Pebble Beach Systems Group plc

Results for the half year ended 30 June 2020

Pebble Beach Systems Group plc, 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 unaudited results for the half year ended 30 June 2020.

Headlines

*Adjusted EBITDA, a non-GAAP measure, is EBITDA before non-recurring items and foreign exchange gains.

John Varney, Non-Executive Chairman of Pebble Beach Systems Group plc, said:

"Despite the very challenging global environment, the Company continues to operate at full capacity, and we remain confident on the long-term growth opportunities for the Company. We continue to trade profitably and maintain our budgeted investment into new technology as we continue to innovate our suite of products.

Given the circumstances created by COVID-19, it is not a surprise that order intake in the period was lower than we had originally anticipated principally as a result of customer orders being delayed. Given the impact of COVID-19, customers have been understandably cautious about commitments to implement larger scale projects. As a board we believe that this is merely delaying planned large scale projects rather than these potential contracts being lost. We are not seeing evidence of the business being impacted by the widely reported delays to content creation in the Broadcast market, and our technology is in the content delivery chain rather than that of content creation. These factors, combined with the continued growth in our pipeline, means that the Board remains confident on the Company's market positioning and long-term opportunities."

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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

2020 has to date proved to be a year that no one could have predicted. Due to the challenges created by COVID-19 all businesses have had to adapt their approach to their operations and interaction with customers as well as reassessing investment decisions. In these circumstances it is no surprise to see a cautious approach to commitments to larger scale projects and as a result we have seen a reduction in order intake in the period which has led to revenues for H1 being lower than we had originally budgeted. However, we have confidence in our pipeline so that overall, we anticipate order intake for 2020 as a whole to only be down c.10% year on year.

We have seen gross margin gradually improve and our net debt position continues to reduce due to the highly cash generative nature of our business. Our net debt stood at just under £8.0 million (pre IFRS 16) as at 31 July 2020.

Management recognise the importance of maintaining our technological expertise and global leadership and thus expects to maintain current levels of investment in innovation and distribution for the foreseeable future. This will mean that the level of our R&D as a percentage of revenue will look higher than normal, but this is an investment for the future and one that the Board is happy to make.

During the pandemic our operational model demonstrated high levels of resilience. There was a seamless transition to home working with over 95% of all staff across all our hubs now working remotely full time. The Company did not take advantage of the furlough schemes offered by the Government and no staff have been laid off, both achievements of which we are proud.

Adjustments to our annual operating plan have been made to ensure that the Company is able to protect full-year earnings, and ensure adequate liquidity, without disrupting our services to customers or negatively impacting the longer-term growth prospects of the business. 

John Varney

Non-Executive Chairman

CHIEF EXECUTIVE'S STATEMENT

I am delighted to say that every member of the Pebble organisation has upheld our Company Values, which are to

As a result of ensuring we always work with our Company Values in mind, we have built stronger and deeper relationships with our customers through these challenging times. 

Thanks to the considerable efforts of our staff we have continued to operate 100% effectively throughout the pandemic. We have remained fully capable of delivering ongoing and new projects and the results released today are a validation of the Company's strategy and is testament to the quality of our team.

A particular operational achievement during H1 is that a review undertaken at the beginning of the year on the progress against departmental goals showed that we are over 90% on track to achieve these goals within their respective timelines, despite the current disruption of the pandemic.

At this time management continue to believe that the virus does not necessitate any change to our strategy for growth, nevertheless given the impact COVID-19 continues to have across the world, we will continue to monitor the situation very closely.

Orders received in the period decreased 25.6% to £3.9 million (H1 2019: £5.2 million). Revenue is down by 19.7% to £4.5 million (H1 2019: £5.6 million). Adjusted EBITDA for the business of £1.5 million (H1 2019: £2.0 million) is 34% of revenue (H1 2019: 35% of revenue). Reported profit before tax for the period was £0.7 million (H1 2019: £0.7 million). Cash generated from operations remains strong at £1.4 million (H1 2019: £0.8 million). Cash conversion, defined as cash from operations divided by Adjusted EBITDA, is strong at 91.8% (H1 2019: 42.7%).

Financial Results

Pebble Beach Systems achieved H1 2020 revenue of £4.5 million (H1 2019: £5.6 million).

Management is currently confident in the outlook for H2 2020, with a backlog of orders of £4.1 million at 30 June 2020 (H1 2019: £5.2 million) and a growing pipeline.

Adjusted EBITDA was £1.5 million in H1 2020 (H1 2019: £2.0 million) before the deduction of depreciation and amortisation costs of £0.7 million (H1 2019: £1.1 million).

In the first half, Central costs were £0.2 million (H1 2019: £0.3 million). Reported profit before tax was £0.7 million (H1 2019: £0.7 million).

The available Revolving Credit Facility (RCF) as at 30 June 2020 was £9.2 million (H1 2019: £10.1 million) which had been fully drawn down. Net debt at 30 June 2020 (pre IFRS 16) was reduced to £7.8 million (31 December 2019: £8.4 million) as we continue with our strategy to pay down our debt whilst also investing in ongoing innovation and distribution. Interest paid on the RCF was £0.2 million (H1 2019: £0.2 million). There is no overdraft facility, which remains unchanged (H1 2019: £ Nil).

The Company continues to view investment in the development of new products and services as key to future growth. In the first half of 2020, Pebble Beach Systems capitalised £0.6 million of development costs (H1 2019: £0.5 million) and amortised £0.4 million (H1 2019: £0.4 million).

Dividends

As in previous years, the Board is not declaring an interim dividend.

Trading Outlook

2020 had started well for the business, with initial growth in our pipeline and order intake in line with management expectation.

The global pandemic has undoubtedly adversely affected the Broadcast market during the first six months of the year and continues to do so. Looking forward to the second half, there are indications that the market in which we operate is likely to remain flat but not decline.

Although we are seeing a growth in our pipeline, we expect that it will continue to prove challenging to convert this pipeline into firm orders due to customers' understandable caution with commitments with large scale projects. However, our revenue is being underpinned by SLAs, a higher than usual level of recurring business from existing customers and our backlog of orders.

Management continue to believe that the virus does not necessitate any change to our strategy for growth. However, the ongoing impact of COVID-19 on some segments of our market suggests this would be a good time to consider some M&A activity.

Peter Mayhead

Chief Executive

For the half year ended 30 June 2020

FINANCIAL REVIEW

Divisions and Markets

For the half year ended 30 June 2020

Continuing Operations

Pebble Beach Systems has contributed £4.5 million of revenue and £1.7 million of adjusted EBITDA in the six months to 30 June 2020.

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 30 June 2020 is £3.2 million (2019: £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.

Cash flows

The Group held cash and cash equivalents of £1.4 million at 30 June 2020 (H1 2019: £1.1 million). Against this are set off debit balances of £ Nil (H1 2019: £ Nil). The table below summarises the cash flows for the half year.

As at 30 June 2020 net debt, excluding the impact of IFRS16, was £7.8 million (cash £1.4 million and bank debt of £9.2 million). At the end of July 2020, net debt had increased to £8.0 million. The Group was using all £9.2 million of its available facilities in June 2020.

No material change in net debt is forecast for the second half of 2020. A decrease in cash and cash equivalents is forecast as bank debt is paid down.

A scheduled debt repayment of £380,000 was made in March 2020. In order to mitigate potential cash flow risks caused by uncertainties relating to 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 loan repayment of £380,000 which was due on 30 June 2020 under our current Facility Agreement. Furthermore, the bank has indicated their support should a deferment of the September repayment be considered necessary, as global uncertainties around COVID-19 become clear. Further repayments of £380,000 are due in September and December 2020.

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.

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 INCOME STATEMENT

for the half year ended 30 June 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 30 June 2020

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

for the half year ended 30 June 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2020

CONSOLIDATED STATEMENT OF CASH FLOWS

for the half year ended 30 June 2020

The cash and cash equivalents and overdrafts balance comprise credit balances of £1,395,000 (H1 2019: £1,083,000) which have been set off against debit balances of £ Nil (H1 2019: £ Nil).

NOTES TO THE FINANCIAL STATEMENTS

for the half year ended 30 June 2020

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 half year results announcement was approved at close of business on 25 August 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.  

Standards or amendments issued but not yet effective are not expected to have a material impact on the net assets of the Group.

The financial information contained in these condensed financial statements has been computed in accordance with IFRS. However, this announcement, due to its condensed nature, does not itself contain sufficient information to comply with IFRS.

Going Concern

The directors are required to make an assessment of the Group's ability to continue to trade as a going concern.

At 30 June 2020 net debt, excluding the impact of IFRS16, was £7.8 million (H1 2019: £9.0 million) comprising net cash of £1.4 million (H1 2019: £1.1 million) and bank debt of £9.2 million (H1 2019: £10.1 million).

We maintain a good relationship with our bank. The bank remains supportive and has confirmed it would look favourably on a request for deferment of the September 2020 loan repayment, if required. The current loan agreement secures the facility until 30 November 2021 with banking covenants and a repayment schedule in place. Repayments of £380,000 are due on 30 September and 31 December 2020 and £450,000 on 31 March and 30 June 2021.

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 in 2021 and beyond.

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, the directors considered sensitivities regarding the ongoing revenue and cost assumptions, including the estimated impact of COVID-19 and Brexit. This extended to assumptions considering extreme and unlikely consequences resulting from the COVID-19 outbreak.  

During the initial period of impact of COVID-19 which coincides with H1 of our financial year the Group has continued to trade profitably and generate good levels of operating cash, both measures performing in line with the Board's expectation. Overheads in H1 have declined because of reduced travel expense, a temporary freeze in recruitment and cancellation or postponement until later in the year of trade shows. There has been no furlough of staff necessary and we do not envisage this to be needed in the future. All the Group's employees and contractors are successfully 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 COVID-19 restriction were announced.  Both gross and weighted order pipelines have increased in value between the end of December 2019 and the end of July 2020.

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.       ACCOUNTING POLICIES

The accounting policies applied are consistent with those of the annual report and financial statements for the year ended 31 December 2019, as described in those annual report and financial statements.

Taxes on income in the half year periods are accrued using the tax rate that would be applicable to expected total annual earnings on a country by country basis.

4.       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.

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.

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.

5.       OPERATING PROFIT

The following items have been included in arriving at the operating profit for the continuing business:

6.       INCOME TAX EXPENSE

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. Deferred tax has been provided for at the rate of 19 per cent (2019: 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.

Adjusted earnings

The directors believe that adjusted EBITDA 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:

8.       CASH FLOW GENERATED FROM OPERATING ACTIVITIES

Reconciliation of profit before taxation to net cash flows from operating activities.

9.       NET FUNDS

Reconciliation of change in cash and cash equivalents to movement in net cash:

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