R4E.L Regulatory News (R4E)

This announcement contains inside information 30 September 2019

reach4entertainment enterprises plc

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

Unaudited interim results for the six months ended 30 June 2019

The stage is set for continued strong growth

reach4entertainment enterprises plc, the integrated, live entertainment communications group, today announces its unaudited interim results for the six months ended 30 June 2019.

Financial Highlights:

·; Revenue of £56.82 million, up 60.6% (H1 2018: £35.37 million)

·; Net revenue of £19.35 million, up 37.1% (H1 2018: £14.11 million)

·; Gross profit margin of 21.2% (H1 2018: 24.3%) on revenues and 62.2% (H1 2018: 60.8%) on net revenues

·; Adjusted EBITDA* of £1.87 million. Adjusted EBITDA before IFRS 16** of £1.19 million (H1 2018: £0.44 million)

·; Loss for the period of £0.44 million, before IFRS 16** a loss of £0.19 million (H1 2018 a loss of: £0.45 million)

Operational Highlights:

·; Completed acquisition of Agency Press Ltd (trading as 'Sold Out') for initial consideration of £3.94 million cash

·; Raised £3 million via placing of new ordinary shares to partly fund Sold Out initial consideration

·; Acquired 50% stake in sports media production company, Buzz 16 Ltd

·; New York theatre agency SpotCo won 17 new shows, including the Music Man and Audible Theatre

·; London Theatre agency Dewynters launched 15 new projects, including Joseph and the Amazing Technicolour Dreamcoat, The Light in the Piazza, Big and the new Turbine Theatre

·; Newman Displays awarded contracts for design work for new screens at the Old Vic and refurbishment and signage at the Roundhouse and continues to increase market share of theatre and movie work

* Adjusted EBITDA is stated before exceptional administrative items (see note 2) and share-based payment charges

** Pre-IFRS 16 figures stated before impact of IFRS 16 'Leases' on 2019 results. See notes to report for full explanation

Marc Boyan, CEO of r4e, commented: "The success of the turnaround strategy has been demonstrated through the significant jump in Group revenue and EBITDA. Whilst the performance of the traditional business is much improved, the decision to expand into the broader area of live entertainment is delivering new clients and opportunities. With our agencies securing a number of new mandates in the first half, the Group is on track to meet its market expectations for the full year." 

Lord Michael Grade, Non-Executive Chairman of r4e, commented: "The Board has been pleased with the Group's progress in the first half. The operational changes implemented in 2018 are bearing fruit and the acquisition of Sold Out and partnership with Buzz 16, both of which completed during the period, have created new dynamics which we expect to unlock new areas of growth. We look forward to the rest of the year with confidence."

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CHIEF EXECUTIVE OFFICER'S STATEMENT

Introduction

The Group made good progress during the period in executing its growth strategy and improving on its financial performance. r4e has expanded its position within the live entertainment sector and the changes implemented across the Group in 2018 are helping to achieve the Board's targets of profitability, improved client servicing and each agency increasing their client portfolio.

Improved financial performance when compared to 30 June 2018 (before accounting for IFRS 16 see the impact table in the notes to this report):

·; Gross margin increase of £3.45 million or 40.3%

·; Adjusted EBITDA# and EBITDA increase of £0.8 million (after IFRS 16 an increase of £1.4 million)

·; Operating profit increase of £0.62 million (after IFRS 16 an increase of £0.56 million)

·; Loss before tax decrease of £0.57 million (after IFRS 16 a decrease of £0.31 million)

Across the Group, the individual agencies all delivered revenue growth. Gross margin has improved in actual terms as well as on a percentage of net revenues from 60.8% to 62.2%, a measure we use internally to track to the performance of the business net of third-party pass-through costs which reflects the management team's focus on margin improvement.

Net results when extracting media pass through costs:

The success of the Group's turnaround in 2018 led to an improved financial performance in the first half of 2019 when measured before the effects of IFRS 16 which came into effect from 1 January 2019. This was driven in part by the additional contribution from Sold Out which was acquired in March 2019. On a like for like basis (excluding changes under IFRS 16 and Sold Out), Adjusted EBITDA increased 107% from £0.44 million to £0.89 million (see IFRS 16 impact table in the notes). Including IFRS 16 and the contribution from Sold Out, adjusted EBITDA increased to £1.9 million.

The performance in the first 6 months has improved cash flow with cash used in operations being £0.10 million compared to £1.45 million in the half year to June 2018.

Operational review

H1 2019 was dominated by the acquisition of the 50% interest in Buzz 16 Productions and the acquisition of advertising agency, Sold Out; both of which have helped to broaden the Group's marketing and media capabilities. As part of the process to acquire Sold Out, the Company also completed a placing of new shares with existing and new shareholders, raising gross proceeds of £3 million.

# Adjusted EBITDA is stated before exceptional administrative items (see note 2) and share-based payment charges

Led by ex-Sky producer Scott Melvin and media personality Gary Neville, Buzz 16 has been behind several popular sports-related productions, which include "Class of 92: Full Time" and "SoccerBox". While providing the Group with TV production capabilities, Buzz 16 will also open the opportunity for the Group to diversify into sports marketing. 

After successfully completing the acquisition of Sold Out in March this year, we are pleased to report that the agency has been integrated into the Group. Sold Out continues to gain new clients which illustrates its credentials as one of the top UK agencies catering for brands in the concert and live entertainment space. The company contributed £0.3 million to Adjusted EBITDA and £0.14 million to operating profit in the three-month period under r4e's ownership, and is expected to have a much stronger second half.

After winning a number of new shows in 2018, SpotCo has been delivering on its series of new projects, with Hadestown, Beetlejuice, and Tootsie currently live on Broadway in New York. Further new clients were added at the start of 2019, with SpotCo winning the mandates for Magic Mike, and Almost Famous amongst others. Its clients also amassed 16 awards at this year's Tony Awards, which also included 74 nominations in total. SpotCo saw a significant uplift in its revenue, which grew by 61% to £32.26 million with net revenues also increasing by 62% to £10.0 million. Adjusted EBITDA increased by 300% to £1.50 million (pre IFRS 16 a 185% increase to £1.01 million), which has clearly illustrated the success of the Group's turnaround strategy.

In London, Dewynters successfully added "Joseph and the Amazing Technicolour Dreamcoat" and "The Light in the Piazza" to its client roster. The company generated revenue of £14.56 million, a 6% increase on the same period last year with net revenues slightly down £0.04 million or 7.7%, reflecting the increase in media activity during the period. Adjusted EBITDA stood at £0.56 million (pre IFRS 16 £0.33 million down £0.26 million on the corresponding period). New shows "BIG", "White Christmas" and "Mama Mia! The Party" at the O2, which were also won during the period, are set to go live in the second half of the year supporting our view that Dewynters remains on track for the remainder of the year.

Newman Displays has had a strong first half and is benefitting from the current wave of new shows in the West End which has led to new front of house displays. The company achieved a 30% uplift in revenue compared to H1 2018, whilst maintaining its overhead expenditure to realise a 29% uplift in Adjusted EBITDA (12% uplift pre IFRS 16). Recent non-theatre projects undertaken in the period have included creating the digital design work for the new screens at the Old Vic, premieres of "Rocketman", "Toy Story 4" and "Once Upon a Time in Hollywood", and other special events signage work. With the increased turnover of shows in London theatres in 2019 and a number of high profile film premiers, new work across theatre and cinema should see a strong year for the company.

Story House, being incorporated in August 2018, is still within its first year of operation but is already profitable and has repaid the investment provided by r4e in its start-up phase. Wake the Bear has been operating for just over a year and has performed in line with expectations, delivering first half revenue of £386k whilst building its profile and portfolio among a non-live entertainment clientele with a number of notable clients wins already secured post period end, which the business will see the benefit of in late 2019 and 2020.

As part of the Group's ongoing strategic review to improve client service and profitability, the Board took the decision to close Dewynters Germany in early June 2019. The performance of Dewynters Amsterdam has continued to improve, with the agency being profitable in the period and meeting performance expectations.  

#loss before tax in Sold Out and profit before tax in Head Office is due to a dividend paid up by the subsidiary as part of the acquisition process.

*Adjusted EBITDA is EBITDA before exceptional administrative items (see note 2) and share-based payment charges.

Summary and Outlook

The Board is encouraged by the significant increase in Group revenue and EBITDA since undertaking its strategic review and turnaround period. r4e is benefiting from stronger agency management teams, cost control and collaboration, which together is delivering better client services and results on a like for like basis before IFRS 16. Our recent acquisitions are already bearing fruit and helping to establish new opportunities and revenue streams. Despite ongoing macro concerns, the Group is in a much stronger position and the current pipeline of project work means that it remains on track to meet its full year market expectation.

Marc Boyan, CEO

reach4entertainment enterprises plc

30 September 2019

Unaudited Condensed Consolidated Income Statement

For the six months ended 30 June 2019

*Adjusted EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) is before exceptional administrative items (see note 2), and share based payment charges.

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2019

Unaudited Condensed Consolidated Balance Sheet

As at 30 June 2019

Unaudited Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2019

Unaudited Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2019

Unaudited notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 30 June 2019

1 Basis of Presentation

These unaudited condensed consolidated interim financial statements are for the six months ended 30 June 2019. They have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as adopted by the European Union. This report should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and International Financial Reporting Interpretations Committee ('IFRIC') Interpretations and the Companies Act 2006, as applicable to companies reporting under IFRS.

The financial information in this interim announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The unaudited interim financial statements were approved and authorised for issue by the Board on 30 September 2019.

The comparative financial information for the year ended 31 December 2018 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The statutory accounts of reach4entertainment enterprises plc for the year ended 31 December 2018 have been reported on by the Company's auditor, RSM UK Audit LLP, and have been delivered to the Registrar of Companies. The report of the auditor was unqualified. The auditor's report did not contain statements under Section 498(2) or 498(3) of the Companies Act 2006.

The financial information for the six months ended 30 June 2019 and 30 June 2018 is unaudited.

Standards, amendments and interpretations effective in 2019

IFRS 16 'Leases'

The Company has adopted IFRS 16 "Leases" which is effective for annual periods beginning on or after 1 January 2019. The Company has chosen to apply the modified retrospective transition method and so the prior year figures have not been adjusted. The Company has elected to apply the practical expedient for short-term leases to leases for which the lease term ends within 12 months of the date of initial application, and the practical expedient for low value leases.

The adoption of the standard has resulted in the Company bringing many of its leases onto the balance sheet reflecting 'right-of-use' assets which are depreciated, and corresponding liabilities on which interest accrues. The impact of the standard in the period to June 2019, compared to the results if the standard had not been recognised, is that Adjusted EBITDA/EBITDA have increased by £0.67 million due to the elimination of rent costs. However operating profit in the period has reduced by £0.06 million due to increased depreciation charges and profit before/after tax has reduced by £0.25 million due to interest charges.

At 30 June 2019 non-current assets have increased by £8.4 million as a result of the additional right-of-use assets. Total liabilities have increased by £8.6 million due to the addition of finance lease liabilities but this is offset by £1.1 million as liabilities previously recognised under SIC 15 as operating lease incentives have been transferred to retained earnings. A deferred tax liability of £0.19 million has been recognised on the impact of IFRS 16. Total net asset effect is an increase of £0.8 million.

A £1.27 million credit to retained earnings was recognised 1 January 2019 due to the elimination of lease incentives along with an offsetting deferred tax debit of £0.3 million.

Tables reflecting the full impact of IFRS 16 on performance in the period and position at 30 June 2019 are presented below.

1 Basis of Presentation (continued)

IFRS 16 impact on reported Consolidated Income Statement

1 Elimination of rent costs previously recognised as operating leases

2 Depreciation charged on right-of-use assets

3 Interest unwinding on right-of-use liabilities

4 Deferred tax effect

1 Basis of Presentation (continued)

IFRS 16 impact on reported Consolidated Balance Sheet

1 Addition of right-of use assets

2 Elimination of liabilities related to lease incentives recognised previously under SIC 15

3 Addition of lease liabilities

4 Deferred tax effect

Other Standards

The following IFRS/IAS are either new, amended or have interpretations mandatory for the first time for the financial year beginning 1 January 2019, but had no material impact on the Group:

·; IFRS 9 - Financial Instruments

·; IFRS 11 - Joint Arrangements

·; IAS 12 - Income Taxes

·; IAS 19 - Employee Benefits

·; IAS 23 - Borrowing Costs

·; IAS 28 - Investments in Associate and Joint Ventures

The following IFRS/IAS are either new, amended or interpretations have been issued, but are not effective for the financial year beginning 1 January 2019 and have not been early adopted:

·; IFRS 3 - Business Combinations.

·; IAS 1 - Presentation of Financial Statements

·; IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

Accounting Policies

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2018, with exception of standards, amendments and interpretations effective in 2019. Significant policies adopted in the period to 30 June 2019 which were not included or material to the annual financial statements for the year ended 31 December 2018 are:

Business combinations

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.

Assets acquired and liabilities assumed are measured at their acquisition-date fair values.

Joint Ventures

Interests in joint ventures are accounted for using the equity method. After initially being recognised at cost in the consolidated balance sheet, the group's share of the post-acquisition profits or losses of the investee are recognised in the consolidated income statement. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

Where the group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity.

The carrying amount of equity-accounted investments is tested for impairment.

Right-of-use assets and liabilities

All leases are accounted for by recognising a right-of-use asset and a lease liability except for:

·; Leases of low value assets; and

·; Leases with a duration of twelve months or less.

Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case The Group's incremental borrowing rate on commencement of the lease is used. The Group has applied a single discount rate to a portfolio of leases with reasonably similar characteristics.

The group has applied the modified retrospective provisions of IFRS 16 and therefore on transition at 1 January 2019 right of use assets are measured at the amount of the lease liability.

Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made. Right-of-use assets are amortised on a straight-line basis over the remaining term of the lease or over the remaining economic life of the asset if, rarely, this is judged to be shorter than the lease term.

When The Group revises its estimate of the term of any lease (because, for example, it re-assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted at the same discount rate that applied on lease commencement. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised. In both cases an equivalent adjustment is made to the carrying value of the right-of-use asset, with the revised carrying amount being amortised over the remaining (revised) lease term.

Discontinued Operations

A discontinued operation is a component of the Group's business that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of profit or loss.

Going Concern

As at 30 June 2019 the Group had net assets of £13.4 million (30 June 2018: net assets £8.9 million) and made an operating profit in the six months then ended of £0.2 million (H1 2018: loss of £0.4m restated). In March 2019 the Group conducted a successful equity placing, raising funds of £3 million (gross before costs) to partly fund the acquisition of Sold Out.

The 3 year term of the secured asset-based debt facility of £7 million with PNC Business Credit Services Ltd ("PNC") expired in December 2018 but remains in place on a rolling basis unless either party gives at least 6 months' notice. A set of financial covenants are in place with PNC in relation to this debt and are measured monthly. All covenants have been met in the period as they were in the fully 2018 year. The relationship with PNC is good, that they remain supportive of the Company. The Directors are confident the Group remains a going concern.

The Directors are confident that the going concern basis is appropriate and the Group has adequate resources to continuing trading for the foreseeable future.

2 Exceptional administrative expenses

3 Interest payable and similar charges

4 Investments in equity accounted joint ventures

Included in investments is £0.64 million reflecting the Company's 50% interest in Buzz 16 Limited which the Company acquired on 30 January 2019. Buzz 16 was founded in 2016 and creates both short and long form sports orientated content and is co-owned by shareholders including former Manchester United player and respected broadcaster, Gary Neville, along with former Sky Sports Premier League producer, Scott Melvin. £0.13 million of investments relates to smaller short-term projects.

The Company uses the equity method by which to measure its share of the joint venture profits/losses. In the period from acquisition to 30 June 2019, the Company's share of profits was £0.02 million.

5 Earnings per share

The calculations of earnings per share are based on the following results and numbers of shares.

* 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.

6 Goodwill and Intangible Assets