BHRD.L Regulatory News (BHRD)

BE HEARD GROUP PLC

Final Results For The Year Ended 31 December 2019

Be Heard Group plc (''Be Heard'"), the marketing services group, is pleased to report another year of good progress.

Operational Highlights

· Continued new business wins

· Investment in key management resources within partner companies

· Repositioning of the creative and influencer businesses

Financial Highlights

· Group revenue increased by 1.1% to £29.8m (2018: £29.5m)

· Adjusted EBITDA(1) increased to £4.7m (2018: £3.0m)

· Operating Margin(2) increased by 5.5% to 15.8% (2018: 10.3%)

· Net cash of £1.7m(3) (December 2018: net debt £0.8m)

· Earnout (cash) balance of £8.7m (December 2018: £9.9m)

· Cash generated from operations increased by £5.3m to £5.9m (2018: £0.5m).

David Morrison, Non-Executive Chairman of Be Heard Plc, commented:

"Against a background of testing market conditions many businesses in our industry found 2019 to be a challenging year, with little or no growth accompanied by margin and earnings erosion. Be Heard, whilst not immune to the vicissitudes of the market in which it operates, has, in comparison, faired reasonably well, and our improved results should be considered more than satisfactory.

The evolving Covid-19 pandemic is having, and will continue to have a material and adverse impact on the demand and supply side of economies throughout the world. The effects of this economic shock will no doubt be profound, even if it should prove to be short lived. With regards to the Group, we expect a reduction to our earnings for the current financial year as clients adopt a cautious approach and look to defer or curtail engagements, but the full impact is impossible to assess at present and we have been guardedly encouraged by both the extension of existing contracts and new business activity in certain areas.

In mitigation, the Group's response to the sudden economic and operational challenges brought about by the Covid-19 pandemic, has been both decisive and quickly implemented. Consequently, we do expect to remain both profitable (adjusted EBITDA) and cash generative."

 NOTES

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

Note 1

We define Adjusted EBITDA which is inclusive of IFRS16 (accounting for leases), as EBITDA adjusted for costs associated with acquisitions, restructuring of the Group, share based payments and impairments.

Note 2

Operating margins are Adjusted EBITDA divided by revenue.

Note 3

Net cash (debt) excludes £3,677k of convertible loan notes issued on 28 November 2017. The notes are convertible by the holder into ordinary shares of the Company at any time between the date of issue of the notes and their redemption date. The notes are convertible at 3.5 pence per share.

 ENQUIRIES

Be Heard Group plc +44 20 3828 6269

David Morrison, Non-Executive Chairman

Simon Pyper, Chief Executive Officer

NOMAD

Cairn Financial Advisers +44 20 7213 0885

Jo Turner / James Lewis

Broker

Dowgate +44 20 3903 7715

James Serjeant

Financial PR

Hudson Sandler +44 20 7796 4133

Nick Lyon / Dan de Belder

Strategic Report:

Non-Executive Chairman's Statement

Against a background of testing market conditions many businesses in our industry found 2019 to be a challenging year, with little or no growth accompanied by margin and earnings erosion. Be Heard, whilst not immune to the vicissitudes of the market in which it operates, has, in comparison, fared reasonably well, and our improved results should be considered more than satisfactory.

The Group, despite a disappointing set of results from its creative business, has delivered improved results across a broad range of metrics, recording improved revenues, margins and earnings (adjusted EBITDA). Additionally, the Group has also seen noteworthy improvements in its working capital and cash generated by operations. We now have a more secure financial platform from which to develop.

The improvements in our results reflect the fact that the management team focused on doing a few things well in the last year. However, whilst much has been done to improve the Group's prospects, the business remains constrained by its capital structure and, in particular, the earnout and loan note obligations. These balance sheet constraints limit the Group's ability to invest in the partner companies that are delivering growth and bring into focus the strategic challenges facing the Board. Broadly, and putting to one side the impact of the Covid-19 pandemic, the choice is either to continue slowly to trade out of the current financial straitjacket or to consider other options that might deliver a more rapid and satisfactory outcome for all the stakeholders in the Group.

Board Changes 

There have been no changes to the Board during the year.

Our Employees

Be Heard is totally dependent on its people and the turnaround in operating performance would not have been possible without their commitment. I would particularly like to thank the employees of the Group and in all the partner companies for their efforts, as well as both my executive and non-executive colleagues on the Board.

Current Trading and Outlook

The evolving Covid-19 pandemic is having, and will continue to have a material and adverse impact on the demand and supply side of economies throughout the world. The effects of this economic shock will no doubt be profound, even if it should prove to be short-lived. With regards to the Group, we expect a reduction to our earnings for the current financial year as clients adopt a cautious approach and look to defer or curtail engagements, but the full impact is impossible to assess at present and we have been guardedly encouraged by both the extension of existing contracts and new business activity in certain areas.

In mitigation, the Group's response to the sudden economic and operational challenges brought about by the Covid-19 pandemic, has been both decisive and quickly implemented. Consequently, we do expect to remain both profitable (adjusted EBITDA) and cash generative.

David Morrison

Non-Executive Chairman

17 April 2020

Strategic Report:

Chief Executive's Report

The prolonged political and economic uncertainty coupled with structural changes in how clients purchase, price and deploy marketing services undoubtedly made 2019 a challenging year. For many businesses within our sector, these structural changes, coupled with increased client focus on data-led insights, left many struggling to find their footing. For Be Heard, despite the decline in performance from our creative business as a whole, 2019 was in many respects a good year.

In 2018, we set ourselves one simple objective which was to return the business to profitability and financial stability. In 2019, we set ourselves the objective of improving on our 2018 results and developing the partner companies, whilst continuing to improve the financial health of the business as a whole. Our results for 2019 clearly demonstrate that we achieved the objectives which we set ourselves.

Key Performance Indicators 2019

The key performance indicators selected are used by the Executive Directors to monitor the Group's performance and progress.

We define Adjusted EBITDA (which is inclusive of IFRS16 adjustments), as EBITDA adjusted for costs associated with acquisitions, restructuring of the Group, share based payments and impairments. Note that the 2018 adjusted EBITDA figure does not included an adjustment for IFRS 16.

Net debt is short and long-term borrowings (excluding earnouts and convertible loan note) less cash and cash equivalents.

The Group was founded with the intention of buying and building a "partnership" of marketing services companies fit for the digital age. The main components for such a Group are broadly in place and the emphasis is now on organising and managing the partner companies to maximise their potential. The Group has four constituent parts: Data Analytics from Freemavens, Technology led by MMT, Media led by agenda21, and Creative led by The Corner.

Group Performance 2019

Note: Partner contribution is equal to Group adjusted EBITDA before central overheads of (£1.8) million (2018: (£2.2) million) and IFRS 16 benefit of £1.1 million (2018: Nil)

Freemavens:

Revenues £4.3 million 44% ahead of last year

Contribution £1.7 million 2018 £1.0 million

Analytics and insight business which makes use of customer, audience and market data to provide critical insights to blue chip clients. Freemavens is our only partner company which regularly engages with client-side senior executives. Growth has come from both increased engagements from its top clients and from notable new business wins.

MMT Digital:

Revenues £15.2 million 9% ahead of last year

Contribution £2.8 million 2018 £2.9 million

Delivering award-winning websites and software, MMT works with clients to transform their digital performance. The results for 2019 reflect MMT's focus on delivering quality solutions for clients to timetable and to budget. Growth has come from both existing clients and a number of client referrals. Contribution for 2019 reflects the impact of a higher contractor mix (technical delivery) and investment in key management roles.

agenda21: 

Revenues £4.5 million (8%) below last year

Contribution £0.5 million 2018 £0.1 million

agenda21 is a media planning and buying business which optimises media and content across connected devices. The business suffered some client attrition towards the mid to end of 2018, adversely impacting the 2019 results. However, the new management team has done well to steady the business and return it to profitability.

The Corner:

Revenues £5.7 million (24%) below last year

Contribution £0.4 million 2018 £1.2 million

A brand and creative company which helps clients become more relevant to their audience through new thinking and new ideas. Despite the business securing nearly £1.4 million of revenues from new clients during 2019, The Corner has not as yet fully recovered from the loss of its largest client in 2018 and moreover the adverse impact of delayed or deferred engagements from existing clients. The business is now focused on growing its B2B and influencer proposition which should underpin expectations for 2020. During the year the staff and contracts of Kameleon Worldwide Limited were moved into The Corner, and the combination is now treated internally as one business, although they have not yet formally been merged.

New Clients

Revenues from new clients in 2019 was £3.8m with notable wins including Barclays, B.P, Carlsberg UK, Emirates, Onitsuka Tiger and the Chartered Institute of Taxation.

Impairment of Intangible Assets

The Group has taken a non-cash impairment charge to goodwill and other intangible assets of £7.8 million in relation to its investment in The Corner. The industrial logic supporting the acquisition of the Corner remains valid. It is also valid to conclude that the previous management team of Be Heard held expectations for returns which, even allowing for prevailing market conditions, have proved somewhat optimistic.

Earnout Liability 2019

As at 31 December 2019 the Group had £8.7m of earnout liabilities which are payable in cash. Earnouts are subordinated to bank debt (Barclays) with the total earnout payments restricted to £0.5 million per calendar year. As part of the subordination of the Group's earnout obligations, earnout holders waived their right to sue or make claims against the Group in relation their earnout arrangements.

Cash Generation

Cash generated from operations improved by £5.4 million to £5.9 million (2018: £0.5 million).

Net Cash / Debt

Net Cash, which excludes the £3.8m of convertible loan notes, improved by £2.6 million to £1.7 million as at 31 December 2019 (2018: Net Debt of £0.8 million) reflecting the improvement in the Group's cash generation.

Strategic Priorities

The challenge ahead, given the financial constraints of the Group and the less than consistent performance of the partner companies, is how best to deliver profitable growth over the medium to long-term. If we are to achieve growth without recourse to additional capital then the most appropriate approach is to: more fully leverage our proposition, to further improve our operational effectiveness, and where appropriate to enter into capital-light joint ventures with businesses operating within or adjacent to our competitive footprint.

Leveraging our Proposition

We are on many levels a successful business, winning a number of new client engagements and achieving revenue growth from several existing clients. Despite some notable successes, we, like many of our competitors, have seen a general reduction in the volume and value of new business, which, in part, reflects the impact on marketing budgets brought about by the continued economic and political uncertainty in the United Kingdom. Aligned with the softening of new business, we have also found that the pitch process has become more competitive, with prolonged client decision timeframes and, furthermore, with procurement playing an ever-greater part in the client's decision-making mix.

Moreover, in response to demand-side structural changes, many marketing services firms are re-engineering their business model. We have seen a number of our competitors moving to a "single provider model", whereby individual brands are no longer as relevant as the competencies and services being offered. Whilst other companies have invested further in the "holding company" model, where the individual agencies with minimal support from the parent deliver client solutions, we at Be Heard believe that a more flexible approach is needed, one which recognises that "one size" does not fit all and that the key to success is in providing clients with creative solutions to real commercial challenges. Our business model allows us to present ourselves as a single provider with deep expertise in a number of areas, or to act as an individual agency, or to provide multiple service combinations from two or more partner companies. 

Leveraging Operational Effectiveness

Be Heard's four different partner companies had historically been run independently with separate operations and discrete processes. Over the past 18 months the Group has where appropriate, introduced a number of common processes and systems. The benefits from the simplification of our operations have as yet to be fully seen, nonetheless we believe that we have made good progress.

Ben Rudman, Group Chief Operating Officer, has continued to make good progress in: 

· Implementing common processes particularly around resource planning;

· Standardising reporting processes and output; and

· Implementing cost reduction initiatives.

The Market

The market, led by the changing needs and priorities of clients, is undergoing structural change, whereby established relationships are often forgone in favour of "supplier agnostic" insight led solution providers, who can deliver demonstrable returns. In many respects, we are well placed to address these changes, but our lack of scale and our capital structure do act as limiting factors.

Covid-19

The economic shock brought about by the Covid-19 pandemic is having a profound impact on our business with clients becoming more cautious with regards to spend decisions, whilst operationally we are having to adapt to the challenges of distributed (home) working and moreover the disruption brought about by increased staff absences due to ill health. In simple terms we are taking a pragmatic approach to running our business, an approach which is focused on delivering outstanding outcomes for our clients and safeguarding the wellbeing of our employees.

Priorities

Our immediate priorities are to improve cash generation, reduce costs and to remain profitable.

Simon Pyper

Chief Executive Officer

17 April 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2019

All of the above losses after taxation arise from continuing operations.

There was no other comprehensive income for the year. Total comprehensive expense for the year ended 31 December 2019 is £6,866k (2018: £9,415k).

The notes to the accounts are published in our Annual Report Accounts for 2019, available on our website.

1Adjusted EBITDA is after deducting depreciation, amortisation, impairments, acquisition costs, restructuring costs and share based payments.

2Adjusted EBITDA in 2019 includes the impact of adopting IFRS 16 Accounting for Leases, deducting the rental charge on the relevant assets amounting to £1,193k. A comparable adjustment has not been made in 2018 in accordance with the modified retrospective basis of adoption.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2019

The notes to the accounts are published in our Annual Report Accounts for 2019, available on our website.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2019

The notes to the accounts are published in our Annual Report Accounts for 2019, available on our website.

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2019 (continued)

There were no significant non-cash transactions.

SELECTED NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2019

4. NON-RECURRING AND NON CASH ITEMS

The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the UK

applied to profits for the year are as follows:

Other payables due in greater than one year include £2,160k of deferred consideration (2018: £3,150k).