TIDMBHRD
RNS Number : 8040T
Be Heard Group PLC
25 March 2019
BE HEARD GROUP PLC
Final Results For The Year Ended 31 December 2018
"Good revenue growth with improved operational efficiencies"
Financial Highlights
-- Group revenue increased by 51% to GBP29.5m (2017: GBP19.6m)
-- Like-for-like revenue growth of +15%
-- Adjusted EBITDA (1) increased by 90% to GBP3.0m (2017: GBP1.6m)
-- Adjusted operating Margin (2) increased by 2.1% to 10.3% (2017: 8.2%)
-- Loss from operations GBP(9.7)m after non-cash impairment
charge of goodwill and intangibles of GBP8.4m and GBP1.7m of
exceptional costs (2017: GBP(3.9m))
-- Cash generation improved by GBP2.4m with cash generated from
continuing operation of GBP0.8m
-- Net debt at GBP(0.8)m (3) after earn-out payments (2017: net cash GBP2.1m)
-- Earnout balance at GBP15.1m (December 2017: GBP19.9m)
Operational Highlights
-- Group delivers strong organic growth
-- Marked improvement in H2 2019 with revenues of GBP15m and EBITDA of GBP2.4m
-- Notable client wins include Vodafone, Enterprise, GSK, L'Occitane and Equifax
-- Aligned cost base to appropriate and sustainable levels
-- Improved operating margins
-- 9 consecutive months of profitability to February 2019
-- Group management and operational capability strengthened
-- Agreement in principle to convert majority of 2019 earn-out
liability to 3-year (renewable) loan notes.
David Morrison, Non-Executive Chairman of Be Heard Plc,
commented:
"In spite of a difficult start to the year, which gave rise to
senior management changes, the company has made considerable
progress and finished the year strongly. The results for the second
six months show a marked improvement when compared to the first
half and reflect the focus of the new management team on
operational effectiveness, profitability and cash generation.
The new financial year has started positively, against an
unsettling market environment and the financial constraints of the
Group. Assuming reasonable trading weather ahead, I expect to be
able to report positive news as the year progresses."
Note 1
We define Adjusted EBITDA as EBITDA adjusted for costs
associated with acquisitions, restructuring of the Group,
share-based payments and impairments.
Note 2
Operating Margins are Adjusted EBITDA divided by revenue.
Note 3
Net debt excludes GBP3,520k of convertible loan notes issued on
28 November 2017. The notes are convertible by the holder into
ordinary shares of the Company at any time between the date of
issue of the notes and their redemption date. The notes are
convertible at 3.5 pence per share
The notes to the accounts are published in our Annual Report
Accounts for 2018, available at https://beheardpartnership.com
Enquiries
Be Heard Group plc +44 20 3828 6269
David Morrison, Non-Executive
Chairman
Simon Pyper, Chief Executive Officer
N+1 Singer +44 20 7496 3000
Mark Taylor / Lauren Kettle
Dowgate +44 20 3903 7715
James Serjeant / Colin Climie
Strategic Report: Non-Executive Chairman's Statement
In spite of a difficult start to 2018, which gave rise to senior
management changes, the company has made considerable progress and
finished the year strongly. The results for the second six months
show a marked improvement when compared to the first half and
reflect the focus of the new management team on operational
effectiveness, profitability and cash generation.
Having joined the Group in April as Chief Financial Officer,
Simon Pyper moved into the role of Chief Executive at the beginning
of September and Ben Rudman, one of the founders of MMT Digital,
the largest of the partner companies acquired by Be Heard, became
Group Chief Operating Officer. I would like to thank them for
stepping up, as they did, in difficult circumstances and for
providing strong management and clear leadership since doing
so.
Having focussed on increasing profitability and generating cash,
I am pleased that the Company is now profitable (adjusted EBITDA),
stable and soundly managed. Against a backdrop of market
uncertainty, as Brexit rumbles on with no clear outcome, and
substantive structural changes in the sectors in which Be Heard's
partner companies operate, we have set ourselves what we believe to
be achievable goals and realistic financial objectives, taking into
account the financial constraints in which we operate, which are
largely a function of earn-out payments negotiated at the time the
partner companies were bought into the Group.
In particular, we believe that organic growth can be driven by
capitalising on the range of skills that are to be found across the
Group. The latter half of last year demonstrated the benefit of
being able to offer clients a range of creative solutions involving
more than one of the partner companies. Whilst considerable
progress was made in the last few months of the year in eliminating
duplication and reducing inefficiencies in the Group, there remain
opportunities to run certain functions at Group level which to
date, have been undertaken by each of the underlying
businesses.
We also feel that there are chances to enter into joint ventures
with companies outside the Group, which can provide leverage to our
own areas of competence. Simon Pyper, in the Chief Executive's
Report, considers these issues in more detail.
Board Changes
I have reported hitherto on senior management changes and, in
particular, Peter Scott's resignation from the Board in September.
I would like to thank Peter again for the role that he played in
establishing Be Heard and for leading it in its most formative
years.
Our Employees
Be Heard is totally dependent on its people and the turnaround
in operating performance in the last few months of the year would
not have been possible without their commitment. I would
particularly like to thank the employees of the Group in all the
partner companies for their efforts, as well as both my executive
and non-executive colleagues on the Board.
Current Trading and Outlook
The new financial year has started positively, against an
unsettling market environment and the financial constraints of the
Group. Assuming reasonable trading weather ahead, I expect to be
able to report positive news as the year progresses.
David Morrison
Non-Executive Chairman
25 March 2019
Strategic Report: Chief Executive's Report
The first task on appointment was to stabilise the business and
to put the business on to a more robust financial footing. Our
second half results reflect much of the work undertaken both at the
centre and within the partner companies to reduce our cost base to
a more appropriate and sustainable level. Moreover, we have for the
new financial year set pragmatic and achievable financial
objectives based on an honest assessment of our business, our
capabilities and, as importantly, based on prudent levels of
revenue growth.
Key Performance Indicators
The key performance indicators selected are used by the
Executive Directors to monitor the Group's performance and
progress.
Revenue Adjusted Adjusted EBITDA Net Debt/
EBITDA Margin Net Cash
========================= ========= ========= ================ ==========
2018 GBP29.5m GBP3.0m 10.3% GBP(0.8m)
========= ========= ================ ==========
2017 GBP19.6m GBP1.6m 8.2% GBP2.1m
========= ========= ================ ==========
% Growth or GBPm Change +50.7% +89.9% +2.1% GBP(2.9)m
========= ========= ================ ==========
Adjusted EBITDA as EBITDA adjusted for costs associated with
acquisitions, restructuring of the Group, share-based payments and
impairments.
Net Debt is short and long-term borrowings (excluding earnouts
and convertible loan note) less cash and cash equivalents.
The Group was founded with the intention of buying and building
a "partnership" of marketing services companies fit for the digital
age. The main components for such a Group are broadly in place and
the emphasis is now on organising and managing the partner
companies to maximise their potential. Whilst it remains a work in
progress, the Group has four constituent parts: Creative, led by
The Corner and Kameleon. Media led by agenda21.Technology, led by
MMT and Data Analytics from Freemavens. The benefits of having
these skill sets under one roof began to be realised in the course
of last year as, increasingly, mandates were won as a direct result
of the breadth and flexibility of Be Heard's offering. However, it
will take the remainder of the current year to refine the offering
and to achieve the required level of operating integration.
Group Performance 2018
Note: Partner contribution is equal to Group adjusted EBITDA
before central overheads of GBP2.2 million (2017: GBP1.8
million)
Freemavens: (acquired in February 2017):
Revenues GBP3.0 million, 41% ahead of last year
Contribution GBP1.0 million, 2017 GBP0.5 million (for the eleven
months of ownership)
Analytics and insight business which makes use of customer,
audience and market data to provide critical insights to blue chip
clients. Freemavens is our only partner company which regularly
engages with client-side senior executives. Growth has come from
both increased engagements from its top clients and from notable
new business wins.
MMT Digital:
Revenues GBP13.9 million, 48% ahead of last year
Contribution GBP2.9 million, 2017 GBP1.9 million
Delivering award winning websites and software MMT, works with
clients to transform their digital performance. The results for
2018 reflect MMT's focus on delivering quality solutions for
clients to timetable and to budget. Growth has come from both
existing clients and a number of client referrals.
Kameleon:
Revenues GBP2.0 million, 97% ahead of last year
Contribution GBP0.2 million, 2017 GBP(0.8) million
Kameleon is a unique data-driven content agency which
specialises in creating content solutions that deliver better
engagement and effectiveness across all digital channels. In many
respects Kameleon was the star performer of 2018 recording a
significant increase in revenues and a near GBP1.0m improvement in
contribution.
The Corner (acquired in December 2017):
Revenues GBP5.6 million, (15%) below last year (on pro-forma
basis)
Contribution GBP1.0 million, 2017 GBP0.2 million (for the one
month of ownership)
A brand and creative company which helps clients become more
relevant to their audience through new thinking and new ideas. A
disappointing first year for The Corner, with revenue and
contribution run rates lower than their pre-acquisition average.
Much of the decline can be ascribed to market uncertainty, but some
if not a significant part is down to the fact that the business did
not respond in time and in an appropriate manner to the client-led
changes to the revenue model, from "retainer" to "project" led
engagements.
agenda21:
Revenues GBP5.0 million, (23%) below last year
Contribution GBP0.1 million, 2017 GBP1.5 million
agenda21 is a media planning and buying business which optimises
media and content across connected devices. Along with losing its
largest client, the business was slow to adapt to market changes
such as client "in-housing" or competitors providing capabilities
such as media buying at rates marginally ahead of input cost. The
business has been restructured with a new Managing Director in
place from the end of January 2019.
New Clients
Notable client wins include Vodafone, Enterprise, GSK,
L'Occitane and Equifax.
Impairment of Goodwill
The Group has taken a non-cash impairment charge to goodwill of
GBP7.2 million. Of this GBP6.4 million relates to the carrying
value of agenda21, GBP0.7 million relates to The Corner, and
despite an improved trading performance, GBP0.2 million of the
impairment charge relates to Kameleon.
Earnout liability 2019
As at 31 December 2018 the Group had circa GBP15.1m of earn out
liabilities (excluding Freemavens) of which GBP9.9m is payable in
cash. The Group is in negotiations to migrate the majority of the
2019 liability (cash and shares) to 3-year renewable loan notes
which will attract a modest rate of interest above LIBOR.
Cash Generation
Cash generation improved by GBP2.4 million, with cash generated
from continuing operations of GBP0.8m (2017: cash consumed from
continuing operations of GBP1.6m).
Net Debt
Net Debt excluding the GBP3.5m convertible loan notes, increased
to GBP(0.8)m as at 31 December 2018 (2017: Net Cash of GBP2.1m).
This increase principally reflects GBP3.1m paid to satisfy
earn-outs.
Covenants
The Group operates under a number of covenants relating to the
convertible loan note and the Group's banking facilities. During
the year the Group became aware that it was likely to breach a
number of covenants relating to the convertible loan note managed
by Gresham House Asset Management LLP and consequently sought and
received the necessary waivers and amended covenants. Similarly,
the Group became aware that it was in technical breach of a number
of covenants relating to the banking facilities provided by
Barclays Bank plc.
As a consequence of the technical breach of the Barclays
covenants, we have shown as at December 31 the GBP2.0m term loan as
a current liability. The Group has subsequent to the Balance Sheet
date (31 December 2018) received the appropriate waivers for the
2018 financial year. Additionally, the directors have, subject to
legal documentation, agreed revised covenants with Barclays Bank
plc to those which better reflect Group's cash requirements and
working capital cycle. Consequently, the Group expects that for the
2019 financial year the term loan will be re-classified to
non-current liabilities.
Strategic Priorities
The challenge ahead, given the financial constraints of the
Group and the less than consistent performance of the partner
companies, is how best to deliver profitable growth over the medium
to long-term. If we are to achieve growth without recourse to
additional capital then the most appropriate approach is to; more
fully leverage our proposition, to further improve our operational
effectiveness, and where appropriate to enter into capital-light
joint ventures with businesses operating within or adjacent to our
competitive footprint.
Leveraging our Proposition
We are on many levels a successful business, winning a number of
new client engagements and achieving revenue growth from several
existing clients. Despite some notable successes, we, like many of
our competitors, have seen a general reduction in the volume and
value of new business which in part reflects the impact on
marketing budgets brought about by the continued economic and
political uncertainty in the United Kingdom. Aligned with the
softening of new business, we have also found that the pitch
process has become more competitive, with prolonged client decision
timeframes and furthermore, with procurement playing an
ever-greater part in the client's decision-making mix.
Moreover, in response to demand-side structural changes, many
marketing services firms are re-engineering their business model.
We have seen a number of our competitors moving to a "single
provider model", whereby individual brands are no longer as
relevant as the competencies and services being offered. Whilst
other companies have invested further in the "holding company"
model, where the individual agencies with minimal support from the
parent deliver client solutions. We at Be Heard believe that a more
flexible approach is needed, one which recognises that "one size"
does not fit all and that the key to success is in providing
clients with creative solutions to real commercial challenges. Our
business model allows us to present ourselves as a single provider
with deep expertise in a number of areas, or to act as an
individual agency, or to provide multiple service combinations from
two or more partner companies.
Leveraging Operational Effectiveness
Be Heard's five different partner companies had historically
been run independently with separate operations and discrete
processes. Little thought had previously been given to the benefits
which could accrue by sharing certain functions and
responsibilities. Ben Rudman, Group Chief Operating Officer, has
made good progress in:
-- Implementing common processes particularly around resource planning;
-- Standardising reporting processes and output; and
-- Implementing cost reduction initiatives
Joint Ventures
The capital constraints within which the Group operates have led
us have to take a more creative yet pragmatic approach towards
growth. The Group is currently in negotiations with two sub-scale
businesses that operate in our competitive footprint. Both
opportunities are "capital light" with Be Heard offering access to
infrastructure, business processes and client fulfilment
capabilities in exchange for new routes to market and a broadening
of our prospective client base.
The Market
There seems little doubt that the uncertain economic and
political climate will continue to have an adverse impact on client
spending decisions over the near to medium-term. This uncertainty
coupled with the demand-led structural changes within the marketing
services sector presents both challenges and opportunities.
Challenges we aim to overcome, and opportunities which agile and
responsive firms such as ours are well placed to exploit.
Priorities
Our immediate priorities remain unchanged; to focus on better
leveraging our proposition and operational effectiveness and
moreover, to build a business which delivers sustainable long-term
profitable growth.
Simon Pyper
Chief Executive Officer
25 March 2019
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2018
Year ended Year ended
31 31 December
December 2017
2018
Notes GBP'000 GBP'000
Billings 2 49,720 34,666
Cost of sales (20,261) (15,116)
--------------- ---------------
NET REVENUE 29,459 19,550
Administrative expenses (39,156) (23,434)
--------------- ---------------
OPERATING LOSS (9,697) (3,884)
--------------------------------------- ------ ---------------- ----------------
Operating profit before non-recurring
and non-cash items (adjusted EBITDA) 3,040 1,601
Depreciation (183) (107)
Amortisation (2,976) (2,604)
Impairment of intangibles (1,159) (1,493)
Impairment of goodwill (7,221) (2,269)
Movement in deferred and contingent
consideration (104) 2,269
Revaluation of convertible loan 662 -
note
Acquisition costs (50) (937)
Termination payments (1,398) (109)
Legacy adjustments (297) -
Share based payments (11) (235)
--------------------------------------- ------ ---------------- ----------------
LOSS FROM OPERATIONS 3 (9,697) (3,884)
Finance costs 6 (602) (66)
--------------- ---------------
LOSS BEFORE TAXATION (10,299) (3,950)
Taxation 7 884 1,536
--------------- ---------------
LOSS AFTER TAX (9,415) (2,414)
Loss and Total Comprehensive Expense
attributable to:
Non-controlling interest 413 (162)
Equity holders of the parent (9,828) (2,252)
--------------- ---------------
(9,415) (2,414)
======= =======
LOSS PER SHARE
Basic 8 GBP (0.01) GBP (0.00)
Diluted 8 GBP (0.01) GBP (0.00)
======= =======
All of the above losses after taxation arise from continuing
operations.
There was no other comprehensive income for the year. Total
comprehensive expense for the year ended 31 December 2018 is
GBP9,415k (2017: GBP2,414k).
The notes to the accounts are published in our Annual Report
Accounts for 2018, available on our website.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2018
2018 2017
Notes GBP'000 GBP'000 GBP'000 GBP'000
ASSETS:
NON-CURRENT ASSETS
Property, plant and equipment 9 391 324
Intangible assets 10 33,876 45,232
--------------- ---------------
TOTAL NON-CURRENT ASSETS 34,267 45,556
CURRENT ASSETS
Trade and other receivables 13 12,540 10,423
Cash and cash equivalents 2,167 3,107
--------------- ---------------
TOTAL CURRENT ASSETS 14,707 13,530
LIABILITIES:
CURRENT LIABILITIES
Trade and other payables 14 (19,071) (14,984)
Bank and other loans 15 (3,000) (1,000)
--------------- ---------------
TOTAL CURRENT LIABILITIES (22,071) (15,984)
NON-CURRENT LIABILITIES
Other payables 14 (3,150) (682)
Bank and other loans 15 (3,520) (4,014)
Deferred tax liability 17 (395) (1,093)
Provision for liabilities 18 (3,220) (13,212)
--------------- ---------------
TOTAL NON-CURRENT (10,285) (19,001)
LIABILITIES
TOTAL LIABILITIES (32,356) (34,985)
--------------- ---------------
TOTAL NET ASSETS 16,618 24,101
======= =======
CAPITAL AND RESERVES:
ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
Share capital 19 10,407 9,819
Share premium reserve 20 13,208 13,224
Merger relief reserve 20 8,038 6,689
Retained earnings 20 (15,350) (5,533)
--------------- ---------------
Equity attributable to
owners of parent company 16,303 24,199
Non-controlling interests 21 315 (98)
--------------- ---------------
TOTAL EQUITY 16,618 24,101
19
======= =======
The notes to the accounts are published in our Annual Report
Accounts for 2018, available on our website.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018
2018 2017
OPERATING ACTIVITIES GBP'000 GBP'000 GBP'000 GBP'000
Loss before taxation (10,299) (3,950)
Adjustments for:
Depreciation 183 107
Amortisation 2,976 2,604
Impairment of intangibles 1,159 1,493
Impairment of goodwill 7,221 2,269
Movement in deferred and contingent
consideration 104 (2,269)
Revaluation of loan note (662) -
Share based payment expense 11 235
Finance costs 602 66
--------------- ---------------
11,594 4,505
--------------- ---------------
Cash generated from operations
before changes 1,295 555
in working capital and provisions
(Increase)/decrease in trade
and other receivables (1,835) 45
Increase/(decrease) in trade
and other payables 997 (2,614)
--------------- ---------------
(838) (2,569)
--------------- ---------------
Cash generated from/(consumed
by) operations 457 (2,014)
Net tax received 296 458
--------------- ---------------
Cash flow from/(used in) operating
activities 753 (1,556)
INVESTING ACTIVITIES
Purchase of property, plant
and equipment (253) (251)
Consideration paid on acquisition
of
subsidiaries - (6,675)
Deferred consideration paid (3,063) (2,330)
Payment to buy out shareholders - (175)
Cash with subsidiaries over
which control
has been obtained - 2,378
Expenditure on development
costs - (45)
--------------- ---------------
Cash flow used in investing
activities (3,316) (7,098)
FINANCING ACTIVITIES
Issue of ordinary shares - 4,283
Share issue expenses (16) (305)
Bank loan drawn 2,000 1,000
Loan notes issued - 4,000
Finance costs (361) (29)
--------------- ---------------
Cash flow from financing activities 1,623 8,949
--------------- ---------------
(DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (940) 295
Cash and cash equivalents
at 1 January 3,107 2,812
--------------- ---------------
Cash and cash equivalents
at 31 December 2,167 3,107
======= =======
Cash available on demand 2,167 3,107
======= =======
The notes to the accounts are published in our Annual Report
Accounts for 2018, available on our website.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2018 (continued)
Reconciliation of net cashflow to movement in 2018 2017
net debt:
GBP'000 GBP'000
Net (decrease)/increase in cash and cash equivalents (940) 295
Revolving credit facility drawn - (1,000)
Term loan drawn (2,000) -
Convertible loan notes issued - (4,000)
Interest accrued on convertible loan notes (488) (14)
Interest paid on convertible loan notes 320 -
Revaluation of share option component of convertible 662 -
loan notes
--------------- ---------------
Movement in net debt in the year (2,446) (4,719)
Net debt at 1 January (1,907) 2,812
--------------- ---------------
Net debt at 31 December (4,353) (1,907)
======= =======
There were no significant non-cash transactions.
The notes to the accounts are published in our Annual Report
Accounts for 2018, available on our website.
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END
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