Pebble Group
Annual Report 2020

Plain-text annual report

T h e P e b b l e G r o u p p l c A n n u a l R e p o r t 2 0 2 0 Building brands. Growing relationships. Strengthening businesses. Broadway House Trafford Wharf Road Trafford Park Manchester M17 1DD The Pebble Group plc Annual Report 2020 Building brands. Growing relationships. Strengthening businesses. Our vision is to become the partner of choice for both global brands that use promotional products as a key stakeholder engagement tool, and small and medium sized enterprises (SME) distributors that seek to professionalise and grow their promotional products’ businesses in North America. Stay up to date at thepebblegroup.com Our history 2012 2014 2016 2017 Management buy-out of Brand Addition, supported by H.I.G. Europe Capital Partners LP and by Beechbrook Capital LLP. Expanded operations into Shanghai, established a full-service office enabling further development of overseas capabilities. Acquisition of US-based Gateway CDI (now Brand Addition US), increasing market share and providing greater access to the largest single regional market for promotional products. Secondary management buy-out supported by Elysian Capital and Beechbrook Capital LLP. Formation of The Pebble Group as parent company to Brand Addition. The material used in this report has been harvested in a responsible manner from an FSC accredited mill. Produced and printed by Perivan. “ The unprecedented events of 2020 have not affected our strategy. Facilisgroup continues to grow, in line with our expectations, and we are confident of restoring the strong organic growth levels, achieved prior to the pandemic, at Brand Addition, as our markets settle and adapt to a post-COVID-19 world.” Richard Law Non-executive Chairman Strategic report 02 Highlights 04 At a glance 06 Our businesses 10 Chairman’s statement 12 Chief Executive’s statement 16 Our strategy in action 17 Our stakeholders 20 Sustainability - ESG 29 Key performance indicators 32 Chief Financial Officer’s review 38 Risk management Corporate governance 42 Chairman’s introduction to governance 43 Board structure and committees 46 Corporate governance statement 52 Board of Directors 54 Senior Team 55 Audit Committee report 58 Remuneration report 65 Directors’ report 68 Statement of Directors’ responsibilities Financial statements Independent auditors’ report 69 75 Consolidated income statement 76 Consolidated statement of comprehensive income 77 Consolidated statement of financial position 78 Consolidated statement of changes in equity 79 Consolidated cash flow statement 80 Notes to the consolidated financial statements 110 Company balance sheet 111 Company statement of changes in equity 112 Notes to the Company financial statements 116 Company information 2018 2019 2020 Admission to AIM. Acquisition of Facilisgroup in North America saw the establishment of The Pebble Group brand and enabled it to diversify and strengthen its service offering. Acquisition of software assets for Facilisgroup that enable the provision of further recurring revenue services to existing and potential Partners. Highlights Financial REVENUE GROSS MARGIN ADJUSTED EBITDA* ADJUSTED EPS** £82.4m -23% 37.6% +0.2ppt £9.8m -36% 2.96p +5% m 2 . 7 0 1 £ m 4 . 2 8 £ % 4 . 7 3 % 6 . 7 3 m 2 . 5 1 £ m 8 . 9 £ p 6 9 . 2 p 1 8 . 2 2019 2020 2019 2020 2019 2020 2019 2020 Operational highlights Group: • 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 FY20 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 • FY21 has started well and the Board views the prospects for the Group with confidence * ** Adjusted EBITDA is defined as operating profit adjusted to add back depreciation of property, plant and equipment, amortisation, share-based payments charges and exceptional items in note 7 Adjusted earnings per share is calculated as operating profits before amortisation of acquired intangibles, share-based payments charges and exceptional items less net finance costs and tax divided by the weighted average number of shares in issue 02 The Pebble Group plc Annual Report 2020 STRATEGIC REPORT Facilisgroup: Recurring Revenue Total Revenue Adjusted EBITDA 2020 £9.3m £9.8m £6.0m 2019 £8.2m £9.3m £5.1m Brand Addition: Revenue Adjusted EBITDA 2020 2019 £72.6m £5.2m £97.9m £10.7m • 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 FY20 to 175 (FY19: 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 (FY19: $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 5 contracted awaiting implementation • Q1 21 performance is expected to be firmly on track with management expectations • Positive reaction from Partners to our ecommerce product with 41 pursuing access for the initial launch • Management’s internal aspiration to increase Facilisgroup’s recurring revenues beyond $50m by the end of 2024 • 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 FY21: – 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) The Pebble Group plc Annual Report 2020 03 STRATEGIC REPORT At a glance We provide technology, services and products to the global promotional products industry. Our Group provides technology, services and products to the global promotional products industry through two focused and differentiated businesses: 88% of Group revenue 12% of Group revenue Brand Addition is a leading provider of promotional products to global brands. It utilises its global network and technology infrastructure and systems to source and deliver complex and creative promotional product solutions. Facilisgroup provides technology solutions to SME promotional product distributors in the United States and Canada. Read more on page 8 Read more on page 6 Our markets The promotional products market is large. Suppliers Manufacturers and decorators Distributors Highly fragmented Working Capital Working Capital Brand, End customer +$50bn global market in FY19 04 The Pebble Group plc Annual Report 2020 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 US$50bn in 2019. Due to the impact of COVID-19 disruption, industry estimates from North America suggest that compared with 2019 traditional industry sales fell by circa 40% with higher sales of PPE related items reducing this decline to circa 20% in 2020, much of which occurred in Q2 and Q3 before showing signs of recovery in Q4. We believe, 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 business model c.$40bn promotional products market The industry Our Group Providing products, services and technology into the global promotional products industry Building brands, growing relationships, strengthening businesses Our focused businesses Brand Addition Products and services Facilisgroup Technology and services Target market Large global brands SME promotional product distributors Services Design corporate ranges and bespoke products Source from ethical suppliers Deliver across the globe Revenue model Margin on products and services Software as a Service (SaaS) technology to power efficiency and growth Supply chain consolidation for buying dynamism Community events and training Subscriptions for technology Fees for supply chain management resulting in recurring annual revenues Geographic hubs Europe Asia US US Canada Where we operate The Pebble Group is headquartered in the UK in a facility that also houses the headquarters of Brand Addition. The Group has offices in the UK, the Republic of Ireland, Germany, China, Canada and the United States. Europe Manchester Dublin London Hagen North America Ottawa St. Louis China Guangzhou Hong Kong Shanghai REVENUE BY GEOGRAPHY (%) 2019 REVENUE BY GEOGRAPHY (%) 2020 30+30+ – North America (30%) – China (7%) – RoW (5%) – Europe (58%) 32+32+ – North America (32%) – China (7%) –– RoW (4%) – Europe (57%) EBITDA BY GEOGRAPHY (%) 2019 EBITDA BY GEOGRAPHY (%) 2020 48+48+ – North America (48%) – China (5%) – RoW (1%) – Europe (46%) 65+65+ – North America (65%) – China (-1%) –– RoW (1%) – Europe (35%) The Pebble Group plc Annual Report 2020 05 7 + 7 + 4 + 4 + 57 + 57 + C C 7 + 7 + 5 + 5 + 58 + 58 + C C 1 + 1 + 34 + 34 + C C 5 + 5 + 1 + 1 + 46 + 46 + C C Our businesses Our Group comprises two differentiated businesses, focused on specific areas. 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. It utilises its global network to ethically source and deliver complex and creative promotional product solutions. Headquartered in Manchester, it has locations in Europe, the US and Asia. Revenues are categorised into two divisions: Corporate Programmes that support clients’ general marketing activities and Consumer Promotions that support clients in driving their own sales volumes. Brand Addition’s business model Win, grow, retain, repeat Target market: Large global brands. Revenue model: Margin on products and services. Supporting clients: Globally through offices in Europe, the US and Asia. Excellent track record of attracting and retaining many of the world’s leading brands through design, ethical sourcing, international distribution and technology solutions. PERCENTAGE OF GROUP REVENUE (%) 2019 PERCENTAGE OF GROUP REVENUE (%) 2020 91+91+ C 91% 88+88+ C 88% PERCENTAGE OF ADJUSTED EBITDA (%) 2019 PERCENTAGE OF ADJUSTED EBITDA (%) 2020 68+68+ C 68% 46+46+ C 46% Suppliers Europe, Asia, North America Brand Addition ~$100m revenues Creative Services Webshop Platforms Supply Chain Compliance Sourcing & Quality Control Working Capital International Delivery Working Capital Global Account Management Brand, End customer Large corporates, under contract, seeking >£’m pa revenues per contract Corporate Programmes, brand support (~60% FY20 revenues) Consumer Promotions, driving sales (~40% FY20 revenues) Learn more at brandaddition.com 06 The Pebble Group plc Annual Report 2020 Note: percentages for Adj. EBITDA exclude central costs STRATEGIC REPORT9 9 + + C 32 32 + + C 12 12 + + C 54 54 + + C Our businesses Facilisgroup provides an ecommerce platform to mid-size promotional products businesses in North America, which enables those businesses to benefit from significant business efficiency through its technology, and gain meaningful supply chain advantage from the ability to purchase from quality suppliers under preferred terms. Our recurring revenues, 95% of FY20 total revenues are derived from subscriptions for technology and a proportion of the gross merchandise value flowing through the platform. Established in 2004 and acquired by The Pebble Group plc in December 2018, Facilisgroup provides a SaaS-based platform to support the operations of SME promotional product distributors based in the United States and Canada. Facilisgroup has built a community of 175 SME promotional product distributors and over 100 preferred suppliers in North America and in the year ended 31 December 2020 processed over $1bn of sales (2019: $800m) in the promotional products sector. A typical Facilisgroup Partner generates between $2million and $10 million of annual sales. Facilisgroup attracts and retains Partners through its proprietary @ease software, consolidating the buying power of its Partners and developing its community of Partners and suppliers through learning and networking events. It generates revenue through two main pillars: subscription revenue from providing technology to its Partners and income from its suppliers for co-ordinating the consolidation of spend. In 2020 Facilisgroup added software through the acquisition of software assets to allow the easy development of online stores, a key selling tool for Partners and a large number of entrepreneurial businesses in the sector. This accelerates Faciligroup’s ability to bring additional e-commerce services to market in support of its vision to become the technology leader in the promotional products industry. Facilisgroup is headquartered in the US with offices in Canada. Target market: SME promotional product distributors. Revenue model: Subscriptions for technology and online stores, fees for supply chain management. Manages: c.$1bn sales (up from $800m in 2019) in the promotional products sector from 175 Partners (up from 149 in 2019) in the US and Canada. Attracts and retains “Facilisgroup Partners” through a combination of highly regarded technology, consolidation of buying power and community learning and networking events PERCENTAGE OF GROUP REVENUE (%) 2019 32+32+ C 9% PERCENTAGE OF GROUP REVENUE (%) 2020 12+12+ C 12% PERCENTAGE OF ADJUSTED EBITDA (%) 2019 PERCENTAGE OF ADJUSTED EBITDA (%) 2020 54+54+ C 32% 54+54+ C 54% Facilisgroup’s business model High visibility of recurring revenues with a growing customer base Facilisgroup Technology and Services Order Workflow Online Stores Marketing Support (~20% FY20 Revenues) Subscriptions for Order Workflow (~80% FY20 Revenues) Subscriptions for Online Stores (New in FY21) Preferred suppliers North America Partners SME distributors (Typically, $2m-$15m revenues) Working Capital Working Capital Brand, End customer $25bn market in North America, FY19 08 The Pebble Group plc Annual Report 2020 Note: percentages for Adj. EBITDA exclude central costs STRATEGIC REPORT68 68 + + C 46 46 + + C 88 88 + + C 46 46 + + C The Pebble Group plc Annual Report 2020 09 Chairman’s statement A year of considerable achievement under difficult circumstances 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. 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 £82.4m (2019: £107.2m) and Adjusted EBITDA of £9.8m (2019: £15.2m). 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 (“FY21”) 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. 10 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTInvestment case • Attractive market opportunity • Differentiated positioning within the promotional products space • Brand Addition’s strong relationships with a diversified blue-chip client base • Combination of loyal client base and recurring revenues drives high quality earnings • Strong track record of historical financial growth • The Group model is well positioned through the economic cycle • Facilisgroup’s long-term deep-rooted relationships with • Proven, experienced, high calibre management team its Partners 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 2021, 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 The Pebble Group plc Annual Report 2020 11 Chief Executive Officer’s review Overview of the Year 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. We are pleased to issue the Group’s results for the year ended 31 December 2020, our first full year as a listed company. 12 The Pebble Group plc Annual Report 2020 STRATEGIC REPORT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 Recurring Revenue Other Revenue Total Revenue Gross profit Gross profit % Adjusted EBITDA Partner numbers 2020 2019 Variance £9.3m £0.5m £9.8m £9.8m 100% £6.0m 175 £8.2m £1.1m £9.3m £9.3m 100% £5.1m 149 13% -55% 5% 5% - 18% 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 (2019: $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 (2019: £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 (2019: £9.3m). The recurring revenue model that underpins Facilisgroup continued to deliver excellent returns in 2020. We further invested in skills development 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 (2019: £5.1m) being a return on Total Revenue of 61% (2019: 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% FY20 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% FY20 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. The Pebble Group plc Annual Report 2020 13 Chief Executive Officer’s review 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; 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 Order workflow, targeting 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. 2 3 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. 14 The Pebble Group plc Annual Report 2020 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 Revenue Gross profit Gross profit % Adjusted EBITDA 2020 2019 Variance £72.6m £21.2m 29.2% £5.2m £97.9m £30.8m 31.5% £10.7m -26% -31% -2.3ppt -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. STRATEGIC REPORTIn the year, total revenue was 74% of prior year at £72.6m (2019: £97.9m). results. No return of salary was made to the Brand Addition management teams or The Pebble Group Board. Corporate Programmes revenue (~60% FY20 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% FY20 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 FY20 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 (2019: £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 5 contracted, awaiting implementation, and our Q1 21 performance is expected to be firmly on track 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 our Group remains strong. We look forward to updating shareholders on the progress of the Group throughout the year. Christopher Lee Chief Executive Officer 23 March 2021 The Pebble Group plc Annual Report 2020 15 Our strategy in action Becoming a partner of choice. The promotional products sector globally is estimated to be between $40m and $50m. We believe that the market is evolving quickly and is growing in importance in the world’s most sophisticated economies. Promotional product strategies operated by some of the world’s largest organisations served by The Pebble Group are about more than promoting brands. They focus on building customers relationships, creating engagement with employees, and building loyalty. Giving reward to customers and followers. The market is highly fragmented. The Pebble Group is one of the largest businesses in this market but we, together with the other large operators, account for less than 10% of the market with the remainder accounted for by small and mid-tier operators. These small and mid-tier-market operators are often unable to maximise their potential because they cannot independently leverage the best technology or buying power available in the industry. Brand Addition focuses exclusively on supporting these organisations through the design, sourcing and delivery of exciting product, matched with services that meet the sustainability and efficiency requirements of global businesses. Facilisgroup supports these businesses in North America by providing a spectrum of technology that powers the efficiency and growth of these entrepreneurial businesses. Strategic Objective Progress made in the year Priorities for 2021 Organic growth opportunities Brand Addition Win additional major client contracts Two significant global contracts were won and signed in the year. Both wins contributed to revenues in 2020 and will have a full year impact in 2021. Increase spend from existing clients Within our Consumer Promotions division, we were able to grow our market share within a number of client relationships, supporting the sales of their products. Client spend reduced in our Corporate Programmes division where COVID-19 severely disrupted client activities. Our Top 20 clients, historically representing between 60% and 70% of annual revenues, remained clients at the end of 2020. Continue to develop our Win, Grow, Retain, Repeat model, attracting a number of significant client contracts. Build upon the robust performance of our Consumer Promotions division and achieve the return to growth within our Corporate Programmes division. Our target is a return towards the total Brand Addition revenues of FY19. Continue to evolve the services provided to our existing client relationships that result in the retention of our Top 20 clients and deliver long-term value to the business. Retain major client relationships to add long-term value to the business Facilisgroup Attract additional Partners and customers Growth in Partner numbers is a key indicator of future performance and we continued this acceleration with Partner numbers increasing from 149 to 175 in year. Continue to attract new Partners to our existing model, setting the internal target of 205 total Partners by the end of 2021. Extend the technology services to increase recurring revenues with existing and new Partners/customers Investment continued into evolving our existing technology to improve the services we offer to our Partners and Preferred Suppliers. In December 2020, we acquired software assets that we will develop further to offer a range of e-commerce stores to increase new services to existing Partners and attract new customers to Facilisgroup. Develop our e-commerce services to be able to offer a wide range of online store solutions for both existing Partners and non-Partners. Adapt our technology products and business model to support the emerging entrepreneurs within the industry Developed our strategy and set our internal aspirations to evolve our technology to support this large part of the market, starting in 2022. Develop our technology and business model to be able to launch in 2022. Selective consideration of acquisitions by the Group The Pebble Group Deploy capital on selective acquisitions that accelerate the ability of the Group to create long-term value through additional technology products or the ability to expand into additional sectors or geographies Following feedback from our Facilisgroup Partners and our desire to continue the evolution of our business model, we acquired software assets in December 2020 that will accelerate to market a new technology product for Facilisgroup, providing a range of online stores. Developing this product further in 2021, we expect a significant increase in our recurring revenues from 2022 onwards. The Pebble Group has successfully created excellent value to shareholders through acquisition, making three significant acquisitions since 2016. Acquisition opportunities will continue to play an important role in the long-term development of the Group. 16 The Pebble Group plc Annual Report 2020 The promotional products sector globally is estimated to be between $40m and $50m. We believe that the market is evolving quickly and is growing in importance in the world’s most sophisticated economies. market with the remainder accounted for by small and mid-tier operators. These small and mid-tier-market operators are often unable to maximise their potential because they cannot independently leverage the best technology or buying power available in the industry. Facilisgroup supports these businesses in North America by providing a spectrum of technology that powers the efficiency and growth of these entrepreneurial businesses. STRATEGIC REPORTOur stakeholders Listening to our stakeholders. The Board considers engaging with our diverse stakeholder base as key to successfully managing The Pebble Group and understands its duties under section 172 of the Companies Act 2006. The disclosures that follow describe how, in taking strategic, financial and operational decisions, the Board and all senior managers in line with section 172 have regard to the Company’s stakeholders and as a result promote the success of the Company for the benefit of its members as a whole. This comes naturally to The Pebble Group where our emphasis as a business is that decisions are taken with regard to acting equitably, for the long term, considering the interests of all stakeholders and being aware of the impact of our actions on the communities and environments in which we operate, always aiming to maintain a reputation for having high standards of business conduct. Principle decisions made in the year: • Acquisition of software assets in December 2020 • Headcount reduction at Brand Addition as COVID-19 affected trading • Appointment of Group Senior ESG Officer and General Counsel and Company Secretary Stakeholder engagement In meeting its obligations under section 172, The Pebble Group has identified four key stakeholder groups. It  recognises that the purpose of stakeholder engagement is: (i) to ensure that the perspectives, insights and opinions of stakeholders are understood; and that (ii) the Company has regard to those that are relevant when key strategic, financial or operational decisions are being taken; and that (iii) effective stakeholder engagement and consideration supports The Pebble Group’s goal of ensuring long term shareholder value. Stakeholder interests are regarded as far as they are relevant when information and recommendations are presented to the Board. In 2021 the Board has evolved its reporting process to facilitate this, and to continue to ensure that appropriate time is allotted to take account of these factors during Board discussions and decision making. The Board recognises that developing stakeholder relationships and maintaining effective stakeholder engagement will help make The Pebble Group a company that people want to work with, invest in, buy from and sell to. The Board’s decisions aim to promote the success of the Company for the benefit of its members as a whole and in taking decisions, the Directors take account of all relevant stakeholders, rather than any single stakeholder group, therefore it is important to recognise that this may not result in a positive outcome for every stakeholder interest. By considering the Company’s vision, culture and values, together with its strategic priorities when making each decision, the Company’s goal is to make robust and sustainable individual decisions that are coherent as a whole. Sustainable not only in the context of our impact on the environment and society, but also in the longevity of our business relationships with our suppliers and clients, and also in the careers of our people. The Pebble Group plc Annual Report 2020 17 Our stakeholders The Company has identified the four key stakeholder groups set out below, the issues that are most relevant to each of them and details how it has and continues to engage with each of them. Our teams Clients and Partners Why we engage Our objective at The Pebble Group is to attract and retain a quality client and Partner base from which we grow long-term relationships for the benefit of all parties. Continued investment into our technology, services and people to enhance these relationships will create long term value for all. How we engage • Formal periodic performance reviews • Regular one-to-one feedback discussion across multiple client touch points • In person and virtual events to update on the objectives of the business and provide opportunity for shared learning experiences • Client surveys and feedback questionnaires including Net Promoter Scores • Annual feedback surveys Key topics of engagement • What is the impact of COVID-19 on the Company? How are you responding to this? How can you support clients and Partners during this time? • How can you support clients and Partners to deliver on our ESG commitments? • How is the business developing its capabilities to ensure continual improvement in the services you deliver? Impact of engagement • Client and Partner meetings and events have continued, albeit virtually. The key messages regarding the impact of COVID-19 and our approach to responsibly manage through was regularly and consistently shared • Although some areas of our business were impacted through reduced sales, our client and Partner relationships are valued for their long term nature. We continued to focus on retention and delivering high quality services across the Group • Brand Addition has placed sustainability at the centre of its business through its 5-year strategic development plan – ba.ONE, sustainability and growth. Supporting this, we have recruited a Senior ESG Officer and Sustainability Manager • At Facilisgroup, understanding our Partner’s needs for an e-commerce sales platform was integral to the Board’s decision to acquire the software assets in December 2020 Why we engage The sustainable success of our business is dependent upon the continued development of, and investment in our teams of highly talented and dedicated people. We aim to create a positive and inclusive culture within which our talented and dedicated team can thrive and grow. How we engage • Team feedback surveys • Structured personal development plans • Communications directly from our CEO and senior managers • Sales and management conferences • Business performance and strategy updates • Management development programme • Employee forums and panels • One-to-one discussions • Encouragement of feedback from the team including an anonymous whistleblowing contact Key topics of engagement • What is the Impact of COVID-19 on the Company? How are we responding to this? What does this mean for our teams and me? What are the permanent changes to the way our Company works that result from COVID-19? • How are we providing our teams with opportunities to develop and grow and reach their full personal potential? • How are we embracing diversity and inclusion? • How are we managing the social and environmental impact of our organisation? • How can the Company support my mental health? Impact of engagement • Our teams were kept fully informed of the business’ performance, direction and thinking through the huge challenges created by COVID-19, including those who were on furlough or equivalent schemes • The dynamic of working from home changed dramatically in the year, whether enforced upon us or requested by our teams. Increased flexibility of working locations will remain a permanent change • Due to the impact of COVID-19 related lockdowns on the sales performance of the business, at the end of Q3 the Company made the decision to make permanent changes to the Brand Addition headcount. Through established channels of communication, these decisions were communicated directly, sensitively and with compassion • Increased focus on growth created opportunity at Facilisgroup. Leaders were promoted from within, alongside new talent also being added from the outside. Staff development plans for ongoing advancement were a key focus • Implementation of ESG targets to the business 18 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTStrategic suppliers Why we engage The quality of the products and services we deliver to our clients and Partners is heavily influenced by the careful management of our important supplier relationships. Alongside seeking new supply routes to enhance our business offering, we collaborate with a key group of suppliers in Asia, Europe and North America. Developing long-term relationships builds trust and support as partners. How we engage • Formal written contracts negotiated transparently and openly • Face-to-face meetings to discuss performance and feedback • Ongoing two-way evaluation processes to facilitate business improvement and address ultimate customer demands • Supplier networking events providing efficient, easy access to opportunities to develop and grow • Formal audit processes providing feedback and development opportunities Key topics of engagement • What is the impact of COVID-19 on the Company? How is this going to impact our relationship in the short and medium term? • What can we do in the short term to support you and your clients? • What are the trends in development of your business that we should be aware of to support our relationship in the future? • How is your organisation implementing efficiency strategies? • How is your organisation implementing ESG, specifically around environmental impact related to your product, packaging, and supply chain? Impact of engagement • Supplier meetings and events have continued, albeit virtually. The key messages regarding the impact of COVID-19 and our approach to responsibly manage through was regularly and consistently shared • Although traditional promotional product spend with our suppliers reduced, many were able to switch to the sales of Personal Protective Equipment which supported our clients and Partners • As our business places further priority on ESG and sustainability, we have shared these initiatives with our key suppliers, seeking their involvement and support • Supplier engagement upholds the Facilisgroup business value of partnership. Ensuring support and community between the supplier partner and distributor partner creates additional opportunities for all Shareholders and the wider investment community Why we engage We are seeking to attract shareholders who are aligned with our long-term objectives for the Group. Access to long- term capital supports our long-term strategy and we will therefore engage to help investors develop their understanding of our business model, strategic objectives and culture. Through open and transparent engagement with the investor community, we aim to provide it with the information it requires to make informed judgements about the Group. How we engage • Annual Report and Accounts • Regular trading updates • Investor Relations website • Annual General Meeting • One-to-one investor meetings or calls with the CEO/CFO at the full year and interim results • Written responses from the Chairman where requested • Ad-hoc meetings, calls or written responses as requested by existing and potential shareholders and analysts • Participation in formal broker-hosted events • Broker, investor and analyst feedback Key topics of engagement • What is the impact of COVID-19 on the Company? What is the Board’s planned response? • What are the permanent changes to your industry or business due to COVID-19? • What are your organic and acquisitive growth opportunities? • What is The Pebble Group’s approach to Environment, Social and Corporate Governance issues? • What is The Pebble Group’s approach to diversity and inclusion? Impact of engagement • Regular and detailed trading updates to ensure the impact of COVID-19 across the Group’s operations and financial performance is understood • Availability of CEO and CFO to answer questions throughout the year and particularly at the time of trading updates • Appointment of key strategic roles within the Group, General Counsel and Company Secretary and Senior ESG Officer • Investor relations activity is provided at all Board meetings • Participation in formal broker-hosted events to extend reach and access to management • Planned participation in an open access Investor Relations presentation of the FY20 results with the aim of widening investor knowledge and understanding of the Group The Pebble Group plc Annual Report 2020 19 Sustainability Environmental, Social and Governance (“ESG”) ESG is fundamental to The Pebble Group, its operations are built on a foundation of integrity, transparency and fairness. The Group employs a Senior ESG Officer, the Group’s Chairman has Board responsibility for ESG and the CEO leads on ESG. Our approach to ESG has been informed by listening to our teams, our clients and Partners, suppliers, and investors, enabling the Group to focus on the key areas which are both important and relevant to our business. In order to report on how the Group is performing on these key areas, we have developed a bespoke framework that we can meaningfully report against. The action points supporting each of the cornerstones has been ranked to provide a snapshot of our progress towards our goal as defined below: Planning or early stages Plans in place and improvements being made The framework consists of four cornerstones that shape the foundations of our ESG, define our areas of priority and highlight our targets and aspirations. Clear targets, advanced stages & continual improvement Environmental Social Governance The Pebble Group Cornerstones of our approach to ESG Impact of our business on our environment and our communities Diversity, equity and inclusion Our aim is to make a positive, long-term difference to our people and the communities in which we work while minimising our impact on the planet Our aim is to expand, celebrate and embrace individuality and diversity Board independence, ethics and leadership Our aim is to promote a culture based upon values and behaviours which stakeholders are comfortable reflects their own, developing long-term relationships between the Group and its stakeholders Risk management processes Our aim is to protect the interests of our stakeholders by adopting best practices to embed effective risk management in our organisation and openly measure our successes and areas for development in reducing or mitigating the risks that the Group faces 20 The Pebble Group plc Annual Report 2020 STRATEGIC REPORT Impact of our business on our environment and our communities Our aim is to make a positive, long-term difference to our people and the communities in which we work while minimising our impact on the planet. Our ambition is to be recognised by our stakeholders as leaders in the industry on sustainability, through our commitment to a strategy that has the foresight to recognise our responsibility for delivering a better future. Energy Management – Minimising our Environmental Impact Actions being taken Progress highlights to date and in 2020 Future plans Energy monitoring Carbon reporting and reduction Energy monitoring and reduction plan in place across our European sites. Energy reduction of 25% in Europe (29% in the UK) – (see carbon reporting table on page 66). UK emissions reduced by 30%, in part due to COVID-19 lockdowns (link to detail in the Directors’ report). Made our first public disclosure on annual carbon usage as part of SECR. We will continue to expand the scope of our energy and carbon monitoring across the Group and target further savings against our baseline to reduce our carbon footprint. We are focused on the energy we use and aim to switch to sourcing our energy from renewable sources where possible. As a Group we aim for transparency and in addition to publishing our energy use and carbon footprint, we will expand our data collection and reporting. Product Sustainability – Promoting sustainable product offerings Actions being taken Progress highlights to date and in 2020 Future plans Developing sustainable product choices Products that support community projects Development of sustainable products to meet customers’ needs such as RPET clothing, notebooks made from recycled coffee grains and sourcing products made from sustainable materials (see case study on page 25). Working with suppliers to identify exciting products in core categories that provide a social benefit such as a project that contributed towards a water pump being built in India. Our Brand Addition business will continue to increase the range of sustainable products presented to its clients alongside supporting them in the development of bespoke sustainable products. It is our intention to ensure that customers are always presented with a sustainable product option or a product that offers a social benefit. The Pebble Group plc Annual Report 2020 21 Sustainability Impact of our business on our environment and our communities Waste Minimisation – Reducing waste and promoting recycling and re-use Actions being taken Progress highlights to date and in 2020 Future plans Use of recycled packaging materials All shipping cartons used in our warehouse and logistics centres are 100% recyclable and 70% produced from recycled materials. All offices equipped with recycling stations and water dispensers and all employees issued reusable bottles. Reduction of single use plastic All plastics used in our European warehouses and logistics centres have been replaced with paper-based alternatives. The Group’s ongoing focus is to continue to minimise waste from the packaging used in its own operations, aligning across each of its sites and working with its supply chain Partners to ensure that packaging is kept to a minimum, the materials used are recyclable and free from single use plastic wherever possible. Community Projects – Supporting our local communities Actions being taken Progress highlights to date and in 2020 Future plans Charity support Volunteering Faciliscares – Facilisgroup Partners continued to support local projects through a wide range of different charitable acts, ranging from monetary and meal contributions to producing and distributing PPE. Mission St Louis’ Affordable Christmas (link to case study). Brand Addition launched employer supported volunteering, aligning with the initiative already in place with Facilisgroup, entitling all employees two days per year to support community projects. As a Group we are committed to making a positive difference to the communities in which we work. Our intention is to move back to event- based charity support with Partners and through Facilisgroup events. Our employer supported volunteering project has also been introduced at Brand Addition to encourage team members to engage in worthwhile activities for the local community. Accreditations – Working to recognised frameworks Actions being taken Progress highlights to date and in 2020 Future plans EcoVadis Platinum status achieved (link to case study). ISO Certification Continuation of ISO9001, ISO14001 & ISO50001 management system certification. EcoVadis will continue to be used as a third-party tool to evaluate Brand Addition’s business commitment to sustainably and we aim to maintain its platinum status by continually improving its systems. The Group intends to maintain its ISO certifications across its UK operations and will evaluate the possibility of expanding the scope of these management systems to include our other sites. 22 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTGrowth & Development – Supporting growth and development of our team members Actions being taken Progress highlights to date and in 2020 Future plans Training Training and continuous development moved online due to COVID-19. Engagement Periodic engagement surveys undertaken with positive employee engagement scores. 78% Facilisgroup and 81% Brand Addition. Growth and development is key to our ongoing success across the Group. Each of our businesses continue to support, encourage and develop future learning opportunities. In 2021 our Brand Addition business is developing a central learning hub to support employee growth and development. We will continue to conduct employee engagement surveys and use the feedback to generate action plans for improvement. Health, Safety & Wellbeing –Providing a safe work environment and looking after our team members Actions being taken Progress highlights to date and in 2020 Future plans Health & Safety No reportable accidents or incidents. Wellbeing Supported staff through COVID-19 through online sessions promoting togetherness such as Facilisgroup’s “Together from home” and through targeted communications promoting health, wellbeing and maintain a positive work-life balance. The health, safety and wellbeing of our staff remains paramount. Throughout 2021 we will continue to support our staff through a combination of on-site and remote working, encouraging team get-togethers and providing useful information to ensure staff remain well connected and encourage a healthy work life balance. – Business strategies – Long term strategies, aligned with our ambitions Actions being taken Progress highlights to date and in 2020 Future plans ba.ONE ba.ONE strategy launched (link to case study). The launch of the ba.ONE strategy in 2020 will ensure that sustainability is a key focus area for our Brand Addition business. It will allow long-term sustainability targets to be set across the business which are linked to our Group ESG cornerstones and encourage future growth and development. The Pebble Group plc Annual Report 2020 23 Sustainability Supporting Case studies Corporate and social responsibility recognition – EcoVadis Our Brand Addition business achieved platinum status from its annual EcoVadis assessment which positioned them within the top 1% of similar companies in their approach to sustainability, improving their score by two points from 2019 to 76/100. The assessment reviewed the approach of four key areas (Environment, Labour & Human Rights, Ethics & Sustainable Procurement) and how the business addresses these areas including any actions to minimise their overall impact on the environment. EcoVadis provides an independent, trusted, common platform for evaluating and rating more than 65,000 groups and companies across 200 industries in 160 countries using CSR assessment criteria based on recognised sustainability standards. New strategies launched – ba.ONE – Sustainability & Growth 2020 saw the launch of the ba.ONE strategy focusing on sustainability and growth of the business over the next five years in five key areas: Leading through sustainability, enhancing existing relationships, attracting new long-term partnerships, focusing on efficiencies, with people being the fifth area at the heart of the plan. This framework allows Brand Addition to ensure that sustainability is embedded in all future activities and becomes a key driver across the business by developing specific plans linked to each pillar to meet and exceed objectives supporting future business growth and development. Sustainability & Growth All suppliers within the supply chain must be registered within the Group’s ERP system ensuring that only approved suppliers can be used. There are many suppliers available through the Group’s ERP system and as a result it offers the flexibility to source similar goods from multiple sources, without reliance on any single supplier. Supply chain compliance with our environmental and social standards Our Brand Addition business has a robust vendor management process. All direct sourced suppliers (manufacturers) based in Asia or high-risk countries undergo a vendor audit assessment prior to any order being placed. The audit is carried out onsite, where possible by a Brand Addition team member using our own vendor assessment audit procedures which are constantly developed. The audit covers: Factory management and conditions, quality assurance, product specific processes, production capacity, vendor management, product development, ethical, environmental and traceability. Each supplier is assessed against these criteria and only used if they meet our requirements. Indirect sourced suppliers (importers, wholesalers and decorators) are assessed on a rolling basis following the same approach undertaken with manufacturers with audits prioritised based upon spend, product risk and location. All products are fully traceable within the ERP system through a unique PO number that enables the manufacturer to be identified from their specific batches. In Facilisgroup, all preferred suppliers undergo a desktop assessment based upon an extensive list of environmental and social standards to ensure ethical standards are upheld throughout the supply chain. These standards cover human rights, labour laws, workplace conditions, toxic levels in inks, risk assessments, product testing, factory audits, QC inspections, and other social conduct topics. 24 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTProduct sustainability Brand Addition has been working with its clients to develop sustainable RPET workwear and clothing ranges. These products are made from recycled polyethylene tetraphyte (PET) which is used in the manufacture of many different plastic items such as food packaging or water bottles. The introduction of these RPET products contributes to the circular economy by reusing and recycling waste materials. Identifying products within our supply base that support local community projects. By our Brand Addition business working closely with suppliers, we are able to offer clients inventive solutions adding value by supporting initiatives such as clean water projects. One particular project supported the building hand pumps to provide clean water to communities in India. Community Support Projects Our Faciliscares programme started in 2019. This initiative encourages charitable activities in our business and with our Partner (customer) community. At our Facilisgroup events, we choose to support a locally based charity, and work with our partners raising money and offering practical support. Despite the challenges introduced due to COVID19, in 2020 our Partners have continued to support local projects through a wide range of different charitable acts, ranging from monetary and meal contributions to producing and distributing PPE. In December, the Facilisgroup team assisted ‘Mission St. Louis’ with their ‘Affordable Christmas’ event providing toys and other wish list items to support local families. The Pebble Group plc Annual Report 2020 25 Sustainability Diversity, equity and inclusion Our aim is to expand, celebrate and embrace individuality and diversity. Our ambition is to deliver the best possible outcomes for everyone by promoting diversity, fostering a positive work ethic, being results and client focused while committed to doing the right thing. Actions being taken Progress highlights to date and in 2020 Future plans Diversity, Equity & Inclusion Training Staff diversity Gender diversity analysis undertaken. 62% of employees are female. 40% of the PLC board are female. Employee surveys Brand Addition carried out an anonymous survey on the Group’s diversity and inclusion. The survey revealed over 90% of staff felt valued and respected. The results of the survey have informed actions to further improve performance. Gender pay In 2021 all of our senior management teams will undergo training in this area to ensure a common understanding across the Group. The training will be used to support the review and improvement of our policies and develop objectives to support our aims and ambitions. In 2021 we are committed to publishing the full results of our initial diversity study across the Group, providing transparency of our workforce to our stakeholders. It is our intention to improve on this initial report increasing the scope of the data captured and updating on the actions being taken to embrace and expand Group diversity. Employee surveys play an important part in ensuring that meaningful data is captured to measure our success and allowing our businesses to determine areas of focus and where action needs to be taken. It is our commitment to ensure that employee surveys are undertaken every two years as a minimum with more frequent surveys undertaken as required. It is our intention in 2021 to conduct our first gender pay review across our UK business. The results collected will be analysed and used to help make informed decisions on what actions we are going to take in this area. 26 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTBoard independence, ethics, and leadership Our aim is to promote a culture based upon values and behaviours which stakeholders are comfortable reflects their own, developing long-term relationships between the Group and its stakeholders. Our ambition is to ensure sound decision-making, through implementing best practice and maintaining governance structures and processes together with the ability to exercise personal judgements to reflect the standards expected by all stakeholders. Actions being taken Progress highlights to date and in 2020 Future plans QCA code Appointment of Group General Counsel and Company Secretary. Assessment of Board, Committee, and individual Director effectiveness. New Board reporting template adopted. Further information is set out in the Corporate Governance Statement on pages 46 to 51. ESG management Appointment of a Group Senior ESG Officers. Code of ethics Business code of ethics in place across the Group and our supply chain. Whistleblowing policies updated across the Group and the implementation of a Group whistleblowing portal. To ensure effective corporate governance, the Group has adopted the QCA code and will continue to review and evolve the application of its principles in key areas such as: ensuring governance structures remain fit for purpose, an increased focus on succession planning in the context of diversity, equity and inclusion and Board opportunity for development of skills and capabilities through seminars and training courses. To evolve and develop the Group’s ESG framework and to provide transparency across the Group’s activities, publishing results and our future plans. Continue to uphold our code of ethics in place across the Group, ensuring that regular reviews are undertaken and updates are made as required. The Pebble Group plc Annual Report 2020 27 Sustainability Risk management process Our aim is to protect the interests of our stakeholders by adopting best practices to embed effective risk management in our organisation and openly measure our successes and areas for development in reducing or mitigating the risks that the Group faces. Our ambition is to demonstrate constant improvement to the Company’s risk management framework in identifying and addressing our Group risks to execute and deliver our strategy and ensure long-term stakeholder value. Actions being taken Progress highlights to date and in 2020 Future plans QCA Code Information on the Board’s approach to risk management is set out in Principle 4 of the Corporate Governance Statement on page 47. Information on managing our key risks and uncertainties is set out in the Risk Management section on page 38. Audit Committee Board committee to oversee, monitor and mitigate risk. Information on the Board’s approach to risk management is set out in Principle 4 of the Corporate Governance Statement on page 47. Information on managing our key risks and uncertainties is set out in the Risk Management section on page 38. To utilise the Group Executive Committee established in 2021 as a forum to further improve corporate governance, monitoring and risk management across the Group. Review and evolve risk management framework, business risk and opportunities ownership and reporting processes across the Group to ensure that they remain fit for purpose, seeking to identify areas for development and improvement in the identification and escalation of emerging risks. Review and evolve processes in place to ensure that they remain fit for purpose. Delegated Authority Board approved delegation of authority in place. Group Policy Review Initial policies in place. Ethical supply chain monitoring Robust vendor management process in place to ensure that suppliers adhere to strict ESG requirements. In 2020, 224 audits were conducted (link to case study). Continue to review and identify areas of development to make this more granular. Continue to review and identify areas for development and improvement such as operational risk, information security and third-party management policies. The Group will continue to ensure that robust measures are in place to assess our suppliers’ approach to ESG. It is our intention to continually improve our processes in this area. We plan to review the consistency of supply chain monitoring across the Group and adjust where needed to ensure alignment. 28 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTKey performance indicators Measuring our performance. Group REVENUE GROWTH ADJUSTED EBITDA* RETURN ON REVENUE ADJUSTED EARNINGS PER SHARE UNDERLYING OPERATING CASH FLOW CONVERSION -23.1% £9.8m -35.5% 11.8% -2.4% 2.96p +5.0% 73.5% m 2 . 7 0 1 £ m 4 . 2 8 £ m 2 . 5 1 £ m 8 . 9 £ % 2 . 4 %1 8 . 1 1 p 1 8 . 2 p 6 9 . 2 % 5 . 3 7 % 9 . 9 5 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Why we measure it Year on year growth in revenue indicates progress against both short-term plans and long-term strategy. Comment The reduction in revenue in 2020 reflects the impact of COVID-19 on the corporate programme division of Brand Addition. Why we measure it Year on year growth in Adjusted EBITDA indicates progress against both short-term plans and long-term strategy. Management believe this adjusted measure is more appropriate in understanding the underlying trading performance of the business. Comment The reduction in Adjusted EBITDA in 2020 reflects the lower revenue. This was partly offset through cost savings, including £1.9m of government support, salary and headcount reductions and reduced travel and entertainment spend. Why we measure it Return on revenues is calculated as Adjusted EBITDA as a percentage of revenue is an important measure for the Group illustrating its ability to grow revenue profitably whilst maintaining control over its margins and costs. Comment The Group reduction of 2.4% reflects the impact of COVID-19 on revenue and Adjusted EBITDA at Brand Addition. Revenue growth of 5.1% in Facilisgroup which generates Adjusted EBITDA returns in excess of 50% has provided some protection to the reductions in Brand Addition. Why we measure it This is used by the Group to monitor the ability to turn profit into cash. Comment Underlying operating cash flow is operating cash flow excluding exceptional cash flows on non-trading items. Strong cash flow conversion in 2020 reflects tight working capital management. Why we measure it This measure illustrates the profitability of the Group in relation to the number of shares in issue and is therefore an important metric in demonstrating the delivery of value for our shareholders. Comment Adjusted earnings per share is 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 (2019 is shares in issue post admission on 5 December 2019). Adjusted earnings per share were 2.96p against 2.81p in 2019. The figure for 2020 has improved on 2019 as the Group did not incur interest charges associated with pre IPO debt. * See the CFO Report on page 37. The Pebble Group plc Annual Report 2020 29 Key performance indicators Group companies Brand Addition Revenue analysis – Win, Grow, Retain, Repeat REVENUE BY SERVICE TO CLIENTS £’m REVENUE FROM EXISTING AND NEW CUSTOMERS £’m REVENUE BY CLIENT CONCENTRATION £’m 100 80 60 40 20 0 69 67 61 44 25 25 29 29 100 80 60 40 20 0 10 76 12 80 3 95 5 68 100 80 60 40 20 0 35 13 38 32 14 46 33 14 51 20 10 43 2017 2018 2019 2020 2017 2018 2019 2020 2017 2018 2019 2020 Consumer Promotions Corporate Programmes Existing clients New clients (in year and 1st full year contribution) Top 10 clients 11-20 clients 21+ clients Why we measure it Brand Addition revenues can be categorised into two distinct divisions; Consumer Promotions that support our clients in driving their own sales targets, and Corporate Programmes that support our clients’ general marketing activities. These divisions can respond differently to different market conditions and therefore analysing the revenue split is important. Comment Consumer Promotions were not impacted by the pandemic in the same way as Corporate Programmes, with 2020 revenue remaining flat with 2019. Why we measure it Brand Addition has excellent levels of client retention which provides the business with good visibility of revenues and informs the view of future performance. Retaining and growing existing clients while successfully implementing new business is fundamental to the growth strategy of Brand Addition. Comment Revenue contribution from existing customers was down in 2020 due to the impact of COVID-19 on Corporate Programmes. Although total revenues from existing clients were down, encouragingly, Brand Addition retained all major existing customers in 2020. Why we measure it Brand Addition tracks revenue by client concentration as continued success of these larger clients is central to delivering on our strategy of Win, Grow, Retain, Repeat. Comment The top 10 clients contributed 59.4% of total revenue in 2020 (52.4% in 2019). Our focus on attracting global contracts has led to our top 20 clients growing as a percentage of overall revenues. Revenue diversity – Strong sectors across multiple geographies REVENUE BY CLIENT SECTOR % REVENUE BY DESTINATION % 8% 11% 6% 15% 11% FY20 FY19 20% 22% 12% 13% 31% 31% FY20 FY19 14% 23% 24% 19% 15% 24% 35% Engineering Financial Services Health, Beauty, FMCG Technology Transport Other 32% 34% UK Europe US RoW Why we measure it Brand Addition works with clients across a wide range of sectors. This level of diversity provides protection against economic or regulatory factors which may impact specific sectors. Comment Clients in the health and beauty sector contributed 35% of revenue in FY20. These clients operate in the Consumer Promotions division of the business and were less heavily impacted by the pandemic. There was strong diversity across other sectors. Why we measure it Brand Addition has a global client base and is well diversified across geographies, providing resilience to market conditions that could affect specific geographies. Comment In FY20, revenue percentages by destination remained broadly in line with 2019. 30 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTGroup companies Facilisgroup Recurring revenues – High visibility of recurring revenues with a growing customer base 10 8 6 4 2 0 1.0 0.8 0.6 0.4 0.2 0.0 REVENUES £’m 200 PARTNER NUMBERS 1.2 7.0 1.5 7.5 0.5 9.3 1.1 8.2 150 175 149 100 119 127 50 0 2017 2018 Recurring revenues 2019 2020 Other revenue 2017 2018 2019 2020 Why we measure it Tracking recurring revenues provides excellent visibility of future revenue performance. Comment Recurring revenues increased by 13% in 2020, driven by the increase in Partner numbers. Recurring revenues comprise 95% of Facilisgroup revenues in FY20. Why we measure it Responsibly increasing Partner numbers whilst maintaining Partner quality is key to delivery of the Facilisgroup strategy. The engagement of existing Partners and the pipeline of potential new Partners are tracked on a monthly basis to demonstrate progress against this target. Comment Facilisgroup increased Partners by a 26 in the year, representing a record number of new implementations combined with almost 100% retention of existing Partners. Partner activity – High quality Partners under long-term relationships GROSS MERCHANDISE VALUE $’bn PREFERRED SUPPLIER PURCHASES $’bn 1.0 0.8 0.7 0.6 0.3 0.3 0.2 0.2 0.30 0.25 0.20 0.15 0.10 0.05 0.00 2017 2018 2019 2020 2017 2018 2019 2020 Why we measure it Tracking the value of sales processed through our technology, sets the pricing of our services to our Partners and allows the Group to monitor both the growth in like-for-like Partner sales, and also overall growth in total distributor sales. Comment The sales activity of our Partners resulted in $1.01bn GMV, an increase of $0.2bn on 2019 and a significant milestone for the business in breaking through the $1bn target set at the start of the year. Why we measure it Consolidating Partner spend through a high-quality supply base that provides excellent service, favourable pricing and rebates for our Partners also generates revenue for Facilisgroup. The level of spend with our Preferred Suppliers is tracked monthly to demonstrate progress against this target. Comment Spend through Preferred Suppliers increased in 2020, although as a percentage of GMV this was lower than historically, driven by the swing towards PPE orders through non-preferred suppliers in Q2. Our expectation is that this percentage will return towards 2019 levels in 2021, and this is closely monitored. PERCENTAGE OF PARTNERS BY GMV GROWTH % 70% 2017 2018 2019 2020 60% 50% 40% 30% 20% 10% 0% >-30% -11% to -30% -10% to +10% +11% to +30% >+30% Why we measure it Understanding the sales performance of our Partners is an indication of our Partner’s strength. This was particularly important in 2020 when the industry was significantly impacted by the pandemic. Comment The impact of the pandemic on Partner GMV growth is evident through the unusual spread in 2020. Positively, all Partners that entered the pandemic with Facilisgroup remained Partners throughout the year and our expectation is that growth trends will return in 2021. The Pebble Group plc Annual Report 2020 31 Chief Financial Officer’s review Results reflect the impact of COVID-19. 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. Revenue Adjusted EBITDA Underlying operating cash flow Net cash position (excluding lease liabilities) Adjusted Earnings Per Share 2020 2019 Variance £82.4m £107.2m £(24.8)m £15.2m £(5.4)m £9.1m £(1.9)m £9.8m £7.2m £7.1m 2.96p £8.9m £(1.8)m 2.81p 0.15p 32 The Pebble Group plc Annual Report 2020 STRATEGIC REPORT£’000 Revenue 2020 2019 Variance £82.4m £107.2m £(24.8)m Gross profit Gross profit margin Adjusted EBITDA Adjusted EBITDA margin Depreciation and amortisation Exceptional items Operating profit/(loss) Net finance costs Profit/(loss) before tax Tax Profit/(loss) for the year Weighted average number of shares (2019: pro-forma) Adjusted EPS* Basic EPS £31.0m 37.6% £9.8m 11.9% £(3.5)m £(0.6)m £5.7m £(0.7)m £5.0m £(0.9)m £4.1m £40.1m 37.4% £15.2m 14.2% £(2.7)m £(17.4)m £(4.9)m £(5.4)m £(10.3)m £(2.0)m £(12.3)m 167,450,893 167,450,893 2.81p 2.96p 2.44p (12.56)p £(9.1)m 0.2% £(5.4)m (2.3)% £(0.8)m £16.8m £10.6m £4.7m £15.3m £1.1m £16.4m - 0.15p 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. The Pebble Group plc Annual Report 2020 33 Chief Financial Officer’s review 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 Exceptional items Reorganisation and restructuring Transaction and IPO related costs Deferred consideration payments to Facilisgroup vendors Total 2020 2019 Variance £0.4m - £(0.4)m £0.2m £3.9m £3.7m - £0.6m £13.5m £17.4m £13.5m £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. 34 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTEarnings per share The earnings per share analysis in note 11 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. Adjusted EBITDA Movement in working capital excluding IPO related accruals Capital expenditure excluding acquisition of intangible assets Leases Underlying operating cash flow Movement in working capital IPO related accruals Acquisition of intangible assets Adjusted operating cash flow Tax paid Net finance cash flows Acquisitions and financing Exceptional items Exchange loss Net cash flow 2020 2019 Variance £9.8m £1.7m £(3.1)m £(1.2)m £7.2m £(3.5)m £(2.6)m £1.1m £(1.3)m £(0.7)m - £(0.5)m £(0.4)m £(1.8)m £15.2m £(2.8)m £(2.1)m £(1.2)m £9.1m £3.9m - £13.0m £(2.5)m £9.0m £(1.3)m £(17.3)m £(0.2)m £(5.4)m £4.5m £(1.0)m - £(1.9)m £(7.4)m £(2.6)m £(11.9)m £1.2m £(9.7)m £1.3m £16.8m £(0.2)m £0.7m £(2.5)m The Pebble Group plc Annual Report 2020 35 Chief Financial Officer’s review 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: Non-current assets Working capital Cash Lease liabilities Other net liabilities Net assets 2020 2019 Variance £63.6m £6.4m £7.1m £(9.0)m £(1.8)m £66.3m £56.4m £5.9m £8.9m £(6.3)m £(2.0)m £62.9m £7.2m £0.5m £(1.8)m £(2.7)m £0.2m £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. 36 The Pebble Group plc Annual Report 2020 STRATEGIC REPORT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 The Pebble Group plc Annual Report 2020 37 Risk management Managing our key risks and uncertainties. Risk management framework Board Responsible for risk management Audit Committee Remuneration Committee Non-executive Directors The Board has overall responsibility for ensuring that risk is effectively managed across the Group and, on behalf of the Board, the Audit Committee facilitates the review of the risk management process. The Group formally reviews and updates its assessment of principal risks and uncertainties and the mitigating actions in place in respect of these risks twice a year. However, risk monitoring and identification is an ongoing iterative process that forms part of the monthly business operating reviews, as further detailed below. This ongoing process facilitates the early identification and escalation of risks should this be necessary. The Group has strong governance and communication structures in place which ensure risks are actively managed and mitigated. The Operating Boards of Brand Addition and Facilisgroup meet monthly. The standing agendas for both Boards include reports from the heads of all key functions, which address potential risks including those identified below. During 2020 the Operating Board meetings were attended by both the Chief Executive Officer and the Chief Financial Officer. In 2021, clear divisional leads have been established in Brand Addition and Facilisgroup and a Group Executive Team has been established, comprising the divisional leads and Executive Directors. Terms of reference for these meetings have been established and risk management is included as a standing agenda item. The items referred to opposite are regarded as the key risks for the Group. These are not the only risks that could affect Group performance but in the opinion of the Board, are those which are currently the most significant and specific to the Group’s business. 38 The Pebble Group plc Annual Report 2020 STRATEGIC REPORTMarket risks Risk and potential impacts Mitigating activities Pandemic related disruption COVID-19 caused major disruption to the Brand Addition Corporate Programme sales during 2020, particularly through Q2 and Q3, with a low point in sales activity in April. There was a positive momentum shift in activity in Q4, which has continued into Q1 2021. The Group’s continued recovery could be impacted by external factors such as the timeliness and effectiveness of a successful global vaccine rollout, mutations of the virus that are not responsive to the vaccine, Government response around lifting restrictions, particularly in relation to large events, customer confidence and wider financial and economic considerations. In the longer term, the Group must also be prepared for the potential impact of any new pandemic outbreaks. These factors pose a risk to demand for the Group’s products and services, which could impact its ability to meet revenue and Adjusted EBITDA targets. Macroeconomic environment The pandemic has slowed growth in the economy and increased the risk of a general economic downturn, either globally or locally in an area in which the Group operates. This could have an impact on the demand for the Group’s products and services which could impact the Group’s ability to meet its revenue and EBITDA targets. The Group took swift action during 2020 in response to the pandemic, managing its flexible cost base to remain profitable and cash generative. The strength and robustness of the Facilisgroup subscription based technology platform was proven during the year and the Consumer Promotions division of Brand Addition was resilient with continued positive indicators for 2021. These factors, when combined with the implementation of two significant new client wins implemented in Q4 2020 for the Corporate Programs division of Brand Addition, are positive indicators for the Group when combined with a proven record of winning and implementing new business and a strong client base that is diverse both geographically and from a sector perspective. The Group has a strong balance sheet, effective working capital disciplines, is cash generative and has access to a £10m revolving credit facility. Having successfully navigated through this difficult period, the Board is confident in the Group’s ability to deal with any continued disruptions from COVID-19 and in the long-term prospects for the business. Change to risk in the year Reduced The Group has proved its ability to maintain profitability and cash generation from reduced demand caused by the COVID-19 pandemic. In the event of an economic downturn, the subscription- based technology platform in Facilisgroup insulates this business to be resilient from any initial shock, and revenues in the year of impact would be largely unaffected. The diversification of Brand Addition revenues across geographies and sectors provides some protection against the impact of a reduction in demand and the flexibility of the operating model below gross margin gives the business the ability to protect profits. Both businesses are highly cash generative with the large corporate nature of the client base in Brand Addition resulting in a high-quality balance sheet. Change to risk in the year Greater Strategic Risk and potential impacts Mitigating activities Concentrated client base Brand Addition has a relatively small number of key clients and in 2020 generated 73% of Group revenue from the top 20 clients. A loss or significant reduction in activity from one of our major clients could materially affect the Group’s ability to meet its revenue and Adjusted EBITDA targets. The acquisition of Facilisgroup in December 2018, which has a diversified customer base and in 2020 represented 61% of Group Adjusted EBITDA, means that the impact of the loss of a key Brand Addition client on Group EBITDA is much reduced. In addition, delivering on the strategic objective of the Brand Addition business to grow through new client acquisition means the Group EBITDA impact of any one client is further diluted. Change to risk in the year No change The Pebble Group plc Annual Report 2020 39 Risk management Strategic Risk and potential impacts Mitigating activities Acquisition risk The Group has a track record of achieving growth through acquisition. Any future acquisition could give rise to unforeseen risks for the Group, such as loss of key customers or key personnel, complex and extended integration processes absorbing significant amounts of senior management time or unforeseen liabilities. A poorly implemented acquisition could have a damaging impact on the Group’s financial position and reputation. The Group takes great care in identifying potential acquisition targets and they are typically businesses with whom senior management have an existing relationship. All proposed acquisition targets are subject to robust due diligence using internal teams with extensive industry experience supported by external advisors where the Group does not have the specialist in-house skills. Change to risk in the year No change Financial Risk and potential impacts Mitigating activities Currency and foreign exchange A proportion of the Group’s revenue is denominated in foreign currency, principally US dollars and the Euro, while the Group’s reporting currency is pound sterling. The Group is, therefore, exposed to the risk that adverse exchange rate movements could cause its costs to increase (relative to its reporting currency) and could result in reduced profitability. Where it is considered appropriate, the Group uses hedges to reduce exposure to currency risk, however these may not always be effective and there may be some residual currency risk. Change to risk in the year No change Operational Risk and potential impacts Mitigating activities Retaining and attracting key personnel Attracting and retaining experienced and appropriately skilled personnel is critical to the future success of the Group. Not having the right people and skills within the business could impact on the Group’s ability to service our customers and grow the business. Reliance on IT systems The Group’s activities are reliant on the effective operation of its IT platforms and infrastructure. In the event of an incident, the Group would initiate its business continuity and disaster recovery procedures. However, prolonged disruption could impact the Group’s ability to hit revenue and EBITDA targets. 40 The Pebble Group plc Annual Report 2020 We value our people highly, invest across our Group in their development and support them in achieving their potential. We offer competitive compensation packages that are reviewed regularly and regularly survey our employees to monitor employee engagement levels and identify opportunities for further improvement. Attrition rates across sites and geographies are monitored monthly to enable mitigating actions to be taken quickly if necessary. Change to risk in the year No change The Group has an experienced and dedicated IT team with support from external consultants where necessary. Disaster recovery and business continuity procedures are monitored and updated regularly by both the IT and operations teams. Change to risk in the year No change STRATEGIC REPORTOperational Risk and potential impacts Mitigating activities Breach of IT security A breach of IT security could result in a loss of business for the Group, give rise to a potential liability through litigation and damage the Group’s reputation with customers giving rise to a loss of goodwill. Climate change Climate change presents a range of risks to the business. Risks of extreme weather events such as floods, droughts and storms could potentially affect the Group’s infrastructure and operations and also that of its supply chain. The transition to a low-carbon economy could also impact the Group’s supply chain and it may be exposed to increased operational and distribution costs related to mitigation efforts, increased regulatory compliance and carbon taxes. It may also face increased product costs from suppliers due to higher input costs and regulatory compliance. Customer preferences and concerns may increasingly require a wider range of low-carbon, sustainable products, services and delivery options that may be difficult to identify, source and arrange. This could negatively impact customer demand, retention and the Group’s revenues. In addition, the increasing demand of all stakeholders to undertake meaningful activity to address climate change is likely to result in increased exposure to the risk of reputational damage, and customer and employee retention issues, if the Group is not perceived to be engaging effectively with this challenge. The Group implements a robust testing process on systems and software that includes external penetration testing by software consultants. Disaster recovery plans have been developed to respond to such incidents to ensure the business is able to recover with limited interruption should an incident arise. Change to risk in the year No change The Group is committed to addressing meaningfully the challenges we all face in tackling climate change and our commitment to this is set out in the sustainability section of this report on pages 20 to 28. The customers supported by Brand Addition in particular have been demanding sustainable products for a number of years. The business has embraced and welcomed this change and is already using its own creative team and its established and emerging supply chains to source and bring to market products that meet the high standards expected by our customers as they address this challenge within their own commitments to ESG. This is seen as a key area of differentiation for the business and actively developing our offering and services to address this challenge is a key priority. The risk of supply chain disruption is mitigated through the Group’s diverse supply chain that it can quickly adapt. The Group also maintains alternative supplier relationships for each key product category. In addition, through the Brand Addition direct supply chain, where the supplier evaluation process identifies a heightened risk of disruption due to natural disasters and/or political or social unrest, then an alternative supplier would be identified where the level of risk was considered more acceptable. Addressing the challenge of moving to lower carbon emissions, the Brand Addition logistics team are working with key logistics partners to identify green shipping opportunities to provide our clients with these alternatives when selecting shipping options for their deliveries. Change to risk in the year No change The Strategic Report, which includes the Chairman’s statement, the Chief Executive Officer’s review, the business model and strategy, the Group financial review and the principal risks and uncertainties, was approved by the Board and signed on its behalf by: Christopher Lee Chief Executive Officer 23 March 2021 The Pebble Group plc Annual Report 2020 41 Chairman’s introduction to governance Committed to effective corporate governance. The Board is committed to effective corporate governance, not just as a set of guidelines, but as a real basis for providing internal controls that will deliver long-term value and meet stakeholder expectations around leadership and oversight. As Chairman of the Board, I am responsible for corporate governance within the Group and we have recently recruited a Group General Counsel and Company Secretary to support our commitment to maintaining and further developing and enhancing our sound corporate governance grounding. This will involve ensuring continued effective operation of the Board and making sure the Board continues to develop its corporate governance in response to changes in official standards and stakeholder expectations. Our Board members have extensive experience and remain professionally active, however our approach to corporate governance will involve ensuring that the Board is given the opportunity to keep in touch with relevant developments through appropriate seminars and formal training courses which will be recommended to the Board to ensure the continued development of Board members’ skills and capabilities. 42 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Board structure and composition My role as Chairman of the Board is separate to, and independent of, that of the Chief Executive and each of us has clearly defined responsibilities. These, along with the terms of reference for all the Committees of the Board, can be found on the Investor Relations section of The Pebble Group plc website. The Board comprises five Directors, two Executive Directors and three independent Non-executive Directors, the combination of which the Board believes ensures that there is a clear balance of responsibilities between the executive and the non-executive functions, and that no individual (or small group of individuals) can dominate the Board’s decision making. The Board also believes that it has a desirable range of different skills, experiences and backgrounds, further details of which can be found in the Board biographies on pages 52 - 53. This proved invaluable during an unprecedented and challenging year as the Board acted quickly to manage the Group’s cost base and liquidity and responsibly protected our business’ stakeholders through this period of major disruption. Our corporate governance strategy is centred around ensuring that our operations are conducted with integrity, fairness and transparency and that our operations are conducted against a backdrop of sustainability and a strong moral compass. As a Board we aim to lead this ethical culture and perpetuate an open and honest environment, because we believe this establishes and evolves effective risk management and effective decision making at all levels of our organisation. The Board sees this as a key differentiator and has observed how this serves to build trust with our clients and suppliers and allows us to retain high-performing staff. In adhering to these principles, since our IPO in December 2019, the Company has applied the Corporate Governance Code for Small and Mid-Size Quoted Companies 2018 published by the Quoted Companies Alliance (the “QCA Code”) and I believe that we are in full compliance at the date of this report, which serves to mitigate and minimise risk and add value to our business. This section of the Annual Report outlines how we have applied the principles of the QCA code during the year and we take the opportunity to share with you the improvements made to our corporate governance arrangements. We will continue to review and update our governance framework and our approach as the Company continues to grow and we will update the Corporate Governance statement in the AIM rule 26 section of the Company’s website. Additional information is contained in our Section 172 Statement on pages 17 to 19. Richard Law Chairman 23 March 2021 43 The Pebble Group plc Annual Report and accounts 2020Chairman’s introduction to governance The Group is organised so that each of Brand Addition and Facilisgroup have an established Operating Board which meet monthly and report directly into the Executive Directors of the Company and the main Board. The Operating Boards meet just prior to the main Company Board enabling the Executive Directors to provide the most up to date information possible to the members of the main Company Board. In 2021 clear divisional leads have been established in both Brand Addition and Facilisgroup and a Group Executive Committee has been created with the divisional leads as well as the Group Executive Directors as members, to improve and facilitate the flow of information throughout the Group and ensure consistent good governance across divisions. Through this governance structure, the main Company Board perpetuates an open, honest environment and its view of the right ethical culture, to drive effective risk management and effective decision making at all levels of the Group. TPG plc Board Group Executive Committee Operational Board Brand Addition Operational Board Facilisgroup Board committees The Audit Committee The Audit Committee chaired by Yvonne Monaghan has primary responsibility for monitoring the quality of internal controls to ensure that the financial performance of the Group is properly measured and reported on. It will receive and review reports from the Group’s management and external auditors relating to the interim and annual accounts and the accounting and internal control environment in operation throughout the Group and recommend external auditors for reappointment. The Audit Committee reports to the Board on all these matters and will meet at least twice in each financial year. The Audit Committee met four times during 2020. Richard Law and Stuart Warriner are the other members of the Audit Committee. Further information can be found in the Audit Committee Report on pages 55 - 57. The Remuneration Committee The Remuneration Committee chaired by Stuart Warriner has responsibility to review the performance of the Executive Directors, Chairman of the Board and other senior management of the Group and make recommendations to the Board on matters relating to their remuneration and terms and conditions of service. This includes making recommendations on proposals for the granting of share options and other long-term equity incentives. The Remuneration Committee will meet as and when necessary, but at least twice each financial year. The Remuneration Committee met three times in 2020. In exercising this role, the members of the Remuneration Committee will have regard to the recommendations put forward in the QCA Code and, where appropriate, the QCA Remuneration Committee Guide and associated guidance. The remuneration of Non-executive Directors will be a matter for the Chairman and the executive members of the Board and no director shall be involved in any decisions as to his or her own remuneration. Richard Law and Yvonne Monaghan are the other members of the Remuneration Committee. Further information can be found in the Remuneration Committee Report on pages 58 - 64. 44 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020The Nomination Committee The Nomination Committee chaired by Richard Law has responsibility to identify and nominate for the approval of the Board candidates to fill Board vacancies as and when they arise. In respect of new appointments, the Committee will undertake an evaluation of the balance of skills, experience, independence and knowledge on the existing Board and, in the light of this evaluation prepare a detailed description of the role, candidate profile and capabilities required for the particular appointment. There were no Board vacancies in 2020. The Committee also reviews the structure, size, diversity and composition of the Board and makes recommendations concerning the annual reappointment of Directors and identification and nomination of new Directors. The Committee will retain, as necessary, external selection consultants in support of this responsibility. The Nomination Committee met once in 2020 and moving forward the Committee will meet as and when necessary, but at least twice each financial year. It has held one meeting in 2021 to date and has a further meeting scheduled before the year end. Yvonne Monaghan and Stuart Warriner are the other members of the Nomination Committee. An evaluation of the effectiveness of the Nomination Committee has been conducted during Q1 2021 as part of an overall performance review of the Board and its Committees as detailed in Principle 7 of the Corporate Governance Statement on page 49 where many positives were identified together with areas for development. The Nomination Committee subsequently reviewed its own effectiveness and its constitution and terms of reference and concluded that its performance was aligned with the criteria set out in the terms of reference, which continue to be appropriate to ensure the effective operation of the Committee. The Nomination Committee does not produce a separate report, but significant matters considered since the last annual report include during Q1 2021 the Nomination Committee conducted a Director performance evaluation, which considered the independence of each Director and concluded that each Director continued to make an effective and valuable contribution to the Board, and that each Director demonstrated a strong commitment to their role and to the long-term success of the Company. Notwithstanding the requirements of the Company’s Articles of Association that a third of the Board are required to stand for re-election each year, the Committee also considered the best practice approach to Director retirements and re-appointments at the upcoming 2021 AGM. Having regard to best practice recommendations and to the Directors’ knowledge, skills and experience, and ability to continue to contribute to the Board, the Committee recommended to the Board that all Directors should seek re-election by the Company’s shareholders at the AGM 2021. Key governance policies During 2020, the Group engaged the services of EQS Group, a provider of a whistleblowing hotline platform to successfully implement and roll out an externally managed global whistleblowing platform and telephone hotline. These changes were implemented and communicated across the entire Group and an updated Group whistleblowing policy issued. There are key governance policies and processes in place across the Group to cover the following governance matters: • Anti-Slavery and Human Trafficking Policy • Anti-Bribery and Corruption Policy • Business Ethics Policy • Conduct Policy • Data Protection Policy • Whistleblowing Policy Further information on the Anti-Slavery and Human Trafficking Policy, Anti-Bribery and Corruption Policy and Whistleblowing Policy can be found in the Audit Committee Report on pages 55 - 57. 45 The Pebble Group plc Annual Report and accounts 2020CORPORATE GOVERNANCE Corporate governance statement Delivering long-term growth. Principle 1: Establish a strategy and business model which promote long-term value for shareholders The Board has a clear strategy for delivering long-term shareholder value. The Company’s business model and strategy are set out on pages 5 and 16 of this report. The Group’s vision is to become the partner of choice for both global brands that use promotional products as a key stakeholder engagement tool and SME distributors that require an technology platform in order to professionalise and grow their promotional products business in North America. The Group’s strategy is to return to profitable growth via continuing to improve and evolve our services, focusing on: • Retention of our valued long-term relationships with our current clients and Partners • Extension of our technology and other services to increase the spend of existing clients and Partners • Attract further quality businesses to our Group through providing additional market leading technology and services The Board held its annual strategy meeting in October 2020 to discuss its ongoing vision for the Group, its direction and strategic priorities. The outcomes from which are communicated on the strategy pages referenced above, in the Chairman’s statement, Chief Executive’s statement and throughout the Strategic Report in this document. Principle 2: Seek to understand and meet shareholder needs and expectations The Group is committed to engaging with its shareholders to ensure their needs and expectations are understood and its strategy and business model are clearly articulated. The Annual General Meeting “AGM” is also an opportunity for the Company’s Directors to meet with its shareholders and for them to ask questions. The Executive Directors of the Company have primary responsibility for contact with shareholders and maintain an active and frequent dialogue with them. The Board is updated at every Board meeting about shareholder meetings that have taken place and the focus of the meetings. The Non-Executive Directors are also provided with any reports and feedback issued by analysts to support their understanding of the view of the Group by the investment community. Should you wish to request a meeting or submit a question, please contact Investors@ ThePebbleGroup.com. The Directors have met with shareholders during the year as part of a planned programme of investor relations and when requested made themselves available for meetings. In recognition that COVID-19 considerations make a physical meeting with shareholders in attendance unpredictable and susceptible to changes, possibly even last minute, arrangements have been made to preserve shareholder engagement by enabling shareholders to view the meeting via a live webcast and to some extent participate in the form of Q&A functionality giving the opportunity to raise questions to the Directors as they see appropriate. At the 2020 AGM, all resolutions proposed by the Board were passed by shareholders and details of the proxy voting are given on the Company’s website. Details of the business that will be undertaken at the 2021 Annual General Meeting is set out in a separate Notice of Annual General Meeting issued with this Report and Accounts. 46 The Pebble Group plc Annual Report and accounts 2020Principle 3: Take into account wider stakeholder and social responsibilities and their implications for long-term success The Board recognises that the Company’s long-term success relies on its ongoing positive relationships with all stakeholders and understands that its responsibilities are not only to its shareholders and employees, but to its wider stakeholders including customers and suppliers and the communities in which it operates. The Board and all senior managers have regard to the Company’s stakeholders and social responsibilities in its decision making. This comes naturally to The Pebble Group where our emphasis as a business is that decisions are taken with regard to acting equitably and for the long term. We always aim to maintain and build our reputation for high standards of business conduct. In 2021 the Board has evolved its reporting process with the introduction of an enhanced reporting template containing guidance notes to facilitate the explanation of all relevant Section 172 factors and ensure that they are made central to all information and recommendations presented to the Board. The Company works consistently to strengthen the relationships it has with all stakeholders and is committed to the highest standards of corporate social responsibility in its activities. The work done in respect of this is outlined in the Section 172 Statement on pages 17 - 19 and Environmental, Social and Governance on pages 20 - 28. In January 2021 the Company appointed a Senior Environmental Social and Governance “ESG” Officer reporting directly to the Chief Executive Officer who will have responsibility for supporting the Board in maintaining the highest of standards and deliver on its ESG commitments. Principle 4: Embed effective risk management, considering both opportunities and threats, throughout the organisation The Board uses a considered approach to risk management and acknowledges the need to accept a certain level of strategic risk to achieve its objectives of capital growth for shareholders. The risk management framework and key risks facing the business are set out on pages 38 - 41 of this report, along with the monitoring processes and mitigating actions in place to manage these risks. The Audit Committee has responsibility for reviewing the effectiveness of the Group’s internal controls as set out on pages 55 -57 of this report, reports directly to the Board on these matters. The Board has ultimate responsibility for the Group’s system of internal control and, as set out in the Audit Committee Report, is supported by the Audit Committee in managing this risk. Acknowledging that there are inherent limitations in any control system and that any such system can only provide reasonable and not absolute assurance, the Board considers the controls in place are reasonable for a Group of this size and complexity, the principal elements of the Group’s internal control system include: • Hands-on close management of the day-to-day business of the Group by the Executive Directors • Attendance by the Chief Executive Officer and Chief Finance Officer at the monthly Operating Boards of Brand Addition and Facilisgroup where financial performance, operational developments and full year expectations are discussed in detail • Preparation and approval by the Board of detailed budgets • Monthly reporting, monitoring and review of actual performance against budget • Monthly reporting of updates to sales, Adjusted EBITDA and cash forecasts to reflect actual performance and any revisions to expectation as the year progresses • An established independent Group Finance team consisting of qualified accountants with responsibility for the audit of areas of risk and within the Group’s businesses • A risk register maintained by the Group Finance team reviewed twice annually by the Group Audit Committee 47 The Pebble Group plc Annual Report and accounts 2020Corporate governance statement Principle 5: Maintain the Board as a well-functioning, balanced team led by the chair The Directors acknowledge the importance of high standards of corporate governance and believe the QCA Code provides the best fit for the Group by setting out a standard best practice for small and mid-sized quoted companies, particularly those on AIM. The composition of the Board is set out on page 44 and includes a balance of Executive and Non-executive Directors, with three Non-executive Directors and two Executive Directors. The Board is managed by the Chairman who has the overall responsibility for strategy, risk and corporate governance. The Board’s activities are supported by Nomination, Audit and Remuneration Committees. Details of these committees are set out on the corporate governance pages 44 - 45 of this report and their terms of reference are on the Company’s website. Whilst Executive Directors dedicate a full-time commitment to the Company, the Non-executive Directors have demonstrated a strong time commitment to the Company throughout the year and have allocated sufficient time to effectively discharge their responsibilities, including in the preparation for, attendance at, and dealing with actions arising from all Board and committee meetings. Information on meeting attendance in 2020 can be found in the Board of Directors section on pages 52 and 53. The Board and its committees receive high quality accurate and timely information on a regular basis and the Board meets at least 10 times per year. The Board met 11 times during 2020 and each meeting had full attendance by all Directors. All Directors were elected in advance of the IPO at the 2019 AGM following their appointment to the Board and at the 2020 AGM the Chairman was subject to re-election. Although the Directors are required to seek re-appointment at least once every three years in accordance with the Company’s Articles of Association, the Board has decided that all Directors shall be subject to re-election by shareholders at the 2021 AGM as set out in the Directors’ report and in the Notice of the Annual General Meeting and it is our intention to subject all Directors to re-election annually. The Company is satisfied that the current Board is sufficiently resourced to discharge its governance obligations on behalf of all stakeholders and will consider the requirement for additional Non-executive Directors as the Company fulfils its growth objectives. The Board believes that the three Non-executive directors are independent, with Yvonne Monaghan fulfilling the role of Senior Independent Director. The results of the Board’s assessment of its effectiveness is detailed in principle 7 below. Principle 6: Ensure that between them the directors have the necessary up-to-date experience, skills and capabilities All the Directors have appropriate skills and experience for the roles they perform at the Company, including as members of Board Committees. The Board is represented by an appropriately diverse mix of individuals, given its size. Experiences are varied and contribute to maintaining a balanced Board that has the appropriate level and range of skill to deliver the Company’s strategic objectives. Details of the skills and experience of the Directors are provided on pages 52 and 53 of this Report and also on the Company’s website. It is not dominated by any one individual and all Directors have the ability to challenge proposals put forward to the meetings where decisions are reached democratically. All Board members remain professionally active and are given the opportunity to keep in touch with relevant developments through appropriate seminars to ensure the continued development of each Board member’s skills and capabilities. The Board and committees have access to professional advisors at the Company’s expense, if necessary. Where applicable, the use of the services of professional advisors has been set out in the reports of each of the Board’s committees. In January 2021, the Company appointed Lucy Penfold to the role of Group General Counsel and Company Secretary to act as adviser to the Chairman and the Board, with responsibility for ensuring effective Board processes and procedures are followed and that applicable rules and regulations are complied with. In addition, the Directors also receive regular briefings and updates from the Company’s nominated adviser in respect of continued compliance with, inter alia, the AIM Rules. The Company’s statement on its Audit, Remuneration and Nomination Committees can be found on pages 44 - 45 of this report and on the website. 48 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Principle 7: Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement In February 2021, the Board performed an internal formal evaluation of its performance in its first year of existence. The review comprised: • The completion of a comprehensive questionnaire by all Board members covering the effectiveness of the Board performance as a unit, as well as that of its committees and the individual Directors. This covered assessment against both ‘Composition and Process’ criteria, and ‘Behaviours and Activities’ criteria • A Board discussion facilitated by the Company Secretary of the outputs of the questionnaire The process highlighted many positives and particular strengths in the form of high-quality debate, open discussions and effective teamwork evident on the Board and committees. It also identified some areas for development and recommendations to be progressed in 2021, including: • In the context of the Company’s likely expansion over the next five years, adopting a longer-term outlook to the consideration of, and detailed planning around, future Board size and composition; and mix of skills, experience, knowledge and diversity of the Board • A requirement for formal and comprehensive succession planning at both Board and Senior Executive levels • Increased focus at Board level on crisis management and disaster recovery, particularly in the areas of cyber and data security risks • Adopting a pro-active approach to periodic monitoring of market practice around Executive Remuneration and Performance, with input from external advisors as appropriate, to ensure that the Company remains aligned each year Principle 8: Promote a corporate culture that is based on ethical values and behaviours The Company’s policies set out its zero-tolerance approach towards any form of discrimination, inappropriate or unethical behaviour relating to bribery, corruption or business conduct in all territories in which it operates. At Board level, there are terms of reference for each of its committees, requiring regular disclosure of Directors’ other interests, and following a share dealing code, all of which require high standards of behaviour. The Company has a responsibility towards its employees and other stakeholders. The Board promotes an ethical corporate culture by having documented policies as follows: • Anti Slavery and Human Trafficking Policy • Anti-Bribery and Corruption Policy • Business Ethics Policy • Conduct Policy • Corporate Hospitality and Gifts Policy • Whistleblowing Policy which are followed in each territory in which it operates, with any areas of non-compliance reported to the Board. These assist in embedding a culture of ethical behaviour for all employees and the Company’s commitment to upholding human rights of all individuals is clearly documented in its Modern Slavery Act 2015 Statement. 49 The Pebble Group plc Annual Report and accounts 2020Corporate governance statement Principle 9: Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Board has a formal schedule of meetings and matters reserved for its attention, including approval of strategic plans and acquisitions, ensuring maintenance of sound risk management and internal controls, delegation of authority and other corporate governance matters. It is scheduled to meet at least 10 times per year and these meetings can be supplemented by additional meetings as and when necessary. During 2020 the Board met 11 times and each meeting had full attendance by all Directors. The Board and its committees have a formal agenda in place for each meeting, they receive appropriate and timely information and appropriate time is allotted to ensure that Section 172 factors are discussed and taken account of during Board discussions and decision-making. Information is distributed several days in advance of the meeting and any actions arising from the meetings are followed up by the Company’s management. The role of each member of the Board is clearly defined. The Chairman is responsible for the operation of the Board. The Chief Executive Officer is responsible for proposing the strategic direction of the Board and implementing the strategy once approved. The Chief Financial Officer is responsible for all financial matters and engagement with shareholders. Board roles can be found on the corporate governance section of the Company’s website. The Board is supported by the Audit, Remuneration and Nomination Committees in discharging its responsibilities. Each of the committees has access to information and external advice, as necessary, to enable the committee to fulfil its duties. The Audit Committee has primary responsibility for monitoring the quality of internal controls to ensure that the financial performance of the Group is properly measured and reported on. The Remuneration Committee will review the performance of the Executive Directors, Chairman of the Board and senior management of the Group and make recommendations to the Board on matters relating to their remuneration and terms of service. The Nomination Committee will lead the process for Board appointments and make recommendations to the Board. The terms of reference of these committees can be found on the Corporate Governance section of the Company’s website. The Group is organised so that each of Brand Addition and Facilisgroup have an established Operating Board which meet monthly and report directly into the Executive Directors of the Group and the main Board. The Operating Boards meet just prior to the Board enabling the Executive Directors to provide the most up-to-date information possible to the members of the Board. In 2021 clear divisional leads have been established in both Brand Addition and Facilisgroup and a Group Executive Committee has been created with the divisional leads as well as the Group Executive Directors as members, to improve and facilitate the flow of information throughout the Group and ensure consistent good governance across divisions. 50 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Principle 10: Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders These responses to the principles of the QCA Code and the information contained in this report provides details to all stakeholders on how the Company is governed. As outlined at principle 2, the Company maintains an active dialogue with its shareholders through a planned programme of investor relations. A range of Company information is included on the website (www.thepebblegroup.com) and further information can be requested from investors@thepebblegroup.com. The Company will communicate with its shareholders through: • the Annual Report and Accounts • Half-year report announcements • Regulatory Information Service (‘RIS’) announcements • the Annual General Meeting (‘AGM’) • one-to-one meetings with large existing or potential new shareholders • Webinar meetings open to private investors will be initiated during 2021 51 The Pebble Group plc Annual Report and accounts 2020Board of Directors Leading with experience. BOARD COMPOSITION 40+40+ Executive (2) Non-executive (2) Chairman (1) KEY TO COMMITTEE MEMBERSHIP A Audit Committee R Remuneration Committee N Nomination Committee Committee Chair 52 Richard Law Chairman Date of Appointment November 2019 Experience Richard is an alumni of Imperial College and has a broad experience of business, engineering, corporate finance, technology and governance spanning 40 years. Richard retired as Chief Executive Officer of AIM-quoted GB Group plc in 2017 having led the company from a market capitalisation of £5m to £500m and took up a portfolio role investing in and chairing both public and private companies. As well as chairing The Pebble Group plc, Richard is currently the chairman of product intelligence and performance accelerator Vypr. Richard was previously chairman of car financing platform Zuto. Skills brought to the Board • Extensive financial expertise • Extensive and diverse leadership experience • Sound practical understanding of corporate governance • Deep appreciation of investor sentiment • Strong understanding of e-commerce and data solutions External appointments • Non-executive Director and chairman at Vypr Validation Technologies Limited • Non-executive Director at Gudtouch Limited Committee membership N A R Meetings attended in 2020 Board meetings Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings 11/11 4/4 3/3 1/1 Christopher (Chris) Lee Chief Executive Officer Tenure 21 years Experience Chris led the private equity backed management buyout of Brand Addition in 2012 and 2017 and the acquisitions of Gateway CDI and Facilisgroup in 2016 and 2018 and the listing of The Pebble Group plc onto AIM in 2019. Skills brought to the Board • Sound, proven leadership skills and a considered strategic approach, developing the Group’s capabilities for sustainable growth • Detailed understanding of the market and sector with significant knowledge of commercial, client and operational matters • Successful transaction and M&A experience • Client and supplier relationship management, contracting and negotiations • A thorough understanding of stakeholder priorities including the development of the senior team and Environment, Social and Corporate Governance (ESG) issues Committee membership • Group Executive Committee Meetings attended in 2020 Board meetings 11/11 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 202040 + 40 + 20 + 20 + C C Claire Thomson Chief Financial Officer Tenure 13 years Experience Claire has led the finance, banking, legal and compliance aspects of the businesses which now comprise the Group for over 12 years, taking the role of Chief Financial Officer following the management buyout in 2012. Claire is a qualified Chartered Accountant and prior to joining the Group, spent 11 years in audit at PricewaterhouseCoopers LLP, having joined in 1997. Claire has a BA Hons degree in English and American Literature from the University of Manchester. Skills brought to the Board • Extensive finance, financial reporting and financial management expertise • Sound, proven leadership skills • Wide in-depth knowledge of each business area • Successful transaction and M&A experience • Significant experience of effective risk management and internal controls • Investor relations External appointments • Director at Cheadle Hulme School Committee Membership • Group Executive Committee Yvonne Monaghan Independent Non-executive Director and Senior Independent Director Date of appointment November 2019 Experience Yvonne has been the Chief Financial Officer of Johnson Service Group PLC since 2007 and played an important role in returning the company to a growth strategy, managing a number of acquisitions and disposals. She was a Non-executive Director of NWF Group plc from 2013 until she stepped down from this role in September 2020. Yvonne is a qualified Chartered Accountant and spent five years in audit at Deloitte Haskins & Sells, before joining Johnson Service Group PLC in 1984. Yvonne has a BSc Honours degree in Pharmacology and Physiology from the University of Manchester. Skills brought to the Board • Extensive financial and financial reporting expertise • Sound practical understanding of corporate governance • Significant understanding of audit processes, risk management and controls • Deep appreciation of investor sentiment External appointments • Chief Financial Officer of Johnson Service Group PLC • Elected to the CBI North West Regional Council with effect from 1 January 2021 Committee membership N A R Stuart Warriner Independent Non executive Director Date of appointment November 2019 Experience Stuart has extensive corporate finance experience across a range of sectors, having spent over 30 years at PricewaterhouseCoopers where he was a partner in its corporate finance business. Stuart has an MA in Economics from the University of Cambridge and is a qualified Chartered Accountant. Skills brought to the Board • Expertise in mergers and acquisitions • Track record in advising Boards including on strategy and shareholder value • Sound practical understanding of corporate governance External appointments • Managing Director at GCA Altium since 2017 • Non-executive Director of strategy and communications agency Lodestone Oxford Limited Committee membership N A R Meetings attended in 2020 Board meetings Meetings attended in 2020 Board meetings 11/11 Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings Meetings attended in 2020 Board meetings Audit Committee meetings Remuneration Committee meetings Nomination Committee meetings 11/11 4/4 3/3 1/1 11/11 4/4 3/3 1/1 53 The Pebble Group plc Annual Report and accounts 2020 Senior Team Company Secretary Senior Executives Lucy Penfold Group General Counsel and Company Secretary Date of appointment January 2021 Experience Lucy recently joined the Company after 13 years as in-house legal counsel at AXA UK plc, specialising in corporate and commercial law and having also spent time as Assistant Company Secretary. Prior to that, Lucy spent two years practicing corporate law at Olswang LLP where she also trained and qualified as a solicitor in 2005. Lucy has a BA Hons degree in Accountancy & Law from the University of Manchester. Skills • M&A, corporate law and group re-organisation • Commercial contract drafting and negotiation • Corporate governance Committee membership • Group Executive Committee BOARD AND SENIOR TEAM DIVERSITY Male (50%) Female (50%) 50+50+ 54 Karl Whiteside Group MD, Brand Addition Ashley McCune President, Facilisgroup Tenure 3 years Tenure 14 years Experience Karl has led the US division of Brand Addition since 2017. Prior to joining Brand Addition, Karl led supply chain and logistics teams throughout North America as well as inside sales, sourcing, and billing teams for Staples Promotional Products for 10 years. Before joining the creative merchandise industry, Karl spent time in National Account Sales roles with Newell Brands and Samsonite. Karl has a BS degree in marketing from Truman State University. Skills • Business strategy planning and execution • Operational and efficiency management • Extensive industry and sector knowledge • Executive leadership and mentoring • Management of global teams • Risk management and supply chain strategy planning Board and Committee membership • Brand Addition Operating Board • Group Executive Committee Experience Ashley oversaw the finance, operations and marketing aspects of Facilisgroup as a senior leader for over 10 years. She was appointed President of Facilisgroup in 2020, following the acquisition by The Pebble Group in 2019 and departure of the legacy owners. Ashley has 17 years of experience in the promotional products industry with experience in both the distributor and technology arenas. She has a BS degree in Business from Southern Illinois University. Skills • Strong and extensive industry and sector knowledge • Business and senior team leadership • Strategy development • Operational management • Partner relationship management • Negotiations • Organisational development • Experience of organic growth Board and Committee membership • Facilisgroup Operating Board • Group Executive Committee Board and Senior Team Diversity The Board understands the importance of a diverse Board and Senior Team. We believe that a diverse and inclusive culture at the top of our organisation will lead to better decision making and ultimately to a better business and place to work for our global workforce. Our approach to diversity, equity and inclusion is detailed on page 26 of this report along with information on our future initiatives aimed at ensuring senior level gender diversity remains balanced and enhancing our commitment to diversity more broadly into our business as a whole. CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 202050 + 50 + x x CORPORATE GOVERNANCE Audit Committee report Monitoring the quality of internal controls. Committee composition • Yvonne Monaghan (Chair) • Richard Law • Stuart Warriner Dear shareholder, I am pleased to present the Audit Committee Report for the year ended 31 December 2020. The Audit Committee was formed at IPO in December 2019 and in its first year has overseen improvements in the Group’s risk management processes. Composition and experience of the Audit Committee The Audit Committee consists of all three Non-executive Directors and is chaired by myself as an independent Non-executive Director. All three Non-executive Directors are qualified chartered accountants, all have considerable industry experience in senior financial and operational roles and all are therefore regarded as having recent and relevant experience. The Audit Committee met on four occasions during the year. Additionally, the Committee has the opportunity to hold private meetings with the Group’s external auditors without the presence of management as it considers necessary. Responsibilities of the Audit Committee The terms of reference of the Committee are available on the Company’s website. In accordance with these, the Committee has primary responsibility, for: • Reviewing the effectiveness of the Group’s internal controls, including review of the scope and adequacy of the Company’s processes and controls in respect of Whistleblowing and Anti-Bribery. • Monitoring the integrity of the Group’s financial statements and the external announcements of the Group’s results. • Advising on the clarity of disclosures and information contained in the Annual Report and Accounts and giving an opinion to the Board on whether the Annual Report and Accounts are fair, balanced and understandable. • Ensuring consistency in application of and compliance with applicable accounting standards • Overseeing the relationship with the external auditors including, recommending approval of their appointment and approving their remuneration, reviewing their reports and ensuring their independence is maintained. The Audit Committee will report to the Board on all these matters. 55 The Pebble Group plc Annual Report and accounts 2020CORPORATE GOVERNANCE Audit Committee report Evaluation of the effectiveness of the Audit Committee An evaluation of the effectiveness of the Committee has been conducted during Q1 2021 as part of an overall performance review of the Board and its Committees as detailed in Principle 7 of the Corporate Governance Statement on page 49. The Audit Committee subsequently reviewed its own effectiveness and also its constitution and terms of reference and concluded that they continue to be appropriate. Significant matters considered in relation to the financial statements At the request of the Board, the Audit Committee considered whether the 2020 Annual Report and Accounts were fair, balanced and understandable and whether they provided the necessary information for Shareholders to assess the Group’s performance, business model and strategy. The Committee were satisfied that, taken as a whole, the 2020 Annual Report and Accounts are fair, balanced and understandable. The Audit Committee assess whether suitable accounting policies have been adopted and whether appropriate estimates and judgements have been made by management. The Committee also reviews accounting papers prepared by management, and reviews reports by the external auditors. The specific areas reviewed by the Committee during the year were: • Review of the impact and disclosure of Covid-19 on the Group • Review of the capitalisation of development costs and acquisition of software assets • Appropriateness of the carrying value of goodwill, intangibles and investments External audit The Audit Committee has responsibility for the recommendation for re-appointment and deciding the remuneration of the Group’s external auditors and satisfying itself that they maintain their independence regardless of any non-audit work performed by them. The Group has been monitoring the impact of the FRC Revised Ethical Standard 2019 governing the performance of non-audit work by the auditors, with regard to the provision of such services and where required, changes to ensure compliance with the recommendations have been implemented. The total fees payable to the external auditors in respect of the year under review amount to £233,000 (2019: £359,000) of which £nil (2019: £206,000) related to non-audit services. Details are as set out below: Audit related services Non-audit related services - Other assurance services - Taxation advisory services - Acquisition & IPO related Total auditors’ remuneration Notes: 1 2 2 2 Note £’000 Year ended 31 December 2020 £’000 233 - - - - 233 £’000 12 80 114 Year ended 31 December 2019 £’000 153 206 359 Audit related services in 2020 include £50,000 of over-runs agreed by the Committee in respect of the 2019 audit. These related principally to additional work in support of the Going Concern assumption following the impact of Covid-19 and disclosure and accounting for the IPO and the acquisition of Facilis in December 2018. Non-audit services in 2019 all related to the IPO and included audit of the initial accounts on completion of pre-IPO Group structuring, and the associated tax and accounting advisory steps arising on the structuring. 1. 2. 56 The Pebble Group plc Annual Report and accounts 2020One of the principal duties of the Audit Committee is to make recommendations to the Board in relation to the appointment of the external auditors. PricewaterhouseCoopers LLP have been the Company’s external auditors for many years and in line with best practice guidance as a listed plc are required to rotate the Senior Statutory Auditor (engagement partner) responsible for the Group and subsidiary audits every five years. In compliance with this requirement, a new Senior Statutory Auditor was appointed in October 2020. The respective responsibilities of the Directors and external auditors in connection with the Group financial statements are explained in the Statement of Directors’ Responsibilities on page 68 and the Auditors’ Reports on pages 69 - 74. Review of external auditor’s effectiveness The Committee reviewed the external auditors’ performance and independence, by considering the qualifications, expertise and resources of PwC and its objectivity on an ongoing basis throughout the year. This was done by taking into account the following: • The views of the Executive Directors • Consideration of responses from PwC to questions from the Committee • The audit findings reported to the Committee, including PwC’s report on internal quality procedures • The relationship with PwC as a whole, including the provision of any non-audit services, to confirm there are no relationships between the auditors and the Company other than in the ordinary course of business which could adversely affect independence and objectivity Based on this information the Committee is satisfied that the external audit process has operated effectively, and PwC continued to bring independence and prove effective in its role as external auditors. Internal control and risk management The Audit Committee supports the Board in reviewing the Group’s risk management methodology and the effectiveness of internal control. Regular internal control updates are provided to the Audit Committee, which include reviewing and updating the risk register and assessing the mitigating actions in place and updates to action plans agreed in previous meetings. No significant issues were identified. Internal audit The Group does not currently have a formal internal audit function but targeted reviews and visits to operations are performed by the Head Office Finance team which is independent of the business operations and which comprises wholly of qualified accountants. The team is responsible for reviewing and reporting on the effectiveness of internal controls and risk management systems. This approach is considered appropriate and proportionate for the size of the Group’s operations and does not affect the work of the external auditors. Modern Slavery Act We are committed to implementing and enforcing systems and controls to ensure there is no modern slavery or human trafficking taking place within our businesses or supply chains. Adherence to these principles is addressed through staff induction, ongoing training and communications to address the importance of a zero-tolerance attitude. Suppliers are required to comply with our code of conduct on these matters with compliance enforced through robust vendor audits, supplier visits and ongoing training. Whistleblowing The Group culture is committed to honesty, openness, integrity and accountability and considers it fundamental that any concerns our employees have about the Company can be raised without fear of recrimination or victimisation. In support of this, the Group has in place a whistleblowing policy which encourages employees to report any areas of concern that they may have in respect of conduct within the organisation that could fall below these expected standards. Any matters raised through the whistleblowing process are reported to the Committee. Where a matter is raised, a proportionate investigation is undertaken by independent management with support and guidance from the Committee as necessary. The Group is pleased to report that no incidents have been reported during the year. Anti-Bribery and Corruption The Group’s commitment to act professionally, fairly and with integrity at all times is reflected in our zero-tolerance approach to all forms of bribery, corruption, fraud and theft. It has in place appropriate Board approved policies and procedures designed to ensure adherence to the principles of the Bribery Act 2010 and to take account of “Business Principles for Countering Bribery” published by Transparency International, these also cover corporate hospitality and gifts, and appropriate business ethics. Compliance with these policies is confirmed annually by the Group’s management teams. Yvonne Monaghan Chair of the Audit Committee 23 March 2021 57 The Pebble Group plc Annual Report and accounts 2020Remuneration report Ensuring key personnel deliver the Company’s objectives. This report is for the year ended 31 December 2020. It sets out the remuneration policy and the detailed remuneration for the Executive and Non-executive Directors of the Company. As an AIM-quoted company, the information is disclosed to fulfil the requirements of AIM Rule 19. The Pebble Group plc is not required to comply with the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The information is unaudited except where stated. Dear shareholders, I am pleased to introduce the Directors’ Remuneration Report for the 2020 financial year. This letter introduces the report, outlines the major decisions on Directors’ remuneration during the year and explains the context in which these decisions have been taken. The Pebble Group plc is committed to high standards of corporate governance and our policy and disclosures on Directors’ remuneration are intended to reflect this approach. We welcome shareholder feedback on these matters and this Directors’ Remuneration report will be put to an advisory vote at the coming 2021 AGM. Committee composition • Stuart Warriner (Chair) • Richard Law • Yvonne Monaghan 58 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Remuneration policy The Company’s approach to remuneration is that the overall package should be sufficiently attractive to recruit, motivate and retain individuals of a high calibre with significant technical and strategic expertise. The remuneration policy ensures that key personnel are incentivised and rewarded in a way that is aligned to delivery of the Company’s long term growth objectives which in turn achieves a Group culture that will support our strategic goals. I believe the interests of key personnel are resultingly aligned with those of our shareholders. The remuneration policy adopted by the Company has four main elements: basic salary, benefits, annual performance related bonuses and long-term share incentives. Policy in each area is detailed in this report. Performance and decisions on remuneration taken during 2020 Company performance was impacted by the COVID-19 pandemic during the year, details of which have been provided throughout the Strategic Report. Significant remuneration decisions were made in response to this. Firstly, the Executive Directors and the Non- executive Directors agreed to a 40% reduction in base salary and fees, respectively. This reduction was in place for the 6-month period from 1 April to 30 September 2020. Secondly, the Executive Directors deferred payment of their allocation of the IPO bonus which was disclosed in our 2019 annual report, to preserve cash within the Group until the impact of the pandemic on Group operations was better understood. The IPO bonus was subsequently paid in July 2020 when the impact of COVID-19 on Group liquidity could be better understood. Thirdly, the implementation of (i) the annual bonus scheme for Executive Directors; (ii) the Long Term Incentive Plan for the Group; and (iii) the Sharesave Plan (SAYE) for the Group were all also deferred. It was then subsequently agreed by the Board that there would be no bonus scheme for the Executive Directors for 2020, however the Long Term Incentive Plan was implemented on 21 December 2020, once the impact of the pandemic on Group performance had been established, guidance was re-introduced to the market and the Committee was satisfied sufficiently challenging performance criteria could be introduced. The Sharesave Plan (SAYE) is expected to be implemented in 2021. Information on how remuneration will be operated in 2021 is set out at the end of this report. I hope that you find the report helpful and informative and I look forward to receiving feedback from you on the information presented. Stuart Warriner Remuneration Committee Chairman 23 March 2021 59 The Pebble Group plc Annual Report and accounts 2020Remuneration report Composition of Committee The Committee comprises all three Non-Executive Directors, Stuart Warriner (Chairman), Yvonne Monaghan and Richard Law. The Committee will normally meet three times a year to review the remuneration of the Executive Directors and other Executive Team members. The views of the Chief Executive are sought in respect of awards to the other Executive Director and Executive Team members. Remuneration Policy The Committee’s overall approach is focused on ensuring the Company’s remuneration policy is aligned with shareholders’ interests whilst also enabling the Company to attract, retain and motivate high quality executive management. It is intended that this policy conforms with best practice standards. The key objectives of the Company’s remuneration policy are to: • align Executive and shareholder interests; • underpin an effective pay-for-performance culture; and • support retention, motivation and recruitment of talented people. The Committee aims to achieve an appropriate balance between fixed and variable remuneration, and between variable remuneration based on short-term and longer- term performance. Fixed remuneration includes base salary, benefits and pension until 30 June 2020. Variable remuneration includes annual bonus and awards made under the Long Term Incentive Plan. In addition to this, the Executive Directors are required to build and maintain a Elements of Remuneration minimum shareholding in The Pebble Group plc shares, details of which are provided in the table below. The structure of executive remuneration is in line with that of many established UK quoted companies balancing fixed remuneration, annual bonus and long-term performance share awards. Approximately 60% of the remuneration of the Executive Directors is subject to the achievement of performance targets. The link of remuneration outcomes to long-term performance is primarily through the LTIP which has stretching targets based on adjusted EPS and absolute share price performance. The Committee recognises the risk of target-based plans and addresses this risk through careful consideration in the choice and pitching of performance targets, the ability to exercise discretion, the attachment of malus and clawback provisions to Long Term Incentive Plan awards and the application of a shareholding guideline. In the light of this remuneration structure and the substantial shareholdings of both the CEO and CFO, the Committee is satisfied that the executive directors are well aligned with the long-term performance of the Company. The Committee will take into account periodic external comparisons to examine current market trends and practices at equivalent roles in similar companies. The Committee also uses external executive remuneration consultants h2glenfern Remuneration Advisory Limited, where appropriate, to provide advice. This part of the report sets out the remuneration policy with regard to the Executive Directors. The policy on each element of remuneration and how it operates is detailed in the table below: Link to remuneration policy/strategy To help recruit and retain high performing Executive Directors. Reflects the individual’s experience, role and importance to the business. To help recruit and retain high performing Executive Directors. To provide market competitive benefits. Operation Maximum opportunity Performance metric Basic salary is reviewed annually as at 1 January with reference to each Executive Director’s performance and contribution during the year, company performance, the scope of the Executive Directors’ responsibilities and consideration of competitive pressures. There is no prescribed maximum annual base salary or salary increase. The Committee is guided by the general increase for the broader employee population, but has discretion to decide to a lower or a higher increase. The Committee considers individual and Company performance when setting base salary. No maximum potential value. None. Benefits are in line with those offered to other senior management employees and may include medical expenses cover and life insurance cover. The CEO and CFO also receive permanent health insurance and from 1 July 2020 a Company car, the value of which is equivalent to 5% of base salary per annum. Element Base Salary Benefits 60 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Element Pension Annual bonus Link to remuneration policy/strategy To help recruit and retain high performing Executive Directors. To provide market competitive pensions. To incentivise and reward performance. To align the interests of the Executives and shareholders in the short and medium term. Long Term Incentive Plan To incentivise and reward long-term performance and value creation. To align the interests of Executive Directors and shareholders in the long-term. Shareholding requirement Encourages Executive Directors to achieve the Company’s long- term strategy and create sustainable stakeholder value. Aligns with shareholder interests. Operation Maximum opportunity Performance metric Until 30 June 2020, the CEO and CFO received an employer’s pension contribution or a cash supplement. None. Until 30 June 2020 CEO and CFO 5% of base salary. This percentage is in line with the pension contribution made by the Company to its UK workforce. Parameters, performance criteria, weightings and targets are set at the start of each year. The maximum bonus opportunity for the CEO and CFO is 100% of base salary. The annual award to the CEO and CFO is normally 100% of base salary. Payments are made in cash following completion of the year, subject to the Committee’s assessment of performance against targets and other matters it deems relevant. Executive Directors are eligible to receive awards under the Long Term Incentive Plan at the discretion of the Committee. Awards are granted as nil cost options or conditional awards which vest after three years subject to the meeting of objective performance conditions specified at award. Awards are subject to malus and clawback provisions. An additional holding period post vesting may be applied. Dividend equivalents may be added to awards. CEO and CFO 200% of salary. The shareholdings of the CEO and CFO are currently well in excess of this guideline. Performance measures may include financial, non- financial, personal and strategic objectives. Performance criteria and weightings may be changed from year to year. At present, the performance target is based on Adjusted EBITDA which is considered by the committee to be the Group’s key financial performance indicator. Performance measures may include financial and share price performance-based targets. Performance criteria and weightings may be changed from year-to- year. For awards made in 2020 as disclosed at the time of IPO, 70% of the award was subject to a cumulative EPS target and 30% was subject to an absolute total shareholder return (TSR) target. Details are set out later in this report. 61 Non- executive Director remuneration To provide fees appropriate to time commitments and responsibilities of each role. Non-executive Directors are paid a base fee in cash. Fees are reviewed periodically. In addition, reasonable business expenses maybe reimbursed. The Board is guided by the general increase for the broader employee population and takes into account relevant market movements. The Pebble Group plc Annual Report and accounts 2020Remuneration report Malus and clawback Both annual bonus and long-term incentive awards are subject to malus and clawback provisions covering two years. Reasons for malus and clawback being applied would include material misstatement in audited results, discovery of errors or inaccuracies in the assessment of any performance condition, fraud or gross misconduct, events or behaviour which lead to the censure of the Group by a regulatory authority or have a significant detrimental impact on the reputation of the Group. Remuneration of employees below the Board Employees below the Board receive base salary, benefits, annual bonus, and senior members of staff are invited to participate in the Long Term Incentive Plan. Statement of consideration of employment conditions across the Group Pay and conditions throughout the Group are taken into consideration when setting remuneration policy. The Committee does not consult other employees when setting executive remuneration. Shareholder consultation The Committee’s policy is to consult with major shareholders in respect of significant decisions on executive remuneration. The Chairman of the Remuneration Committee is available for contact with investors concerning the Company’s approach to remuneration. This Directors’ Remuneration Annual Report on Remuneration This section sets out details of remuneration in 2020. report will be put to an advisory vote at the coming 2021 AGM. Executive Directors’ service contracts and payments for loss of office Our Executive Directors have rolling service contracts dated 28 November 2019 with an indefinite term, but a fixed period of 12 months’ notice of termination. Our approach to remuneration in each of the circumstances in which an Executive Director may leave is determined by the Remuneration Committee in accordance with the rules of any applicable scheme. Non-executive Directors’ letters of appointment The Non-executive Directors do not have service contracts but instead have letters of appointment dated 28 November 2019 which contain a three-month notice period. Consideration of new Executive Directors or senior executives When recruiting or promoting any senior executive, we seek to apply consistent policies on fixed and variable remuneration components in line with the remuneration policy set out above. This helps to ensure that any new Executive Director or senior executive is on the same remuneration footing as existing Executive Directors or senior executives respectively, while still taking into account the skill and experience of the individual, the market rate for a candidate of that experience and the importance of securing the relevant individual. 2020 Summary of Directors’ Total Remuneration (audited) Name Executive Christopher Lee Claire Thomson Non-executive Richard Law Yvonne Monaghan Stuart Warriner Salary/fee £ Bonus £ Pension £ Benefits £ Total £ 222,252 165,246 80,777 36,350 36,350 - - - - - 4,499 5,345 11,590 9,174 238,341 179,765 - - - - - - 80,777 36,350 36,350 2019 Summary of Directors’ Total Remuneration (audited) Name Executive Christopher Lee Claire Thomson Non-executive Richard Law Yvonne Monaghan Stuart Warriner 62 Salary/fee £ IPO Bonus £ Pension £ Benefits £ Total £ 210,000 144,428 170,000 130,000 14,462 15,417 2,283 1,625 396,745 291,470 8,333 3,750 3,750 - - - - - - - - - 8,333 3,750 3,750 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Annual bonus In the light of the COVID-19 pandemic, it was agreed by the Board that there would be no bonus scheme for the Executive Directors for 2020 and no bonus amounts were paid. Long Term Incentive Plan Long-term incentive awards were granted to the CEO and CFO on 21 December 2020. The table below summarises the awards made to the Executive Directors under the plan. Nil cost awards with performance conditions as at 31 December 2020. The 2020 awards were granted on 21 December 2020. The value at grant date has been calculated on the basis of the closing share price on 20 December 2020 of 1.115p per share. Award date Christopher Lee 21 December 2020 Claire Thomson 21 December 2020 Interest at 31 December 2019 Value at grant date Granted Vested Exercised Lapsed Interest at 31 December 2020 Vesting period ending - - 242,152 £270,000 179,372 £200,000 - - - - - - 242,152 21 December 2023 179,372 21 December 2023 Performance conditions 2020 award 70% cumulative adjusted EPS and 30% TSR Cumulative adjusted EPS Adjusted EPS as defined in the LTIP rules, excludes share-based payment costs, exceptional items and amortisation from acquired intangibles Annualised TSR Annualised growth in total shareholder returns Cumulative adjusted EPS for the 3 years ended 30 June 2023 Threshold (25% of maximum vesting) 13.4p Mid-range (60% of maximum vesting) 14.3p Maximum (100% of maximum vesting) 15.1p Threshold 8% pa (25% maximum vesting) Mid-range 11.3% pa (60% maximum vesting) Maximum 15% pa (100% maximum vesting) Performance between these levels is determined on a straight-line basis. The performance period for the 3 years ending 30 June 2023 was chosen as the timing of the awards was deferred to December 2020. The charge for share-based payments is detailed in note 25 to the accounts. Directors’ interests in shares The interests of the Directors as at 31 December 2020 and 31 December 2019 in the shares of the Company were: Name Richard Law Christopher Lee Claire Thomson Yvonne Monaghan Stuart Warriner 31 December 2020 31 December 2019 Number 239,963 6,091,515 2,907,243 35,000 50,000 % of issued shares 0.1% 3.6% 1.7% 0.0% 0.0% Number 95,238 5,941,515 2,857,243 15,000 - % of issued shares 0.1% 3.5% 1.7% 0.0% - 63 The Pebble Group plc Annual Report and accounts 2020Remuneration report Directors remuneration for the year commencing 1 January 2021 Due to the challenging year for the Group, there will be no increase in Director salaries or fees for 2021. The salaries for CEO and CFO effective 1 January 2021 remain as set for 2020 at £270,000 and £200,000, respectively. Fees for the Chairman and other Non-executive Directors effective 1 January 2021 remain as set for 2020 as follows: Name Richard Law Role Chairman Committee Chair Nomination Yvonne Monaghan Non-executive Director Audit Stuart Warriner Non-executive Director Remuneration Annual fee 2020 Annual fee 2019 £100,000 £100,000 £45,000 £45,000 £45,000 £45,000 The Committee has now approved implementation of the annual bonus scheme for Executive Directors which will operate as set out in the policy table above. Annual bonus for 2020 will be based solely on Adjusted EBITDA performance. Long Term Incentive Plan for 2021 Long-term incentive awards are planned for mid-year 2021 and will operate as set out in the policy table above. Sharesave Plan “SAYE scheme” After postponement in 2020 due to the COVID-19 disruption to the business, the Board has now approved the implementation of the SAYE scheme in 2021, the rules of which were adopted by the Board on 28 November 2019. The Committee views this as a positive step to facilitate increased engagement and investment in the success of the Group by all employees. Stuart Warriner Remuneration Committee Chairman 23 March 2021 64 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Directors’ report For the year ended 31 December 2020 The Directors present their report together with the audited Group Financial Statements of The Pebble Group plc (the Company) for the year ended 31 December 2020. The Directors who held office during the year and as at 31 December 2020 had the following interests in the Ordinary Shares of the Company: Business review and future developments A review of the performance of the Group during the year, including principal risks and uncertainties, key performance indicators and comments on future developments is given in the Strategic Report. Results and dividends The Group recorded revenue in the year of £82.4m (2019: £107.2m) and profit after tax of £4.1m (2019: loss of £12.3m). No interim dividend has been paid in the year (2019: £nil). The Directors do not recommend the payment of a final dividend (2019: £nil). Financial risk management Information relating to the principal risks and uncertainties of the Group has been included within the Strategic Report on pages 38 - 41. Further information relating to the financial risk of the Group has been included within note 24, financial risk management. Going concern In assessing the appropriateness of adopting the going concern basis in the preparation of these financial statements, the Directors have prepared cash flow forecasts and projections for the two years ending 31 December 2022. Following careful consideration of the base case forecasts and the application of severe but plausible downside scenarios to these forecasts, the Directors have a reasonable expectation that the Group has adequate resources to continue to operate within the level of its current facilities for a period of at least twelve months from the date of this Report. Therefore, the Directors continue to adopt the going concern basis of accounting in preparing the Group and Company financial statements. Directors and their interests The Directors of the Company who were in office during the year and up to the date of signing the Group financial statements were: Richard Law Christopher Lee Yvonne Monaghan Claire Thomson Stuart Warriner appointed 28 November 2019 appointed 17 October 2019 appointed 28 November 2019 appointed 17 October 2019 appointed 28 November 2019 In accordance with the Articles of Association, a third of the Board are required to stand for re-election at the forthcoming AGM; and any Director who hasn’t been re-elected at one of the two previous AGMs is to be proposed for re-election. However, the Board has decided that all Directors will be retiring and seeking re-election by the Company’s shareholders at the AGM 2021. The Directors confirm that having conducted a performance evaluation, each Director continues to contribute and demonstrate commitment to their role. Name of Director Richard Law Christopher Lee Claire Thomson Yvonne Monaghan Stuart Warriner Number 239,963 6,091,515 2,907,243 35,000 50,000 The market price of the Company’s shares at the end of the financial year was 130.0p (31 December 2019: 139.0p) and the range of market prices during the year ended 31 December 2020 was between 71.0p and 156.5p. Further details on related party transactions with Directors are provided in note 26 of the Group financial statements. Directors’ insurance The Company maintains Directors and Officers’ liability insurance for the Directors, which was in force during the full year 2020 and remains in force as at the date of this report. Significant shareholdings As at 22 March 2021, the Company has been advised, in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority of the following notifiable interests in 3% or more of its voting rights. Liontrust Asset Management plc Elysian Capital 32,920,496 19.7% 23,258,664 13.9% BlackRock Investment Management (UK) Limited FIL Investments International Capital International, UK Amati Global Investors Christopher Lee Chelverton Asset Management Coeli Asset Management 20,766,661 12.4% 15,452,691 13,396,071 8,472,500 6,091,515 5,790,000 5,052,000 9.2% 8.0% 5.1% 3.6% 3.5% 3.0% Employees The Group regularly provides employees with information on matters of concern to them, consulting them or their representatives regularly so that their views can be taken into account when making decisions that are likely to affect their interests. Employee involvement in the Group is encouraged, as common goals and awareness of the Group’s strategy play a major role in delivering its strategic objectives. The Group issued its first Long Term Incentive Plan in December 2020 in which 48 senior people across the Group are participating. Further to this, the Group intends to issue its first SAYE scheme in 2021. 65 The Pebble Group plc Annual Report and accounts 2020 Directors’ report For the year ended 31 December 2020 The Group recognises its responsibility to employ disabled persons in suitable employment and gives full and fair consideration to such persons, including any employee who becomes disabled, having regard to their particular aptitudes and abilities. Where practicable, disabled employees are treated equally with all other employees in respect of their eligibility for training, career development and promotion. Further details on how the Company communicates with its teams as a key stakeholder group and has regard to their interests can be found in the Section 172 Statement on pages 17 - 19. Political donations It is the Company’s policy not to make political donations. The Directors confirm that no donations for political purposes were made during the year (2019: nil). Share capital and voting The Company has two classes of equity share, 0.01p Ordinary shares and 0.01p Deferred shares. The Ordinary shares have full voting, dividend and capital distribution rights, including on winding up. They are non-redeemable. The Deferred shares have no voting, dividend or other distribution rights. On a return of capital, the holders of the Deferred shares shall be entitled to receive only the amount paid-up or credited as paid-up and shall become entitled to receive such amount only once the holders of the Ordinary shares have been paid in or credited as paid-up thereon plus £250,000. The Deferred shares are not redeemable. The rights and obligations attaching to these shares are governed by the Companies Act 2006 and the Company’s Articles. As at 31 December 2020, the Company’s issued share capital comprised: 167,450,893 Ordinary shares of £0.01 and 12,564,501 Deferred shares of £0.01 totalling 180,015,394. Appointment and replacement of Directors and changes to constitution Rules governing the appointment and replacement of Directors and those relating to the amendments of the Company’s Articles of Association are contained within the Articles of Association, a copy of which can be found on the Company website at www.thepebblegroup.com. Notice of Annual General Meeting Details of business to be conducted at this year’s AGM, are contained in the Notice of the Annual General Meeting which will be communicated to shareholders separately. It is the opinion of the Directors that the passing of these resolutions is in the best interest of the shareholders. Corporate governance The Group’s statement on corporate governance can be found in the Corporate governance section of this Annual Report on pages 46 - 51, which is incorporated by reference and forms part of this Directors’ Report. It can also be found on the Company’s website. Directors’ Statement as to disclosure of information to auditors The Directors of the Company at the date of the approval of this report confirm that: • So far as each Director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and • Each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. UK greenhouse gas emissions and energy use Under the Companies (Directors’ Report) and Limited Liabilities Partnerships (Energy & Carbon Report) Regulations 2019, we are mandated to disclose our UK energy use and associated greenhouse gas (GHG) emissions. Specifically, and as a minimum, we are required to report those GHG emissions relating to natural gas, electricity and transport fuel as well as an intensity ratio, under the Streamlined Energy & Carbon Reporting (SECR) Regulations. Greenhouse gas emissions and energy use relates to the Groups UK based business operations (Brand Addition): Emission data Unit of measure 2019 2020 2019 vs 2020 Direct (Scope 1) CO2 emissions – Natural gas Indirect (Scope 2) CO2 emissions – Purchased electricity Other (Scope 3) CO2 emissions – Business travel in employee-owned vehicles Total energy consumption Total emissions Intensity ratio kgCO2 per £m of revenue kgCO2e kgCO2e kgCO2e kWh kgCO2e 58,621 87,476 50,645 60,297 34,520 802,168 180,618 3,061 15,875 571,235 126,817 2,714 -14% -31% -54% -29% -30% -11% 66 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Energy Improvements The Company has a target of a 1% year-on-year reduction of energy usage and emissions compared to its 2018 baseline. As part of our ISO 50001 accreditation, we have identified a number of improvement areas that are under review and plans are in place to develop longer-term energy reduction targets. Methodology Brand Addition has followed the 2019 HM reporting Government guidelines and our own internal ISO50001 framework for energy and carbon reporting. Our calculation methods have used the 2020 Defra (Department for Environment, Food & Rural Affairs)/BEIS (Department for Business, Energy & Industrial Strategy) conversion factors for company reporting. Intensity Measures The chosen intensity measurement ratio is the total gross emissions in kg CO2e per £m revenue (kgCO2e/£m) to allow for emissions normalisation. Independent Auditors The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution concerning their reappointment will be proposed at the AGM. Matters disclosed elsewhere within the financial statements Required disclosures have been included within the Strategic Report. By order of the Board Lucy Penfold Company Secretary The Pebble Group PLC Broadway House Trafford Wharf Road Manchester M17 1DD Registered number: 12231361 23 March 2021 67 The Pebble Group plc Annual Report and accounts 2020Statement of Directors’ responsibilities Statement of Directors’ responsibilities in respect of the financial statements The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy. In the case of each Director in office at the date the Directors’ Report is approved: • so far as the Director is aware, there is no relevant audit information of which the Group and Company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and Company’s auditors are aware of that information. Claire Thomson Chief Financial Officer 23 March 2021 The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law). Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102 have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. 68 CORPORATE GOVERNANCEThe Pebble Group plc Annual Report and accounts 2020Independent auditors’ report to the members of The Pebble Group plc Report on the audit of the financial statements Opinion In our opinion: • The Pebble Group plc’s Group financial statements and Company financial statements (the “financial statements”) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2020 and of the Group’s and Company’s profit and the Group’s cash flows for the year then ended; • the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; • the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law); and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: the Consolidated statement of financial position and the Company balance sheet as at 31 December 2020; the Consolidated income statement, Consolidated statement of other comprehensive income, Consolidated and Company statements of changes in equity, and Consolidated cash flow statement for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union As explained in note 2 to the Group financial statements, the Group, in addition to applying international accounting standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. In our opinion, the Group financial statements have been properly prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our audit approach Overview Audit scope • We performed a full scope audit of three significant components within the Group, and additional procedures over select financial statement line items in certain smaller components. The audit work performed over these components represented 97% of consolidated revenue, 80% of consolidated profit before tax and 79% of consolidated Adjusted EBITDA. Key audit matters • Impact of Covid-19 (Group and parent) • Accuracy of capitalised development costs (Group) Materiality • Overall Group materiality: £291,000 (2019: £377,000) based on 2.5% of 3-year average Adjusted EBITDA (2019: Adjusted EBITDA). • Overall Company materiality: £261,900 (2019: £339,000) based on 1% of total assets, restricted to 90% of Group financial statement materiality. •Performance materiality: £218,000 (Group) and £196,400 (Company). 69 The Pebble Group plc Annual Report and accounts 2020Independent auditors’ report to the members of The Pebble Group plc The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. Capability of the audit in detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and regulations related to health and safety laws, tax legislation and environmental legislation in the countries in which the Group operates, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls) and determined that the principal risks were related to posting inappropriate journal entries to manipulate financial results, including relating to revenue recognition and EBITDA, and management bias in accounting estimates. Audit procedures performed by the engagement team included: • obtaining an understanding of the legal and regulatory framework applicable to the Group and how the Group is complying with that framework. • discussions with management and the Audit Committee, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud. • reading any key correspondence with regulatory authorities that has taken place in the year. • identifying and testing journal entries, in particular any journal entries posted with unusual account combinations. • challenging assumptions and judgements made by management in their significant accounting estimates. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. The accounting for the Initial Public Offering (“IPO”) and finalisation of the acquisition accounting for Facilisgroup, which were key audit matters last year, are no longer included because of their one-off impact on the 2019 financial statements. Otherwise, the key audit matters below are consistent with last year. 70 FINANCIAL STATEMENTSThe Pebble Group plc Annual Report and accounts 2020Key audit matter How our audit addressed the key audit matter Impact of Covid-19 (Group and parent) Refer to page 65 of the Directors’ Report and Note 2b and Note 12 of the Notes to the Group financial statements. The Covid-19 pandemic has had a significant impact on the performance of parts of the Group during FY20. As a result, the pandemic has brought increased estimation uncertainty to certain areas of the financial statements. The key areas of the financial statements most impacted by the increased estimation uncertainty are described below: 1. The Directors have considered the appropriateness of the going concern basis of preparation in the Group’s financial statements and concluded that this is appropriate. The Group has a £10m revolving credit facility, expiring in November 2023, and is required to remain in compliance with covenants attached to this facility. 2. The Group has goodwill of £35.8m as at 31 December 2020. The Directors considered the impact of Covid-19 on the assessment of impairment of goodwill and other intangible assets, as well as reasonably possible changes in key assumptions, including future growth rates and the discount rate. No impairments were identified in the year ended 31 December 2020 and this assessment was not found to be sensitive to a reasonably possible change in key assumptions. Accuracy of capitalised development costs (Group) Refer to Note 2j, Note 3b and Note 12 of the Notes to the Group financial statements The Group capitalised costs of £2.0 million during the year ended 31 December 2020 primarily in relation to the development of its primary customer-facing platforms in Brand Addition and Facilisgroup. The cumulative net book value of such capitalised costs as at 31 December 2020 was £18.2 million. There is a risk that capitalised development costs are incorrectly valued in the closing balance sheet. This can arise where internally generated costs (such as wages and salaries) are incorrectly recorded and/or where impairments are required but not recognised in the financial statements. In response to the key areas identified as being significantly impacted by Covid-19, we performed the following procedures: 1. Our evaluation of the Directors’ assessment of the Group's and the Company’s ability to continue to adopt the going concern basis of accounting included the procedures detailed in the ‘Conclusions relating to going concern’ section further below. 2. We evaluated and challenged the Directors’ cash flow forecasts for the 5-year period. We compared the first years’ forecast with the latest Board-approved budget and found it to be reasonable. We challenged the appropriateness of the growth rates for the period up to 2025 by comparing them with historical results and the current trading performance of each cash- generating unit, taking into account the impact of Covid-19 to trading performance in FY20. We compared the perpetual growth rate and discount rates to an acceptable range determined by our internal valuation experts. We performed sensitivity analyses on all of these key assumptions and assessed the likelihood of the extent to which changes in these assumptions, both individually or in aggregate, would be required to result in an impairment. Based on these procedures, we were satisfied that no impairments existed as at 31 December 2020, and the disclosures made in the financial statements are reasonable. Finally, we assessed whether the nature and extent of the disclosure made by management was sufficiently complete to articulate the impact of the pandemic on the business and its sector, supported by the information available to date. As a result of these procedures, we concluded that the impact of Covid-19 has been appropriately evaluated and reflected in the preparation of the financial statements. We assessed whether the development costs capitalised met the criteria set within IAS 38 'Intangible assets'. We did not identify any material issues in our work in this area. We corroborated a sample of capitalised development costs to source documentation, including invoices and contracts of employment, and determined that they had been recorded accurately and met the criteria for capitalisation. We agreed, on a sample basis, that the proportion of internal employee costs capitalised, including relevant on-costs, was appropriate based upon their roles and responsibilities. 71 The Pebble Group plc Annual Report and accounts 2020Independent auditors’ report to the members of The Pebble Group plc Key audit matter How our audit addressed the key audit matter Accuracy of capitalised development costs (Group) There is a risk that capitalised development costs are incorrectly valued in the closing balance sheet. This can arise where internally generated costs (such as wages and salaries) are incorrectly recorded and/or where impairments are required but not recognised in the financial statements. We focused on this area due to the inherent level of judgement involved in assessing whether costs capitalised meet the recognition criteria of IAS 38 'Intangible assets', and also due to the estimation required in forecasting future cash inflows to support the valuation of capitalised development costs at 31 December 2020. We agreed, on a sample basis, that the proportion of internal employee costs capitalised, including relevant on-costs, was appropriate based upon their roles and responsibilities. We assessed the useful economic lives of the intangible assets as applied by management in determining the amortisation charge and agreed that these lives are appropriate for the assets to which they relate, and have been accurately applied. As a result of these procedures, we concluded that development costs capitalised in the year are free from material misstatement. How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group is split into two main operating segments, being Brand Addition and FacilisGroup. These are further split into 9 reporting components, which vary in size, and represent smaller operations in other countries around the world. The Group financial statements are a consolidation of these reporting components, as well as central operations. We identified three full scope components based on their Adjusted EBITDA contribution: Brand Addition UK, Brand Addition US and FacilisGroup US. We also audited material consolidation journals. All audit work was performed by the Group audit team. To obtain sufficient coverage over each financial statement line item in the consolidated financial statements, we also scoped in specific line items in five other, smaller components. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Financial statements - Group Financial statements - Company Overall materiality How we determined it £291,000 (2019: £377,000). £261,900 (2019: £339,000). 2.5% of 3-year average Adjusted EBITDA (2019: Adjusted EBITDA) 1% of total assets, restricted to 90% of Group financial statement materiality Rationale for benchmark applied Based on the benchmarks used in the Annual Report, Adjusted EBITDA is the primary measure used by the shareholders in assessing the performance of the Group, and is a generally accepted auditing benchmark. Due to the expected short-term impact on the 2020 results from Covid-19, a 3-year average of the Group's Adjusted EBITDA from the period 2018 - 2020 was deemed the most appropriate benchmark for determining materiality, representing a change from the 2019 benchmark. The Company is a non-trading holding Company. The entity's assets relate solely to their ownership of the subsidiary trading companies and thus reflect the Company's purpose. Company materiality has been restricted to ensure it is not greater than 90% of the Group's financial statement materiality. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between £220,000 and £276,450. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the 72 FINANCIAL STATEMENTSThe Pebble Group plc Annual Report and accounts 2020scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £218,000 for the Group financial statements and £196,400 for the Company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with those charged with governance that we would report to them misstatements identified during our audit above £14,550 (Group audit) (2019: £18,800) and £13,095 (Company audit) (2019: £16,950) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Conclusions relating to going concern Our evaluation of the directors’ assessment of the Group's and the Company’s ability to continue to adopt the going concern basis of accounting included: • obtaining management’s forecasts and information for the period to December 2022, which included the expected impact of Covid-19; • evaluating and assessing the process by which the Group’s future cash flow forecasts were prepared; • agreeing the opening position of the Group’s cash flow forecasts to the January 2021 management accounts. We also agreed the gross debt and cash per the 2020 audited financial statements to the cash flow forecast; • reviewing the arithmetical accuracy of management’s forecasts; • assessing and challenging management’s key assumptions in the going concern model, including the forecast sales, margins, capital expenditure and other costs assumptions over the period to December 2022; • evaluating the appropriateness of the severe but plausible cash flow forecast used in management’s determination of the going concern basis of preparation, which included an assessment and sensitivity analysis of the key assumptions underpinning the cash flows throughout the going concern period; • obtaining the terms of the Group’s financing facility and the covenants in place in relation to this facility, and determining that the Group’s base case and severe but plausible forecasts show compliance with all covenant conditions for at least 12 months from the date of the approval of financial statements; • gaining an understanding of the potential mitigating actions that the Directors could implement to meet the requirements of the covenants; and • reviewing management’s disclosures in the financial statements. We are satisfied that they are consistent with the assessment performed. We also read the disclosures made in the other information and did not identify any inconsistencies with the financial statements. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and the Company’s ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group's and the Company's ability to continue as a going concern. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. 73 The Pebble Group plc Annual Report and accounts 2020Independent auditors’ report to the members of The Pebble Group plc Strategic report and Directors' Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors' Report for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors' Report. Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors' responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not obtained all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of directors’ remuneration specified by law are not made; or • the Company financial statements are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Jonathan Studholme (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Manchester 23 March 2021 74 FINANCIAL STATEMENTSThe Pebble Group plc Annual Report and accounts 2020Consolidated income statement For the year ended 31 December 2020 Revenue Cost of goods sold Gross profit Operating expenses Operating expenses – exceptional Total operating expenses Operating profit/(loss) Analysed as: Adjusted EBITDA1 Depreciation Amortisation Share-based payment charge Exceptional items Total operating profit/(loss) Finance expense Profit/(loss) before taxation Income tax expense Profit/(loss) for the year Basic and diluted earnings/(loss) per share Year ended 31 December 2020 £’000 Year ended 31 December 2019 £’000 82,374 (51,382) 30,992 (24,781) 107,163 (67,107) 40,056 (27,585) (542) (17,338) (25,323) (44,923) 5,669 (4,867) 9,755 (1,567) (1,963) (14) (542) 5,669 (700) 4,969 (889) 4,080 2.44p 15,172 (1,246) (1,455) – (17,338) (4,867) (5,426) (10,293) (2,032) (12,325) (12.56)p Note 4 5 5 7 13 12 25 7 8 10 11 Note 1: Adjusted EBITDA, which is defined as profit before finance costs, tax, depreciation, amortisation, exceptional items, and share-based payments charge is a non-GAAP metric used by management and is not an IFRS disclosure. All results derive from continuing operations. 75 The Pebble Group plc Annual Report and accounts 2020Consolidated statement of other comprehensive income For the year ended 31 December 2020 Items that may be subsequently reclassified to profit and loss Foreign operations – foreign currency translation differences Other comprehensive expense for the year Profit/(loss) for the year Total comprehensive income/(expense) for the year Year ended 31 December 2020 £’000 Year ended 31 December 2019 £’000 Note (708) (708) 4,080 3,372 (569) (569) (12,325) (12,894) 76 FINANCIAL STATEMENTSThe Pebble Group plc Annual Report and accounts 2020Consolidated statement of financial position As at 31 December 2020 ASSETS Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Current tax assets Total current assets TOTAL ASSETS LIABILITIES Non-current liabilities Lease liability Trade and other payables Deferred tax liabilities Total non-current liabilities Current liabilities Lease liability Trade and other payables Current tax liabilities Total current liabilities TOTAL LIABILITIES NET ASSETS Equity and reserves Share capital Share premium Merger reserve Translation reserve Share-based payments reserve Retained earnings TOTAL EQUITY As at 31 December 2020 £’000 As at 31 December 2019 £’000 Note 12 13 14 16 17 18 19 19 14 20 22 22 54,017 9,102 493 63,612 12,109 20,988 7,066 829 40,992 104,604 7,645 930 2,637 11,212 1,334 25,775 – 27,109 38,321 66,283 1,800 78,451 50,167 6,081 167 56,415 7,952 25,544 8,861 – 42,357 98,772 5,502 – 1,816 7,318 838 27,569 149 28,556 35,874 62,898 1,800 78,451 (103,581) (103,581) (1,604) 13 91,204 66,283 (896) – 87,124 62,898 The notes on pages 80 to 109 are an integral part of these financial statements. The financial statements on pages 75 to 109 were approved by the Board of Directors and authorised for issue on 23 March 2021, and were signed on its behalf by: C Thomson Director 23 March 2021 77 The Pebble Group plc Annual Report and accounts 2020Consolidated statement of changes in equity For the year ended 31 December 2020 Share capital £’000 58 – – – 58 (58) Share premium £’000 942 – – – – – – – – 105,236 (104,523) – – At 1 January 2019 Loss for the year Other comprehensive expense for the year Total comprehensive expense Issue of shares in year Group reorganisation Bonus issue of shares Capital reduction (942) (104,294) 104,523 (103,535) – – New shares issued on IPO 754 78,451 Total transactions with owners recognised in equity At 31 December 2019 Profit for the year Other comprehensive expense for the year Total comprehensive income/ (expense) Employee share schemes – value of employee services (note 25) Total transactions with owners recognised in equity 1,742 1,800 77,509 (103,581) 78,451 (103,581) – – – – – – – – – – – – – – – Merger reserve £’000 Translation reserve £’000 Share-based payments reserve £’000 (Accumulated losses)/ retained earnings £’000 Total equity £’000 (327) – (569) (569) – – – – – – (896) – (708) (708) – – – – – – – – – – – – – – – – 13 13 13 (4,086) (3,413) (12,325) (12,325) – (569) (12,325) (12,894) – – – 103,535 105,294 (105,294) – – – 79,205 103,535 87,124 4,080 79,205 62,898 4,080 – (708) 4,080 3,372 – – 13 13 91,204 66,283 At 31 December 2020 1,800 78,451 (103,581) (1,604) The notes on pages 80 to 109 are an integral part of these financial statements. 78 FINANCIAL STATEMENTSThe Pebble Group plc Annual Report and accounts 2020Consolidated cash flow statement For the year ended 31 December 2020 Operating profit/(loss) Adjustments for: – Amortisation – Depreciation – Share-based payments charge – Loss on disposal of fixed assets Cash flows from/(used in) operating activities before changes in working capital – Change in inventories – Change in trade receivables – Change in trade payables Cash flows from/(used in) operating activities – Income taxes paid Net cash flows from/(used in) operating activities Cash flows from investing activities – Purchase of property, plant and equipment – Purchase of intangible assets – Acquisition of subsidiaries and net cash outflows on change in ownership Net cash flows used in investing activities Cash flows from financing activities – Repayment of borrowings – Lease payments – Interest paid – Ordinary shares issued Net cash flows (used in)/from financing activities NET CASH FLOWS Cash and cash equivalents at beginning of year Effect of exchange rate fluctuations on cash held Cash and cash equivalents at end of year The notes on pages 80 to 109 are an integral part of these financial statements. Year ended 31 December 2020 £’000 Year ended 31 December 2019 £’000 Note 5,669 (4,867) 12 13 25 16 17 20 13 12 18 18 1,963 1,567 13 – 9,212 (4,157) 4,556 (2,146) 7,465 (1,313) 6,152 (806) (4,871) – (5,677) – (1,141) (700) – (1,841) (1,366) 8,861 (429) 7,066 1,455 1,246 – 18 (2,148) (502) 1,081 545 (1,024) (2,486) (3,510) (603) (1,483) (1,293) (3,379) (62,312) (1,190) (7,894) 79,205 7,809 920 8,150 (209) 8,861 79 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements 1. General information The principal activity of The Pebble Group plc (the “Company”) is that of a holding company and the principal activity of the Company and its subsidiaries (the “Group”) is the sale of products, services and technology to the promotional merchandise industry. The Group has two segments, Brand Addition and Facilisgroup. For Brand Addition this is the sale of promotional products internationally, to many of the world's best-known brands, and for Facilisgroup the provision of technology, consolidated buying power and community learning and networking events to SME promotional product distributors in North America, its Partners, through subscription-based services. The Company was incorporated on 27 September 2019 in the United Kingdom and is a public company limited by shares registered in England and Wales. The registered office of the Company is Broadway House, Trafford Wharf Road, Trafford Park, Manchester, England M17 1DD. The Company registration number is 12231361. 2. Accounting policies (a) Basis of preparation The Group financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The Company financial statements have been prepared under FRS 102. Both financial statements have been prepared on the historical cost basis with the exception of certain items which are measured at fair value as disclosed in the principal accounting policies set out below. These policies have been consistently applied to all years presented unless otherwise stated. The financial information is presented in Sterling and has been rounded to the nearest thousand (£'000). (b) Going concern The Group meets its day-to-day working capital requirements through its own cash balances and committed banking facilities. In assessing the appropriateness of adopting the going concern basis in the preparation of these financial statements, the Directors have prepared cash flow forecasts and projections for the two years ending 31 December 2022. The forecasts and projections, which the Directors consider to be prudent, have been further sensitised by applying reductions to revenue growth and margin, to consider a severe but plausible downside. Under both the base and sensitised case the Group is expected to have headroom against covenants and a sufficient level of financial resources available through existing facilities when the future funding requirements of the Group are compared with the level of committed available facilities. Based on this, the Directors are satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Group and Company financial statements. 80 (c) Forward looking statements Certain statements in this Annual Report are forward looking with respect to the operations, strategy, performance, financial condition and growth opportunities of the Group. The terms “expect”, “anticipate”, “should be”, “will be”, “is likely to” and similar expressions identify forward-looking statements. Although the Board believes that the expectations reflected in these forward-looking statements are reasonable, by their nature these statements are based on assumptions and are subject to a number of risks and uncertainties. Actual events could differ materially from those expressed or implied by these forward-looking statements. Factors which may cause future outcomes to differ from those foreseen in forward- looking statements include, without limitation: general economic conditions and business conditions in the Group's markets; customers' expectations and behaviours; supply chain developments; technology changes; the actions of competitors; exchange rate fluctuations; and legislative, fiscal and regulatory developments. Information contained in this Annual Report and Accounts relating to the Group should not be relied upon as a guide to future performance. (d) New standards, amendments and interpretations New and amended standards adopted by the Group The Group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2020: • Definition of Material – amendments to IAS 1 and IAS 8 • Definition of a Business – amendments to IFRS 3 • Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7 • Revised Conceptual Framework for Financial Reporting The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods. New standards and interpretations not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020 reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. Judgements made by the Directors in the application of these accounting policies that have a significant effect on these financial statements together with estimates with a significant risk of material adjustment in the next year are discussed in Note 3. (e) Basis of consolidation Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date control ceases. The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS2. Accounting policies (continued) Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (f) Revenue Revenue arises from the provision of services through technology and a global infrastructure that enables the efficient sale and distribution of products to support corporate marketing activity and consumer promotions of businesses in Europe, North America and Asia. To determine whether to recognise revenue, the Group follows the 5-step process as set out within IFRS 15: 1. Identifying the contract with a customer 2. Identifying the performance obligations 3. Determining the transaction price 4. Allocating the transaction price to the performance obligations 5. Recognising revenue when/as performance obligation(s) are satisfied Revenue is measured at transaction price, stated net of VAT, rebates and other sales related taxes. Revenue is recognised either at a point in time, or over- time as the Group satisfies performance obligations by transferring the promised services to its customers as described below. Variable consideration, in the form of rebates, is recognised at a point in time. Brand Addition sale of promotional product Contracts with customers take the form of customer orders under a framework agreement. There is one distinct performance obligation, being the design, sourcing and distribution of products to the customer, for which the transaction price is clearly identified. Revenue is recognised at a point in time when the Group satisfies performance obligations by transferring the promised goods to its customers, i.e. when control has passed from the Group to the customer. This tends to be on receipt of the product by the customer. Customer invoices tend to be raised when the goods are delivered and the performance obligation is satisfied. These invoices are shown within trade receivables and payment is usually made within 60 days (being the common payment terms). In cases where the goods have been delivered and an invoice cannot be raised at that time, the income is accrued and presented within contract assets on the statement of financial position. A small number of customers are invoiced in advance and these amounts are deferred and presented within contract liabilities. Facilisgroup provision of technology, consolidated buying power and community learning through subscription-based services Services are provided through signed annual partner agreements. There is one distinct performance obligation, being the provision of access to the Facilisgroup network. The transaction price is set on 1 January each year by reference to the previous year sales volumes and is fixed for the financial year. For new partners, the transaction price is calculated by reference to forecasted sales for the year the partner joins. Revenue is recognised over time on a monthly basis as the partners receive the benefits of being part of the network. Payments are received on a monthly basis as the performance obligations are satisfied over time. (g) EBITDA and Adjusted EBITDA Earnings before Interest, Taxation, Depreciation and Amortisation (“EBITDA”) and Adjusted EBITDA are non-GAAP measures used by management to assess the operating performance of the Group. EBITDA is defined as profit before finance costs, tax, depreciation and amortisation. Exceptional items and share-based payment charges are excluded from EBITDA to calculate Adjusted EBITDA. The Directors primarily use the Adjusted EBITDA measure when making decisions about the Group's activities. As these are non-GAAP measures, EBITDA and Adjusted EBITDA measures used by other entities may not be calculated in the same way and hence are not directly comparable. (g) Exceptional items The Group's income statement separately identifies exceptional items. Such items are those that in the Directors' judgement are one-off in nature or non- operating and need to be disclosed separately by virtue of their size or incidence and may include, but are not limited to, restructuring costs, professional fees and other costs directly related to the purchase of businesses, and the raising of capital. In determining whether an item should be disclosed as an exceptional item, the Directors consider quantitative and qualitative factors such as the frequency, predictability of occurrence and significance. This is consistent with the way financial performance is measured by management and reported to the Board. (h) Taxation Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where events or transactions that result in an obligation to pay more tax in the future, or a right to pay less tax in future, have occurred at the balance sheet date. Timing differences are differences between the Group's taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. 81 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 2. Accounting policies (continued) A net deferred tax asset is regarded as recoverable and therefore recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. (i) Finance costs Finance costs of financial liabilities are recognised in the income statement over the term of such instruments at a constant rate on the carrying amount. Issue costs relating to financial instruments are recognised in the income statement over the term of the debt at a constant rate over the instrument's life. Foreign exchange differences on revaluation of foreign currency borrowings are also presented within finance costs. (j) Intangible assets All business combinations are accounted for by applying the purchase method. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Identifiable intangibles are those which can be sold separately, or which arise from legal or contractual rights regardless of whether those rights are separable and are initially recognised at fair value. In cases where the vendors of an acquired business are required to remain employed by the Group post- acquisition, the deferred payments are treated as post- acquisition remuneration and charged to profit and loss. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested annually for impairment. Other intangibles are stated at cost less accumulated amortisation and accumulated impairment losses. All intangible assets are denominated in the functional currency of the relevant subsidiary company and retranslated into Sterling at each period end date. Exchange differences are dealt with through the Consolidated statement of other comprehensive income. Intangible assets are presented in note 12. Customer relationships Customer relationships acquired in a business combination are recognised at fair value at the date of acquisition. Customer relationships have a finite life and are subsequently carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of these assets over their estimated useful lives of 20 years. 82 Development costs Research costs are charged to the income statement in the year in which they are incurred and are presented within operating expenses. Internal development costs that are incurred during the development of significant and separately identifiable new technology are capitalised when the following criteria are met: • it is technically feasible to complete the technological development so that it will be available for use; • management intends to complete the technological development and use or sell it; • it can be demonstrated how the technological development will develop probable future economic benefits; • adequate technical, financial and other resources to complete the development and to use or sell the product are available; and • expenditure attributable to the technological product during its development can be reliably measured. Capitalised development costs include costs of materials and direct labour costs. Internal costs that are capitalised are limited to incremental costs specific to the project. Other development expenditures that do not meet these criteria are recognised as an expense as incurred and presented within operating expenses, together with any amortisation which is charged to the income statement on a straight-line basis over the estimated useful lives of development intangible assets. Assets classified as “work in progress” are not amortised as such assets are not currently available for (or in) use. Once available for use, assets will be recategorised and amortised at the rate appropriate to their classification. Computer software Computer software purchased separately, that does not form an integral part of related hardware, is capitalised at cost. Amortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets unless such lives are indefinite and is presented within operating expenses. All intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: • Customer relationships – 20 years; • Computer software – 3-5 years; • Development costs – 3 years. (k) Impairment losses The carrying amounts of the Group's assets are tested for impairment. Assets with an indefinite useful life are not depreciated or amortised but are tested for impairment at each reporting date. Assets subject to amortisation/ depreciation and impairment losses are tested for impairment every time events or circumstances indicate that they may be impaired. Impairment losses are recognised in the income statement based on the difference between the carrying amount and the recoverable amount. The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS2. Accounting policies (continued) An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value in use. To determine the value in use, management estimates expected future cash flows and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Group's latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and asset enhancements. Discount factors are determined individually for each asset and reflect current market assessments of the time value of money and asset-specific risk. The Group makes use of a simplified approach in accounting for trade and other receivables as well as contract assets and records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its historical experience, external indicators and forward-looking information to calculate the expected credit losses. The Group assesses impairment of trade receivables on a collective basis as they possess shared credit risk characteristics; they have been Grouped based on the days past due. (l) Financial instruments The Group's policy is to recognise transfers into and out of fair value hierarchy levels as at the end of the reporting period. Level 1: The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and equity securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Level 2: The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. Financial assets Non-derivative financial assets are classified as either financial assets at amortised cost, fair value through profit or loss or fair value through other comprehensive income. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred. The basis of classification depends on the Group's business model and the contractual cash flow characteristics of the financial asset. The majority of financial assets of the Group are held at amortised cost. Financial assets include trade and other receivables and cash and cash equivalents. Trade and other receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Under IFRS 9, the Group elected to use the simplified approach to measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the counterparty, probability that the counterparty will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. In addition, IFRS 9 requires the Group to consider forward-looking information and the probability of default when calculating expected credit losses. The measurement of expected credit losses reflects an unbiased and probability weighted amount that is determined by evaluating the range of possible outcomes as well as incorporating the time value of money. The expected loss rates are based on the payment profiles of sales over the year and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on factors affecting the ability of the customers to settle the receivables. The Group considers reasonable and supportable customer-specific and market information about past events, current conditions and forecasts of future economic conditions when measuring expected credit losses. The amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows of the asset, discounted, where material, at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the Consolidated income statement within “operating expenses”. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against “operating expenses” in the Consolidated income statement. Only when amounts are confirmed irrecoverable, are they written off to the Consolidated income statement. 83 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 2. Accounting policies (continued) Financial liabilities Non-derivative financial liabilities are initially recognised at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method. The Group's borrowings, finance leases, trade and most other payables fall into this category of financial instruments. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Financial derivatives The Group uses derivative financial instruments to hedge its exposure to risks arising from operational activities, principally foreign exchange risk. In accordance with treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. The Group does not hedge account for these items. Any gain or loss arising from derivative financial instruments is based on changes in fair value, which is determined by direct reference to active market transactions or using a valuation technique where no active market exists. At certain times the Group has foreign currency forward contracts that fall into this category. (m) Foreign currencies Items included in the financial statements are measured using the currency of the primary economic environment in which the Group operates (“the functional currency”). The functional and presentational currency is Pounds Sterling. The functional currency of a subsidiary is determined based on specific primary and secondary factors including the principal currency of the cash flows and the primary economic environment in which the subsidiary operates. Once determined, the functional currency is used and translated for consolidation purposes. Foreign currency items are translated using the transaction date exchange rate. Monetary assets and liabilities denominated in foreign currencies are translated at the closing rate. Foreign currency differences are taken to the income statement. Non-monetary assets and liabilities that are measured based on historical cost in a foreign currency are translated at the transaction date exchange rate. The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at closing rates. The income and expenses of foreign operations are translated at the average exchange rate of the year which approximates to the transaction date exchange rates. Exchange differences arising on consolidation are presented within other comprehensive income. (n) Tangible assets and depreciation Tangible fixed assets are stated at historical purchase cost less accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: • Leasehold property – 3-15 years; • Fixtures and fittings – 5 years; • Computer hardware – 5 years. (o) Cash and cash equivalents Cash and cash equivalents comprise cash balances. Bank borrowings that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose only of the statement of cash flows. (p) Inventories Inventories are valued at the lower of cost and net realisable value on a FIFO basis. Cost comprises purchase price plus associated freight and duty costs for imported goods. Inventories are regularly assessed for evidence of impairment. Where such evidence is identified, a provision is recognised to reduce the value of stock to its selling price after incurring any future costs to sell. (q) Leases The Group applies IFRS 16 to account for leases. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to restore the underlying asset, less any lease incentives received. Extension and termination options are included in a number of property and equipment leases across the Group and so lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. In addition, the right-of- use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liabilities. 84 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS2. Accounting policies (continued) The lease liability is initially measured at the present value of lease payments that were not paid at the commencement date, discounted using the Group's incremental borrowing rate, which is based on the Group's financing facilities. The lease liability is measured at amortised cost using the effective interest method. If there is a remeasurement of the lease liability, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded directly in profit or loss if the carrying amount of the right-of-use asset is zero. The Group presents right-of-use assets within property, plant and equipment in Note 13. Short-term leases and low value assets The Group has elected not to recognise right-of-use assets and lease liabilities for short-term lease of machinery that have a lease term of 12 months or less or leases of low value assets. These lease payments are expensed on a straight- line basis over the lease term. (r) Segmental reporting The Group reports its business activities in two areas being: • Brand Addition - sale of promotional product through services provided under framework contracts on an international basis; and • Facilisgroup - provision of technology, consolidated buying power and community learning and networking events to SME promotional product distributors in North America through subscription-based services. This is reported in a manner consistent with the internal reporting to the Board of Directors, which has been identified as the Chief Operating Decision Maker. The Board of Directors consists of the Executive Directors and the Non-executive Directors. (s) Employee benefits The Group provides a range of benefits to employees, including annual bonus arrangements, paid holiday arrangements and defined contribution pension plans. (i) Short-term benefits Short-term benefits, including holiday pay and other similar non-monetary benefits, are recognised as an expense in the period in which the service is received. (ii) Defined contribution pension plans The Group operates a number of country-specific defined contribution plans for its employees. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. Once the contributions have been paid, the Group has no further payment obligations. The contributions are recognised as an expense when they are due. Amounts not paid are included in accruals within trade and other payables in the balance sheet. The assets of the plans are held separately from the Group in independently administered funds. (iii) Share-based payments Equity-settled awards are valued at the grant date, and the fair value is charged as an expense in the income statement spread over the vesting period. Fair value of the awards are measured using an adjusted form of the Black-Scholes model which includes a Monte Carlo simulation model. The fair value of the options, appraised at the grant date, includes the impact of market-based vesting conditions. Share-based remuneration is recognised as an expense in profit or loss with the credit side of the entry being recorded in equity. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. (t) Government grants In preparing the financial statements, IAS 20, 'Accounting for Government Grants and Disclosure of Government Assistance' has been applied such that grants have been recognised in profit or loss on a systematic basis over the periods in which we have recognised the expense for the related costs for which the grants are intended to compensate. As part of the Coronavirus Job Retention Scheme, a benefit of £1.0 million has been credited to the Income Statement in the year. There are no unfulfilled conditions or other contingencies attached to this grant. In the US, a benefit of $0.9 million has been received and credited to the Income Statement against costs incurred, along with a further £0.3m taken in other countries. (u) Equity, reserves and dividend payments Share capital Share capital represents the nominal (par) value of shares that have been issued. Share premium Share premium represents the difference between the nominal value of shares issued and the fair value of consideration received. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. Merger reserve The merger reserve was created as a result of the share for share exchange under which The Pebble Group plc became the parent undertaking prior to the Initial Public Offering (“IPO”). Under merger accounting principles, the assets and liabilities of the subsidiaries were consolidated at book value in the Group financial statements and the consolidated reserves of the Group were adjusted to reflect the statutory share capital, share premium and other reserves of the Company as if it had always existed, with the difference presented as the merger reserve. 85 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 2. Accounting policies (continued) Retained earnings Retained earnings includes all current and prior period retained profits and losses, including foreign currency translation differences arising from the translation of financial statements of the Group's foreign entities. All transactions with owners of the parent are recorded separately within equity. Dividends are recognised when approved by the Group's shareholders or, in the case of interim dividends, when the dividend has been paid. No interim dividend has been paid in the year (2019: £nil). The Directors do not recommend the payment of a final dividend (2019: £nil). 3. Judgements in applying accounting policies and key sources of estimation uncertainty In the preparation of the Group financial statements, the Directors, in applying the accounting policies of the Group, make some judgements and estimates that affect the reported amounts in the financial statements. The following are the areas requiring the use of judgement and estimates that may significantly impact the financial statements: (a) Accounting estimates Information about estimates and assumptions that may have the most significant effect on recognition and measurement of assets, liabilities, income and expenses is provided below. Actual results may be substantially different. Goodwill impairment The Group tests goodwill for impairment every year in accordance with the relevant accounting policies. The recoverable amounts of cash-generating units are determined by calculating value in use. These calculations require the use of estimates. Goodwill relates to the various acquisitions made and amounts to £35,802,000 as at 31 December 2020. The estimates used in the impairment calculation are set out in note 12. Valuation of acquired intangibles IFRS 3 requires separately identifiable intangible assets to be recognised on acquisitions. The principal estimates used in valuing the acquired intangible assets are the future cash flows estimated to be generated from these contracts, expected customer attrition, growth in revenues and the selection of appropriate discount rates to apply to the cash flows. The Directors' assessment of these estimates is based on up-to-date information and evidence available at the time of finalising the valuation. Useful economic lives of intangible assets The Directors have estimated the useful economic lives of the acquired customer intangible assets to be 20 years based upon attrition rates and the Directors' judgement. These lives are reviewed and updated annually. Useful economic lives of property, plant and equipment Property, plant and equipment is depreciated over the useful lives of the assets. Useful lives are based on the management's estimates of the period that the assets will generate revenue, which are reviewed annually for continued appropriateness. The carrying values are tested for impairment when there is an indication that the value of the assets might be impaired. When carrying out impairment tests these would be based upon future cash flow forecasts and these forecasts would be based upon management judgement. Future events could cause the assumptions to change, therefore, this could have an adverse effect on the future results of the Group. The useful economic lives applied are set out in the accounting policies and are reviewed annually. (b) Accounting judgements Judgements in applying accounting policies and key sources of estimation uncertainty The following are the areas requiring the use of judgement that may significantly impact the Group financial statements: Capitalisation of internal development costs Distinguishing the research and development phases of a new customised project and determining whether the recognition requirements for the capitalisation of development costs are met requires judgement. After capitalisation, management monitors whether the recognition requirements continue to be met and whether there are any indicators that capitalised costs may be impaired. Capitalised development expenditure is analysed further in note 12. 4. Segmental analysis The Chief Operating Decision Maker (“CODM”) has been identified as the Board of Directors. The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board has determined that the operating segments, based on these reports, are: • Brand Addition - sale of promotional product through complex services provided under framework contracts on an international basis; and • Facilisgroup - provision of technology, consolidated buying power and community learning and networking events to SME promotional product distributors in North America through subscription-based services. Segment information about the above businesses is presented opposite. The Board assesses the performance of the operating segments based on Adjusted EBITDA. Other information provided to the Board is measured in a manner consistent with that in the financial statements. Inter-segment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. Segment assets exclude centrally held cash at bank and in hand. 86 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS4. Segmental analysis (continued) Major customers In 2020 there were two major customers that individually accounted for at least 10% of total revenues (2019: one customer). The revenues relating to these customers in 2020 were £21,079,000 (2019: £13,073,000) and both related to the Brand Addition segment. Analysis of revenue by geographical destination United Kingdom Continental Europe America Rest of World Total revenue Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 22,274 24,741 25,332 10,027 82,374 30,162 31,805 31,616 13,580 107,163 The geographical revenue information above is based on the location of the customer. All the above revenues are generated from contracts with customers and are recognised at a point in time or over time as follows: At a point in time Over time Total revenue Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 73,135 9,239 82,374 98,933 8,230 107,163 All non-current assets of the Group reside in the UK, with the exception of non-current assets with a net book value of £26,396,000 (2019: £20,307,000) which were located in North America and £760,000 (2019: £309,000) located in other foreign countries. 87 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 4. Segmental analysis (continued) Income statement for the year ended 31 December 2020 Revenue Cost of goods sold Gross profit Operating expenses Operating expenses – exceptional Total operating expenses Operating profit/(loss) Analysed as: Adjusted EBITDA Depreciation Amortisation Share-based payments charge Exceptional items Total operating profit/(loss) Finance expense Profit/(loss) before taxation Income tax (expense)/income Profit/(loss) for the year Brand Addition £'000 72,608 (51,382) 21,226 (18,233) (429) (18,662) 2,564 5,209 (1,316) (900) - (429) 2,564 (433) 2,131 (176) 1,955 Facilisgroup £'000 Central operations £'000 Year ended 31 December 2020 £'000 9,766 - 9,766 (5,077) (42) (5,119) 4,647 5,994 (242) (1,063) - (42) - - - (1,471) (71) (1,542) (1,542) (1,448) (9) - (14) (71) 4,647 (1,542) (29) 4,618 (1,182) 3,436 (238) (1,780) 469 (1,311) 82,374 (51,382) 30,992 (24,781) (542) (25,323) 5,669 9,755 (1,567) (1,963) (14) (542) 5,669 (700) 4,969 (889) 4,080 88 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS4. Segmental analysis (continued) Statement of financial position as at 31 December 2020 ASSETS Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Current tax asset Total current assets TOTAL ASSETS LIABILITIES Non-current liabilities Lease liability Trade and other payables Deferred tax liability Total non-current liabilities Current liabilities Lease liability Trade and other payables Total current liabilities TOTAL LIABILITIES NET ASSETS Brand Addition £'000 Facilisgroup £'000 Central operations £'000 As at 31 December 2020 £'000 37,839 5,558 23 16,178 3,424 - 43,420 19,602 12,109 19,353 5,677 310 37,449 - 1,571 538 474 2,583 - 120 470 590 - 64 851 45 960 54,017 9,102 493 63,612 12,109 20,988 7,066 829 40,992 80,869 22,185 1,550 104,604 4,893 - - 4,893 1,096 22,995 24,091 28,984 51,885 2,661 930 2,637 6,228 218 2,181 2,399 8,627 13,558 91 - - 91 20 599 619 710 840 7,645 930 2,637 11,212 1,334 25,775 27,109 38,321 66,283 89 The Pebble Group plc Annual Report and accounts 2020Facilisgroup £'000 9,291 - 9,291 Brand Addition £'000 97,872 (67,107) 30,765 (21,685) - Central operations £'000 Year ended 31 December 2019 £'000 - - - 107,163 (67,107) 40,056 (27,585) (17,338) (5,277) (13,465) (623) (3,873) (21,685) (18,742) (4,496) (44,923) 9,080 (9,451) (4,496) (4,867) 10,703 (1,012) (611) - 5,092 (234) (844) (623) - - 15,172 (1,246) (1,455) (13,465) (3,873) (17,338) 9,080 (9,451) (4,496) (481) 8,599 (1,651) (37) (4,908) (9,488) (1,011) (9,404) 630 (4,867) (5,426) (10,293) (2,032) 6,948 (10,499) (8,774) (12,325) Notes to the Group financial statements (continued) 4. Segmental analysis (continued) Income statement for the year ended 31 December 2019 Revenue Cost of goods sold Gross profit Operating expenses Operating expenses – exceptional Total operating expenses Operating profit/(loss) Analysed as: Adjusted EBITDA Depreciation Amortisation Exceptional items Total operating profit/(loss) Finance expense Profit/(loss) before taxation Income tax income/(expense) Profit/(loss) for the year 90 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS4. Segmental analysis (continued) Statement of financial position as at 31 December 2019 Brand Addition £'000 Facilisgroup £'000 Central operations £'000 As at 31 December 2019 £'000 ASSETS Non-current assets Intangible assets Property, plant and equipment Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets TOTAL ASSETS LIABILITIES Non-current liabilities Lease liability Deferred tax liability Total non-current liabilities Current liabilities Lease liability Trade and other payables Current tax liabilities Total current liabilities TOTAL LIABILITIES NET ASSETS/(LIABILITIES) 39,666 5,303 167 45,136 7,952 24,079 5,931 37,962 10,501 778 - 11,279 - 1,403 1,083 2,486 83,098 13,765 5,151 - 5,151 724 22,314 252 23,290 28,441 54,657 351 1,816 2,167 114 1,321 (60) 1,375 3,542 - - - - - 62 1,847 1,909 1,909 - - - - 3,934 (43) 3,891 3,891 50,167 6,081 167 56,415 7,952 25,544 8,861 42,357 98,772 5,502 1,816 7,318 838 27,569 149 28,556 35,874 10,223 (1,982) 62,898 91 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 5. Expenses by nature Inventory recognised as an expense Other cost of sales Staff costs (note 6) Exceptional items (note 7) Amortisation of intangible assets (note 12) Depreciation of property, plant and equipment (note 13) Auditors' remuneration (note 9) Share-based payments charge (note 25) Foreign exchange gain and movement in foreign exchange derivative contracts Increase in provision for expected credit losses Other external charges Total cost of sales and operating expenses Depreciation and amortisation are charged to operating expenses in the income statement. 6. Staff costs Personnel costs are analysed below: Staff costs (including Directors) consist of: Wages and salaries Social security costs Other pension costs Total personnel expenses Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 45,686 5,696 15,832 542 1,963 1,567 233 14 (47) 12 5,207 61,924 5,183 18,896 17,338 1,455 1,246 359 - (353) - 5,982 76,705 112,030 Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 13,861 1,540 431 15,832 16,805 1,622 469 18,896 Additional personnel costs of £1,688,000 (2019: £961,000) have been capitalised as intangible assets (see note 12). In 2019, personnel costs exclude the exceptional deferred contingent payments of £13,465,000 (see note 7). Savings of £2,000,000 (2019: nil) from the use of Government furlough or equivalent schemes has been credited to wages and salaries in the year. Defined contribution scheme The amount recognised in the income statement as an expense in relation to the Group's defined contribution plans is £431,000 (2019: £469,000). Included within accruals and other creditors is £15,000 (2019: £60,000) for outstanding contributions to the defined contribution plans. During the year, the monthly average number of the Group's employees (including Executive Directors and temporary employees) was as follows: Year ended 31 December 2020 No. Year ended 31 December 2019 No. 13 221 200 434 9 225 193 427 By function: Management Sales and distribution Administration Total employees 92 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS6. Staff costs (continued) Key management compensation Key management of the Group is considered to be the Board of Directors. Details of Directors' remuneration is disclosed in the Report of the Remuneration Committee on page 62. Remuneration paid to these individuals on an aggregated basis is as follows: Salaries including bonuses and social security costs Pension contributions Total remuneration 7. Operating expenses - exceptional Reorganisation and restructuring Transaction and IPO related costs Contingent consideration payments to vendors of Facilisgroup Total exceptional Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 541 10 551 654 30 684 Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 430 112 - 542 - 3,873 13,465 17,338 Exceptional items relate to the following: • reorganisation and restructuring - costs were incurred in Brand Addition as a result of changes made to headcount to align people costs with anticipated ongoing sales volumes; • transaction and IPO related costs - incremental external costs related to the acquisition of software assets and a license in 2020 and the IPO in 2019, and which relate to professional fees, the write-off of unamortised loan note fees as of the date of the IPO, and IPO related bonus payments; and • the sale and purchase agreement for the acquisition of Facilisgroup in December 2018 detailed deferred payments to be made to the vendors for the sale of the shares. These payments required the vendors to remain in employment with the Group for the duration of the 24-month deferral period. Hence, they are treated as remuneration for post-acquisition services and the cost charged to profit and loss over the deferral period. All the deferred payments were settled in full prior to Admission. The deferred contingent payments required the vendors to remain in employment with the Group for the duration of the deferral period. As such, they are treated as remuneration for post-acquisition services and the cost charged to profit and loss over the deferral periods, rather than forming part of the settlement consideration. The deferred contingent payments have been charged to exceptional operating expenses in the income statement in the year ended 31 December 2019 (£13,465,000). 8. Finance expense An analysis is set out below: Bank loans Other loans Preference shares Other interest Amortisation of debt issue costs up to IPO date Net foreign exchange gain on revaluation of debt Unwind of discount finance costs on lease liabilities relating to IFRS 16 Total finance expense Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 - - - 267 - - 433 700 1,041 2,939 1,562 253 412 (1,200) 419 5,426 93 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 9. Auditors' remuneration Fees payable to the Company's auditors for the audit of The Pebble Group plc Fees payable to the Company's auditors in respect of: Audit of the Company's subsidiaries Other assurance services Fees for taxation advisory services Acquisition and IPO related Total auditors' remuneration 10. Income tax expense Current income tax - UK corporation tax charge for the year - Adjustments in respect of prior years - Foreign tax Total current income tax Deferred tax - Deferred tax - Adjustments in respect of prior years - Impact of rate change Total deferred tax Total income tax expense Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 104 129 - - - 233 48 105 12 80 114 359 Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 - (112) 445 333 522 48 (14) 556 889 472 (85) 1,639 2,026 6 - - 6 2,032 Current taxes comprise the income taxes of the Group companies which posted a taxable profit for the year, while deferred taxes show changes in deferred tax assets and liabilities which were recognised by the Group on the temporary differences between the carrying amount of assets and liabilities and their amount calculated for tax purposes, and on consolidation adjustments, calculated using the rates that are expected to apply in the year these differences will reverse. Analysis of (credit)/charge in year Reconciliation of total tax (credit)/charge: Profit/(loss) before taxes Profit/(loss) on ordinary activities multiplied by the rate of corporation tax in the UK of 19% (2019: 19%) Effects of: Adjustments in respect of prior years Impact of UK rate change Non-deductible expenses and interest expense Differences in tax rates in overseas jurisdictions Unrecognised for deferred tax Utilisation of unrecognised deferred tax brought forward Total income tax expense Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 4,969 (10,293) 944 (1,956) (64) (14) 90 183 503 (753) 889 (85) - 3,586 313 276 (102) 2,032 94 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS10. Income tax expense (continued) Factors that may affect future tax charges In the Spring Budget 2020, the Government announced that the previously enacted decrease in the corporate tax rate from 19% to 17% from 1 April 2020 would no longer happen and that rates would remain at 19% for the foreseeable future. The new law was substantively enacted by a resolution under the Provisional Collection of Taxes Act 1968 on 17 March 2020 and as a result deferred tax balances have now been measured at 19%. In the Budget 2021, the Government announced that the rate of corporation tax will increase to 25% from 6 April 2023 for businesses with profits of £250,000 or more. The rate will remain at 19% until that date. The legislation to implement this new law has not been substantively enacted as of the date of this report, and therefore no adjustment to deferred tax balances has been recognised in the financial statements. However, the impact of the rate change is not expected to be material to the Group. 11. Earnings per share Basic and diluted earnings per share are calculated by dividing the earnings attributable to equity shareholders by the weighted average number of ordinary shares in issue during the year. As at 31 December 2019, no instruments with a potential or actual dilutive impact were in issue and therefore diluted EPS was the same as basic EPS. The impact of the potentially dilutive share options issued under The Pebble Group Plc Long-Term Incentive Plan on 21 December 2020 as detailed in note 25 has no impact on the basic earnings per share for the year ended 31 December 2020 and hence has not been presented. The calculation of basic profit per share is based on the following data: Statutory EPS Year ended 31 December 2020 Year ended 31 December 2019 Earnings (£'000) Earnings/(loss) for the purposes of basic earnings per share being profit/(loss) for the year attributable to equity shareholders 4,080 (12,325) Number of shares Weighted average number of shares for the purposes of basic earnings/(loss) per share Basic and diluted earnings/(loss) per ordinary share (pence) 167,450,893 97,390,317 2.44 (12.56) Adjusted EPS The calculation of adjusted earnings per share is based on the after tax adjusted operating profit after adding back certain costs as detailed in the table below. Adjusted earnings per share figures are given to exclude the effects of amortisation of acquired intangible assets, share based payment charges and exceptional items, all net of taxation, and are considered to show the underlying performance of the Group. The weighted average number of shares uses the number of shares in issue post Admission on 5 December 2019. This has been applied retrospectively to the number of shares in issue throughout 2019 and the metric has been restated to ensure that the adjusted earnings per share figures are comparable over the two periods. Earnings (£'000) Earnings for the purposes of basic earnings per share being adjusted earnings Number of shares Weighted average number of shares for the purposes of adjusted earnings per share Basic and diluted adjusted earnings per ordinary share (pence) Year ended 31 December 2020 Year ended 31 December 2019 4,965 4,702 167,450,893 167,450,893 2.96 2.81 95 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 11. Earnings per share (continued) The calculation of basic adjusted earnings per share is based on the following data: Profit/(loss) for the year attributable to equity shareholders Add back/(deduct): Amortisation charge on acquired intangible assets Share-based payments charge Exceptional items Tax effect of the above Adjusted earnings 12. Intangible assets Cost Balance at 1 January 2019 FX difference on translation Additions Reclassifications Balance at 31 December 2019 FX difference on translation Additions Disposals Reclassifications Goodwill £'000 Customer relationships £'000 Software and development costs £'000 Work in progress £'000 Total £'000 35,958 10,751 (76) - - (314) - - 8,613 (37) 1,184 1,396 35,882 10,437 11,156 (80) (293) - - - - - - (21) 5,860 (272) 407 Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 4,080 (12,325) 537 14 542 (208) 4,965 525 - 17,338 (836) 4,702 1,433 56,755 - 299 (1,396) 336 - 293 - (407) 222 - - - - - - - - (427) 1,483 - 57,811 (394) 6,153 (272) - 63,298 6,207 (18) 1,455 7,644 (54) 1,963 (272) 9,281 1,433 50,548 336 222 50,167 54,017 Balance at 31 December 2020 35,802 10,144 17,130 Accumulated amortisation Balance at 1 January 2019 FX difference on translation Charge for year Balance at 31 December 2019 FX difference on translation Charge for year Disposals Balance at 31 December 2020 Net book value At 31 December 2018 At 31 December 2019 At 31 December 2020 - - - - - - - - 35,958 35,882 35,802 110 - 525 635 (15) 537 - 1,157 10,641 9,802 8,987 6,097 (18) 930 7,009 (39) 1,426 (272) 8,124 2,516 4,147 9,006 Personnel costs of £1,688,000 (2019: £961,000) have been capitalised as intangible assets. On 18 December 2020, Facilisgroup acquired software assets and a license from a US-based software developer, for a total cash consideration of $5.3m (£3.8m), included in Software and Development costs. The remaining amortisation periods for customer relationships are between 16 and 18 years (2019: 17 and 19 years) and for software and development costs are between 1 and 5 years. 96 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS12. Intangible assets (continued) Goodwill has been tested for impairment. The method, key assumptions and results of the impairment review are detailed below: Goodwill is attributed to the respective cash-generating units (“CGUs”) within the Group (Brand Addition and Facilisgroup). Goodwill has been tested for impairment by assessing the value in use of each cash-generating unit. The value in use calculations were based on projected cash flows in perpetuity. Budgeted cash flows for 2021 to 2025 were used. These were based on a forecast for 2021 with growth rates of 7% (Facilisgroup) to 8% (Brand Addition) applied to EBITDA, with appropriate adjustments made for changes in working capital and other cash flows for the following four years. Subsequent years were based on a reduced rate of growth of 2.0% (2019: 3.0%) into perpetuity. These growth rates are based on past experience and market conditions and discount rates are consistent with external information. The growth rates shown are the average applied to the cash flows of the individual cash generating units and do not form a basis for estimating the consolidated profits of the Group in the future. The Directors used an estimated market weighted average cost of capital (“WACC”) of 9.0% for Brand Addition and 9.4% for Facilisgroup (2019: 12.4% for Brand Addition and 13.0% for Facilisgroup) to discount the cash flows used for the CGUs. The value in use calculations described above, together with sensitivity analysis using reasonably possible changes in the key assumptions as described above, indicate significant headroom and therefore do not give rise to impairment concerns. Having completed the impairment reviews at the date of transition and at each subsequent balance sheet date, no impairments were identified. Goodwill is attributable to the following segments: Brand Addition Facilisgroup As at 31 December 2020 £'000 As at 31 December 2019 £'000 33,057 2,745 35,802 33,057 2,825 35,882 97 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 13. Property, plant and equipment Cost Balance at 1 January 2019 Impact of foreign exchange translation Additions Disposals Balance at 31 December 2019 Impact of foreign exchange translation Additions Disposals Leasehold property £'000 Fixtures and fittings £'000 Computer hardware £'000 Right-of-use assets £'000 Total £'000 1,199 2,365 2,060 8,701 14,325 2 49 - (54) 293 - (20) 261 (26) (145) 2,101 (151) (217) 2,704 (177) 1,250 2,604 2,275 10,506 16,635 (28) 90 - (5) 151 (349) (13) 565 (119) (27) 3,853 (1,537) (73) 4,659 (2,005) Balance at 31 December 2020 1,312 2,401 2,708 12,795 19,216 Accumulated depreciation Balance at 1 January 2019 Impact of foreign exchange translation Charge for the year Disposals Balance at 31 December 2019 Impact of foreign exchange translation Charge for the year Disposals 924 5 107 - 2,077 1,726 4,804 (48) 79 - (10) 171 (22) (148) 889 - 9,531 (201) 1,246 (22) 1,036 2,108 1,865 5,545 10,554 (22) 42 - (1) 121 (349) (9) 240 (119) 30 1,164 (1,537) (2) 1,567 (2,005) Balance at 31 December 2020 1,056 1,879 1,977 5,202 10,114 Net book value Balance at 31 December 2018 Balance at 31 December 2019 Balance at 31 December 2020 Right-of-use assets – net book value Balance at 31 December 2018 Balance at 31 December 2019 Balance at 31 December 2020 275 214 256 3,644 4,800 7,267 288 496 522 79 21 227 334 410 731 174 140 99 3,897 4,961 7,593 - - - 4,794 6,081 9,102 3,897 4,961 7,593 98 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS14. Deferred tax assets and liabilities Deferred tax assets and liabilities are analysed as follows: Accelerated capital allowances Other short-term timing differences On losses Total deferred tax assets On intangible assets Total deferred tax liabilities As at 31 December 2020 £'000 As at 31 December 2019 £'000 15 11 467 493 148 19 - 167 (2,637) (2,637) (1,816) (1,816) The above amounts reflect the differences between the carrying and tax amounts of the following balance sheet headings as at each year end. Of the deferred tax balances at year end, £493,000 of the deferred tax assets and £347,000 of the deferred tax liabilities are expected to be utilised within one year. Changes during each year are as follows: Balance at 1 January 2019 Tax (charge)/credit in respect of current year Foreign exchange translation Balance at 31 December 2019 Tax credit/(charge) in respect of current year Foreign exchange translation Balance at 31 December 2020 Asset £'000 269 (102) - 167 326 - 493 Liability £'000 (1,978) 96 66 (1,816) (882) 61 (2,637) There are unrecognised deferred tax assets relating to capital losses of £9,900,000 (2019: £9,900,000) and in respect of trading losses of £503,000 (2019: £276,000). The Directors have assessed that there will not be sufficient taxable profits available in future periods, for the entities in the Group in which these losses reside, in order to utilise these losses. 15. Investments The Company directly owns the whole of the issued ordinary shares of the following subsidiary undertakings. The Directors believe that the carrying value of the investments is supported by their underlying net assets and future trading forecast. Name Registered address Principal activity Class of share Percentage holding The Pebble Group (Holdings) Limited Broadway Project Amber Bidco Limited H.I.G Milan UK Topco Limited H.I.G Milan UK Midco Limited H.I.G Milan UK Bidco Limited Brand Addition Limited Product Plus International Limited Gearworks Limited Brand Addition Asia Limited Brand Addition Ireland Limited Trafford Wharf Road Manchester M17 1DD Unit 1605 16th Floor Tower 3 Enterprise Square No. 9 Sheung Yuet Road Kowloon, Hong Kong Unit G2 Calmount Business Park Ballymount, Dublin 12 Holding company Holding company Holding company Holding company Holding company Ordinary Ordinary Ordinary Ordinary Ordinary Promotional merchandise Ordinary Non-trading Non-trading Ordinary Ordinary Promotional merchandise Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% Promotional merchandise Ordinary 100% 99 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 15. Investments (continued) Name Registered address Principal activity Class of share Percentage holding Brand Addition Reklam Urunleri Dagitim ve Ticaret Limited Sirketi Brand Addition (Shanghai) Trading Co., Limited Buyukdere Caddesi Meydan Sokak Spring Giz Plaza Kat:13 Sisli-Istanbul, Turkey Room 302, Qian Li Center (building T6) Baolong Plaza, No 6 311 Xinlong Road Qibao Town, Minhang District Shanghai, China Promotional merchandise Ordinary 100% Promotional merchandise Ordinary 100% H.I.G. Milan Germany Bidco GmbH Brand Addition GmbH Heydastrasse 13-15 58093 Hagen, Germany Holding company Ordinary Promotional merchandise Ordinary The Pebble Group US Bidco Inc. Gateway CDI Inc. Facilisgroup LLP 909 North 20th Street Saint Louis, MO 63103 Holding company Ordinary Promotional merchandise Ordinary 1600 S Brentwood Blvd., Ste 800, Brentwood, MO 63144 Promotional merchandise service provider Ordinary 100% 100% 100% 100% 100% Facilisgroup Canada Inc. 5320 Canotek Road Gloucester, ON K1J 9C1 Promotional merchandise service provider Ordinary 100% Other than The Pebble Group (Holdings) Limited, which is directly held by the parent, all subsidiaries are indirectly held. 16. Inventories Work in progress Finished goods for resale Total closing inventories Stocks are stated after provisions for impairment of £205,000 (2019: £88,000). There is no difference between the replacement cost of stocks and carrying value. As at 31 December 2020 £'000 As at 31 December 2019 £'000 - 12,109 12,109 104 7,848 7,952 100 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS17. Trade and other receivables Amounts falling due within one year: Trade receivables not past due Trade receivables past due Provision for trade receivables Trade receivables net Contract assets Other debtors FX derivative Prepayments Currency analysis Sterling Euro US Dollar Chinese Renminbi Other Total trade and other receivables As at 31 December 2020 £'000 As at 31 December 2019 £'000 16,264 2,254 (57) 18,461 675 892 22 938 18,575 2,892 (45) 21,422 1,676 1,542 58 846 20,988 25,544 As at 31 December 2020 £'000 As at 31 December 2019 £'000 3,391 8,728 7,387 932 550 10,367 7,537 5,860 1,474 306 20,988 25,544 Any fair value difference on trade and other receivables is not material. Trade and other receivables are considered past due once they have passed their contracted due date. Trade and other receivables are assessed for impairment based upon the expected credit losses model. The Group's customer base is predominantly made up of high-quality organisations with a high credit rating. In order to manage credit risk, the Directors set limits for customers based on a combination of payment history and third-party credit references. Credit limits are reviewed on a regular basis in conjunction with debt ageing and collection history. The maturity analysis of financial assets (which comprise trade receivables, other debtors, and contract assets) is analysed below. Trade receivables, other receivables and contract assets: – Not yet due – Up to 3 months overdue – 3 to 6 months past due – Over 6 months past due Gross £'000 Provision £'000 17,831 1,778 347 129 20,085 - - - (57) (57) 2020 net £'000 17,831 1,778 347 72 Gross £'000 Provision £'000 21,793 2,307 332 253 - - - (45) (45) 2019 net £'000 21,793 2,307 332 208 24,640 20,028 24,685 The Group uses objective evidence as well as considering forward-looking information and the probability of default when calculating expected credit losses. The maturity of financial assets is therefore used as an indicator as to the probability of default. The maximum amount of exposure to credit risk is the total value of unprovided trade and other receivables as set out above. There are no amounts outstanding on financial assets that were written off during the reporting period and which are still subject to enforcement activity. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. The Group uses the simplified approach to measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables. There is limited concentration of credit risk with respect to trade receivables due to the diverse and unrelated nature of the Group's customers. Accordingly, the Directors believe that no further credit provision is required in excess of the provision for impairment of receivables. 101 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 18. Cash and cash equivalents Cash and cash equivalents Currency analysis Sterling Euro US Dollar Other Total cash and cash equivalents 19. Non-current liabilities IFRS 16 lease liability (note 21) Deferred consideration Total non-current liabilities As at 31 December 2020 £'000 As at 31 December 2019 £'000 7,066 8,861 As at 31 December 2020 £'000 As at 31 December 2019 £'000 1,232 2,481 2,103 1,250 7,066 1,241 2,623 3,545 1,452 8,861 As at 31 December 2020 £'000 As at 31 December 2019 £'000 7,645 930 8,575 5,502 - 5,502 Deferred consideration relates to the software asset and license acquisition from a US-based developer, of which £930,000 of the total consideration is payable in 2022. Amounts payable before the end of 2021 are shown in note 20. Borrowings are repayable as follows: As at 31 December 2020 £'000 As at 31 December 2019 £'000 4,404 3,241 7,645 2,998 2,504 5,502 As at 31 December 2020 £'000 As at 31 December 2019 £'000 2,739 323 5,225 132 156 8,575 3,055 24 2,124 - 299 5,502 IFRS 16 lease liability Between two and five years In more than five years Total borrowings Currency analysis Sterling Euro US Dollar Chinese Renminbi Other IFRS 16 lease liability See note 21 for further detail on the IFRS 16 lease liability. 102 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS20. Current liabilities IFRS 16 lease liability (note 21) Lease liabilities Corporation tax Current tax liabilities Trade payables Other taxation and social security Other payables Accruals Contract liabilities Deferred consideration Trade and other payables Total current liabilities As at 31 December 2020 £'000 As at 31 December 2019 £'000 1,334 1,334 - - 838 838 149 149 16,634 16,577 445 2,130 5,611 603 352 25,775 27,109 107 1,096 8,155 1,634 - 27,569 28,556 Revenues totalling £1,634,000 were recognised in the year ended 31 December 2020 that were included in the contract liability balance as at 31 December 2019. Deferred consideration relates to the software asset and license acquisition, of which £352,000 of the total consideration is payable within one year. Amounts payable after the end of 2021 are shown in note 19. Currency analysis Sterling Euro US Dollar Chinese Renminbi Other Total current liabilities As at 31 December 2020 £'000 As at 31 December 2019 £'000 9,877 10,112 6,121 625 374 17,473 3,735 6,150 788 410 27,109 28,556 The fair value of financial liabilities approximates to their carrying value due to short maturities. 21. Leases Amounts recognised in the Consolidated statement of financial position The Consolidated statement of financial position shows the following amounts relating to leases: Right-of-use assets Balance at 1 January 2019 Impact of foreign exchange translation New leases recognised in the year Disposal Depreciation charge for the year Balance at 31 December 2019 Impact of foreign exchange translation New leases recognised in the year Depreciation charge for the year Balance at 31 December 2020 These are included within “Property, plant and equipment” in the Consolidated statement of financial position. £'000 3,897 3 2,101 (151) (889) 4,961 (57) 3,853 (1,164) 7,593 103 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 21. Leases (continued) Lease liabilities Maturity analysis – contractual undiscounted cash flows: Less than one year More than one year, less than two years More than two years, less than three years More than three years, less than four years More than four years, less than five years More than five years Total undiscounted lease liabilities at year end Finance costs Total discounted lease liabilities at year end Lease liabilities included in the statement of financial position: Current Non-current Amounts recognised in the Consolidated income statement The Consolidated income statement shows the following amounts relating to leases: Depreciation charge – leasehold property Depreciation charge – fixtures and fittings Depreciation charge – computer hardware Interest expense (within finance expense) As at 31 December 2020 £'000 As at 31 December 2019 £'000 1,761 1,703 1,403 1,204 1,185 3,513 10,769 (1,790) 8,979 1,334 7,645 8,979 1,044 1,305 1,070 977 933 2,822 8,151 (1,811) 6,340 838 5,502 6,340 Year ended 31 December 2020 £'000 Year ended 31 December 2019 £'000 1,069 51 44 1,164 433 782 54 53 889 419 The above leases relate to office space, computer equipment and motor vehicles. The net book value by category is set out in note 13. Any expense for short-term and low-value leases is not material and has not been presented. 104 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS22. Share capital The authorised, issued and fully paid number of shares are set out below: Ordinary shares Number Deferred shares Number Total share capital £ Share premium £ Ordinary shares of 1p each: At 31 December 2019 and 31 December 2020 167,450,893 12,564,501 1,800,154 78,451,312 The ordinary shares have full voting, dividend and capital distribution rights, including on winding up. They are non- redeemable. The holders of the deferred shares are not entitled to vote or participate in a dividend or other distribution. On a return of capital, the holders of the deferred shares shall be entitled to receive only the amount paid-up or credited as paid-up and shall become entitled to receive such amount only once the holders of the ordinary shares have been paid in respect of each ordinary share the amount paid-up or credited as paid-up thereon plus £250,000,000. The deferred shares are non-redeemable by the holders. The Company intends to purchase all of the deferred shares on the date of the Company's Annual General Meeting in 2021, on the basis of each of the eight holders of deferred shares receiving no more than £1 each in respect of such purchase. Accordingly, the deferred shares are excluded from the calculation of earnings per share as presented in note 11. 23. Analysis and reconciliation of net cash/(debt) Cash at bank and in hand Lease liabilities Borrowings Net cash/(debt) Cash at bank and in hand Lease liabilities Net cash/(debt) 1 January 2019 £'000 8,150 (5,147) (65,199) New leases £'000 - (2,101) - (62,196) (2,101) Other non-cash changes - - (412) (412) Cash flow £'000 920 770 64,411 66,101 Foreign exchange adjustments 31 December 2019 £'000 (209) 138 1,200 1,129 8,861 (6,340) - 2,521 1 January 2020 £'000 8,861 (6,340) 2,521 New leases £'000 Cash flow £'000 - (3,853) (3,853) (1,366) 1,141 (225) Foreign exchange adjustments 31 December 2020 £'000 (429) 73 (356) 7,066 (8,979) (1,913) 105 The Pebble Group plc Annual Report and accounts 2020Credit risk The Group's principal financial assets are cash, trade receivables, other receivables and contract assets. Contract assets, when invoiced, are recognised in trade receivables. The credit risk associated with cash is limited, as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from the Group's trade receivables. In order to manage credit risk; the Directors set limits for customers based on a combination of payment history and third-party credit references. Credit limits are reviewed on a regular basis in conjunction with debt ageing and collection history. The credit losses historically incurred by the Group have been negligible as referred in note 17. Interest rate risk, including cash flow interest rate risk The Group finances its operations through retained profits. The Group is therefore not susceptible to interest rate risk. Sensitivity to interest rate fluctuations As the debt was settled as part of the IPO proceeds there is minimal interest rate risk and therefore sensitivity to interest rate disclosures have not been made. Notes to the Group financial statements (continued) 24. Financial risk management and financial instruments by category The Group uses various financial instruments. These include cash, issued equity instruments and various items, such as trade receivables and trade payables that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group's operations. The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below. The main risks arising from the Group's financial instruments are market risk, credit risk and liquidity risk. The Directors review and agree policies for managing each of these risks and they are summarised below. Market risk Market risk encompasses three types of risk, being currency risk, interest rate risk and price risk. In this instance; price risk has been ignored as it is not considered a material risk to the business. The Group's policies for managing interest rate risk are set out in the subsection entitled “Interest rate risk” below. Currency risk The Group contracts with certain customers and suppliers in Euros and Dollars and manages this foreign currency risk using forward foreign exchange contracts. Hedge accounting is not applied. The Group's exposure to foreign currency risk at the end of the reporting period is set out in notes 17, 18, 19 and 20. As the Group derives an amount of its earnings from overseas operations, the Group is affected by movements in exchange rates. This would affect both the balance sheet and the income statement. For a 10% strengthening in the Sterling exchange rate, the trading operating profit would reduce by £866,000 (2019: £606,000) and the net assets would decrease by £2,131,000 (2019: £1,027,000). A 10% weakening of the Sterling against the individual functional currencies would have the equal and opposite effect on operating profit and net assets as shown above on the basis that all other variables remain constant. Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs by closely managing the cash balance. The Group policy throughout the year has been to ensure continuity of funding. Short-term flexibility is achieved by revolving working capital facilities. The Company is party to a Group cross-guarantee banking arrangement, which is a revolving credit facility of £10,000,000 expiring in November 2023. Interest is charged at a rate of LIBOR + 1.9%. As at year end the balance on the facility was £nil. There is also an overdraft facility of 11,000,000 RMB for Brand Addition (Shanghai) Trading Co. Limited, which is guaranteed by the Company. At year end, the balance on the facility was £nil. 106 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS24. Financial risk management and financial instruments by category (continued) Summary of financial assets and liabilities by category The carrying amount of financial assets and liabilities recognised may also be categorised as follows: Financial assets Financial assets measured at amortised cost Trade and other receivables Contract assets Cash and cash equivalents Financial assets measured at fair value through profit or loss FX derivative asset Financial liabilities Financial liabilities measured at amortised cost Non-current: Lease liabilities Deferred consideration Current: Lease liabilities Trade and other payables Accruals Contract liabilities Deferred consideration Net financial assets and liabilities Non-financial assets and liabilities Plant, property and equipment Goodwill Other intangible assets Inventory Prepayments Deferred tax asset Deferred tax liability Other taxation and social security Current tax assets/(liabilities) Total equity As at 31 December 2020 £'000 As at 31 December 2019 £'000 19,353 675 7,066 27,094 22 27,116 (7,645) (930) (1,334) (18,764) (5,611) (603) (352) 22,964 1,676 8,861 33,501 58 33,559 (5,502) - (838) (17,673) (8,155) (1,634) - (35,239) (33,802) (8,123) (243) 9,102 35,802 18,215 12,109 938 493 (2,637) (445) 829 74,406 66,283 6,081 35,882 14,285 7,952 846 167 (1,816) (107) (149) 63,141 62,898 The maturity analysis for lease liabilities is presented in note 19. All other financial liabilities have a maturity of less than 12 months (i.e. are all current), with the exception of deferred consideration as explained in note 19. 107 The Pebble Group plc Annual Report and accounts 2020Notes to the Group financial statements (continued) 24. Financial risk management and financial instruments by category (continued) Capital management policies and procedures The Group's capital management objectives are: • to ensure the Group's ability to continue as a going concern; and • to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk. This is achieved through close management of working capital and regular reviews of pricing. Decisions on whether to raise funding using debt or equity are made by the Board based on the requirements of the business. Capital for the reporting period under review is shown in the table on the previous page. The only derivative financial instrument assets used by the Group are foreign currency forward contracts that are disclosed in the table on the previous page. These derivatives are only used for economic hedging purposes and not as speculative investments. They are classified as “held for trading” for accounting purposes and are accounted for at fair value through profit or loss. They are presented as current assets or liabilities to the extent they are expected to be settled within 12 months after the end of the reporting period. The gross value of foreign currency forward contracts held at the end of the reporting period was $9,150,000 and €14,447,000. The contracts mature within one to twelve months of the year end. 25. Share-based payments In the year ended 31 December 2020 the Group operated an equity-settled share-based payment plan as described below. The Group recognised total expenses of £13,569 in respect of equity-settled share-based payment transactions in the year ended 31 December 2020. The Pebble Group Plc Long-Term Incentive Plan (the 'LTIP') Certain employees of the Company, along with other Group employees, have been granted share options on 21 December 2020 under the LTIP, further details of which can be found in the Remuneration Report on page 63. Under the LTIP, the Group has made awards over 1,252,477 conditional shares to certain Directors and employees. The vesting of most of these awards is subject to the Group achieving certain performance targets under the LTIP, measured over a three-year period, as set out in the Remuneration Report. The options are split into two parts with the amount of Part 1 options that will vest depending on achievement of the Group's total Adjusted EPS (“AEPS”) whilst Part 2 depends on absolute total shareholder return (“TSR”) that will vest depending on performance of the Company's Absolute TSR: Part 1 options - AEPS Part 2 options - TSR Proportion of award 70% 30% Details of the maximum total number of Ordinary Shares which may be issued in future periods in respect of awards outstanding at 31 December 2020 are shown below: Number of shares - 1,252,477 1,252,477 At 1 January 2020 Granted in the year At 31 December 2020 108 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS25. Share-based payments (continued) The fair value at grant date is independently determined using an adjusted form of the Black-Scholes model which includes a Monte Carlo simulation model that takes into account the exercise price, the term of the option, the share price at grant date and expected price volatility of the underlying share based on the AIM Price Index over the past 3 years, and the risk-free interest rate for the term of the option as shown below: Share price at grant date Exercise price Expected volatility Expected life Expected dividend yield Risk-free interest rate Fair value per option TSR condition 31 December 2020 AEPS condition 31 December 2020 105.0p £nil 17.2% 3 years 0% 0.53% 22.28p 110.5p £nil - 3 years - - 110.5p Performance conditions 2020 award 70% cumulative adjusted EPS and 30% TSR Cumulative adjusted EPS Adjusted EPS as defined in the LTIP rules, excludes share-based payment costs, exceptional items and amortisation from acquired intangibles Cumulative adjusted EPS for the 3 years ended 30 June 2023 Threshold (25% of maximum vesting) 13.4p Mid-range (60% of maximum vesting) 14.3p Maximum (100% of maximum vesting) 15.1p Annualised TSR Annualised growth in total shareholder returns Threshold 8% pa (25% maximum vesting) Mid-range 11.3% pa (60% maximum vesting) Maximum 15% pa (100% maximum vesting) 26. Related party transactions The Directors consider there to be no ultimate controlling party following Admission in December 2019. During the current and prior year, related parties include representatives of major shareholders and parent and intermediate parent entities ultimately owned by the same shareholders. Related party balances with the Company are as follows, with key management compensation given in note 6. From 8 May 2017 the Group and Elysian Capital LLP were related parties due to the existence of common members/ directorships and because the private equity funds Elysian Capital II LP and Elysian Executive Management LP, which are managed by Elysian Capital LLP, owned a controlling interest in The Pebble Group (Holdings) Limited up to Admission in December 2019. The Group had issued loan notes with a nominal value of £7,151,380 to Elysian Capital II LP and £493,064 to Elysian Capital Executive Management. The loan notes bore interest compounded at 10% per annum. Total interest payable in the year was £nil (2019: £832,438) and the balance at year end was £nil (2019: £nil) as the balance of £2,145,115 was repaid on Admission. The Group had issued preference shares with a nominal value of £12,257,240 to Elysian Capital II LP and £845,098 to Elysian Capital Executive Management. Dividends accrued on the preference shares at a compounding rate of 10%. The total amount accrued in the year was £nil (2019: £1,404,845) and the balance at year end was £nil (2019: £nil) as the total outstanding balance of £3,654,858 was repaid on Admission. A number of the Group's senior managers were shareholders in The Pebble Group (Holdings) Limited up to the date of Admission and of The Pebble Group plc post Admission. This includes certain Directors as set out in the Directors' Remuneration Report on page 63. The Group had issued loan notes with a nominal value of £555,316 to management. The loan notes bore interest compounded at rates between 4% and 10% per annum. Total interest payable in the year was £nil (2019: £46,256) and the balance at the year end was £nil (2019: £nil) as the total outstanding balance of £120,110 was repaid on Admission. The Group had issued preference shares with a nominal value of £599,417 to management. Dividends accrued on the preference shares at a compounding rate of 10%. The total amount accrued in the year was £nil (2019: £64,270) and the year-end balance was £nil (2019: £nil) as the total outstanding balance of £167,206 was repaid on Admission. The Group and Beechbrook Private Debt Ill SARL were related parties as Beechbrook Private Debt Ill SARL was a minority shareholder in The Pebble Group (Holdings) Limited until Admission. The Group had issued loan notes with a nominal value of £481,388 to Beechbrook Private Debt Ill SARL. The loan notes bore interest compounded at rates between 4% and 10% per annum. Total interest payable at the year ended 31 December 2020 was £nil (2019: £43,716) and the year end balance was £nil (2019: £nil) as the total outstanding balance of £151,936 was settled on Admission. The Group had issued preference shares with a nominal value of £609,411 to Beechbrook Private Debt Ill SARL. Dividends accrued on the preference shares at a compounding rate of 10%. The total amount accrued in the year was £nil (2019: £65,342) and the year-end balance was £nil (2019: £nil) as the total outstanding balance of £169,993 was settled on Admission. 109 The Pebble Group plc Annual Report and accounts 2020Company balance sheet As at 31 December 2020 Fixed assets Investments Current assets Trade and other receivables (including £3,000 (2019: £nil) falling due after more than one year) Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Net assets Capital and reserves Called up share capital Share premium Merger relief reserve Share-based payment reserve Retained earnings Total shareholders’ funds Note 2020 £’000 2019 £’000 5 6 7 8 9 126,106 126,106 60,203 60,203 (198) 60,005 59,602 59,602 (1,975) 57,627 186,111 183,733 186,111 183,733 1,800 78,451 713 13 105,134 186,111 1,800 78,451 713 - 102,769 183,733 The Company has taken advantage of the exemption permitted by Section 408 of the Companies Act 2006 not to produce its own profit and loss account. The profit for the year dealt within the financial statements of the Company was £2,365,000 (2019: loss for the period of £766,000). The Company financial statements on pages 110 to 115 were approved by the Board of Directors on 23 March 2021 and were signed on its behalf by: C Thomson Director 23 March 2021 The notes on pages 112 to 115 form part of these Company financial statements. 110 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS Company statement of changes in equity For the year ended 31 December 2020 Share capital £’000 Share premium £’000 Merger relief reserve £’000 Share-based payment reserve £’000 Retained earnings £’000 On incorporation on 27 September 2019 Loss for the period Total comprehensive expense for the period Transactions with owners: Shares issued in the period Bonus issue of shares Capital reduction Issue of shares on IPO Total transactions with owners, recognised in equity Balance at 31 December 2019 Profit for the year Total comprehensive income for the year Employee share schemes – value of employee services (note 9) Total transactions with owners, recognised in equity – – – 58 104,523 (103,535) – – – – – – 754 78,451 1,800 1,800 78,451 78,451 – – – – – – – – – – – 105,236 (104,523) – – 713 713 – – – – Balance at 31 December 2020 1,800 78,451 713 The notes on pages 112 to 115 form part of these Company financial statements. – – – – – – – – – – – 13 13 13 Total equity £’000 – (766) (766) 105,294 – – – (766) (766) – – 103,535 – 79,205 103,535 184,499 102,769 183,733 2,365 2,365 2,365 2,365 – – 13 13 105,134 186,111 111 The Pebble Group plc Annual Report and accounts 2020Notes to the Company financial statements 1. General information The Pebble Group plc (the “Company”) was incorporated in the United Kingdom on 27 September 2019 and is a public company limited by shares, registered and domiciled in England & Wales. The registered office of the Company is Broadway House, Trafford Wharf Road, Trafford Park, Manchester, England M17 1DD. The company registration number is 12231361. The Company’s principal activity is that of a holding company. 2. Accounting policies (a) Reporting framework The separate financial statements of the Company have been prepared in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland (“FRS 102”), on the going concern basis under the historical cost convention, and in accordance with the Companies Act 2006. The financial information is presented in Sterling and has been rounded to the nearest thousand (£’000). The principal accounting policies, which have been applied consistently to all the years presented, are set out below. (b) Financial Reporting Standard 102 – reduced disclosure exemptions The following exemptions from the requirements in FRS 102 have been applied in the preparation of these financial statements: • the requirements of section 7 Statement of Cash Flows; • the requirements of section 3 Financial Statement Presentation, paragraph 3.17(d); • the requirements of section 11 Financial Instruments, paragraphs 11.41(b), 11.41(c), 11.41(e). 11.41(f), 11.42, 11.44 to 11.45, 11.48(a)(iii), 11.48(a)(iv),11.48(b) and 11.48(c); • the requirements of section 12 Other Financial Instruments, paragraphs 12.26 to 12.27, 12.29(a), 12.29(b) and 12.w9A; and • the requirements of section 33 Related Party Disclosures, paragraph 33.7. This information is included in the Group financial statements found earlier in this report. (c) Company profit and loss account The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The Company’s profit for the year was £2,365,000 (2019: loss for the period of £766,000). There are no material differences between the profit in the current year and its historical cost equivalent. Accordingly, no note of historical cost profits and losses has been presented. (d) Going concern The Company meets its day-to-day working capital requirements through cash generated from the Group in which it holds its investment and utilising its overdraft facility to fund peak seasonal demands. The Directors have prepared cash flow forecasts and projections for the two years ending 31 December 2022 for the Group; see the going concern disclosure within the Group financial statements. Based on this, the Directors are satisfied that the Company has adequate resources to continue in 112 operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Company financial statements. (e) Dividend distribution The distribution of a dividend to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the year in which it is approved by the Company’s shareholders. (f) Investment in subsidiary undertakings Investments in subsidiaries are stated at cost less accumulated impairment. (g) Taxation Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where events or transactions that result in an obligation to pay more tax in the future, or a right to pay less tax in future, have occurred at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. A net deferred tax asset is regarded as recoverable and therefore recognised only to the extent that, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. (h) Share-based payments Equity-settled awards are valued at the grant date, and the fair value is charged as an expense in the income statement spread over the vesting period. Fair value of the awards are measured using an adjusted form of the Black-Scholes model which includes a Monte Carlo simulation model. The fair value of the options, appraised at the grant date, includes the impact of market-based vesting conditions. Share-based remuneration is recognised as an expense in profit or loss with the credit side of the entry being recorded in equity. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any adjustment to cumulative share-based compensation resulting from a revision is recognised in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTShaving retained some significant risks and rewards of ownership, control of the asset has been transferred to another party who has the practical ability to unilaterally sell the asset to an unrelated third party without imposing additional restrictions. (ii) Financial liabilities Basic financial liabilities, including trade and other payables, are initially recognised at transaction price. Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method. 3. Critical accounting estimates and judgements In the preparation of the Company financial statements, the Directors, in applying the accounting policies of the Company, make some judgements and estimates that affect the reported amounts in the financial statements. The following are the areas requiring the use of judgement and estimates that may significantly impact the financial statements. Non-current asset impairment The Directors are required to assess whether there are any indicators of impairment at each reporting date. All relevant potential indicators are considered, including the performance of the underlying trading Group and the results of the Group’s impairment reviews performed as at the same date. The Directors exercise their judgement in determining whether any such indicators exist. Where an indicator of impairment is identified in relation to the Company’s investments, a full impairment review is performed. The Directors performed their assessment and concluded that no impairment indicators existed at 31 December 2020 and, as such, a full impairment review over the Company’s investments in subsidiaries was not performed. 4. Remuneration of directors and auditors Details of Directors’ remuneration are shown in the Directors’ Remuneration Report on page 62 of the Group financial statements. Details of auditors’ remuneration are shown in note 9 of the Group financial statements. The Company has no employees (2019: none). 2. Accounting policies (continued) (i) Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds of issue. (j) Share premium Share premium represents the difference between the nominal value of shares issued and the fair value of consideration received. Any transaction costs associated with the issuing of shares are deducted from share premium, net of any related income tax benefits. (k) Merger relief reserve The merger relief reserve included in other reserves was created during 2019 as a result of the share-for-share exchange under which The Pebble Group plc became the parent undertaking prior to the IPO. The merger relief reserve includes the premium received on the issue of share capital in the share-for-share exchange. (l) Retained earnings Retained earnings includes all current and prior period retained profits and losses. All transactions with owners of the parent are recorded separately within equity. (m) Cash and cash equivalents Cash and cash equivalents comprise cash balances. (n) Financial instruments The Company has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments. (i) Financial assets Basic financial assets, including trade and other receivables, cash and bank balances and investments, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Such assets are subsequently carried at amortised cost using the effective interest method. At the end of each reporting period, financial assets measured at amortised cost are assessed for objective evidence of impairment. If an asset is impaired the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset's original effective interest rate. The impairment loss is recognised in profit or loss. If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss. Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled, or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party or (c) despite 113 The Pebble Group plc Annual Report and accounts 2020Notes to the Company financial statements (continued) 5. Investments Cost and carrying amount At 31 December 2019 and 31 December 2020 £’000 126,106 The Directors believe that the carrying value of the investments is supported by their underlying net assets. The Company directly owns the whole of the issued ordinary shares of the following subsidiary undertakings: Name Registered address Principal activity Class of share Percentage holding The Pebble Group (Holdings) Limited Broadway Project Amber Bidco Limited H.I.G Milan UK Topco Limited H.I.G Milan UK Midco Limited H.I.G Milan UK Bidco Limited Brand Addition Limited Product Plus International Limited Gearworks Limited Brand Addition Asia Limited Brand Addition Ireland Limited Brand Addition Reklam Urunleri Dagitim ve Ticaret Limited Sirketi Brand Addition (Shanghai) Trading Co., Limited Trafford Wharf Road Manchester M17 1DD Unit 1605 16th Floor Tower 3 Enterprise Square No. 9 Sheung Yuet Road Kowloon, Hong Kong Unit G2 Calmount Business Park Ballymount, Dublin 12 Buyukdere Caddesi Meydan Sokak Spring Giz Plaza Kat:13 Sisli-Istanbul, Turkey Room 302, Qian Li Center (building T6) Baolong Plaza, No 6 311 Xinlong Road Qibao Town, Minhang District Shanghai, China Holding company Holding company Holding company Holding company Holding company Ordinary Ordinary Ordinary Ordinary Ordinary Promotional merchandise Ordinary Non-trading Non-trading Ordinary Ordinary Promotional merchandise Ordinary 100% 100% 100% 100% 100% 100% 100% 100% 100% Promotional merchandise Ordinary 100% Promotional merchandise Ordinary 100% Promotional merchandise Ordinary 100% H.I.G. Milan Germany Bidco GmbH Brand Addition GmbH Heydastrasse 13-15 58093 Hagen, Germany Holding company Ordinary Promotional merchandise Ordinary The Pebble Group US Bidco Inc. Gateway CDI Inc. Facilisgroup LLP 909 North 20th Street Saint Louis, MO 63103 Holding company Ordinary Promotional merchandise Ordinary 1600 S Brentwood Blvd., Ste 800, Brentwood, MO 63144 Promotional merchandise service provider Ordinary 100% 100% 100% 100% 100% Facilisgroup Canada Inc. 5320 Canotek Road Gloucester, ON K1J 9C1 Promotional merchandise service provider Ordinary 100% Other than The Pebble Group (Holdings) Limited, which is directly held by the parent, all subsidiaries are indirectly held. 114 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTS6. Trade and other receivables Amounts falling due within one year: Amounts owed by Group undertakings Other debtors Amounts falling due after more than one year: Deferred tax asset All of the amounts owed by Group undertakings shown above are repayable on demand. The deferred tax asset recognised relates to share-based payments. 7. Creditors: amounts falling due within one year Accruals 2020 £’000 2019 £’000 60,135 59,568 65 34 60,200 59,602 3 3 – – 60,203 59,602 2020 £’000 198 198 2019 £’000 1,975 1,975 The Company is party to a Group cross-guarantee banking arrangement, which is a revolving credit facility of £10,000,000 expiring in November 2023. Interest is charged at a rate of LIBOR + 1.9%. As at year end the facility had not been used and the balance was £nil. 8. Called up share capital Details of movements in shares are set out in note 22 to the Group financial statements. 9. Share-based payments Details of share-based payments are set out in note 25 to the Group financial statements. 10. Related party transactions The Company has taken advantage of the exemption included in Section 33 of FRS 102 “Related Party Disclosures” to not disclose details of transactions with Group undertakings, on the grounds that it is the parent company of a Group whose financial statements are publicly available. Directors’ transactions Details of the Directors’ interests in the ordinary share capital of the Company are provided in the Directors’ Report. 115 The Pebble Group plc Annual Report and accounts 202031 December 2020 23 March 2021 6 May 2021 3 June 2021 Early September 2021 31 December 2021 Financial calendar Financial year end Preliminary announcement of full-year results Publication of Annual Report and financial statements Annual General Meeting Preliminary announcement of half-year results Financial year end Company information Nominated adviser Grant Thornton UK LLP 30 Finsbury Square London EC2A 1AG Broker Joh. Berenberg, Gossler & Co. KG, London Branch 60 Threadneedle Street London EC2R 8HP Auditors PricewaterhouseCoopers LLP No 1 Spinningfields Hardman Square Manchester M3 3EB Legal adviser Addleshaw Goddard LLP One St Peter’s Square Manchester M2 3DE Registrar Equiniti Group plc Broadgate Tower 20 Primrose Street London EC2A 2EW Financial PR Belvedere PR 25 Finsbury Circus London EC2M 7EE Registered office The Pebble Group plc Broadway House Trafford Wharf Road Trafford Park Manchester M17 1DD Company number: 12231361 116 The Pebble Group plc Annual Report and accounts 2020FINANCIAL STATEMENTSBuilding brands. Growing relationships. Strengthening businesses. Our vision is to become the partner of choice for both global brands that use promotional products as a key stakeholder engagement tool, and small and medium sized enterprises (SME) distributors that seek to professionalise and grow their promotional products’ businesses in North America. Stay up to date at thepebblegroup.com Our history 2012 2014 2016 2017 Management buy-out of Brand Addition, supported by H.I.G. Europe Capital Partners LP and by Beechbrook Capital LLP. Expanded operations into Shanghai, established a full-service office enabling further development of overseas capabilities. Acquisition of US-based Gateway CDI (now Brand Addition US), increasing market share and providing greater access to the largest single regional market for promotional products. Secondary management buy-out supported by Elysian Capital and Beechbrook Capital LLP. Formation of The Pebble Group as parent company to Brand Addition. The material used in this report has been harvested in a responsible manner from an FSC accredited mill. Produced and printed by Perivan. T h e P e b b l e G r o u p p l c A n n u a l R e p o r t 2 0 2 0 Building brands. Growing relationships. Strengthening businesses. Broadway House Trafford Wharf Road Trafford Park Manchester M17 1DD The Pebble Group plc Annual Report 2020 

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