Pebble Beach Regulatory News (PEB)

Pebble Beach Systems Group plc

Results for the year ended 31 December 2018

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 final results for the year ended 31 December 2018.

Financial Headlines

Headlines

· Full year results ahead of management expectations

· Order intake and outlook for 2019 strong

· Gross margin improved materially to 73% (2017: 63%)

· Adjusted* EBITDA improved materially to £2.5 million (2017: £0.5 million)

· Net cash inflow from operating activities improved materially to £1.7m (2017: £2.6m outflow)

· Extension to the bank credit facility until 30 November 2020, providing a stable capital base

· Net debt reduced from £10.3 million to £9.4 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:

"This is an exciting time for Pebble Beach Systems as the broadcast industry adapts to the opportunities presented by the expansion in audience and platforms, underpinned by strong continuing growth in advertising revenues. Pebble Beach Systems is now well-positioned to deliver solutions to the global broadcast market as it invests in channel and content delivery infrastructure and systems.

With significant improvements in our profitability and operating cash generation over FY17, we go into 2019 with a strong order backlog and will improve our financial position further as broadcasters invest to take advantages of increasing audience numbers and advertising spend."

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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

Introduction

We delivered a strong financial performance despite market conditions throughout 2018 being challenging as broadcast customers assessed how best to invest in the evolving technologies of IP and cloud orientated infrastructures whilst maintaining their significant historical investment into traditional proprietary infrastructure.

The restructuring of Pebble Beach Systems is now complete and we have a clear mission, focussed on growth and a cost base structured to ensure ongoing profitability and cash generation.

Pebble Beach Systems' mission is to support broadcasters as they adapt to compete with new entrants in the video media space by providing solutions to support their transition from traditional broadcast infrastructure to more flexible IP-based technologies.

Financial Results

Order intake for the full year of £10.8 million is above the previous year (2017: £10.5 million). This includes two significant orders as announced in November 2018.

The first order was from PRO TV, the largest commercial broadcaster in Romania, who chose Pebble Beach Systems' solutions to upgrade its entire playout operations. The order value was £1.0 million, and project commission started in November 2018 ready for an on air date in early 2019.

The second order was from tpc Switzerland AG, the foremost broadcast service provider in Switzerland. This order, also with a value of £1.0 million, is for a new, state of the art, IP-based facility which is currently under construction in Zürich. The contract was finalised in November 2018 and the new facility is scheduled to open in the autumn of 2019.

As expected, revenue for 2018 of £9.2 million (2017: £10.3 million) was down on 2017 as a result of focussing on high margin business. Despite the slightly reduced revenue, overall gross margin grew in 2018 to £6.7 million (73%) (2017: £6.5 million (63%)).

The improved margin, combined with reduced overheads resulting from the restructure, has resulted in an Adjusted EBITDA of £2.5m in 2018 (2017: £0.5 million) before non-recurring items, depreciation and amortisation of £2.7 million are deducted.

Net finance costs were slightly reduced in 2018 reflecting the Group's pay-down of some of its revolving credit facility ("RCF") and overdraft being offset by a higher rate of 3.30% (2017: 2.40%). The available RCF as at 31 December 2018 was brought down to £10.7 million, all of which had been drawn fully down (2017: £15.0 million, of which £11.5 million had been fully drawn down). Interest paid on the RCF was £0.3 million (2017: £0.3 million).

Liquidity risk continued to be reduced, with combined secured bank loans and trade and other payables being further reduced by £1.0 million from £16.3 million in 2017 to £15.3 million at the end of 2018.

The Company continues to view investment in the development of new products and services as key to future growth. In 2018 Pebble Beach Systems capitalised £0.7 million of development costs (amortised £0.8 million), (2017: £0.8 million) (amortised £0.7 million).

Going Concern

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

At 31 December 2018 net debt was £9.4 million (2017: £10.2 million) comprising net cash of £1.3 million (2017 £1.3 million) and the drawn down RCF of £10.7 million (2017: £11.5 million).

We maintain a good relationship with our bank and on 27 March 2019 an extension of the current loan agreement was signed with our bank. The revision secures the facility until 30 November 2020 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 have prepared detailed projections of expected cash flows. These projections include the continued impact of cost reductions implemented in 2017 and 2018, margin improvement strategies and sales growth in 2019.

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 recovery of gross margin following the completion of the Harmonic OEM. Finally, it considered sensitivities regarding the cost reductions.

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.

XG Technology Inc.

In December 2018 the Board were pleased to report that following negotiations a resolution was reached with XG Technology Inc. ("XG") which concludes the ongoing dispute, last reported in our 2018 half year results. As a result the formal process to recover sums from XG was concluded and a mutual release signed to ensure no further liabilities are due by either party.

Board changes

Two appointments were made to the Board during 2018.

As previously announced, Peter Mayhead was appointed as Group CEO on 1 January 2018 and Graham Pitman was appointed to the Board as Non-Executive Director on 6 April 2018.

Trading Outlook

With significant improvements in our profitability and operating cash generation over FY17, as we go into 2019, we will improve our financial position further as broadcasters invest to take advantages of increasing audience numbers and advertising spend.

John Varney

Non-Executive Chairman's Statement

For the year ended 31 December 2018

FINANCIAL REVIEW

Divisions and Markets

For the year ended 31 December 2018

Continuing Operations

Pebble Beach Systems has contributed £9.2 million of revenues and £2.9 million of adjusted EBITDA in 2018. Non-recurring items excluded from adjusted profit are £0.3 million (2017: £0.5 million) charge in respect of rationalisation and redundancy costs.

Discontinued Operations

The profit attributable to equity shareholders for discontinued operations was £0.2 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 2018 is £3.2 million (2017: £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 £0.3 million (2017: £0.5 million) of non-recurring costs to the consolidated income statement in respect of rationalisation and redundancy costs.

Cash flows

The Group held cash and cash equivalents of £1.3 million at 31 December 2018 (2017: £1.2 million). The table below summarises the cash flows for the year.

As at 31 December 2018 net debt was £9.4 million (cash £1.3 million and bank debt of £10.7 million). At the end of January 2019, net debt had reduced to £9.2 million. The Group was using £10.7 million of its available facilities in December 2018.

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 GROUP INCOME STATEMENT

for the year ended 31 December 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2018

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

for the year ended 31 December 2018

CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION

as at 31 December 2018

CONSOLIDATED GROUP STATEMENT OF CASH FLOWS

for the year ended 31 December 2018

NOTES TO THE FINANCIAL STATEMENTS

for the year ended 31 December 2018

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 final results announcement was approved for issue at close of business on 27 March 2019.

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 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers became effective. IFRS 9 did not impact the net assets of the Group. IFRS 15 has not had a material impact on the net assets of the Group and the revenue for 2017 has not been re-stated. 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.

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 2018 and 31 December 2017 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 2018.

The statutory accounts for the year ended 31 December 2018, prepared under IFRS, will be delivered to the Registrar in due course. The Group's principal accounting policies as set out in the 2018 statutory accounts have been applied consistently in all material respects.

GOING CONCERN

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

At 31 December 2018 net debt was £9.4 million (2017: £10.2 million) comprising net cash of £1.3 million (2017 £1.3 million) and bank debt of £10.7 million (2017: £11.5 million).

We maintain a good relationship with our bank and on 27 March 2019 an extension of the current loan agreement was signed with our bank. The revision secures the facility until 30 November 2020 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 have prepared detailed projections of expected cash flows. These projections include the continued impact of cost reductions implemented in 2017 and 2018, margin improvement strategies and sales growth in 2019.

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 recovery of gross margin following the completion of the Harmonic OEM. Finally, it considered sensitivities regarding the cost reductions.

The Board have concluded that the primary risk is one of ongoing trading 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.

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.

4. OPERATING LOSS

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

5. FINANCE COSTS - NET

Finance costs represent interest payable on bank borrowings.

Finance income is derived from cash held on deposit.

6. INCOME TAX EXPENSE

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 (2017: 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.

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.

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:

8. CASH FLOW GENERATED FROM OPERATING ACTIVITIES

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

9. CALLED UP SHARE CAPITAL, SHARE PREMIUM AND CAPITAL REDEMPTION RESERVE

10. NET FUNDS

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

11. POST BALANCE SHEET EVENTS

On 27 March 2019 an extension of the current loan agreement was signed with our bank. The revision secures the facility until 30 November 2020 with banking covenants and a repayment schedule in place.

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