Last checked at 31 Mar 2017 07:00
Pebble Beach Systems Group plc (formerly Vislink plc)
Results for the year ended 31 December 2016
Pebble Beach Systems Group plc, a leading global software business specialising in solutions for playout automation, and content serving customers in the broadcast markets, today announces its unaudited final results for the year ended 31 December 2016.
Financial Headlines
Continuing Discontinued
Operations Operations (VCS)
| 2016 | 2015 | 2016
| 2015
|
Order Intake**
Revenue | £11.7m
£10.9m | £9.8m
£10.9m | £34.6m
£31.7m | £50.1m
£46.9m |
Adjusted* operating profit/(loss) |
£0.2m |
£1.4m |
£(7.8)m |
£3.3m |
Adjusted* (loss)/earnings per share |
(1.0)p |
0.4p |
(8.8)p |
2.6p |
|
|
|
|
|
Operating loss | £(1.9)m | £(0.6)m | £(53.4)m | £(0.2)m |
Basic (loss)/earnings per share | (2.4)p | (0.9)p | (42.6)p | 0.2p |
|
|
|
|
|
|
|
|
|
|
Net debt | £(14.5m | £(5.7)m |
|
|
Total dividend per share proposed | - | 1.5p |
|
|
*Adjusted operating profit/(loss), a non-GAAP measure, is operating profit/(loss) before the amortisation and impairment of goodwill and acquired intangibles, and non-recurring items (see note 4). Adjusted earnings per share is calculated on the same basis after taking account of related tax effects.
** Order intake is a measure of business secured during the year and represents firm orders.
Highlights
· Good performance of Pebble Beach Systems, driven both operationally and through the strategic partnerships
· Expansion into new commercial markets in Canada and Chile for Pebble Beach Systems
· Poor trading performance of Vislink Communication Systems, with sales down 32.4% to £31.7m
· Sale of hardware division, Vislink Communication Systems, on 2 February 2017 to xG Technology Inc., this business has been classified as discontinued
· Adjusted operating profit for the continuing business of £0.2 million (2015: £1.4 million)
· Net operating loss from discontinued activities of £(53.4)m (2015: £0.2 million)
· Although the Group continues to forecast that it will breach its banking covenants, it remains in constructive discussions with its bankers.
John Varney, Non-Executive Chairman of Pebble Beach Systems Group plc said:
2016 was a mixed year for the Group with Pebble Beach Systems performing well. However, with challenging market conditions, Vislink Communication Systems underperformed significantly.
Pebble Beach Systems delivered a good financial performance in 2016 as it continued to expand its sales activities through its key partnerships and increasing its geographic presence including into Canada and Chile. Its partnerships with Harmonic, Tedial, Pixel Power and Blue Lucy continue to progress. Pebble Beach Systems provides good growth prospects, with improved operating margins expected and the benefit of improved visibility of earnings.
Unfortunately, the underperformance of Vislink Communication Systems presented issues with cash flow and placed constraints on the Group's financial position, which led to the Group taking the decision to explore a sale of Vislink Communication Systems. An eventual sale of the business and assets of the hardware division completed with xG Technology Inc. as of 2 February 2017 for a consideration of $16.0 million. Subsequently, in accordance with the announcement on 20 March 2017, an agreement was reached with xG Technology Inc.,to accept a reduction in the deferred consideration whereby the total consideration received equated to $13.1 million.
The board considered that there was significant benefit to the Group by the removal of uncertainty relating to the sale of VCS in reaching this settlement rather than this representing a subsequent change in the business or assets sold post year end.
Going into 2017, the Group now has one operational business, Pebble Beach Systems. It is an exciting business with a clear focus, significant customer momentum and excellent growth potential.
However, in recognition of the reduced size of the Group, the Head Office will be closed in 2017 and due to the constraints of the Group's existing capital structure, and debt position, the Board has determined that it is appropriate to evaluate alternative opportunities to maximise value for the Group's shareholders. A strategic review of options for the business, which could include a sale of the Group, is underway.
I would also like to thank all of our employees and my Board colleagues for their ongoing commitment and continued hard work during this challenging time. The Board appreciates that the outcome of 2016 represents a significantly poorer position than shareholders were expecting and I regret that it has been necessary to take, in some cases, extreme steps to ensure we deliver the best possible outcome in the circumstances.
- ends -
For further information please contact:
John Varney, Non-Executive Chairman | +44 (0) 75 55 59 36 02 |
|
|
Charlie Jack / Bertie Berger Hudson Sandler | +44 (0) 20 77 96 41 33 |
|
|
Shaun Dobson / James White N+1 Singer | +44 (0) 20 74 96 30 00 |
The Company is listed 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 leading developer and supplier of automation, channel in a box and content management solutions for TV broadcasters, service providers, and cable and satellite operators. Founded in 2000 and headquartered in Weybridge Surrey, the Company has developed a portfolio of successful products which have the flexibility to support a wide range of broadcast applications. Pebble Beach Systems works closely with broadcasters, systems integrators and technical partners to deliver the best possible solution for each customer. Its international client base includes TV Globo Brazil, Fox News and Business channels USA, ZDF Germany, Orbit Showtime Network UAE, TV4 Sweden, TV2 Denmark, Viasat UK and AMC Networks Inc. USA.
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.
Introduction
2016 has been a year of mixed fortunes for the Group and in many ways, has been a disappointing year for the Group, shareholders and employees.
During the year the Group operated as two divisions: Pebble Beach Systems which is the Group's automation and playout software business and Vislink Communication Systems, the Group's hardware business, which was sold post year end on 2 February 2017.
In line with our announced strategy to focus the Group on software, in early 2016, the Board began to explore a sale of the Group's hardware division, Vislink Communication Systems.
Later in the year a proposal to acquire the business and assets of Vislink Communication Systems was made by xG Technology, Inc. The sale of the business and assets (excluding liabilities over 30 days) for $16.0 million was announced on 16 December 2016. Details of the trading results for Vislink Communication Systems are included in the financial statements in line with accounting Standards. During the year, the Group's borrowings started to rise significantly as trading by Vislink Communication Systems failed to generate cash and during the second half of the year it became clear that the Group was likely to breach the terms of its banking facilities, which as at 30 June stood at £16.0m in total.
In October, the Group Finance Director resigned with immediate effect for health reasons.
Dialogue took place with the Group's bankers to waive various covenants and to increase the facility amount until the sale of Vislink Communication Systems could complete. The RCF is currently at £11.6 million and the Group forecasts to continue to breach its banking covenants for the foreseeable future.
Pebble Beach Systems generated revenue of £10.9 million in the year and contributed £2.3 million of adjusted operating profit. In 2016, Central costs were £2.1 million.
Vislink Communication Systems was classified as discontinued in the year end results and made an operating loss of £(53.4) million.
Pebble Beach Systems
Pebble Beach Systems is a leading developer and supplier of software for automation, Channel in a Box and content management solutions for TV broadcasters, service providers and cable and satellite operators. Its leading next generation products and software technology within the broadcasting sector are best reflected by its growing global customer base, with blue chip clients TV Globo Brazil, Fox News and Business channels USA, ZDF Germany, Orbit Showtime Network UAE, TV4 Sweden, TV2 Denmark, Viasat UK and AMC Networks Inc. USA.
In 2016 Pebble Beach Systems announced that Globosat, a leader in the Brazilian Pay TV market, was using Pebble Beach System's Marina automation to expand playout capacity during the Rio Olympic Games, representing the largest and most comprehensive games coverage ever delivered to the Brazilian public.
Additionally, its expansion continued into new markets. As part of the development of its broadcast services, Canada Groupe V Media became the first Canadian company to install Dolphin, Pebble Beach System's compact and cost-efficient integrated channel device, and Marina. Further progress was made in Chilean markets with CNN Chile installing Marina Xpress.
Pebble Beach Systems also continued to build on its strategic partnership with Harmonic and entered into new partnerships with Tedial, Pixel Power and Blue Lucy.
Pebble Beach Systems delivered a good financial performance, achieving revenue of £10.9 million (2015: £10.9 million). Pebble Beach Systems contributed £2.3 million of adjusted operating profit in 2016 (2015: £3.3 million) which reflects investment in software development and expansion of sales capability to underpin the future growth of the division.
The business has high margins, excellent growth prospects and solid cash generation.
The Group continues to view investment in the development of new products and services as key to future growth. In 2016 Pebble Beach Systems capitalised £1.1 million of development costs (2015: £0.4 million).
Vislink Communication Systems
The continued significant changes in both the broadcast marketplace and the media technology used to meet the industry's needs, combined with the external economic worldwide factors, meant that Vislink Communication Systems found market conditions continued to be challenging in 2016, resulting in a poor trading performance.
As part of a strategic review of the Group, and in particular Vislink Communication Systems, a restructuring process was instigated of Vislink Communication Systems to include a relocation of its finance function to Head Office. This resulted in improved cash collection. A decision to sell Vislink Communication Systems had already been taken but was halted due to the uncertainty around Brexit. The process was recommenced in the Autumn of 2016 culminating in a completion of the sale on 2 February 2017 to xG Technology Inc.
Central Costs
In 2016, Central costs were £2.1 million (2015: £1.9 million). This increase is due to the Group cancelling the Group VCP scheme, resulting in an acceleration of the accounting charge into 2016, offset by favourable foreign exchange differences. There is a charge of £1.3 million included in Central costs for 2016 in relation to the Group VCP scheme (2015: £0.2 million). This is a non-cash cost.
Net finance costs increased further in 2016 reflecting the Group's increased use of its RCF facility and overdraft. The available RCF facility as at 31 December 2016 was £15.0 million which had been fully drawn down. Interest paid on the RCF was £0.3 million. In addition there was an overdraft of £1.0 million which was fully utilised.
Going Concern
In 2016 Vislink Communication Systems underperformed and, as previously announced, the Group have been in conversations with its bankers.
At 31 December 2016 net debt was £14.5 million (net cash £0.5 million and bank debt of £15.0 million). In addition there was an overdraft of £1.0 million which was fully utilised. In January 2017, net debt increased further to £17.0 million.
On 2 February 2017 the Group sold the trade and assets of the Vislink Communication Systems division to xG Technology Inc., which has reduced the net debt of the Group to £12.0 million. The Group forecasts that it will be in breach of its banking covenants for the foreseeable future meaning it is reliant on the ongoing support of its bankers.
In order to assess the appropriateness of preparing the financial statements on a going concern basis, management have prepared detailed projections of expected cash flows and these have been reviewed by the Board.
Whilst conditions remain challenging, as announced in February 2017, management have commenced a strategic review of the options for the Group, which could include a sale of the Group.
In reaching their decision that the financial statements should be prepared on the going concern basis, the Board has considered the forecast covenant breaches. If the Group is not in compliance with its financing arrangements, the lender can immediately call for repayment of the loan, and the Group have insufficient cash to repay the secured loan without securing additional funding. However, the Group remains in constructive discussions with its bankers.
The condition identified above regarding the ongoing support of the Group's bankers, indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.
The consolidated financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
Dividends
In view of the results for the year the Board does not recommend payment of a final dividend for the year ended 31 December 2016.
Key Events Post 31 December 2016
Vislink Communication Systems
On 17 January 2017 the Group and xG Technology Inc., announced that they had agreed to amend the terms of the sale of the business and assets of Vislink Communication Systems with $9.5 million of the $16.0 million sale price being deferred until mid-March. Prior to mid-March xG Technology Inc., settled $4.6 million of the deferred consideration by taking responsibility for $4.6 million of creditors that had remained with the Group as part of the sale agreement. On 17 March 2017 xG Technology Inc., and the Group agreed that a payment of $2.0 million would settle the remainder of the deferred consideration and all liabilities and claims against the Company in respect of Vislink Communication Systems.
Additionally, as part of the revised business purchase agreement, it was agreed that the Group would retain the right to any sums received in future in respect of an outstanding specific debtor, subject to a maximum sum of $2.0 million. The Group is reliant on xG Technology Inc., fulfilling this contract and so enabling the Group to recover this debt. We continue to work with xG Technology Inc., who have agreed to finish the contract and deliver the goods, and accordingly we expect to collect in the foreseeable future.
Strategic Review
On 14 February, it was announced that the Head Office would be closed as part of a cost reduction strategy and that John Hawkins would cease to be employed as Executive Chairman with immediate effect.
On 23 February, the company announced that it had commenced a strategic review to determine the optimal future for the operating company, Pebble Beach Systems Ltd and that this review could include a sale of the Group.
We have remained in close contact with our bank, who have remained supportive through these challenging times. We are grateful to Santander for their understanding, assistance and support.
Current outlook trading
The Group is now positioned and focussed wholly on the broadcast solutions business Pebble Beach Systems where:
- the pipeline continues to be strong
- further geographic expansion is anticipated outside Europe; and
- the market outlook for broadcast software represents an exciting opportunity with expected technology shift requiring more complex playout solutions.
John Varney
NON-EXECUTIVE CHAIRMAN
Non-Executive Chairman's Statement
For the year ended 31 December 2016
DIVISIONS AND MARKETS
For the year ended 31 December 2016
Continuing Operations
2016 £'m | 2015 £'m | Change % | |
Pebble Beach Systems | 10.9 | 10.9 | -0.6% |
Total Revenue | 10.9 | 10.9 | -0.6% |
Pebble Beach Systems | 2.3 | 3.3 | -28.2% |
Central | (2.1) | (1.9) | -15.0% |
Total adjusted operating profit | 0.2 | 1.4 | -85.6% |
Pebble Beach Systems has contributed £10.9 million of revenues and £2.3 million of adjusted operating profit in 2016. Pebble Beach Systems has invested and continues to invest in the recruitment of additional employees to support growth.
Discontinued Operations
2016 £'m | 2015 £'m | Change % | |
Vislink Communication Systems | 31.7 | 46.9 | -32.4% |
Total Revenue | 31.7 | 46.9 | -32.4% |
Total adjusted operating (loss)/profit | (7.8) | 3.3 | -334.3% |
The operating loss for discontinued operations was £53.4 million which includes impairments of goodwill of £17.5 million, intangible assets of £17.3 million, tangible fixed assets of £1.0 million, and inventory of £8.3 million.
FINANCIAL REVIEW
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 goodwill relating to the surveillance and public safety market was fully written down in 2010. The goodwill relating to the broadcast market (excluding Pebble Beach Systems) and Amplifier Technology has been fully written down in the year. The carrying value of goodwill at 31 December 2016 is £3.2 million (2015: £25.0 million) which relates solely to Pebble Beach Systems.
Non-recurring items
The Group charged £0.7 million (2015: £0.5 million) of non-recurring costs to the consolidated income statement. The charge comprised:
· £0.5 million charge in respect of onerous property commitments
· £0.1 million charge in respect of aborted acquisition costs
· £0.1 million charge in respect of professional advice in relation to the Group's liquidity position
Cash flows
The Group held cash and cash equivalents of £0.5 million at 31 December 2016 (2015: £3.3 million). The table below summarises the cash flows for the year.
£'million | 2016 | 2015 |
|
|
|
Cash used in operating activities | (1.8) | (0.6) |
Net cash used in investing activities | (4.5) | (3.8) |
Net cash from financing activities | 4.2 | (0.8) |
Effects of foreign exchange | (0.7) | 0.1 |
Net decrease in cash and cash equivalents | (2.8) | (5.1) |
Cash and cash equivalents at 1 January | 3.3 | 8.4 |
Cash and cash equivalents at 31 December | 0.5 | 3.3 |
As at 31 December 2016 net debt was £14.5 million (cash £0.5 million and bank debt of £15.0 million). In January 2017, net debt increased to £17.0 million. In addition there was an overdraft of £1.0 million which was fully utilised. The Group was fully utilising its available facilities in December 2016, meaning it was reliant on the ongoing support of its bankers.
On 2 February 2017 the Group sold the trade and assets of the Vislink Communication Systems division to xG Technology Inc, which has reduced net debt to £12.0 million.
Returns to shareholders
Returns to shareholders were in the form of a dividend payment of £1.8 million (2015: £1.8 million).
In view of the results for the year the Board do not recommend payment of a final dividend for the year ended 31 December 2016.
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 2016 | Average Rate 2015 | Year end rate 2016 | Year end rate 2015 |
US dollar | 1.354 | 1.529 | 1.230 | 1.482 |
If the results for the year to 31 December 2015 had been translated at the 2016 average rate then the translation impact would be to increase prior year revenue by £2.6 million and increase the loss before tax by£0.5 million.
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.
John Varney, Non-Executive Chairman
31 March 2016
The figures and financial information for the year ended 31 December 2016 do not constitute the statutory financial statements for that year. These financial statements have not been delivered to the Registrar nor have the auditors yet reported on them. The financial statements have been prepared in accordance with our accounting policies published in our financial statements available on our website www.pebbleplc.com.
CONSOLIDATED GROUP INCOME STATEMENT
for the year ended 31 December 2016
|
| 2016 | 2015 |
| Notes | £'000 | £'000 |
|
|
|
|
Revenue | 3 | 10,879 | 10,949 |
Cost of sales |
| (2,924) | (1,948) |
Gross profit |
| 7,955 | 9,001 |
Sales and marketing expenses |
| (3,052) | (2,580) |
Research and development expenses |
| (1,596) | (1,650) |
Administrative expenses |
| (4,945) | (3,933) |
Foreign exchange gains |
| 1,840 | 561 |
Other expenses |
| (2,100) | (1,959) |
Operating loss | 4 | (1,898) | (560) |
Operating loss is analysed as: |
|
|
|
Adjusted operating profit |
| 202 | 1,399 |
Amortisation and impairment of acquired intangibles |
| (1,422) | (1,419) |
Non-recurring items | 3,4 | (678) | (540) |
Finance costs | 5 | (331) | (226) |
Finance income | 5 | 2 | 6 |
Loss before tax |
| (2,227) | (780) |
Tax | 6 | (729) | (398) |
Loss for the year being loss attributable to owners of the parent |
| (2,956) | (1,178) |
Net result from discontinued operations | 8 | (52,358) | 275 |
Net result for the year |
| (55,314) | (903) |
|
|
| |
Earnings per share from continuing and discontinued operations attributable to the owners of the parent during the year
|
|
|
|
Basic loss per share |
|
|
|
From continuing operations | 9 | (2.4)p | (0.9)p |
From discontinuing operations |
| (42.6)p | 0.2p |
From loss for the year |
| (45.0)p | (0.7)p |
|
|
|
|
Diluted loss per share |
|
|
|
From continuing operations | 9 | (2.4)p | (0.9)p |
From discontinued operations |
| (42.6)p | 0.2p |
From loss for the year |
| (45.0)p | (0.7)p |
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2016
| 2016 | 2015 | |
|
| £'000 | £'000 |
|
|
|
|
Loss for the financial year |
| (55,314) | (903) |
Other comprehensive income - items that may be reclassified subsequently to profit or loss: |
|
|
|
Exchange differences on translation of overseas operations |
| 363 | 406 |
|
|
|
|
Total loss for the year attributable to owners of the parent |
| (54,651) | (497) |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended 31 December 2016
| Share Capital
£'000 | Share premium account £'000 | Capital redemption reserve £'000 | Merger reserve
£'000 | Translation reserve
£'000 | Retained earnings
£'000 | Total
£'000 |
At 1 January 2015 | 3,066 | 6,800 | 617 | 32,448 | 4,437 | 9,459 | 56,827 |
Retained loss for the year | - | - | - | - | - | (903) | (903) |
Exchange differences on translation of overseas operations |
- |
- |
- |
- |
406 |
- | 406 |
Adjustment in respect of employee share ownership plan |
- |
- |
- |
- |
- |
(5) | (5) |
Share based payments: value of employee services |
- |
- |
- |
- |
- |
(43) | (43) |
Dividends payable | - | - | - | - | - | (1,830) | (1,830)
|
At 31 December 2015 | 3,066 | 6,800 | 617 | 32,448 | 4,843 | 6,678 | 54,452 |
|
|
|
|
|
|
|
|
At 1 January 2016 | 3,066 | 6,800 | 617 | 32,448 | 4,843 | 6,678 | 54,452 |
Issue of share | 49 | - | - | - | - | - | 49 |
Retained loss for the year | - | - | - | - | - | (55,314) | (55,314) |
Exchange differences on translation of overseas operations |
- |
- |
- |
- |
363 |
- | 363 |
Share based payments: value of employee services |
- |
- |
- |
- |
- |
1,247 | 1,247 |
Dividends payable | - | - | - | - | - | (1,829) | (1,829)
|
At 31 December 2016 | 3,115 | 6,800 | 617 | 32,448 | 5,206 | (49,218) | (1,032) |
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
as at 31 December 2016
|
| 2016 | 2015 |
Notes | £'000 | £'000 | |
Assets |
|
|
|
Non-current assets |
|
|
|
Intangible assets |
| 8,216 | 42,291 |
Property, plant and equipment |
| 467 | 2,201 |
Deferred tax assets |
| - | 4,461 |
|
| 8,683 | 48,953 |
Current assets |
|
|
|
Inventories |
| 206 | 12,696 |
Trade and other receivables |
| 5,436 | 18,751 |
Current tax assets |
| 254 | - |
Cash and cash equivalents |
| 2,044 | 3,251 |
| 7,940 | 34,698 | |
Assets of disposal group and non-current asset classified as held for sale | 8 | 15,177 | -- |
| 23,117 | 34,698 | |
Liabilities |
|
|
|
Current liabilities |
|
|
|
Financial liabilities - borrowings |
| 15,000 | 9,000 |
Trade and other payables |
| 10,520 | 13,554 |
Current tax liabilities |
| - | 239 |
Provisions for other liabilities and charges |
| 391 | 272 |
|
| 25,911 | - |
Liabilities of disposal group classified as held for sale | 8 | 5,014 | - |
|
| 30,925 | 23,065 |
|
|
|
|
Net current (liabilities)/assets |
| (7,808) | 11,633 |
|
|
|
|
Non-current liabilities |
|
|
|
Deferred tax liabilities |
| 1,174 | 5,714 |
Provisions for other liabilities and charges |
| 733 | 420 |
|
| 1,907 | 6,134 |
|
|
| |
Net assets |
| (1,032) | 54,452 |
Equity attributable to owners of the parent |
|
|
|
Ordinary shares | 11 | 3,115 | 3,066 |
Share premium account | 11 | 6,800 | 6,800 |
Capital redemption reserve | 11 | 617 | 617 |
Merger reserve |
| 32,448 | 32,448 |
Translation reserve |
| 5,206 | 4,843 |
Retained earnings |
| (49,218) | 6,678 |
Total equity |
| (1,032) | 54,452 |
CONSOLIDATED GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December 2016
|
| 2016 | 2015 |
| Notes | £'000 | £'000 |
Cash flows from operating activities |
|
|
|
Cash generated from operations | 10 | (1,235) | 605 |
Interest paid |
| (351) | (248) |
Taxation paid |
| (174) | (918) |
Net cash from operating activities |
| (1,760) | (561) |
|
|
| |
Cash flows from investing activities |
|
|
|
Interest received |
| 2 | 8 |
Proceeds from sale of property, plant and equipment |
| 80 | 338 |
Proceeds from sale of intangibles |
| - | 61 |
Purchase of property, plant and equipment |
| (301) | (605) |
Expenditure on capitalised development costs |
| (4,261) | (3,582) |
|
|
|
|
Net cash used in investing activities |
| (4,480) | (3,780) |
|
|
|
|
Cash flows from financing activities |
|
|
|
Net new bank loans raised | 12 | 6,000 | 1,000 |
Dividend paid | 12 | (1,829) | (1,830) |
Issue / (purchase) of shares |
| 49 | (5) |
Net cash from / (used in) financing activities |
| 4,220 | (835) |
Net decrease in cash and cash equivalents and overdrafts |
| (2,020) | (5,176) |
Effect of foreign exchange rate changes | 12 | (774) | 47 |
Cash and cash equivalents and overdrafts at 1 January |
| 3,251 | 8,380 |
Cash and cash equivalents and overdrafts at 31 December |
| 457 | 3,251 |
|
|
| |
Net debt comprises: |
|
|
|
Cash and cash equivalents and overdrafts |
| 457 | 3,251 |
Borrowings |
| (15,000) | (9,000) |
Net debt at 31 December | 12 | (14,543) | (5,749) |
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2016
1. GENERAL INFORMATION
Pebble Beach Systems Group plc 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 Chilton House, Charnham Lane, Hungerford, Berkshire, RG17 0EY.
The registered number of the Company is 4082188.
This final results announcement was approved for issue on 30 March 2017.
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 there were no new standards or amendments which had a material impact on the net assets of the Group. In addition, standards or amendments issued but not yet effective are not expected to have a material impact on the net assets of the Group.
GOING CONCERN
In 2016 Vislink Communication Systems underperformed and, as previously announced, the Group have been in conversations with its bankers.
At 31 December 2016 net debt was £14.5 million (net cash £0.5 million and bank debt of £15.0 million). In addition there was an overdraft of £1.0 million which was fully utilised. In January 2017, net debt increased further to £17.0 million.
On 2 February 2017 the Group sold the trade and assets of the Vislink Communication Systems division to xG Technology Inc., which has reduced the net debt of the Group to £12.0 million. The Group forecasts that it will be in breach of its banking covenants for the foreseeable future meaning it is reliant on the ongoing support of its bankers.
In order to assess the appropriateness of preparing the financial statements on a going concern basis, management have prepared detailed projections of expected cash flows and these have been reviewed by the Board.
Whilst conditions remain challenging, as announced in February 2017, management have commenced a strategic review of the options for the Group, which could include a sale of the Group.
In reaching their decision that the financial statements should be prepared on the going concern basis, the Board has considered the forecast covenant breaches. If the Group is not in compliance with its financing arrangements, the lender can immediately call for repayment of the loan, and the Group have insufficient cash to repay the secured loan without securing additional funding. However, the Group remains in constructive discussions with its bankers.
The condition identified above regarding the ongoing support of the Group's bankers, indicates the existence of a material uncertainty that may cast significant doubt about the Group's ability to continue as a going concern.
The consolidated financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. We anticipate that the Group's auditors will include an emphasis of matter in respect of this material uncertainty in their statutory audit opinion on the Group's financial statements.
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 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 2016 |
|
|
|
Broadcast | 10,879 | - | 10,879 |
Total revenue | 10,879 | - | 10,879 |
|
|
|
|
Adjusted operating profit/(loss) | 2,337 | (2,135) | 202 |
Amortisation and impairment of acquired intangibles | (1,422) | - | (1,422) |
Non-recurring items | - | (678) | (678) |
Group total operating profit / (loss) | 915 | (2,813) | (1,898) |
|
|
| |
Year to 31 December 2015 |
|
|
|
Broadcast | 10,949 | - | 10,949 |
Total revenue | 10,949 | - | 10,949 |
|
|
|
|
Adjusted operating profit/(loss) | 3,255 | (1,856) | 1,399 |
Amortisation and impairment of acquired intangibles | (1,419) | - | (1,419) |
Non-recurring items | - | (540) | (540) |
Group total operating profit/(loss) | 1,836 | (2,396) | (560) |
Geographic external revenue analysis
The revenue analysis in the table below is based on the geographical location of the customer for the business.
| 2016 | 2015 |
|
Total £'000 |
Total £'000 |
By market |
|
|
UK & Europe | 5,360 | 3,759 |
North America | 2,032 | 2,768 |
Latin America | 1,122 | 668 |
Middle East and Africa | 2,104 | 2,763 |
Asia / Pacific | 261 | 991 |
| 10,879 | 10,949 |
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.
| 2016 £'000 | 2015 £'000 |
By division: |
|
|
Pebble Beach Systems | 10,240 | 8,810 |
Central Assets of disposal Group held for sale Liabilities for disposal Group held for sale | (21,435) 15,177 (5,014) | (6,867) 67,371 (14,862) |
| (1,032) | 54,452 |
4. OPERATING LOSS
The following items have been included in arriving at the operating loss for the continuing business:
| 2016 £'000 | 2015 £'000 |
Depreciation of property, plant and equipment | 197 | 112 |
Amortisation of acquired intangibles | 1,422 | 1,419 |
Operating lease rentals | 437 | 437 |
Exchange gains credited to profit and loss | (1,840) | (561) |
Research and development expenditure expensed in the year which includes: |
|
|
- Amortisation of capitalised development costs | 359 | 117 |
|
|
|
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: | ||
|
|
|
| 2016 £'000 | 2015 £'000 |
|
|
|
Liquidity advice and other costs Increase in onerous property provision | 176 502 | 199 341 |
| 678 | 540 |
The Group incurred £66,000 of aborted acquisition costs and £110,000 in professional advice in relation to the Group's liquidity position during 2016 (2015: £199,000 in respect of aborted acquisition costs).
In 2016 the Group incurred £502,000 (2015: £341,000) of costs in relation to the increase of onerous property provisions as part of the disposal of Vislink Communication Systems.
5. FINANCE COSTS - NET
| 2016 £'000 | 2015 £'000 |
Finance costs | (331) | (226) |
Finance income | 2 | 6 |
Finance costs - net | (329) | (220) |
Finance costs represent interest payable on bank borrowings.
Finance income is derived from cash held on deposit.
6. INCOME TAX EXPENSE
| 2016 £'000 | 2015 £'000 |
|
|
|
Current tax |
|
|
UK corporation tax | (64) | 325 |
Foreign tax - current year | - | 182 |
Adjustments in respect of prior years | (67) | 62 |
Total current tax | (131) | 569 |
|
|
|
Deferred tax |
|
|
UK corporation tax | 900 | (38) |
Impact of change in tax rate | (40) | (162) |
Adjustments in respect of prior years | - | 29 |
Total deferred tax | 860 | (171) |
|
| |
Total taxation | 729 | 398 |
From 1st April 2015 the corporation tax rate was 20 per cent and from 1 April 2020 will be 17 per cent. The 17 per cent rate was substantively enacted on 7 September 2016 and hence deferred tax assets and liabilities are calculated at 17 per cent.
Deferred tax has been provided for at the rate of 17 per cent (2015: 18 per cent).
7. DIVIDENDS
In view of the results for the year the directors do not recommend payment of a final dividend for the year ended 31 December 2016.
8. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
a) Vislink Communications Systems
The assets and liabilities related to Vislink Communications Systems have been presented as held for sale following the signing of the initial business purchase agreement in December 2016, completion of the sale of the trade and assets took place on 2 February 2017.
i) Assets of disposal group classified as held for sale
| 2016 £'000 | 2015 £'000 |
Inventory | 5,241 | - |
Trade and other debtors | 9,645 | - |
Total assets | 14,886 | - |
ii) Liabilities of disposal group classified as held for sale
| 2016 £'000 | 2015 £'000 |
Trade and other payables | 5,008 | - |
Provisions | 6 | - |
Total liabilities | 5,014 | - |
In accordance with IAS 36, the plan to dispose of the trade and assets represented an impairment trigger which resulted in the remaining intangible and tangible fixed assets of the Vislink Communication Systems business being fully written down.
On reclassification as held for sale, in accordance with IFRS 5, the remaining assets and liabilities for the Vislink Communication Systems disposal group were measured against the fair value less costs to sell. This led to an additional impairment of £1.6 million.
iii) Analysis of the result of discontinued operations is as follows:
| 2016 £'000 | 2015 £'000 | |
Revenue | 31,667 | 46,862 | |
Expenses | (85,077) | (47,076) | |
Loss before tax of discontinued operations | (53,410) | (214) | |
Tax | 1,052 | 489 | |
Loss after tax of discontinued operations | (52,358) | (275) | |
|
|
| |
Included within expenses above are impairments of goodwill of £17.5 million, intangible assets of £17.3 million, tangible fixed assets of £1.0 million, and inventory of £8.3 million.
iv) Cash flow
| 2016 £'000 | 2015 £'000 |
Operating cash flows | (2,173) | 3,774 |
Investing cash flows | (3,194) | (3,594) |
Total cash flows | (5,367) | 180 |
|
|
|
b) Vislink Holdings Limited
The tangible fixed asset held in relation to the former head office, Marlborough House, has been presented as held for sale following receipt of an offer for the building in December 2016 and the sale of this building on 15 March 2017.
i) Non-current asset classified as held for sale
| 2016 £'000 | 2015 £'000 |
Property, plant and equipment | 291 | - |
Total assets | 291 | - |
9. 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.
Adjusted earnings
The directors believe that adjusted operating profit, 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 non-recurring items and their related tax effects.
The reconciliation between reported and underlying earnings and basic earnings per share is shown below:
| 2016 | 2015 | ||
| Earnings £'000 |
Pence | Earnings £'000 |
Pence |
Reported loss per share - continuing operations | (2,956) | (2.4)p | (1,178) | (0.9)p |
Amortisation of acquired intangibles after tax | 1,166 | 1.0p | 1,186 | 1.0p |
Non-recurring items after tax | 542 | 0.4p | 431 | 0.4p |
Adjusted (loss)/earnings per share - continuing operations | (1,248) | (1.0)p | 479 | 0.4p |
Potential ordinary shares are non-dilutive in the current and prior years as they would decrease the loss per share from continuing operations. Accordingly there is no difference between basic and diluted EPS.
10. CASH FLOW GENERATED FROM OPERATING ACTIVITIES
Reconciliation of loss before taxation to net cash flows from operating activities.
| 2016 £'000 | 2015 £'000 |
Loss before tax | (55,637) | (994) |
Depreciation of property, plant and equipment | 701 | 761 |
Loss on disposal of property, plant and equipment | 1,009 | - |
Amortisation and impairment of development costs | 13,772 | 3,224 |
Amortisation and impairment of acquired intangibles | 25,609 | 2,404 |
Share-based payment expense | 1,247 | (43) |
Finance income | (2) | (8) |
Finance costs | 351 | 248 |
Decrease in inventories | 7,249 | 557 |
Decrease / (increase) in trade and other receivables | 3,670 | (2,411) |
Increase / (decrease) in trade and other payables | 376 | (3,261) |
Increase in provisions | 420 | 128 |
Net cash generated from operating activities | (1,235) | 605 |
11. 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 2016 | 122,603 | 3,066 | 6,800 | 617 | 10,483 |
Share issues | 2,000 | 49 | - | - | 49 |
At 31 December 2016 | 124,603 | 3,115 | 6,800 | 617 | 10,532 |
12. 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 2016 | 3,251 | (9,000) | (5,749) |
Cash flow for the year before financing | (6,240) | - | (6,240) |
Proceeds on issue of shares | 49 | - | 49 |
Movement in borrowings in the year | 6,000 | (6,000) | - |
Dividend paid | (1,829) | - | (1,829) |
Exchange rate adjustments | (774) | - | (774) |
Cash and cash equivalents at 31 December 2016 | 457 | (15,000) | (14,543) |
13. POST BALANCE SHEET EVENTS
The Company announced on 20 October 2016 that it had entered into a Business Purchase Agreement to sell the assets of Vislink Communication Systems, the hardware division of the Company, for the consideration of $16.0m to xG Technology, Inc . The disposal was conditional on approval of shareholders of the Company under Rule 15 of the AIM Rules which was received 9 January 2017. Subsequently on 16 January 2017 it was announced that it had been agreed to revise the specific terms of the transaction subject to shareholder approval. The headline consideration remained at $16.0m but was now to be satisfied by an amount of initial consideration and an amount of deferred consideration, it was also agreed that the Company would retain the right to any sums received in future in respect of an outstanding debtor subject to a maximum sum of $2.0m. The shareholders' approval was received on 2 February 2017 and the transaction completed.
Subsequently, on 23 February 2017, it was announced that $3m of the deferred consideration had been settled through xG Technology taking on liability for settling $3.0m of VCS trade creditors, which under the revised and original Business Purchase Agreement had remained as liabilities of the Group. On the 8 March 2017 it was announced that further $1.6m of the deferred consideration had been settled through xG Technology taking on liability for settling a further $1.6m of VCS trade creditors.
Subsequent to the announcement of 7 March 2017, on 20 March 2017, agreement was reached with xG Technology whereby the outstanding deferred consideration of $4.9 million due from xG Technology had been settled in full by a cash payment of $2.0 million and the release of the $125,000 in escrow from the Initial Payment. Consequently the initially agreed consideration was reduced from $16.0m to $13.1m.
As at the transaction date of 2 February 2017 the net assets of the disposal group were being carried at the fair value less costs to sell of the disposal group being £10.2m. Accordingly no further significant gain or loss in respect of the sale of this disposal group is anticipated for the year ending 31 December 2017.
On 15 March 2017 the Group sold Marlborough House, a building owned by Vislink Holdings Limited for £0.5 million. The anticipated gain on disposal of this building is £0.2 million.
In accordance with the announcement on 23 February 2017, the Company is now carrying out a strategic review of options for the business, which could include a sale of the Group.
Ends