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

[Technical Difficulty] the full year results to March '24 ZOO Digital Group. Quick intros for those who haven't met us before. I'm Stuart Green, I am the CEO, I'm a Co-Founder of the business, and also a large shareholder, having invested capital over many years in the business.

Hello, Phil Blundell, I'm the CFO, been with the business now for over 6 years, Chartered Accountant and I've worked for a number of AIM listed companies in CFO and operational roles over the last 25 years.

So a quick recap on what ZOO does. We provide technical and creative services so that entertainment content can be distributed globally on primarily streaming services. We're a tech enabled company, which means that all the services that we provide are delivered through proprietary technology that we've created and we're able to do what we do and provide these services very efficiently and at scale and to very high standards, in part due to the benefits that the software brings. So ZOO is referred to as an end-to-end vendor. That's to say that in what we do, we are a one-stop shop. So to take content and to make it available for distribution through streaming services, there are some creative things that need to be done to adapt into different languages and there are also some technical things, and we are accomplished in both of those areas. The customers that we serve are predominantly major streaming services and studios, producers of content. So obviously you will all know that our FY '24, the period, 12 months ending March of this year, was a period of very significant disruption in our industry. There was, we encountered this industry wide black swan event, where our results have been overshadowed by strategic reviews that some major customers have been going through. And of course, part of that has been strikes that have taken place in Hollywood. The major traditional studios in this industry have been very reliant on traditional TV. Some of those big names, Hollywood studios that you know of, generate more than 60% of their revenues from cable and broadcast. So as a consequence, as the industry is moving towards streaming, that is creating a great deal of change. And the industry obviously has gone through a big change through the course of last year, and that recovery is actually still in progress. So it's occurring over a protracted period that's created a very difficult time for all the players in the industry. All I can say is that despite the difficulties we've gone through, ZOO expects to emerge stronger from a competitive position, as a result of the unique role that we play within the sector. So just sort of bit of a spoiler alert here, just jumping to something we'll cover at the end of the presentation. After a very difficult FY '24, the company actually returned to growth in the first half, I'm sorry, the first quarter of our FY '25, that's obviously the months from April to June. And because of that additional growth, and the fact that we, in the course of the last year or more, have reduced our cost base, we were able to deliver a profitable first quarter. So the key points that we'll cover in this presentation, are around the expansion that we've made during the period in our facilities in India. Our utilization of AI, which is nowadays a topic that lots of investors are interested in, in relation to our business. And I will also talk about the changes that have taken place in the market and the indicators that give us confidence that the market will recover and will be strong in the future. And in particular, we talk about content spend, which is a proxy for our addressable market. But globally, content spend is returning to 2022 levels in late 2025, according to market commentators. So we'll now take you through our FY '24 results. And Phil, if you could cover off the financials, please?

Yes, sure. Thank you very much, Stuart. As Stuart said, very challenging year for us and the industry, and that is reflected in our financials. I will go into a lot more detail on subsequent slides, but just as a quick recap, our revenues decreased by 55% in the year to $40.6 million, mainly due to the strikes and also the disruption with some of our major customers, as they reorganize their businesses. The extent of the strikes was very difficult for anybody to anticipate, and it took us a while to get to the point where we decided to cut our fixed costs. And that is the real driver behind the operating loss in the year of $19 million. I'd say, I'll give a little bit more detail around that. But from January onwards, we have been working very hard to conserve our cash. And the year-end, 31 March, we had net cash, no debt, of $5.3 million. And that is our target throughout this year is to maintain that balance between $3 million and $5 million so that we can take advantage of the opportunities that are coming up in the coming year.

Thanks, Phil. On the market over this period, Hollywood content cash spend was down 8%, according to market analysts. And one of the big changes that we've observed amongst major media companies are the changes in content acquisition strategies, the kinds of programs that are being made. These kinds of changes take a long time to play out. Obviously, if a business starts to commission different types of content, then there's a long lead time before those titles will become available for us to work on. So that's partly the reason for this protracted period of disruption in the industry. By the way, in terms of how the major studios are faring now, there is an improving situation. So if you look at the 5 major Hollywood streaming services, they reported a collective profit of $3.2 billion in the first months of this year. And that compares with a $542 million loss a year ago. So all these changes that have created this disruption, are actually translating into profitable businesses for the major media companies. So that relate to the long-term opportunities, that's a very positive sign. Operationally, just a couple of things I would highlight here. Firstly, is that we were selected by a major film and TV distributor, as a vendor for dubbing and subtitling. That's something that we expect to make a meaningful contribution in the current year, our FY '25. We also continued some small investments to establish presence in some key markets. We'll talk a little bit about that in a moment. And we established an operation in Chennai, which is a key part of our strategy going forward. Again, we'll expand on that shortly. We also deployed some AI. We can cover that. And we're working on a number of different areas, to explore how we can use new technologies to deliver more efficient and scalable services. So moving on to the financials in more detail. Phil?

Thank you, Stuart. So first of all, just a little bit more detail on the revenues. The drop in our revenues was broadly similar across the different services. So you can see localization, which is the subtitling and dubbing, down about 52%. And then our media services bucket, which includes all the technical work we do. But also more important for the number there is, we worked on a lot of international launches in the prior year, FY '23, hence why it was down a bit more, 63%. Licenses, which is a very small number these days, about $1.4 million, holding up very well. And then, in fact, Stuart mentioned that we've picked up 1 or 2 new customers who will actually pay us a license for our software. So that line of business will probably maintain as it is at the moment. So what is very clear when you look at the summary of the P&L, is that the losses have been driven really by our own fixed costs. The direct costs there in cost of sales is the freelancers. And in fact, the costs dropped even more than our revenue, which basically means our margins before staff costs actually went up. So that's a good indicator for future performance, that we're managing our costs externally pretty well. But during the year, we only managed to reduce our internal direct staff costs, people who work on productions, by 3%. That's really a function of we ramped up the business for another bumpy year after the $90 million, and it took us quite a while to get that cost back down again. And the key at the moment is that in Q1, that cost was 30% lower than it was 12 months ago. So we've sort of right-sized our production team for the sort of volumes that we expect over the next 12 to 18 months. And it's the same story within our fixed operating expenses, that's our property, IT staff who are not directly involved in production, that only fell 5% in the year. But now it's over 12% lower than it was 12 months ago. So we've started to get that in order. We're still looking for efficiencies, so that should go down. Despite the poor year, we did actually increase our R&D expenditure to $3.2 million. A number of big projects coming to a close, 2 of them with new customers. And obviously on the AI side that Stuart was talking about, we've now made an effort to get that cost a bit lower, so we can save cash, but we'll probably still spend over $2 million in the coming year on R&D. Finance costs, which are actually lease costs to do with property, were broadly similar, given the footprint we have in the business. Just looking at the margins by service, the real impact that drops those margins down is the people costs that are built in there. So localization margins fell from 33% to 23%. In Q1 though we're back above the figures we were achieving in 2023, media services dropped even more from 61% down to 36%. But again, we're over 60% this year. So again, the recovery for us, from a profitable point of view, is already taking place, and it also means that we can manage our cash more effectively. Thank you, Stuart. And then really just finally from me on the balance sheet, just a couple of things I wanted to touch on. Stuart has already mentioned it. We made 4 or 5 key investments last year, which was shown in our intangible assets, which are up 46%. We also capitalized in the region of $2.2 million of R&D. Again, we're building a business for the future, particularly around dubbing with those offices in Italy, Germany, Spain, Korea, and Turkey. We did most of our fixed, our CapEx in FY '23, so there was a big drop off in our PPE in the year, and also 1 of our leases came to an end. So that had an impact on our long-term assets. And also, correspondingly, right at the bottom there, reduced significantly our long-term liabilities as well. Key point there, as you can see, is $5.3 million in cash going into this financial year, and our target is to maintain that throughout the year.

Thank you very much, Phil. So I've got a few charts here to really give you a little bit more color on what's happening in the industry and also to point to some key trends that we see, and why we should all be very optimistic about future prospects for the business. So the first is to do with, I guess, just reflects on why this disruption has taken place at all in our industry. And essentially, it's been due to shifting business models. So major -- actually major traditional studios who are adapting to a future that is primarily about streaming, less about traditional network television. Importantly, the disruption has not been due to lack of demand for streaming services for consumers. And what a couple of these -- couple of charts show, is the anticipated continuing growth in subscribers and viewers of, on the one hand, the left chart is subscription video on demand services, and on the right chart, advertising video on demand services. So these are both -- both areas are in huge demand. They will continue to grow, they are very popular, and we can all expect increased adoption of these services in their various different forms. The next chart is providing a proxy, really, for our market, or our addressable market, because, just to be clear, what we do is to provide services for content that's made. And therefore, if you can look at how much content is made in the industry, that gives you an indication, or at least changes in that gives you an indication of market size insofar as relevant to us. Unfortunately, it's hard to get exactly the data that's directly relevant to ZOO. But what you can get is data relating to how much you spend on content. And to be clear, this is a crude prophecy, because it doesn't really matter to us how much a studio has spent making a movie or a TV show. All that matters is how many minutes of programming they create, because it's that number of minutes that determines how much we charge our customers for the services that we provide. So obviously, the strikes led to a hiatus in production in the industry. And you see that reflected in these charts, which on the left-hand side is showing you the global content spend on making entertainment media, which, as you can see, is sort of approaching $250 billion. And on the right chart is showing you specifically the spend in Hollywood, so amongst the major U.S. media companies. So first of all, the first thing to see is that Hollywood was hit more so than content spend more globally. And that's obviously because the strikes took place in the U.S. We're seeing a slow recovery, particularly in Hollywood. But globally, we should see growth in terms of content spend in the current year, Hollywood takes a little bit longer, and in fact, it's expected to get back to the pre-disruption period levels, which are kind of back in 2022, by the end of the next calendar year. So as I say, a kind of a somewhat protracted period of recovery. What's interesting to know on the chart on the right, is that split between the 2 bars in the columns. The bar at the top, the red section, is showing you spend from new media companies, as termed by this research company, which is MoffettNathanson, and those are companies like Netflix and Amazon and Hulu and so on. And what their research shows is that those kinds of companies are accounted for an increasing proportion of the total spend in Hollywood as we go forward. So since these are our target customers, that's a useful indication of what's happening in the market. And as I say, points to a recovery in content production at some time next year. The third chart is, shows some interesting data concerning one aspect of the type of content that is being produced across the industry. So we've been seeing a shift in the sources of that content over a few years. And what these 2 charts show, on the left is showing you Netflix's source of content, and on the right, Amazon's. They indicate that in both cases, those companies are producing more non-English content than they are English content. So that, you know, gives you a real feel for what's happening in the industry in terms of shifting trends, to produce content that is distributed globally. Because traditionally in this industry, they're pre-streaming most of the content that would travel internationally, was primarily content in English, produced predominantly out of the U.S. What research firm and per analysis have indicated is that based on their research, it points to a 24% rise in the proportion of consumers in English speaking markets that are actually engaging with international content. So international content is becoming more -- is becoming more popular. And clearly that provides good reason for companies like, in this case, Netflix and Amazon to be sourcing their content from other countries, in part because it's often more cost effective to do that. And of course, it allows them to tap a much wider pool of sources to get the very best content for their subscribers. So the benefits of doing this, of sourcing internationally to the streamers, is that it's very cost effective. There's lots of it, there's lots of choice. There are lots of organizations who can create great quality content. But of course, what this does is really emphasize the importance of localization in this industry as more content is being sourced in other languages. Clearly that requires that content to be made accessible to audiences in lots of countries, because when a streaming company commissions or acquires rights to certain content, it is in their interest to make that available to the largest audience possible, which in practice means delivering it in lots of countries, which in turn means localizing it into lots of languages. So a very positive indicator for ZOO's business. So moving now on to some of the themes we're seeing in the changes that have been brought about by these strategic reviews, by our big customers over the course of the last 18 months ago. So these -- what I'm doing in this chart is really to highlight some of the ways in which the market's changed and the effects that those change have on ZOO. So the first thing is the amount of content that's been produced globally has changed. But based on the research that I just presented, I think what we can take away from that is that there's been this short-term lower rate of production, because of strikes and so on. But over the long-term, the amount of content that we produced will probably be undiminished. And 2 independent market researchers have come to that same conclusion. As I said, there's more international sourcing and distribution of content, which implies more localization, which is clearly very beneficial for our business. Although things have been quiet in the short-term for ZOO, we now, as Phil explained, have a reduced cost base, so that we can -- we have -- we're in a position where we can wait out this period of the industry coming back, as our customers have kind of switched their strategies in some places related to what kind of content that they make, and giving time for that content to come through the sort of production pipeline and to reach the stage where we would be working on it. So it's difficult to know just yet exactly when that will start to come through. But we're in a position where we can -- where we can manage our way through that and wait until that recovery really takes hold. Obviously, our customers have had to cut costs, and that's happened right across the industry, which in practice means that they have fewer people to do the work that they do, and including interfacing with organizations like ZOO, to create these localized materials, and adapt content for streaming in lots of countries. So with fewer people, those organizations need to be more efficient and need to be more streamlined. That's good for ZOO because we're obviously a very capable, proficient provider of the services that we offer. We're one of the leading providers in the industry. And one of the trends that we're seeing is this increasing shift towards engaging with end-to-end providers by the biggest entertainment brands. And that's because it's more efficient. It's a simpler engagement to work with a few vendors who, each of which is very capable. So because ZOO is one of a handful of vendors with that capability, that clearly puts us in a very good position moving forward. So I'll just say a few words about artificial intelligence. Clearly it's not hard to do an Internet search and find lots of companies that are offering software to automate the jobs of subtitling and dubbing. So I want to really give you a flavor for what's happening here, and how we see this playing out. The first thing I would say is that it's important to remember that ZOO is at heart a software company. I mean, our origins are as a software company. And when we think about the services we provide, we always start with what software we can develop to make the delivery of these services very efficient, very streamlined, very scalable. So we're innovators, we have a tech enabled business, and that innovation is in our DNA. So it comes to no surprise to you that we've been evaluating AI for many years. AI has been around a long time, but it's only relatively recently we've seen it reach the point where it actually starts to become interesting and attractive for some of the services that we provided. So it has reached a point in some areas where it's becoming useful, but by no means all areas. So there are certain limited applications of AI that we're seeing in our business that makes sense right now, others that are not there yet and probably won't be there for some time to come. So for example, speech-to-text technologies, again, these have been around for a very long time, but for entertainment content, they have not really performed very well until recently. But with the large datasets that are used for training purposes in these systems currently, that has meant that speech-to-text technologies are working really well, and we've been able to implement them within some of our applications to good effect. One of the features of these systems that purport to offer automated subtitling and dubbing and so on, is that the problem is for creative content, it's very hard to get this artificial intelligence type software to account for all of the subtleties in the source material, and produce output that is authentic. Because producing authentic, believable, localized materials, is fundamentally what our customers want and need. And consequently, because of the nature of that and the multiple factors that, for example, a translator takes into account when they do their work. It's very difficult to incorporate that level of understanding and appreciation, the subtlety that's involved in that within computer software, certainly at the moment. That said, there are some technical tasks where we're already finding application for some of these technologies and of course will take advantage of these when they make sense, and when it will be advantage to us and ethical to do so. So a general approach to AI is actually to use a technology for what we term artificial assistance, which is really about helping creatives and others to do their job more effectively, rather than replacing them. So for someone like a translator, for example, we're looking at solutions that would offer up suggestions to translators to make their work easier, to automatically check certain things about their work, to catch potential errors and issues at an early stage, and to generally make their work more fulfilling, more scalable, so they can do more work in the same period of time. That's good for them and it's good for us too. We've been in discussions about using AI with customers for some time, and some of them have pretty strong opinions about the use of AI. And in fact, recently we started to see customers writing into their agreements, their service agreements that they have with us, certain controls such that they want to be in a controlling situation to determine whether or not AI is used in the fulfillment of services for them. And this obviously extends from the -- from the safeguards that were implemented by the unions in the agreements for actors and writers. There was a big part of the disruption that occurred in the industry and strikes last year. It's all about providing safeguards to protect individuals, but also to protect the streaming companies, because clearly AI systems are trained on other data, are potential sources of copyright infringement, if those training sources have not been properly licensed. So in summary, from ZOO's perspective, we actually expect to be able to offer incremental services, by leveraging AI where it makes sense. And indeed, there are some applications of AI already where it works very well in our sector, particularly around lower value content, such as user generated content, the kind you would find on YouTube and other places. So for content that is very cheap to produce, it obviously it can be hard to justify spending a lot of money localizing that content into different -- into different languages. And in those cases, AI can be a very attractive way to proceed. But if, when any significant sum of money has been spent creating content, then it can be a false economy to produce localized assets that could potentially compromise the quality and the authenticity of the result. And therefore, we don't believe that this is -- this is ready, the technology is ready for this just yet. So for those who have followed the story for a little while, will know that there are 5 key pillars of ZOO's strategic plan. They are as applicable and as important today as they were before all this disruption. So we are totally committed to these 5 key areas and I'll quickly just take you through them and how we've progressed things in the course of the last year. Firstly, innovation, as I said, it's in our DNA, it's how we work, creating innovative technology that enables us to deliver superior services. So we've -- a couple of key things we've done in the period, we've continued to enhance ZOOstudio. And just a reminder for those who aren't familiar, ZOOstudio is one of our cloud-based platforms that we make available to our customers. And it enables them to manage their internal operations in relation to localization and distribution in a very efficient way. So we make that available to a number of our customers who use it in their day-to-day operations. And that's a point of difference for ZOO in the market. So we've continued to enhance that product. We've also developed ZOOflux, which actually is the first of our cloud-based technologies that utilizes AI, in this case to do using speech-to-text technologies, to do transcription, and to accelerate our turnaround times for producing transcribed scripts of content that we work on. The second pillar is scalability, it won't come in as any surprise that we eased off our efforts in recruiting freelancers in the period, given the work volumes were very subdued. But a key area in which we have focused is in the delivery of our follow-the-sun strategy. So this is our approach to ensure that we can offer a 24/7 service to our customers. Increasingly, our customers are looking for us to turn around projects in shorter periods of time. Indeed, there are services that we provide, and provide an SLA on a 4-hour turnaround time. So it's important to us that we've got staff across all the key disciplines available and working around the clock, and we can do that very efficiently and scalably by having locations in key countries around the world. So our follow-the-sun strategy is based on our points of presence in South Korea, in India, the U.K., and the U.S. We work collaboratively and a key example of that is our ZOO Academy program, which is an initiative that we kicked off a year or 2 ago to extend the number of people in our industry with the right skills, to support the creative and technical processes that need to address the requirements of our customers. Part of our ZOO Academy program is to partner with academic organizations who are training the subtitlers and dubbing artists of the future. And we now have actually over 50 of those educational partners. So these are universities and training schools and so on, who have partnered with us and all of whom are using our tools, as part of the training that they provide to their students. So not only are we bringing new talent into the industry and supporting that effort, but that talent comes out with that training, fully understanding and familiar with our platforms and how to use them to do their work. On the customer front, we do have one major studio that we've engaged within the period that is, as I mentioned, is a major studio that we're providing both subtitling and dubbing services for. And we expect that to ramp up in terms of volume of work, over the course of the current year. And then finally, in the area of talent. As I mentioned, we've touched on already, Chennai is an important location for us. It's a new facility we opened during the year. Not only does it provide us with a point of presence in the South of India to enable us to provide very -- a good access to talent, speaking the languages that are spoken in the South of the country that are increasingly in demand by our customers, but also it provides a location where, with an available local talent pool that we can tap to expand our capability, particularly in the areas of media services across of a number of different sources that we are providing to our customers. So we'll wrap up with an outlook statement. So obviously, it has been a very tough period and you see that reflected in the financials that we presented. But there are signs of the industry's recovery now showing. So as we mentioned, sales in the first quarter of our FY '25 were up by 35% over the prior quarter. And this together with the cost reductions that we've implemented mean that we returned to EBITDA profitability in our first quarter. And based on the visibility that we have, we fully expect this will continue through our first half. We're seeing improving visibility of orders beyond that. So our order book is growing in our third quarter, but we don't yet have full visibility for the second half of the year. But assuming the trend that we're seeing at the moment continues, then we -- that would put us on track for a full year market to meet full year market expectations. So we're very well positioned in the market, given the changes that are taking place within that market that I've taken you through, together with the fact that as an end-to-end provider, we are in -- we will be in increasing demand, and with a tech enabled proposition we have scalability as a benefit on our side, and that puts us in a strong position to be able to recover, as demand in the market resumes. And as a result, we're very optimistic for the future. And I should just wrap up by saying that, the next update we will provide will be at our AGM, which will be on the 26th September. And at that point we should hopefully have a bit more visibility, and can provide a fresher update on how we see things playing out through our second half and beyond. Okay. Well, thank you very much. So we will now turn to our Q&A section.

[Operator Instructions] So the first question that we have here is from [ Sid ], who do you consider your primary competitors who can deliver the end-to-end service? So we think, as I said, there are only a handful of companies in the world that have this kind of capability. So I can tell you that the leading ones are a company called Iyuno, which is the largest player in our sector. Originally formed in Korea, but now headquartered in California. So a private equity backed business. The second largest is a company called Deluxe Media. Deluxe is a brand that has been serving the entertainment industry for over 100 years. One of the early film processors. This is a U.S. based business, also private equity backed. The third largest is a company called Pixelogic, which is, again, a company formed in North America, but now owned by a company in Japan. And then I would say the fourth largest is probably a company called Prime Focus, which is based in India. So those are the largest players that we know of, in our sector. Next question from Gary. Is your software patented and is your software unique against your competitors? So on the subject of patents, yes, we have filed patents and we do seek to protect innovations wherever we can through protection by legal means, where that makes sense. And then the question is, is our software unique against our competitors? We believe there are certainly -- there are certainly unique aspects to all of our products. But providing -- as a provider of an end-to-end solution, we think that we are unique in the market. ZOOstudio, which is our platform that we make available to our customers to enable them to manage their operations. We are not aware of another commercial software solution that is available that has that same kind of functionality. Next question from [ Damian Pink ]. Were you surprised by the market and share price reaction today? Phil, do you want to take that one?

To be honest, I didn't know what the reaction would be. But yes, I think given that we're on the road to recovery, I'm surprised that the share price has dropped. But I'm not an expert on the stock exchange or what investors are thinking, so I can't really say much more than that. I'm sorry.

Yes. And our -- the key financials were, obviously, we would flag those up in earlier announcement, so that shouldn't be new news to the market. Next question. Artificial intelligence now cited as a risk in the financial statements and it wasn't there a year ago. Investors' view of AI with respect to different firms seems highly subjective. Is it perceived as a threat or an opportunity? Well, hopefully in the presentation, that's a point that I've covered off. But just to specifically address those key points, it is slightly a risk in the financial statements because clearly there is a lot of technology out there that has -- that purports to provide solutions for the kinds of services that we offer. And therefore it will be remiss of us not to list it as one of the key risk factors in our business. But hopefully, based on the explanation I've given already, we see it as being complementary to what we do and potentially opens up opportunities for us. And it's attractive, particularly in its support of traditional human-based approaches for delivering the services, rather than a replacement for them in our sector. Remember that our focus is on large media companies that are producing content for global distribution by streaming to paying subscribers. Is the investors' view of AI with respect to different firms seems highly subjective? I guess the point there is that perhaps some [indiscernible] of those, there are commentators who are saying this surely means that what ZOO does can be automated by software. Well, again, hopefully I have explained that. I've explained that ticker point, and for sure those technologies are finding commercial value, but not particularly in our sector. So they have value in other areas at the moment. They will improve, of course, and at some point maybe they will get to the point where they're able to do some of this work. But I think there are many factors that need to be taken into consideration in the application of AI to what we do. And I would just emphasize that at the moment for our customers, what matters to them most is the quality and authenticity of the work that we do as far as localization is concerned. And right now there is no software that we or they are aware of that is capable enough at that to entrust that work to any of that solutions. So we see AI as an opportunity, not a threat. The next question from [ Safraz ]. Major customers have not yet provided orders in FY Q3, which starts from October '24. That's correct. How early did they indicate about providing orders and why do you think they haven't provided orders yet? What changes are they going -- are they going to make? So in terms of visibility of orders, historically, it's in our industry and in our sector, companies who provide these kinds of services typically don't have enormous visibility in the pipeline. So historically, 3 months is kind of more or less what we have been used to. Nd prior to the disruption, when the kinds of services that we were providing were in -- were in very high demand and it was in the interests of the buyers to ensure availability of supply of those services. We were starting to see longer periods of visibility. And at the moment, right now, demand for these services, whilst the output of new original content is somewhat subdued, is not as high as it was back in late 2022. So consequently, we're seeing a little bit less visibility. It improved for a while. It's retractable a little bit. But my expectation is that as the market stabilizes and growth returns that we will start to enjoy longer term visibility than we currently have right now. So I guess, what I'm saying is that, we have highlighted the fact that we don't have good visibility in our second half. That is actually, has always been the case that we wouldn't have that much visibility in our business. But we just want to make it really clear to the market. But this is very much a kind of a changing landscape in, which it's quite difficult to predict exactly when growth will return in strength within the industry due to the effects of strategic changes that have taken place. The next question is sort of related to that. When do you expect to see your major customers provide full order schedules? I think it will be, I would expect it to be in the course of our current financial year. So probably into our second quarter and into the second half, but we should probably receive those indications. Question from David. You mentioned the media firms are evolving their business strategy towards a focus on profitability. How do you see this developing, and what are the implications for localization services and ZOO specifically? So again, I hope that we've touched on a good part of that during the presentation already. But what I think some of the challenge that major traditional studios have faced, has been related to the fact that historically their revenues have been sourced through conventional television. So broadcast and cable type distribution, and those revenues are in rapid decline. And because of the way in which content was monetized through those channels, that led to business models that have been long established and well proven that aren't necessarily optimum, given the new dynamic of the streaming industry. So what -- I think what we're observing is sort of a period during which those traditional players are adapting their strategies to be better suited to the way in which the streaming market will unfold. And part of that, of course, is looking at the return on investment they get from the kinds of content that they make. And I think an important point that's worth observing is that prior to launching direct-to-consumer services, for major media companies, they have operated historically as wholesalers of content. So they have made TV shows and films, and then have worked with partners to distribute those programs to end consumers. So they've always been done that indirectly. So in the case of feature films that go into cinemas, they've done that by providing their content to cinema chains, for selling DVDs and Blu-ray discs, they've done that through partners and retail. And obviously for broadcast, they've done it through partners who have TV broadcasting channels and so on. So by launching direct-to-consumer services, these organizations have in many cases, for the first time, switched from being wholesalers to being retailers. And so strategies that they employed previously to decide what kind of programs to make, aren't necessarily optimum given their role now as retailers. So I think most of these big media companies have reconsidered the kinds of content that they want to make. As you've seen in the charts that we presented, a key trend, an important trend there is the greater sourcing of international content rather than English speaking content. And these are all parts -- all component parts of the sort of shift that the traditional players are making. Clearly, their drive is to be able to move forward on us on a, you know, on a viable, scalable, profitable basis. So when, we say that these companies are involved in their strategies towards, with a focus on profitability, that's not to say, of course, that they -- weren't focused on profitability in the past, but what's happening is that the market is shifting, and that calls for a similar shift in their strategies, and their business models to accommodate that. What, out of all of that for ZOO, what we think that means is that there is -- there will be more content produced going forward, there will be more consumers of that content. The providers of that content will need to have broad catalogs of material updated very regularly, and they will want to reach the biggest possible audience, which, of course, means delivering those programs in sorts of countries, different cultures, and in different languages. And that all translates into growing demand for localization services. Next question from Gary. Are there any plans to revisit the acquisition of the partner in Japan, which is postponed by the equity raise? Phil, do you want to take that one?

Yes, very briefly. Absolutely, Japan is a key market. You saw on that slide that Stuart put up that it's one of the big content producers. It's also one of the big consumers of content, particularly British content -- English content. And we are still in dialogue with the partner in Japan. Obviously, it is dependent on our financial position continuing to approve. But yes, it still on the cards.

Thanks, Phil. Next question from Leon. If Hollywood content cash spend fell by 8%, why did ZOO's revenue fall by 55%? The figure suggests that content creation from the ZOO's principal customer fell by more than its rivals? Very insightful, Leon. Yes, that's -- that's exactly right. So for those, again, those new to the story, ZOO serves all of the major content producers and streaming distributors, but there is. The mix has been dominated by 1 particular customer for the last few years. That particular customer undertook a very wide ranging strategic review during, which many projects were placed on hold, and many of which have since resumed, by the way. And indeed, we've been working recently on some projects that were placed on hold at the beginning of the last calendar year. But that -- so that customer was -- its flow of products was disturbed more than most. And that's exactly the reason why we saw a more marked impact through the strategic reviews. Next question. The strike was 6 months in length and ended almost a year ago. Is it fair to put the whole blame on strike as I thought ZOO would have fully bounced back by now? To see a rather mediocre recovery after a halving in sales raises questions. Okay. That's fair question. So let's just take that piece-by-piece. The strike was 6 months in length and ended almost a year ago. So actually, the strike ended in November. But remember these, and this was a -- this was actually multiple strikes. It was both actors and writers separately that went on strike and led to kind of 6 months of industrial action. And so if you've ever watched a movie to its end and watched the credits, you will appreciate the number of people that are involved in making a -- certainly a theatrical film production. But even most TV series will have many people that are involved in that process, obviously, not just the actors, but all of the crew members who are involved in sound and filming and editing and all, special effects and all sorts of different things. So when something like this happens, turning projects back on, is something that can't happen overnight. These are projects that are meticulously planned for months, if not years in advance, to make sure that they have all the right people available at the right time in order to get the actors in the right places and so on to do filming and all the rest of it. So although the strikes ended in November, and we saw some resumption of activity in December, it still took several months before productions really got back underway again. So that was a protracted recovery from the strikes. The second part of this question is, is it fair to put the whole blame on strikes? And actually we are not, I mean, clearly we're working in an industry that is going through a lot of change, and the strikes are entirely beyond our control. As they were a factor, but they were not the only factor. And in fact, our view is that the strikes were actually somewhat symptomatic of a bigger thing that's been happening in our industry, which is the very point that we've discussed on this call, that you have an industry in, which there are a small number of very large players that have derived their revenues, from certain sources in the past that are in rapid decline. And this industry is shifting to a new world in, which new distribution methods are coming to the fore. And those distribution methods are monetized in different ways. They have very different dynamics. For example, if you just look at the level of subscriber churn that you see in these services. So in the days of cable television, someone who took out a subscription to a cable TV network, typically would be paying or committing to a year at a time, churn rates, consumers were very low. But now, in this era of streaming, churn rates are very high. And that's a dynamic that's very different. And consequently, the whole entertainment ecosystem has to adapt to that, and find ways in which to hopefully and ideally reduce those level of churn. But also ensure that business can operate sustainably and profitably, and continue to grow. So actually, the strikes were a symptom of something we view as being a bigger thing, and namely the whole kind of strategic shift within the industry that is working its way through. And these are big changes that will take a while to play out. So the last part of the question was, to see a rather mediocre recovery after halving in sales raises question? Well, all I can say is that this is a situation that is not specific to ZOO. If you take a look around other sectors, other supplier, other supply chains related to the film industry, you will see the same thing there. Another question from Safraz, on track to meet market guidance for the full year FY '25. What recovery does it include for the second half of FY '25? And is it up or flat versus the first half? Phil, do you want to take that one, please?

Yes, I'm conscious of time. So the market consensus is revenues of $60 million. So if you do the math, that means that the second half has to be slightly bigger than the first half. But it is just over 10% growth in the second half of the year to hit those consensus numbers. And it sort of answers the question above as well, is that if we hit that extra growth, then we'll start to generate cash. The first half year we will be cash neutral.

Thanks, Phil. Next one's got your name on it too. If the Q1 run rate continues for the full year, will you generate cash in the year?

Yes, I've just answered that one.

Great. And then how long do you think it would take for ZOO to reach FY '23 level EBITDA?

So we only have a forecast in the market for FY '25. We really need to see the end of those strategic reviews by our big customers. Someone mentioned that our revenues have come down significantly compared to the overall market. But if you actually look at what Disney, Paramount, HBO, the traditional content owners, their content dropped significantly last year in terms of their production. It was more like Netflix and Amazon that kept the overall total up. And currently we don't work with them. We are working very closely with both of them to become part of their procurement programs, and we would expect that to happen in the next 12 months.

Thanks, Phil. So with a minute to go, I think we only got time for one more question, which we'll take now. But there are actually a lot of additional questions we haven't had time for. So what we will do is, we will follow-up with a written Q&A for all the questions that are remaining that we haven't had time to address. So hopefully that should be hitting your inbox shortly. If you aren't already subscribed to our Investor mailing list, I recommend you do that and then you can be sure to receive that as soon as it's published. So one last question, again for you, Phil, from [ Sunil ]. Is your guidance to be EBITDA profitable or operating profit profitable?

The guidance for this year is that we will be EBITDA profitable and operating profit, will be probably breakeven. That's the target for the year. The difference being we obviously have a legacy depreciation and amortization of R&D charges, which will bring down the operating profit.

Thank you very much, Phil. Thank you very much everyone for contributing. If you posted a question that hasn't been answered, I'm sorry, but we will get to it as I mentioned, and follow-up separately. So thank you very much for taking part, and hopefully we'll see you next time.

Thank you.

Thanks.

Take care, everyone.