Pebble Beach Systems Group plc A leading global software business specialising in playout, content management, and IP control solutions for the broadcast and media technology markets. ANNUAL REPORT 2023 P e b b l e B e a c h S y s t e m s G r o u p p l c A n n u a l R e p o r t & F i n a n c i a l S t a t e m e n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 2 3 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 www.pebbleplc.com Stock code: PEB 31591 23 April 2024 5:21 pm v1 CONTENTS STRATEGY 1 2–4 5–11 Business Overview Non–Executive Chairman’s Statement Strategic Report GOVERNANCE 12–13 The Board 14–18 Directors’ Report 19–25 Corporate Governance Statement 26–29 Remuneration Report FINANCIALS 30–36 Independent Auditor’s Report To The Members of Pebble Beach Systems Group plc 37 38 39 40 41 Consolidated Statement of Profit and Loss Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Shareholders’ Equity Consolidated Statement of Cash Flows 42–73 Notes to the Consolidated Financial Statements 74 75 76 77 Company Consolidated Statement of Comprehensive Income Company Statement of Financial Position Company Statement of Changes in Shareholders’ Equity Company Statement of Cash Flows 78–91 Notes to the Company Financial Statements COMPANY INFORMATION 92 93 Analysis of Shareholders Shareholder Information 31591 23 April 2024 5:21 pm v1 BUSINESS OVERVIEW PEBBLE BEACH SYSTEMS GROUP PLC Pebble Beach Systems Group plc (Pebble) is incorporated in England (company registration number 04082188) and has its registered office at Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN. The Group comprises Pebble Beach Systems Limited and its subsidiary companies. Pebble is a world leader in designing and delivering automation, integrated channel and virtualised playout software solutions, with scalable products designed for applications of all sizes. Founded in 2000, Pebble has commissioned systems in more than 70 countries, with proven installations ranging from single up to over 150 channels in operation, and around 2,000 channels currently on air under the control of its automation technology. An innovative, agile company, Pebble is focused on discovering its customers’ requirements and pain points, designing solutions which will address these elegantly and efficiently, and delivering and supporting these professionally and in accordance with its users’ needs. OPERATIONAL AND FINANCIAL HIGHLIGHTS • Delivered results ahead of market expectations, with revenue of £12.4 million (FY22: £11.2 million) and adjusted* EBITDA of £3.8 million (FY22: £3.2 million), despite continued tough economic conditions, with EBITDA also showing year on year growth of £3.6 million (FY22 £2.9 million). • Gross profit continued to increase YoY, with a 14% uplift to £9.5 million, at a margin of 77% (FY22: 75%). • Recurring revenue from support, maintenance and subscription arrangements within the Group’s contracts up 13% to £5.2 million (FY22: £4.6 million), with recurring revenues representing approximately 42% (FY22: 41%) of total revenue and this upward trend is expected to accelerate. • Orders in 2023 of £11.0 million (FY22: £11.3 million), 3% down on FY22. This is due to delays in Service Level Agreement renewals as an exercise was carried out to ensure charges are at the appropriate level for the standard of support contracted. £0.8 million of SLA renewals slipped into FY24. • We saw a strong project order intake in H2. H2 orders were £4.0 million, 82% up on H1 order intake (H1: £2.2 million). • Increased investment in our cloud-native solutions to support customers transition to IP-based technology. R&D spend of £2.1 million capitalised in the year, 17% up on 2022 (2022: £1.8 million). A further £0.4 million was spent on research and written off as incurred (2022: £0.6 million). • Appointed a new Chief Commercial Officer with significant market experience to support the Group’s market growth strategy and new product launches. • The Group continues to reduce its indebtedness, with a further £1.0 million reduction in gross debt from £6.5 million at the end of FY22 to £5.5 million at the end of FY23. Net debt (excluding IFRS 16 leases) at the year-end was £4.7 million (2022: £5.8 million). Net debt (including IFRS 16 leases) at the year-end was £4.9 million (2022: £6.0 million). • Cash generated from operations was £3.9 million (2022: £2.7 million). • 104% of Adjusted EBITDA was converted to cash generated from operations (2022: 85%) allowing the Group to continue to invest in new products and services at the same time as continuing to reduce our levels of debt. • Adjusted EPS** increased 27% to 1.4p (2022: 1.1p). • EPS also increased 33% to 1.2p (2022: £0.9p). • Bank facilities re-negotiated in March 2024 with a new term loan facility in place until 31 October 2026. * Adjusted EBITDA is defined as operating profit before depreciation, amortisation and impairment of acquired intangibles, amortisation of capitalised development costs, share based payment expense, non-recurring items and exchange gains or losses charged to the income statement. ** Adjusted EPS is calculated on the same basis as basic earnings per share except for the adding back of the after–tax effect of the adjustments for amortisation and impairment of acquired intangibles, share based payment expense, non-recurring items and exchange gains and losses. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 01 STRATEGY NON–EXECUTIVE CHAIRMAN’S STATEMENT Net finance costs increased in 2023 reflecting the Group’s pay-down of £1.0 million of its term loan which was more than offset by an increased interest rate of 8.80% (2022: 5.23%). Adjusted profit before tax was £1.7 million (FY22: £1.4 million) and adjusted earnings per share was 1.4p (2022: 1.1p). An increase in adjusted profit before tax and adjusted earnings per share is driven by an additional £0.6 million of adjusted EBITDA, partially offset by increased interest expense. The profit before tax for the year was £1.5 million (2022: £1.2 million) driven by the increased EBITDA from the improved revenue generation in 2023. This resulted in an earnings per share of 1.2p (2022: 0.9p). We have continued to invest in our headcount, with a focus on commercial recruitment to support our anticipated new product launches, including the appointment of a new CCO. Net debt (excluding IFRS 16 leases) at the year-end was reduced by £1.1 million to £4.7 million (2022: £5.8 million), comprising a cash position at year-end of £0.8 million (2022: £0.7 million) and our gross debt being reduced by £1.0 million to £5.5 million (2022: £6.5 million). For the first time in eight years, we closed with a positive group balance sheet for the year ending 2023. INTRODUCTION I am delighted to be reporting on a year when our results are ahead of market expectations. This has been achieved despite a challenging financial climate and continued disruption in the broadcast market. This achievement is a testament to our people and their delivery of our growth strategy. Against the challenges of the global macro environment, characterised by high interest rates, rising inflation, and geopolitical tension, the Group has been able to continue to invest in new software solutions whilst at the same time pressing on with reducing our overall indebtedness. We are reporting on a year of continued strong cash generation; now further strengthened by a significant increase in our recurring revenues. This has allowed us to continue to reduce the historic debt burden whilst at the same time completing a number of successful internal initiatives. Those initiatives included the mitigation of the increased hardware lead time, through a temporary increase in hardware inventory, which has now been reduced to normal levels as supply issues have eased. This has allowed us to turn around a high number of orders booked in H2 2023, resulting in H2 revenue being 13% up on the previous year. We continue to invest in project ‘Oceans’, our new software platform, which will be launched publicly in April as PRIMA; Platform for Real-time Integrated Media Applications. The platform uses state of the art software technology to provide customers with increased flexibility, scalability, and security for Pebble solutions. FINANCIALS Revenue in FY23 was up 11% at £12.4 million (2022: £11.2 million) including recurring revenue from support, maintenance and subscription arrangements within the Group’s contracts, up 13% to £5.2 million (2022: £4.6 million). I am pleased to report that recurring revenue represents 42% (2022: 41%) of total revenue and provides good visibility of future years’ forecasts. We expect the upward trend in recurring revenue to accelerate over 2024. Gross profit was £9.5 million with the Group enhancing its gross margin to 77% (2022: £8.3 million at a margin of 75%). Our gross margin increased as a result of reduced third party hardware and software costs. Adjusted EBITDA was £3.8 million (2022: £3.2 million), representing an Adjusted EBITDA margin of 31% (2022: 28%). Improved year on year EBITDA margin was achieved following a strong revenue performance and careful management of our costs. Conversion of profit to cash remained strong in 2023 with 104% of Adjusted EBITDA converted to cash generated from operations (2022: 85%) allowing our continued investment in new products and services at the same time as continuing to reduce our levels of debt. We continue to view investment in the development of new products and services as key to future growth and continue to innovate by investing in new technologies. In the year, we capitalised £2.1 million of development costs (amortised £1.3 million), (2022: capitalised £1.8 million and amortised £1.1 million). R&D expenditure as a proportion of revenue was 21% (2022: 22%). 02 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 TERM LOAN We continue to enjoy a good relationship with our bank, Santander, who remain very supportive of our strategy to reduce our debt position whilst having the flexibility to invest in developing our new technology solutions. In March 2024 we agreed a new long-term facility with Santander, refinancing the existing £5.5 million loan facility until 31 October 2026. The new agreement has the same covenant tests as the last agreement and a repayment schedule consistent with previous years. MARKET POSITIONING Pebble is a leading global software business specialising in playout, content management, and IP control solutions for the broadcast and media technology markets. Pebble’s primary product offering is playout automation software, the execution of television schedules for broadcast channels. This market primarily consists of television broadcast companies, and service providers that offer outsourced services for the broadcasters. This global market is typified by Pebble customers such as, Fox News, CNBC, IMG, TV Globo. The market also includes some major streaming services, particularly those carrying live content. Pebble’s other core software technology is the management and processing of media associated with broadcast and streaming services, both file-based media and live media streams. This processing includes the composition of graphics, video effects, audio processing, and ancillary services such as subtitles and captioning. Pebble addresses all the requirements of modern broadcast services. All Pebble’s solutions are designed to meet the demanding mission critical requirements of broadcast operations. From compliance with demanding security requirements, to sophisticated resilience to ensure complete on-air reliability, our solutions are architected to achieve the highest levels of performance. Pebble’s customer centric culture is widely recognised as providing market leading service. We manage the customer relationship through the entire system lifecycle, leveraging our deep domain knowledge to deliver solutions tailored to our customers specific needs, and to provide 24/7 in life support of their solutions. Pebble’s portfolio of software-based solutions consists of: Automation: highly scalable enterprise level playout solution for broadcasters or service providers with built around best-of-breed technology. The software allows flexible deployment either on premises, on virtual machines or in the cloud with exceptional levels of system resiliency. Integrated Channel: under the control of our Automation software this solution provides all the functionality of a traditional broadcast chain including audio, video and graphics functionality. Remote: real-time, thin-client access to the playout environment via secure web interfaces. It is easy to use with intuitive interfaces to control, monitor and manage channels remotely. Control: provides connection management of IP devices suitable for TV stations, OB trucks, production houses or anywhere that uses IP workflows. Workflow: a tool for the design and management of complex media workflows. Handles the ingest, indexing, and movement of media to support broadcast channels and streaming services. MARKET OPPORTUNITY AND PRODUCT DEVELOPMENT ROADMAP In 2024, Pebble will introduce a new technology platform PRIMA (Platform for Real-time Integrated Media Applications). This platform represents years of development and will provide the basis for the company’s next generation of software solutions. Built using state of the art technologies, PRIMA will immediately expand Pebble’s addressable market by providing more flexible technical capabilities and a wider range of commercial models. MULTI-PLATFORM CONTENT DELIVERY For Pebble, multi-platform content delivery is its ability to deliver complex workflows to support our customers’ linear and on-demand requirements, Video On Demand, OTT and On- demand. We continue to invest in the development of our Workflow solution on the PRIMA platform, responding to this type of market demand. 4K/UHD PRODUCTION 4K and UHD TV global sales have consistently increased since 2014 according to recent industry statistics. Pebble has already delivered a number of UHD systems to customers, and the development of PRIMA will reduce Pebble’s reliance on third party hardware and software, allowing more cost effective UHD solutions. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 03 STRATEGY NON–EXECUTIVE CHAIRMAN’S STATEMENT IP INFRASTRUCTURE IP infrastructure has been an area of focus for Pebble for some time, and we continue to cement our position as the experts in IP. Our customers are typically either transitioning to IP infrastructure from legacy SDI (traditional non-IP digital video) deployments or are implementing IP infrastructures in a new broadcasting facility or greenfield site, and Pebble supports both. Control is a software solution designed to manage the connectivity of IP devices and is being integrated into the PRIMA platform to expand our IP capabilities. CLOUD COMPUTE: PUBLIC, PRIVATE, & HYBRID As broadcast and streaming services evolve, the media technology industry is constantly seeking more flexible and efficient use of IT infrastructure. Use of cloud compute is a significant trend in the market, and this is a combination of public services such as Amazon and Google, private cloud deployed on a customer’s own infrastructure, and hybrid which is a combination of both. PRIMA has been designed from the ground up to not only support cloud-based infrastructure, but to be technically and economically efficient. To complement Pebble’s development roadmap and to broaden the Group’s product offering, Pebble is also looking for in-organic opportunities in these areas that would accelerate the diversification of the company’s portfolio. Areas of specific focus for potential acquisition opportunities are, production functions such as graphics, and file-based workflows supporting on-demand streaming applications. GOING CONCERN The directors are required to assess the Group’s ability to continue to trade as a going concern. The Board concluded, from its thorough assessment of the detailed forecasts, that the Group will have sufficient resources to meet its liabilities during the review period through to 31 December 2025 and that it is appropriate that the Group prepare accounts on a going concern basis. Detailed disclosure has been made in note 2 to the consolidated financial statements. BOARD CHANGES Graham Pitman, Senior Independent Non-Executive Director, stood down on 30 April 2023. Richard Logan, who has been a Non-Executive Director with the Group since May 2020, became Senior Independent Non-Executive Director on 1 May 2023. TRADING OUTLOOK As the Group enters 2024 with a strong pipeline, a platform for profit growth and with our dedicated, happy workforce, the Board are confident of the opportunities that lay ahead. As a result of the growth in recurring revenues (the portion of revenues expected to continue into the future i.e. Service Level Agreements), and with the benefits that are expected to be delivered from the Group’s new product launches, strong pipeline, and continued debt reduction, we were pleased to announce in our trading update in January 2024 that we expected FY24 trading to be ahead of the prevailing market forecasts. We are confident in the market opportunity for the Company and that the anticipated growth in FY24 will be a platform for further growth in FY25 and beyond. John Varney Non-Executive Chairman 25 March 2024 04 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 STRATEGIC REPORT Our overall strategy is to grow the business through the reinvestment of funds generated by our operations in the development of new software solutions designed for cloud native environments. OUR MISSION To support broadcasters as they adapt to compete with new entrants in the video media space by providing solutions to support their transition from traditional broadcast infrastructure to more flexible IP based technologies STRATEGIC PRIORITIES Focus our existing technology to deliver playout solutions Next generation offering optimised for linear strongholds Capitalise on Pebble Control opportunity Monitor and evaluate emerging trends and markets Take a key role in developing the relevant industry standards – Participate, implement, and champion Have the financial foundations on which to build the business Be a highly effective organisation Re-frame Pebble as an OPEX business • Continue to benefit from our increasingly unique ability to provide both on-prem and private cloud playout solutions. • Launch PRIMA Playout at the NAB Show in April 2024 with a core feature set which will be enhanced and expanded over the coming years. • We will identify how to continue to support investment in the Pebble Control product despite a significant delay in the uptake of IP network technology in the broadcast market. • We will constantly look for areas where we can diversify our offerings to broaden our addressable market. • Remain engaged in the standards debate within the industry, be seen as a thought leader and technical authority in areas appropriate to our solutions. • A healthy balance sheet and greater scale will allow us to attract investment to further expand the business. • We will deliver on our strategy. • We will have a resilient commercial model by improving our quality of income (recurring 60% by 2025) which will reduce the risk surrounding investment and/or cost decisions. 2024 GOALS • We will have a more flexible operating model focussed on enhancing efficiency, labour flexibility, and reseller delivery capability to handle peak load needs without risking unsustainable increases in our cost base. • We will have built on the launch of Pebble Automation 2.0 by adding capabilities which improve its marketability. • We will have commenced with the transformation of Pebble to ensure a prosperous future as an OPEX revenue business. • We will have a structured launch of PRIMA Playout in Q2, ensuring customers are clear how this complements our current offerings and have commenced development of a ‘live’ persona. • We will have the financial capability to expand business either through acquisition or organically. • We will have laid out product roadmaps that strategically reduce our dependence on linear playout. • We will have enhanced our people performance by ensuring that all individuals consistently excel in their roles through full engagement. • We will have delivered our 2024 plans in a timely fashion. • We will have positioned Pebble as a thought leader in our markets and championed open standards that are relevant to our solutions. • We will have realised Pebble’s investment in Pebble Control. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 05 STRATEGY STRATEGIC REPORT WHAT WE DO Pebble is a leading global provider of software and solutions to broadcasters and streaming service providers worldwide. OUR KEY STRENGTHS • Remote operating model with a global, highly-skilled and flexible employee base • Proven technology OUR INNOVATIVE SOLUTIONS Our solutions enable our customers to: • Specialist technical expertise • Ability to overcome complex • Deploy on premises, or in a private challenges or public cloud • Open, pragmatic approach • Evolve to integrated channel • Strong partnerships technology and virtualised playout infrastructures • Benefit from specialist third party software technology • Control best of breed devices • Integrate with legacy systems and devices WHO WE SELL TO Our customers are international, national, regional and specialised broadcasters and service providers who deliver the full range of TV programming from highly scheduled thematic channels to news and current affairs and live sports broadcasting. Key customers include Fox News; CNBC; IMG; and TV Globo. Pebble’s website is: http://www.pebble.tv. Customers are reached through direct sales and partnerships with value-added resellers and systems integrators. The Group remains the principal in all contracts. Whilst both are often focused on market sectors, they share knowledge of customer requirements and market trends, and offer local support where needed. 06 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 FINANCIAL REVIEW Revenue Gross profit Gross margin % Adjusted EBITDA Net assets/ (liabilities) Net debt (excluding IFRS 16 leases) Reported earnings per share (basic) KEY PERFORMANCE INDICATORS 2023 £m 12.4 9.5 77.2% 3.8 0.9 4.7 1.2p 2022 £m 11.2 8.3 74.7% 3.2 (0.7) 5.8 0.9p Change % 10.8% 14.4% 2.5pts 19.2% 228.6% (17.4%) (29.8%) KPI MEASURE CUSTOMERS Order intake 2023 £m 2022 £m % Change DEFINITION/ CALCULATION/ VARIANCE EXPLANATION 11.0 11.3 (2.7%) • Order intake is a measure of new business secured during the year and represents firm orders • Delays in year-end SLA (Service Level Agreements) renewals led to this reduction. £0.8m of SLA renewals are expected to be booked in Q1 2024 Revenue 12.4 11.2 10.8% • Revenue provides a measure of work delivered and is the key measure Recurring revenue 5.2 4.6 PROFITABLE GROWTH Adjusted EBITDA 3.8 3.2 of growth • Increase is due to successful delivery of project orders landed in 2023 and increased quantity and value of SLAs 12.5% • Recurring SLA revenue renewed on an annual basis • Increase due to increased quantity and value of SLAs 19.2% • Adjusted EBITDA is defined as operating profit before depreciation, amortisation and impairment of acquired intangibles, amortisation of capitalised development costs, share based payment expense, non- recurring items and exchange gains or losses charged to the income statement Adjusted EBITDA margin EBITDA 30.5% 28.4% 2.1pts • Adjusted EBITDA in the financial year, divided by revenue for the • Driven by additional revenue year on year financial year £3.6m £2.9m 23.6% • EBITDA is defined as operating profit before depreciation, amortisation and impairment of acquired intangibles, and amortisation of capitalised development costs Adjusted earnings 1.7 1.4 21.4% • The principal adjustments to earnings are made in respect of the Adjusted earnings per share (pence) 1.4p 1.1p amortisation of acquired intangibles, share based payment expense, non-recurring items and exchange gains or losses charged to the income statement and their related tax effects 27.3% • Adjusted earnings per share is calculated on the same basis as basic earnings per share except for the adding back of the after–tax effect of the adjustments for amortisation and impairment of acquired intangibles, share based payment expense, non-recurring items and exchange gains and losses Earnings per share (pence) Profit before tax INNOVATION R&D expenditure as a proportion of revenue 1.2p 0.9p 33.3% • Earnings per share is calculated by dividing net income by the number 1.5 1.2 29.2% • Profit for the year after all costs but before taxation on profit of shares outstanding 20.5% 21.5% (1.0pts) • Calculated as capitalised development costs less amortisation in the period plus R&D expenses charged in the period divided by revenue 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 07 STRATEGY STRATEGIC REPORT FINANCIAL REVIEW CONTINUED TAXATION There was a net tax charge for the year for continuing operations of £Nil (2022: £Nil). This is principally as a result of R&D tax credits in the UK. There was a deferred tax credit of £Nil (2022: £Nil). INTANGIBLE ASSETS IMPAIRMENT In accordance with the requirements of IAS 36 ‘Impairment of assets’, intangible assets are required to be tested for impairment on an annual basis, or where there is an indication of impairment, with reference to the value of the cash-generating units (“CGU”) in question. The carrying value of goodwill at 31 December 2023 is £3.2 million (2022: £3.2 million) which relates solely to Pebble Beach Systems Limited. The carrying value of capitalised development costs at 31 December 2023 is £3.9 million (2022: £3.1 million). The carrying value of Pebble Beach Systems Limited (including goodwill) has been assessed with reference to value in use over a projected period with a terminal value. No impairment is considered necessary. NET ASSETS / (NET LIABILITIES) The Statement of Financial Position at 31 December 2023 is summarised as follows: Intangible assets Property, plant and equipment Net current liabilities excluding cash Other non-current liabilities Net assets / (liabilities) excluding cash Cash and cash equivalents Net assets / (liabilities) 2023 £m 7.1 0.4 (2.5) (4.9) 0.1 0.8 0.9 CASH FLOWS The Group held cash and cash equivalents of £0.8 million at 31 December 2023 (2022: £0.7 million). The table below summarises the cash flows for the year. Net cash generated from operating activities Net cash used in investing activities Net cash used in financing activities Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 2023 £m 3.4 (2.2) (1.1) 0.1 0.7 0.8 2022 £m 6.3 0.6 (2.7) (5.6) (1.4) 0.7 (0.7) 2022 £m 2.2 (2.0) (1.1) (0.9) 1.6 0.7 CASH FLOWS FROM OPERATING ACTIVITIES The cash generated from operations of £3.9 million (see note 25), represented a 104 % conversion of the adjusted EBITDA. This compares with £2.7 million and a conversion rate of 85% in 2022. FY23 included £0.1 million of cash out-goings related to non-recurring items (2022: £0.4 million). Please refer to note 6 for more information. The cash outflow from investing activities amounted to £2.2 million (2022: £2.0 million) which comprised £2.1 million in respect of the capitalisation of development costs (2022: £1.8 million) and £0.1 million in respect of capital expenditure (2022: £0.2 million). The cash outflow from financing activities amounted to £1.1 million (2022: £1.2 million) which is comprised £1.0 million (2022: £1.0 million) of bank loans and £0.1 million (2022: £0.2 million) in respect of lease payments. RETURNS TO SHAREHOLDERS The directors do not recommend payment of a final dividend for the year ended 31 December 2023 (2022: Nil pence). 08 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 PRINCIPAL RISKS AND UNCERTAINTIES As in previous years, the Group is exposed to a number of risks in its everyday business, and in order to minimise those risks, policies and procedures are in place and are adopted by those who work within the business. Risk is ultimately managed by the Board which is supported by operational and compliance reporting structures. The Board sets out below what it considers to be its main risks: RISK DESCRIPTION MITIGATION GOING CONCERN AND LIQUIDITY The ability to continue to trade and meet liabilities when they fall due whilst meeting the covenants required by the term loan facility. The bank continues to show support of our strategy to reduce our debt position. In March 2024 we agreed a new long-term loan facility refinancing the existing loan facility until 31 October 2026. The new agreement has the same covenant tests as the previous agreement and repayment schedule consistent with previous years. The directors are comfortable that refinancing will be achieved at the end of this period. We continue to maintain a good relationship with the bank and continue on track with the terms of our agreement. RISK PROFILE High DEMAND FOR PRODUCTS May be adversely affected by a number of factors to include changing customer requirements, ability to deliver and/or support changes in technology, and competitor activity. We value our customers and maintain strong relationships with those who are key to our business. We have made and continue to make investment in new products and technology to ensure we remain competitive in the market. High RESEARCH AND DEVELOPMENT Failure to keep abreast of technological developments leading to product obsolescence, loss of customers and damage to the Group’s reputation. PEOPLE We employ staff worldwide and there is a risk that we are unable to recruit and retain experienced staff. We invest significantly in new product and technology development which enables the business to meet the changing needs of our customers. Medium Medium Our people are the Group’s biggest asset and we invest in attracting, developing and retaining experienced staff through increased investment in training and organisational development. Our transition to a remote working model captured benefits for our employees whilst still providing opportunities for them to meet in person. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 09 STRATEGY STRATEGIC REPORT SECTION 172 OF THE COMPANIES ACT 2006 STATEMENT The following matters fall under the broad definition of Section 172: LONG TERM DECISION MAKING It is the Board’s responsibility to ensure the Company’s medium to long-term success and the directors have always recognised the consequences of any decision in the long term. The Board is ultimately responsible for long-term decisions and is responsible for the overall strategy and leadership of the Group. The Board provides leadership and a control framework which includes a continual risk assessment and management of the principal risks and uncertainties which are disclosed above. The Board is supplied with monthly financial and non-financial information in a timely manner to enable it to discharge its duties. The Board has a formal schedule of matters, which are published on the Company website, specifically reserved for decisions by the Board. The Board meets for scheduled Board meetings 12 times per year, plus ad hoc meetings as required. The Board have a robust and inclusive strategy development process, during which the business purpose, strategy and culture are challenged and refined. This takes place on a formal basis during a 2-day strategy meeting and is supported by monthly reports at each Board meeting. The Board Performance Evaluation on page 22 provides further detail. The Board considers stakeholder engagement to be an important activity for the Group. It is used to inform the decisions that the Group takes, whether about the products or services it provides, or about its strategic direction, its long-term health, and its relationship with its workforce and the society in which it operates. The Board believe that stakeholder engagement will strengthen the business and promote its long-term success to the benefit of stakeholders and shareholders alike. OUR EMPLOYEES The Group consider our employees to be our greatest asset and crucial to the success of our business. We believe that happy employees, working in motivated teams, directly contribute to our strategy, performance and reputation. To read more about our employees please see our Directors’ Report on page 14. THE COMPANY’S BUSINESS RELATIONSHIPS We believe that good relationships are driven by having good governance structure which is essential to maintain the integrity of the Group in all its actions, to enhance performance and to impact positively on our shareholders, staff, customers, suppliers and other stakeholders. CUSTOMERS The Sales and Operations teams work with customers to understand their business needs and operational requirements regarding existing and new solutions, in order to shape a solution to meet their budget and ongoing support needs. The business has regular communications and interactions with customers comprising face to face and virtual meetings, trade shows and industry networking events. The customer support ticket system includes a satisfaction indicator and optional comments on closure of each ticket. These results are monitored throughout the year. SUPPLIERS The Group sources its products from manufacturers in Europe and North America. By establishing long-term relationships with suppliers, the Group seeks to provide the supply of high- quality products and maintain good forecasting to ensure cost and lead time estimates remain accurate. PARTNERS The Group has a long history of partnering with other vendors and system integrators to deliver solutions to the end user. Through our in-house development team, we have the ability to partner with most suppliers of the different elements of the value chain to provide bespoke solutions to the end users. THE IMPACT OF THE COMPANY’S OPERATIONS ON THE COMMUNITY AND THE ENVIRONMENT Due to the nature of our business, the Group has a minimum impact on the community and environment. Nonetheless, the Group is committed to minimizing our impact on the environment by reducing our waste and carbon footprint through energy management and recycling schemes. The Group takes account of the need to protect the environment and promote public health and safety and to conduct our activities in order to promote sustainable development. 10 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 These meetings allowed the CEO to update shareholders on the Group’s performance and strategy. When appropriate, additional meetings with institutional investors and/or analysts are arranged. All Board members receive feedback from the CEO from the Market presentations and meetings, thus keeping them in touch with shareholder opinion. The Board members are all willing to engage with shareholders should they have a concern that is not resolved through the normal channels. To read more about the Group’s relations with its members please see the Corporate Governance statement on pages 19 to 25. John Varney Non-Executive Chairman 25 March 2024 This includes: • Establish and maintain a system of environmental management, which collects and evaluates information on environmental, health and safety impacts of activities and then set and monitor targets for continuous improvement; • Maintain contingency plans for preventing, mitigating and controlling serious environmental and health damage including accidents and emergencies; • Recycle or re-use wherever possible waste from operations. If this is not possible then waste must be disposed of safely; • Ensure that the consumption of energy and other resources are minimised; • Develop products that have no undue environmental impact, are safe to use, are efficient in their consumption of energy and natural resources and can be reused, recycled or disposed of safely; • Provide training to employees in environmental health and safety matters including the handling of hazardous materials and the prevention of environmental accidents. MAINTAINING OUR REPUTATION FOR HIGH STANDARDS OF BUSINESS CONDUCT The Group is passionate about maintaining a reputation for high standards of business conduct. We are aware that the Group’s reputation can be affected by poor performance of its products and unsatisfactory customer service. We are conscious of how important it is for our products to perform to high standards and for our customers to receive first class support. Our sales offices and partnerships with resellers and systems integrators provide a network of customer support. THE NEED TO ACT FAIRLY BETWEEN MEMBERS OF THE COMPANY The Board welcomes enquiries from both institutional and private investors throughout the year and responds either verbally or in writing to enquiries received from both. The Non-Executive Directors are available to attend meetings with shareholders if they are requested to do so. During 2023 Peter Mayhead (CEO), assisted by Paul Inzani (Head of Finance), was responsible for liaison with institutional shareholders and held individual meetings with institutional shareholders and analysts following the full year and half year results announcements to the Market. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 11 STRATEGY THE BOARD John Varney BA, FRSA Non-Executive Chairman Peter Mayhead FCCA, MBA Group Chief Executive Officer APPOINTED TO THE BOARD: October 2011 APPOINTED TO THE BOARD: January 2018 INDEPENDENT: Yes INDEPENDENT: No SKILLS AND EXPERIENCE: With over 47 years of relevant experience inside and outside the sector, John is one of the rare senior industry people who understands business transformation and change management, whilst displaying sensitivity to the people challenges or organisations. John’s passion and knowledge for broadcast and content, married with his extensive business expertise, has been gained through roles including Director of Technology and Chief Technology Officer for Granada Group and Global Chief Technology Officer at the BBC. Over the past 17 years John has been an investor, adviser and Non–Executive Director or Chair for emerging technology companies – often leading funding and/or exit activities. An accomplished Chair, John is responsible for leading and fostering the effectiveness of the Board. His passion for strong corporate governance and transparency, and his impartial and objective style, encourages open and constructive Board level debate. John remains well connected to major organisations through attendance at conferences, industry trade shows and networking events. John is a Fellow of the Royal Society for the Arts and the Royal Television Society. OTHER RELEVANT EXTERNAL APPOINTMENTS: — Director of Maximum Clarity Limited — Chair of Macclesfield Silk Heritage Trust BOARD COMMITTEE MEMBERSHIPS: — Audit Committee – Member — Remuneration Committee – Member — Nomination Committee – Chairman SKILLS AND EXPERIENCE: Since being appointed CEO in 2018 Peter has led the transformation of the company into a leading technology brand with continuously strong pipelines, strong sales margins, and robust operational systems. As CEO Peter plays a pivotal role in setting and executing the business strategy, whilst at the same time dealing with the challenges of meeting the interests of the company’s shareholders. With more than 26 years of experience, Peter combines his broadcast industry knowledge, financial and business leadership and executive management experience, with ensuring the company culture is based on the foundation of employee and organisational alignment. Previously, Peter served as CFO of Pro-Bel Ltd where his strong financial skills and management ability played a key role in the successful business turnaround and subsequent merger with Snell & Wilcox. Peter holds an MBA from Henley Business School and is a fellow of the Association of Certified Chartered Accountants. Peter has a strong commitment to ensuring staff and executives have access to ongoing professional development, recognising it as a key contributor to business performance and success. In March 2024 Peter was appointed a Director at IABM. OTHER RELEVANT EXTERNAL APPOINTMENTS: — IABM Director BOARD COMMITTEE MEMBERSHIPS: — Executive Board – member Richard Logan BA, CA Senior Independent Non-Executive Director APPOINTED TO THE BOARD: May 2020 INDEPENDENT: Yes SKILLS AND EXPERIENCE: Richard brings a comprehensive range of skills to the Board in his roles of Senior Independent Non-Executive Director and Audit Committee Chairman. With his significant accounting, governance, corporate finance and technical experience, married with extensive knowledge of growing companies and acquisitions, Richard plays an important role in the Board. Richard’s career within a variety of highly successful companies includes, most recently, serving as Chief Financial Officer at Iomart Group PLC, a cloud computing company quoted on AIM, from 2006 until his retirement in 2018. During his tenure, Richard helped grow Iomart from a breakeven, £20 million revenue company to a quoted business with over £100 million in revenue and adjusted EBITDA of £40 million. Richard holds a BA in Accountancy from the University of Stirling, is a member of ICAS and in 2013 was Smaller Quoted FD of the Year at the FD Excellence Awards. Richard attends conferences, webinars and seminars to ensure he is up to date with current developments. OTHER RELEVANT EXTERNAL APPOINTMENTS: — Chairman of Inspired plc BOARD COMMITTEE MEMBERSHIPS: — Remuneration Committee – Member — Audit Committee – Chairman — Nomination Committee – Member 12 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Chris Errington, BA Hons Non-Executive Director APPOINTED TO THE BOARD: May 2021 INDEPENDENT: No SKILLS AND EXPERIENCE: Chris is an experienced businessman with extensive experience in all aspects of private and public companies. With his knowledge of regulatory compliance and due diligence in respect of specific investment opportunities, Chris is a valuable member of the Board. Previously 12 years as CFO, then CEO, of Gresham Technologies plc, a leading software and services company, where he led the restructuring: delivering on the strategy of building and selling a new software product. Chris is a partner at Kestrel Partners LLP and is their Head of Research, with a primary focus on the Kestrel Opportunities Fund, which puts an emphasis on smaller quoted companies and pro-actively working with management to improve their value. Kestrel is Pebble’s largest shareholder. Chris qualified as a Chartered Accountant with Ernst & Young and holds a 1st Class Honours Degree in Biochemistry with Pharmacology from the University of Southampton. OTHER RELEVANT EXTERNAL APPOINTMENTS: — Partner of Kestrel Partners LLP — Partner of Kingfisher Partners LLP BOARD COMMITTEE MEMBERSHIPS: — Remuneration Committee – Chairman — Audit Committee – Member — Nomination Committee – Member 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 13 GOVERNANCE DIRECTORS’ REPORT The directors present the annual report of Pebble Beach Systems Group plc together with the audited Group and Company financial statements for the year ended 31 December 2023, which were approved by the directors on 25 March 2024. The Group and Company financial statements have been prepared in accordance with UK-adopted international accounting standards. A review of the Group’s trading and an indication of future developments are contained in the Non-Executive Chairman’s Statement on pages 2, 3 and 4. Disclosures relating to information which is strategically important to the Group are made within the Strategic Report on pages 5 to 11. RESULTS AND DIVIDENDS The results for the year ended 31 December 2023 are set out in the consolidated statement of profit and loss on page 37. The Group has reported an operating profit of £2.1 million (2022: £1.6 million). After accounting for net finance costs, the consolidated statement of profit and loss shows a profit before taxation of £1.5 million (2022: £1.2 million). The net result for the year was a profit of £1.5 million (2022: £1.2 million). The directors do not recommend payment of a final dividend for the year ended 31 December 2023 (2022: Nil pence per ordinary share). TERM LOAN At 31 December 2023, the Group’s net debt (excluding debt related to leases) was £4.7 million (2022: £5.8 million), comprising net cash of £0.8 million (2022: £0.7 million) and the term loan from Santander of £5.5 million (2022: £6.5 million). We continue to enjoy a good relationship with our bank, Santander, who remain very supportive of our strategy to reduce our debt position whilst having the flexibility to invest in developing our new technology solutions. In March 2024 we agreed a new long-term facility with Santander, refinancing the existing £5.5 million loan facility until 31 October 2026. The new agreement has the same covenant tests as the last agreement and a repayment schedule consistent with previous years. RESEARCH AND DEVELOPMENT The Group continues to invest in the research and development of its products with a focus being on the next generation IP-enabled media playout software. During the year ended 31 December 2023 the Group’s capitalised expenditure on R&D was £2.1 million (2022: £1.8 million). The R&D expenditure as a proportion of our revenue is 20.5 per cent (2022: 21.5 per cent). DIRECTORS The directors of the Company who served during the year and up to the date of approval of the financial statements are as follows: • John Varney (Non-Executive Chairman/Director) • Peter Mayhead (Group Chief Executive Officer) • Graham Pitman (Senior Independent Non-Executive Director until 30 April 2023) • Richard Logan (Senior Independent Non-Executive Director from 1 May 2023) (Non-Executive Director to 30 April 2023) • Chris Errington (Non-Executive Director) Short biographies of each director are provided on pages 12 to 13. Details of the directors’ service contracts, letters of appointment, disclosure of interests in shares and options, are given in the Remuneration Report on pages 26 to 29. During the year the Group maintained insurance providing liability cover to its directors and officers. BOARD CHANGES AND SERVICE CONTRACTS During the year, the following Board change took place: Graham Pitman, Senior Independent Non-Executive Director, stood down on 30 April 2023. Richard Logan, who has been a Non-Executive Director with the Group since May 2020, became Senior Independent Non-Executive Director on 1 May 2023. The directors’ service contracts and letters of appointment are available for inspection by appointment during business hours on any weekday between the date of the notice and the Annual General Meeting at the Company’s registered office and at the venue of the Annual General Meeting from 15 minutes prior to the commencement until its conclusion. Should a stakeholder wish to inspect the service contracts we request that you register to do so by email at investors@pebble.tv or by telephone by calling +44 (0) 75 55 59 36 02 so that an appointment may be arranged. Please see the AGM Notice that accompanies this report, and page 17 for further details of our AGM. MATERIAL INTEREST IN CONTRACTS No director, either during or at the end of the financial year, was materially interested in any significant contract with the Group or any subsidiary undertaking. 14 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 SHARE CAPITAL Details of the Group’s share capital are shown in note 23 to the consolidated financial statements. The Group’s share capital comprises one class of ordinary shares and as at 25 March 2024 there were in issue 124,603,134 fully paid ordinary shares of 2.5 pence each. All shares, except for those held by the employees’ share trust, are freely transferable and rank pari passu for voting and dividend rights. The Group has been notified of the following beneficial interests in more than 3 per cent of the Company’s issued share capital as at 3 January 2024. Shareholder Kestrel Partners LLP Hawk Investment Holdings Limited Interactive Investor Hargreaves Lansdown Nominees Limited Mr and Mrs M Bennett Percentage shareholding 29.76% 7.89% 7.35% 7.12% 4.02% FINANCIAL RISK MANAGEMENT The Group’s policies on financial risk management are set out in note 3 to the consolidated financial statements. ENVIRONMENTAL AND SOCIAL RESPONSBILITY In addition to our commitment to robust governance the Board takes regular account of the significance of environmental and social matters. The following matters fall under the broad definition of Social and Environmental Responsibility: OUR EMPLOYEES The Group consider our employees to be our greatest asset and critical to the success of our business. We believe that happy employees, working in a motivated environment, directly contribute to our strategy, performance and reputation. The Board has a keen interest in the development and morale of the employees. The Group provides employees with access to training carried out both within the organisation and on external accredited courses that are relevant to an employee’s role and development. We have lines of communication in place to ensure that employees are consulted with and kept informed of issues relevant to them. Staff emails and staff meetings are used to communicate immediate issues to them. To help staff collaborate and share knowledge efficiently the company uses a software programme, tailored to our own needs, as a live storage and communication tool. This programme also gives access to the company’s guidance on staff benefits, including Childcare Vouchers; an employee rewards and benefits platform; Computer Discount Scheme; Flexible Working and Working from Home. The Board reviews the Group’s arrangements for its employees to raise concerns in confidence about possible wrongdoing. Clear statements of behaviour and work ethics of employees are explained in detail within our staff handbook, which includes our Policies on Anti- Bribery; Whistle-blowing; Gifts and Entertainment; Share Dealing; Systems, Internet and Email; Social Networking; Capability Procedures; Disciplinary Procedure; Capability/Disciplinary Appeal Procedure; Grievance Procedure; Personal Harassment Policy and Procedures; and our Equal Opportunities Policy. REMOTE WORKING The business has operated a successful fully remote working model since 2022 and this strategic move delivers operational benefits in terms of resilience, organisational growth and employee satisfaction. Our employees can work from anywhere in the world as long as they have the right equipment, a good wi-fi connection, and a suitable location. The company supports this benefit by providing a laptop, monitor, webcam, keyboard, mouse and headphones. Employees are provided with an allowance for their home office set up to purchase items such as an office chair, desk, lighting etc. All employees undertake a Display Screen Equipment assessment to help understand how to ensure that their workspace complies with health and safety regulations. Internal staff surveys conducted since our move to remote working have shown that the benefits of less commuting time, greater flexibility and better work–life balance, have resulted in increased productivity and happy employees, and gives us more scope to ensure we have a global, highly capable, and flexible employee base. The business is able to attract the best talent from anywhere in the world. In our remote working world, our employees have the opportunity to arrange face to face meetings with their colleagues, use of our communication platforms that allow workspace chat and videoconferencing, and we hold an annual two-day All-Staff Conference which brings all employees together. This face-to-face event has a theme of making connections and building and maintaining relationships between employees, partners, and customers in the remote environment. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 15 GOVERNANCE DIRECTORS’ REPORT OUR COMPANY VALUES We are proud of our Company Values which our employees live by and demonstrate across our working day. Our values positively influence how and why we do things and sum up what our company culture stands for. As a result of ensuring we always work with our Company Values in mind, we have built stronger and deeper relationships with our customers through both good and challenging times. BE THE EXPERT We are proud of our expertise and enthusiastic about sharing knowledge. We are always learning. FIND A SOLUTION We are agile and versatile. We will not give up. DO THE RIGHT THING We operate with integrity, openness and honesty to earn and deserve trust. SUCCESS THROUGH PARTNERSHIP We are passionate about the power of collaborative, supportive relationships. EVERY PEBBLE MATTERS We embrace talent, treat each other with respect, and work to build a friendly, supportive environment. OUR EQUAL OPPORTUNITIES POLICY The Group adopts a formal equal opportunities policy. It is the policy of the Group not to discriminate against, either directly or indirectly, on the grounds of age, disability, gender reassignment, marriage and civil partnership, pregnancy or maternity, race, religion or belief, sex or sexual orientation, and to offer the same employment opportunities, training, career development and promotion prospects to all. We ensure that the policy is circulated to any agencies responsible for our recruitment and a copy of the policy is made available for all employees and made known to all applicants for employment. The policy is communicated to all private contractors reminding them of their responsibilities towards the equality of opportunity. Applications for employment by disabled persons are always fully considered bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled, every effort is made to ensure that their employment with the Group continues and the appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of a disabled person, so far as possible, be identical to that of other employees. EMPLOYEE SHARE SCHEME INCENTIVES Pebble Beach Systems Group plc operates a number of share-based incentive schemes on a discretionary basis for the benefit of the Group’s employees and its senior management. The aim of the share-based incentive schemes is to align the interests of the employees with those of the Company’s shareholders. To encourage employee interest and participation in the financial performance of the Group, a Pebble Beach Systems Group plc Share Incentive Plan is available for employees. At 31 December 2023 the Employee Share Ownership Plan (ESOP) held 126,496 shares (2022: 126,496) in the Company, representing 0.1 per cent of the issued share capital (2022: 0.1 per cent). The ESOP has waived its rights to receive dividends. HEALTH AND SAFETY It is the policy of the Group to ensure the health and welfare of employees by maintaining a safe place of work and this now includes how our employees operate remotely. This policy is based on the requirements of national employment legislation in the countries where the Group operates, including the Safety, Health and Welfare at Work Act 1989. ENVIRONMENTAL MANAGEMENT The Group is committed to minimising our impact on the environment by reducing our waste and carbon footprint through energy management and recycling schemes. Our shareholders are encouraged to receive communications from the company in electric form thus helping to reduce environmental impact. The majority of our annual reports and AGM notices are received electronically by our shareholders, who receive notification of when and how to electronically access the documents by simply clicking on the links we provide. For those shareholders who wish to continue to receive printed copies, the documents are posted. DIRECTORS’ INDEMNITY INSURANCE A Directors’ and Officers’ liability insurance policy is maintained for all Directors. 16 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS The directors are responsible for preparing the group Strategic Report and Directors’ Report and the financial statements in accordance with applicable law and regulations. The directors are also responsible for ensuring that they meet their responsibilities under the AIM Rules. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with UK-adopted international accounting standards. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the company and group for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether applicable UK- adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. DISCLOSURE OF INFORMATION TO THE AUDITOR In the case of the individuals who are directors of the Company at the date when this report was approved: • so far as each of the directors is aware, there is no relevant audit information of which the Group’s auditor is unaware; and • each of the directors has taken all the steps they ought to have taken individually as a director in order to make themselves aware of any relevant audit information and to establish that the Group’s auditor is aware of that information. ANNUAL GENERAL MEETING The Annual General Meeting will be held on Wednesday 26 June 2024. Please see the AGM Notice that accompanies this report for further details. Share capital resolutions will be proposed at the Annual General Meeting to renew for a further year the directors’ authority to allot equity securities for cash other than to existing shareholders on a pro rata basis and to authorise purchases by the Company of its own shares. GOING CONCERN BASIS The directors are required to assess the Company’s and the Group’s ability to continue to trade as a going concern. At 31 December 2023, the Group’s net debt (excluding IFRS 16 leases) was £4.7 million (2022: £5.8 million), comprising cash of £0.8 million (2022: £0.7 million) and the term loan from Santander of £5.5 million (2022: £6.5 million). We enjoy a close relationship with our bank and have regular review meetings with them. In March 2024, we signed a new term loan through to 31 October 2026, which re-financed the existing £5.5 million RCF at the same level of commitment, with repayment levels consistent with previous years and appropriate financial covenants. There have been no breaches in financial covenants to date and no breaches are anticipated in the going concern period. However, both of the financial covenants in relation to the minimum liquidity and cash flow cover are sensitive to changes in the forecasts related to the timing of 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 17 GOVERNANCE DIRECTORS’ REPORT INDEPENDENT AUDITOR The independent auditor, CLA Evelyn Partners Limited, which was appointed in 2022, has indicated its willingness to continue in office. A resolution to re-appoint CLA Evelyn Partners Limited as auditor will be submitted to shareholders for approval at the 2024 Annual General Meeting. The Strategic Report and Directors’ Report were approved and signed by order of the Board. John Varney Non-Executive Chairman 25 March 2024 These projections used the forecast for 2024 and were updated for current trading and forecasts. This analysis was then extended to the end of 2025. The projections were stress tested in two ways. Project orders for 2024 were reduced by 50%, then reduced by 40% with a 25% reduction in SLA renewals in 2024 applied. The existing support service contracts, where revenue is recognised over time were assessed based on historic renewal rates, to establish the likely renewal of this recurring revenue. Management reviewed the resource levels and marketing spend required to support the reduced revenue and reflected cost reductions in the forecast. Even with a 25% drop in SLA renewals, management concluded the business will remain a going concern. The Board has concluded from its thorough assessment of the detailed forecasts and ability to enact any mitigating actions, if required, that the Group will have sufficient resources to meet its liabilities during the review period through to 31 December 2025, that it will meet the bank covenants and that it is appropriate that the Group and the Company prepare accounts on a going concern basis. cash collections and payments in Q1 and Q2 2024 due to SLA renewals slipping from FY 2023 into FY 2024. Management are confident that this timing delay is short term only and cashflow levels are expected to increase in the next few months. The Directors are confident that whilst the covenants are not projected to be breached, management would need to ensure working capital movements are appropriately managed to ensure the Group meets its covenants. Management also had to manage working capital movements in quarter one 2024 to ensure there were no breaches in covenants. Management have estimated the timing of cash receipts and identified mitigating actions to be taken in the event of a breach becoming likely. Management’s ability to enact these mitigating actions and their effectiveness are considered significant judgements. The directors are confident that any loan extensions required post October 2026 would be granted given the historic track record. To assess the appropriateness of preparing financial statements on a going concern basis, management prepared detailed projections of the consolidated statement of profit and loss, the statement of financial position and cash flow statements through to 31 December 2025. This review period extends to the end of the financial year for 2025, which is looking forward 21 months beyond the date of approval of these financial statements. The projections included testing against the minimum liquidity and cash flow cover covenants required by the new term loan facility. 18 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 CORPORATE GOVERNANCE STATEMENT • Systems for internal control; Board and key management appointments; • Remuneration policies; • Acquisitions and disposals; and • Any other matter which has a material consequence for the Group. The Board has delegated all authorities to senior management other than those contained in the schedule of matters reserved to the Board, on the understanding that they will, at all times, act in accordance with the best interests of the Group, its shareholders and staff. Their actions will be consistent with the Group’s financial and strategic plans and objectives and in conformity with relevant legislation and best practice, and they will report regularly to the Board on the execution of these responsibilities. In addition, the Board has established three permanent committees: the Audit Committee, the Nomination Committee, and the Remuneration Committee. These operate within defined terms of reference, which are reviewed by the Board annually. Full details of the terms of reference are provided on the Group website at www.pebbleplc.com. As Non-Executive Chairman, it is my responsibility, together with my Board, to ensure the Company’s medium to long-term success and that the Group remains committed to high standards of corporate governance, which it considers are critical to business integrity and to maintaining investors’ and other stakeholders’ trust in the Group. The Group seeks to embed honesty, integrity and fairness in its culture, and the behaviour of its people. With an international presence, the Group acts in accordance with the laws and customs of the countries in which it operates; adopts proper standards of business practice and procedure; operates with integrity; and observes and respects the culture of every country in which it does business. The Group is committed to high standards of corporate governance across all our people, enabling us to conduct business sustainably and responsibly. In accordance with the AIM Regulation, the Board take due consideration of The QCA Corporate Governance Code (2018 edition) (the QCA Code). The directors comply with the relevant requirements of the QCA Code Guidelines to the extent that they consider it appropriate having regard to the Company’s size and the nature of its operations. Further details of the requirements for AIM companies can be found on the Group website at www.pebbleplc.com. The Board reviews the Group’s corporate governance procedures from time to time, having regard to the size, nature and resources of the Group to ensure such procedures are appropriate. THE ROLE OF THE BOARD BOARD COMPOSITION AND OPERATION During 2023 and up to the date of publication of this report, the Board consists of the following Board members: John Varney (Non-Executive Chairman) Graham Pitman (Senior Independent Non-Executive Director until 30 April 2023) Richard Logan (Senior Independent Non-Executive Director from 1 May 2023) (Non-Executive Director to 30 April 2023) Chris Errington (Non-Executive Director) Peter Mayhead (Chief Executive Officer) The Board considers that the current governance arrangements are suitable for the size of the Group. Each Board meeting has the Non-Executive Chairman, a Senior Independent Non- Executive Director, two Non-Executive Directors, the CEO and the Head of Finance present, together with the CTO and Company Secretary. The Board has approved a formal schedule of matters reserved for its decision which it reviews annually. KEY MATTERS INCLUDE • Strategy and values; • Corporate governance; • Annual operating and expenditure budgets; • Treasury policies; • Significant capital and revenue projects; • Risk management strategies including approach to/appetite for risk; 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 19 GOVERNANCE CORPORATE GOVERNANCE STATEMENT The Board met twelve times during the year, excluding ad hoc meetings convened solely to deal with procedural matters. Attendance at Board and Committee meetings during 2023, expressed as the number of meetings attended compared to the number entitled to attend, was as follows: Board Audit Remuneration Nomination * In attendance ** Left 30/04/2023 TIME COMMITMENT The Executive Directors are expected to devote substantially the whole of their time, attention and ability to their duties, whereas, as one would expect, the non-executives have a lesser time commitment. The Non-Executive Chairman has committed to spend as much time as is required to meet the needs of the business. It is agreed that each of the Non-Executive Directors will dedicate the equivalent of 2 days per month. The Non-Executive Directors have all confirmed that they are able to allocate sufficient time to meet the expectations of their role, and they are required to obtain the Non-Executive Chairman’s agreement (or, in the case of the Non-Executive Chairman, the Chief Executive’s agreement) before accepting additional commitments that might affect the time they are able to devote. BALANCE AND SIZE The directors consider that the Board is well-balanced and appropriate for the scope and activities of the Group. Where directors are unable to attend Board meetings they are advised of the matters to be discussed in advance of the meeting and given the opportunity to provide their views to the Non-Executive Chairman or Senior Independent Non-Executive Director. John Varney 12/12 2/2 1/1 3/3 Graham Pitman 3/4** 0/2** 0/1** 2/3** Richard Logan 12/12 2/2 1/1 3/3 Chris Errington 12/12 2/2 1/1 3/3 Peter Mayhead 12/12 N/A N/A 2/3* In addition to the formal scheduled meetings the Board holds informal discussions with the Executive Director and senior operational managers on strategy, business development and other topics important to the Group’s progress throughout the year. APPOINTMENT AND ELECTION OF DIRECTORS The rules governing the appointment and replacement of directors are set out in the Company’s Articles of Association. The Company’s Articles of Association require any new director appointed by the Board to retire from office and offer themselves for election by shareholders at the next Annual General Meeting following their appointment and at least once every three years thereafter. For our 2024 AGM, John Varney, Richard Logan, Chris Errington and Peter Mayhead will voluntarily stand for re-election by shareholders. All directors have been elected or re- elected within the last three years. The Board supports the re-election of John Varney, Richard Logan, Chris Errington and Peter Mayhead, and confirms that, having taken into consideration the results of the performance evaluation undertaken in the year, the directors being proposed for re-election have demonstrated commitment to their responsibilities and continue to perform effectively, and subject to shareholder approval will be reappointed for a further three years. Biographical information for each of the directors are set out on pages 12 to 13. NON-EXECUTIVE CHAIRMAN John Varney is the Non-Executive Chairman and was supported by the two Non-Executive Directors from 1 May 2023, and three Non-Executive Directors until 30 April 2023. John Varney has been with the Group since October 2011, initially as Non- Executive Director. Following his re- election at the AGM in 2015, the Board agreed that John perform a second term in the role of Non-Executive Director commencing 1 October 2016. Following a restructure of the Group in February 2017, John was appointed Non-Executive Chairman. 20 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 AIM Rules provide that independence of directors is determined by the Board. The Board believe that Mr Varney remains independent in character and judgement without any relationships or circumstances which may affect his independence in his role. SENIOR INDEPENDENT DIRECTOR Shareholders can seek to raise any concerns they may have with the Senior Independent Director, where they have not been addressed through the normal channels of Non-Executive Chairman and Group Company Secretary, or where these channels are not deemed appropriate. The Senior Independent Director is responsible for leading the other Non-Executive Directors in the annual evaluation review of the performance of the Non-Executive Chairman. THE NON–EXECUTIVE DIRECTORS The Non-Executive Directors bring external view and insight to the Board, providing a range of experience and knowledge from other industry sectors. The terms of appointment for the Non-Executive Directors are available for inspection, by appointment, at the Group’s registered office during normal business hours and at the AGM venue for 15 minutes prior to, and during, the Annual General Meeting. THE COMPANY SECRETARY The Company Secretary is responsible for ensuring all appropriate information is with the Board and its Committees in order for them to make appropriate decisions. They are also responsible for reporting on all corporate governance issues to the Board. RESPONSIBILITY FOR RISK AND INTERNAL CONTROL The Board has overall responsibility for the Group’s system of internal control although it should be recognised that it can provide only reasonable and not absolute assurance against material misstatement or loss. The effectiveness of the Group’s system of internal control has been reviewed by the Board during the year, having special regard to any structural and cultural changes implemented during the year. The directors confirm that there is an internal control framework and an ongoing process for identifying, evaluating and managing significant risks faced by the Group, which is regularly reviewed by the Board, and that this process was in place throughout the year ended 31 December 2023 and up to the date of this report. The Group has an internal control system in place which is designed to protect shareholders’ investments by safeguarding the assets of the Group and facilitating its efficient operation. The Board considers that strong internal controls are integral to the sound management of the Group, and it is committed to maintaining strict financial, operational and risk management control over all its activities. The Board aims to take business risks in an informed and proactive manner, such that the level of risk is aligned with the potential business rewards. Management regularly reviews risk exposures against current business risk level tolerances. The aim of risk management is to provide reasonable assurance that the risks associated with achieving business objectives are understood and that these risks are being responded to appropriately at all levels within the organisation. The key elements of internal control within the Group to monitor the key risks are described below: CONTROL ENVIRONMENT There is a clear organisation structure in place, levels of authority are well defined and responsibility for operational control of the business is delegated to senior managers. Whilst management guidelines and a comprehensive management reporting package are in place for all subsidiaries, the Group also monitors these controls by a number of means including regular internal review. IDENTIFICATION AND EVALUATION OF RISKS AND CONTROL OBJECTIVES The Board has the primary responsibility for identifying and evaluating the major risks facing the Group and developing appropriate policies and procedures to manage them. It identifies the key risks faced by the Group, and delegates responsibility for managing those risks to executive and senior management. The effectiveness of the risk control procedures in place is reported to the Board on at least an annual basis. FINANCIAL REPORTING The Group operates a comprehensive budgeting, financial reporting and forecasting system. The operating segment is required to complete management accounts on a monthly basis which compare actual results with budget, forecast and prior year; these are reviewed at both executive and Board level meetings to ensure that variances and discrepancies are identified and acted upon on a timely basis. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 21 GOVERNANCE CORPORATE GOVERNANCE STATEMENT Towards the end of each financial year the operating departments prepare budgets for the following year. The Board reviews budgets before they are formally adopted. The Group reports to its shareholders at the half year and full year-ends. MAIN CONTROL PROCEDURES AND MONITORING SYSTEMS USED BY THE BOARD There are a number of key control procedures in place that are reviewed on an annual basis by the Board. These cover the key risks faced by the Group and are predominantly of an operational and financial nature. The Group finance function consolidates the Group results monthly, and a full financial review is presented at each Board meeting, accompanied by appropriate Key Performance Indicators for the Group. Each Group entity compiles forecasts of profits and cash flows reflecting their current expectations, which are also monitored by the Board. Reviews of the performance and financial position of the Group are included in the Non- Executive Chairman’s Statement and the Strategic Report on pages 2 to 4, and 5 to 11. The Board uses these, together with the Directors’ Report on pages 14 to 18, to present a balanced and understandable assessment of the Group’s position and prospects. In addition, the Board considers the following matters: COMMERCIAL RISK All significant commercial contracts are reported to the Board and are controlled by the use of appropriate vetting processes and authorisation levels. INVESTMENT APPRAISAL The Group has a clearly defined framework for controlling and reporting acquisitions, disposals and capital expenditure including the use of appropriate authorisation levels. LEGAL MATTERS Significant litigation and legal matters are reported to the Board. OPERATING BUSINESS FINANCIAL CONTROLS The executive management has defined the financial controls and procedures that each operating department is required to comply with. Key controls over major business risks include reviews against Key Performance Indicators and exception reporting. The operating departments make periodic assessments of its exposure to major business risks and the extent to which these risks are controlled. These are reviewed by the executive management and reported to the Board. STRATEGIC PLANNING The executive management are responsible for keeping the Board appraised of the execution of the Group strategy. The Board reviews strategic plans as part of the ongoing business planning process and has been closely involved in the review of the strategy undertaken during 2023. COMPUTER SYSTEMS Much of the Group’s financial management information is processed by and stored on computer systems. Accordingly, the Group has established controls and procedures over the security of data held on computer systems. The Group holds a Cyber Essentials Certificate of Assurance award. This is a UK government backed scheme to ensure a level of best practice in IT platform management. This helps drive our IT based processes to ensure our systems and tools are secure and maintained. The company engages with the DPP security initiative and are active members in industry groups supported by the UK National Cyber Security Centre (NCSC), for sharing best practice and keeping up to date with industry security considerations. INSURANCE The Group’s programme of insurance covers the major risks to the Group’s assets and business and is reviewed annually by the Board. INTERNAL AUDIT The Group does not have an internal audit function although the head office team fulfils some functions of an internal audit department. The directors believe the Group falls into the category of small for this purpose. The Audit Committee reviews the need for an internal audit department at least annually. BOARD PERFORMANCE EVALUATION During Q1 2024 the Non-Executive Chairman, on behalf of the Board, conducted a Board Effectiveness Review (BER) for FY2023 in accordance with the AIM QCA Code for Board evaluation. The Board effectiveness model developed by Grant Thornton UK LLP which was introduced for this process in 2019 now underlies our annual framework for board meetings and provided the baseline for this year’s evaluation. 22 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 This ensures the Board considers: Value creation: how well are the purpose, strategy and culture being developed and communicated? Value transformation: how effective is the business model, the relationship with stakeholders, the management and the mitigation of principal risks and uncertainties? Value protection: how effective is the monitoring and measurement of business performance and the quality of policies governance and compliance? The BER for 2023 consisted of an open discussion of Board performance in respect of the three headline topics mentioned above. This qualitative process of open discussion with each Board member present, considered how well we performed against the goals set by the framework we set ourselves as a Board. This enables executive and non-executive directors to express views on the degree to which the Board fulfilled its responsibilities and achieved best practice in the past year. The Non-Executive Chairman drew together the findings of the review and reported them to the whole Board at the next Board meeting. The Board believe that it continues to be an effective, competent governance body, delivering supporting skills to the business and providing advice from across the range of expertise of the Directors. The open relationship between the Directors and lines of business was noted as particularly commendable. The Non-Executive Chairman has recommended the Board focus on ensuring each Directors’ specific expertise is given equal emphasis during Board discussions. THE AUDIT COMMITTEE MEMBERSHIP AND DUTIES In the period, Richard Logan chaired the Audit Committee. John Varney, Graham Pitman (to 30 April 2023) and Chris Errington served on the Committee throughout the year. The Committee also meets with the external auditor without the presence of the Executive Directors, for independent discussions. The Audit Committee’s responsibilities include: making recommendations to the Board regarding the appointment of the external auditor based on its review of the scope of work, cost- effectiveness and independence of the external auditor; keeping under review the effectiveness of the Group’s system of internal controls and risk management and reporting to the Board its findings; monitoring the financial reporting process; reviewing and challenging the actions and judgements of management in relation to the interim and annual financial statements before submission to the Board; reviewing the Company’s arrangements for its employees to raise concerns in confidence about possible wrongdoing; and reviewing the Company’s procedures for detecting fraud. In order to ensure the independence and objectivity of our auditor, CLA Evelyn Partners Limited, the Committee regularly reviews the remuneration received by them for audit and audit- related services. These reviews ensure a balance of objectivity, value for money and compliance with our requirement for independence. CLA Evelyn Partners Limited did not undertake any non- audit related work in FY23. The Audit Committee confirms that it conducted an assessment of the external auditor and determined that adequate policies and safeguards were in place to ensure that their independence and objectivity had not been impaired during 2023. ACTIVITIES OF THE AUDIT COMMITTEE The Audit Committee met twice during 2023 and once up to the date of publication of this report in 2024 and reported its conclusions to the Board. In these meetings the Audit Committee: • reviewed the accounting policies; • reviewed the announcement of the financial results of the Group for the years ended 31 December 2022, 31 December 2023 and the 2023 interim results prior to approval by the Board; • considered and reviewed the 2022 and 2023 annual reports and financial statements and the 2023 interim report, paying particular attention to critical areas of management judgement, together with the external auditor’s findings reports on the annual reports; • considered, discussed and approved the audit plan with the external auditor for the 2023 audit; • considered and recommended to the Board the appointment of the auditor which will be put to shareholders for approval at the AGM; • reviewed and considered the Audit Findings Report from the external auditor at the conclusion of their audit, and reported to the Board on the results of the review; 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 23 GOVERNANCE CORPORATE GOVERNANCE STATEMENT A resolution to re-appoint CLA Evelyn Partners Limited as auditor will be submitted to shareholders for approval at the 2024 Annual General Meeting. • reviewed the reports from management on the Group’s main risks and the assessment and mitigation of those risks; • approved the statutory audit fee for 2023; • monitored the independence and undertook an evaluation of the effectiveness of the external auditor; • reviewed the policies introduced to comply with the UK Bribery Act 2010; and • reviewed the Code of Conduct which sets out how the Group’s employees are able to raise concerns over financial or other irregularities in confidence. This policy was in place throughout the year. In addition, the Audit Committee reviewed the need for an internal audit department and concluded that there was not a requirement given the present size of the Group and internal control reviews undertaken by the head office function. FINANCIAL REPORTING During the year, the Audit Committee reviewed the appropriateness of the Group’s interim and full year financial statements, including the consideration of significant financial reporting judgements made by management taking into account reports from management and the external auditor. The main areas of focus considered by the Committee during the year were as follows: Area of focus How addressed Valuation of goodwill and intangible assets The audit committee reviewed the valuation of goodwill and intangible assets to ensure assets are valued correctly and not overstated in the context of the trading performance of the relevant cash generating units. Investments impairment assessment The audit committee reviewed the valuation of investments held in subsidiary companies, including any impairment below carrying value which could have a material impact on the parent company’s financial statements. Going Concern The audit committee has reviewed the forecast which shows steady costs and an increasing revenue which is driving an increasing profit. They have also considered sensitivities within the forecast. The audit committee agreed that the conclusion that no impairment was required for either goodwill or intangible assets was reasonable. The audit committee agreed that the conclusion that no impairment was required was reasonable. The audit committee is satisfied that there is sufficient headroom within the forecast. 24 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Documents relating to the Company’s governance and the full terms of reference of its standing Committees are also available on the Company’s website: www.pebbleplc.com. By order of the Board John Varney Non-Executive Chairman 25 March 2024 THE NOMINATION COMMITTEE John Varney chairs the Nomination Committee. Richard Logan, Graham Pitman (to 30 April 2023), and Chris Errington served on the Committee throughout 2023. The Group Company Secretary also attends the meetings. The Nomination Committee reviews the structure, size and composition of the Board and its committees. There was one formal meeting of the Committee during the year. THE REMUNERATION COMMITTEE Details of the Remuneration Committee are provided in the Remuneration Report as set out on pages 26 to 29. RELATIONS WITH SHAREHOLDERS The Board welcomes enquiries from both institutional and private investors throughout the year and responds either verbally or in writing to enquiries received from both. The Non-Executive Directors are available to attend meetings with shareholders if they are requested to do so. The Group, via its website, provides up-to-date information on the Group and its operating subsidiaries, including all stock exchange announcements and downloadable copies of the most recent report and financial statements and interim statements. The website also provides a communication channel to the Group via email. Shareholders may elect to receive all shareholder documents electronically by registering with the Group’s registrars. The Group uses its AGM as an opportunity to communicate with its shareholders and encourages their participation. As in previous years, shareholders will have the opportunity for a question and answer session with members of the Board at the next AGM on 26 June 2024. Further details are included in the notice of the meeting which separately accompanies the annual report and can be viewed on the Company’s website: www.pebbleplc.com. The notice of the AGM is sent to shareholders, and is available on the Company website, at least 21 clear days in advance of the date of the meeting and contains details of the separate resolutions that are proposed for shareholder approval. Separate resolutions are proposed on each substantially different issue and the number of proxy votes cast for each resolution is disclosed by the Chairman at the meeting. Shareholders have the option of submitting their voting instructions electronically or by returning the personalised proxy form which separately accompanies the annual report. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 25 GOVERNANCE REMUNERATION REPORT As Chairman of the Remuneration Committee, I am pleased to present the Group’s remuneration report for the financial year ended 31 December 2023, which has been approved by the Board. Other members of the Committee that served throughout the year were John Varney, Richard Logan, and Graham Pitman (to 30 April 2023). As the Group is not required to provide a directors’ remuneration report in accordance with schedule 8 to SI 2008/410, this disclosure is made voluntarily and is not intended to comply with all the requirements of schedule 8 of SI 2008/410. COMMITTEE ACTIVITIES The Remuneration Committee’s main responsibility is to ensure that remuneration of executives is appropriate and aligned with shareholder interests, producing sustainable value creation through the delivery of our business strategy. The responsibilities of the Committee are to advise upon and make recommendations to the Board on the Company’s remuneration policies and, within the framework established by the Board, to recommend the remuneration of the Executive Directors. No member of the Committee has any personal financial interest in the Company or Group (other than as a shareholder or director) and there are no conflicts of interest arising from cross-directorships or day-to-day involvement in running the business. The Committee measures the performance of the Executive Directors as a prelude to recommending their annual remuneration, bonus awards and share plan awards to the Board for final determination. The remuneration of Non-Executive Directors is a matter for the Board as a whole and is recommended by the Executive Directors taking account of the time spent on Board and Committee matters. No director plays a part in any discussion about his own remuneration. The focus of the Committee is on ensuring that a competitive and appropriate base salary is paid to directors and where appropriate senior managers, together with incentive arrangements that are aligned with shareholders’ interests and with long-term business strategies, being transparent, and measured against challenging benchmarks. REMUNERATION REPORT PART A (NOT SUBJECT TO AUDIT) REMUNERATION POLICY The date from which it is intended by the Company that the remuneration policy is to take effect is 1 January 2024. Each year, the Remuneration Committee reviews the remuneration policy, taking into account both the external market (including environmental, social and corporate governance issues) and the Company’s strategic objectives over the short and the medium term. The framework has been designed as an integral part of the Company’s overall business strategy. 26 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 The following table summarises the key routine elements of remuneration policy: Component SALARY AND FEES ALL BENEFITS ANNUAL BONUSES Purpose and Link to Strategy To attract and retain high-calibre individuals by providing an appropriate level of basic fixed income whilst avoiding excessive risk arising from over-reliance on variable income. The basic salary reflects the market rate for the individual, their role, skills and experience. To aid retention and be competitive in the marketplace. Healthcare benefits in order to minimise business disruption. To incentivise the achievement of key financial and strategic targets for the forthcoming year without encouraging excessive risk taking. Maximum Potential Value Fixed base salary and fees Performance Measures N/A How Operated Generally reviewed annually. Set with reference to individual performance, experience and responsibilities. Benchmarked against appropriate companies by the Remuneration Committee. Non-Executive Directors are paid a fee consistent with market rates. Car allowance (CEO) Medical insurance (CEO) Permanent health insurance (CEO) Life assurance (CEO) Non-Executive Directors are not eligible for benefits. The Remuneration Committee considers and approves the measures and targets at the start of each year and ensures they are aligned with business strategy and are sufficiently stretching. In setting financial parameters, the Remuneration Committee takes into account the Company’s internal budgets and, where applicable, investors’ expectations. The targets applying to financial measures are based on a sliding scale. Paid in cash and not pensionable. Non-Executive Directors are not eligible for annual bonuses. CEO up to £18,000 N/A CEO up to one times base salary. Adjusted EBITDA (50%). Orders received (25%) Revenue (25%). PENSIONS To aid retention and remain competitive in the marketplace. For the Executive Directors’ annual pension, the CEO has an allowance up to 10 per cent of base salary with no matching requirement. CEO up to 10% of base salary N/A LONG TERM INCENTIVE PLAN To incentivise delivery of long-term shareholder returns Non-Executive Directors are not eligible for pensions. Periodic grant of market price share options in accordance with EMI share option plan rules, vesting in tranches after 3 years. Grant is subject to remaining within 10-year 10% dilution limits. N/A Non-Executive Directors are not eligible for Long Term Incentive Plan participation Compound TSR of 12.5% over 3, 4 and 5 years 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 27 GOVERNANCE REMUNERATION REPORT POLICY ON PAYMENT FOR LOSS OF OFFICE All payments due will normally be made in accordance with the Contract of Employment and Service Agreement of the executive concerned and will be sufficiently detailed to ensure transparency. REMUNERATION REPORT PART B (SUBJECT TO AUDIT) REPORT ON EXECUTIVE DIRECTORS’ EMOLUMENTS Directors’ emoluments and pension contributions for the year ended 31 December 2023 were as follows: Executive Directors Peter Mayhead Non–executive Directors John Varney Graham Pitman (to 30/04/23) Richard Logan Chris Errington Basic salary and fees £000 Bonus £000 Benefits £000 Pension contributions £000 231 70 12 33 30 376 12 – – – – 12 19 – – – – 19 23 – – – – 23 2023 Total £000 285 70 12 33 30 430 2022 Total £000 248 70 35 30 30 413 The fee for the services of Chris Errington is paid to Kestrel Partners LLP and not to Chris directly (see note 27). DIRECTORS’ INTERESTS IN SHARES The table below shows the interests of the directors in office at the end of the year in the share capital of the Company. Executive Directors Peter Mayhead Non–Executive Directors John Varney Richard Logan Chris Errington* At 31 December 2023 At 31 December 2022 2,177 2,177 1,062,229 235,000 Nil 1,062,229 235,000 Nil * Chris Errington is a partner in Kestrel Partners LLP. Kestrel Partners LLP manages the Kestrel Opportunities Fund, who hold (and consequently Mr. Errington is deemed to have a beneficial interest in) 14,696,625 Ordinary Shares and other clients of Kestrel, in which Chris Errington has no beneficial interest hold 22,388,904 Ordinary Shares. On a combined basis, as at the date of this report Kestrel indirectly controls voting rights over 37,085,529 shares, representing 29.76% per cent of the Company’s issued share capital. 28 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 DIRECTORS’ INTEREST IN SHARE AWARD SCHEMES The interests of the directors in share award schemes were as follows: Held at 1 January 2023 4,450,000 2,000,000 100,000 Granted in year 0 0 0 Exercised in year 0 0 0 Forfeited in year 0 0 0 P Mayhead 1 P Mayhead 2 P Mayhead 3 Held at 31 December 2023 Date of grant 4,450,000 16-Mar-23 2,000,000 21-Jun-19 03-Jun-14 100,000 Date first exercisable Exercise price (pence) Expiry date 10.50 16-Mar-27 15-Mar-32 20-Jun-29 03-Jun-24 21-Jun-24 03-Jun-17 6.18 0.00 1 Granted under the 2019 Share Option Scheme and none vested at 31 Dec 2023 (2022: none vested) 2 Granted under the 2019 Share Option Scheme and all vested at 31 Dec 2023 (2022: all vested) 3 Granted under the 2008 LTIP Scheme and all vested at 31 Dec 2023 (2022: all vested) Further details concerning share option schemes can be found in note 23. STATEMENT OF VOTING AT GENERAL MEETING At the last AGM held on 28 June 2023, the following non-binding resolution was approved by shareholders: • A resolution to approve the Directors’ Remuneration Report for the year ended 31 December 2022. The Group is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to directors’ remuneration, the reasons for any such vote will be sought, and any actions in response will be detailed here. POLICY REPORT APPROVAL This report was approved by the Board of directors on 25 March 2024 and signed on its behalf by: Chris Errington Non-Executive Director Chairman of the Remuneration Committee 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 29 GOVERNANCE INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PEBBLE BEACH SYSTEMS GROUP PLC OPINION We have audited the financial statements of Pebble Beach Systems Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31st December 2023 which comprise the Consolidated statement of profit and loss and statement of comprehensive income and company statement of comprehensive income, the Consolidated and Company statement of financial position, the Consolidated and Company statement of changes in shareholders’ equity, the Consolidated and Company statement of cashflows and the notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2023 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; • the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards as applied in accordance with the provisions of the Companies Act 2006; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. BASIS FOR OPINION We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OUR APPROACH TO THE AUDIT Of the group’s 8 reporting components, we subjected 4 to audits for group reporting purposes. The latter were not individually significant enough to require an audit for group reporting purposes but were still material to the group. The components within the scope of our work covered 100% of group revenue, 100% of group profit before tax, and 100% of group net assets. For the remaining 4 components, we performed analysis at a group level to re-examine our assessment that there were no significant risks of material misstatement within these. 30 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PEBBLE BEACH SYSTEMS GROUP PLC KEY AUDIT MATTERS Key audit matters are those matters that, in our professional judgment, were of most significance in our 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) we identified, 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 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. Key audit matter Description of risk How the matter was addressed in the audit Revenue recognition (Group) – see note 2 of the consolidated financial statements The specific nature of the risk of material misstatement in revenue recognition has been noted in contracts that span the year-end. Revenue is a key performance indicator of the Group. Revenue based targets may place pressure on management to distort revenue recognition. The Group enters into contracts that involve complex development that will take a number of months to complete. Judgement is required to determine what portion of the revenue is recognised during the year. As a result, there is a risk that revenue in relation to open projects that span year-end is not recognised appropriately. Our audit work included, but was not restricted to the following: • Performed walkthroughs to obtain an understanding of processes and controls governing recognition of revenue and assessed the design and implementation of processes and controls applied; • Performed substantive testing on a sample of revenue transactions in the year to evaluate whether the accounting policies adopted by the directors are in accordance with the requirements of IFRS 15, and whether management accounted for revenue in accordance with the accounting policies; • We developed an understanding of the key performance obligations by obtaining copies of a sample of contracts and evaluated management’s assessment of performance obligations, allocation of contract proceeds and subsequent revenue recognition to determine whether the revenue has been recognised in accordance with the terms of contract and revenue recognition policy; • We tested a sample of revenue transactions to obtain audit evidence supporting the revenue recognised during the year, such as proof of delivery of goods, approved timesheets and contracts with customers; and • For contracts that spanned the year-end, we re- calculated the expected deferred and accrued income and compared our expectations against management’s calculation of revenue recognised in the year, investigating any differences where necessary 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 31 FINANCIALS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PEBBLE BEACH SYSTEMS GROUP PLC Key audit matter Description of risk How the matter was addressed in the audit Going Concern (Group and parent) – see note 2 of the consolidated financial statements and note B of the parent financial statements The Group’s cash and cash equivalents is £0.8m as at 31 December 2023. In addition, the Group’s loan facilities include covenants which are required to be complied with. Our audit work included, but was not restricted to the following: • Obtained management’s base case and stress test models to a going concern period ending December 2025; As a result, there is a risk that the Group does not generate sufficient cash flows to continue in operation for the foreseeable future nor meet financial covenants. • Assessed the appropriateness of management’s assumptions in relation to revenue by comparing the predicted order book conversion rates to historical performance, the timing of revenue recognition in comparison to the current stage of completion of projects and the expected sales to supporting documentation such as signed contracts and purchase orders; • Assessed the appropriateness of management’s assumptions in relation to expenses by comparing the predicted total costs to historical performance, adjusted for known changes in business operations; • Examine and challenged the sensitivity analysis carried out by management on the revenue and expense assumptions in order to assess the levels of uncertainty inherent in the forecasts and the impact of the sensitivities against the headroom; • Confirmed the terms and conditions of the loan agreement and assessed whether these would likely be breached within the assessment period; • Assessed the likelihood and impact of mitigating factors including potential cost savings identified by reference to supporting documentation and discussions with management; • Assessed the ability of management to forecast accurately by comparing current year actual results against forecasts prepared in the prior year; • Compared post year-end performance against forecasts; • Evaluated the mitigating actions that may be implemented by management as required to meet its covenants when cash collections are delayed; and • Assessed the adequacy of related disclosures within the annual report. 32 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Key audit matter Description of risk How the matter was addressed in the audit Valuation of investment in subsidiaries (Parent) – see note B of the parent company’s financial statement We identified valuation of investment in subsidiaries as one of the most significant assessed risks of material misstatement due to error. Investments in subsidiaries amount to £24.5m of which £14.9m relates to the investment in Pebble Beach Systems Limited. The remaining balance of £9.6 relates to investments in holding companies which are non-trading. Management has used a value in use model to assess the recoverable value of the investments held. The value in use model is subjective due to the inherent uncertainty involved in forecasting and discounting estimated future cash flows (specifically the key assumptions around revenue growth, gross attrition rate and the weighted average cost of capital (WACC) used to discount the cash flows) Our audit work included, but was not restricted to, the following: • Challenged the assumptions used in the impairment model for investments in subsidiaries; • Tested the mathematical accuracy of management’s model. • Assessed the appropriateness of the impairment review methodology, assumptions concerning growth rates and inputs to the discount rate against available market data with the assistance of experts; • Compared previously forecast revenue growth rates and gross profit margins with those achieved in previous years; • Reviewed sensitivity analysis to calculate the minimum growth rates needed to avoid an asset impairment and compare them to those achieved in previous years; • Engaged our internal valuation specialists to assess the WACC applied; and • Assessed the accuracy and sufficiency of financial statement disclosures OUR APPLICATION OF MATERIALITY The materiality for the group financial statements as a whole (“group FS materiality”) was set at £247,000. This has been determined with reference to the benchmark of the group’s revenue, which we consider to be one of the principal considerations for members of the company in assessing the group’s performance. Group FS materiality represents 2% of the group’s revenue as presented on the face of the consolidated income statement. The materiality for the parent company financial statements as a whole (“parent FS materiality”) was set at £185,250. This has been determined with reference to the benchmark of the parent company’s total assets as it exists only as a holding company for the group and carries on no trade in its own right. Parent FS materiality represents 75% of the parent company’s total as presented on the face of the parent company statement of financial position. Performance materiality for the group financial statements was set at £185,250, being 75% of group FS materiality, for purposes of assessing the risks of material misstatement and determining the nature, timing and extent of further audit procedures. We have set it at this amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds group FS materiality. We judged this level to be appropriate based on our understanding of the group and its financial statements, as updated by our risk assessment procedures and our expectation regarding current period misstatements including considering experience from previous audits. The level of 75% was set to reflect that there are some areas of judgement and estimation in the financial statements. Performance materiality for the parent company financial statements was set at £138,900, being 75% of parent FS materiality. The level of 75% was set to reflect that there are some areas of judgement and estimation in the financial statements. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 33 FINANCIALS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PEBBLE BEACH SYSTEMS GROUP PLC CONCLUSIONS RELATING TO GOING CONCERN 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. Our evaluation of the directors’ assessment of the group and parent company’s ability to continue to adopt the going concern basis of accounting included the procedures as detailed in the Key Audit Matters section, as well as: • Reviewing bank statements to monitor the cash position of the group post year-end, and obtaining an understanding of significant expected cash outflows (such as capital expenditure) in the forthcoming 12-month period; • Considering the group’s funding position and requirements; and • Reviewing and challenging management’s calculations suggesting the Group is able to comply with all loan facility covenants in the 12 months from approval of 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 and parent 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. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. OTHER INFORMATION The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. 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 course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. 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 in this regard. OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. 34 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 RESPONSIBILITIES OF DIRECTORS As explained more fully in the directors’ responsibilities statement set out on page 17, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors 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 parent 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 parent company or to cease operations, or have no realistic alternative but to do so. AUDITOR’S 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 auditor’s 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. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. We obtained a general understanding of the Group’s legal and regulatory framework through enquiry of management concerning their understanding of relevant laws and regulations; the Group’s policies and procedures regarding compliance; and how they identify, evaluate and account for litigation claims. We also drew on our existing understanding of the Group’s industry and regulations. We obtained this understanding for significant components through discussions with Group management. We understand that the Group complies with the framework through: • promoting corporate culture through the use of the Group’s Code of Conduct, which all Group companies must adhere to; • updating operating procedures, manuals and internal controls as legal and regulatory requirements change; and • for significant components, the Directors’ close involvement in the day-to-day running of the business, meaning that any litigation or claims would come to their attention directly. In the context of the audit, we considered those laws and regulations which determine the form and content of the financial statements, which are central to the Group’s ability to conduct its business, and/or where there is a risk that failure to comply could result in material penalties. We identified the following laws and regulations as being of significance in the context of the Group: • The Companies Act 2006, IFRS in respect of preparation and presentation of the financial statements; • AIM regulations and Market Abuse Regulations; and • Requirements from UK and overseas tax legislation (including IR35 and minimum wage). We performed the following specific procedures to gain evidence about compliance with the significant laws and regulations above: • Made inquiries with management as to any legal or regulatory issues during the year; • We have reviewed board minutes for evidence of non-compliance; and • We have obtained representation from management that they have disclosed to us all known instances of non-compliance or suspected non-compliance with laws and regulations. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 35 FINANCIALS INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PEBBLE BEACH SYSTEMS GROUP PLC The senior statutory auditor led a discussion with senior members of the engagement team regarding the susceptibility of the entity’s financial statements to material misstatement, including how fraud might occur. The key areas identified as part of the discussion were the risk of manipulation of the financial statements through manual journal entries, incorrect recognition of revenue and accounting estimates such as impairment assumptions. These areas were communicated to the other members of the engagement team who were not present at the discussion. The procedures we carried out to gain evidence in the above areas are detailed in the Key Audit Matters section as well as: • testing a sample of manual journal entries, selected through applying specific risk assessments based on the Group’s processes and controls surrounding manual journal entries. A further description of our responsibilities is available on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. USE OF OUR REPORT This report is made solely to the parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the parent company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Avinash Heeralall Senior Statutory Auditor, for and on behalf of CLA Evelyn Partners Limited Statutory Auditor Chartered Accountants 45 Gresham Street London EC2V 7BG United Kingdom 25 March 2024 36 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31 DECEMBER 2023 Continuing operations Revenue Cost of sales Gross profit Sales and marketing expenses Research and development expenses Administrative expenses Operating profit Operating profit is analysed as: Adjusted EBITDA Non-recurring items Share based payment expense Exchange gains/(losses) credited to the income statement/(charged) Earnings before interest, tax, depreciation and amortisation (EBITDA) Depreciation Amortisation of capitalised development costs Operating profit Finance costs Profit before tax Tax Net profit for the year Note 5 2023 £000 2022 £000 12,370 11,167 (2,826) 9,544 (2,747) (1,739) (2,983) 2,075 3,773 (105) (57) (31) 3,580 (200) (1,305) 2,075 (531) 1,544 (10) 1,534 (2,821) 8,346 (2,234) (1,696) (2,789) 1,627 3,166 (362) (53) 145 2,896 (168) (1,101) 1,627 (432) 1,195 (13) 1,182 6 6 6 6 6 8 9 Earnings per share from continuing operations attributable to the parent during the year Basic earnings per share From continuing operations and profit for the year 11 1.2p 0.9p Diluted earnings per share From continuing operations and profit for the year 11 1.2p 0.9p 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 37 FINANCIALS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 Profit for the financial year Other comprehensive income – items that may be reclassified subsequently to profit or loss: Exchange difference on translation of overseas operations – continuing operations Total comprehensive income for the financial year 2023 £000 1,534 9 1,543 2022 £000 1,182 (34) 1,148 38 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 Assets Non-current assets Intangible assets Property, plant and equipment Other non-current assets Total non-current assets Current assets Inventories Trade and other receivables Current tax assets Cash and cash equivalents Total current assets Liabilities Current liabilities Financial liabilities – borrowings Trade and other payables Lease liabilities – current Total current liabilities Net current liabilities Non-current liabilities Financial liabilities – borrowings Other payables – non-current Lease liabilities – non-current Total non-current liabilities Net assets/ (liabilities) Equity attributable to owners of the parent Ordinary shares Share premium Capital redemption reserve Merger reserve Translation reserve Accumulated losses Total surplus/(deficit) Note 2023 £000 2022 £000 12 13 14 15 16 17 19 18 21 19 18 21 23 24 24 24 24 7,107 435 12 7,554 303 4,318 - 796 5,417 1,000 6,169 47 7,216 (1,799) 4,550 274 78 4,902 853 3,115 6,800 617 29,778 (176) (39,281) 853 6,307 571 38 6,916 497 3,526 8 728 4,759 935 5,716 96 6,747 (1,988) 5,550 - 125 5,675 (747) 3,115 6,800 617 29,778 (185) (40,872) (747) The financial statements on pages 37 to 73 were approved by the Board of directors on 25 March 2024 and were signed on its behalf by: John Varney Non-Executive Chairman 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 39 FINANCIALS CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 At 1 January 2022 Share based payments: value of employee services Transactions with employees Profit for the year Exchange differences on translation of overseas operations Total comprehensive income for the period At 31 December 2022 At 1 January 2023 Share based payments: value of employee services Transactions with employees Profit for the year Exchange differences on translation of overseas operations Total comprehensive income for the period At 31 December 2023 Ordinary shares £000 3,115 Share premium £000 6,800 Capital redemption reserve £000 617 Merger reserve £000 29,778 Translation reserve £000 (151) Accumulated losses £000 (42,107) Total Equity £000 (1,948) – – – – – – – – – – – – – – – – – 3,115 3,115 – 6,800 6,800 – 617 617 – 29,778 29,778 – – – – – – – – – – – – – – – – – – – (34) (34) (185) (185) – – – 9 53 53 53 1,182 53 1,182 – (34) 1,182 (40,872) (40,872) 1,148 (747) (747) 57 57 57 1,534 57 1,534 – 9 – 3,115 – 6,800 – 617 – 29,778 9 (176) 1,534 (39,281) 1,543 853 40 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 Cash flows from operating activities Cash generated from operations Interest paid Taxation paid Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Expenditure on capitalised development costs Net cash used in investing activities Cash flow from financing activities Repayment of borrowings Principal elements of lease payments Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Note 25 13 12 25 17 2023 £000 3,917 (531) (8) 3,378 (68) (2,105) (2,173) (1,000) (96) (1,096) 109 (41) 728 796 2022 £000 2,684 (432) (21) 2,231 (193) (1,807) (2,000) (1,000) (173) (1,173) (942) 31 1,639 728 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 41 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 1. GENERAL INFORMATION Pebble Beach Systems Group plc (“the Company”) and its subsidiaries (together “the Group”) is a leading global software business specialising in playout automation and content management solutions for the broadcast and streaming service markets. The Group employs over 90 people worldwide. The Company is listed on the AIM market of the London Stock Exchange (AIM: PEB). For further information, visit www. pebbleplc.com. The Company is incorporated and domiciled in the UK. The address of its registered office is Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN. The registered number of the Company is 04082188. 2. MATERIAL ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies are material and have been consistently applied to all the years presented, unless otherwise stated. BASIS OF ACCOUNTING The Group financial statements have been prepared on a going concern basis under the historical cost basis of accounting, except where fair value measurement is required under IFRS as described below and in accordance with UK- adopted international accounting standards. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumption and estimates are significant to the Group financial statements, are disclosed in note 4. During the current reporting year there were no new standards or amendments which had a material impact on the results of the Group. Standards or amendments issued but not yet effective are not expected to have a material impact on the net assets of the Group. GOING CONCERN BASIS The directors are required to assess the Company’s and the Group’s ability to continue to trade as a going concern. At 31 December 2023, the Group’s net debt (excluding IFRS 16 leases) was £4.7 million (2022: £5.8 million), comprising cash of £0.8 million (2022: £0.7 million) and the term loan from Santander of £5.5 million (2022: £6.5 million). We enjoy a close relationship with our bank and have regular review meetings with them. In March 2024, we signed a new term loan through to 31 October 2026, which re-financed the existing £5.5 million RCF at the same level of commitment, with repayment levels consistent with previous years and appropriate financial covenants. There have been no breaches in financial covenants to date and no breaches are anticipated in the going concern period. However, both of the financial covenants in relation to the minimum liquidity and cash flow cover are sensitive to changes in the forecasts related to the timing of cash collections and payments in Q1 and Q2 2024 due to SLA renewals slipping from FY 2023 into FY 2024. Management are confident that this timing delay is short term only and cashflow levels are expected to increase in the next few months. The Directors are confident that whilst the covenants are not projected to be breached, management would need to ensure working capital movements are appropriately managed to ensure the Group meets its covenants. Management also had to manage working capital movements in quarter one 2024 to ensure there were no breaches in covenants. Management have estimated the timing of cash receipts and identified mitigating actions to be taken in the event of a breach becoming likely. Management’s ability to enact these mitigating actions and their effectiveness are considered significant judgements. 42 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 The directors are confident that any loan extensions required post October 2026 would be granted given the historic track record. To assess the appropriateness of preparing financial statements on a going concern basis, management prepared detailed projections of the consolidated statement of profit and loss, the statement of financial position and cash flow statements through to 31 December 2025. This review period extends to the end of the financial year for 2025, which is looking forward 21 months beyond the date of approval of these financial statements. The projections included testing against the minimum liquidity and cash flow cover covenants required by the new term loan facility. These projections used the forecast for 2024 and were updated for current trading and forecasts. This analysis was then extended to the end of 2025. The projections were stress tested in two ways. Project orders for 2024 were reduced by 50%, then reduced by 40% with a 25% reduction in SLA renewals in 2024 applied. The existing support service contracts, where revenue is recognised over time were assessed based on historic renewal rates, to establish the likely renewal of this recurring revenue. Management reviewed the resource levels and marketing spend required to support the reduced revenue and reflected cost reductions in the forecast. Even with a 25% drop in SLA renewals, management concluded the business will remain a going concern. The Board has concluded from its thorough assessment of the detailed forecasts and ability to enact any mitigating actions, if required, that the Group will have sufficient resources to meet its liabilities during the review period through to 31 December 2025, that it will meet the bank covenants and that it is appropriate that the Group and the Company prepare accounts on a going concern basis. CHANGES ON ACCOUNTING POLICIES AND DISCLOSURES The following new and amended Standards and Interpretations effective for the financial year beginning 1 January 2023 have been adopted. The adoption of these standards has not had any material impact on the disclosures or on the amounts reported in these financial statements. • IAS 12 Income taxes: Deferred tax related to assets and liabilities arising from a single transaction • IAS 12 Income taxes: temporary recognition exception to accounting for deferred taxes arising from the implementation of the international tax reform (Pillar Two Model Rules) • IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of accounting estimates • IAS 1 Presentation of Financial Statements: Disclosure initiative – accounting policies Upcoming standard changes for the period beginning 1 January 2024 have not had any material impact on the disclosures or on the amounts reported in these financial statements. BASIS OF CONSOLIDATION The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December 2023. Control is achieved when the Company: • has the power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. Intercompany transactions, balances, income and expenses on transactions between Group companies are eliminated. Profits and losses resulting from the intercompany transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 43 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 2. MATERIAL ACCOUNTING POLICIES CONTINUED SEGMENTAL REPORTING The Group’s internal organisational and management structure and its system of internal financial reporting to the Board of directors comprise of Pebble Beach Systems and PLC costs. The chief operating decision-maker has been identified as the Board. The Board reviews the Group’s internal financial reporting in order to assess performance and allocate resources. Management have therefore determined that the operating segments for the Group will be based on these reports. The Pebble Beach Systems business is responsible for the sales and marketing of all Group software products and services. GEOGRAPHIC REGION REPORTING Group management are focused on developing global revenue growth from the Broadcast market. Geographic reporting of revenue is therefore provided by reference to geographic region. FOREIGN CURRENCY TRANSLATION (A) FUNCTIONAL AND PRESENTATION CURRENCY Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The Group financial statements are presented in pounds sterling (GBP), which is the Company’s functional and presentation currency. (B) TRANSACTIONS AND BALANCES Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. (C) GROUP COMPANIES Trading results and financial position of all Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • assets and liabilities for each statement of financial position presented are translated at the closing rate of exchange prevailing at the reporting date; • income and expenditure for each income statement are translated at the average rates of exchange prevailing during the year; and • all resulting exchange differences arising from restatement of the opening statements of financial position and trading results of overseas subsidiaries are recognised as a separate component of shareholders’ equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. INTANGIBLE ASSETS (A) GOODWILL Goodwill represents the excess of the fair value of the purchase consideration for the interest in subsidiary undertakings over the fair value to the Group of the net assets acquired, including acquired intangible assets and any contingent liabilities. Goodwill is tested annually or more frequently if events or circumstances indicate potential impairment. Impairment losses are recognised for the amount by which an asset’s carrying amount exceeds its recoverable amount; that recoverable amount is the higher of the asset’s fair value less costs to sell and its value in use. Impairments of goodwill are not reversed. Gains and losses on the disposal of an entity will be net of the carrying amount of goodwill relating to the entity sold. 44 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of a related business combination and represent the lowest level within the Group at which management monitors goodwill. Cash-generating units to which goodwill has been allocated (determined by the Group’s management as equivalent to its operating segments) are tested for impairment at least annually. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s (or cash-generating unit’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 from each cash-generating unit 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 cash-generating unit and reflect current market assessments of the time value of money and asset-specific risk factors. The assumptions have been determined and they are consistent with past experience and external information. Management is not currently aware of any reasonable possible changes to key assumptions that would cause a unit’s carrying amount to exceed its recoverable amount. Impairment losses for cash-generating units reduce first the carrying amount of any goodwill allocated to that cash- generating unit. Any remaining impairment loss is charged pro rata to the other assets in the cash-generating unit. With the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset’s or cash-generating unit’s recoverable amount exceeds its carrying amount. (B) RESEARCH AND DEVELOPMENT COSTS Research expenditure is written off as incurred. Where development expenditure meets the criteria for capitalisation as set out in IAS 38 “Intangible Assets” the costs are capitalised. The capitalised development costs met the following criteria: • the development costs can be measured reliably • the project is technically and commercially feasible • the Group intends to and has sufficient resources to complete the project • the Group has the ability to use or sell the software • the software will generate probable future economic benefits • in general, the Group’s research and development activities are closely interrelated and it is not until the technical feasibility of a product can be determined with reasonable certainty that development costs are separately identifiable Any development costs not meeting these criteria for capitalisation were expensed as incurred. Development costs are amortised over the estimated useful life of the products with which they are associated. Amortisation commences when a new product is in commercial production. The amortisation period ranges from one to five years. If a product becomes unviable the deferred development costs are written off. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 45 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 2. MATERIAL ACCOUNTING POLICIES CONTINUED PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairment. 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 in order to write off the cost of property, plant and equipment, other than land, over their estimated useful lives by equal annual instalments using the following rates: Freehold land and buildings Leasehold improvements Fixtures and fittings Plant, tools, test and computer equipment INVENTORIES 2 per cent for buildings. No depreciation on land. 5 per cent or the remaining term of the leases. The original length of the leases is between 5 and 15 years. 10 per cent 10 per cent – 33 per cent Inventories are stated at the lower of cost and net realisable value. Cost represents direct costs incurred and, where applicable, production or conversion costs and other costs to bring the inventory to its existing condition and location. Inventory is accounted for on a standard cost basis. Net realisable value comprises the actual or estimated selling price less all further costs to completion, and less all costs to be incurred in marketing, selling and distribution. Provisions for inventories are recognised when the book value exceeds its net realisable value. The Group makes provision for slow- moving, obsolete and defective inventory as appropriate. SHARE CAPITAL Ordinary shares are classified as equity. Proceeds in excess of the nominal value of shares issued are allocated to the share premium account and are also classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are deducted from the share premium account. Where shares are issued in part or full consideration for the acquisition of more than 90 per cent of the issued share capital of another company, the excess of value attributed to the shares over the nominal value of shares issued is allocated to the merger reserve. The merger reserve is also classified as equity. FINANCIAL INSTRUMENTS RECOGNITION AND DERECOGNITION Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. CLASSIFICATION AND INITIAL MEASUREMENT OF FINANCIAL INSTRUMENTS The Group’s financial liabilities include borrowings, trade and other payables. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Group designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). 46 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Financial assets, other than those designated and effective as hedging instruments, are classified into amortised cost. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within expenses. SUBSEQUENT MEASUREMENT OF FINANCIAL ASSETS Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Group’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. IMPAIRMENT OF FINANCIAL INSTRUMENTS IFRS 9’s impairment requirements use forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. Instruments within the scope of the requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is not dependent on the Group first identifying a credit loss event. Instead, the Group considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. TRADE AND OTHER RECEIVABLES AND CONTRACT ASSETS 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 using a provision matrix. (A) TRADE AND OTHER RECEIVABLES Trade receivables are initially measured at the transaction price in accordance with IFRS 15. When a trade receivable is uncollectable it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to the income statement. (B) CASH AND CASH EQUIVALENTS Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of less than three months. For the purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, together with bank overdrafts where applicable. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 47 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 2. MATERIAL ACCOUNTING POLICIES CONTINUED (C) TRADE AND OTHER PAYABLES 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 (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (D) BORROWINGS Bank borrowings are recognised at effective interest rate method. CURRENT AND DEFERRED TAXATION The current tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the reporting date in the countries where the Company’s subsidiaries operate and generate taxable income. Management evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised in respect of all temporary differences except where the deferred tax liability arises from the initial recognition of goodwill in business combinations. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be suitable taxable profits against which the future reversal of the underlying temporary differences can be deducted. The carrying value of the amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the reporting date. Deferred 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 tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. EMPLOYEE BENEFITS – PENSION OBLIGATIONS The Group employees are members of defined contribution money purchase schemes where the obligations of Group companies are charged to the income statement as they are incurred. The Group has no further obligations once the contributions have been paid. REVENUE RECOGNITION CONTRACTS WITH MULTIPLE PERFORMANCE OBLIGATIONS Many of the Group’s contracts comprise a variety of performance obligations including, but not limited to, hardware, software, elements of design and customisation, after-sales services, and installation. Under IFRS 15, the Group must evaluate the separability of the promised goods or services based on whether they are ‘distinct’. A promised good or service is ‘distinct’ if both: • the customer benefits from the item either on its own or together with other readily available resources, and • it is ‘separately identifiable’ (i.e. the Group does not provide a significant service integrating, modifying or customising it). 48 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Where the contracts include multiple performance obligations, the transaction price will be allocated to each performance obligation based on the stand-alone selling prices. Generally, the different performance obligations will conform to the different revenue streams. Where these are not directly observable, they are estimated on an expected cost-plus margin. Any amounts paid by customers to the Group are generally non-refundable according to standard terms and conditions. Standard payment terms are specified on our quotation sent to the customer. Where manufacturers’ warranties are provided by the suppliers they are passed on to the customers. Costs to obtain contracts prior to receipt of order are expensed immediately, except commission. Sales commissions and costs incurred after receipt of order are recognised in line with the transfer of goods or services to the customer, in accordance with IFRS 15. Consideration does not need to be adjusted because it is expected that the customer will settle within agreed terms. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. There were no loss-making contracts in 2023. The Group identified, under IFRS 15, that the only capitalised contract cost where required, is commission. Commission cost is capitalised as a prepayment and released in line with revenue recognition. At the point of sale, price is agreed within the contract. The transaction price is individually allocated across software, hardware, installation and support. Any variations in the contracts do not result in variable consideration. Most such arrangements include detailed customer payment schedules. When payments received from customers exceed revenue recognised to date on a particular contract, any excess (a contract liability) is reported in the statement of financial position under trade and other payables. The Group recognises contract liabilities for consideration received in respect of unsatisfied performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises either a contract asset or a receivable in its statement of financial position, depending on whether something other than the passage of time is required before the consideration is due. Payment terms are typically on receipt of invoice or 30 days from invoice for contracts involving multiple performance obligations and in advance for support contracts. The Group does not expect to have any contracts where the period between transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money. The revenue is divided into the following streams: (A) SALES OF SERVICES (SOFTWARE) The Group sells software for new installations. Revenue represents amounts receivable from external customers for goods sold by Group companies in the ordinary course of business and excluding value added tax. The sales price and payment terms are agreed at the time of order. The performance obligation for sales of software is met and revenue is recognised at the ‘point in time’ when the software is despatched as this is when the customer takes undisputed control. This is appropriate as software is not significantly customised nor subject to significant integration services that could not be performed by a third party. (B) SALE OF GOODS (HARDWARE) The Group sells hardware for new installations. Revenue represents amounts receivable from external customers for goods sold by Group companies in the ordinary course of business and excluding value added tax. The sales price and payment terms are agreed at the time of order. The performance obligation is met and revenue recognised at the ‘point in time’ when the goods are transferred to the customer, and the receipt of payment can be assured. Ownership of the goods transfers to the customer when the goods are shipped from the Group’s premises. For stand-alone sales of hardware that are neither customised by the Group nor subject to significant integration services, control transfers at the point in time the customer takes undisputed delivery of the goods. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 49 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 2. MATERIAL ACCOUNTING POLICIES CONTINUED (C) CONSTRUCTION CONTRACTS (INSTALLATION) From time to time the Group enters into contracts that involve complex development that will take a number of months to complete and may involve the delivery of multiple components. These are treated as construction contracts and assessed on a contract by contract basis. Judgement will be required here to determine whether these should be bundled together or treated as distinct performance obligations. It is not expected that this will materially change the period over which revenue is recognised. Revenue represents the man-days required to complete the installation. Where the outcome of a contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the reporting date. This is measured by the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations to the contract for contract work, claims and incentive payments are included to the extent that they have been agreed with the customer. Where the outcome of a contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred where it is probable such costs will be recoverable. All contract liabilities are calculated based on the value of the initial deposit paid by the customer, deducting any work completed to date. (D) SUPPORT CONTRACTS The main services the Group provides are ongoing support for its software in use. These are transaction processing to customers in exchange for a fee covering a fixed period of time. Revenue is recognised on a straight-line basis over the term of each contract. As the amount of work required to perform under these contracts does not vary significantly from month to month, the straight-line method provides a faithful depiction on the transfer of goods or services. For other sales of services, unless the contract qualifies as a construction contract, revenue is recognised in the accounting period in which the performance obligations are satisfied and assessed on the basis of the actual service provided as a proportion of the total services to be provided. Only the costs that reflect work performed to date are included in the costs of sale. DIVIDEND DISTRIBUTION Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders. The directors do not recommend payment of a final dividend for the year ended 31 December 2023. NON-RECURRING ITEMS These are material items excluded from management’s assessment of profit because by their nature they could distort the annual trend in the Group’s earnings. These are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis. IMPAIRMENT OF NON-FINANCIAL ASSETS Assets that have an indefinite useful life, for example goodwill or intangible assets not ready for use, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 50 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 3. FINANCIAL RISK MANAGEMENT FINANCIAL RISK FACTORS The Group’s activities expose it to a variety of financial risks: market risk (foreign exchange risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of the financial markets and seeks to minimise the potential adverse effects on the Group’s financial performance. Risk management policy is carried out through a central treasury function within the executive management team at the Group’s head office. The treasury function identifies, evaluates and manages financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management while the central treasury function provides specific policy guidance for the operating units in terms of managing market risk, credit risk and cash and liquidity management. (A) MARKET RISK (i) FOREIGN EXCHANGE RISK The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily between the US dollar and GBP. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. At a transactional level the UK business has a broadly neutral exposure to foreign currency transactions, in that their revenues in euros and US dollars match their purchases. Foreign currency bank accounts are maintained to minimise exchange risk by trading currencies into sterling only when forecast surpluses or deficits are expected to arise. The flow of cash from the USA to the UK businesses is managed by central treasury in order to minimise the risk to the Group. The exchange risk to the Group in terms of its reported results lies in the translation of the results and net assets and liabilities of the US business from US dollars to GBP. The Group’s accounting policy is to translate the profits and losses of overseas operations using the average exchange rate for the financial year and the net assets and liabilities of overseas subsidiaries at the year-end exchange rate. It continues to be the Group’s policy not to hedge the foreign currency exposures on the translation of overseas profits or losses and net assets or liabilities to sterling as they are considered to be accounting rather than cash exposures. Foreign currency denominated financial assets and liabilities which expose the Group to currency risk are disclosed below. The amounts shown are those reported to key management translated into pounds sterling at the closing rate. The gross amounts of the Group’s trade receivables are denominated in the following currencies: Pounds Sterling US dollars Euros 2023 £000 1,630 231 280 2,141 The amounts of the Group’s cash and cash equivalents are denominated in the following currencies: Pounds Sterling US dollars Euros 2023 £000 494 239 63 796 2022 £000 1,040 470 313 1,823 2022 £000 485 150 93 728 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 51 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 3. FINANCIAL RISK MANAGEMENT CONTINUED The amounts of the Group’s trade and other payables (current and non-current) are denominated in the following currencies: Pounds Sterling US dollars Euros 2023 £000 5,240 1,166 37 6,443 2022 £000 4,409 1,220 87 5,716 The principal exchange rates used by the Group in translating overseas profits and net assets into GBP are set out in the table below: Rate compared to £ sterling US dollar Euro Average rate 2023 1.243 1.152 Average rate 2022 1.236 1.170 Year end rate 2023 1.275 1.154 Year end rate 2022 1.204 1.127 Where overseas acquisitions are made, it is the Group’s policy to arrange any borrowings required in local currency. The Group does not trade in financial instruments nor does it take out hedging instruments. The following table illustrates the sensitivity of profit and equity relating to the Group’s US business and the GBP/USD exchange rate ‘all other things being equal’. It assumes a +/- 10 per cent change of the GBP/USD exchange rate for the year ended 31 December 2023 (2022: 10 per cent). This percentage has been determined based on the average market volatility in exchange rates in the previous twelve months. The sensitivity analysis is based on the Group’s result and net assets and liabilities of the US business at each reporting date. USD strengthens by 10 per cent USD weakens by 10 per cent EUR strengthens by 10 per cent EUR weakens by 10 per cent Profit for the year 2023 (2) 2 26 (22) Profit for the year 2022 35 (29) 34 (28) Equity 2023 (2) 1 26 (22) Equity 2022 36 (30) 34 (28) The lower foreign currency exchange rate sensitivity in profit in 2023 compared with 2022 is attributable to the lower profits in the US. Equity is less sensitive in 2023 than in 2022 because of a reduction in foreign currency denominated net assets. (ii) CASH FLOW INTEREST RATE RISK Cash flow interest rate risk comprises the interest rate price risk that results from borrowing at both fixed and variable rates of interest. The interest charge on the term loan at 31 December 2023 was 3.9 per cent plus SONIA. Interest paid SONIA Increases by 2% SONIA decreases by 2% * SONIA was 5.19% as at 31 December 2023 (3.43% as at 31 December 2022). Interest for the year 2023 (521) (619) 405 Interest for the year 2022 (347) (418) 294 52 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 (B) CREDIT RISK Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Credit risk arises with cash balances and accounts receivables. The Group’s cash deposits are held at banks that have been carefully selected, taking into consideration their individual external credit ratings (note 17). Each local subsidiary is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. It is the Group’s policy to obtain deposits from customers where possible, particularly overseas customers. In addition, the Group will seek confirmed letters of credit for the balances due. The nature of the customer base (for example, national TV stations, government procurement agencies) makes the use of credit insurance inappropriate. Credit risk is managed at the operating business unit level and monitored at the Group level to ensure adherence to Group policies. If there is no independent rating, the finance function assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored. (C) LIQUIDITY RISK Any material loss through ineffective investment of cash would undermine our ability to generate growth in shareholder value. Similarly, an inability to access these funds would undermine the Group’s ability to meet its financial obligations. We have assessed the likelihood of loss to be low but with a high potential impact. The main exposure to risk is from borrowings and other liabilities. The risk is monitored using rolling cash flow forecasts and is managed through the availability of committed credit lines and borrowing facilities. On 19 March 2024, a new term loan facility was signed, refinancing the existing £5.5m RCF agreement. The new term loan secures £5.5m facility until 31 October 2026. The financial covenants and repayment schedule remain the same as the previous loan facility. As per the amended facilities agreement, the Group has an obligation to comply with the simplified banking covenants as well as complying with an agreed amortisation profile. In order to ensure full compliance, the Group’s executive management prepare thirteen-week forecasts on a monthly basis to ensure ongoing obligations will be met. The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. At 31 December 2023: Bank loans (secured) Trade and other payables Lease liabilities At 31 December 2022: Bank loans (secured) Trade and other payables Lease liabilities Less than three months £000 Between three months and one year £000 More than one year £000 376 3,189 13 303 2,415 31 1,096 – 40 1,040 – 75 5,575 – 85 5,842 – 139 Total £000 7,047 3,189 138 7,185 2,415 245 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 53 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 3. FINANCIAL RISK MANAGEMENT CONTINUED CAPITAL RISK MANAGEMENT The Group’s objectives when managing capital are to safeguard the ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. Consistent with other businesses, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt (excluding IFRS 16 leases) is calculated as total borrowings (including “current and non-current borrowings” as shown in the statement of financial position) less cash and cash equivalents. Total capital is the sum of equity plus net debt (or less net cash) being £6.0 million at 31 December 2023 (2022: £5.0 million). FAIR VALUE ESTIMATION The carrying value of trade receivables (less impairment provision) and financial liabilities are assumed to approximate to their fair value. 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS In the process of applying the Group’s accounting policies, management have made accounting judgements in the determination of the carrying value of certain assets and liabilities. Due to the inherent uncertainty involved in making assumptions and estimates, actual outcomes will differ from those assumptions and estimates. JUDGEMENTS The Group has the following significant judgement recognised in the financial statements: GOING CONCERN The Group’s going concern forecast indicate that its cashflow cover and minimum liquidity covenants are sensitive to working capital movements. Management have estimated the timing of cash receipts and identified mitigating actions to be taken in the event of a breach becoming likely. Management’s ability to enact these mitigating actions and their effectiveness are deemed to be significant judgements. See going concern note 2 for further detail. RECOGNITION OF SERVICE AND INSTALLATION CONTRACT REVENUES Revenue from support agreements and installation contracts is recognised over time. The amount of revenue recognised in a reporting period depends on the extent to which the performance obligation has been satisfied. For support agreements and installation contracts this requires an estimate of the quantity of the services to be provided, based on historical experience with similar contracts. In a similar way, recognising revenue for installation contracts also requires significant judgement in determining the estimated number of hours required to complete the promised work. ESTIMATES The Group has the following significant estimate recognised in the financial statements: IMPAIRMENT OF GOODWILL AND INVESTMENTS In assessing impairment, management estimates the recoverable amount of the cash generating unit based on expected future cash flows and uses a suitable discount rate in order to calculate the present value. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. Details of the impairment review are provided in note 12. 54 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 5. SEGMENTAL REPORTING The directors believe that adjusted EBITDA provides additional useful information on underlying trends to shareholders. This measure is used by management for internal performance analysis and incentive compensation arrangements. The term “adjusted” is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments are made in respect of depreciation, the amortisation of acquired intangibles and capitalised development costs, non-recurring items and exchange gains or losses charged to the income statement. The directors believe there is only one operating segment derived from the relationship with Pebble Beach Systems Ltd, and the other segment is the corporate costs of running the public company. The analysis between these component parts for the year ended 31 December 2023 is as follows: Segmental reporting by division Year ended 31 December 2023 Income statement: Broadcast Total revenue Adjusted EBITDA Depreciation Amortisation of capitalised development costs Non-recurring items Share based payment expense Exchange gains Finance costs Intercompany finance income/(costs) Profit/(loss) before taxation Taxation Profit/(loss) for the year being attributable to owners of the parent Segment assets Non-current assets Current assets Total assets Total liabilities Total net assets/(liabilities) Other segment items Capital expenditure Capitalised development expenditure Depreciation Amortisation of intangibles PLC costs represent corporate expenses. Pebble Beach Systems £000 PLC costs £000 Total £000 12,370 12,370 4,221 (200) (1,305) (105) – (31) (10) 336 2,906 (10) 2,896 7,554 5,370 12,924 (6,120) 6,804 68 2,105 200 1,305 – – (448) – – – (57) – (521) (336) (1,362) – (1,362) – 47 47 (5,998) (5,951) – – – – 12,370 12,370 3,773 (200) (1,305) (105) (57) (31) (531) – 1,544 (10) 1,534 7,554 5,417 12,971 (12,118) (853) 68 2,105 200 1,305 Segment assets include property, plant and equipment, goodwill, other intangibles, inventories, trade receivables and operating cash. Segment assets exclude inter-segment investments. Segment liabilities comprise operating liabilities, taxation and segmental provisions for liabilities and charges. Segmental assets and liabilities exclude amounts owed to/ from other segments. Segmental capital expenditure comprises additions to property, plant and equipment. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 55 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 5. SEGMENTAL REPORTING CONTINUED Pebble Beach Systems £000 PLC costs £000 Total £000 Segmental reporting by division Year ended 31 December 2022 Income statement (restated): Broadcast Total revenue Adjusted EBITDA Depreciation Amortisation of capitalised development costs Non-recurring items Share based payment expense Exchange losses Finance costs Intercompany finance income/(costs) Profit/(loss) before taxation Taxation (restated) Profit/(loss) for the year being attributable to owners of the parent (restated) Segment assets Non-current assets (restated) Current assets Total assets (restated) Total liabilities (restated) Total net assets/(liabilities) See note O to the Company accounts for explanation of the restatement. Other segment items Capital expenditure Capitalised development expenditure Depreciation Amortisation of intangibles 11,167 11,167 4,051 (168) (1,101) 66 – 145 (20) 211 3,184 (13) 3,171 6,916 4,732 11,648 (5,416) 6,232 193 1,807 168 1,101 – – (885) – – (428) (53) – (412) (211) (1,989) – (1,989) – 27 27 (7,006) (6,979) – – – – GEOGRAPHIC EXTERNAL REVENUE ANALYSIS AND REVENUE BY STREAM The revenue analysis in the table below is based on the geographic location of the customer for each business. By market: UK and Europe USA Remaining North America Latin America UAE Remaining Middle East and Africa Asia/Pacific Total revenue by market 2023 £000 6,381 1,376 – 1,092 1,349 1,706 466 12,370 56 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 11,167 11,167 3,166 (168) (1,101) (362) (53) 145 (432) – 1,195 (13) 1,182 6,916 4,759 11,675 (12,422) (747) 193 1,807 168 1,101 2022 £000 4,967 1,459 2 787 1,548 1,918 486 11,167 By segment stream: Hardware transferred at a point in time Software transferred at a point in time Installation transferred over time Support transferred over time Total revenue by stream 2023 £000 1,742 3,794 1,646 5,188 12,370 2022 £000 1,685 3,117 1,753 4,612 11,167 Non-current assets, other than financial instruments and deferred tax, located in the UK are £7.5 million (2022: £6.9 million) and rest of world £Nil (2022: £Nil). 6. OPERATING PROFIT The following items have been included in arriving at the operating profit for the continuing business: Inventory recognised as an expense Director and employee costs Depreciation of property, plant and equipment Non-recurring items Exchange (gain)/loss (credited)/charged to the income statement Amortisation of capitalised development costs RESEARCH AND DEVELOPMENT EXPENSES Research and development costs in the year were as follows: Amortisation of capitalised development costs Research costs written off as incurred 2023 £000 1,359 7,029 200 105 31 1,305 2023 £000 1,305 434 1,739 2022 £000 1,457 6,231 168 362 (145) 1,101 2022 £000 1,101 595 1,696 During the year development expenditure capitalised was £2,105,000 (2022: £1,807,000). Where development expenditure meets the criteria for capitalisation as set out in IAS 38 “Intangible Assets” the costs are capitalised. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 57 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 6. OPERATING PROFIT CONTINUED NON-RECURRING ITEMS The following items are excluded from management’s assessment of profit because by their nature they could distort the annual trend in the Group’s earnings. These are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis: Provision for costs of transition to remote working CFO costs during notice period Professional services relating to potential new equity funding (see below) Senior employee settlement cost 2023 £000 – – – 105 105 2022 £000 (66) 171 257 – 362 During the year the group accrued costs of £105,000 relating to the termination of a senior employee’s employment contract. In the prior year after having been given assurance from HMRC that we qualified, we explored a potential equity raise, led by a VCT qualifying raise, which would have provided the Group with additional capital primarily to accelerate our development of next generation solutions. Whilst we secured good levels of support from existing and new investors, a combination of a worsening global economic situation and falling investor sentiment for the equity markets generally led us to curtail our plans at a fairly late stage in the process. As a result, we incurred professional fees totalling £0.3 million which have been disclosed separately in the income statement as non-recurring items. SERVICES PROVIDED BY THE GROUP’S AUDITOR AND NETWORK FIRMS During the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at costs detailed below: Analysis of fees payable to CLA Evelyn Partners Limited Audit of the parent company and consolidated financial statements Audit of the Company’s subsidiaries Taxation compliance services Taxation advisory services Other non-assurance services 2023 £000 32 69 101 – – – 101 2022 £000 27 40 67 – – – 67 A description of the work of the Audit Committee is set out in the Corporate Governance Statement on pages 19 to 25 and includes an explanation of how the auditor’s objectivity and independence is safeguarded when non-audit services are provided by the auditor. 58 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 7. DIRECTORS AND EMPLOYEES Staff costs during the year for the continuing business were as follows: Wages and salaries Social security costs Other pension costs – defined contribution plans (note 26) Share based payment expense (note 23) 2023 £000 6,163 598 210 57 7,028 2022 £000 5,298 651 229 53 6,231 The monthly average number of employees employed by the continuing Group during the year was as follows: 2023 Number 2022 Number Average monthly number of employees Broadcast sales and marketing Technology Logistics General and Admin 15 34 27 16 92 The average number of employees includes directors with service contracts. The total number of employees at 31 December 2023 was 89 (2022: 95). Key management compensation for the continuing business: Short term employee benefits – including salaries, social security costs and non-monetary benefits Post-employment benefits – defined contribution pension plans Terminations Share based payment expense (note 23) 2023 £000 1,186 58 105 57 1,406 18 32 27 18 95 2022 £000 1,035 47 171 53 1,306 The analysis of key management compensation above includes Directors. Key management is defined as the senior management teams in each of the business units of the Group. Details of directors’ emoluments are included in the Remuneration Report on pages 26 to 29. 8. FINANCE COSTS Interest expense for bank borrowing Interest expense for leasing and other arrangements Other interest costs Total finance costs Finance income Finance costs – net 2023 £000 521 10 – 531 – 531 2022 £000 412 20 – 432 – 432 Finance costs represent interest payable on bank borrowing and interest charged on intercompany loans. Finance income is derived from cash held on deposit. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 59 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 9. INCOME TAX EXPENSE A) ANALYSIS OF THE TAX CHARGE IN YEAR Current tax UK corporation tax Foreign tax – current year Adjustments in respect of prior years Total current tax Deferred tax UK deferred tax Effect of changes in UK tax rate Adjustments in respect of prior years Total deferred tax Total taxation B) FACTORS AFFECTING TAX CHARGE FOR YEAR The charge for the year can be reconciled to the profit in the income statement as follows: Profit before tax on continuing operations Tax at the UK corporation tax rate of 23.50% (2022: 19.00%) Adjustments in respect of prior years Permanent differences Enhanced R&D tax relief Foreign tax Losses utilised Depreciation of NQAs Current year losses not recognised Effect of changes in UK tax rate Total taxation 2023 £000 2022 £000 – 10 – 10 – – – – 10 2023 £000 1,544 363 – – (525) 10 (14) 1 136 39 10 – 21 (8) 13 – – – – 13 2022 £000 1,188 226 (8) 3 (373) 21 (38) 3 179 – 13 In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase from 19 per cent to 25 per cent. This was confirmed in Autumn 2022. Deferred taxes at the statement of financial position date have been measured using these enacted tax rates and reflected in these financial statements. There is no income tax arising from any component of other comprehensive income. 10. DIVIDENDS AND RETURNS TO SHAREHOLDERS Final dividend paid of nil pence per share (2022: nil pence per share) 2023 £000 Nil 2022 £000 Nil The directors do not recommend payment of a final dividend for the year ended 31 December 2023. 60 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 11. EARNINGS PER SHARE (EPS) Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year. For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year. The average market value of the Company’s shares for the purpose of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding. Weighted average number of ordinary shares (basic) Effect of LTIPs outstanding Effect of share options outstanding Weighted average number of ordinary shares (diluted) at 31 December 2023 Weighted average number of shares 000s 124,477 100 2,877 127,454 2022 Weighted average number of shares 000s 124,477 100 1,132 125,709 Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below. 2023 Weighted average number of shares 000s 124,477 127,454 Earnings £000 1,534 1,534 1,534 1,534 Earnings per share pence Earnings £000 1.2p 1.2p 1.2p 1.2p 1,182 1,182 1,182 1,182 2022 Weighted average number of shares 000s 124,477 125,709 Earnings per share pence 0.9p 0.9p 0.9p 0.9p Basic earnings per share Profit attributable to continuing operations Basic earnings and EPS Diluted earnings per share Profit attributable to continuing operations Diluted EPS ADJUSTED EARNINGS The directors believe that adjusted EBITDA, adjusted earnings and adjusted earnings per share all provide additional useful information on annual trends to shareholders. These measures are used by management for internal performance analysis and incentive compensation arrangements. The term “adjusted” is not a defined term under IFRS and may not therefore be comparable with similarly titled profit measurements reported by other companies. The principal adjustments to earnings are made in respect of the amortisation of acquired intangibles, share based payment expense, non-recurring items and exchange gains or losses charged to the income statement and their related tax effects. The reconciliation between reported and adjusted earnings and basic earnings per share is shown below: Reported earnings and EPS Share based payment expense Non-recurring items Exchange (gains)/losses Adjusted earnings and EPS £000 1,534 57 85 23 1,699 2023 Pence 1.2p 0.1p 0.1p 0.0p 1.4p £000 1,182 53 294 (117) 1,412 2022 Pence 0.9p 0.0p 0.3p (0.1p) 1.1p www.pebbleplc.com Stock code: PEB 61 31591 23 April 2024 5:21 pm v1 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 12. INTANGIBLE ASSETS Cost At 1 January 2022 Additions At 1 January 2023 Additions At 31 December 2023 Accumulated amortisation At 1 January 2022 Charge for the year At 1 January 2023 Charge for the year At 31 December 2023 Net book value At 31 December 2023 At 31 December 2022 At 1 January 2022 Acquired customer relationships £000 Acquired intellectual property £000 Capitalised development costs £000 Goodwill £000 3,218 – 3,218 – 3,218 – – – – – 3,218 3,218 3,218 4,493 – 4,493 – 4,493 (4,493) – (4,493) – (4,493) – – – 3,350 – 3,350 – 3,350 (3,350) – (3,350) – (3,350) – – – 6,938 1,807 8,745 2,105 10,850 (4,555) (1,101) (5,656) (1,305) (6,961) 3,889 3,089 2,383 Total £000 17,999 1,807 19,806 2,105 21,911 (12,398) (1,101) (13,499) (1,305) (14,804) 7,107 6,307 5,601 The estimated useful life for the intellectual property and customer relationships acquired with the business of Pebble Beach Systems has been determined to be five years and six years respectively based on the expected future cash flows that they would generate. The amortisation of development costs is included in research and development expenses in the Consolidated Income Statement. Within development costs there are £4.9 million (2022: £4.1 million) of fully written down assets that are still in use. The amortisation of customer relationships, brands and intellectual property are all charged to other expenses in the consolidated statement of profit and loss and are referred to as the amortisation of acquired intangibles. IMPAIRMENT TEST FOR CASH-GENERATING UNITS CONTAINING GOODWILL Historical goodwill acquired in business combinations was allocated, at acquisition, to the cash-generating unit (CGU) that was expected to benefit from that business combination. The carrying value of goodwill at 31 December 2023 is £3.2 million (2022: £3.2 million) which relates solely to Pebble Beach Systems. The carrying value of Pebble Beach Systems (including goodwill) has been assessed with reference to value in use over a projected period of five years with a terminal value. This reflects projected cash flows based on actual operating results and approved budget, strategic plans and management projections. The projected cash flows are based on an annual revenue growth rate of 6.0%, cost increases of 4.0% and a discount factor of 19.7%. Annual revenue growth has been determined using order pipeline and management forecasts for new products coming on sale. The discount rate has been determined by calculating weighted average costs of equity and debt, adjusted for risk factors relating to the CGU. The terminal growth rate is 2.0%. 62 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Capitalised development costs are classified in the table below: Product type Existing installed products New IP based solutions Total capitalised development costs Amortisation period Products amortised over 3 years Products amortised over 5 years 13. PROPERTY, PLANT AND EQUIPMENT 2023 Net book value 1,379 2,510 3,889 2022 Net book value 1,355 1,734 3,089 Right of Use Assets £000 Freehold land and buildings £000 Leasehold improvements, fixtures and fittings £000 Plant, tools, test and computer equipment £000 Cost At 1 January 2022 Additions Disposals Reclassification Exchange adjustment At 1 January 2023 Additions Disposals Reclassification Exchange adjustment At 31 December 2023 Accumulated depreciation At 1 January 2022 Charge for the year Disposals Reclassification Exchange adjustment At 1 January 2023 Charge for the year Disposals Reclassification Exchange adjustment At 31 December 2023 Net book value At 31 December 2023 At 31 December 2022 At 1 January 2022 565 196 (31) – – 730 – – – – 730 (436) (81) 31 – – (486) (105) – – – (591) 139 244 129 116 – (39) (77) – – – – – – – (69) – 39 30 – – – – – – – – – 47 166 141 (74) 77 – 310 – (54) – – 256 (154) (33) 74 (30) – (143) (35) 54 – – (124) 132 167 12 Included in the net carrying amount of right of use assets are: Buildings Motor Vehicles Total right of use assets 764 52 – – 4 820 68 (61) – (1) 826 (603) (54) – – (3) (660) (61) 58 – 1 (662) 164 160 161 2023 £000 118 21 139 Total £000 1,611 389 (144) – 4 1,860 68 (115) – (1) 1,812 (1,262) (168) 144 – (3) (1,289) (201) 112 – 1 (1,377) 435 571 349 2022 £000 206 38 244 Lease liabilities in relation to right of use assets are disclosed in Note 21. In 2023 it was decided to exercise in 2024 the break clause in the lease of one of the buildings. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 63 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 14. OTHER NON-CURRENT ASSETS Rental deposit 15. INVENTORIES Raw materials and consumables Work in progress 2023 £000 12 2023 £000 300 3 303 2022 £000 38 2022 £000 455 42 497 During the year the Group consumed £1.4 million (2022: £1.5 million) of inventories, all of which related to continuing operations. 16. TRADE AND OTHER RECEIVABLES Trade receivables Less allowance for credit losses Trade receivables – net Other receivables Prepayments and accrued income 2023 £000 2,141 (17) 2,124 26 2,168 4,318 2022 £000 1,823 (147) 1,676 64 1,786 3,526 In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large and unrelated to each other. Trade receivables that are less than three months are reviewed under the probability-weighted assessment under IFRS 9. At 31 December 2023 trade receivables of £1.1 million (2022: £0.7 million) were past due but not impaired. The credit quality of the Group’s customers is good, being a combination of large broadcast stations (public and private) and government agencies and departments. Controls within Group companies are in place to ensure that appropriate credit limits are in place. The overdue amounts relate to customers with no history of default. The ageing of these receivables is as follows: Up to three months Three to six months Over six months 2023 £000 1,116 7 6 1,129 2022 £000 700 48 – 748 At 31 December 2023 trade receivables of £0.02 million (2022: £0.1 million) were impaired and provided for in whole or in part. The provision of £0.02 million (2022: £0.1 million) is set against specific customer debts. The ageing of these receivables is as follows: Up to three months Three to six months Over six months 2023 £000 – – 17 17 2022 £000 19 11 117 147 64 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 The gross amounts of the Group’s trade receivables are denominated in the following currencies: Pounds Sterling US dollars Euros Movements on the Group provision for impairment of trade receivables are as follows: At 1 January Provision for receivable impairment Receivables written off as uncollectable/(recovered) during the year At 31 December 2023 £000 1,630 231 280 2,141 2023 £000 147 – (130) 17 2022 £000 1,040 470 313 1,823 2022 £000 198 (34) (17) 147 Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. The Group does not hold any collateral as security. 17. CASH AND CASH EQUIVALENTS Cash and bank balances Cash and cash equivalents at 31 December The amounts of the Group’s cash and cash equivalents are denominated in the following currencies: Pounds Sterling US dollars Euros 2023 £000 796 796 2023 £000 494 239 63 796 2022 £000 728 728 2022 £000 485 150 93 728 The credit quality of the cash and cash equivalents that are not impaired can be assessed by reference to the external credit ratings of the banks where the deposits are held. A-1 Total 2023 £000 796 796 2022 £000 728 728 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 65 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 17. CASH AND CASH EQUIVALENTS CONTINUED Reconciliation of net debt: 2023 Net cash and cash equivalents £000 728 Other borrowings £000 (6,706) Total net debt £000 (5,978) Net cash and cash equivalents £000 1,639 2022 Other borrowings £000 (7,944) 1,205 (1,000) – (96) (41) – 1,000 (65) 96 – 1,205 – (65) – (41) 231 (1,000) – (173) 31 – 1,000 65 173 – Total net debt £000 (6,305) 231 – 65 – 31 796 (5,675) (4,879) 728 (6,706) (5,978) At 1 January Cash flow for the year before financing Movement in borrowings in the year Netting of arrangement fee Principal lease payments Exchange rate adjustments Cash and cash equivalents at 31 December 18. TRADE AND OTHER PAYABLES Current: Contract liabilities Trade payables Accruals Other taxes and social security costs Non-current: Other taxes Total 2023 £000 3,334 1,254 1,206 375 6,169 274 6,443 The following table shows how much of the revenue recognised in the current reporting period relates to carried- forward contract liabilities: Hardware, software and installation Support The amounts of the Group’s trade and other payables are denominated in the following currencies: Current: Pounds Sterling US dollars Euros Non-current: US dollars Total 2023 £000 693 2,366 3,059 2023 £000 5,240 892 37 6,169 274 6,443 2022 £000 3,301 815 1,320 280 5,716 – 5,716 2022 £000 481 2,365 2,846 2022 £000 4,409 1,220 87 5,716 – 5,716 66 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 19. FINANCIAL LIABILITIES – BORROWINGS Current: Bank loans (secured) Non-current: Bank loans (secured) BANK BORROWING FACILITIES 2023 £000 1,000 2022 £000 935 4,550 5,550 Borrowing at 31 December 2023 comprised the term loan of £5.5 million (2022: £6.5 million). On 19 March 2024, a new term loan facility was signed, refinancing the existing £5.5 million RCF agreement. The new term loan secures £5.5 million facility until 31 October 2026. The financial covenants and repayment schedule remain the same as the previous loan facility. All bank facilities are secured by fixed and floating charges over the Group’s assets and by cross-guarantees between the Company and certain subsidiaries. The Group does not have a net overdraft facility. The Group does not use interest rate hedging to manage its exposure to interest rate movements on its bank borrowings. The effective interest rates at the statement of financial position dates were as follows: Bank borrowings The Group had net debt at 31 December 2023 of £4.9 million (2022: £6.0 million). 2023 8.80% 2022 5.23% The Group had net debt excluding IFRS 16 lease liabilities at 31 December 2023 of £4.7 million (2022: £5.8 million). Net debt comprises: Cash and cash equivalents Borrowings Lease liabilities Net debt at 31 December 2023 £000 796 (5,550) (125) (4,879) 2022 £000 728 (6,485) (221) (5,978) 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 67 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 20. FINANCIAL INSTRUMENTS Numerical financial instrument disclosures are set out below. Additional disclosures are set out in the accounting policies (note 2). FINANCIAL INSTRUMENTS BY CATEGORY Assets as per statement of financial position at 31 December Trade and other receivables excluding prepayments Cash and cash equivalents Total 2023 Other financial assets at amortised cost £000 2022 Other financial assets at amortised cost £000 3,786 796 4,582 3,125 728 3,853 There are no financial assets that are pledged as collateral for liabilities or contingent liabilities. Liabilities as per statement of financial position at 31 December Trade and other payables Borrowings Total 21. LEASE LIABILITIES Lease liabilities are presented in the statement of financial position as follows: Current Non-current Total 2023 Other financial liabilities at amortised cost £000 2022 Other financial liabilities at amortised cost £000 2,012 5,550 7,562 2,135 6,485 8,620 2023 £000 47 78 125 2022 £000 96 125 221 The Group has leases for an office building, a workshop and a motor vehicle. With the exception of short-term leases and leases of low value underlying assets, each lease is reflected on the statement of financial position as a right of use asset and a lease liability. The Group identifies its right of use assets as a separate category within its property, plant and equipment (see note 13). Each lease generally imposes a restriction that the right of use asset may only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantive cancellation fee. For the leases over office buildings the Group must keep those properties in a good state of repair. The Group must insure items of property, plant and equipment and incur maintenance fees on them in accordance with the lease contracts. The lease for the office building ends in 2029 (with a break clause in 2024). The lease for the workshop ends in 2027 (with a break clause in 2025). The motor vehicle lease ends in 2025. 68 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 Future minimum lease payments at 31 December 2023 were as follows: Minimum lease payments due at 31 December 2023 Lease payments Finance charges Net present values Minimum lease payments due at 31 December 2022 Lease payments Finance charges Net present values Within 1 year £000 1-2 years £000 2-3 years £000 3-4 years £000 4-5 years £000 After 5 years £000 54 (7) 47 106 (10) 96 33 (4) 29 54 (7) 47 36 (2) 34 33 (4) 29 16 (1) 15 36 (2) 34 – – – 16 (1) 15 – – – – – – Total £000 139 (14) 125 245 (24) 221 Total cash outflow for leases for the year ended 31 December 2023 was £122,000 (2022: £198,000). 22. DEFERRED TAXATION Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as more likely than not to be recoverable against future profits. No deferred tax is recognised on unremitted earnings of overseas subsidiaries. As the earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase from 19 per cent to 25 per cent. This was confirmed in Autumn 2022. Deferred taxes at the statement of financial position date have been measured using these enacted tax rates and reflected in these financial statements. Deferred tax liabilities At 1 January 2023 Charge/(credit) to profit or loss At 31 December 2023 Deferred tax liabilities At 1 January 2022 Charge/(credit) to profit or loss At 31 December 2022 Accelerated tax depreciation £000 Intangible assets £000 93 3 96 735 200 935 Accelerated tax depreciation £000 Intangible assets £000 Losses £000 (828) (203) (1,031) Other £000 Total £000 – – – – – – Losses £000 Other £000 Total £000 80 13 93 538 197 735 (618) (210) (828) – – – – – – 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 69 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 22. DEFERRED TAXATION CONTINUED The movement on net deferred tax liability in the year was: Net deferred tax liability at 1 January Credited in the year Exchange Adjustment Net deferred tax liability at 31 December 2023 £000 – – – – 2022 £000 – – – – Certain deferred tax assets have not been recognised where it is not considered probable that they will be recovered. Deferred tax asset on losses 23. ORDINARY SHARES Ordinary shares of 2.5 pence each at 31 December Authorised Allotted and fully paid At 1 January At 31 December POTENTIAL ISSUE OF SHARES 2023 £000 4,566 2022 £000 4,511 Number ’000s 2023 £000 Number ’000s 2022 £000 200,000 5,000 200,000 5,000 124,603 124,603 3,115 3,115 124,603 124,603 3,115 3,115 The Group has established the following share-based payment schemes: A) EXECUTIVE SHARE OPTION SCHEMES The Group established the 2019 Share Option Scheme, which was approved by shareholders on 23 May 2019. Executive share options are granted from the scheme at a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is ten years. Awards are at the discretion of the Remuneration Committee and subject to stretching performance conditions. Options will ordinarily become exercisable on the fifth anniversary of the date of grant. The number of shares subject to options and the exercise prices are: Date of grant 21 June 2019 16 March 2022 Vesting Exercise price 6.18p 10.50p All Vested None Vested Exercise period 21/06/24 – 20/06/29 16/03/25 – 15/03/32 2023 Number ’000s 2,877 5,679 8,556 2022 Number ’000s 2,877 5,679 8,556 70 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 A reconciliation of executive option movements over the year is shown below: Outstanding at beginning of year Issued during the year Lapsed during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2023 Weighted average exercise price 9.05p – – – 9.05p – Number ’000s 8,556 – – – 8,556 – 2022 Weighted average exercise price 6.18p 10.50p – 10.50p 9.05p – Number ’000s 2,877 7,450 – (1,771) 8,556 – During 2023 no (2022: 7,450,000) executive options were granted. No executive options were forfeited as a result of leavers. The fair value of the options granted was determined using the Black-Scholes model. The inputs used in the measurement of the fair values at grant date were as follows: Fair value at grant date Share price at grant date Exercise price Expected volatility Expected life Expected dividends Risk-free interest rate 2019 2.15p 6.18p 6.18p 72.57% 5 years Nil 0.62% 2022 Tranche 1 3.21p 10.50p 10.50p 41.61% 3 years Nil 2.19% 2022 Tranche 2 3.70p 10.50p 10.50p 41.61% 4 years Nil 2.19% 2022 Tranche 3 4.13p 10.50p 10.50p 41.61% 5 years Nil 2.19% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous three years. The risk-free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life. The Group recognised a total charge of £57,000 (2022: £53,000) related to equity-settled share- based payment transactions in the income statement in the year. B) LONG TERM INCENTIVE PLAN (LTIP) The Group established the LTIP scheme in 2008 and has one remaining holder of options. The LTIP was closed to further grants in 2019. The options granted under this scheme are nil costs and generally exercisable at the end of the performance period and for seven years thereafter. Awards under this scheme are reserved for employees at senior management level and above. If an employee leaves the employment of the Group, a proportion of his award may be deemed to have vested, subject to satisfying any performance conditions and at the discretion of the Remuneration Committee. The number of shares subject to options and the exercise prices are: Date of grant 03 June 2014 Share price at award date Vesting date 45.1p 03 June 2017 2023 Number ’000s 100 2022 Number ’000s 100 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 71 FINANCIALS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2023 23. ORDINARY SHARES CONTINUED A reconciliation of LTIP option movements over the year is shown below: Outstanding at the beginning and end of the year 2023 Weighted average share price at the date of grant 45.1p 2022 Weighted average share price at the date of grant 45.1p Number ’000s 100 Number ’000s 100 The options outstanding at 31 December 2023 had a weighted average exercise price of nil pence (2022: nil pence) and a weighted average remaining contractual life of 0.4 years (2022: 1.4 years). All 100,000 options outstanding have vested and are exercisable. SHARE OWNERSHIP PLAN At 31 December 2023 the trustee of the Employee Share Ownership Plan (ESOP) held 126,496 shares (2022: 126,496) with a market value of approximately £9,000 (2022: £9,000). The net book value of these shares was £40,000 (2022: £40,000) and was deducted from equity. 24. RESERVES The following describes the nature and purpose of each reserve within equity: Share Premium Capital Redemption Reserve Merger Reserve Translation Reserve Accumulated Losses Amount subscribed for share capital in excess of nominal value. Amounts transferred from share capital on redemption of issued shares. The excess of value attributed to shares over the nominal value of those shares which were issued in part or full consideration for the acquisition of more than 90 per cent of the issued share capital of another company. Gains or losses arising on retranslating the net assets of overseas operations into Sterling. All other net gains and losses and transactions with owners (e.g. dividends) not recognised elsewhere. 25. CASH FLOW GENERATED FROM OPERATING ACTIVITIES Reconciliation of profit before tax to cash generated from operations: Profit before tax Depreciation of property, plant and equipment Amortisation and impairment of development costs Loss on disposal of property, plant and equipment Non-recurring item Share based payment expense Finance costs Decrease/(increase) in other non-current assets Decrease/(increase) in inventories Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Cash generated from operations 2023 £000 1,544 200 1,305 20 105 57 531 26 194 (792) 727 3,917 Restated 2022 £000 1,195 168 1,101 – (66) 53 432 - (67) 3 (135) 2,684 In line with IAS 7 lease payments of £96,000 have been reclassified from operating activities to finance activities in the year and therefore the comparative has been restated by £173,000. 72 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 26. PENSIONS DEFINED CONTRIBUTION PLANS The Group operates a stakeholder pension scheme in the UK with Scottish Widows Plc. The total Group pension charge for the year was £0.2 million (2022: £0.2 million). At 31 December 2023 there was no balance outstanding to the scheme (2022: £Nil). The Group has no unfunded pension liabilities. 27. RELATED PARTY TRANSACTIONS Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Key management includes directors (executive and non-executive), members of the senior management team and the Company Secretary. The compensation paid or payable to key management for employee services is disclosed in note 7. In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, partnerships, associates, and joint ventures of the Group, along with the principal activity, the country of incorporation and the effective percentage of equity owned by Pebble Beach Systems Group plc, as of 31 December 2023, are provided in the entity financial statements of Pebble Beach Systems Group plc. The services of Chris Errington, Non-Executive Director, are provided and invoiced by Kestrel Partners LLP, a company in which he has an ownership interest. During the year ended 31 December 2023, the Company was charged £30,000 (2022: £30,000) by Kestrel Partners LLP, £9,167 (2022: £3,000) of which remained unpaid at the year-end. The total value of transactions with Kestrel Partners LLP in respect of the provision of Mr Errington’s services is shown in the Directors’ Remuneration Report. There are no material related parties other than Group companies. 28. EVENTS AFTER THE REPORTING PERIOD Since the year-end we have signed a new term loan agreement, details are disclosed in note 2. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 73 FINANCIALS COMPANY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2023 Continuing operations Dividends received Administrative expenses Operating profit Operating profit is analysed as: Adjusted operating profit Non-recurring items Share based payment expense Exchange gains credited to the income statement Operating profit Finance costs Profit before tax Tax Profit for the year and total comprehensive income attributable to shareholders Note E E F G 2023 £000 2,200 (548) 1,652 1,709 – (57) – 1,652 (857) 795 – 795 2022 £000 2,100 (1,165) 935 1,416 (428) (53) – 935 (623) 312 – 312 The Company has no recognised gains and losses other than the losses for the years stated above and therefore no separate statement of comprehensive income has been presented. 74 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 COMPANY STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2023 Assets Non-current assets Investments in subsidiaries Total non-current assets Current assets Trade and other receivables Cash and cash equivalents Total current assets Liabilities Current liabilities Financial liabilities – borrowings Trade and other payables Total current liabilities Net current liabilities Non-current liabilities Financial liabilities – borrowings Total non-current liabilities Net assets Equity attributable to shareholders Ordinary shares Share premium Capital redemption reserve Merger reserve Accumulated losses Total equity The company’s registered number: 04082188 2023 £000 2022 As restated £000 Note H I J M K M N 24,491 24,491 24,491 24,491 25 22 47 17 10 27 1,000 13,163 14,163 (14,116) 4,550 4,550 5,825 3,115 6,800 617 1,882 (6,589) 5,825 935 13,060 13,995 (13,968) 5,550 5,550 4,973 3,115 6,800 617 1,882 (7,441) 4,973 The financial statements on pages 74 to 91 were approved by the Board of directors on 25 March 2024 and were signed on its behalf by: John Varney Non-Executive Chairman 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 75 FINANCIALS COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2023 At 1 January 2022 (as previously stated) Prior year adjustment At 1 January 2022 (restated) Share based payments: value of employee services Profit for the financial year (as restated) At 31 December 2022 (as restated) At 1 January 2023 (as restated) Share based payments: value of employee services Profit for the financial year At 31 December 2023 Ordinary shares £000 3,115 – 3,115 – – 3,115 Share premium £000 6,800 – 6,800 – – 6,800 3,115 6,800 – – 3,115 – – 6,800 Capital redemption reserve £000 617 – 617 – – 617 617 – – 617 Merger reserve £000 1,882 – 1,882 Accumulated losses £000 (7,188) (618) (7,806) – – 1,882 53 312 (7,441) Total equity £000 5,226 (618) 4,608 53 312 4,973 1,882 (7,441) 4,973 – – 1,882 57 795 (6,589) 57 795 5,825 76 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 COMPANY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2023 Cash flow from operating activities Cash used in operations Interest paid Taxation paid Net cash used in operating activities Cash flow from investing activities New intercompany loans Dividends received Net cash generated from investing activities Cash flow from financing activities Net cash used in repayment of financing activities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Notes P J 2023 £000 (507) (857) – (1,364) 176 2,200 2,376 (1,000) (1,000) 12 10 22 2022 £000 (1,087) (623) – (1,710) 464 2,100 2,564 (1,000) (1,000) (146) 156 10 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 77 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS A GENERAL INFORMATION The Company is incorporated and domiciled in the UK. The address of its registered office is Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN. The registered number of the Company is 04082188. B MATERIAL ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The separate financial statements of the Company have been prepared in accordance with UK-adopted international accounting standards. The financial statements have been prepared on a going concern basis under the historical cost basis of accounting, except where fair value measurement is required under IFRS. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumption and estimates are significant to the Company financial statements, are disclosed in note 4 of the Group financial statements. GOING CONCERN The directors are required to assess the Company’s and the Group’s ability to continue to trade as a going concern. The Board concluded, from its thorough assessment of the detailed forecasts, that the Group will have sufficient resources to meet its liabilities during the review period through to 31 December 2025 and that it is appropriate that the Group prepare accounts on a going concern basis. The Company is reliant on receiving dividends from Pebble Beach Systems Limited to fund its costs and loan repayment commitments. Pebble Beach Systems Limited is a profitable subsidiary of the Group. INVESTMENTS All investments are initially recorded at cost, being the fair value of consideration given including directly attributable acquisition costs associated with the investment. Subsequently, they are reviewed for impairment on an individual basis if events or changes in circumstances indicate the carrying value may not be fully recoverable. The Company conducted an impairment review during the year. In addition, there is a judgement for the Company over whether the carrying value of the investments held are fully recoverable. For impairment assessment purposes, assets are considered individually. All other individual assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 from each asset 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 factors. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed if the asset’s recoverable amount exceeds its carrying amount. 78 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 KEY SOURCES OF ESTIMATION UNCERTAINTY IMPAIRMENT OF INVESTMENT IN SUBSIDIARIES Determining whether the investment in the subsidiary Pebble Beach Systems Limited with a carrying value of £14.9 million is impaired requires an estimation of the value in use of the cash generating unit. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU and apply a suitable discount rate in order to calculate the present value. The Group has considered this impact on the assumptions used and has conducted sensitivity analysis on the impairment test of the CGU’s carrying value. This has not resulted in any impairment of the carrying value at 31 December 2023 as the CGU’s recoverable amount exceeds its carrying value. Further disclosure is provided in note 12 of the Group financial statements and note H of the Company financial statements. As at 31 December 2023 the carrying value of this investment was £14.9 million. FINANCIAL INSTRUMENTS RECOGNITION AND DERECOGNITION Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial instrument. Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognised when it is extinguished, discharged, cancelled or expires. CLASSIFICATION AND INITIAL MEASUREMENT OF FINANCIAL INSTRUMENTS The Company’s financial liabilities include borrowings, trade and other payables, including amounts owed to Group undertakings. Financial liabilities are initially measured at fair value, and, where applicable, adjusted for transaction costs unless the Company designated a financial liability at fair value through profit or loss. Subsequently, financial liabilities are measured at amortised cost using the effective interest method. All interest-related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included within finance costs or finance income. Except for those trade receivables that do not contain a significant financing component and are measured at the transaction price in accordance with IFRS 15, all financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial assets, other than those designated and effective as hedging instruments, are classified into amortised cost. All income and expenses relating to financial assets that are recognised in profit or loss are presented within finance costs, finance income or other financial items, except for impairment of trade receivables which is presented within expenses. SUBSEQUENT MEASUREMENT OF FINANCIAL ASSETS Financial assets are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL): • they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows • the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of discounting is immaterial. The Company’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 79 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS B MATERIAL ACCOUNTING POLICIES CONTINUED IMPAIRMENT OF FINANCIAL INSTRUMENTS IFRS 9’s impairment requirements use forward-looking information to recognise expected credit losses – the ‘expected credit loss (ECL) model’. Instruments within the scope of the requirements included loans and other debt-type financial assets measured at amortised cost and FVOCI, trade receivables, contract assets recognised and measured under IFRS 15 and loan commitments and some financial guarantee contracts (for the issuer) that are not measured at fair value through profit or loss. Recognition of credit losses is not dependent on the Company first identifying a credit loss event. Instead, the Company considers a broader range of information when assessing credit risk and measuring expected credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected collectability of the future cash flows of the instrument. Measurement of the expected credit losses is determined by a probability-weighted estimate of credit losses over the expected life of the financial instrument. (A) CASH AND CASH EQUIVALENTS Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of less than three months. For the purposes of the Company cash flow statement, cash and cash equivalents consist of cash and short-term deposits as defined above, together with bank overdrafts where applicable. (B) TRADE AND OTHER PAYABLES 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 (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. (C) BORROWINGS Bank borrowings are recognised at effective interest rate method. DEFERRED TAXATION Deferred tax is recognised in respect of all timing differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible timing differences, carry-forward of unused tax assets and tax losses, to the extent that they are regarded as recoverable. They are regarded as recoverable where, on the basis of available evidence, there will be suitable taxable profits against which the future reversal of the underlying timing differences can be deducted. The carrying value of the amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all, or part, of the tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on the tax rates (and tax laws) that have been enacted at the statement of financial position date. Deferred tax is measured on an undiscounted basis. 80 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 FOREIGN CURRENCIES Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates ruling at the statement of financial position date and non-monetary transactions at the exchange rates ruling at the dates of the transactions. All differences on exchange are taken to the income statement. SHARE-BASED PAYMENTS The fair value of employee share plans is calculated using an option-pricing model. In accordance with IFRS 2 “Share- based Payment”, the resulting cost is charged to the income statement over the vesting period of the plans. The value of the charge is adjusted to reflect the expected and actual levels of options vesting. DIVIDENDS Under IAS 10, dividends are not to be recognised as a liability until the dividend is approved by the Company’s shareholders. PENSIONS Company employees are members of money purchase schemes where the obligations of the Company are charged to the income statement as they are incurred. NON-RECURRING ITEMS These are material items excluded from management’s assessment of profit because by their nature they could distort the annual trend in the Group’s earnings. These are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Please refer to note 4 of the Group financial statements and note H of the Company financial statements. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 81 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS C SERVICES PROVIDED BY THE COMPANY’S AUDITOR During the year, the Company obtained the following services from the Company’s auditor at the costs detailed below: Analysis of fees payable to CLA Evelyn Partners Limited Fees payable to the Company’s auditor for the audit of the Company’s financial statements Taxation compliance services Taxation advisory services Other non-assurance services 2023 £000 2022 £000 25 – – – 25 25 – – – 25 A description of the work of the Audit Committee is set out in the Corporate Governance Statement on pages 19 to 25 and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor. D DIRECTORS AND EMPLOYEES Staff costs (gross of recharges to subsidiary undertakings) during the year were as follows: Wages and salaries Social security costs Other pension costs – defined contribution plans (note 26) Share-based payments (note O) 2023 £000 186 17 2 57 262 2022 £000 396 78 29 53 556 The monthly average number of employees employed by the Company during the year was as follows: Average monthly number of employees General and administrative 2023 Number 2022 Number 5 5 7 7 The average number of employees has been calculated on a pro rata basis. The average number of employees includes directors with service contracts. The total number of employees at 31 December 2023 was 5 (2022: 6). Key management compensation for the continuing business: Short-term employee benefits – including salaries, social security costs and non-monetary benefits Terminations Post-employment benefits – defined contribution pension plans Share based payment expense (note 23) 2023 £000 158 – – 57 215 2022 £000 494 171 29 53 747 The analysis of key management compensation above includes Executive Directors. Key management is defined as the senior management team. The emoluments of Peter Mayhead were paid and borne by Pebble Beach Systems Ltd. Details of directors’ emoluments are included in the Remuneration Report on pages 26 to 29. Disclosure of directors’ remuneration is provided in the remuneration report on page 28. 82 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 E OPERATING PROFIT The following items have been included in arriving at the operating profit for the continuing business: Dividends received Director and employee costs Non-recurring items Exchange gains credited to the income statement 2023 £000 (2,200) 262 – – 2022 £000 (2,100) 556 428 – Income from shares in group undertakings has been presented in the P&L in 2023 as management feel this is better presentation of the income. NON-RECURRING ITEMS These are material items excluded from management’s assessment of profit because by their nature they could distort the annual trend in the Group’s earnings. They are excluded to reflect performance in a consistent manner and are in line with how the business is managed and measured on a day-to-day basis: CFO costs during notice period Professional services relating to potential new equity funding F FINANCE EXPENSE – NET Finance costs – third party Finance costs – intercompany Finance expense – net 2023 £000 – – – 2023 £000 521 336 857 2022 £000 171 257 428 2022 £000 423 200 623 Finance costs represent interest payable on bank borrowing and interest charged on intercompany loans. G INCOME TAX CHARGE A) ANALYSIS OF THE TAX CHARGE IN THE YEAR Current tax Total current tax Deferred tax UK corporation tax Total deferred tax Total taxation See note L for details. 2023 £000 Restated 2022 £000 – – – – – – – – 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 83 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS G INCOME TAX CHARGE CONTINUED B) FACTORS AFFECTING TAX CHARGE FOR THE YEAR The charge for the year can be reconciled to the loss in the income statement as follows: Profit before tax on continuing operations Dividends received Loss before tax on continuing operations Tax at the UK corporation tax rate of 23.50% (2022: 19.00%) Permanent differences Current year losses not recognised Foreign tax Effect of changes in UK tax rate Total taxation H INVESTMENTS IN SUBSIDIARIES Cost At 1 January 2022 and 31 December 2023 Provision for impairment At 1 January 2022 and 31 December 2023 Net book value At 31 December 2022 and 31 December 2023 2023 £000 795 (2,200) (1,405) (330) – 339 – (9) – Restated 2022 £000 312 (2,100) (1,788) (340) – 390 – (50) – Investments in subsidiaries’ unlisted shares £000 41,375 (16,884) 24,491 £14.9 million of the total is the carrying value of the trading part of the group, headed by Pebble Beach Systems Ltd. The value of this business was assessed with reference to value in use over a projected period of five years with a terminal value. Please refer to note 12 of the Group financial statements. The Board has considered this valuation and concluded that no impairment is required. The remaining value relates to Legacy Broadcast Group Holdings Limited and its subsidiaries, which are non-trading, the provision for impairment relates to this investment and the board have concluded that no further impairment is required. I TRADE AND OTHER RECEIVABLES Prepayments VAT debtor 2023 £000 14 11 25 2022 £000 13 4 17 84 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 J CASH AND CASH EQUIVALENTS Cash and bank balances Cash and cash equivalents at 31 December 2023 £000 22 22 2022 £000 10 10 The credit quality of the cash and cash equivalents that are not impaired can be assessed by reference to the external credit ratings of the banks where the deposits are held. Credit rating (S&P) A-1 Total Reconciliation of net debt: 2023 £000 22 22 2022 £000 10 10 Net cash and cash equivalents £000 10 1,012 (1,000) – 2023 Other borrowings £000 (6,485) – 1,000 (65) Total net cash £000 (6,475) 1,012 – (65) Net cash and cash equivalents £000 156 854 (1,000) – 2022 Other borrowings £000 (7,550) – 1,000 65 Total net cash £000 (7,394) 854 – 65 22 (5,550) (5,528) 10 (6,485) (6,475) At 1 January Cash flow for the year Movement in borrowings in the year Netting of arrangement fee Cash and cash equivalents at 31 December 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 85 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS K TRADE AND OTHER PAYABLES Trade creditors Amounts owed to Group undertakings Accruals and deferred income 2023 £000 154 12,715 294 13,163 2022 £000 107 12,539 414 13,060 Amounts owed to Group undertakings are unsecured, have no fixed date of repayment and are repayable on demand. £9,630,000 (2022: £9,630,000) attracts no interest and £3,085,000 (2022: £2,909,000) attracts interest at 3.90% plus SONIA (2022: 3.90% plus LIBOR). L DEFERRED TAXATION Deferred tax is calculated in full on temporary differences under the liability method using a tax rate appropriate to the country in which the deferred tax liability or asset has arisen. Deferred tax assets have been recognised in respect of all tax losses and other temporary differences to the extent that they are regarded as more likely than not to be recoverable against future profits. In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase from 19 per cent to 25 per cent. Deferred taxes at the statement of financial position date have been measured using these enacted tax rates and reflected in these financial statements. Deferred tax assets At 1 January 2023 (as previously stated) Credit to profit or loss (prior year adjustment) At 1 January 2023 (as restated) and 31 December 2023 Accelerated tax depreciation £000 Losses £000 Other £000 – – – 828 (828) – – – – Total £000 828 (828) – Certain deferred tax assets have not been recognised where it is not considered probable that they will be recovered. Deferred tax asset on losses See note O for details of the restatement. 2023 £000 2,980 2,980 Restated 2022 £000 2,691 2,691 86 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 M BANK LOANS Current: Bank loans (secured) Non-current: Bank loans (secured) 2023 £000 1,000 2022 £000 935 4,550 5,550 Further information about these facilities is given in notes 3 and 19 of the Group financial statements. FINANCIAL INSTRUMENTS Numerical financial instrument disclosures are set out below. Additional disclosures are set out in the accounting policies (note 2 of the Group financial statements). FINANCIAL INSTRUMENTS BY CATEGORY Assets as per statement of financial position at 31 December Cash and cash equivalents Total 2023 Other financial assets at amortised cost £000 2022 Other financial assets at amortised cost £000 22 22 10 10 There are no financial assets that are pledged as collateral for liabilities or contingent liabilities. Liabilities as per statement of financial position at 31 December Trade and other payables excluding contract liabilities and social security liabilities Borrowings Total 2023 Other financial liabilities at amortised cost £000 2022 Other financial liabilities at amortised cost £000 13,163 5,550 18,713 13,060 6,485 19,545 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 87 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS N CALLED UP SHARE CAPITAL Ordinary shares of 2.5 pence each at 31 December Authorised Allotted and fully paid At 1 January At 31 December POTENTIAL ISSUE OF SHARES Number ’000s 2023 £000 Number ’000s 2022 £000 200,000 5,000 200,000 5,000 124,603 124,603 3,115 3,115 124,603 124,603 3,115 3,115 The Company has established the following share-based payment schemes: A) EXECUTIVE SHARE OPTION SCHEMES The Company established the 2019 Share Option Scheme, which was approved by shareholders on 23 May 2019. Executive share options are granted from the scheme at a fixed exercise price equal to the market price of the shares under option at the date of grant. The contractual life of an option is ten years. Awards are at the discretion of the Remuneration Committee and subject to stretching performance conditions. Options will ordinarily become exercisable on the fifth anniversary of the date of grant. The number of shares subject to options and the exercise prices are: Date of grant 21 June 2019 16 March 2022 Vesting All vested None vested Exercise price 6.18p 10.50p Exercise period 21/06/24 – 20/06/29 16/03/25 – 15/03/32 A reconciliation of executive option movements over the year is shown below: 2023 Number ’000s 2,877 5,679 8,556 2022 Number ’000s 2,877 5,679 8,556 Outstanding at beginning of year Issued during the year Lapsed during the year Forfeited during the year Outstanding at the end of the year Exercisable at the end of the year 2023 Weighted average exercise price 9.05p – – – 9.05p – 2022 Weighted average exercise price 6.18p 10.50p – 10.50p 9.05p – Number ’000s 2,877 7,450 – (1,771) 8,556 – ` Number ’000s 8,556 – – – 8,556 – The performance conditions for the outstanding options issued in 2019 were met for 2,876,667 options, but the time- based conditions have not been met. During 2023 no (2022: 7,450,000) executive options were granted. No executive options were forfeited as a result of leavers. 88 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 The fair value of the options granted was determined using the Black-Scholes model. The inputs used in the measurement of the fair values at grant date were as follows: Fair value at grant date Share price at grant date Exercise price Expected volatility Expected life Expected dividends Risk-free interest rate 2019 2.15p 6.18p 6.18p 72.57% 5 years Nil 0.62% 2022 Tranche 1 3.21p 10.50p 10.50p 41.61% 3 years Nil 2.19% 2022 Tranche 2 3.70p 10.50p 10.50p 41.61% 4 years Nil 2.19% 2022 Tranche 3 4.13p 10.50p 10.50p 41.61% 5 years Nil 2.19% Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous three years. The risk-free rate of return is the yield on zero coupon UK government bonds of a term consistent with the assumed option life. The Company recognised a total charge of £57,000 (2022: £53,000) related to equity-settled share- based payment transactions in the income statement in the year. B) LONG TERM INCENTIVE PLAN (LTIP) The Company established the LTIP scheme in 2008 and has one remaining holder of options. The LTIP was closed to further grants in 2019. The options granted under this scheme are nil costs and generally exercisable at the end of the performance period and for seven years thereafter. Awards under this scheme are reserved for employees at senior management level and above. If an employee leaves the employment of the Company, a proportion of his award may be deemed to have vested, subject to satisfying any performance conditions and at the discretion of the Remuneration Committee. The number of shares subject to options and the exercise prices are: Date of grant 03 June 2014 Share price at award date Vesting date 45.1p 03 June 2017 2023 Number ’000s 100 2022 Number ’000s 100 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 89 FINANCIALS NOTES TO THE COMPANY FINANCIAL STATEMENTS N CALLED UP SHARE CAPITAL CONTINUED A reconciliation of LTIP option movements over the year is shown below: Outstanding at the beginning and end of the year 2023 Weighted average share price at the date of grant 45.1p 2022 Weighted average share price at the date of grant 45.1p Number ’000s 100 Number ’000s 100 The options outstanding at 31 December 2023 had a weighted average exercise price of nil pence (2022: nil pence) and a weighted average remaining contractual life of 0.4 years (2022: 1.4 years). All 100,000 options outstanding have vested and are exercisable. SHARE OWNERSHIP PLAN At 31 December 2023 the trustee of the Employee Share Ownership Plan (ESOP) held 126,496 shares (2022: 126,496) with a market value of approximately £9,000 (2022: £9,000). The net book value of these shares was £40,000 (2022: £40,000) and was deducted from equity. O PRIOR YEAR ADJUSTMENT During the year a reassessment of the deferred tax asset was made. It was determined the asset related to temporary differences arising in Pebble Beach Systems Limited, a group company and therefore in line with IAS 12 it is appropriate the deferred tax asset be recognised in Pebble Beach Systems Limited. An adjustment of £209,677 was made in the prior year income statement for the deferred tax asset arising in the year ended 31 December 2022 and an adjustment of £618,248 was made to retained earnings stated for the year ended 31 December 2022 for assets arising in years prior to that. All movements in prior years arose due to temporary differences in Pebble Beach Systems Limited. P CASH FLOW FROM OPERATING ACTIVITIES Reconciliation of loss before tax to cash used in operations. Profit before tax Dividend income Share-based payment expense Finance costs Increase in trade and other receivables Increase/(decrease) in trade and other payables Cash used in operations 2023 £000 795 (2,200) 57 857 57 (73) (507) 2022 £000 312 (2,100) 53 623 11 14 (1,087) Q CONTINGENT LIABILITIES AND COMMITMENTS The loans within the Company are subject to a cross-guarantee by Pebble Beach Systems Limited to secure bank borrowings and facilities for credit cards, bonds and guarantees to certain members of the Group. At 31 December 2023, there was £5.5 million of bank borrowings outstanding (2022: £6.5 million). The Company has no capital expenditure contracted for but not provided at 31 December 2023 (2022: £Nil). 90 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 R RELATED PARTY TRANSACTIONS The subsidiaries of the Group which are unlisted unless otherwise indicated, are shown below. The following subsidiaries are included in the Group’s consolidated results. Proportion of ordinary shares held by the Group 100% Pebble Beach Systems Limited* Pebble Beach Systems R&D Limited 100% Pebble Broadcast Systems, Inc. 100% Legacy Broadcast Group Holdings Limited* 100% Principal activity Software service, video capture and playout provider for the broadcast industry Research and development of new software Software service, video capture and playout provider for the broadcast industry** Dormant Company** UK USA UK Legacy Broadcast International Limited 100% Dormant Company** UK Legacy Broadcast Communications Limited 100% Dormant Company** UK Legacy Broadcast Limited 100% Dormant Company** Ireland * Owned directly by the Company ** Unaudited Country of incorporation and operation Registered office UK Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN, England Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN, England 200 Continental Drive, Suite 401, Newark, Delaware 19713, USA Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN, England Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN, England Unit 1, First Quarter, Blenheim Road, Epsom, Surrey, KT19 9QN, England 2 Shelbourne Buildings, Crampton Ave, Shelbourne Road, Ballsbridge, Dublin 4, D04 W3V6, Ireland 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 91 FINANCIALS ANALYSIS OF SHAREHOLDERS As at 31 December 2023 Holding size range 0–1,000 1,001–5,000 5,001–10,000 10,001–100,000 Over 100,000 Number of shareholders 3,421 1,700 234 160 60 5,575 Percentage of total shareholders 61.4 30.5 4.2 2.9 1.0 100.0 Number of shares ‘000s 1,491 3,779 1,739 4,813 112,781 124,603 Percentage of issued share capital 1.2 3.0 1.4 3.9 90.5 100.0 WARNING TO SHAREHOLDERS: BOILER ROOM SCAMS Many companies are aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas-based “brokers” who target UK shareholders, offering to sell them what often turn out to be worthless or high-risk shares in US or UK investments. These operations are commonly known as “boiler rooms”. These “brokers” can be very persistent and extremely persuasive. The directors have been made aware that approaches have been made to Pebble Beach Systems Group plc shareholders. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free company reports. More detailed information on this or similar activity can be found on the FCA website http://www.fca.org.uk/ or by calling the FCA Consumer Helpline on 0800 111 6768. 92 Pebble Beach Systems Group plc Annual Report & Financial Statements for the year ended 31 December 2023 31591 23 April 2024 5:21 pm v1 SHAREHOLDER INFORMATION BOARD OF DIRECTORS JOHN VARNEY REGISTERED OFFICE Independent Non-Executive Chairman RICHARD LOGAN Senior Independent Non-Executive Director Audit Committee Chairman CHRIS ERRINGTON Non-Executive Director Remuneration Committee Chairman PETER MAYHEAD Group Chief Executive Officer Unit 1, First Quarter Blenheim Road Epsom Surrey KT19 9QN COMPANY REGISTRATION NUMBER 04082188 INDEPENDENT AUDITOR CLA EVELYN PARTNERS LIMITED 45 Gresham Street London EC2V 7BG BANKERS SANTANDER CORPORATE BANKING 2 Triton Square Regent’s Place London NW1 3AN LEGAL ADVISERS PINSENT MASONS LLP 55 Colmore Row Birmingham B3 2FG REGISTRARS COMPUTERSHARE INVESTOR SERVICES PLC The Pavilions Bridgwater Road Bristol BS13 8AE NOMINATED ADVISER AND BROKER FINNCAP LTD 1 Bartholomew Close London EC1A 7BL SHAREHOLDER QUERIES All queries regarding shareholdings, dividends, lost share certificates or changes of address should be communicated in writing to Pebble Beach Systems Group plc, c/o Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS13 8AE, stating the registered shareholder’s name and address. Telephone: 0370 703 6270. Shareholders may also check their shareholding, dividend payments or update their personal details via the Investor Services section of the Registrars’ website at www.computershare.com. This is a secure section of the Computershare website. To access your details you will require the unique Shareholder Reference Number, found on the corresponding share certificate. SHAREHOLDER ECOMS WEBSITE For further up-to-date shareholder information, please visit www.pebbleplc.com. NEWS ALERTS To receive the latest news announcements and press releases by email please visit www.pebbleplc.com and follow the link to the news and events/email alerts page to register your details. UNSOLICITED MAIL The Company is required by law to make its share register available on request to the public and organisations which may use it as a mailing list, resulting in shareholders receiving unsolicited mail. Shareholders wishing to limit the receipt of such mail should write to the Mailing Preference Service, DMA House, 70 Margaret Street, London W1W 8SS or register online at www.mpsonline.org.uk. 31591 23 April 2024 5:21 pm v1 www.pebbleplc.com Stock code: PEB 93 COMPANY INFORMATION 31591 23 April 2024 5:21 pm v1