable.

Yes. Positive.

Okay. We'll call it a wrap there. Thank you very much, everyone, for attending. I appreciate your time, and we hope to see you next time.

Thank you.

Thank you.