Zoo Digital plummets on trading, reinterpretations of accounting rules

The AIM-traded firm said it had received revised guidance from its auditors regarding the accounting treatment of third-party costs.

It said its auditors advised that the costs should not be matched with revenue based on the company's existing accounting policies.

Instead, the costs should be recognised when supplier invoices were received.

The company said the change in accounting policy was expected to result in an increase of about $2m in adjusted EBITDA for the 2023 financial year.

However, it was also expected to lead to a downward restatement of approximately $1.2m in adjusted EBITDA for the 2022 period.

The impact of the change in accounting policy remained subject to the finalisation of audit procedures and a technical review.

Zoo Digital said it expected to announce its full-year results in early August.

In terms of first quarter trading for the new financial year, Zoo said it had experienced lower revenues than previously expected.

The decline in revenue is attributed to two short-term market factors affecting the wider entertainment industry.

Firstly, Zoo said its major streaming company clients had been implementing cost-saving measures and reorganising their operations in response to increased competition in the industry.

As a result, some costs had been deferred.

Secondly, the ongoing Writers Guild of America (WGA) strike, now in its third month, had impacted the demand for localisation and media services for new titles.

Despite such industry-wide challenges, Zoo said it expected a stronger position with several customers due to a rationalisation of its supplier bases.

Zoo noted that it was being selected as one of a smaller number of vendors, positioning the company to capture additional market share once business levels resume.

The company said it expected a return to revenue growth in the second half of the 2024 financial year.

“The group is financially strong, with net cash of $23m as at 30 June,” the board said in its statement.

“Zoo continues to have positive, advanced discussions with a leading Japanese technology company regarding the acquisition of its localisation subsidiary.”

At 0803 BST, shares in Zoo Digital Group were down 35.89% at 67p.

Reporting by Josh White for Sharecast.com.