Pebble Beach Regulatory News (PEB)

Pebble Beach Systems Group plc

Results for the half year ended 30 June 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 unaudited results for the half year ended 30 June 2018.

Financial Headlines

For the half year ended 30 June 2018

*Adjusted operating profit/(loss), a non-GAAP measure, is operating profit/(loss) before depreciation, the amortisation and impairment of goodwill and acquired intangibles, the amortisation of capitalised development costs, non-recurring items and foreign exchange gains (see note 4). Adjusted earnings per share is calculated on the same basis after taking account of related tax effects.

Headlines

· Adjusted operating profit for the continuing business of £0.6 million (loss in 2017: £(1.0 million))

· Costs of the continuing operations reduced by £1.5 million for the first six months of 2018. This was achieved though the closure of the PLC head office in 2017 and the restructure of Pebble Beach Systems operations in 2018

· Gross margin has improved to 73% (2017: 57%)

· Steady performance of Pebble Beach Systems, despite general market conditions remaining challenging during ongoing period of technology change

· Profitability is expected to continue to improve as higher margins are maintained, and the full year impact of the cost savings are realised in 2019

· Net cash generated from operating activities improved significantly to £0.1 million (outflow in 2017: £6.5 million)

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

"The first half of 2018 has seen steady trading results which are in line with our expectations, and the significant steps taken to move to ongoing profitability and cash generation have proved to be effective.

We are strengthening our ability to develop the technology and services required to support customers through a period of significant technology change to underpin future growth.

With the issues of the past now behind us we look forward to focussing on the opportunities being presented by the changes in the broadcast market.

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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

The first half of 2018 has focused on ensuring that we have a solid financial base on which to rebuild the business following the disposal of the hardware division.

Financial Results

Pebble Beach Systems achieved H1 revenue of £3.7 million (2017 H1: £4.6 million).

Unsettled market conditions during this period of technology and commercial transition delayed certain orders in H1 which are now scheduled for H2. 

The Board is confident of improvements in H2, with an increased backlog of £4.7 million at 30 June 2018 and a growing pipeline leading to improved revenue for the period with full year revenue marginally below FY17.

The business has historically high margins which were under pressure during 2017 as a result of a number of projects being completed ahead of the Harmonic OEM agreement coming to an end in March 2018. The number of projects increased as Harmonic looked to utilise the non-refundable software licences. The margins have shown the expected recovery in FY18.

Adjusted operating profit was £0.6 million in the first half of 2018 (loss in 2017: £1.0 million) before the deduction of depreciation and amortisation costs of £1.2 million and non-recurring costs of £0.2 million. Headcount reductions made in early FY18 from 78 to 62 have contributed to adjusted operating profit improvement.

In the first half Central costs were £0.2 million (2017: £1.2 million). This decrease is due to a £0.2 million release of the Pebble Beach Systems VCP accrual in 2018 (2017: release of £0.5 million), the closure in 2017 of the head office in Hungerford and consolidation of head office roles with the operating business in Weybridge.

Net finance costs remained steady during H1 2018. The available Revolving Credit Facility (RCF) as at 30 June 2018 was £11.5 million (2017: £15.0 million) which had been fully drawn down. Interest paid on the RCF was £0.2 million (2017: £0.2 million). There is now no overdraft facility (2017: £1.0 million). In July 2018 in accordance with the terms of the RCF £0.3 million was paid down (2017: £3.5 million).

Liquidity risk has decreased as a result of combined secured bank loans and trade and other payables being reduced by £0.5 million, from £16.6 million at 30 June 2017 to £16.1 million at 30 June 2018.

The Company continues to view investment in the development of new products and services as key to future growth. In the first half of 2018 Pebble Beach Systems capitalised £0.4 million of development costs (2017: £0.4 million) and amortised £0.4 million (2017: £0.3 million).

xG Technology Inc. (xG)

Following the settlement of two historic creditors totaling $390k for $260k, excluding associated legal fees, the Board believes that there are no further liabilities relating to xG and $100k of provision not required has been released. A formal process to recover these sums from xG is currently underway. 

Pebble Beach Systems Value Creation Plan (VCP)

The performance targets of the VCP had not been met and the Board concluded that no payments to participants would be made pursuant to the VCP. A £243,000 provision was credited to the income statement.

Dividends

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

Trading Outlook

The broadcast market continues to be challenging as customers assess how best to invest in the evolving technologies of IP and cloud-based infrastructures whilst maintaining their traditional infrastructure.

Orders for the second half are forecast to be stronger than the first half, and this improved pipeline underpins this outlook. This will feed through to improved revenue in the second half.

The Company expect the current trading trends to continue into 2019 during this period of technology and commercial transition.

John Varney

Non-Executive Chairman

For the six months ended 30 June 2018

FINANCIAL REVIEW

Divisions and Markets

For the half year ended 30 June 2018

Continuing Operations

Pebble Beach Systems has contributed £3.7 million of revenues and £0.8 million of adjusted operating profit in the six months to 30 June 2018. Non-recurring items excluded from adjusted profit comprise a £0.2 million charge in respect of rationalisation and redundancy costs for restructuring the Pebble Beach Systems operations.

Intangible assets impairment

In accordance with the requirements of IAS 36 'Impairment of assets', goodwill is required to be tested for impairment on an annual basis, with reference to the value of the cash-generating units ("CGU") in question. The carrying value of goodwill at 30 June 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.

Acquired intangibles had a carrying value of £1.8 million (2017: £3.2 million) and capitalised development costs had a carrying value of £1.2 million (2017: £1.2 million). Impairment reviews are undertaken when the directors consider that there has been a potential indication of impairment.

Non-recurring items

The Group charged £0.2 million (2016: £(0.1) million) of non-recurring costs to the consolidated income statement. The charge comprised:

· £0.2 million in respect of restructuring Pebble Beach Systems operations

Cash flows

The Group held cash and cash equivalents of £1.3 million at 30 June 2018 (2017: £1.5 million). Against this are set off debit balances of £0.3 million (2017: £1.1 million). The table below summarises the cash flows for the half year.

As at 30 June 2018 net debt was £10.5 million (cash £1.3 million and bank debt of £11.8 million). At the end of July 2018, net debt had increased to £10.6 million. The Group was using £11.5 million of its available facilities in June 2018.

A marginally positive net increase in cash and cash equivalents is forecast for the second half of 2018. A scheduled debt repayment of £0.25 million was made in July 2018. Further repayments of £0.4 million and £0.2 million are due in September and December 2018 respectively. 

Foreign exchange

The principal exchange rates used by the Group in translating overseas profits and net assets into sterling are set out in the table below.

Risk management

The Board regularly reviews the full range of business risks facing the Group. The approach adopted is to identify, evaluate and manage the likely impact of risk on the Group's business objectives. Where the risks are unavoidable they are managed through business controls and where appropriate through insurance and treasury activities.

The Group has a programme of regular risk assessment, which incorporates internal control reviews of both a financial and non-financial nature. A process of continuous review has been in place throughout the year at an operating company level to consider the risk environment and the effectiveness of controls. The results of reviews, initiatives and progress on implementing control improvements are regularly reported to the Board.

CONSOLIDATED INCOME STATEMENT

for the six months ended 30 June 2018

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 30 June 2018

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

for the half year ended 30 June 2018

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2018

CONSOLIDATED STATEMENT OF CASH FLOWS

for the half year ended 30 June 2018

The cash and cash equivalents and overdrafts balance comprise credit balances of £1,275,000 (2017: £1,491,000) which have been set off against debit balances of £288,000 (2017: £1,063,000).

NOTES TO THE FINANCIAL STATEMENTS

for the half year ended 30 June 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 half year results announcement was approved on 24 August 2018.

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.

Going Concern

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

The Group has prepared forecasts which indicate that it is able to meet its ongoing banking covenants and debt reduction schedule.

We have a strong order book and pipeline which underpin our third and fourth quarter revenue.

The Board remains confident about the future prospects for the Group and have concluded that it is appropriate to prepare the Group interim financial statements on a going concern basis.

3. ACCOUNTING POLICIES

The accounting policies applied are consistent with those of the annual report and financial statements for the year ended 31 December 2017, 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 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.

The £167k non-recurring item in the period ended 30 June 2018 relates to the redundancy costs incurred in January 2018 as part of the Pebble Beach Ltd restructuring.

Geographic external revenue analysis

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

Net assets

The table below summarises the net assets of the Group by division. Balance sheet reporting is disclosed by the divisional assets and liabilities of the Group as this is consistent with the presentation of internal information provided to the Executive Management Board and the Board of Directors.

5. 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).

6. DIVIDENDS

As in previous years, the Board is not declaring an interim dividend. In respect of 2017 there was no final dividend for the year ended 31 December 2017.

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.

8. TRADE AND OTHER PAYABLES

Net current assets, excluding payments received on account, are £0.5 million.

9. CASH FLOW GENERATED FROM OPERATING ACTIVITIES

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

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