This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 ("MAR"). Upon the publication of this announcement, the inside information is now considered to be in the public domain for the purposes of MAR.
Pebble Beach Systems Group plc
Results for the year ended 31 December 2019
Pebble Beach Systems Group plc (AIM: "PEB", "Pebble" or the "Group"), a leading global software business specialising in playout automation and content management solutions for the broadcast and streaming service markets, is pleased to announce its final results for the year ended 31 December 2019.
Financial Headlines
|
| 2019 | 2018 |
|
Revenue |
£11.2m |
£9.2m |
| | | |
| Gross Margin | £8.3m | £6.7m |
| | 74% | 73% |
| | | |
| Adjusted EBITDA* % of Revenues | £3.8m 34% | £2.5m 27% |
| | | |
| Adjusted earnings per share* | 2.5p | 1.6p |
| | | |
| Order Intake | £10.3m | £10.8m |
| | | |
| Net cash inflow from operating activities | £2.0m | £1.7m |
| | | |
| Net Debt | £8.4m | £9.4m |
| | | |
Headlines
· Key financial metrics all ahead of the previous year
· Gross margin improved to 74% (2018: 73%)
· Adjusted* EBITDA improved materially to £3.8 million (2018: £2.5 million)
· Net cash inflow from operating activities improved to £2.0 million (2018: £1.7 million)
· Extension to the bank credit facility until 30 November 2021, providing a stable capital base
· Net debt reduced from £9.4 million to £8.4 million during the year
*Adjusted EBITDA, a non-GAAP measure, is EBITDA before non-recurring items and foreign exchange gains. Adjusted earnings per share is calculated on the same basis after taking account of related tax effects.
John Varney, Non-Executive Chairman of Pebble Beach Systems Group plc, said:
"2018 was a year of transformation, and 2019 has been a year of validation. We have shown that the steps we had taken were what the market, in which we occupy a leading position, needed. We won some fantastic new business, for example the order in excess of £600,000 that we secured from IMG. IMG were contracted by Amazon Prime Video to provide playout services for the high-profile live coverage of 20 premiership matches during December. The solution included Pebble Beach Systems' UHD-capable playout servers and control software for automated ad-insertion. We were delighted with this validation of our product suite and the commercial position that we have developed as a business.
We concluded the year having shown that we can both deliver upon our expectations and we can innovate. We are a key component of this industry that changes rapidly and is always at the forefront of technological innovation. We are fortunate to have some hugely talented individuals within Pebble Beach Systems who are constantly delivering new and exciting solutions that enable us to maintain our position as a leading supplier of broadcast automation to the world's largest broadcasters.
As we entered 2020, I was encouraged by the excellent progress we had made and the market positioning of our company.
Following the events of the Coronavirus (Covid-19) pandemic over the past several weeks, management undertook a risk assessment of its potential impact on our business, and assessed that it is unlikely that our customers will see a material downturn in demand with the potential reduction in advertising spend being offset with the potential for increased activity as populations turn towards media for information and entertainment during a time of isolation and uncertainty.
At this time management continue to believe that the virus does not necessitate any change to our strategy for growth but given the impact Coronavirus (Covid-19) is having across the world, we continue to monitor the situation very closely.
- ends -
For further information please contact:
| Peter Mayhead- Chief Executive Dominic Del Mar- Investor Relations
| +44 (0) 75 55 59 36 02 +44 (0) 1256 962 978
|
| | |
| finnCap Ltd (Nominated Adviser and Broker) Marc Milmo / Hannah Boros - Corporate Finance |
+44 (0) 207 220 0500 |
| Tim Redfern / Sunila de Silva - ECM | |
The Company is quoted on the LSE AIM market (PEB.L). More information can be found at www.pebbleplc.com.
About Pebble Beach Systems
Pebble Beach Systems is a world leader in automation, channel in a box, integrated and virtualised playout technology, with scalable products designed for highly efficient multichannel transmission as well as complex news and sports television. Installed in more than 70 countries and with proven systems ranging from single up to over 150 channels in operation, Pebble Beach Systems offers open, flexible systems, which encompass ingest and playout automation, and complex file-based workflows. The Company trades in the US as Pebble Broadcast Systems.
Forward-looking statements
Certain statements in this announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. Nothing in this announcement should be construed as a profit forecast.
CHAIRMAN'S STATEMENT
INTRODUCTION
2019 was another strong year of growth and cash generation. As we have done since I became Chairman, our strategy in the year was to walk the fine line between paying down our debt position whilst also reinvesting in the business to ensure that we are positioned at the forefront of the broadcasting industry. As the industry morphs ever more into one that is led by increasingly flexible, IP led products we have to anticipate these changes and ensure that we continue to be able to benefit from our industry relationships and know-how. Our mission is simple; by maintaining our disciplines on costs and by being focussed on growth we will provide value to our shareholders.
FINANCIAL RESULTS
Revenue for 2019 of £11.2 million vs 2018: £9.2 million.
Overall gross margin in 2019 was £8.3 million (74%) vs 2018: £6.7 million (73%).
Adjusted operating profit of £3.8m in 2019 vs 2018: £2.5 million before non-recurring items, depreciation and amortisation of £2.0 million (2018: £2.7 million) are deducted.
The Company continues to view investment in the development of new products and services as key to future growth and we will continue to invest in innovation and new technologies. In 2019, Pebble Beach Systems capitalised £1.0 million of development costs (amortised £0.8 million), (2018: £0.7 million) (amortised £0.8 million). We believe this is what puts Pebble Beach Systems at the forefront of the industry, and it is why we are able to win the contracts that we have seen in 2019.
Net finance costs were higher in 2019 reflecting the Group's pay-down of some of its revolving credit facility ("RCF") and overdraft being more than offset by the full year impact of a rate of 3.30% (2018: 3.30%) and the adoption of IFRS 16. The available RCF as at 31 December 2019 was brought down to £9.5 million, all of which had been drawn fully down (2018: £10.7 million, of which £10.7 million had been fully drawn down). Interest paid on the RCF was £0.4 million (2018: £0.3 million).
Liquidity risk continued to be reduced, with combined secured bank loans and trade and other payables being further reduced by £1.3 million from £15.3 million in 2018 to £14.0 million at the end of 2019.
Order intake for the full year was £10.3 million vs 2018: £10.8 million.
GOING CONCERN
The directors are required to make an assessment of the Company's and the Group's ability to continue to trade as a going concern.
At 31 December 2019 the Group's net debt was £8.4 million (2018: £9.4 million) comprising net cash of £1.1 million (2018: £1.3 million) and the drawn down RCF of £9.5 million (2018: £10.7 million).
We maintain a good relationship with our bank and on 10 February 2020 a 12-month extension to the current £9.5 million loan agreement was signed. The revision secures the facility until 30 November 2021 with banking covenants and a repayment schedule in place. As noted below, we have taken advantage of the Government's repayment holiday initiatives and have agreed to defer the first payment that was due on 30 June 2020 under our current Facility Agreement signed on 10 February 2020.
In order to assess the appropriateness of preparing the financial statements on a going concern basis, management prepared detailed projections of expected cash flows for a period of 3 years for review by the Board. These projections include the impact of margin improvement strategies and sales growth.
As part of the review, the Board considered sensitivities with regards to the timing of revenue growth coming from the transition in the broadcast industry from SDI to IP platforms. It looked at sensitivities regarding the improvement of gross margin. Additionally, it considered sensitivities regarding the ongoing revenue and cost assumptions, including the impact of Brexit and extreme and unlikely consequences resulting from the Coronavirus (Covid-19) outbreak.
All the Group's employees and contractors are currently working from home, unless it is essential that they do otherwise. There has been minimal disruption, as remote working practices have been extended and adopted. "Virtual" trade shows have been held to replace those cancelled and significant new orders have been won since the restrictions were announced. Interest in our products that permit remote working is high.
The Board have concluded that the Group will have sufficient resources to meet its liabilities for the foreseeable future and therefore the Group and hence the Company remains a going concern.
BOARD CHANGES
As previously announced, the Board are delighted that Richard Logan will join the Board as a Non-Executive Director, effective 1 May 2020. Richard has had a highly successful career both in private companies and public companies, most recently serving as Chief Financial Officer at Iomart Group PLC a cloud computing company quoted on AIM, from 2006 until his retirement in 2018. Richard helped grow Iomart from a breakeven, £20 million revenue company to a quoted business with over the £100 million in revenue and adjusted EBITDA of £40 million. Whilst at Iomart, Richard oversaw 19 acquisitions, the full finance function along with the PLC corporate governance functions. Richard's experience and knowledge of the sector and public markets will be invaluable to the Group's future. Richard's roles within the industry will bring a valuable level of experience to the Board.
Robin Howe, Senior Independent Non-Executive Director will stand down at the close of the next AGM. Robin has been with the Group for 14 years and has provided invaluable support and consistency throughout his tenure, helping shape the role of the Board in recent times and has been an engaged mentor for senior members of the Company over many years. The Board wish Robin every success in his future endeavors.
TRADING OUTLOOK
2020 has started well with initial growth in our pipeline and order intake in line with management expectation of building on the success of the past two years.
In the past several weeks, it has become increasingly clear that the events surrounding the Coronavirus (Covid-19) has the potential to impact our strategic growth plans. As previously reported on 24 March 2020, management undertook a risk assessment of the potential impact of the virus to identify and implement any actions to mitigate said risk. As part of that review we assessed that it is unlikely that our customers will see a material downturn in demand; it is possible that they may experience an increase in demand as populations turn towards media for information and entertainment during a time of isolation and uncertainty, balancing out any potential downturn in advertising spend. At the same time, our ongoing focus on automation and remote support has allowed us to adapt to the global need to complete project implementations remotely.
In order to mitigate potential cash flow risks caused by uncertainties relating to Coronavirus (Covid-19), management undertook a further precaution by making a formal application for a Government capital repayment holiday. On 22 April 2020, our bank approved the deferment of the next loan repayment of £380,000 due on 30 June 2020 under our current Facility Agreement signed on 10 February 2020. Furthermore, the bank has indicated their support should a deferment of the September repayment be considered necessary, as global uncertainties around Coronavirus (Covid-19) become clear.
At this time management continue to believe that the virus does not necessitate any change to our strategy for growth but given the impact Coronavirus (Covid-19) is having across the world, we continue to monitor the situation very closely.
John Varney
Non-Executive Chairman's Statement
For the year ended 31 December 2019
FINANCIAL REVIEW
Divisions and Markets
For the year ended 31 December 2019
Continuing Operations
| | 2019 £'m | 2018 £'m | Change % |
Pebble Beach Systems | 11.2 | 9.2 | 22.1% |
Total Revenue | 11.2 | 9.2 | 22.1% |
Pebble Beach Systems | 4.4 | 2.9 | 54.1% |
Central | (0.6) | (0.4) | 64.5% |
Total adjusted EBITDA | 3.8 | 2.5 | 52.4% |
Pebble Beach Systems has contributed £11.2 million of revenue and £4.4 million of EBITDA in 2019. Non-recurring items excluded from adjusted profit are £Nil (2018: £0.3 million).
Goodwill impairment
In accordance with the requirements of IAS 36 'Impairment of assets', goodwill is required to be tested for impairment on an annual basis, with reference to the value of the cash-generating units ("CGU") in question. The carrying value of goodwill at 31 December 2019 is £3.2 million (2018: £3.2 million) and relates solely to Pebble Beach Systems. There is significant headroom between the carrying value and the value of the forecast discounted cash flows.
Non-recurring items
The Group charged £Nil (2018: £0.3 million) of non-recurring costs to the consolidated income.
Cash flows
The Group held cash and cash equivalents of £1.1 million at 31 December 2019 (2018: £1.3 million). The table below summarises the cash flows for the year.
| | 2019 | 2018 |
| | £'m | £'m |
| | | |
| Cash generated from operating activities | 2.0 | 1.7 |
| Net cash used in investing activities | (1.1) | (0.8) |
| Net cash used in financing activities | (1.1) | (0.8) |
| Effects of foreign exchange | - | - |
| Net (decrease)/increase in cash and cash equivalents | (0.2) | 0.1 |
| Cash and cash equivalents at 1 January | 1.3 | 1.2 |
| Cash and cash equivalents at 31 December | 1.1 | 1.3 |
As at 31 December 2019 net debt was £8.4 million (cash £1.1 million and bank debt of £9.5 million). At the end of January 2020, net debt had reduced to £8.1 million. The Group was using £9.5 million of its available facilities in December 2019.
Foreign exchange
The principal exchange rates used by the Group in translating overseas profits and net assets into sterling are set out in the table below.
| Rate compared to £ sterling | Average rate 2019 | Average rate 2018 | Year end rate 2019 | Year end rate 2018 |
| US dollar | 1.277 | 1.335 | 1.321 | 1.277 |
Risk management
The Board regularly reviews the full range of business risks facing the Group. The approach adopted is to identify, evaluate and manage the likely impact of risk on the Group's business objectives. Where the risks are unavoidable, they are managed through business controls and where appropriate through insurance and treasury activities.
The Group has a programme of regular risk assessment, which incorporates internal control reviews of both a financial and non-financial nature. A process of continuous review has been in place throughout the year at an operating company level to consider the risk environment and the effectiveness of controls. The results of reviews, initiatives and progress on implementing control improvements are regularly reported to the Board.
CONSOLIDATED GROUP INCOME STATEMENT
for the year ended 31 December 2019
| | | 2019 | 2018 |
| | Notes | £'000 | £'000 |
| | | | |
| Revenue | 3 | 11,200 | 9,174 |
| Cost of sales | | (2,931) | (2,515) |
| Gross profit | | 8,269 | 6,659 |
| Sales and marketing expenses | | (2,044) | (2,163) |
| Research and development expenses | | (1,298) | (1,222) |
| Administrative expenses | | (2,247) | (1,759) |
| Foreign exchange losses/(gains) | | (71) | 28 |
| Other expenses | | (889) | (1,723) |
Operating profit/(loss) | 4 | 1,720 | (180) |
| Operating profit/(loss) is analysed as: | | | |
| Adjusted earnings before interest, tax, depreciation and amortisation | | 3,765 | 2,470 |
| Non-recurring items | 3, 4 | - | (304) |
| Exchange (losses)/gains (charged)/credited to the income statement | | (71) | 28 |
| Earnings before interest, tax, depreciation and amortisation (EBITDA) | | 3,694 | 2,194 |
| Depreciation | | (238) | (127) |
| Amortisation and impairment of acquired intangibles | | (889) | (1,419) |
| Amortisation of capitalised development costs | | (847) | (828) |
| Finance costs | 5 | (393) | (296) |
| Finance income | 5 | 2 | 4 |
| Profit/(loss) before tax | | 1,329 | (472) |
| Tax | 6 | 82 | 253 |
Profit/(loss) for the year being loss attributable to owners of the parent | | 1,411 | (219) |
Net result from discontinued operations |
| 39 | 195 |
Net result for the year | | 1,450 | (24) |
| | | | |
| Earnings per share from continuing and discontinued operations attributable to the owners of the parent during the year
| | | |
| Basic earnings/(loss) per share | | | |
| From continuing operations | 7 | 1.1p | (0.2)p |
| From discontinued operations | | 0.0p | 0.2p |
| From profit/(loss) for the year | | 1.1p | 0.0p |
| | | | |
| Diluted earnings/(loss) per share | | | |
| From continuing operations | 7 | 1.1p | (0.2)p |
| From discontinued operations | | 0.0p | 0.2p |
| From profit/(loss) for the year | | 1.1p | 0.0p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
| | | 2019 | 2018 |
| | | £'000 | £'000 |
| | | | |
| Profit/(loss) for the financial year | | 1,450 | (24) |
| Other comprehensive income - items that may be reclassified subsequently to profit or loss: | | | |
| Exchange differences on translation of overseas operations | | | |
| - continuing operations | | 19 | (58) |
| - discontinued operations | | - | 2 |
| | | | |
Total profit/(loss) for the year attributable to owners of the parent | | 1,469 | (80) |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended 31 December 2019
| | Ordinary shares £000 | Share premium £000 | Capital redemption reserve £000 | Merger reserve £000 | Translation reserve £000 | Accumulated losses £000 | Total £000 |
| At 1 January 2018 | 3,115 | 6,800 | 617 | 29,778 | (139) | (46,236) | (6,065) |
| Retained loss for the year | - | - | - | - | - | (24) | (24) |
| Exchange differences on translation of overseas operations | - | - | - | - | (56) | - | (56) |
| Total comprehensive expense for the period | - | - | - | - | (56) | (24) | (80) |
| At 31 December 2018 | 3,115 | 6,800 | 617 | 29,778 | (195) | (46,260) | (6,145) |
| At 1 January 2019 | 3,115 | 6,800 | 617 | 29,778 | (195) | (46,260) | (6,145) |
| Share based payments: value of employee services | - | - | - | - | - | 27 | 27 |
| Transactions with owners | - | - | - | - | - | 27 | 27 |
| Retained profit for the year | - | - | - | - | - | 1,450 | 1,450 |
| Adjustment to prior year losses on adoption of IFRS 16 | - | - | - | - | - | (193) | (193) |
| Exchange differences on translation of overseas operations | - | - | - | - | 19 | - | 19 |
| Total comprehensive expense for the period | - | - | - | - | 19 | 1,257 | 1,276 |
| At 31 December 2019 | 3,115 | 6,800 | 617 | 29,778 | (176) | (44,976) | (4,842) |
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
as at 31 December 2019
| | | 2019 | 2018 |
| | Notes | £'000 | £'000 |
Assets | | | |
Non-current assets | | | |
| Intangible assets | | 4,671 | 5,422 |
| Property, plant and equipment | | 1,182 | 232 |
| Deferred tax assets | | 3 | 3 |
| | | 5,856 | 5,657 |
Current assets | | | |
| Inventories | | 140 | 210 |
| Trade and other receivables | | 3,468 | 2,391 |
Current tax assets | | - | 12 |
Cash and cash equivalents | | 1,144 | 1,269 |
| | | 4,752 | 3,882 |
Liabilities | | | |
| Current liabilities | | | |
| Financial liabilities - borrowings | | 1,520 | 1,100 |
| Trade and other payables | | 4,466 | 4,287 |
| Provisions for other liabilities and charges | | - | 367 |
| Lease liabilities - current | | 139 | - |
| | | 6,125 | 5,754 |
| | | | |
Net current liabilities | | (1,373) | (1,872) |
| | | | |
Non-current liabilities | | | |
| Financial liabilities - borrowings | | 8,030 | 9,550 |
| Lease liabilities - non-current | | 1,046 | - |
| Deferred tax liabilities | | 249 | 380 |
| | | 9,325 | 9,930 |
| | | | |
| Net assets | | (4,842) | (6,145) |
|
Equity attributable to owners of the parent | | | |
| Ordinary shares | 9 | 3,115 | 3,115 |
| Share premium account | 9 | 6,800 | 6,800 |
| Capital redemption reserve | 9 | 617 | 617 |
| Merger reserve | | 29,778 | 29,778 |
| Translation reserve | | (176) | (195) |
| Retained earnings | | (44,976) | (46,260) |
Total equity | | (4,842) | (6,145) |
CONSOLIDATED GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December 2019
| | | 2019 | 2018 |
| | Notes | £'000 | £'000 |
| Cash flows from operating activities | | | |
| Cash generated from operations | 8 | 2,423 | 2,039 |
Interest paid | | (393) | (295) |
Taxation paid | | (38) | (25) |
Net cash from operating activities | | 1,992 | 1,719 |
| | | | |
Cash flows from investing activities | | | |
| Interest received | | 2 | 4 |
| Proceeds from sale of property, plant and equipment | | - | 3 |
| Purchase of property, plant and equipment | | (61) | (88) |
| Expenditure on capitalised development costs | | (985) | (728) |
| | | | |
Net cash used in investing activities | | (1,044) | (809) |
| | | | |
Cash flows from financing activities | | | |
| Net cash used in repayment of financing activities | 10 | (1,100) | (850) |
| Net cash used in financing activities | | (1,100) | (850) |
| Net (decrease)/increase in cash and cash equivalents and overdrafts | | (152) | 60 |
Effect of foreign exchange rate changes | 10 | 27 | (40) |
| Cash and cash equivalents and overdrafts at 1 January | | 1,269 | 1,249 |
Cash and cash equivalents and overdrafts at 31 December | | 1,144 | 1,269 |
| | | | |
Net debt comprises: | | | |
Cash and cash equivalents and overdrafts | | 1,144 | 1,269 |
Borrowings | | (9,550) | (10,650) |
Net debt at 31 December | 10 | (8,406) | (9,381) |
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2019
1. GENERAL INFORMATION
The Pebble Beach Systems Group is a leading global software business specialising in solutions for playout automation, and content serving customers in the broadcast markets.
The Company is a public limited company and is quoted on the Alternative Investment Market (AIM) of the London stock exchange. The Company is incorporated and domiciled in the UK. The address of its registered office is 12 Horizon Business Village, 1 Brooklands Road, Weybridge, Surrey, KT13 0TJ.
The registered number of the Company is 04082188.
This results announcement was approved for issue at close of business on 29 April 2020.
2. BASIS OF PREPARATION
The Group financial statements have been prepared on a going concern basis in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRIC interpretations and the Company Act 2006 applicable to companies reporting under IFRS.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Group financial statements are disclosed in note 4 of the Group financial statements.
During the current reporting period IFRS 16 Leases became effective. The Group has adopted the modified retrospective approach to implementation. Accordingly, comparative periods have not been restated.
From 1 January 2019, at inception of a contract, the Group assesses whether it is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a time in exchange for consideration. A contract conveys the right to control the use of an asset, if the Group receives substantially all the economic benefits from its use over time and controls how it is used.
At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component based on their relative stand-alone prices.
For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease using the same assessment.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right of-of-use asset is initially measured at cost. Cost comprises the initial amount of the lease liability, adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of its useful life or the end of the lease term. Useful life is determined on the same basis as other property and equipment.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease, or if that cannot be determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is measured at amortised cost using the effective interest method.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases that have a term of 12 months or less. The Group recognises the payments associated with these leases as an expense on a straight-line basis over the lease term.
Under the previous policy none of the Group's leases were classified as finance leases. Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognised as an integral part of the total lease expense, over the term of the lease.
The cumulative impact of the adoption of IFRS 16 has been accounted for as an adjustment to equity. For leases classified as operating leases in 2018 the Group did not recognise related assets or liabilities, and instead charged the cost to the income statement on a straight-line basis over the period of the lease and disclosed its total commitment in the notes to the financial statements. Instead of recognising an operating expense for its operating lease payments, the Group has recognised £42,000 interest on its lease liabilities and £134,000 amortisation on its right of use assets. Adjusted EBITDA has increased by £167,000 resulting from the reclassification of operating lease cost. It has not had a material effect on the Group's income or net assets.
The financial information contained in these condensed financial statements does not constitute the Company's statutory accounts within the meaning of the Companies Act 2006. Statutory accounts for the years ended 31 December 2019 and 31 December 2018 have been reported on, without qualification or drawing attention to any matters by way of emphasis, by the Company's auditor and do not contain a statement under s.498 (2) or s.498 (3) of the Companies Act 2006. Whilst the financial information included in this Annual Financial Report Announcement has been computed in accordance with International Financial Reporting Standards ("IFRS"), this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.
In order to comply with the regulatory requirement to include un-edited text in this Annual Financial Report Announcement, page and note references refer to page and note numbers in the Annual Financial Report 2019.
The statutory accounts for the year ended 31 December 2019, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2019 statutory accounts have been applied consistently in all material respects.
GOING CONCERN
The directors are required to make an assessment of the Company's and the Group's ability to continue to trade as a going concern.
At 31 December 2019 the Group's net debt was £8.4 million (2018: £9.4 million) comprising net cash of £1.1 million (2018: £1.3 million) and the drawn down RCF of £9.5 million (2018: £10.7 million).
We maintain a good relationship with our bank and on 10 February 2020 a 12-month extension to the current £9.5 million loan agreement was signed. The revision secures the facility until 30 November 2021 with banking covenants and a repayment schedule in place.
In order to assess the appropriateness of preparing the financial statements on a going concern basis, management prepared detailed projections of expected cash flows for a period of 3 years for review by the Board. These projections include the impact of margin improvement strategies and sales growth.
As part of the review, the Board considered sensitivities with regards to the timing of revenue growth coming from the transition in the broadcast industry from SDI to IP platforms. It looked at sensitivities regarding the improvement of gross margin. Additionally, it considered sensitivities regarding the ongoing revenue and cost assumptions, including the impact of Brexit and extreme and unlikely consequences resulting from the Coronavirus (Covid-19) outbreak.
All the Group's employees and contractors are currently working from home, unless it is essential that they do otherwise. There has been minimal disruption, as remote working practices have been extended and adopted. "Virtual" trade shows have been held to replace those cancelled and significant new orders have been won since the restrictions were announced. Interest in our products that permit remote working is high.
The Board have concluded that the Group will have sufficient resources to meet its liabilities for the foreseeable future and therefore the Group and hence the Company remains a going concern.
3. SEGMENTAL REPORTING
The Group's internal organisational and management structure and its system of internal financial reporting to the Board of Directors comprise of Pebble Beach Systems Limited and Central costs. The chief operating decision-maker has been identified as the Board.
The Board reviews the Group's internal financial reporting in order to assess performance and allocate resources. Management have therefore determined that the operating segments for the Group will be based on these reports.
The Pebble Beach Systems Limited business is responsible for the sales and marketing of all Group software products and services.
The table below shows the analysis of Group external revenue and operating profit from continuing operations by business segment.
| | Pebble Beach Systems | Central | Total £'000 |
| Year to 31 December 2019 | | | |
| Broadcast | 11,200 | - | 11,200 |
| Total revenue | 11,200 | - | 11,200 |
| Adjusted EBITDA | 4,418 | (653) | 3,765 |
| Depreciation | (238) | - | (238) |
| Amortisation of acquired intangibles | (889) | - | (889) |
| Amortisation of capitalised development costs | (847) | - | (847) |
| Exchange (losses)/gains | (78) | 7 | (71) |
| Finance costs | (42) | (351) | (393) |
| Finance income | 2 | - | 2 |
| Intercompany finance income/(costs) | 128 | (128) | - |
| Profit/(loss) before taxation | 2,454 | (1,125) | 1,329 |
Taxation | 84 | (2) | 82 |
| Profit/(loss) for the year being attributable to owners of the parent | 2,538 | (1,127) | 1,411 |
| | | | |
| Year to 31 December 2018 | | | |
| Broadcast | 9,174 | - | 9,174 |
| Total revenue | 9,174 | - | 9,174 |
| Adjusted EBITDA | 2,867 | (397) | 2,470 |
| Depreciation | (127) | - | (127) |
| Amortisation of acquired intangibles | (1,419) | - | (1,419) |
| Amortisation of capitalised development costs | (828) | - | (828) |
| Non-recurring items | (3,858) | 3,554 | (304) |
| Exchange (losses)/gains | 46 | (18) | 28 |
| Finance costs | - | (296) | (296) |
| Finance income | 3 | 1 | 4 |
| Intercompany finance income/(costs) | 118 | (118) | - |
| (Loss)/profit before taxation | (3,198) | 2,726 | (472) |
Taxation | 254 | (1) | 253 |
| Profit/(loss) for the year being attributable to owners of the parent | (2,944) | 2,725 | (219) |
Geographic external revenue analysis
The revenue analysis in the table below is based on the geographical location of the customer for continuing operations of the business.
| | 2019 | 2018 |
| |
Total £'000 |
Total £'000 |
| By market | | |
| UK & Europe | 5,272 | 4,820 |
| North America | 982 | 585 |
| Latin America | 1,602 | 513 |
| Middle East and Africa | 3,114 | 2,931 |
| Asia / Pacific | 230 | 325 |
| | 11,200 | 9,174 |
Net assets
The table below summarises the net assets of the Group by division. Balance sheet reporting is disclosed by the divisional assets and liabilities of the Group as this is consistent with the presentation of internal information provided to the Executive Management Board and the Board of Directors.
| | 2019 £'000 | 2018 £'000 |
| By division: | | |
| Pebble Beach Systems | 4,977 | 5,308 |
| Central | (9,819) | (11,453) |
| | (4,842) | (6,145) |
4. OPERATING PROFIT
The following items have been included in arriving at the operating profit for the continuing business:
| | 2019 £'000 | 2018 £'000 |
| Depreciation of property, plant and equipment | 238 | 127 |
| Amortisation of acquired intangibles | 889 | 1,419 |
| Operating lease rentals | - | 167 |
| Exchange losses/(gains) charged/(credited) to profit and loss | 71 | (28) |
| Research and development expenditure expensed in the year which includes: | 1,298 | 1,222 |
| - Amortisation of capitalised development costs | 847 | 828 |
|
Non-recurring items
The following items are excluded from management's assessment of profit because by their nature they could distort the Group's underlying quality of earnings. They are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis:
| ||
| | | |
| | 2019 £'000 | 2018 £'000 |
| | | |
| Rationalisation and Redundancy costs | - | 358 |
| Provision for former executive debt | - | (54) |
| | - | 304 |
5. FINANCE COSTS - NET
| | 2019 £'000 | 2018 £'000 |
| Interest expense for bank borrowing | 351 | 296 |
| Interest expense for leasing arrangements | 42 | - |
| Finance costs | 393 | 296 |
| Finance income | (2) | (4) |
| Finance costs - net | 391 | 292 |
Finance income is derived from cash held on deposit.
6. INCOME TAX EXPENSE
| | 2019 £'000 | 2018 £'000 |
| | | |
| Current tax | | |
| UK corporation tax | - | 27 |
| Foreign tax - current year | 50 | - |
Adjustments in respect of prior years | - | (11) |
Total current tax | 50 | 16 |
| | | |
| Deferred tax | | |
| UK corporation tax | (132) | (269) |
Adjustments in respect of prior years | - | - |
Total deferred tax | (132) | (269) |
| | | |
Total taxation | (82) | (253) |
The UK corporation tax rate decreased from 20 per cent to 19 per cent from 1 April 2017. Changes to the UK corporation tax rates were substantively enacted on 7 September 2016. These include reductions to the main rate to reduce the rate to 17 per cent from 1 April 2020.
Deferred tax has been provided for at the rate of 17 per cent (2018: 17 per cent).
7. EARNINGS PER ORDINARY SHARE
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the company's ordinary shares during the year.
Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.
| | 2019 | 2018 | ||||
| | Earnings £'000 | Weighted average number of shares '000s | Earnings per share pence | Earnings £'000 | Weighted average number of shares '000s | Earnings per share pence |
| Basic earnings per share | | | | | | |
| Profit/(loss) attributable to continuing operations | 1,411 | | 1.1p | (219) | | (0.2)p |
| Profit attributable to discontinued operations | 39 | | 0.0p | 195 | | 0.2p |
| Basic earnings/(loss) per share | 1,450 | 124,477 | 1.1p | (24) | 124,477 | 0.0p |
| Diluted earnings per share | | | | | | |
| Profit/(loss) attributable to continuing operations | 1,411 | | 1.1p | (219) | | (0.2)p |
| Profit attributable to discontinued operations | 39 | | 0.0p | 195 | | 0.2p |
| Diluted earnings/(loss) per share | 1,450 | 124,577 | 1.1p | (24) | 124,477 | 0.0p |
Potential ordinary shares were non-dilutive in prior years because they would decrease the loss per share from continuing operations.
Adjusted earnings
The directors believe that adjusted EBITDA, adjusted profit before tax, adjusted earnings and adjusted earnings per share provide additional useful information on underlying trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term "adjusted" is not a defined term used under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of the amortisation of acquired intangibles and capitalised development costs, non-recurring items and exchange gains or losses charged to the income statement and their related tax effects.
The reconciliation between reported and underlying earnings and basic earnings per share is shown below:
| | 2019 | | 2018 |
| ||||
| | Earnings £'000 | | | Earnings £'000 | |
| ||
| | | Pence | | | Pence | |||
| Reported profit/(loss) per share - continuing operations | 1,411 | 1.1p | | (219) | (0.2)p | |||
| Depreciation | 198 | 0.2p | | 105 | 0.1p | |||
| Amortisation of acquired intangibles after tax | 738 | 0.6p | | 1,178 | 0.9p | |||
| Amortisation of capitalised development costs | 703 | 0.6p | | 687 | 0.6p | |||
| Non-recurring items after tax | - | 0.0p | | 245 | 0.2p | |||
| Exchange losses/(gains) | 58 | 0.0p | | (23) | 0.0p | |||
| Adjusted profit per share - continuing operations | 3,108 | 2.5p | | 1,973 | 1.6p | |||
8. CASH FLOW GENERATED FROM OPERATING ACTIVITIES
Reconciliation of loss before taxation to net cash flows from operating activities.
| | 2019 £'000 | 2018 £'000 |
| Profit/(loss) before tax - continuing operations | 1,329 | (472) |
| Profit before tax - discontinued operations | 39 | 184 |
| Total profit/(loss) before tax | 1,368 | (288) |
| Depreciation of property, plant and equipment | 238 | 127 |
| Loss on disposal of property, plant and equipment | 1 | 10 |
| Amortisation and impairment of development costs | 847 | 828 |
| Amortisation and impairment of acquired intangibles | 889 | 1,419 |
| Share-based payment expense | 27 | - |
| Finance income | (2) | (4) |
| Finance costs | 393 | 295 |
| Decrease in inventories | 70 | 15 |
| (Increase)/decrease in trade and other receivables | (1,077) | 848 |
| Increase/(decrease) in trade and other payables | 36 | (811) |
| Decrease in provisions | (367) | (400) |
| Net cash generated from operating activities | 2,423 | 2,039 |
9. CALLED UP SHARE CAPITAL, SHARE PREMIUM AND CAPITAL REDEMPTION RESERVE
| | Number of shares
'000 | Share Capital
£'000 | Share Premium
£'000 | Capital redemption reserve £'000 | Total
£'000 |
At 1 January 2019 | 124,603 | 3,115 | 6,800 | 617 | 10,532 |
Share issues | - | - | - | - | - |
At 31 December 2019 | 124,603 | 3,115 | 6,800 | 617 | 10,532 |
10. NET FUNDS
Reconciliation of decrease in cash and cash equivalents to movement in net cash:
| | Net cash and cash equivalents £'000 | Other borrowings £'000 | Total net cash £'000 |
| At 1 January 2019 | 1,269 | (10,650) | (9,381) |
| Cash flow for the year before financing | 948 | - | 948 |
| Movement in borrowings in the year | (1,100) | 1,100 | - |
| Exchange rate adjustments | 27 | - | 27 |
Cash and cash equivalents at 31 December 2019 | 1,144 | (9,550) | (8,406) |
11. POST BALANCE SHEET EVENTS
On 10 February 2020 an extension of the current loan agreement was signed with our bank. The revision secures the facility until 30 November 2021 with banking covenants and a repayment schedule in place. In order to mitigate potential cash flow risks caused by uncertainties relating to Coronavirus (Covid-19), management made a formal application for a Government capital repayment holiday. On 22 April 2020, our bank approved the deferment of the next loan repayment of £380,000 due on 30 June 2020. Furthermore, the bank has indicated their support should a deferment of the September repayment be considered necessary, as global uncertainties around Coronavirus (Covid-19) become clearer.
On 23 March 2020 the UK Government announced its "Stay at Home" policy to help fight the Coronavirus (Covid-19) outbreak in the UK. Similar measures have been announced in countries around the world at different times.
All the Group's employees and contractors are currently working from home, unless it is essential that they do otherwise. There has been minimal disruption as remote working practices have been extended and adopted. "Virtual" trade shows have been held to replace those cancelled and significant new orders have been won since the restrictions were announced. Interest in our products that permit remote working is high.
Management has considered the impact of the global Coronavirus (Covid-19) outbreak on the Group's financial statements. They have reviewed the forecasts and projections, including extremely unlikely scenarios, used in concluding that the Group remains a going concern; they have reviewed the assumptions relating to the valuation of intangible assets and investments; they have reviewed the Group's expected credit losses. Management has concluded that there is no material impact on the Group's financial statements for 2019.
In the Spring Budget 2020, the Government announced that from 1 April 2020 the corporation tax rate would remain at 19 per cent (rather than reducing to 17 per cent, as previously enacted). This new law was substantively enacted on 17 March 2020. As the proposal to keep the rate at 19 per cent had not been substantively enacted at the balance sheet date, its effects are not included in these financial statements. However, it is likely that the overall effect of the change, had it been substantively enacted by the balance sheet date, would be to reduce the tax credit for the period by £30,000 and to increase the deferred tax liability by £30,000.
The Board is pleased to confirm that following the publication of its audited results for the year ended 31 December 2019, the annual report and financial statements will be posted to shareholders on 27 May 2020 and a copy will also be available to download from the Group's website at www.pebbleplc.com.
Ends
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