Final Results 2020

23 March 2021

THE PEBBLE GROUP PLC

("The Pebble Group," the "Company" or the "Group")

AIM: PEBB

 

AUDITED FINAL RESULTS 2020

 

The Pebble Group, a leading provider of technology, services and products to the global promotional products industry, announces its audited results for the year ended 31 December 2020 ("FY 20"), which show improving markets in Q4 20 and Group revenue and Adjusted EBITDA ahead of market expectations for FY20.

 

The challenges of 2020 have been safely navigated and, in parallel, our belief that the differentiated market positions and strategies of the Group's businesses continue to provide significant opportunities for growth has been reinforced. The new financial year to 31 December 2021 ("FY 21") has started well, with all areas of the business performing in line with management expectations. The Board views the prospects for the Group with confidence.

 

Financials

 

Adjusted results	2020	2019	Variance
Revenue	£82.4m	£107.2m	£(24.8)m
Gross profit	£31.0m	£40.1m	£(9.1)m
Gross profit margin	37.6%	37.4%	0.2 p.p.t.
Adjusted EBITDA1	£9.8m	£15.2m	£(5.4)m
Adjusted operating profit2	£6.8m	£13.0m	£(6.2)m
Adjusted profit before tax3	£6.1m	£7.6m	£(1.5)m
Underlying operating cash flow4	£7.2m	£9.1m	£(1.9)m
Net cash position (excluding lease liabilities)	£7.1m	£8.9m	£(1.8)m
Adjusted earnings per share5	2.96p	2.81p	0.15p

 

Statutory results	2020	2019	Variance
Operating profit/(loss)	£5.7m	£(4.9)m	£10.6m
Profit/(loss) before tax6	£5.0m	£(10.3)m	£15.3m
Basic and diluted earnings/(loss) per share	2.44p	(12.56)p	15.00p

 

1	Adjusted EBITDA means operating profit before depreciation, amortisation, share-based payments charge and exceptional items in note 5
2	Adjusted operating profit means operating profit before amortisation of acquired intangible assets, share-based payments charge and exceptional items
3	Adjusted profit before tax means profit before tax before amortisation of acquired intangible assets, share-based payments charge and exceptional items
4	Underlying operating cash flow is calculated as Adjusted EBITDA less movements in working capital, capital expenditure and lease payments excluding movements in transaction related accruals and payments in respect of acquisitions
5	Adjusted EPS represents Adjusted Earnings meaning profit after tax before amortisation of acquired intangible assets, share-based payments charge and exceptional items divided by a weighted average number of shares in issue (2019 is based on the weighted average number of shares in issue post admission as if they were in issue for the full year).
6	2019 includes £13.5m deferred consideration payable on the acquisition of Facilisgroup. IFRS3 requires that any deferred consideration payments linked to post acquisition employment conditions are treated as remuneration for post-acquisition services and charged to the income statement over the deferral period. All amounts due to the Facilisgroup vendors were settled in full at IPO; IPO transaction costs of £3.9m; and net finance costs of £5.4m.

 

Group highlights

 

·	Swift and deft response across the Group to the turbulence created by the COVID-19 lockdowns, combined with a clear focus on clients, culture and cash, enabled a resilient FY 20 performance
·	Investment for growth acceleration continued in Facilisgroup, including acquisition of strategically important software assets for total cash consideration of $5.3m, of which $1.8m was deferred, funded out of Group cash flow
·	Added a record number of new Partners to Facilisgroup and maintained excellent retention levels
·	Retained all major clients in Brand Addition and implemented two significant new contracts
·	Excellent cash management during 2020 with a year end cash balance of £7.1m (2019: £8.9m) after acquisition of software assets of £2.6m and settlement of IPO related costs of £3.5m
·	FY 21 has started well and the Board views the prospects for the Group with confidence

 

Facilisgroup

	2020	2019
Recurring Revenue	£9.3m	£8.2m
Total Revenue	£9.8m	£9.3m
Adjusted EBITDA	£6.0m	£5.1m

 

·	Achieved 13% growth in Annual Recurring Revenue and 18% growth in Adjusted EBITDA, despite the pandemic
·	Growth in Partner (customer) numbers accelerated - up 17% in FY 20 to 175 (FY 19: 149) with almost 100% Partner retention in the year
·	Partners showed resilience and flexibility in response to the pandemic - Gross Merchandise Value (GMV) grew by 25% to $1.0bn (FY 19: $0.8bn), against an industry decline of circa 20%
·	Acquisition of software assets in December 2020, accelerating the creation of new ecommerce solution, ranging from pop-up stores to complex inventoried online stores
·	180 Partners at 19 March 2021, with a further five contracted awaiting implementation
·	Q1 21 performance to date is firmly in line with management expectations
·	Positive reaction from Partners to new ecommerce product with 41 Partners pursuing access for the initial launch
·	Management's internal aspiration to increase Facilisgroup's recurring revenues beyond $50m by the end of 2024

 

Brand Addition

	2020	2019
Revenue	£72.6m	£97.9m
Adjusted EBITDA	£5.2m	£10.7m

 

·	Consumer Promotions revenue remained robust with a comparable performance to 2019
·	Corporate Programmes revenue severely impacted in Q2 and Q3 20 as clients reduced marketing activities as a result of lockdown disruption
·	Positive signs of recovery in Corporate Programmes in Q4 20, as global clients in sectors such as Technology, Transport, Engineering, and Financial Services re-emerged
·	Positive momentum achieved in Q4 20 continues and currently targeting a return towards 2019 revenue levels in FY 21: -    Very strong order intake in Consumer Promotions division for sales to be invoiced in 2021 -  Corporate Programmes benefitting from full year impact of 2020 client wins, with the anticipated lifting of COVID-19 lockdown restrictions expected to aid the recovery of this division further
·	Total orders invoiced or received for 2021 at 19 March 2021 were £41.6m (2020: £31.5m and 2019: £31.4m)

 

Enquiries:

 

The Pebble Group plc Chris Lee, Chief Executive Officer Claire Thomson, Chief Financial Officer	+44 (0) 161 786 0415
Grant Thornton UK LLP (Nominated Adviser) Samantha Harrison / Harrison Clarke / Lukas Girzadas	+44 (0) 20 7184 4384
Berenberg (Corporate Broker) Chris Bowman / Jen Clarke / Arnav Kapoor	+44 (0) 20 3207 7800
Belvedere Communications (Financial PR) Cat Valentine Keeley Clarke	[email protected] +44 (0) 7715 769 078 +44 (0) 7967 816 525

 

About The Pebble Group plc - www.thepebblegroup.com 

 

The Pebble Group is a provider of technology, services and products to the global promotional products industry, comprising two differentiated businesses, focused on specific areas of the promotional products market:

 

Facilisgroup - www.facilisgroup.com

 

Facilisgroup focuses on supporting the growth of mid-sized Promotional Product businesses in North America by providing a technology platform, which enables those businesses to benefit from significant business efficiency and gain meaningful supply chain advantage from the ability to purchase from quality suppliers under preferred terms.

 

Brand Addition - www.brandaddition.com 

 

Brand Addition focuses upon providing promotional products and related services under contract to some of the world's most recognisable brands. Its largest contracts are valued in the millions of pounds with the products and services supplied being used for brand building, customer engagement and employee rewards. Working in close collaboration with its clients, Brand Addition designs products and product ranges, hosts client-branded global web stores and provides international sourcing and distribution solutions.

 

We categorise our revenues into two divisions, Corporate Programmes, that supports our clients' general marketing activities, and Consumer Promotions, that supports our clients in driving their own sales volumes.

 

A copy of the Final Results 2020 Investor Presentation will be available on the Company's website later today https://www.thepebblegroup.com/investors/results-reports-and-presentations/.

 

 

CHAIRMAN'S STATEMENT

 

I am pleased to announce the Group's results for 2020, which was a challenging year but also one of considerable achievement under difficult circumstances.

 

Although our financial performance was impacted significantly in the first half of the year by COVID-19, the situation improved, through good management and improving markets, from the start of the second half of the year and gaining momentum in the final quarter. The Group ended the year with revenue of £82.4 million (2019: £107.2 million) and Adjusted EBITDA of £9.8 million (2019: £15.2 million).

 

This resilient performance was made possible by the swift and deft response of our people around the world to the turbulence created by the COVID-19 global lockdowns, stabilising the Group's finances and making sure our businesses were best-positioned to deal with changes in our markets. A clear focus on clients, culture and cash enabled the Group to navigate these unprecedented challenges and deliver these results, whilst ensuring our businesses remain fully equipped to benefit from the uplift as activity levels continue to recover.

 

The new financial year to 31 December 2021 ("FY 21") has started well with Brand Addition continuing to recover, and continuing strong performance in Facilisgroup. The Group's performance to date is in line with our expectations.

 

Summary of the year

 

The Group delivered on key elements of its strategy during the year.

 

Brand Addition secured and successfully on-boarded two significant new client contracts and retained its existing major clients.

 

Facilisgroup continued to grow throughout the whole of the year and generate very attractive Adjusted EBITDA margins, building upon its technology capability through the acquisition of strategically important software assets, funded from Group cash flows. We believe that the addition of this technology, together with increased investment internally in product development, has the potential to increase Facilisgroup's recurring revenues significantly, through additional new Partner services, and increasing the rate of new customer acquisition. 

 

This performance reflects the resilience of our business model, the strength and ability of our entire team and the calibre of the senior management and my Board colleagues. Whilst I am pleased to report on the Group's achievements in 2020, I am also very conscious that many colleagues, suppliers and customers have faced significant hardship, both personally and professionally, as a result of the COVID-19 pandemic. On behalf of the Board, I thank all of you for your support and commitment, throughout this very difficult period.

 

Long-term vision and strategy

 

The promotional product strategies operated by hundreds of organisations around the world and served by The Pebble Group are about more than advertising brands. They are about building customer relationships, creating engagement with employees, building loyalty and giving reward to customers and employees, all in near real time. Brand Addition's position as a strategic level supplier of promotional products to some of the world's largest brands across most major sectors, together with Facilisgroup's technology offerings provided to middle market promotional products operators in North America, present the business with very significant opportunities.

 

Our vision is to become the partner of choice for global brands, which use promotional products as a strategic stakeholder engagement tool; and develop the technology product capabilities of Facilisgroup, to service the full spectrum of technology for SME distributors of promotional products, seeking to professionalise and grow their businesses in North America.

 

The events of 2020 have not affected our underlying strategy. In fact, changes that have occurred in the market, such as greater demand from Brand Addition's clients for innovative, high quality and sustainable products and the ability of Facilisgroup's Partners to operate their businesses flexibly and remotely under lockdown, fits well with the strategy that the Group is implementing.

 

Facilisgroup continues to grow in line with our expectations and our plan is to accelerate this growth through the introduction of new product functionality as set out in the Chief Executive's Review. At Brand Addition, we are confident of restoring the revenues and organic growth levels achieved prior to the pandemic, as our markets settle and adapt to a post-COVID world.

 

People and commitment to diversity

 

Our firm belief is that our team is central to all that the Group does and achieves. We value our people highly and are focused on building a culture of positive engagement throughout the business, encouraging the development of our people and recognising their contribution to the success of the business.

 

The Group is committed to ensuring diversity, equity and inclusion in all areas. Our goal is to foster a positive work ethic, while remaining results and client focused, and demonstrate our commitment to doing the right thing. Promoting our diverse backgrounds, skill sets and experiences, delivers better results for everyone. Our actions and ambitions in the journey to deliver this goal are set out within the Environmental, Social and Governance section of our Annual Report.

 

Being on AIM allows us to share the value created by the Group and recognise the efforts of our teams. We issued our first Long Term Incentive Plan in December 2020, in which 48 senior people across the Group are participating. This was slightly later than originally planned due to COVID-19. It is our intention to build on this and issue our first Share Save Scheme in 2021, as outlined at the time of IPO. These initiatives support the already strong alignment with shareholders from the near 10% shareholding in The Pebble Group by the Board and other colleagues in the business.

 

Environmental, Social and Governance ("ESG")

 

As a Board, we understand and welcome the increasing importance of ESG to investors, employees and clients. We are committed to creating positive interactions with all stakeholders and intend to demonstrate this over the long-term through our approach to ESG. We have expanded our ESG reporting in this year's Annual Report, setting out our ESG priorities and related activities under four headings:

 

·	Impact of our business on our environment and our communities;
·	Diversity, equity and inclusion;
·	Board independence, ethics and leadership; and
·	Risk management processes.

 

Alongside this, we have strengthened our team via two high quality appointments, with Lucy Penfold as Group General Counsel and Company Secretary and Kirsten Motyl as Senior ESG Officer. From H2 21, we will publish a stand-alone Annual Sustainability Report further setting out our ESG ambitions and progress.

 

Team

 

In addition to the appointments above, our management teams were strengthened through both recruitment and internal promotion across the Group. Ashley McCune was appointed President of Facilisgroup in January 2020. Ashley has played a key role in the growth of Facilisgroup, since joining the business in the early stages of its development. In January 2021, Chris Lee, Group CEO, handed over direct management of Brand Addition to Karl Whiteside, to spend more time on strategic Group initiatives. Karl was previously Managing Director at Brand Addition in North America.

 

The Group benefits from strong, experienced, and motivated senior management, who are ambitious to accelerate growth.

 

Dividend

 

As previously disclosed, given the impact of the pandemic, the focus on cash preservation and the Group's use of the UK Job Retention Support Scheme in the year under review, the Board considers that a dividend payment in respect of 2020 would be inappropriate. We remain committed to the dividend policy stated at IPO and will review dividend payments in respect of 2021, as the new financial year progresses. An update will be provided in the Group's half year results, scheduled for announcement in September 2021.

 

Summary and outlook

 

The new financial year has started well with a good performance in the first quarter across the business. The team and Board are confident in the long-term prospects for our market and, in particular, the strategies that we are implementing to increase our position within it.

 

Finally, I would like to thank all of our people and shareholders for their exceptional support throughout 2020, which has been much appreciated by your Board.

 

Richard Law

Non-executive Chairman

 

23 March 2021

 

 

CHIEF EXECUTIVE'S REVIEW

 

Overview of the Year

 

We are pleased to issue the Group's results for the year ended 31 December 2020, our first full year as a listed company.

 

Whilst the year was dominated by the social and economic disruptions caused by restrictions resulting from the COVID-19 pandemic, the Group generated revenue of £82.4m (2019: £107.2m), being 77% of the prior year, and Adjusted EBITDA of £9.8m (2019: £15.2m), being 64% of the prior year.

 

Behind these headlines, the Group's year, and its momentum, as we move into 2021, can be split into three distinct phases.

 

Q1 20: pre COVID-19

The Group started the year strongly and in line with our expectations. The first references to COVID-19 in China entered our consciousness and our initial concern was for our team in Asia and the potential for disruption to our supply chain in this region. This risk was well-managed by our team and suppliers, without any material financial impact to the Group throughout the year.

 

Q2 and Q3 20: a low point of sales activity in April

The rapid spread of COVID-19 into Europe and North America, with resultant lockdowns, significantly impacted certain parts of our operations. At Brand Addition, the low point of sales order intake was in April, as initial lockdowns created the greatest levels of disruption. We acted quickly to manage our cost base and liquidity with the aim of responsibly protecting all our stakeholders through this period. At Facilisgroup, the impact on our financial results was very limited. Operationally, we worked hard to support our Partners and Preferred Suppliers, as their businesses were severely disrupted.

 

The flexibility, dedication, and support of our teams across the Group during this period was exceptional.

 

Q4 20: a positive momentum shift

Sales activity across the Group improved in Q4 20. At Brand Addition, we successfully implemented the two major contract wins from Q1 20 and total like-for-like sales also steadily recovered throughout the quarter as our clients found a new level of normality. At Facilisgroup, our Partner's sales values also began to show signs of recovery.

 

We were pleased to end the year with the acquisition of strategic software assets. Funded through Group cash flows, this accelerates the ecommerce capabilities of Facilisgroup creating the potential for additional annual recurring revenue from existing and potential Partners.

 

Our concentration on clients, culture and cash was key to the Group's ability to navigate the disruption and challenges experienced throughout the year. Exiting 2020, we have retained all of our major clients and Partners and maintained a strong balance sheet and a motivated team.

 

In a year that brought so much uncertainty, the teams across our businesses in Europe, North America and Asia showed great care for each other, our clients, suppliers, and the Group's long-term success. My huge thanks go to all of our people and our Board for their efforts and support.

 

Promotional products market

 

As one of the most cost-effective forms of marketing, the global promotional products market is large with the North American and European markets totalling over $50bn in 2019. Due to the impact of COVID-19 disruption, industry estimates from North America suggest that traditional sales of promotional items fell by circa 40% in 2020, with sales of Personal Protection Equipment (PPE) related items reducing this decline to circa 20%. Much of this decline occurred in Q2 and Q3, before showing signs of recovery in Q4. We believe that the demand from businesses of all sizes, sectors, and geographies to use promotional products to convey their brand values and identity to stakeholders remains strong.

 

Our Group has two differentiated offerings, delivered through Facilisgroup and Brand Addition.

 

Our business model and operational performance

 

Facilisgroup

 

Facilisgroup	2020	2019	Variance
Recurring Revenue	£9.3m	£8.2m	13%
Other Revenue	£0.5m	£1.1m	-55%
Total Revenue	£9.8m	£9.3m	5%
Gross profit	£9.8m	£9.3m	5%
Gross profit %	100%	100%	-
Adjusted EBITDA	£6.0m	£5.1m	18%
Partner numbers	175	149	17%

 

Facilisgroup supports the growth of mid-sized Promotional Product businesses in North America by providing a technology platform, enabling those businesses to benefit from significant business efficiency and gain meaningful supply chain advantage from the ability to purchase from quality suppliers under preferred terms.

 

In a year in which promotional products industry sales are estimated to have declined by 20%, the Gross Merchandise Value (GMV) of Facilisgroup Partners (customers) grew by 25% to $1.0bn (FY 19: $0.8bn), representing an almost 5% market share and demonstrating the quality of the Facilisgroup offering and the strength of the Partner businesses. Breaking through $1bn of GMV is a significant milestone for Facilisgroup and in line with our expectation at the beginning of 2020. Equally, the makeup of these orders was different to expectation. High value PPE sales orders were made by a number of our Partners in Q2 20, as traditional sales reduced. As we moved through Q4 20, sales order values began to return towards prior year levels, which we see as positive for the prospects of our Partners and the promotional products industry as lockdown restrictions reduce in 2021.

 

Encouragingly, the growth in Partner numbers continued to accelerate year-on-year. At 31 December 2020, we had 175 Partners, an increase of 26 or 17% in the year. Partner retention remains strong. As well as the record number of new Partners implementing our technology in 2020, in the most challenging environment, we had almost 100% Partner retention. Our plan is to continue the acceleration in Partner numbers in 2021.

 

The above resulted in Annual Recurring Revenue increasing by 13% to £9.3m (FY 19: £8.2m). Other Revenue was £0.6m lower, as a result of withdrawing from the supply of ancillary artwork services to our Partners, and lockdowns restricting travel for events and training. However, we did not incur the expenses against this Other Revenue, resulting in a cost reduction in people and overheads. From the above mix, Total Revenue increased by 5% to £9.8m (FY 19: £9.3m).

 

The recurring revenue model that underpins Facilisgroup continued to deliver excellent returns in 2020. We further invested in the skills and the number people on the team during the year, including significantly strengthening the leadership within the business. In tandem with the cost savings from reduced travel and the cancellation of our annual conference in June, this resulted in Adjusted EBITDA of £6.0m (FY 19: £5.1m) being a return on Total Revenue of 61% (FY 19: 55%).

 

Our Annual Recurring Revenues (ARR), being 95% of Total Revenues in 2020, comprise two items:

 

Management Fees from our Partners for our subscription-based technology (~ 75% FY 20 ARR), which are fixed at the beginning of the year for each Partner, based on their prior year GMV. These deliver a highly predictable revenue stream for the business. Our average Management Fees per Partner are expected to remain consistent from 2020 to 2021.

 

Marketing Fund from our Preferred Suppliers (~ 25% FY 20 ARR) is based upon the value of purchases placed by Partners with our Preferred Suppliers in the year. In 2020, the swing towards Personal Protective Equipment ("PPE") product has resulted in a lower percentage but similar value of purchases through these Preferred Suppliers compared to 2019. We would expect the percentage of purchases through our Preferred Suppliers to move back towards 2019 percentage levels in 2021.

 

In parallel to working closely with our Partners and Preferred Suppliers to manage the short-term challenges in 2020, we continued to evolve the Facilisgroup strategy to support its multiple growth opportunities.

 

Facilisgroup's vision is to become the technology leader in the promotional products industry, enhancing our offering to cover the technology spectrum in our industry, and, hence, power the efficiency and growth of entrepreneurial distributors and suppliers. Behind this vision in 2019 and 2020, we have invested circa $8m in our technology, including the acquisition of software assets in December 2020. We have also grown the expertise within our team and its leadership, and expanded our infrastructure, all aimed at readying the business for significant growth. This investment enables us to evolve our three growth strategies into three separate technology product offerings, being:

 

1	Order workflow, targeted at distributors of >$2m sales: Powering visibility and growth for mid-tier and larger distributors, this is the product upon which Facilisgroup's foundation has been based. We will continue to responsibly increase our Partner numbers, ensuring our Partner quality remains high and the community relationships we create with our Partners and suppliers remain strong;
2	Ecommerce stores targeted at distributors of all sizes: Offering a variety of ecommerce stores to drive the sales of our customers, this product is based upon the acquisition of software assets in December 2020. Launching in Q2 21 our aim is to attract additional recurring revenues from existing Partners, support the growth of new Partners and develop new customers from offering this as a stand-alone service; and
3	Order workflow, targeting at distributors of <$2m sales: Developing our technology and strong industry relationships to industry entrepreneurs in the early stage of their business development, this product will offer an adaptation of our existing services. We are investing time and resources into this exciting opportunity with an expected launch in late 2022.

 

Against this vision and these three product offerings, our team has set itself ambitious yet achievable goals. By the end of 2024, our internal aspiration is to increase Facilisgroup's annual recurring revenues beyond $50m, through:

 

·	An increase in the total number of customers using our products to 950;
·	Growing the GMV that is processed through our technology towards $2bn; and
·	Channelling £0.6bn of spend through our Preferred Suppliers.

 

We look forward to measuring our performance against these targets and will share our progress at each reporting period.

 

An important step on the journey to achieving the above was the acquisition of new software assets in December 2020, detailed below:

 

Acquisition of Software Assets for Facilisgroup

 

On 18 December 2020, Facilisgroup acquired software assets from CoreXpand, a US based software developer, for a total cash consideration of $5.3m of which $1.8m was deferred.

 

The acquired software accelerates Facilisgroup's ability to deliver an ecommerce service to market, being the easy development of online stores, a key selling tool for Partners and a large number of entrepreneurial businesses in the promotional products sector. These stores will range from online pop-up stores through to complex inventoried online stores.

 

Expanding the suite of technology products further enhances the compelling credentials of Facilisgroup as a provider of services which help businesses manage and grow their operations effectively. The addition of such technology has the potential to significantly expand the subscription services utilised by existing Partners plus support the attraction of new Partners to the Facilisgroup platform.

 

Brand Addition

 

Brand Addition	2020	2019	Variance
Revenue	£72.6m	£97.9m	-26%
Gross profit	£21.2m	£30.8m	-31%
Gross profit %	29.2%	31.5%	-2.3ppt
Adjusted EBITDA	£5.2m	£10.7m	-51%

 

Brand Addition focuses entirely upon providing promotional products and related services under contract to some of the world's most recognisable brands. Its largest contracts are valued in the millions of pounds with the products and services supplied being used for brand building, customer engagement and employee rewards. Working in close collaboration with its clients, Brand Addition designs products and product ranges, hosts client-branded global web stores and provides international sourcing and distribution solutions.

 

We categorise our revenues into two divisions, Corporate Programmes that supports our clients' employee engagement and brand building activities, and Consumer Promotions that supports our clients in driving their own sales volumes.

 

In the year, total revenue was 74% of prior year at £72.6m (FY 19: £97.9m).

 

Corporate Programmes revenue (~60% FY 20 divisional revenues) was severely impacted in Q2 and Q3 20, as our clients suffered lockdown related disruption and reduced their marketing activities. In Q4 20 these clients, global businesses in sectors such as technology, transport, engineering and financial services, re-emerged and, together with the implementation of two major client wins, our sales orders showed positive signs of recovery.

 

Our Consumer Promotions revenue (~40% FY 20 divisional revenues) remained robust and overall comparable to prior year. In this division, we provide our global clients in the Fast-Moving Consumer Goods and Health and Beauty sectors with product and services that are used as strategic tools in driving their own sales volumes, via gift with purchase promotions through a mixture of retail outlets including supermarkets, pharmacies and online sales.

 

From a low point of sales orders received in April of 31% of prior year, total Brand Addition sales orders received and invoiced in Q4 20 recovered to 75% of prior year.

 

As sales activity was impacted towards the end of Q1 20, Brand Addition took swift action to protect its people and the value within the business. Our teams began to work from home, wherever possible, with the business remaining operational throughout the year. In the uncertainty surrounding the potential length of lockdowns and the associated impact upon our sales, a cost reduction programme was launched at the beginning of Q2 20. Of the total savings made in the year of circa £4.3m, £3.3m of these were made through Q2 and Q3, via a mix of reduction in non-essential spend, use of government furlough or equivalent schemes, and the Brand Addition team and The Pebble Group Board taking temporary salary reductions. These salary reductions did not impact team members at the lower end of the pay scale. The highest percentage of reduction was at Board level and was in place for the six months ending 30 September 2020. As we entered Q4 20, we made judgements on our estimated sales activities into 2021 and reduced the total number of people in Brand Addition to 353 (31 March 2020: 392).

 

The positive momentum in sales orders in Q4 20 resulted in the business performing ahead of revised internal targets for the year. These targets were set at the height of the first phase of lockdowns, when our cost reduction programme was put in place. This performance was due to the huge efforts of our team. In recognition of this result and the way we have aimed to manage the business through this challenging period, we took the decision to return a significant proportion of the temporary salary reductions to our team, and this has been accounted for in our FY 20 results. No return of salary was made to the Brand Addition management teams or The Pebble Group Board.

 

Our careful cost management with gross margins slightly below the targeted long-term average of 30% resulted in Brand Addition Adjusted EBITDA for the year of £5.2m (FY 19: £10.7m) being 51% below prior year.

 

Outlook

 

The Group safely navigated through the challenges of 2020 and, in parallel, reinforced its belief that the differentiated market positions and strategies of its businesses continue to provide significant opportunity for growth.

 

We have made a positive start to the new financial year at Facilisgroup. On 19 March 2021, total Partners had increased to 180 (31 December 2020: 175), with a further five contracted, awaiting implementation, and our Q1 21 performance to date is firmly in line with management expectations.

 

 

Our ecommerce platform based on the acquired software assets is developing to plan. In April 2021, we are launching our first ecommerce stores solution. There has been a positive reaction from Partners with 41 pursing access for the initial launch. We will continue to develop this software through 2021 and expect to have a full suite of online stores capabilities available in H1 22.

 

At Brand Addition, we have had particularly strong order intake for sales to be invoiced in 2021 from our Consumer Promotions division, where existing clients have continued to consolidate their spend through Brand Addition and invest further in this strategic marketing category. The recovery of our Corporate Programmes division will benefit from a full year impact of our 2020 new client wins and we expect the current plans for the lifting of lockdown restrictions to aid the recovery of like-for-like client sales. We are currently targeting a return towards 2019 revenue levels in the full year ending 31 December 2021. On 19 March 2021, total orders invoiced or received for 2021 were £41.6m (2020: £31.5m, 2019 £31.4m).

 

The pandemic has temporarily interrupted the trajectory of our growth, but we are confident that the opportunities for the Group remain strong. We look forward to updating shareholders on the progress of the Group throughout the year.

 

Christopher Lee

Chief Executive Officer

 

23 March 2021

 

 

CHIEF FINANCIAL OFFICER'S REVIEW

 

	2020	2019	Variance
Revenue	£82.4m	£107.2m	£(24.8)m
Adjusted EBITDA	£9.8m	£15.2m	£(5.4)m
Underlying operating cash flow	£7.2m	£9.1m	£(1.9)m
Net cash position (excluding lease liabilities)	£7.1m	£8.9m	£(1.8)m
Adjusted Earnings Per Share	2.96p	2.81p	0.15p

 

Overview

 

The results for the year reflect the impact of the COVID-19 pandemic on the Group.  Revenue of £82.4m (2019: £107.2m) was 76.9% of FY19 and Adjusted EBITDA £9.8m (2019: £15.2m) 64.5% of FY19. It is, however, important to understand that beneath the headlines, the pandemic did not impact the businesses within the Group in the same way:

 

Facilisgroup continued to grow revenue and EBITDA, implemented a record number of new Partners, 26 (2019: 22), and increased recurring revenues (management fees from Partners and marketing fund from Preferred Suppliers) by 13%.

 

Brand Addition revenue totalled 74% of the prior year.  Sales in our Consumer Promotions division performed robustly. Corporate Programme sales were impacted as lockdowns took hold, recovering with improving momentum through Q4. This momentum included new business wins and implementations, which will support the recovery of this division with a full year sales contribution in 2021.

 

The Group's balance sheet remains strong and its liquidity position is robust with cash balances of £4.0m at 19 March 2021 with no amounts drawn down on the Company's £10m committed revolving credit facility.

 

Review of the business

 

The Group chooses to use adjusted measures as key performance indicators in addition to those reported under IFRS, as they reflect the underlying performance of the business. These adjusted measures exclude certain non-operational and exceptional items, which have been consistently applied in both years presented. The information presented below should also be considered in conjunction with the segmental analysis in the Chief Executive's Review and note 4, which provide further detail on the performance of the separate businesses within the Group.

 

	2020	2019	Variance
Revenue	£82.4m	£107.2m	£(24.8)m
Gross profit	£31.0m	£40.1m	£(9.1)m
Gross profit margin	37.6%	37.4%	0.2%
Adjusted EBITDA	£9.8m	£15.2m	£(5.4)m
Adjusted EBITDA margin	11.9%	14.2%	(2.3)%
Depreciation and amortisation	£(3.5)m	£(2.7)m	£(0.8)m
Exceptional items	£(0.6)m	£(17.4)m	£16.8m
Operating profit/(loss)	£5.7m	£(4.9)m	£10.6m
Net finance costs	£(0.7)m	£(5.4)m	£4.7m
Profit/(loss) before tax	£5.0m	£(10.3)m	£15.3m
Tax	£(0.9)m	£(2.0)m	£1.1m
Profit/(loss) for the year	£4.1m	£(12.3)m	£16.4m
Weighted average number of shares (2019: pro-forma)	167,450,893	167,450,893	-
Adjusted EPS*	2.96p	2.81p	0.15p
Basic EPS	2.44p	(12.56)p	15.00p

 

*2019 is based on the weighted average number of shares in issue post Admission.

 

Revenue

 

Revenue for FY20 was £82.4m (2019: £107.2m), a reduction of 23.1%. In Facilisgroup, revenue increased in total by a net £0.5m. This was an increase of £1.1m or 13% in annual recurring revenues, offset by a £0.4m reduction following the withdrawal from the supply of ancillary artwork services for which there was a cost saving in Administrative Expenses, and a reduction in ancillary income of £0.2m, as restrictions impacted training and events. Revenue in Brand Addition Consumer Promotions remained flat with FY19 at £28.8m, new business implemented and invoiced in the year was £3.4m, with the balance of £40.4m (2019: £67.9m) being made up from existing Corporate Programme customers.  

 

Gross profit

 

Gross profit as a percentage of turnover increased during the year by 0.2 p.p.t from 37.4% to 37.6%, largely reflecting the impact of Facilisgroup at 100% gross profit margins being a larger proportion of total gross profit. In Brand Addition, there was a 2.3 p.p.t reduction in the gross profit margin, which moved to 29.2% in the year (2019: 31.5%), as specific promotions enhancing the 2019 number were not repeated, reduced overall volumes impacted the contribution from supplier rebates, and, as indicated for 2021, new business at lower than average initial margins impacted the mix in the short term.

 

Adjusted EBITDA

 

Adjusted EBITDA was £9.8m (2019: £15.2m), the movement from 2019 is made up as follows:

 

-      Facilisgroup £0.9m of which £0.5m came from an increase in revenues, the balance from cost savings as travel and events did not take place due to COVID-19 restrictions.

-      Brand Addition £5.5m reduction. This was after £2.3m of contributions or savings from the use of Government furlough or equivalent schemes, £0.7m temporary salary reductions from the Brand Addition team and The Pebble Group Board, and a £0.8m reduction in non-essential spend. Further savings of £0.5m were generated from a permanent reduction in headcount.

 

-      Central costs increased by £0.8m in the year, as 2020 was the first full year that the Group carried the costs of being listed.

 

The Adjusted EBITDA margin reduced by 2.3 p.p.t from 14.2% to 11.9% as a result of the reduced contribution from Brand Addition. As trading volumes return to 2019 levels, our expectation is that the EBITDA margin will also return to 2019 levels.

 

Depreciation and amortisation

 

The total charge in the year was £3.5m (2019: £2.7m), of which £2.0m (2019: £1.5m) related to the amortisation of intangible assets. In accordance with IAS 38, the Group capitalises the costs incurred in the development of its software and the increase in the year is a result of the Group's continued investment in its proprietary technology. It is the Group's intention to continue this investment and it is expected that this charge will increase in the next financial year.

 

Exceptional items

 

	2020	2019	Variance
Reorganisation and restructuring	£0.4m	-	£(0.4)m
Transaction and IPO related costs	£0.2m	£3.9m	£3.7m
Deferred consideration payments to Facilisgroup vendors	-	£13.5m	£13.5m
Total	£0.6m	£17.4m	£16.8m

 

Exceptional costs of £0.6m (2019: £17.4m) comprise £0.4m restructuring costs in Brand Addition, arising as a result of changes made to headcount to align people costs with anticipated ongoing sales volumes. Transaction costs of £0.2m (2019: £3.9m) relate to the Facilisgroup software acquisition. Total transaction related costs were £0.2m, of which £0.1m has been capitalised and included within intangible assets in accordance with IAS 38. Transaction costs in the prior year were the costs associated with the Group's admission to AIM on 5 December 2019.   

 

Deferred consideration payments of £13.5m in 2019 arose on settlement of outstanding consideration payments to the vendors of Facilisgroup. As the sale and purchase agreement for the acquisition of Facilisgroup specified deferred payments would only be payable in the event the vendors remained as employees of the Group, IFRS 3 required these payments be treated as remuneration for post-acquisition services and the costs charged to the profit and loss account over the deferral period. As all amounts outstanding were settled on Admission to AIM, these were charged to the income statement in 2019 and included as an exceptional item.

 

Operating profit/(loss)

 

The above resulted in Operating profit for the year of £5.7m (2019: £4.9m loss).

 

Finance costs

 

Net costs of £0.7m in the year (2019: £5.4m) include interest on the utilisation of the Group's committed RCF facility during the year of £0.2m and interest costs on leases capitalised in accordance with IFRS 16 of £0.4m. The prior year number included interest costs relating to Group's capital structure prior to Admission to AIM. The costs for 2020 are representative of ongoing expectations.

 

Taxation

The total taxation charge was £0.9m (2019 : £2.0m) giving rise to an effective rate of tax of 18.0% (2019: -19.4%). The effective rate of tax was marginally lower than the UK standard rate of taxation as the Company benefitted in the year from corporate interest rate deductions that were previously disallowed for taxation purposes. The prior year effective rate was impacted by the tax treatment of the exceptional item relating to Facilisgroup deferred consideration for which no tax deduction was available. In future years we expect the Group's effective rate of tax to remain close to the UK corporation tax rate although this will be impacted by the amount of profit the Group earns in overseas jurisdictions where corporation tax rates are higher than those of the UK.

 

Earnings per share

 

The earnings per share analysis in note 7 covers both adjusted earnings per share (profit after tax before amortisation of acquired intangibles, share-based payments charge and exceptional items divided by the weighted average number of shares in issue during the year), and statutory earnings per share (profit attributable to equity holders divided by the weighted average number of shares in issue during  the year). Adjusted earnings (profit after tax before amortisation of acquired intangibles, share-based payments charge and exceptional items) was £5.0m (2019: £4.7m) an increase in adjusted basic earnings per share (2019: pro-forma) of 0.15 pence per share. Basic earnings per share (profit attributable to equity holders divided by the weighted average number of shares in issue during the year) was 2.44 pence per share (2019: loss of 12.56 pence per share) an increase of 15.0 pence per share.

 

Dividends

 

On Admission to AIM in December 2019, the Group's stated intention was to make dividend payments of c.30% of profit after tax. As previously disclosed, given the impact of the pandemic, the focus on cash preservation and use of government job retention support schemes, the Board considers that a dividend payment in respect of 2020 would be inappropriate. This position will be reviewed during 2021 and an update provided in the Group's half year results, scheduled for announcement in September 2021.

 

Cash flow

 

The Group had a cash balance of £7.1m at 31 December 2020 (2019: £8.9m), of which £2.8m in 2019 related to proceeds received from the IPO left behind by the selling shareholders.

 

Cash flow for the year is set out below.

 

	2020	2019	Variance
Adjusted EBITDA	£9.8m	£15.2m	£(5.4)m
Movement in working capital excluding IPO related accruals	£1.7m	£(2.8)m	£4.5m
Capital expenditure excluding acquisition of intangible assets	£(3.1)m	£(2.1)m	£(1.0)m
Leases	£(1.2)m	£(1.2)m	-
Underlying operating cash flow	£7.2m	£9.1m	£(1.9)m
Movement in working capital IPO related accruals	£(3.5)m	£3.9m	£(7.4)m
Acquisition of intangible assets	£(2.6)m	-	£(2.6)m
Adjusted operating cash flow	£1.1m	£13.0m	£(11.9)m
Tax paid	£(1.3)m	£(2.5)m	£1.2m
Net finance cash flows	£(0.7)m	£9.0m	£(9.7)m
Acquisitions and financing	-	£(1.3)m	£1.3m
Exceptional items	£(0.5)m	£(17.3)m	£16.8m
Exchange loss	£(0.4)m	£(0.2)m	£(0.2)m
Net cash flow	£(1.8)m	£0.7m	£(2.5)m

 

Underlying operating cash flow

 

Underlying operating cash flow before tax payments, net finance costs, transaction related accruals, payments in respect of acquisitions and exceptional items was £7.2m (2019: £9.1m), representing Adjusted EBITDA to underlying operating cash flow conversion of 73.5% (2019: 59.9%). This is an important metric for the Group that is monitored consistently to ensure it remains strong, whilst retaining an appropriate level of investment in capital expenditure to support future growth. The improvement in the year is due to a reduction in net working capital in Brand Addition, as a result of reduced volumes and continued strong working capital management. Exceptional cash outflows relate to the restructuring and transaction related costs referred to above. In 2019, Group investing and exceptional cash outflows related principally to the settlement of third party debt and financing facilities outstanding at the time of IPO.

 

Balance Sheet and shareholders' funds

 

Net assets increased in the year by £3.4m, the balance sheet is summarised below:

 

	2020	2019	Variance
Non-current assets	£63.6m	£56.4m	£7.2m
Working capital	£6.4m	£5.9m	£0.5m
Cash	£7.1m	£8.9m	£(1.8)m
Lease liabilities	£(9.0)m	£(6.3)m	£(2.7)m
Other net liabilities	£(1.8)m	£(2.0)m	£0.2m
Net assets	£66.3m	£62.9m	£3.4m

 

Non-current assets

 

Non-current assets are the most significant balance sheet category of which £35.8m (2019: £35.9m) is goodwill arising on previous acquisitions. Non current assets also include £9.0m (2019: £9.8m) of customer relationship intangible assets, £9.2m (2019: £4.5m) of software development costs, including £3.8m in respect of the Facilisgroup software assets acquisition, and £9.1m (2019: £6.1m) of Property, Plant and Equipment. Software development costs arise from ongoing investment in Group proprietary software to ensure the technology services, supplied to its customers, remain market leading and differentiated from our competitors. The costs are capitalised in accordance with IAS 38 and amortised over the period which the Group expects to generate benefit from the development. As the Group pursues its strategic objectives to accelerate the growth of Facilisgroup, we expect this investment to continue to increase in the short term.

 

Working capital

 

Working capital is ahead of 2019, however current liabilities in 2019 included £3.9m of fees and debt like items arising on IPO due for settlement in 2020. The 2020 number includes £1.3m of deferred consideration in respect of the CoreXpand acquisition. Adjusting for both these items, working capital was down on 2019 as a result of reduced activity in Brand Addition.

 

Cash

 

Cash balances at 31 December 2020 were £7.1m (2019: £8.9m). This is after payment of £2.6m in December for the acquisition of software assets for Facilisgroup and, in the first quarter of the year, the settlement of £2.4m of debt like items and IPO fees, for which the cash was left behind at IPO and included in cash balances at the 2019 year end.

 

Lease liabilities

 

Lease costs of £9.0m (2019: £6.3m) relate to Group properties capitalised in accordance with IFRS 16. The increase on FY19 relates to new property leases entered into in the year,  principally new US office space for Facilisgroup to accommodate the expanding team and new European warehousing facilities for Brand Addition.

 

Other net liabilities

Other net liabilities of £1.8m (2019: £2.0m) are tax liabilities of which £2.6m (2019: £1.8m) is deferred tax in respect of the intangible assets of Facilisgroup. £1.7m (2019: £1.8m) relates to acquired customer relationships, the balance and increase in the year arose on the acquisition of software assets. These liabilities will reverse over the period that the assets are amortised.

 

Use of non-GAAP measures in the Group financial statements

 

The Group has used certain measures that it believes assist a reader of the Report and Accounts in understanding the business. The measures are not defined under IFRS and, therefore, may not be directly comparable with adjusted measures presented by other companies. The non-GAAP measures are not intended to be a substitute for or superior to any IFRS measures of performance. However, they are considered by management to be important measures used in the business for assessing performance.     

 

The following are key non-GAAP measures identified by the Group and used in the Strategic Review and Financial Statements:

 

Adjusted EBITDA

Adjusted EBITDA means operating profit before depreciation, amortisation, share-based payments charge and exceptional items.

 

Adjusted operating profit 

Adjusted operating profit means operating profit before amortisation of acquired intangible assets, share-based payments charge and exceptional items.

 

Adjusted profit before tax 

Adjusted profit before tax means profit before tax before amortisation of acquired intangible assets, share-based payments charge and exceptional items.

 

Adjusted Earnings

Adjusted Earnings means profit after tax before amortisation of acquired intangible assets, share-based payments charge and exceptional items.

 

Adjusted earnings per share

Adjusted EPS represents Adjusted Earnings divided by a weighted average number of shares in issue.

 

Underlying operating cash flow

Underlying operating cash flow is calculated as Adjusted EBITDA less movements in working capital, capital expenditure and lease payments excluding movements in transaction related accruals and payments in respect of acquisitions.

 

Adjusted operating cash flow

Adjusted operating cash flow is calculated as Adjusted EBITDA less movements in working capital,  capital expenditure and lease payments.

 

 

Claire Thomson

Chief Financial Officer

 

23 March 2021