REG - Pebble Beach Sys Grp - Final Results
Pebble Beach Systems Group plc
Results for the year ended 31 December 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 final results for the year ended 31 December 2017.
Financial Headlines
2017
2016
Revenue
£10.3m
£10.9m
Adjusted* operating profit/(loss) - continuing operations
£0.5m
£(1.1)m
Adjusted* (loss)/earnings per share) - continuing operations
(0.2)p
(1.8)p
Operating loss - continuing operations
£(2.4)m
£(1.9)m
Basic (loss)/earnings per share
(2.1)p
(2.4)p
Net profit/(loss) from discontinued operations
£2.9m
£(52.4)
Net profit/(loss) for the year
£0.3m
£(55.3)
Basic (loss)/earnings per share
0.2p
(45.0)p
Net debt
£(10.3)m
£(14.5)m
Total dividend per share proposed
-
-
*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 £0.5 million (loss in 2016 £(1.1 million))
· Steady performance of Pebble Beach Systems, despite general market conditions being challenging during ongoing period of technology change
· Overall cost savings of £3.6 million from 2017 to 2018, achieved by the restructure of Pebble Beach Systems operations, closure of PLC head office, reduced headcount and reduced professional fees
· On 22 June 2018 the Company agreed an amendment to the Revolving Credit and Term Loan Facilities agreement to secure the facility until 30 November 2019, including a simplification of banking covenants, enabling it to remain independent and continue to invest in product development
· Net debt reduced from £14.5 million to £10.3 million during the year
· Sale of hardware division on 2 February 2017 that generated an adjusted operating loss of £7.7 million in 2016
John Varney, Non-Executive Chairman of Pebble Beach Systems Group plc, said:
"2017 was a transitional year for the Group requiring significant management effort to complete the disposal of the loss making hardware division, and bring the Strategic Review process to a conclusion with a strategy to remain independent and grow the Group using Pebble Beach Systems Limited ("PBS") as the foundation.
Two significant keys to remaining independent are the securing of funding support and a return to positive cash generation. I am pleased that the necessary actions have been taken; the reduction of PLC related overheads, post period end operational headcount reduction and the agreement of new terms with our bank.
As we look forward into 2018, the refocussed Group is now able to enter a significant period in the industry as market opportunities created by the changes in the broadcast industry become clear, and PBS is able to build on its significant customer momentum.
I would like to thank all of our employees and my Board colleagues for their ongoing commitment as we head into 2018 and are now well placed to focus again on building the business to achieve success."
- ends -
For further information please contact:
John Varney, Non-Executive Chairman
+44 (0) 75 55 59 36 02
Shaun Dobson / James White
N+1 Singer
+44 (0) 20 74 96 30 00
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
2017 has been a year focused on successfully stabilising the Group following the disposal of the hardware division in Q1.
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 also trades in the US as Pebble Broadcast Systems.
Its products are flexible, reliable and scalable, and are designed to cater for all channel types. Its innovative solutions manage acquisition, file-based workflows, archiving and multi-channel playout at large and small installations worldwide.
Financial Results
Pebble Beach Systems delivered a sound financial performance. Order intake for the full year of £10.5 million is below the previous year (2016: £11.7 million), which is due to an exceptionally large order received late in 2016, which wasn't expected to be repeated in 2017. Resultant revenue was £10.3 million (2016: £10.9 million).
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 are therefore expected to recover in FY18.
Adjusted operating profit was £0.5 million in 2017 (loss in 2016: £1.1 million) before non-recurring costs of £0.5 million, depreciation and amortisation costs of £2.3 million and exchange losses of £0.1 million are deducted. Central costs included were £1.3 million. Headcount reductions made in early FY18 from 78 to 62 will contribute to operating profit improvements in FY18.
In 2017, the Central costs were £1.3 million (2016: £4.2 million). This decrease is due to £0.5 million release of the Pebble Beach Systems VCP accrual in 2017 (2016: charge of £0.7 million), closure of the head office in Hungerford and consolidation of head office roles with the operating business in Weybridge. As we look forward to 2018 we expect to see a further reduction.
Net finance costs remained steady during 2017 reflecting the Group's paydown of some of its revolving credit facility ("RCF") and overdraft. The available RCF as at 31 December 2017 was £15.0 million (2016: £15.0 million) of which £11.5 million had been fully drawn down. Interest paid on the RCF was £0.3 million (2016: £0.3 million). In addition, there was an overdraft of £1.0 million (2016: £1.0 million) which was not utilised.
Liquidity risk has been reduced with combined secured bank loans and trade and other payables being reduced by £7.3 million from £23.4 million in 2016 to £16.3 million at the end of 2017.
The Company continues to view investment in the development of new products and services as key to future growth. In 2017 Pebble Beach Systems capitalised £0.8 million of development costs (amortised £0.65 million), (2016 £1.1 million) (amortised £0.36 million).
Strategic Review and Formal Sale Process ("FSP")
On 23 February 2017, the Company announced that, following the disposal of VCS, a strategic review and formal sales process (FSP) had been initiated to consider options available to reduce the Company's outstanding debt, including the possibility of a sale of the Group.
During the course of the FSP the Company engaged with a number of interested parties. These discussions did not result in an offer which was considered by the Board to reflect the value of the Group's operations and the Board decided to terminate the FSP.
Going Concern
The directors are required to make an assessment of the Group's ability to continue to trade as a going concern.
On 2 February 2017 the Group sold the trade and assets of the hardware division (VCS) to xG Technology Inc., which reduced the net debt of the Group to £12.0 million.
On 14 February 2017, the Group pursued a cost reduction strategy, resulting in the closure of the Head Office function, which was then no longer appropriate as the Company had a single operating subsidiary, Pebble Beach Systems Limited, which operates from a standalone site. Accordingly, notice was served on the Head Office team.
During 2017 the Group forecast that it would be in breach of its banking covenants for the foreseeable future
meaning it was reliant on the ongoing support of its bankers.
In December 2017 the Company commenced discussion with its bankers to secure the support required to remain independent.
By 31 December 2017 net debt had been reduced to £10.3 million (net cash £1.2 million and bank debt of £11.5 million). In addition, there was an available overdraft of £1.0 million which was not utilised.
In April 2018 the Company announced it had negotiated new heads of terms which were subject to a revision of the existing documentation. Today, the Company confirms that the amended Revolving Credit and Term Loan Facilities agreement has been signed with Santander UK PLC. The revision secures the facility until 30 November 2019 with simplified banking covenants and a reasonable repayment schedule.
In reaching their decision that the financial statements should be prepared on the going concern basis, the Board considered that the new signed facility with our bankers and their ongoing support indicates the Group's ability to continue as a going concern.
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 impact of cost reductions of £3.6 million, £2.2 million delivered as part of the 2017 PLC cost reduction strategy and £1.4 million through operational costs savings completed in January 2018 in the Pebble Beach Systems operation.
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.
Given that both the margin recovery and cost reductions both pertained to items already completed prior to sign off of the accounts, the Board concluded that the primary risk is one of ongoing trading and therefore the Group remains a going concern.
xG Technology
As part of the revised business purchase agreement for the sale of VCS, 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 was reliant on xG Technology Inc. ("xG") fulfilling this contract to enable the Group to recover this debt.
In April 2017, the Company received $0.25 million in cash from xG against this debt.
In Q4 2017 xG advised on completion of the contract which was delaying receipt of the remaining $1.75 million. Following extensive discussions with xG, who were looking to offset alleged significant additional costs of completion and other VCS costs that xG considered should not be borne by it under the original agreement, the Board announced in December 2017 that there was no likelihood of agreement between xG and the Group and the collection of the remaining $1.75 million was unlikely without entering a protracted legal dispute. Accordingly, this debt has been fully impaired.
Subsequent to the decision not to pursue the remaining $1.75 million, it has come to light that xG have refused
to meet their legal obligations to clear two historic creditors totalling $390k, which have been provided for in full in the accounts.
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 2017.
Board changes
Following the sale of the hardware division in 2017, it was mutually agreed with the outgoing Executive Chairman, John Hawkins, that his role had become redundant. The Board wish to thank Mr Hawkins for his contribution to the restructuring of the Group over his six years as Executive Chairman.
Following the Board's decision to operate the Company, Pebble Beach Systems, as an independent entity, two appointments were made to the Board.
At the beginning of 2018 Peter Mayhead was appointed as Group Chief Executive Officer.
In addition, as announced on 6 April 2018, the Board appointed Graham Pitman as Non-Executive Director.
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.
The Company is well placed to offer the market a solution which is able to bridge this transition period and is expected to maintain its sales performance through FY18 as the pipeline continues to be steady. At the same time, the Company will deliver improved profitability as a direct result of the restructure undertaken throughout 2017 and Q1 2018.
John Varney
Non-Executive Chairman's Statement
For the year ended 31 December 2017
FINANCIAL REVIEW
Divisions and Markets
For the year ended 31 December 2017
Continuing Operations
2017
£'m
2016
£'m
Change
%
Pebble Beach Systems
10.3
10.9
-5.1%
Total Revenue
10.3
10.9
-5.1%
Pebble Beach Systems
1.8
3.1
-44.0%
Central
(1.3)
(4.2)
-70.1%
Total adjusted operating profit/(loss)
0.5
(1.1)
-146.2%
Pebble Beach Systems has contributed £10.3 million of revenues and £1.8 million of adjusted operating profit in 2017. Non-recurring items excluded from adjusted profit are £0.6 million charge in respect of rationalisation and redundancy costs, including £0.3 million payment for director's loss of office and £0.1 million gain in respect of disposal of the Group's head office in Hungerford.
Discontinued Operations
2017
£'m
2016
£'m
Change
%
Vislink Communication Systems
1.0
31.7
-96.7%
Total Revenue
1.0
31.7
-96.7%
Profit/(loss) attributable to equity shareholders
2.9
(52.4)
-149.9%
The profit attributable to equity shareholders for discontinued operations was £2.9 million which includes £5.1 million from recycling translation reserve for discontinued operations.
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 2017 is £3.2 million (2016: £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 £2.2 million (2016: £0.7 million) of non-recurring costs to the consolidated income statement. The charge comprised:
· £0.1 million gain on disposal of the Group's former head office (continuing operations)
· £0.6 million charge in respect of rationalisation and redundancy costs including a £0.3 million termination payment for director's loss of office (continuing operations)
· £1.3 million loss on disposal of the VCS business, including £1.3 million provision for the $1.75 million debt and £0.3 million for supplier provisions (discontinued operations)
· £0.2 million charge in respect of capitalised development costs written off (discontinued operations)
· £0.2 million in respect of disposal/sale costs (discontinued operations)
Cash flows
The Group held cash and cash equivalents of £1.2 million at 31 December 2017 (2016: £0.5 million). The table below summarises the cash flows for the year.
£'million
2017
2016
Cash used in operating activities
(2.6)
(1.8)
Net cash used in investing activities
7.1
(4.4)
Net cash from financing activities
(3.5)
4.2
Effects of foreign exchange
(0.3)
(0.8)
Net increase/(decrease) in cash and cash equivalents
0.7
(2.8)
Cash and cash equivalents at 1 January
0.5
3.3
Cash and cash equivalents at 31 December
1.2
0.5
As at 31 December 2017 net debt was £10.3 million (cash £1.8 million and bank debt of £12.1 million). At the end of January 2018, net debt had reduced to £9.9 million. The Group was using £11.5 million of its available facilities in December 2017.
On 2 February 2017 the Group sold the trade and assets of the hardware division (VCS) to xG, which reduced net debt to £12.0 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.
Rate compared to £ sterling
Average
rate
2017
Average
rate
2016
Year end
rate
2017
Year end
rate
2016
US dollar
1.289
1.354
1.351
1.230
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 2017
2017
2016
Notes
£'000
£'000
Revenue
3
10,320
10,879
Cost of sales
(3,831)
(2,924)
Gross profit
6,489
7,955
Sales and marketing expenses
(2,351)
(3,052)
Research and development expenses
(1,762)
(1,596)
Administrative expenses
(2,718)
(4,945)
Foreign exchange gains
(95)
1,840
Other expenses
(1,931)
(2,100)
Operating loss
4
(2,368)
(1,898)
Operating loss is analysed as:
Adjusted operating profit/(loss)
500
(1,082)
Depreciation
(187)
(197)
Amortisation and impairment of acquired intangibles
(1,419)
(1,422)
Amortisation of capitalised development costs
(655)
(359)
Non-recurring items
3,4
(512)
(678)
Exchange (losses)/gains charged/credited to the income statement
(95)
1,840
Finance costs
5
(339)
(331)
Finance income
5
4
2
Loss before tax
(2,703)
(2,227)
Tax
6
95
(729)
Loss for the year being loss attributable to owners of the parent
(2,608)
(2,956)
Net result from discontinued operations
2,892
(52,358)
Net result for the year
284
(55,314)
Earnings per share from continuing and
discontinued operations attributable to the owners of
the parent during the year
Basic (loss)/earnings per share
From continuing operations
8
(2.1)p
(2.4)p
From discontinuing operations
2.3p
(42.6)p
From loss for the year
0.2p
(45.0)p
Diluted (loss)/earnings per share
From continuing operations
8
(2.1)p
(2.4)p
From discontinued operations
2.3p
(42.6)p
From loss for the year
0.2p
(45.0)p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2017
2017
2016
£'000
£'000
Profit/(Loss) for the financial year
284
(55,314)
Other comprehensive income - items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of overseas operations
- continuing operations
(92)
2,593
- discontinued operations
(176)
(2,230)
Recycle translation reserve for discontinued operations
(5,077)
-
Total loss for the year attributable to owners of the parent
(5,061)
(54,951)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the year ended 31 December 2017
Ordinary shares
£000
Share
premium
£000
Capital
redemption
reserve
£000
Merger
reserve
£000
Translation
reserve
£000
Accumulated losses
£000
Total
£000
At 1 January 2016
3,066
6,800
617
32,448
4,843
6,678
54,452
Share based payments: Value of employee services
-
-
-
-
-
1,247
1,247
Dividends payable (note 10)
-
-
-
-
-
(1,829)
(1,829)
Transaction with owners
-
-
-
-
-
(582)
(582)
Issued shares
49
-
-
-
-
-
49
Retained loss for the year
-
-
-
-
-
(55,314)
(55,314)
Exchange differences on translation of overseas operations
-
-
-
-
363
-
363
Total comprehensive income/expense for the period
49
-
-
-
363
(55,314)
(54,902)
At 31 December 2016
3,115
6,800
617
32,448
5,206
(49,218)
(1,032)
At 1 January 2017
3,115
6,800
617
32,448
5,206
(49,218)
(1,032)
Share based payments: Value
of employee services-
-
-
-
-
28
28
Transaction with owners
-
-
-
-
-
28
28
Retained profit for the year
-
-
-
-
-
284
284
Transfer
-
-
-
(2,670)
-
2,670
-
Recycle translation reserve for discontinued operations
-
-
-
-
(5,077)
-
(5,077)
Exchange differences on translation of overseas operations
-
-
-
-
(268)
-
(268)
Total comprehensive income/expense for the period
-
-
-
(2,670)
(5,345)
2,982
(5,033)
At 31 December 2017
3,115
6,800
617
29.778
(139)
(46,236)
(6,065)
CONSOLIDATED GROUP STATEMENT OF FINANCIAL POSITION
as at 31 December 2017
2017
2016
Notes
£'000
£'000
Assets
Non-current assets
Intangible assets
6,941
8,216
Property, plant and equipment
285
467
Deferred tax assets
-
-
7,226
8,683
Current assets
Inventories
225
206
Trade and other receivables
3,729
5,436
Current tax assets
5
254
Cash and cash equivalents
1,862
2,044
5,821
7,940
Assets of disposal group and non-current asset classified as held for sale
-
15,177
5,821
23,117
Liabilities
Current liabilities
Financial liabilities - borrowings
1,613
15,000
Trade and other payables
5,588
10,520
Current tax liabilities
-
-
Provisions for other liabilities and charges
400
391
7,601
25,911
Liabilities of disposal group classified as held for sale
-
5,014
7,601
30,925
Net current (liabilities)
(1,780)
(7,808)
Non-current liabilities
Financial liabilities - borrowings
10,500
-
Deferred tax liabilities
644
1,174
Provisions for other liabilities and charges
367
733
11,511
1,907
Net assets
(6,065)
(1,032)
Equity attributable to owners of the parent
Ordinary shares
10
3,115
3,115
Share premium account
10
6,800
6,800
Capital redemption reserve
10
617
617
Merger reserve
32,448
32,448
Translation reserve
(139)
5,206
Retained earnings
(46,236)
(49,218)
Total equity
(6,065)
(1,032)
CONSOLIDATED GROUP STATEMENT OF CASH FLOWS
for the year ended 31 December 2017
2017
2016
Notes
£'000
£'000
Cash flows from operating activities
Cash generated from operations
9
(2,761)
(1,235)
Interest paid
(348)
(351)
Taxation received/(paid)
528
(174)
Net cash from operating activities
(2,581)
(1,760)
Cash flows from investing activities
Interest received
47
2
Proceeds from sale of property, plant and equipment
510
80
Proceeds from sale of intangibles
7,493
-
Purchase of property, plant and equipment
(107)
(301)
Expenditure on capitalised development costs
(798)
(4,261)
Net cash generated from/(used in) investing activities
7,145
(4,480)
Cash flows from financing activities
Net new bank loans raised/(repaid)
11
(3,500)
6,000
Dividend paid
11
-
(1,829)
Issue / (purchase) of shares
-
49
Net cash from / (used in) financing activities
(3,500)
4,220
Net decrease in cash and cash equivalents and overdrafts
1,064
(2,020)
Effect of foreign exchange rate changes
11
(272)
(774)
Cash and cash equivalents and overdrafts at 1 January
457
3,251
Cash and cash equivalents and overdrafts at 31 December
1,249
457
Net debt comprises:
Cash and cash equivalents and overdrafts
1,249
457
Borrowings
(11,500)
(15,000)
Net debt at 31 December
11
(10,251)
(14,543)
The cash and cash equivalents and overdrafts balance comprise credit balances of £1,862,000 which have been set off against debit balances of £613,000.
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2017
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 on 22 June 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 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
The directors are required to make an assessment of the Group's ability to continue to trade as a going concern.
On 2 February 2017 the Group sold the trade and assets of the hardware division to xG, which reduced the net debt of the Group to £12.0 million.
At 31 December 2017 net debt was £10.3 million (net cash £1.8 million and bank debt of £12.1 million). In addition, there was an overdraft of £1.0 million which was not utilised.
During 2017 the Group forecast that it would be in breach of its banking covenants for the foreseeable future meaning it was reliant on the ongoing support of its bankers.
Following discussions with its bankers, in late 2017 the Company successfully reached an agreement with its bank which allowed the business to continue as an independent entity. Subsequently, in Q1 2018 the Company successfully negotiated new heads of terms, securing the support the Company needed to remain independent and continue 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 considered that the new head of terms secured with our bankers and their ongoing support indicates the Group's ability to continue as 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.
Pebble Beach Systems
Central
Total
£'000
Year to 31 December 2017
Broadcast
10,320
-
10.320
Total revenue
10.320
-
10,320
Adjusted operating profit/(loss)
1,772
(1,272)
500
Depreciation
(157)
(30)
(187)
Amortisation and impairment of acquired intangibles
(1,419)
-
(1,419)
Amortisation of capitalised development costs
(655)
-
(655)
Non-recurring items
(113)
(399)
(512)
Exchange (losses)/gains
(95)
-
(95)
Finance costs
-
(339)
(339)
Finance income
73
(69)
4
Loss before taxation
(594)
(2,109)
(2,703)
Taxation
511
(416)
95
Loss for the year being attributable to owners of the parent
(83)
(2,525)
(2,608)
Year to 31 December 2016
Broadcast
10,879
-
10,879
Total revenue
10,879
-
10,879
Adjusted operating profit/(loss) (restated)
3,166
(4,248)
(1,082)
Depreciation
(175)
(22)
(197)
Amortisation and impairment of acquired intangibles
(1,422)
-
(1,422)
Amortisation of capitalised development costs
(359)
-
(359)
Non-recurring items
-
(678)
(678)
Exchange (losses)/gains
(295)
2,135
1,840
Finance costs
-
(331)
(331)
Finance income
69
(67)
2
Profit/(loss) before taxation
984
(3,211)
(2,227)
Taxation
342
(1,071)
(729)
Profit/(loss) for the year being profit/(loss) attributable to owners of the parent
1,326
(4,282)
(2,956)
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.
2017
2016
Total
£'000
Total
£'000
By market
UK & Europe
4,655
5,360
North America
1,772
2,032
Latin America
357
1,122
Middle East and Africa
2,811
2,104
Asia / Pacific
725
261
10,320
10,879
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.
2017
£'000
2016
£'000
By division:
Pebble Beach Systems
8,104
10,240
Central
Assets of disposal Group held for sale
Liabilities for disposal Group held for sale
(14,169)
-
-
(21,435)
15,177
(5,014)
(6,065)
(1,032)
4. OPERATING LOSS
The following items have been included in arriving at the operating loss for the continuing business:
2017
£'000
2016
£'000
Depreciation of property, plant and equipment
187
197
Amortisation of acquired intangibles
1,419
1,422
Operating lease rentals
167
437
Exchange losses/(gains) charged/(credited) to profit and loss
95
(1,840)
Research and development expenditure expensed in the year which includes:
1,762
1,596
- Amortisation of capitalised development costs
655
359
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:
2017
£'000
2016
£'000
Rationalisation and Redundancy costs
362
-
Provision for former executive debt
260
-
Gain on sale of head office
(110)
-
Liquidity advice and other costs
Increase in onerous property provision
-
-
176
502
512
678
5. FINANCE COSTS - NET
2017
£'000
2016
£'000
Finance costs
(339)
(331)
Finance income
4
2
Finance costs - net
(335)
(329)
Finance costs represent interest payable on bank borrowings.
Finance income is derived from cash held on deposit.
6. INCOME TAX EXPENSE
2017
£'000
2016
£'000
Current tax
UK corporation tax
-
(64)
Adjustments in respect of prior years
169
(67)
Total current tax
169
(131)
Deferred tax
UK corporation tax
(267)
900
Impact of change in tax rate
-
(40)
Adjustments in respect of prior years
3
-
Total deferred tax
(264)
860
Total taxation
(95)
729
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 (2016: 17 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 2017.
8. 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.
2017
2016
Earnings
£000
Weighted
average
number
of shares
000s
Earnings
per share
pence
Earnings
£000
Weighted
average
number
of shares
000s
Earnings
per share
pence
Basic and diluted loss per share
Loss attributable to continuing operations
(2,608)
(2.1)p
(2,956)
(2.4)p
Profit/(loss) attributable to discontinued operations
2,892
2.3p
(52,358)
(42.6)p
Basic and diluted profit/(loss) per share
284
124,292
0.2p
(55,314)
122,804
(45.0)p
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 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 capitalised development costs, non-recurring items and exchange gains or losses charged to the income statement and their related tax effects. The definition has been changed from that used in 2016 and that year's figures restated.
The reconciliation between reported and underlying earnings and basic earnings per share is shown below:
2017
2016
Earnings
£'000
Earnings
£'000
Pence
Pence
Reported loss per share - continuing operations
(2,608)
(2.1)p
(2,956)
(2.4)p
Depreciation
155
0.1p
162
0.1p
Amortisation of acquired intangibles after tax
1,178
1.0p
1,166
1.0p
Amortisation of capitalised development costs
544
0.4p
294
0.3p
Non-recurring items after tax
413
0.3p
542
0.4p
Exchange losses/(gains)
77
0.1p
(1,485)
(1.2)p
Adjusted (loss)/earnings per share - continuing operations
(241)
(0.2)p
(2,277)
(1.8)p
9. CASH FLOW GENERATED FROM OPERATING ACTIVITIES
Reconciliation of loss before taxation to net cash flows from operating activities.
2017
£'000
2016
£'000
Loss before tax - continuing operations
(2,703)
(2,227)
Loss before tax - discontinued operations
(2,847)
(53,410)
Total loss before tax
(5,550)
(55,637)
Depreciation of property, plant and equipment
187
701
(Profit)/Loss on disposal of property, plant and equipment
(110)
1,009
(Profit)/Loss on disposal of VCS
1,335
-
Amortisation and impairment of development costs
856
13,772
Amortisation and impairment of acquired intangibles
1,418
25,609
Share-based payment expense
28
1,247
Finance income
(47)
(2)
Finance costs
348
351
Decrease/(increase) in inventories
(19)
7,249
Decrease/(increase) in trade and other receivables
2,489
3,670
Increase/(decrease) in trade and other payables
(3,345)
376
Increase in provisions
(351)
420
Net cash generated from operating activities
(2,761)
(1,235)
10. 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 2017
124,603
3,115
6,800
617
10,532
Share issues
-
-
-
-
-
At 31 December 2017
124,603
3,115
6,800
617
10,532
11. 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 2017
457
(15,000)
(14,543)
Cash flow for the year before financing
4,564
-
4,564
Proceeds on issue of shares
-
-
-
Movement in borrowings in the year
(3,500)
3,500
3,500
Dividend paid
-
-
-
Exchange rate adjustments
(272)
-
(272)
Cash and cash equivalents at 31 December 2017
1,249
(11,500)
(10,251)
12. POST BALANCE SHEET EVENTS
In January 2018 the Group completed a cost out program with the restructure of Pebble Beach Systems operations. Overall headcount has been reduced from 78 to 62 achieving a net salary saving of just over £1.0 million. Combined with savings from the closure of the North America operations PBS overheads have been reduced by £1.43 million. With additional saving from the closure of the PLC head office and reduced professional fees, overall cost savings from 2017 to 2018 total £3.6 million.
On 22 June 2018 the Group agreed terms with Santander UK PLC for an amendment to the current Revolving Credit and Term Loan Facilities agreement dated 17 March 2014 to secure the facility until 30 November 2019. The amendment included a repayment schedule totalling £1.0 million in each of 2018 and 2019, reducing the overall facility to £9.5 million at the end of November 2019. The amendment also included a simplification of banking covenants to an absolute EBITDA test and a margin of 2.5% over LIBOR.
The Board is pleased to confirm that following the announcement of its audited results for the year ended 31 December 2017, the annual report and financial statements has been posted to shareholders and a copy is also available to download from the Group's website at www.pebbleplc.com.
Ends
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