Pebble Beach Regulatory News (PEB)

Pebble Beach Systems Group plc (formerly Vislink plc)

Results for the Half Year ended 30 June 2017

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 half year results for the half year ended 30 June 2017.

Financial Headlines

For the Half Year ended 30 June 2017 Continuing Discontinued

Operations Operations (VCS)

*Adjusted operating loss, a non-GAAP measure, is operating loss before the amortisation and impairment of goodwill and acquired intangibles, and non-recurring items (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 half year and represents firm orders.

Highlights

· Adjusted operating loss for the continuing business of £(1.3) million (loss in 2016: £(0.3) million)

· Although the Group continues to forecast that it will breach its banking covenants, it remains in constructive discussions with its bankers

· Sale of hardware division, Vislink Communication Systems, on 2 February 2017 to xG Technology Inc.

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

The Broadcast market continues to display volatility and that, along with some residual effects of the VCS business prior to disposal, has shown in the half year results. However, Pebble Beach Systems continues to demonstrate its ability to anticipate market needs and to innovate to meet customer requirements. Development of the Orca product has positioned the company at the forefront of IP based broadcast automation.

Orders in H1 have come in at a record level for a half year and we anticipate a good performance for the year, with continuing, strong cash generation.

The smaller, restructured Group is still undergoing a strategic review, although we expect to conclude that activity in the near future.

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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

At the start of 2017 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 on 2 February 2017.

Final consideration for the assets of Vislink Communications Systems was £10.3 million with a net loss of £0.04 million.During the first half of 2017, the Group's borrowings have been reduced from £15.0 million to £11.5 million. The Group remains in breach of its banking covenants and forecasts to remain so for the foreseeable future.

The Board are continuing with the formal strategic review as announced on 23 February 2017.

Pebble Beach Systems generated revenue of £4.6 million (H1 2016: £5.4 million) in the half year and reported adjusted operating loss of £1.3 million (H1 2016: loss of £0.3 million) of which central costs were £1.2 million (H1 2016: £1.5million).

The operating loss of £2.0 million in H1 2017 includes £0.7 million (H1 2016: £0.7 million) amortisation of acquired intangibles and £1.2 million (H1 2016: £2.3 million) of central costs (note 4).

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.

Pebble Beach Systems achieved good order intake growth in H1 2017 of £6.1 million (H1 2016: £5.4 million), however delays in orders in the first quarter resulted in H1 revenue of £4.6 million (H1 2016: £5.4 million). Whilst the delays caused by broadcasters' focus on content creation (rather than delivery) is expected to continue, the Board is confident that its increasing order book puts it in a good position for H2.

Vislink Communication Systems

Vislink Communication Systems was sold on 2 February 2017 to xG Technology Inc. Profit in the first half of the year resulted from the recycling of translation reserves, which led to a gain of £5.1 million (H1 2016 £nil) and closing down of the remaining operations cost £1.4 million (H1 2016: £31.5 million). This gives a net result of a profit for H1 2017 of £3.7 million (loss H1 2016: £31.5 million).

As part of the revised business purchase agreement, it was agreed that the Group would retain the right to any sums received in the 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.

In April 2017 the company received $0.25 million in cash from xG Technology Inc. against this debt.

The Group continue to work with xG Technology Inc., who have agreed to finish the contract and deliver the goods, and accordingly we expect to collect the balance in the foreseeable future. The Board anticipates that xG Technology Inc. may look to offset certain costs from suppliers involved in this transaction.

Going Concern

As forecast in the 31 December 2016 results, the Group is in breach of its banking covenants. 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. As at 30 June 2017, £11.5 million of its £12.0 million secured debt facility was utilised and remained undrawn on the Group's £1.0 million overdraft facility. As at today's date the Group has utilised £10.7 million of its secured debt facility and is not required to draw against its overdraft facility. The Group forecasts that it will continue to be in breach for the foreseeable future meaning it remains reliant on the ongoing support of its bankers.

The directors remain in constructive discussions with its bankers seeking their continuous support. The Group is being marketed for sale with valuations that the directors consider would allow payment of the outstanding debt. In the event that the Board does not consider a sale of business to be the preferred course of action, the Group will engage with its bankers and shareholders to explore ways for the business to continue to operate as an independent entity.

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.

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 would 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 interim statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

Dividends

The Board is not declaring an interim dividend.

Earnings per share

The reported basic loss per share for the period was (1.6) pence (H1 2016: loss of 26.9 pence).

After adjusting for the recycled translation reserve plus amortisation and impairment of goodwill, acquired intangibles and other non-recurring items the Group's adjusted profit per share was 2.0 pence (H1 2016: loss of 2.9 pence).

John Varney

Non-Executive Chairman

DIVISIONS AND MARKETS

For the half year ended: 30 June 2017

Continuing Operations

Pebble Beach Systems has contributed £4.6 million of revenues and £(0.1) million of adjusted operating losses in the half year 2017. Pebble Beach Systems has invested and continues to invest in the recruitment of additional employees to support growth.

Discontinued Operations

In the half year to 30 June 2017 the profit for the discontinued operations was £3.7 million which includes the disposal of the VCS business incurring a loss of £0.04 million.

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.

Principal risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group remain those detailed on page 17 of the 2016 Annual Report and Financial Statements, a copy of which is available on the Group website at www.pebbleplc.com, together with the banking uncertainties as referred to above. The Board considers that these are a current reflection of the main risks and uncertainties facing the business for the remaining six months of the financial year. The Group notes that this is not an exhaustive list.

The Group's risk management process remains unchanged from 31 December 2016 and is described in detail in the 2016 Annual Report and Financial Statements. The principal risks considered by the Board relate to global economic conditions and those associated with the Group's markets, reputation, overseas operations, customer defaults, senior management, foreign exchange, and the banking uncertainties. The principal exchange rates used in the preparation of these interim financial statements for the six months ended 30 June 2017 are provided above. 

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 was fully written down in the prior year.

John Varney, Non-Executive Chairman

28 September 2017

CONSOLIDATED GROUP INCOME STATEMENT

for the six months ended 30 June 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the half year ended 30 June 2017

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

for the half year ended 30 June 2017

CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION

as at 30 June 2017

The Board have recognised that the consolidated Group Statement of Financial Position shows negative net assets and refer to the Going Concern comment contained in Note 2 to provide an explanation.

CONSOLIDATED GROUP STATEMENT OF CASH FLOWS

for the half years ended 30 June

NOTES TO THE FINANCIAL STATEMENTS

for the half year ended 30 June 2017

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: 12, Horizon Business Village, 1 Brooklands Road, Weybridge, Surrey, KT13 0TJ. The registered number of the Company is 4082188.

These interim financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2016 were approved by the Board of Directors on 28 April 2017 and delivered to the Registrar of Companies. The report of the auditors on those accounts was not modified but contained an emphasis of matter paragraph regarding going concern. It did not contain any statement under section 498 of the Companies Act 2006.

These interim financial statements have been subject to a review in accordance with ISRE (UK and Ireland) 2410 by our auditors but has not been subject to an audit. 

This interim financial statement announcement was approved for issue by the Board of Directors on 28 September 2017.

2. BASIS OF PREPARATION

These interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with the AIM Rules for Companies and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2016, which have been prepared in accordance with IFRSs as adopted by the European Union.

The preparation of the financial information requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from these estimates.

GOING CONCERN

As forecast in the 31 December 2016 results, the Group is in breach of its banking covenants. 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. As at 30 June 2017, £11.5 million of its £12.0 million secured debt facility was utilised and remained undrawn on the Group's £1.0 million overdraft facility. As at today's date the Group has utilised £10.7 million of its secured debt facility and is not required to draw against its overdraft facility. The Group forecasts that it will continue to be in breach for the foreseeable future meaning it remains reliant on the ongoing support of its bankers.

The directors remain in constructive discussions with its bankers seeking their continuous support. The Group is being marketed for sale with valuations and the directors consider that would allow payment of the outstanding debt. In the event that the Board does not consider a sale of business to be the preferred course of action, the Group will engage with its bankers and shareholders to explore ways for the business to continue to operate as an independent entity.

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.

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 would 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 interim statements do not include the adjustments that would result if the Group was unable to continue as 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 2016, as described in those annual report and financial statements.

Exceptional items are disclosed and described separately in the financial statements where it is necessary to do so to provide further understanding of the financial performance of the Group. They are material items of income or expense that have been shown separately due to the significance of their nature or amount.

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 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 operations by business segment.

Analysis of the result of discontinued operations is as follows:

Included within expenses for the period to 30 June 2017 are one month's costs for operating the VCS businesses. Expenses for the year ended 31 December 2016 includes the following costs - 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.

Cash flow

Included within the Investing cash flows above for the period ending 30 June 2017 are the proceeds from the sale of the VCS business at £10.3 million.

Geographic external revenue analysis

The revenue analysis in the table below is based on the geographical location of the customer for the business.

Non-current assets, other than financial instruments and deferred tax, are located in the UK.

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. INCOME TAX EXPENSE

From 1 April 2017 the corporation tax rate was 19 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 (2016: 18 per cent).

6. DIVIDENDS

In view of the results for the half year the directors do not recommend payment of an interim dividend. In respect of 2016 there was no interim dividend and no final dividend for the year ended 31 December 2016.

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.

8. CASH FLOW GENERATED FROM OPERATING ACTIVITIES

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

Independent review report to Pebble Beach Systems Group plc

Report on the interim financial statements

Our conclusion

We have reviewed Pebble Beach Systems Group plc's interim financial statements (the "interim financial statements") in the Half Year to 30 June 2017 Results Announcement of Pebble Beach Systems Group plc for the 6 month period ended 30 June 2017. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

Emphasis of matter

Without modifying our conclusion on the interim financial statements, we have considered the adequacy of the disclosure made in the basis of preparation note made in note 2 to the interim financial information concerning the Group's ability to continue as a going concern, and the uncertainty regarding the ongoing support of the Group's bankers. This condition, along with the other matters explained in note 2 to the interim financial information, indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The interim financial information does not include the adjustments that would result if the company was unable to continue as a going concern.

What we have reviewed

The interim financial statements comprise:

· the Consolidated Group Statement of Financial Position as at 30 June 2017;

· the Consolidated Group Income Statement and Consolidated Statement of Comprehensive Income for the period then ended;

· the Consolidated Group Statement of Cash Flows for the period then ended;

· the Consolidated Statement of Changes in Shareholders' Equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the Half Year to 30 June 2017 Results Announcement have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Half Year to 30 June 2017 Results Announcement, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Half Year to 30 June 2017 Results Announcement in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the Half Year to 30 June 2017 Results Announcement based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Half Year to 30 June 2017 Results Announcement and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Bristol

29 September 2017