MediaZest Plc - Half-year Report

 ("MediaZest", the "Company” or “Group"; AIM: MDZ)

Unaudited results for the six months ended 30 September 2017

CHAIRMAN’S STATEMENT

Introduction

The Board reports the consolidated unaudited results for the six months ended 30 September 2017 for MediaZest plc and its wholly owned subsidiary company MediaZest International Ltd (“the Group”).

Financial Review

•  Revenue for the period was £1,339,000, down 9% (2016: £1,474,000).
•  Gross profit was £643,000, up 2% (2016: £631,000).
•  Gross margins improved to 48% (2016: 43%).
•  EBITDA was a loss of £87,000 (2016: profit £4,000).
•  Loss for the period after taxation of £149,000 (2016: loss of £67,000).
•  The basic and fully diluted loss per share was 0.01 pence (2016: loss per share 0.01 pence).
•  Cash in hand at period end was £103,000 (2016: £137,000).

Operational Review

Results for the six months to 30 September 2017 are weaker than those for the comparable period, with revenues down and administrative expenses up. However, the fall in revenue was largely the result of two key projects slipping into the subsequent period. The financial impact of this was a reduction in bookable turnover of approximately £300,000, which will now be recognised in the second half of the year. Without this slippage, the half-year results would have represented the Group’s best Operating results to date for any half-year period and the knock on effect will be to show improvement in the second half of the year.

Administrative expenses were higher mainly due to investment in the engineering and administration department to meet increased demand (especially from recurring revenue contracts), the introduction of the new employer’s pension regulations and an increase in commission costs. In addition, the Group invested in an updated website and incurred other marketing costs during the period, the benefit of which will be mainly felt in future periods.

Gross margins continue to improve as the business has become increasingly focussed around managed service fees and less dependent on low margin ‘box shifting’ transactional work. To this end, the Board is pleased to announce further growth in recurring revenue contracts to a run rate of just under £600,000 per annum (versus just under £400,000 per annum at the end of the comparable period last year). The Board notes that several of the larger contracts written during the period were towards the end of the half-year and hence the benefit will mainly be accrued thereafter.

New client acquisition continued apace and the Group was pleased to add new clients Hewlett Packard (for in-store work in EMEA (Europe Middle East and Africa)), Godiva Chocolates, Volkswagen UK (“VW”), European Bank for Reconstruction and Development (“EBRD”), and BMW. The Board anticipates further projects to be delivered from these relationships.

The Group is receiving more international enquiries and opportunities and now work with several key clients outside of the UK. During the period, the Group rolled out digital signage solutions for Ted Baker alone in Asia Pacific, the Middle East, Africa, and the United States. The consistency of delivery of high quality solutions gives the Company a strong market proposition which is attractive to clients.

During the six month period to 30 September 2017, revenue has continued to be generated predominantly across the Retail and Corporate sectors.  The Retail sector (including Automotive Retail) continues to be the area of best performance, and largest opportunity, but in addition the Group has acquired new clients in the Corporate sector including EBRD, plus non-retail work for BMW.

Highlights for the period include delivery of Studio B for Clydesdale Bank, which opened in April, and the new VW store in Birmingham at the Bullring. In addition, another new store for Clydesdale Bank was opened towards the end of the period, again in Birmingham. Ongoing smaller project and recurring work with existing clients Hyundai, Halfords, HMV, Kuoni, Diesel and Rockar continued.

Overall strategy continues to be to focus the sales effort on a concentrated number of high profile clients, providing innovative audio visual solutions which have the potential to generate ongoing long term business opportunities, across multiple sites, and to pursue greater recurring revenues by providing a fully managed delivery and on-going support service to those clients. By covering a larger proportion of the cost base with recurring revenue contracts, the Group can deliver consistent profit month on month. It is also advantageous for cash-flow purposes, and helped generate a cash in-hand balance at period end of £103,000 (2016: £137,000). The Board expects the cash balance to improve in the final quarter of the full financial year due to the completion of the projects that slipped from the half year, ongoing new business wins and renewals of further recurring revenue contracts.

The client proposition continues to be that of generating business loyalty through excellence of delivery, coupled with offering a diverse product range including the Group's own products. As noted above, recurring revenues are at the forefront of this strategy and are being increased by offering contracts for service and maintenance, content production and management, additional consultancy and data analysis work.

Operating Costs

The Board continuously reviews costs whilst balancing investment in the sales and marketing process.

As noted, costs increased somewhat this half-year as the business invested to meet the demands of our growing customer base. This has included further engineering resource to help support the increase in recurring revenue contracts, but also increased marketing spend to attract new clients. The MediaZest.com website has been overhauled to improve the presentation of the Group to clients and investors and generate more incoming  opportunities. In addition, the Group exhibited at the Retail Digital Signage Expo at London Olympia in May 2017 for the first time in several years in order to boost new business efforts. Finally, the Company also hosted its first Retail Transformation Conference at Studio B recently inviting a select audience of Retailers to learn about the Company’s work in that space for Clydesdale Bank.

Outlook

The Board acknowledges that timing differences mean that the half-year results do not reflect the continued improvement in the Group position but are confident that by the full year (31 March 2018) this situation will be better represented. Pending the outcome of a handful of current pitches for quarter 4 of that year, the Board hopes that the Company will deliver a consolidated full year profit at EBITDA level for the first time.

The improvements in recurring revenue streams are important as the Company moves to consistent month on month profitability, and is enabling the Group to build a strong foundation for future growth.

Lance O’Neill

Chairman

15 December 2017