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Be Heard Group PLC

Be Heard Group PLC - Final Results For The Year Ended 31 December 2018

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 £29.5m (2017: £19.6m)

·      Like-for-like  revenue growth of +15%

·      Adjusted EBITDA (1) increased by 90% to £3.0m (2017: £1.6m)

·      Adjusted operating Margin (2) increased by 2.1% to 10.3% (2017: 8.2%)

·      Loss from operations £(9.7)m after non-cash impairment charge of goodwill and intangibles of £8.4m and £1.7m of exceptional costs (2017: £(3.9m))

·      Cash generation improved by £2.4m with cash generated from continuing operation of £0.8m

·      Net debt at £(0.8)m (3) after earn-out payments (2017: net cash £2.1m)

·      Earnout balance at £15.1m (December 2017: £19.9m)

 

Operational Highlights

·      Group delivers strong organic growth

·      Marked improvement in H2 2019 with revenues of £15m and EBITDA of £2.4m

·      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."

 

We define Adjusted EBITDA as EBITDA adjusted for costs associated with acquisitions, restructuring of the Group, share-based payments and impairments.

Operating Margins are Adjusted EBITDA divided by revenue.

Net debt excludes £3,520k 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

EBITDA

 

Adjusted EBITDA Margin

Net Debt/

Net Cash

 

2018

£29.5m

£3.0m

10.3%

£(0.8m)

2017

£19.6m

£1.6m

8.2%

£2.1m

 

 

 

 

 

% Growth or £m Change

+50.7%

+89.9%

+2.1%

£(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 £2.2 million (2017: £1.8 million)

 

Freemavens: (acquired in February 2017):

Revenues                 £3.0 million,            41% ahead of last year

Contribution           £1.0 million,            2017 £0.5 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                 £13.9 million,          48% ahead of last year

Contribution           £2.9 million,            2017 £1.9 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                 £2.0 million,            97% ahead of last year

Contribution           £0.2 million,            2017 £(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 £1.0m improvement in contribution.

 

The Corner (acquired in December 2017):

Revenues                 £5.6 million,            (15%) below last year             (on pro-forma basis)

Contribution           £1.0 million,            2017 £0.2 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                 £5.0 million,            (23%) below last year

Contribution           £0.1 million,            2017 £1.5 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 £7.2 million. Of this £6.4 million relates to the carrying value of agenda21, £0.7 million relates to The Corner, and despite an improved trading performance, £0.2 million of the impairment charge relates to Kameleon. 

 

Earnout liability 2019

As at 31 December 2018 the Group had circa £15.1m of earn out liabilities (excluding Freemavens) of which £9.9m 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 £2.4 million, with cash generated from continuing operations of £0.8m (2017: cash consumed from continuing operations of £1.6m).

 

Net Debt

Net Debt excluding the £3.5m convertible loan notes, increased to £(0.8)m as at 31 December 2018 (2017: Net Cash of £2.1m). This increase principally reflects £3.1m 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 £2.0m 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 31

December 2018

Year ended 31 December 2017

 

Notes

£'000

£'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 note

 

662

-

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

£ (0.01)

£ (0.00)

Diluted

8

£ (0.01)

£ (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 £9,415k (2017: £2,414k).

 

 

 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

£'000

£'000

£'000

£'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

19

 

24,101

 

 

 

=======

 

=======

 

 

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

£'000

£'000

£'000

£'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

Bank loan drawn

(16)

2,000

 

(305)

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 net debt:

2018

2017

 

£'000

£'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 loan notes

662

-

 

---------------

---------------

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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