Zinc Media Group (LSE:ZIN) — Annual Results

0:01 Good afternoon, and welcome to the ZINC Media Group PLC investor presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right hand corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received in the meeting itself. However, the company can review all the questions submitted today and publish responses where it is appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Mark Browning, CEO. Good afternoon to you, sir.

0:33 Good afternoon, everyone. Thank you for joining. Good to see you all. We are in our broker's offices today, so, we're using a slightly different technology. If we press the wrong slide, that is probably why. Don't quite know our way around this one as well as we normally would, but let's hope we don't. So welcome along. We'll tell you all about ZINC this afternoon. I'm gonna summarize our annual results for last year ending December 2023, and we're going to share with you where we are for this year and where we are thinking things might go in the year ahead, both this year and potentially into 2025. Now the images you see, hopefully, in front of you are all going to come from our television programs, either in production or recently on air. This one in front of you now is our commission from National Geographic, part of the Walt Disney Company. So this, at some point, when it's finished, should probably be on Disney plus.

1:25 It's a massive US international commission showing the documentary of what it's like to be a Top Gun fighter pilot trainee, similar to the movie, but the real Top Gun. It's in production now, delivers next year as well. So for 2023, we set out three strategic objectives to deliver strong organic growth following the investments we made in the previous years, to integrate the Edge well, which we acquired in August 22, and to deliver these market expectations. And the good news is all three were achieved. Every metric, every financial metric is up. Revenue, up 34%. We've hit the GBP 40,000,000 mark and really importantly driven by organic growth in television, organic growth of 19%.

2:16 Our EBITDA now at the 1,000,000 mark, significant step forward as we said it would be this time last year as those investments start to come through and it drives through to profitability. Gross margins, nudging the 40% mark, up year on year, five points cash, ending the year just under GBP 5,000,000, again, up during the course of the year. We've released further updates to that today in terms of our cash position, nudging 6,000,000. So ZINC is a production company of high quality and high trust. This is what drives our financial performance, the product we make, some of the biggest and the most talked about television shows both in this country and globally. And we're famous for two things, the trust that our clients place in us and the quality of our product.

3:07 So in the case of Putin versus the West, some of you may have seen this. It's still on the iPlayer, trusted to get access to the biggest political players in that particular conflict in Ukraine. So the five star generals, the prime ministers, the presidents, the defense secretaries, all the ambassadors, everybody who's had a seat at the table, we can get access. That's the trust that the BBC place in us. Think of the fighter jets program I just talked about, the trust that is placed in us to get access to the top training academies in The US for the US Navy. Think about the trust placed in this by Dame Deborah James for the bowel babe documentary, again, BBC one program. You have to be a highly trusted and respected TV producer to be allowed to film and document the last days of someone's life, she knowing that she wouldn't be alive to see the final product. Trust pervades everything we do, and trust and quality are why people buy from us. And thinking about those buyers, it's coming from the biggest and the most trusted channels in the world, all The UK public service broadcasters, and look at the increasing number of international partners as well. They're all blue chip companies.

4:25 No problems with things like bad debts when you're dealing with massive global players like this. And typically, for those that perhaps don't know, television is normally cash flowed through the production. So you get a proportion of money when you sign the contract. You get another further proportion when you begin filming, and so it rolls through. So in terms of financial security and stability, you're dealing with we're dealing with the biggest and most global brands in the world and production partners. And the quality kite mark comes from the awards that we win. It's a quite hard thing. Every company could say that they have a quality differentiator. ZINC really does.

5:07 We, as of last week, were given production company of the year for the second year running from the New York Festivals Awards. And this award particularly comes from companies who have proven that across all of their output, they have won more awards than anybody else in their sector. That is how you win this particular accolade. And for the second year running, this is ours, and it's testament to the quality of the work that we produce. So that's a bit about ZINC. We're now going to turn to the numbers for last year and Will will lead us through that. So in terms of all our financial KPIs, all metrics are green.

5:56 You can see on the right hand side, so revenue up £10,000,000 gross profit up nearly £6,000,000 margins up 5.5 percentage points adjusted EBITDA is up to the GBP 1,000,000 milestone, gross cash and net cash both at GBP 1,300,000. EBITDA of 1,000,000 is in line with market expectations. It's also the highest the group has achieved since 2010. We're on a journey and we believe that we're on the right path. In terms of revenue, we're a well diversified content production group with 60% of revenue coming from TV production and 40% from production for brands and businesses.

6:42 And 23% was generated outside The UK, that's up from 18% in the prior year. And this diversified production base reduces the risk associated with exposure to any one market or any one territory.

7:01 If we look back over the last couple of years, revenue has more than doubled from $18,000,000 in 2021 to $40,000,000 in 2023. And the group has significantly outperformed The UK production sector with revenues growing by £22,000,000 over that period. And that's an average annual growth rate of over 50%. And that growth has been driven by both organic growth and acquisitive growth. So £13,000,000 of the growth, you can see from brands and businesses, which are the purple bars in the chart, that has been driven by the Edge acquisition. And then £9,500,000 has come from organic growth in TV, the blue bars. And that is organic growth where we've launched new TV labels in different genres within factual television over the last few years.

7:57 80% of our revenues are generated from existing customers. And this really speaks to the group's revenue quality. So this repeat custom maybe for the same or it may be for different projects each year, but the critical thing is the same customers come back to ZINC time and again because of the quality, the trust and the value for money that we provide. And many of these are huge customers. So as Mark was saying before, we've got all the major TV channels as customers, but also lots of blue chip companies like PWC, AstraZeneca, HSBC, who come to us for corporate films, brand films, e learning and training as well.

8:46 As we start to look forward to this year to next year, the building blocks are in place for further profitability growth. So first of all, we've got a foundation of a GBP 40,000,000 revenue group with diversified content production and we're generating £1,000,000 of EBITDA. Secondly, we've made investments in new businesses in recent years and they're still in an investment phase. So they're delivering revenue growth, but yet to reach profitability. So these businesses provide an opportunity to grow profits this year and next. And thirdly, we've got $05,000,000 of targeted efficiency savings to be realized across this year and next year.

9:34 And they'll be coming from the economies of scale that now exist within the group. The investments made in recent years, both organically and by the Edge acquisition have driven this doubling of revenues in the last two years, but also the turnaround from a $600,000 EBITDA loss in 2021 to the $1,000,000 reported EBITDA profit in 2023 and then the £2,100,000 that is the market expectation for FY 'twenty four. And that forecast for FY 'twenty four for ZINC is for us to be at a 5% EBITDA margin.

10:19 And one question is, how does that compare to the market? Well, media businesses with less than 100,000,000 turnover generate a 5% EBITDA margin on average. So based on ZINC's FY 'twenty four market forecast, we are tracking it live. And larger media businesses typically generate 10% to 12% EBITDA margins. And as we scale up towards £100,000,000 revenue, we expect our margins to increase.

10:54 I think this is quite an important slide because we get asked questions like this from various investors. And we've had an independent company look at this, try and analyze the market for us to give a sense of what's going on, where it's going on. So companies, as well as under a 100,000,000, typically sit around this kind of place as in line with us. I think we'll be able to exceed the average here in time. But the opportunity for scale really becomes as we get a bit bigger for for getting those EBITDA percentages higher. So we're looking at that. We're looking at how we can double comment on in a minute, how we might get to that. But that gives you a flavor of where we sit in line with companies of a similar size to us. So let's just break into television a little bit more. I'll give you a little bit more color on what's going on lid under as it were.

11:40 15 returning series last year, the highest number we've had in this group in certainly as long as I've been here in the last three or four years. And we're steadily building up. This is about that repeat business, that revenue quality, getting those returning series. Obviously, it's much easier to get a returning series. It rates well and you spend less money having to get the returning series. So that's a really important metric for us. And alongside those 50 that were part of last year's numbers, there was a further six that were new commissions, serious commissions, all of which have the potential to become returners. So I think this is quite an important metric. It's part of our KPIs. How are we doing on building that returning business? You can see on the right, you get that returning business coming in. Look how that revenue grows very nicely organically year on year.

12:30 There is a always in TV, you're always one phone call away from hopefully a piece of good news that could be transformational. And I want to share this with you really just to give you an illustration. There's always irons and fires inside our group. You may have read if you follow television that BBC are on the hunt for new quiz show, and they asked well, there were still 35 companies shortlisted to potentially be the supplier of that, and there are now two in the game, and we are one of those. Piloting is underway. I can't say anything about it because all that's been announced is that there are two companies in the game, Us and the makers of the chase. So that is going through at the moment. But it gives you an illustration that there's always more opportunity in the system, and this doesn't sit on our pipeline yet because we are still in early stages with this one.

13:24 In terms of brands and businesses and audio, the part of our business that represents 40% of ZINC, there's a lot going on. We make factual TV. Obviously, you've heard of unscripted television often telling stories with access to people and their stories behind those. It's now 60% of our turnover. But the 40% of it is not television comes from brands and businesses, the likes that you'll see on screen. Often involves getting into places where, like television, we need to film, we need to work with high profile presenters, we need to bring their stories to life. The one thing about ZINC is that we can bring brands and businesses will just give me another slide, if you would. We can bring brands that start in one part of our business across to another part of our business. They might start as a television idea. They might move into a piece of brandy content. So Big in America is one of those. It's the largest digital production we've had, started as a TV idea and ended up being paid for by the part department of business and trade and ended up being on LinkedIn, but it's television value.

14:26 A TV show we used to run on channel five with Tony Robinson, history of Britain, became a podcast and so on. So there's lots of ways the power of the ZINC group means that content opportunities can move around, and you can see on the right the performance of this part of our business, which represents 40% of the group. And on the edge, edge produced content for key areas, those aren't familiar with it. Everything is moving on screen now, which is why it lends itself to ZINC. So training and learning, big global brands moving to doing all of that stuff on computers and on phones need to be filmed. Internal comms needs to be filmed. Brand and in Kata, they do commercial production. They make commercials, adverts. So all part of storytelling and all passing the ZINC test. And the edge is absolutely fine.

15:16 It's been an excellent acquisition for everybody. If you recall, we bought the Edge when it had been doing revenues of about 8,000,000 a year for the previous three years, 2019 to 2021. And since it's been part of ZINC Group, it's doing GBP 13,000,000. And we believe there's more opportunity. We're starting to invest in this company. We can expand it both in The UK and internationally. And it's on for yet another very good year this year, the third year. I want to draw your attention to a really critical part of our story, and that is the ZINC platform. And this platform allows all our companies to bring forward just give me the other slide to give me to give to have a bedrock of content and support that allows every business to grow.

16:11 This has been part of our investment strategy over the last few years. We've got postproduction that works for every company. We've got technology, marketing, and PR that works for every company. This is a point of difference where often a client will come to us and say, we wanna work with you because we know you have the infrastructure, the skills, the specialisms to be able to provide the expertise we want. Any one company in this group couldn't afford to carry the cost of that specialism or that level of expertise. But because we're all part of one group, we can share that cost and give everybody that expertise. And there are four case studies for this really. Sunday morning live, a program of TURN TV make.

16:58 Wouldn't it have been possible for TURN to achieve that on their own? It's a very technological play. It requires live TV capabilities. It require it requires excellence and governance, and the BBC were very, very keen to push quite deeply into the governance behind the making of that show, duty of care, HR, specialisms, and so forth, that only comes when you're part of a wider group. Bargain loving Brits is a massive volume play. There have been occasions where television companies have been given a big volume of work and have struggled to maintain the delivery schedule, and they've had to phone the client going, we just can't. We can't do this. It's too big. That doesn't happen in ZINC because it's got the platform to support it, and we can turn out one hundred and thirty six hours of that to the client's requirements. The Top Gun series is massive.

17:50 It's a movie level requirement in terms of its technical capacity. It's a highly complicated piece of television where you've got to put cameras in jets that fly at Mark six and

18:01 mark seven. That is a specialism, and it's a specialism that comes from having the ZINC platform. And as I say, we're down to the final two now for our quiz pilot. This is all achievable because we've invested in a core set of specialisms and expertise that power every one of our companies. It also plays out in how we articulate our story and sell ourselves to the wider market. Our press and our PR is significant now because we have that infrastructure and that support, and ZINC is now getting talked about in all the right places for all the right reasons, both here in The UK and in The US. So looking ahead at what the future might hold, well, I point investors always to where we are this year compared to this time last year.

18:50 We've been able to revise up our brokers have revised up the market expectations slightly for this year. But if you look back, excuse me, at where we were in April 2023, we were on exactly the same position. 32,000,000 of revenue booked or highly advanced was where we were last year for this year. So you look at that and you go, where did they finish the year? They finished on 40,000,000. Where are they now? Same place on target for 40,000,000, 41,000,000. And so the future is built on those three promises, the quality of our product, the trust our clients place in us, which sees 80% of clients return year on year on that group platform.

19:39 Where else can we take that? We're strong on the left hand side, as you're looking at it, in factual television. We're strong in corporate and brand films.

19:49 We could move into other areas, both organically, in television, into entertainment, into quizzes, into drama or through acquisition. We could diversify into new territories in The U. S. Or elsewhere. And in our brands and content for businesses we make, we could look at other adjacencies to what we're currently doing. We could move into new territories with the edge, both globally and in diversification in The UK, or we could move into other areas like animation. We could extend our podcast and our audio business. There are lots of things we're looking at as we look to scale the group both organically and through acquisition. So where does that leave us?

20:36 It leaves us with good revenue growth stories. We have high quality, and we've got the visibility that gives us confidence about this year. We've delivered and have been delivering for the last couple of years, totally in line with market expectation. And we've now got scale, and we're seeing that coming through this year. We saw it last year in that record profit of $1,000,000 and we're seeing that in our expectations for this year. The Edge, obviously, is part of that story performing very well. So it's more of the same. Let's keep going on the organic growth story, see those investments push through, and they'll start to unwind this year and drive through to the bottom line where we get to operating profit, and we'll have free cash flow generation as well this year. So all of those things are in line with what we said would happen last year, and they're coming through.

21:25 And maybe if we find the right opportunity, we'll be able to add further scale to our group as well because we have the platform to cope with it. And I would point investors finally to following the story. Our website is has been completely refreshed. There's an awful lot more investor information on there than has ever been there before. And, hopefully, you'll be able to find your way around that and watch numb number of videos we've put on there too to make it easier to explain what we do and where we're going, but also on social media. So thank you for that. I think that's the end of this section. Very happy to have a conversation through the q and a about where we go and what we do. Perfect, Mark. Well, thank you very much for your presentation. Ladies and gentlemen, please do submit your questions just by using the Q and A tab, which is situated on the top right hand corner of your screen. But just for the company to take a few moments to review the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your investor dashboard.

22:24 As you can see, we have received a number of questions throughout today's presentation. If at this point, I could just hand back to you to read out the questions and give responses to what is appropriate to do so, I'll pick up from you both at the end. Thank you. So, I mean, as ever, I'm very happy to answer all the questions. So I'll just go from the top. Given the challenges being reported in in channel four, how confident are you in growing your TV business? I think this question relates to not just channel four, actually. It's widely reported that The UK linear public service channels have found it difficult under the advertising slowdown. And that, of course, feeds their ability to then make commissioning decisions. Channel four is half of the available market for The UK.

23:13 The good news for us is, actually, we don't rely on channel four particularly heavily. So if they're having difficulties, it doesn't flow through to us. When they start to come out of their difficulties, we will be very happy to provide services to them. So what we're seeing is, and I think the key headline for an investor would be ZINC has a very small market share at the moment of television production in The UK, about 2%. So there is plenty of headroom for us to win businesses and to grow organically, which is what we've seen happen in 2023, 19% organic growth in a declining market overall because we've invested well and we have a small share, which means we can grow even in tough times. We talk about market forecasts, Where can we see them? This is this is the perennial question.

24:05 I understand the difficulties that private investors have here because those that put out market forecasts, which brokers and so forth, put them behind paywalls and and you need to pay for them. They are on our website, but then, you know, the way it works is that we can give links to these forecasts. And I really urge you to to do this and to read the forecast that go out because they contain all the information you need to make an informed decision. They're on our website now. The links are, but they're run by third parties. And some of them are behind paywalls and so forth, but you'll have to make that call. They are available. Bloomberg have them as well. What sort of valuations can we expect from media companies? So, typically, I mean, this is all rule of thumb stuff. I mean, our valuation based on this year's guidance is just north of eight times.

25:04 Plenty of media companies go or are valued, actually, at eleven, twelve, 13 times. I think the average of our peer group is just over 12 times, and that's just on a at the moment, on average, on a multiple on multiple of

25:22 EBITDA profit. The market has moved away from valuing revenue growth in in the last eighteen months in the way that it used to. I think for small sized companies, that's deflated value in all honesty. Small companies can grow very fast, and the value on revenue is is very important, and that's been massively discounted in in most cases and including ZINC. But the value proposition is still there. And if you look at what the big companies changed for, there was only one, I mean, the last six months changed for 11.8x multiple. So there is a very clear business case, both on our EBITDA proportion, Will's explained that, that 5% has headroom in it. Our valuation has significant headroom in it.

26:08 We're clearly constrained at the moment by the difficult position of the AIM market, particularly at the smaller end. Anything you want to add on that? No. So should I take the next one, Don't mind. Just looking at what's on Where one I'll just read the next one. One can only assume hang on. Have I got the right one? Yeah. One can only assume that the lack of share price response comes down to the market, assuming you will not maintain your growth in revenue with your current bookings lower than last year in percentage terms. Please comment. Let me read that again. Oh, hang on. It's moved. One can only assume that the lack of share price response comes down to the market assuming you will not maintain your growth in revenue with the current bookings lower than last year.

26:59 I don't I don't agree with that. I don't think the lack of response to the share price is because people don't believe we're gonna do what we're gonna do. We've done what we've said we're do the last five years. I think the lack of response to the market is the fact that there's a very, very depressed AIM market with no buyers in it. The net outflows of AIM have been horrendous. Billions of pounds have left the market. So all we can do is deliver to what we say we're gonna do, grow our company, and the market will eventually catch up with the story. But you look at the media stocks of many of our competitive sets. Look at STV. Look at ITV. Look at future, and everyone's in the same position. So I just don't think it's to do with the fact that people don't believe we're going to do what we're to do.

27:56 With a substantial presence in The UK factual television market, how does the group plan to capitalize on the growing international channels and subscription video on demand platforms? Are there specific strategies in place to secure more commissions from these platforms? We have launched a lot of these new television companies with people who have either run or have won work from these new markets, and that is partly why we've ended up with a massive $9,000,000 commission from a Disney owned channel. So I would point investors to that and say there are specific strategies in place to tap into these growing international channels, but it's about keeping that diversification going. Remember, the the amount of hours that are commissioned by these international channels from The UK are very small in volume terms.

28:56 There are a few thousand hours commissioned out of The UK market by these big internationals compared to over twenty one thousand hours commissioned by The UK public service broadcasters. So you've got to place your investments very carefully or you could be shooting for a very long time at international revenues and not seeing anything at all. We are growing internationally, both the proportion of our business and the overall volume as well, but we've got to keep an eye on the diversification. Any others, Will, here coming through. Pending to the previous question, are you forecasting the same revenue as last year so profitability will only come from better margins and lower costs?

29:43 Yeah. And I think that is true, but the nuances in the mix of revenue and the net margins being different. So we've talked about that being a £1,200,000 drag on our profitability in FY 2023 through businesses that we have invested in recent years in growing revenues, but haven't reached profitability yet. And around a third of that relates to some businesses within our ZINC communicate business, where we are doing video marketing and branded entertainment content and where the market has been difficult in the last twelve to eighteen months and where we are subscale.

30:39 And so at the beginning of 2024, we have restructured those businesses and we're expecting them in the short term to do less revenue, but more revenue to come from the TV side of the business where we've been investing and investing in new labels. And from a net profit point of view, they will deliver a higher profit number. So it is a change in the mix. There are also some cost savings. We talked about these efficiencies being found and some of which we have already found, others we have identified or are on the way to identifying.

31:24 So there are overheads that will come down as well. So it's a mixture of those things. I'm just going we're doing all out of time, so I'll just keep answering questions as they come through. Here's one with 80% of revenue derived from existing customers. How do you plan to further diversify your client base and maintain resilience in the face of changing market conditions? On the diversification point, there is enormous diversification now within this group. So let's just think about television for a minute, which is now diversified in The UK across multiple price points. We produce at high volume and low cost, and we produce at low volume and very high cost. And you'd have bargain loving bricks and Top Gun as two illustrations of that.

32:16 So there's price point diversification. There is genre diversification. We're in specialist factual, the likes of Putin versus the West and Boul Bay, and we're in popular factual, the likes of bargain loving Brits as well as Robin Ryland's grand tour. We're in The nations and the regions. 70% of our television is made outside London. That is a critical diversification point for the broadcasters who are under Ofcom's pressure to spend more money outside London. So big diversification of all ways of looking at it in television. The group is then diversified within itself. We've got 60% television, 40% content for brands and businesses. Within that 40%, we have the edge who make four different types of products for four different types of buyer and do so both in The UK and in The Middle East.

33:08 And we further diversify into areas outside of that within ZINC MEDIA PLOOSS and so forth. So I think we've got a very clear diversification strategy. 80% of our clients returning is what we would like to see. I don't think that needs to increase particularly. It's a very healthy number. So in terms of the challenging difficult markets, we are constantly adjusting. If a client says, actually, I need I need something at a lower price point, we have an offering for that. Same if they need premium high end international, we have an offering for that. Another question here, looking ahead, what are your key priorities for 2024?

33:59 Organic growth, revenue quality, strong visibility in the future, and finally finish off that integration of the edge, which is pretty much there. And off we go. Keep keep delivering to market expectations. Another one here, you mentioned the problems with the AI market. This must be off the back of what we're just talking about. Do you believe that remaining listed on AIM is still in the best interest of the company? Our investors definitely do. It brings with it brings with it this this difficulty. When the AIM market itself at the lower end has been so difficult for the last year, it's affecting our abilities to to do what we wanna do. Of course, it is. But it still remains should remain, and everything I'm seeing says that we're probably out of the worst now.

34:55 But it still is a form of getting capital, of getting fair and decent valuations, of being able to scale businesses and drive more quickly. And we have a very, very supportive investor base, all who believe in it. Big institutional investors. 70% of our investor base is institutional investors. Their motivation is medium to long term return. They will not buy in nor sell out of our group. They they believe in the story, and they've made their commitment to it in the medium to long term. That is sometimes quite different to a short term small investor who has a different agenda. But where 70% of your register is made up of big institutions, a very significant amount then is made up of employees and people companies that we've bought in the past have shared stock. So based on what we're seeing, around 10% of our stock is available for any liquidity at any one time.

35:49 That's a small amount. So we need more institutions to come in, and that's part of the plan. So yes is the answer. I think we will. We still do believe it's best placed at the moment, but if at any point it wasn't, we'd have to revisit that. Okay. Have I answered all of them? I think so. Yeah. I I think that is all the questions, and thank you very much for answering all of those. And, of course, the company can review all the questions submitted today, we'll publish those responses on the investor meet company platform. But just before redirecting investors to provide you with their feedback, which I is particularly important to you both, Mark, could I just ask you for a few closing comments? I think I probably close with a reminder of this, really.

36:35 We we keep we want everyone to be really clear on how to measure success with ZINC. It's a revenue growth story, it's a revenue quality, and it's revenue visibility. Delivering to expectations, getting that scale, and driving profit through to the bottom line. We become bottom line profitable as EBITDA gets to about £2,000,000. That is this year based on what we're all seeing at the moment. That is a total transformation of a group that has not done that in decades. To be at £1,000,000 of EBITDA profit is the highest in thirteen years, and we're carrying a drag within that number as we've explained.

37:22 So it's all now about this whole transformation of this group. It's been about investing in new markets, investing in growth, seeing that top line go, but now we're seeing it come through at EBITDA, and we'll see it push right through to operating profit this year. Perfect, Mark. Will, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of ZINC MEDIA GROUP PLC, we'd like to thank you for attending today's presentation, and good afternoon to you all. Thank you.