R4E.L Regulatory News (R4E)

Prior to publication, the information contained within this announcement was deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the publication of this announcement, this information is now considered to be in the public domain.

22 May 2018

reach4entertainment enterprises plc

("r4e", the "Company"' or the "Group")

Final results for the year ended 31 December 2017

r4e, the transatlantic media and entertainment company, today announces its results for the year ended 31 December 2017.

Highlights

· Marketed over 100 events worldwide, including many of the best-known theatre shows including Kinky Boots, Lion King, Les Misérables, Book of Mormon and School of Rock

· 2017 trading performance in line with management expectations reflecting weaker performance from the US division, SpotCo, and tougher trading conditions in the UK

· Revenues of £80.2 million (2016: £96.6 million)

· Gross profit margin of 25.1% (2016: 23.6%)

· Adjusted EBITDA* of £1.0 million (2016: £1.9 million)

· £1.5 million (non-cash) impairment of carrying value of SpotCo's goodwill

· Adjusted profit after tax** of £0.6m (2016: £0.1m)

· Reported loss after tax of £1.9 million (2016: profit of £0.1 million)

· Loss per share of 0.30p (2016: earnings per share of 0.02p)

· Net cash of £4.3 million (2016: net debt of £2.9 million)

* Adjusted EBITDA is before exceptional items, and share based payment charges

** Adjusted profit after tax is before exceptional restructuring costs of £1.0 million and non-cash goodwill impairment charge of £1.5 million

New Management Team

· New management team established under new CEO Marc Boyan in Q4 2017

· Successfully raised £5.5 million from an equity placing in December 2017, to support new strategy focused on:

o expanding Group activities beyond theatrical production;

o growing the business both organically and via acquisition;

o entering new geographic markets; and

o cost saving initiatives.

2018 and Beyond

· Strategic review of existing operations complete

· Investment in newly established entities:

o established Dewynters Amsterdam (in April 2018) following on from the successful launch of Dewynters Germany - r4e now has marketing teams in four major entertainment markets; and

o incubating a new company to focus on marketing-communications for emerging and challenger brands whilst drawing on capabilities of existing operations globally.

· Re-organisation and restructuring of SpotCo resulting in:

o appointment of new Managing Directors Shelby Ladd and Stephen Santore to lead the division;

o centralisation of financial control function under Dewynters' Finance Director, Simon Shimell;

o new management team resetting expectations for 2018; and

o commencement of turnaround plan for SpotCo with a greater focus on data and analytics.

· Implemented Group cost reduction programme that has achieved £2.0 million of gross annualised savings at the operational level, which has enabled the Group to invest in new operations and in strengthening the team

· Senior level appointment of Mark Cox as Head of Corporate Development to spearhead M&A strategy for the Group

· Appointment of Sir David Michels as Deputy Chairman, Non-Executive Director

· Major new shows launched and won in 2018 include Chicago and Bat Out of Hell with the recent win of Warner Bros' Beetlejuice slated for 2019

Chairman of r4e Lord Michael Grade, said: 

"The new team has made significant progress in the seven months it has been in place, raising £5.5 million, setting out a clear plan to build from r4e's traditional theatre strongholds in London and New York, achieving £2.0 million of gross annualised cost savings to date, and opening a new office in Amsterdam. It has also put in place new management to lead the turnaround of SpotCo having completed a strategic review.

"r4e represents a natural platform upon which to build an international live entertainment marketing business and we believe we have the necessary experience to make this happen. To that end, 2018 is likely to be a year of transition as we focus on bringing all parts of the business together to act as one team, providing our innovative, data led marketing services to events and theatre show where ever they are taking place. We look forward to finalising the restructuring of the business and pushing forward with expanding in the areas we have identified."

Enquiries:

Chairman's Statement

Overview

This is my first statement as Chairman of r4e and I am pleased to be able to present these results for the 12 months ended 31 December 2017. It has been a year of significant change for the Company particularly through the appointment of a new management team in Q4 of 2017 under CEO Marc Boyan.

r4e has for a long time operated two independent divisions successfully in London and New York, primarily supporting theatre productions and major events under the Dewynters and SpotCo brands. In 2017, the Company collectively represented more than 100 shows and events including Kinky Boots, Lion King, Les Misérables, Book of Mormon and School of Rock, reflecting the established long-term relationships the Company has with the leading theatre and event production companies around the world.

The appointment of Marc Boyan in October 2017 marked an important change in the direction and ambition of the business and has led to the articulation of a new strategy to support the future growth of the business.

Financial Results

The Group generated revenue of £80.2 million (2016: £96.6 million) reflecting a stable performance in London, despite the terrorism incidents and a weaker trading outcome in New York against a strong prior year. This resulted in underlying Adjusted EBITDA of £1.0 million (2016: £1.9 million). The gross profit margin increased notably to 25.1% (2016: 23.6%). Loss per share from total operations for the year was 0.30p (2016: earnings per share 0.02p). The Board are not recommending a dividend for the year to 31 December 2017.

Strategy

Under Marc Boyan, the new management team have set out their strategy to build upon r4e's unique position within the live entertainment marketing sector for the future long-term growth of the business. As a result, the Company is now focused on growing through the expansion of its existing activities and beyond into non-theatre production clients, both organically and through strategic acquisitions, as well as focusing on opening up new geographic markets all serviced and supported by our strong capabilities in our existing operations.

To support the Company's strategic objectives, an equity placing was completed in December 2017, raising £5.5 million gross proceeds (£5.3 million net). Historically, the Company has been constrained by the costs associated with the high level of debt the Company had compared to its market capitalisation which has now been addressed with Group net cash of £4.3 million (2016: net debt of £2.9 million).

Alongside the reduction in borrowings, the restructuring actions taken to date have achieved annualised cost savings of £2.0 million, the majority of which have come from streamlining operations in SpotCo to create a more competency-based structure, which has enabled the Group to invest in new operations and in strengthening the team. On the back of a slowdown of activity in 2017, the new management team has taken the lead on the turnaround of this business and reset expectations for SpotCo's performance in 2018. A key focus going forward is to bring SpotCo closer together with the rest of the Group, allowing the business to offer clients a unified international service from its global talent pool, supporting events and shows wherever they are performed.

Since the year end, the Company established Dewynters Amsterdam (in April 2018) following on from the successful launch of Dewynters Germany. As a result, r4e now has marketing teams located in four key markets for theatre and events marketing.

Board Changes

The Board welcomed Marc Boyan as its CEO and Ralph Wilson as Interim CFO. Alongside the appointment of Marc, I moved from Non Executive Director to Non Executive Chairman, and Claire Hungate stepped down from the Board as a Non Executive Director to focus on a CEO role. Since the year end, r4e announced the appointment of Sir David Michels as Deputy Chairman, Non-Executive Director. Sir David was formerly CEO of Hilton Group and brings a wealth of public company experience to the Board.

On behalf of the Board I would like to thank David Stoller, former CEO of r4e, for his contribution to r4e.

Lord Michael Grade

Non-Executive Chairman

CEO Statement

Overview

I joined in October 2017 to help r4e expand within and develop outside its established market positions. Today, r4e employs over 200 marketing professionals across four countries and collectively this team has unparalleled experience of promoting and marketing shows and events. However, it has historically had a siloed-approach to operations with best practices in one market not necessarily shared across the business or beyond our core industry focus of theatrical production. r4e boasts a talented pool of operators within its ranks who understand how to drive consumers to ticketing and e-commerce environments. I believe this expertise can be successfully employed to service a broader set of customers beyond our existing base which if complemented by placing innovation and data driven decision making at the heart of all solutions, will represent a compelling offer for our clients.

Through my ownership of the Miroma group of companies, I am fortunate enough to be exposed to companies that have developed cutting edge marketing technology solutions that we are now able to employ for the benefit of r4e's current and prospective client base.

Supported by the £5.5 million of new capital raised from our shareholders, we have invested in attracting new people, opened up new operational subsidiaries and markets, re-organised parts of the business to achieve cost savings, created more efficient staffing structures to support greater collaboration and implemented centralised capabilities to service all current and prospective subsidiaries.

We have made excellent progress in the past seven months on these and other initiatives and while the restructuring programme is still ongoing, we expect the benefits of the actions taken so far to start to flow through in 2018.

I am pleased to be joined on the Board by Ralph Wilson as Interim CFO and Sir David Michels as Deputy Chairman. Sir David has served as Chairman of Miroma for the last four years and has overseen a period of rapid growth over that time. Furthermore, we have recently made a senior level hire for the group in Mark Cox who joins us as Head of Corporate Development to spearhead our M&A strategy. Mark has previously served as an Associate Director at WPP and a Director of a leading M&A advisory boutique focused on the media, marketing and technology sectors.

New York, London, Hamburg and Amsterdam

Alongside market-leading agencies in London and New York, r4e successfully launched a new agency in Hamburg in 2016. Consequently, the Company now has a strong presence in the three largest commercial theatre markets in the world. More recently, and subsequent to the year-end, the launch of the joint venture Dewynters Amsterdam in April 2018 stands as a blueprint for our desire to continue to expand operations organically. This, combined with the adoption of new data-driven marketing and analytics capabilities (which can and will be increasingly applied to the broader categories of live entertainment and e-commerce), and the highly collaborative approach taken by the new leadership teams, is expected to drive the Company's future growth.

In addition, in London the Group has commenced incubating a new company to focus on marketing-communications for emerging and challenger brands whilst drawing on capabilities of existing operations globally.

New York

2017 was a challenging market environment for SpotCo compared to the prior year resulting in revenue for this division reducing from £65.2 million to £48.5 million and operating profit moving from £1.0 million to a loss of £1.5 million, largely the result of a £1.5 million non-cash impairment of the carrying value of its goodwill.

The Board has taken a number of actions to restructure the division and has appointed a new leadership team under joint Managing Directors Shelby Ladd and Stephen Santore who had previously headed up SpotCo's Digital and Analytics respectively, supporting our belief that data informed decision making needs to be at the heart of marketing strategy. The new management team have been closely involved in defining a more achievable route to profitable growth. In addition, the Finance Director of Dewynters has taken over responsibility for financial control at SpotCo to improve processes and systems and bolster the resources of the business. As part of a turnaround plan, the focus will be to continue servicing our client base to the best of our ability, build on our recent successes for new business wins, maintain a greater discipline in relation to costs, and integrate with the management and skills base across the wider Group, all of which will contribute to returning this division to its previous position.

While the current year has begun well with the agency successfully securing several new Broadway musicals which will launch in the second half of 2018 and during 2019 and 2020, the impact of these new wins is not expected to support a return to growth until 2019.

London

Under divisional CEO James Charrington, Dewynters has been re-organised to deliver a more streamlined service and to cultivate a wider live entertainment client base, all underpinned by a commitment to utilise data and analytics technology to better identify target audiences, allocate marketing spend and track the impact of advertising against ticket sales.

As a result, 2017 has been a year of transition for Dewynters, reflected in the financial performance of the division with revenues broadly stable at £26.2 million (2016: £27.5 million). Adjusted EBITDA was £0.8 million (2016: £1.0 million) and operating profit was £0.4 million (2016: £0.7 million). Dewynters is well placed to improve on this performance in 2018.

Hamburg

Launched in September 2016, Dewynters Germany is still in its infancy but is already making significant strides under the leadership of Michael Hildebrandt, who has worked in Hamburg, the capital of the German entertainment market, for the past 18 years and is an established industry figure. Combined with the skills and capabilities that this division is able to draw upon from the wider Group, particularly from Dewynters in London, the agency has been able to grow from a zero base in 2016 to generating organic revenues of £1.4 million in 2017, and was breakeven at the operating profit level in 2017.

Newmans

Building on the back of a highly successful 2016, Newmans enjoyed further growth in 2017, with revenues up by 5% to £4.1 million (2016: £3.9 million), and generating EBITDA of £0.3 million (2016: £0.2 million). Previous investment in in-house printing and cutting machinery has continued to benefit the profitability of the division. Operating profit is also up on prior year, at £0.3 million (2016: £0.1 million). The division remains committed to growing into new customer markets and is well placed going into 2018.

Outlook

r4e is changing into a very different business, switching from operating leading brands in two separate markets, to being an international business located across a number of markets with a focus beyond the live entertainment market. We have made a good start to developing r4e - the business is now conservatively geared with headroom to invest in new opportunities. We have attracted senior personnel into the business and we have a clear plan to streamline the business further whilst targeting a larger share of our existing markets and opening up new opportunities.

2018 will be a period of transition as the changes we have made take effect. As a result, we reset expectations for the Group and we anticipate 2018 trading results will be in line with the prior year. However, looking further ahead we are establishing a more integrated, cost efficient, technology driven platform from which we expect to grow the business across all four markets in 2019 and beyond.

Marc Boyan

Chief Executive Officer

GROUP STRATEGIC REPORT EXTRACT

PRINCIPAL ACTIVITIES

The principal activities of the Group during the year were to provide creative, advertising, marketing and other services to the theatrical, film and live entertainment industries including media strategy and buying, marketing and sales promotions, signage and publishing.

REVIEW OF PERFORMANCE AND FUTURE DEVELOPMENTS

Year ended 31 December 2017

Year ended 31 December 2016

*Adjusted EBITDA is before exceptional items and share based payment charges. This is a measure used by r4e's provider of finance, PNC, to monitor covenant compliance, as well as by the Board as a proxy for cash profit.

Group

For the year ended 31 December 2017, the Group has seen a mixed trading performance, with reduced revenues, mitigated by improved gross profit margin and - as set out in note 4 to this final results announcement - by reduced overheads:

· Revenue down by £16.4 million and 17% on prior year

· Gross profit down by £2.7 million and 12% on prior year

· Gross profit margin up by 1.5% on prior year (at 25.1%, versus 2016's 23.6%)

Operating (loss)/profit performance was also affected by:

· Exceptional costs of £1.0 million relating primarily to Board and staff restructuring, which included the ceasing of David Stoller's roles of Executive Chairman and Chief Executive Officer;

· Impairment of £1.5 million relating to the carrying value of SpotCo's goodwill and intangible assets;

· Shared based payment charges associated with the Group's Long Term Incentive Plan ('LTIP'). A total of 228.0 million share options had been granted to employees by 31 December 2017, of which 19.4 million had been exercised, and 11.5 million had been forfeited in the year, leaving 197.1 million in place at the year-end. The options were valued and £0.2 million was charged to the income statement in the year (2016: £0.3 million). This is non-cash effecting, with the creation of a share option reserve, but the charge is recognised as personnel cost and thus reduces the Group's EBITDA.

Debt financing

The amount owing to debt provider PNC reduced significantly during the year, down to £2.5 million (2016: £5.0 million), which was a result of the accelerated repayment in July of the then-remaining term loan balance of £0.6 million, coupled with a reduced drawdown by year-end against the asset based lending facility.

As announced in October 2017, the Company breached its quarterly monitoring covenant in the third quarter of 2017. The breach was due to the covenant being determined on a 3-month rolling basis which is therefore sensitive to seasonality fluctuations in EBITDA. As announced in March 2018, the Company received formal agreement from PNC to waive its rights in connection with the breach of the covenant. As announced in February 2018, the Company stayed within its key overall full-year monitoring covenant for 2017.

The initial 3-year term of the facility runs to 3rd December 2018, and the facility automatically continues in place indefinitely thereafter unless either party gives at least six months' notice on or after 4th June 2018. The Group believes that the relationship with PNC is good, that they remain supportive of the Company, and that they appear likely to want to continue the arrangement after the end of the initial term.

Market

The Group's market is the provision of marketing and media services to ticketed live events. Historically, it has focused upon the entertainment sector, and specifically theatre. The Group's subsidiaries, Dewynters in London and SpotCo in New York, are market leaders in their respective theatrelands. As a result, the Group is diversifying into new territories, and beyond theatre.

London

The London segment comprises Dewynters, Newmans and - since October 2016 - Jampot. During the year the London operations generated EBITDA, before exceptional items, of £0.9 million compared to the year ended 31 December 2016 of £1.0 million. Operating profit of £0.5 million was down on the prior year (2016: £0.8 million). Jampot contributed a loss to this result, of £0.1 million (2016: a loss of £0.05 million), acting as a centre of expertise for data-driven marketing techniques.

Dewynters had a challenging year in 2017 to uphold margins in the face of a changing sales mix. Revenues were down on the prior year by 5%, caused partly by the impact of the London terrorist attacks. Being weighted more towards media, gross profit margin was down slightly at 26.9% (2016: 27.8%). In addition, the non-cash affecting LTIP employee share options resulted in a charge of £0.1 million to employee costs. EBITDA before exceptional items was down £0.2 million, at £0.7 million (2016: £0.9 million), or £0.8 million (2016: £1.0 million) when adding back the LTIP costs. Operating profit was down £0.3 million, at £0.4 million (2016: £0.7 million).

Newmans made a significant contribution to the London results in 2017 with an increase in revenue of £0.2 million (5%) to £4.1 million and a 50% increase in Adjusted EBITDA to £0.3 million, compared with 2016. The continued good performance is aided by the reduction in the level of outsourcing thanks to the investment in 2015 in in-house printing and cutting machinery. The result is particularly pleasing since it is despite the negative impact, earlier in the year, of the London terrorist attacks. Operating profit rose strongly against the prior year at £0.3 million (2016: £0.1 million) continuing the benefit of lower debt costs under the PNC facility arrangement.

Jampot had its first full year within the group, generating £0.1 million of revenue (2016: £nil) and an Adjusted EBITDA and operating loss of £0.1 million (2016: £0.05 million) as it focused mainly upon driving internal awareness, knowledge and skills.

New York

The New York segment now consists solely of SpotCo, after DAI was dissolved in December 2016 with only negligible closure costs that year.

After increasing by £10.5m in 2016, SpotCo's revenue contribution to the group decreased in 2017 by £16.6 million (26%) to £48.5 million (2016: £65.1 million). In US Dollars, SpotCo's 2017 revenue was $62.9 million, a $25.1 million (29%) decrease on 2016's $88.0 million. The weighted average exchange rate between the US Dollar and British Pound in 2017 for SpotCo's revenues was 1.30, compared with 2016's average of 1.35. The effective strengthening of the US Dollar helped mitigate the revenue reduction in British Pounds by £2.7 million. The disappointing level of trading was caused by challenging market conditions and intense competition: for example, two productions, Chicago and Waitress, switched agencies during the year. Jim Edwards, current chief executive of SpotCo, will be stepping down in June 2018, and Shelby Ladd and Stephen Santore have been appointed Managing Directors. In recent months, SpotCo has had encouraging and important wins for shows commencing in 2018, 2019, and provisionally even 2020, and the new management team are positive about long-term return to growth after what looks to be a challenging period of turnaround continuing into 2018.

Improved gross profit margin - primarily the result of a shift in favour of higher-margin non-media work - combined with actions leading to significant year-on-year savings in personnel costs and other administrative expenses, softened the impact of the revenue reduction upon Adjusted EBITDA which was £0.4 million (2016: £1.5 million). A £1.5 million impairment of SpotCo's goodwill was caused by inherent uncertainty during a period of continuing restructure, and led to a £1.5 million operating loss (2016: £1.0 million profit).

Other performance highlights

Long Term Incentive Plan (LTIP)

The Board recognises the importance of retaining and incentivising employees, and has continued to operate the r4e plc Long Term Incentive Plan, set up in 2016, which allows the Company to make grants of share options of up to 20 per cent of the issued share capital. Included within employee costs and therefore within EBITDA before exceptional items, in 2017, is £0.2 million of costs related to the valuation of the LTIP options granted to employees in the year (2016: £0.3 million). There is no cash effect of the valuation, with the costs being recognised within personnel costs in the Statement of Comprehensive Income and the creation of an option reserve on the Statement of Financial Position.

Finance Costs

Finance costs for the year amount to £0.3 million (2016: £0.4 million), and primarily comprise interest and fees on PNC debt of £0.3 million (2016: £0.3 million). The moderate reduction in the cost is attributable to lower levels of borrowings.

Tax

A tax credit of £0.8 million has been recognised in the year (2016: £0.4 million charge), arising £0.5 million due to a reduction in the deferred tax liability on intangibles and goodwill in SpotCo as a direct result of the US corporate tax rate being reduced from 35% to 21%, and a further £0.3 million reduction in that liability because of the impairment of goodwill. Deferred tax assets remain substantially unchanged. Group relief - mainly from r4e - has enabled the Group to extinguish any liability due from Dewynters and Newmans, whilst no tax is due in the USA on SpotCo profits (2016: £0.3 million).

Cash Flow

Cash inflow from operating activities in the year was £1.9 million (2016: £3.2 million inflow) as a result of positive trading (£0.01 million inflow) and working capital movements (£1.9 million inflow). As part of its investing activities, property plant and equipment expenditure was £0.1 million (2016: £0.3 million).

Financing activity cash flow has significant movements as a result of the PNC asset based lending facility. As cash was drawn down to fund working capital, proceeds from the facility totalled £83.7 million, and repayments to the lender through the facility totalled £84.4 million (2016: £108.7 million and £111.4 million respectively). Proceeds from the issues of share capital totalled £5.5 million - including £0.2 million arising upon the exercise of share options - after related expenses (2016: £1.9 million), to invest in the Group's new initiatives. Interest and fees paid out on debt totalled £0.29 million (2016: £0.34 million), reduced because of lower debt levels.

As explained in the prior year accounts, the cash position is not expected to increase over the short term as drawdowns from the PNC facility are charged a higher interest than unutilised borrowings. Therefore, cash for working capital purposes is only drawn down as required for payments rather than being retained on hand for any length of time.

POSITION AT 31 DECEMBER 2017

As at 31 December 2017, the Group balance sheet has strengthened by £3.8 million with a net asset position of £9.2 million (2016: £5.4 million), caused primarily by a successful equity placing in December 2017 raising funds of £5.3 million (net of £0.2 million of costs), offset by the £1.5 million impairment at SpotCo (2016: £nil).

Non-current assets are lower by £2.7 million at £11.1 million (2016: £13.8 million). £0.7 million of the decrease is the effect of foreign exchange rates on the value of intangibles (goodwill and brands) in SpotCo. £1.5 million is the impairment of goodwill at SpotCo. The remaining £0.5 million is depreciation of property, plant and equipment, with £0.1 million of additions offset by £0.1 million of foreign exchange impact.

Current assets have increased by £1.3 million, from £17.1 million at 31 December 2016 to £18.4 million. That is as a result of cash being higher by £4.7 million - resulting from the fund raise - offset by trade and other receivables being lower by £3.3 million (23%), primarily a reflection of the 17% decrease in revenues in the year, boosted by improved collections.

Trade and other payables have also reduced year-on-year, by 10%, or £1.8 million, at £15.8 million. This reflects reduced levels of work in 2017 but is proportionally less than the reduction in turnover because of an increase in trade payables creditor days at the respective year-ends. Current borrowings have come down from £4.5 million to £2.4 million, as the asset based lending liability has reduced, caused by lower maximum availability because of lower trading levels, coupled with lower utilisation. This can be due to timing as cash is drawn down and repaid on a constant rolling basis.

Net current assets/(liabilities) have improved by £5.2 million, from a liability position of £5.0 million to an asset position of £0.2 million, thanks primarily to the increase in cash.

Non-current liabilities have been reduced by £1.5 million, from £3.5 million to £2.0 million. Of this, £0.6 million was caused by impact of the reduction of the US corporate tax rate upon the deferred tax creditor arising on SpotCo's goodwill and intangible assets, and £0.3 million by a further reduction in that creditor because of the impairment of those assets. A further £0.4 million decrease is attributable to repayments against PNC's term loan.

The £5.1 million increase in equity was caused by new shares issues in the year totalling 386,086,744 shares. These are set out in note 10 to this final results announcement, and primarily relate to the equity placing in December 2017. A further £0.2 million was charged to the share option reserve in connection with the value of r4e plc LTIP options granted to employees. These were offset £0.7 million by the loss for the year. (Share options exercised during 2017 resulted in the release of £0.2 million from share option reserve to retained earnings.)

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

*Adjusted EBITDA is before exceptional items and share based payment charges. 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2016

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

Reconciliation of net debt

BASIS OF PRESENTATION

The financial information in this announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The figures for the year ended 31 December 2017 are an abridged version of the Company's accounts which have been reported on by the Company's auditor but have not been dispatched to the shareholders or filed with the Registrar of Companies. These accounts received an audit report which was unqualified and did not include a statement under section 498(2) or section 498(3) of the Companies Act 2006.

SIGNIFICANT ACCOUNTING POLICIES

Goodwill

Goodwill is reviewed for impairment at least annually and any impairment will be recognised in the income statement and is not subsequently reversed. As such it is stated at cost less provision for impairment in value. The indefinite-life nature of goodwill is considered appropriate given the longevity of agencies in the theatre world - for example Dewynters has been in existence for about a century now. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Impairment of Assets (Intangible and Property, Plant and Equipment)

Goodwill is not subject to amortisation but is tested annually or whenever there is an indication that the asset may be impaired. For the purpose of impairment testing, assets are grouped at the lowest levels for which they have separately identifiable cash flows, known as cash generating units (CGUs). If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognised for goodwill are not reversed in a subsequent period.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in the income statement. Where an impairment loss subsequently reverses the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in the income statement.

Exceptional items

Exceptional items represent income or expenses, which based on their materiality, frequency or non-operating nature, have been separately disclosed to facilitate the assessment of the Group's underlying operating profitability.

Share based payments

The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.

Fair value is measured using a Black-Scholes valuation model for vanilla options and a binomial model for more complex options. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Capital Risk Management

The Group's objectives when managing capital - the combination of equity and debt funding - are to safeguard the Group's 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. In order to adjust the capital structure, the Group may issue new shares or sell assets to reduce debt.

As part of the Capital Risk Management process the Group acknowledges the need to monitor, and meet in full, covenants held over the revolving asset based facility with PNC. More details on the bank debt are in the Strategic Report on page 10 of the Company's accounts, and in Borrowings note 8 to this final results announcement. Although breached in the third quarter of 2017, since then the covenants were met for the key full-year measure, and until the date of the release of those accounts.

Index of Notes

1. Business and Geographical Segments

2. Exceptional Administrative Items

3. Finance Costs

4. Expenses by Nature and Auditor's Remuneration

5. Taxation

6. Earnings Per Share

7. Goodwill and Intangible Assets

8. Borrowings

9. Other Non-Current Payables

10. Share Capital

11. Shared-Based Payments

12. Cash Generated from Operations

13. Related Party Disclosures

14. Transactions with Directors

15. Subsequent Events

1. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into four operating segments - New York operations, London operations, German operations and Head Office. These divisions are the basis on which the Group reports its segment information to the chief operating decision maker.

Principal continuing activities are as follows:

New York (NY) - data-driven marketing, design, advertising, promotions, digital media services, and publishing.

London - data-driven marketing, design, advertising, promotions, digital media services, publishing, signage and fascia displays.

Germany - data-driven marketing strategy and planning, media planning, design, event production, PR, CRM and data consulting.

Head Office - corporate strategy, finance and administration services for the Group.

Segment information for continuing operations of the Group for the year ended 31 December 2017 is presented below:

Management fees charged at an arm's-length basis between reportable segments are reflected in the figures above on the basis that this is a true reflection of the operating costs of each segment.

1. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Capital additions include no plant held under finance lease (2016: £0.19 million). £0.05 million had been paid against the finance lease additions of 2016 in the year ended 31 December 2017 (2016: £0.05 million).

1. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

Segment information for continuing operations of the Group for the year ended 31 December 2016 is presented below.

Management fees charged at an arm's-length basis between reportable segments are reflected in the figures above on the basis that this is a true reflection of the operating costs of each segment.

1. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)

2. EXCEPTIONAL ADMINISTRATIVE ITEMS

Employee contract termination-related costs

The employee contract termination-related costs of £0.81m relate to employees of Dewynters, SpotCo, and Head Office, and are considered exceptional due to the level of redundancy, PILON, and compensation for loss of office required as a result of company performance.

Costs relating to reorganisation of Board

In order to ensure governance compliance when reorganising the Board, exceptional legal and other costs were incurred.

Costs expensed to Income Statement re share issues

Other costs of £0.15m directly associated with the equity placing of December 2017, raising £5.5 million (gross proceeds), were charged against the share premium account, making a total of £0.2m of costs re share issues.

3 FINANCE COSTS

4 EXPENSES BY NATURE AND AUDITOR'S REMUNERATION

During the year the Group obtained the following services from the Company's auditor and its associates:

5 TAXATION

Factors affecting the tax charge for the year:

5 TAXATION (continued)

A deferred tax asset of approximately £1.05 million (2016: £1.25 million) has not been recognised due to uncertainty over future profitability. At 31 December 2017, the Group had trade losses carried forward of £3.0 million (2016: £2.9 million), available for offset against future profits in the UK, as well as non-trade loan relationship deficit of £3.2 million (2016: £4.3 million) and capital losses of £4.7 million (2016: £4.7 million).

Taxation is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 21% in the United States (2016: 35%) and 19% in the United Kingdom (2016: 20%).

6 EARNINGS PER SHARE

The calculations of earnings per share are based on the following profits and number of shares:

 Profit attributable to equity holders of the company

The loss attributable to ordinary shareholders and weighted average number of ordinary shares for the purposes of calculating the diluted loss per share are the same as those used for basic loss per ordinary share. This is because the exercise of share options and other benefits would have the effect of reducing loss per share and is therefore not dilutive under the terms of IAS 33, Earnings Per Share.

7 GOODWILL AND INTANGIBLE ASSETS

Goodwill relates to the anticipated profitability and future operating synergies arising on the acquisition of subsidiaries.

Brands relate to the expected future benefit associated with the subsidiaries' well-known names in the market, as arising on acquisition.

Customer relationships represent the probable value over time of clients obtained by way of acquisition.

All amortisation and impairment charges have been recognised as administrative expenses in the income statement.

7 GOODWILL AND INTANGIBLE ASSETS (continued)

Impairment tests for goodwill

Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to the operations as grouped upon acquisition. An operating level summary of the goodwill allocation is presented below:

An impairment of £1.53 million in the year is related to the carrying value of SpotCo's goodwill (2016: £0.55 million related to Jampot Consulting Ltd - see note below). After a disappointing year in 2017 and with recovery looking like it may take longer than previously anticipated, management reviewed and cautiously revised the key assumptions for the value-in-use calculations of SpotCo, in particular pulling back from revenue growth rate for 2019 onwards from 1.5% to 1.0%, which - on the back of the softened outlook for 2018 - resulted in the impairment. Management will continue to monitor the trading outlook, and may revise the key revenue growth assumption upwards again, for future impairment review purposes, if and when they consider that to be an appropriate reflection of an improved forward view.

An impairment of £0.55 million in 2016 related to the purchase of Jampot Consulting Ltd. In 2016 the Company acquired Jampot for consideration totalling £55,000. Although Jampot's digital marketing IP was believed beneficial, since it related to the Group as a whole, and future revenues could not be specifically allocated to the acquired company, the goodwill in Jampot was written off in 2016. Subsequent to the write off, management decided to operate the Group's new data marketing analytics business through Jampot.

The recoverable amount of CGUs has been determined based on value-in-use calculations which cover a period of 5 years plus a terminal value. These calculations use pre-tax cash flow projections based on financial budgets for the year ended 31 December 2018 as approved by management and cash flows beyond the one-year period are extrapolated using straight line growth rates stated below. Prudent assumptions have been used in the value-in-use calculations in the tables detailed below and on the next page.

The table for Dewynters Group, below, also reflects the level of movements required in revenue or costs which could result in a potential impairment per the value in use calculation. A further percentage (fall)/increase, of the magnitude indicated in the table below, in any one of the key assumptions as set out, would result in a removal of the headroom in the value-in-use calculations in 2017.

The key assumptions used in 2017, for the value-in-use calculations and the change required to remove the headroom - along with whether the Board considers that to be a reasonable change - are as follows:

7 GOODWILL AND INTANGIBLE ASSETS (continued)

Management have determined budgeted gross margin, revenue growth and costs based on past performance and expectations of the market development for each CGU. The discount rates are pre-tax and reflect management's assessment of the risks relating to each CGU. In line with the conservative approach adopted in valuing the CGUs, the discount rate applied in the value-in-use calculations has been adjusted to reflect long term rates.

Initial growth rates in year 1 are taken from the CGU's 2018 operational forecasts, and so in some cases

can show a difference to the straight-line growth rates applied to subsequent years. Growth after year 1 has been determined on the basis of a combination of general industry market growth - occasionally flexed if necessary for specific CGU circumstances - and so the rate generally remains consistent. The growth rates used are considered by management to be in line with general trends in which each CGU operates and deemed by management to be a reasonable expectation for the CGU.

As well and reflecting the key assumptions for the value-in-use calculations, the table for SpotCo, below, also shows the potential level of adverse change in revenue or costs that the Board considers to be possible in the future, along with the impairment that would arise were that change to occur: