Zinc Media : Annual Report And Accounts 31 December 2021

Contents

• 02 Highlights for the year

• 03 Chairman's Statement

• 04 Strategic Report

• 04 CEO's Report

• 07 CFO's Report

• 09 Principal Risks and Uncertainties

• 14 Section 172 Statement

• 15 Directors' Responsibilities and Report

• 15 Directors' Report

• 18 Statement of Directors' Responsibilities

• 19 Corporate Governance

• 19 Chairman's Corporate Governance Statement

• 20 Board of Directors

• 23 Independent auditor's report -

  To the members of Zinc Media Group

• 28 Financial Statements

• 28 Consolidated income statement

• 29 Consolidated statement of comprehensive income

• 30 Consolidated statement of financial position

• 31 Consolidated statement of cash flows

• 32 Consolidated statement of changes in equity

• 33 Notes to the consolidated financial statements

• 58 Company statement of financial position

• 59 Company statement of changes in equity

• 60 Notes to the company financial statements

• 66 Notice of Annual General Meeting

Company no SC075133

Highlights for the year

Headlines

The Group is pleased to report significant progress in 2021, including the following highlights:

• • Revenues for the year to 31 December 2021 ("FY21") of £17.5m (18 months ended 31 December 2020: £30.6m), with H2 2021 revenues increasing by 50% to £10.5m (H1 2021: £7.0m)

• • Adjusted EBITDA1 loss for the year of £0.6m (18 months ended 31 December 2020: £0.8m loss), with H2 2021 Adjusted EBITDA1 profit of £0.5m (H1 2021: £1.1m loss)

• • The Group generated Free Cash Flow2 of £0.5m in H2 2021

• • The balance sheet has remained strong with cash of £5.6m at the end of the year, and £4.2m as of 14 April 2022. There was a net cash outflow of £1.2m during the year (18 months ended 31 December 2020: net inflow of £3.6m).

• • As of 14 April the Group has booked £13m of revenue which is expected to deliver in 2022, an increase of £4m since February.

• • The Group has a healthy pipeline of potential new business for 2022 totalling £35m which could deliver in 2022, of which £8m is at a highly advanced stage. Within the highly advanced opportunities is a potential multi-million pound commission for a global streamer for which the Group has already received £0.4m of funding.

• • TV production gross margins increased by a further 7.6% to 37.2% in the 12 months to December 2021. This is 12.5% higher than when the current management joined the Group in FY19 and equates to a £2m improvement in profitability based on pre-Covid-19 revenues.

• • The Group delivered a number of significant programme successes during the year, which included:

  • o a multi-million pound 52-episode returning series with Channel 5

  • o the Group's first major new series for the Discovery Group

  • o the Group's first Advertiser Funded TV series

  • o the Group's first Advertiser Funded podcast series

  • o the Group's first audio commission from Amazon Audible

  • o the Group's first funded development for one of the world's biggest SVoD (subscription video on demand) platforms; and

  • o the launch of new TV label Supercollider which won new business from Red Bull and Lego

• • The Group has continued to diversify its revenue base. Five new businesses have been launched during 2020 and 2021 to propel the Group into new content creation areas which collectively have generated £5m, or 29%, of Group revenue in the year.

• • Zinc Communicate accounted for 17% of Group revenue in the year, almost double the proportion in FY20.

• • The biggest TV division, in London and Manchester, made a profit at the Adjusted EBITDA1 level for the first time since 2017.

Management believe the size of the opportunity for the Group is significant and are optimistic that growth will accelerate in 2022 and beyond.

• 1 Adjusted EBITDA defined as EBITDA before share based payment charge, loss on disposal of fixed assets and exceptional items

2

Free Cash Flow defined as operating cashflow less capex

Chairman's Statement

2021 was a tale of two halves. The first half saw the country in lockdown between January and April, with the consequential negative impact on TV production businesses heavily reliant on accessing people to film. As a result, the Group's H1 performance reflects these difficult trading conditions. However, in contrast to the first lockdown period in 2020 the Group continued to invest in business development and new hires in H1 2021, trusting that this would deliver growth and profitability in H2 2021 and 2022. This decision has been vindicated in the Group's H2 results which delivered Adjusted EBITDA1 of £0.5m and Free Cash Flow of £0.5m, demonstrating the excellent progress made under the new management team.

Margin improvement has been a critical driver of success, with TV production gross margins now up 12.5% from FY19 levels, exemplifying the transformation plan executed during the Covid-19 pandemic over the last two years. Revenue diversification has continued with the success of new businesses launched in the last 18 months, which collectively delivered £5m of revenue from new markets and buyers. This includes the live action and events production business Supercollider and the branded entertainment and corporate video businesses in the new commercial content division Zinc Communicate.

There were many notable breakthroughs in 2021 as the Group moved into podcasting, brand funded entertainment, live action television and video marketing. The Group also won its largest ever television commission and secured new TV clients including Sky and Dave, and in audio Amazon Audible. The Group starts 2022 in a strong position with £13m booked for delivery in the year and a strong pipeline.

The Board would like to thank the management team, the employees and freelancers for their professional and dedicated work, as well as our shareholders for their support in what has been a year of progress amid difficult conditions.

Christopher Satterthwaite

Chairman, Zinc Media Group plc

21 April 2022

1 Adjusted EBITDA defined as EBITDA before share based payment charge, loss on disposal of fixed assets and exceptional items

Strategic Report

The Directors of the Company and its subsidiary undertakings (which together comprise "the Group") present their Strategic Report for the year ended 31 December 2021.

CEO's Report

Performance and strategy

In the second half of 2021 the Group delivered a healthy Adjusted EBITDA profit of £0.5m (H1 2021: £1.1m loss) and was cash generative. The continuing focus on improving gross margins over the last 18 months was a significant driver of this strong performance and demonstrates the profitability and cash generation which the Group can achieve once revenues start to accelerate and the Group scales further.

At the start of 2021, the Group updated its strategic plan focusing on five strategic priorities:

• • Revenue growth and diversification;

• • Gross margin growth;

• • Cash generation and cash management;

• • Performance culture; and

• • Shareholder engagement

Strong progress has been made on each of these areas during the year.

Revenue growth and diversification

Despite being heavily impacted by Covid-19 in 2021 the television businesses, which are based in London, Manchester, Glasgow, Aberdeen and Belfast, delivered revenues of £14.6m, representing 83% of the Group's turnover. Returning series are the bedrock of successful television businesses and the Group had 13 returning series in 2021 which accounted for £5.5m of television turnover in 2021. The Group starts 2022 with 9 returning series.

Zinc Communicate demonstrated good growth in 2021 and has the potential to grow substantially in 2022 and beyond. This business is the Group's commercial content production division and currently operates in four areas: branded entertainment, corporate video, digital publishing and audio and podcasting. Revenues from Zinc Communicate were £2.9m in 2021, up 59% on 2020 on an annualised basis. Three of these four business were launched in 2021 and all have the potential for rapid acceleration in the years ahead. Gross margins in Zinc Communicate are typically double those in television.

Revenue diversification is progressing well across the Group. Diversification within television saw the Group break into the UK multi-channel networks for the first time in 2021, with new

business coming from Dave (part of UKTV), Sky Arts and Discovery. Prior to the implementation of the transformation plan in 2020 this was largely untapped by Zinc. The Group launched several new businesses in 2021 which included Red Sauce and Supercollider within the Television division, and branded entertainment, corporate video and podcasting in Zinc Communicate. Collectively these new businesses accounted for £5m of revenue in 2021, accounting for 29% of the Group's turnover. These all represent new markets for Zinc, and have the potential for accelerated growth in 2022 and beyond.

Gross margin growth

London & Manchester television production gross margins grew strongly in the year, seeing an increase of 7.6% to 37.2% (FY20: 29.6%, FY19: 24.7%). Improvement has been driven by investments in post-production technology, re-organisation of staff resource, enhancing financial controls in production management and the alignment of incentivisation schemes. Gross margin is now at the higher end of industry norms, and the target remains 33%-35% on an on-going basis.

Cash generation and cash management

Progress in cash management was also made during the year, with the Group becoming cash generative in H2. Despite a net cash outflow of £1.2m over the year (18 months ended

31 December 2020: net inflow of £3.6m), the balance sheet has remained strong: cash balances have remained buoyant throughout the year, ending 31 December 2021 at £5.6m (2020: £6.8m), providing the platform for the Group to invest and enable growth in 2022 and beyond.

Performance culture

The performance culture continues to drive success within the Group. All employees are set clear personal objectives and provided with regular feedback on performance. All business winning roles and business delivery roles are rewarded on delivery of agreed gross margins, and members of the Senior Management Team ("SMT") are incentivised on the EBITDA performance of their respective divisions. A culture of high performance is supported by employee initiatives which invest in personal development, training, and learning and development. Zinc Care was launched in 2021 which implemented wellbeing seminars and coaching events to provide personal and professional development.