Final Results

29 June 2020

reach4entertainment enterprises plc

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

Final Results

reach4entertainment enterprises plc (AIM: R4E), the integrated international marketing group serving the live performance and entertainment industry, announces its results for the year ended 31 December 2019.

Financial Highlights

* Net revenues being revenues net of media costs

** Adjusted EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) is before exceptional items, investment impairment and share based payment charges

Footnote: IFRS 16 was adopted with effect from 1 January 2019. In 2019 this has increased Adjusted EBITDA, reduced operating profit and added finance lease assets and liabilities to the balance sheet. The 2018 comparatives have not been restated for the impact of IFRS 16

Operational Highlights

· A year of significant growth and operational efficiency with full year adjusted EBITDA and revenue significantly ahead of market expectations

· All operating divisions profitable as focus on client service and driving efficiencies bears fruit

· New York theatre agency, SpotCo and London theatre agency Dewynters remained the largest contributor to group revenues

o SpotCo won 20 new shows and worked on 43 shows in 2019 increasing its revenue by 56.1% to £68.7m (2018: £44.0m)

o Dewynters worked on 50 projects during the year increasing its revenue by 14.4% to £32.4m (2018: £28.3m)

· The Group strengthened its market leading position

o Notable new clients in 2019 include: Frozen, Moulin Rouge!, Hairspray, Joseph and the Amazing Technicolor Dreamcoat, Jesus Christ Superstar, Mamma Mia the Party, Tutankhamun exhibition, and Audible Theater

o Other noteworthy contracts included many of the year's most popular productions, such as: The Lion King, Wicked, Matilda, The Book of Mormon, Les Misérables, Harry Potter, Hadestown (winner of eight Tony Awards), and The Ferryman (winner of Tony Award for Best Play)

· Progressed strategy to build an integrated international marketing group serving the live performance and entertainment industry

o Acquired Sold Out in March 2019, which added to r4e's offering across live music, festivals, sports and events, and performed ahead of management's expectations

o In January 2019, acquired 50% stake in Buzz 16 Productions

o 34 direct cross-sells and 65 clients serviced by more than one of the Group's agencies

o Media Trading Agreements signed and extended between Miroma and r4e companies to drive additional value to respective agencies and their client bases

Covid-19 Update and Outlook

· Strong sales growth in line with expectations for the two months ended 29 February 2020, however closures of live venues resulted in material reductions in trading from March 2020

· Several measures were implemented to reduce costs, mitigate the impact of Covid-19 and manage liquidity

· As at 31 May 2020, the Group had adjusted net cash (before IFRS 16 right of use liabilities and deferred consideration) of £12.0m.

Lord Michael Grade, Chairman of r4e, said: "2019 was a year of great advancement, reflecting the continued success of the turnaround strategy and the diversification of the Company into new areas of live entertainment.  With a string of new client wins and cross-selling between agencies, the Group produced revenue and profit growth significantly ahead of expectations. We also welcomed Sold Out to the Group, further expanding our reach beyond theatre into live events.

"The Group entered 2020 with commercial momentum and an exciting pipeline for the year, which led to strong sales growth in the first two months of 2020. However, with the shutdown of live venues and events in March 2020, Covid-19 has had a significant impact on the entire industry. In April 2020, given the uncertainty over the length and severity of the outbreak at that time, we introduced mitigation measures to bolster the liquidity of the business and its financial position as we stopped all discretionary capital expenditure. For consumers and businesses in the live performance and entertainment industry, these are difficult times. r4e benefits from its market leading position on both sides of the Atlantic and is now more diversified. The Company is exercising the strictest discipline on cost control and reduction. This gives the Board confidence in the Group's ability to withstand the current situation and to be ready to capitalise on the re-opening of the live entertainment sector."

Annual Report and Accounts

The Company will shortly be posting its Annual Report and Accounts for the year ended 31 December 2019 to shareholders. A copy of the Annual Report and Accounts will be available from the Company's website at www.r4e.com.

For information, please contact:

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.

About r4e

reach4entertainment enterprises plc ("r4e") operates a collection of theatrical, film and live entertainment marketing, PR, advertising and display agencies, across the world. The Company uses its extensive experience in the live entertainments space to create value through investing in innovative and established agencies that provide communications services to a range of clients involved with theatre, film, concerts and more. For further information on r4e, you are invited to visit the Company's website at www.r4e.com. 

Operational Review

2019 was a year of considerable progress for r4e with strong revenue and profit growth. This reflected the successful turnaround strategy with the diversification of the Company into new areas of live entertainment. The Group's agencies expanded their respective client bases, benefitting from 34 direct cross-sells, and were responsible for marketing many of the year's standout productions and live events.

The Group achieved a very strong end to 2019 and the positive momentum continued post-period, with like-for-like sales up 31.6% on the prior year for the two months ending 29 February 2020. This commercial progress, and the strict focus on profitability and diversification of the business over the last two years, has significantly strengthened the Group's ability to withstand unforeseen downturn/crises, such as Covid-19 and the temporary closure of live venues on Broadway and London's West End.

London

Dewynters

Dewynters maintained its market leading position during the year by working on 50 projects and winning a series of significant new shows, including Joseph and the Amazing Technicolor Dreamcoat, & Juliet, Dear Evan Hansen, and Jesus Christ Superstar. This resulted in strong revenue growth, up 14% to £32.4m (2018: £28.3m), and a very productive final quarter which continued into 2020. This more than offset a slightly slower first half when six big-name London theatre shows closed at the end of 2018 and beginning of 2019.

Dewynters also worked on high-profile immersive theatre experiences and live entertainment shows. This included Mamma Mia the Party - London's first mass market immersive theatre production - which opened at the O2; the Tutankhamun blockbuster exhibition, organised by IMG; and Winter Wonderland, where the agency continued its partnership with London's biggest Christmas attraction. Dewynters continues to lead the industry in the creation of content for social media and building social communities. We are investing to ensure it remains at the forefront of the digital marketing world.

Dewynters entered 2020 with a very strong roster of upcoming shows including Moulin Rouge!, Hairspray and Disney's smash hit, Frozen, which are set to open in 2020/2021 as soon as theatres re-open.

Newman Displays

Newman Displays continued to dominate the theatre installation market, growing revenue by 20% to £4.4m (2018: £3.6m), generating adjusted EBITDA of £0.49m (2018: £0.24m) and operating profit of £0.31m (2018: £0.17m). The agency fitted displays for most West End theatre productions - amounting to 113 in total - including Les Misérables, the Lion King and Hamilton, as well as for live events such as the Olivier Awards.

The agency also worked on many of the year's most high-profile TV and cinema releases, including Game of Thrones, Toy Story 4 and Once Upon A Time in Hollywood. The emergence of streaming platforms such as Netflix, Amazon Prime, Apple TV+ and Disney+ has led to increased demand for press launches and premieres as well as experiential, press and publicity campaigns. By focusing on streamlining production, the installations team has been able to capitalise on this demand by offering clients an even faster turnaround of high-quality displays for their events. This momentum has continued post period with one of the agency's biggest streaming premiere events to date: Picard for Amazon Prime.

Sold Out

We acquired 100% of the issued share capital of Agency Press Limited (trading as "Sold Out") in March 2019. Since joining r4e, Sold Out has made a significant contribution and performed ahead of management's expectations with revenue of £25.4m for the nine-month period. The agency maintained its strong position in the live music industry and further developed its digital advertising segment, a key growth area. This enabled Sold Out to retain its loyal client base and benefit from personal recommendations to win new clients. In addition, Sold Out has benefited from utilising the services of other agencies within the Group to enhance its statistical reporting ability for clients. The company expects to achieve further cost savings in 2020 as a result of Group-wide efficiencies.

Other - London

Wake The Bear, Story House and Buzz 16 are all newer, fast growing agencies which form part of r4e's strategy to diversify into complementary businesses across marketing, communications and live entertainment. Wake The Bear and Story House collectively generated revenue of £4.0m, adjusted EBITDA of £112k and operating profit of £110k in 2019.

Wake The Bear

In its first full year of operations, Wake The Bear increased its client roster from four in 2018 to 12 in 2019, including Harveys Furniture and Simba Sleep. This enabled the agency to return a modest profit and afford key hires with the experience and expertise to grow the business. Post period Wake The Bear has already won two new clients in the fintech and publishing sectors.

Story House

Story House is a public relations agency for the theatre and live entertainment industries, operating in the UK and internationally. The business returned a profit in its first full year of operations in 2019 and has already repaid the investment provided by r4e in the start-up phase.

Buzz 16 Productions (Joint Venture)

In January 2019, the Group acquired a 50% interest in Buzz 16 which creates both short and long form sports orientated content. The acquisition performed in line with expectations in the year.

New York

SpotCo

In 2019, it was pleasing to see SpotCo begin to bear the fruits of management's turnaround strategy. By implementing a data-driven approach to decision-making and marketing, the agency was able to reduce costs, improve client service and enhance new business development. This led to significant growth, winning 20 new shows during the year, including The Music Man and A Christmas Carol. SpotCo worked on a total of 43 shows in 2019, including Hadestown, which won 8 Tony Awards, including Best Musical; The Ferryman, which won the Tony Award for Best Play; and Mean Girls, which recouped its initial investment and announced a West End production in January. The agency's clients amassed 16 awards at the 2019 Tony Awards and 74 nominations in total.

SpotCo also progressed its non-theatre activities by working on the marketing for Audible Theater (an Amazon company), and on the partnerships outreach and execution strategy for the Museum of Broadway. It was a highly successful year for the agency with revenue increasing by 56.2% to £68.7m (2018: £44.0m) and profits accelerating materially to £1.3m (2018: £0.1m). SpotCo entered 2020 strongly with the launch of several new shows including MJ.

Hamburg and Amsterdam

Following management's strategic review to improve client service and unlock efficiencies across the Group, the Board took the decision to close Dewynters Germany in early June 2019. This has enabled r4e to service the German market from Dewynters London and drive greater profitability. Subsequent to year end, the investment in Dewynters Amsterdam has been impaired. The impact of Covid-19 has led to uncertainty around the long-term viability of the business. This impairment will have no effect on the Consolidated Income Statement of the Group, only on the parent company.

Financial Review

2019 was a year of excellent progress with strong revenue and profit growth for r4e, reflecting the continued success of the turnaround strategy and the diversification of the Company into new areas of live entertainment. The Company's agencies successfully expanded their respective client bases, benefitting from 34 direct cross-sells, and were responsible for marketing many of the year's standout productions and live events.

Total revenues increased 76.5% to £135.4m (2018: £76.7m). Sold Out acquired in March 2019 contributed £25.4m or 33.1% of this growth with the remaining being generated across the rest of r4e's operating companies and geographies. Stripping out gross media revenue, a pass through of cost plus a small margin, net revenue increased by 35.7% to £41.8m (2018: £30.9m) with Sold Out accounting for 20.0% and £6.2m of the increase.

Fundraise and acquisitions  

In March 2019, the Group successfully raised £3m in a placing with new and existing investors to fund the acquisition of Agency Press Limited (trading as "Sold Out") in a placing with new and existing investors. This included the Group's CEO Marc Boyan, through Miroma R4E Holdings Limited as well as Paul Summers and James Charrington, who are both directors of subsidiary companies of r4e. There was also support from a number of institutional investors.

The acquisition was for an initial consideration of £3.94m payable in cash and £250,000 payable in 20,833,333 Ordinary Shares (the "Initial Consideration"), and a deferred cash consideration based on the financial performance of Sold Out during the period commencing on 1 June 2017 to 31 December 2021, excluding working capital adjustments (the "Deferred Consideration"). The aggregate of the Initial Consideration and the Deferred Consideration is to be capped at £10m.  

Segmental analysis

Year ended 31 December 2019

1 Acquired 21 March 2019

Year ended 31 December 2018

*Adjusted EBITDA is before exceptional items, investment impairment 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.

Revenue & Performance

Under IFRS 15 (Revenue from contracts with customers) the Company recognises revenue on the basis that we act as principal, however, management also perform their internal analysis of performance on revenues net of media costs as these revenues are largely pass through with only a small margin retained. A comparative of billings & revenue for the year as performed by management is as follows:

Gross profit increased by 44.3% to £27.8m (2017: £19.28m) on a 35.7% increase in net revenues. Gross profit margin on a net revenue basis has increased by 4.0 percentage points from 62.5% to 66.5% reflecting the Group's focus on higher margin business. Management also include the analysis of net margin in their KPIs as discussed below.

For the year ended 31 December 2019, the Group has seen an improving trend following the restructuring taken at the end of 2017 and subsequent cost savings and growth initiatives. The improvement on 2018 is somewhat hidden due to the implementation of IFRS 16 from 1 January 2019. A reconciliation between core business performance; contribution from new acquisition Sold Out, and additional IFRS 16 adjustments, is included in the notes to the accounts on page 43 of the Group's Annual Report and Accounts to be published shortly. This reconciliation shows core business performance in 2019 (excluding IFRS 16 and Sold Out) compared to prior year as follows:

· Adjusted EBITDA up £0.65m and 34.4%

· EBITDA before exceptional items and impairment up £0.62m and 44.4%

· Operating profit up £0.16m and 27.6%

In addition to the growth from the underlying core businesses, Sold Out contributed £25.4m to revenues and £0.76m to operating profit, 39% of total group operating profit, for the 9-month period since acquisition.

Debt Financing

The amount owing to debt provider PNC reduced compared to the prior year, to £2.1m (2018: £3.5m), a result of timings of drawdowns of the revolving facility. There has been no breach of covenants during the year.

In March 2019, as part of the approval process for the acquisition of Sold Out and the Buzz 16 joint venture, the Company agreed to an amendment of the facility which included an increase on the borrowing rates of 0.5% per annum.

The initial 3-year term of the facility expired on 3 December 2018, and the facility has automatically continued in place indefinitely on a rolling basis. Either party can give at least six months' notice to end the agreement. The Group believes that the relationship with PNC is good, and they remain supportive of the Company during the Covid-19 pandemic.

Market

The Group's market has predominantly been 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. In 2018 and 2019 the Group has begun to diversify into new territories, and beyond theatre. The acquisition of Sold Out broadened the Group's live entertainment market with clients such as SJM Concerts, AEG Presents, Live Nation and Cirque Du Soleil amongst many others. Wake The Bear, incorporated in 2018, is a marketing communications agency designed to partner with start-up businesses from any industry, clients added to its roster in 2019 include Simba Sleep and Harvey Furniture. The group has already benefited from cross-collaboration between companies.

London

Previously comprising of Dewynters and Newman, Wake The Bear and Story House were added in 2018 and showed excellent progress in 2019. The addition of Sold Out in the year has also pushed growth of the Group's market share of live entertainment marketing agencies.

Dewynters had a number of large musicals close at the end of 2018/beginning of 2019 which were not replaced until later in the year. However, the company maintained its market leading position by working on 50 projects during the year and winning a series of significant new shows, including Joseph and the Amazing Technicolour Dreamcoat, & Juliet, Dear Evan Hansen, and Jesus Christ Superstar. This was reflected in the revenue growth of £4.1m (14.4%). Net revenues were slightly down by £0.58m or 4.7%, reflecting the increase in media activity during the period with gross profit % also being down from 29.7% to 26.3%. However gross profit as a % of net revenues was up from 68% to 73% showing the strength in the margin from the work that was performed. EBITDA dropped as a result of the gross margin reduction, down £0.30m or 13.2%, but with the company winning "BIG", "White Christmas", and "Mama Mia! The Party" at the O2, Q4 2019 was picking up and along with the successful wins "Moulin Rouge!" and Disney's "Frozen" looking to open in 2020, the company was expected to grow profitability in 2020. £0.09m of a small investment made in the year was cautiously written off as returns look unlikely to be collected. The venue closure from Covid-19 has obviously stalled the company, but these shows are still planning to open once the market environment stabilises and Dewynters is ready to immediately support its clients' needs.

Newman Displays had a very strong year benefitting from the large turnover of new shows in the West End which has led to new front of house displays being needed. The agency fitted displays for the vast majority of West End theatre productions - amounting to 113 in total - such as Les Misérables, the Lion King and Hamilton, as well as for live events such as the Olivier Awards. It also continued to be involved with the majority of film premieres and publicity campaigns in London as well as junket and premiere work for Netflix, Amazon and Apple +. The volume of work resulted in revenue increase of 20.2% or £0.73m with the mix of work pushing EBITDA to an increase of 62.3% from £0.23m to £0.37m (pre IFRS 16). This momentum continued post period with one of the agency's biggest streaming premiere events to date: Picard for Amazon Prime.

Sold Out - a new addition to the Group, r4e acquired 100% of the issued share capital in March 2019. Since joining the Group, Sold Out has made a significant contribution and performed ahead of management's expectations with revenue of £25.4m for the nine-month period and £1.25m EBITDA. The agency maintained its strong position in the live music industry and further developed its digital advertising segment, a key growth area. This enabled Sold Out to retain its loyal client base while also benefiting from personal recommendations to gain further clients. In addition, Sold Out has benefited from being able to utilise the services of other agencies within the Group to enhance its statistical reporting ability to clients, and expects to achieve further cost savings as a result of Group-wide efficiencies.

Wake The Bear and Story House still remain smaller contributors to the Group as a whole but individually had a very successful year in 2019. Wake The Bear in only its first full year of operations, contributed £3.7m to the Group's revenues and made a profit after tax. Story House likewise, was profitable and both agencies open up other opportunities across the Group.

New York

SpotCo's management team continued to build on its successful pitch wins in Q4 2018 with continued success through 2019 with 20 new shows being won in the year including K-Pop, The Music Man and Tootise. SpotCo's clients also amassed 16 awards at the 2019 Tony Awards, which also included 74 nominations in total. This success pushed revenues to $87.73m (2018: $58.5m) an increase of 50.0%, and net revenues increased to $24.3m from $19.0m. Gross profit as a % of revenue dropped from 20.7% to 17.9% due to the high volume of media work, evident in the fact that gross profit as a % of net revenues increased from 63.9% to 64.6%. Due to the focus on overhead reduction in 2018, pre IFRS 16 EBITDA of $1.95m (2018: $0.65m) was 2.2% of gross revenue and 8% of net revenues (2018: 1.1% and 3.7% respectively). SpotCo has continued this momentum of winning new work with recent success winning 2 new shows during the Covid-19 closure which are due to open when the theatres return.

Other Performance Highlights

Discontinued operations

On 7 June 2019, the Group announced its decision to close Dewynters Germany as part of a restructuring process to improve efficiencies and drive profitability. The Consolidated Income Statement include the results of Dewynters Germany in 2019 and 2018 as discontinued operations.

IFRS 16 'Leases'

More detail on the effect of IFRS 16 'Leases' is given in the notes to the accounts of the Group's Annual Report and Accounts to be published shortly. The modified retrospective approach has been taken meaning 2018 has not been adjusted. This means that in 2019 EBITDA has increased by £1.5m, depreciation has increased by £1.5m and finance costs have increased by £0.4m.

Capital Reduction

In light of the significant improvement in the operational and financial performance of the Group, the Board proposed in 2019 to undertake a capital reduction and create distributable reserves which would enable the payment of dividends in the future, subject to the continuing satisfactory financial performance of the Group.

A final hearing of the High Court of Justice in July 2019 approved r4e's order to confirm a reduction of the issued share capital of the Company and cancellation of the Company's share premium account and capital redemption reserve. This involved the cancellation of the 74,894,792 deferred shares with a nominal value of £0.02 each and a reduction in the nominal value of the ordinary shares from £0.005 each to £0.001 each.

Finance Costs

Finance costs for the year amount to £0.8m (2018: £0.3m), and primarily comprise of £ 0.4m interest on right-of-use liabilities (IFRS 16, 2018: Nil) plus interest and fees on PNC debt of £0.39m (2018: £0.25m). The increase in interest and fees to PNC being a result of fees on amendments to the facility plus a higher interest rate being charged from the end of March 2019.

Tax

A tax charge in the year of £0.44 million was offset by a £0.14 million deferred tax credit.

Cash Flow

Cash inflow from operating activities in the year was £4.0m (2018: £2.3m outflow) as a result of the profitability of the Group plus consistent levels of working capital. Trade receivables and trade payables had significant movements (£8.8m outflow and £8.5m inflow respectively) primarily due to the acquisition of Sold Out during the year, which increased the base level of receivables and payables. The increase to both trade receivables and trade payables offsets. Investing activities resulted in cash outflow of £4.42m, £3.7m of this being payments related to the Sold Out acquisition, £0.32m related to acquisition of joint venture Buzz 16 and £0.15m into an investment which saw income of £0.5m in the year. As part of its investing activities, property plant and equipment expenditure was £0.34m (2018: £0.07m).

Financing activity cash flow includes an outflow of £1.3m due to the lower debt balance with PNC asset based lending facility at year end, therefore shown as a 'repayment'. An outflow of £1.69m is in relation to lease payments (2018: Nil), this inclusion being due to the implementation of IFRS 16 in 2019, and represents payments made against leases in the year. In prior year 2018 these would have been included as cash outflows from operating activities. Offsetting these outflows are proceeds from the issue of share capital arising from the placing to fund the Sold Out acquisition totalled £2.9m.

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.

Covid-19 Update and Outlook

The significant number of new business wins in Q4 2019 enabled the Group to enter 2020 with strong commercial momentum and a healthy pipeline of new clients and productions.

Inevitably, the Covid-19 outbreak - and the consequent closure of live venues on Broadway and London's West End - has resulted in a significant reduction in advertising and marketing spend. No one knows with certainty when venues will be able to reopen and the impact of social distancing measures. However, the Group anticipates that when live venues finally reopen - at whatever capacity - the requirement to market shows should ensure that r4e quickly returns to previous levels of trading. It is too early to predict the resumption of normal trading and therefore too early to forecast the extent to which Covid-19 will impact the Group's financial performance. The impact of the pandemic will inevitably result in a material reduction to market expectations for the full year 2020.

As part of the Group's drive for operational efficiency, through virtualised applications and storage on the cloud, r4e has enabled secure remote working with no material reduction in the Company's delivery capability for clients. In order to mitigate the impact of Covid-19, management responded rapidly to manage the Group's working capital position and to ensure liquidity. Several measures were promptly implemented which have enabled r4e to reduce its monthly running costs by 50% to generate annualised savings of approximately £12m. As of 31 May 2020, the Group had adjusted net cash (before IFRS 16 right of use liabilities and deferred consideration) of £12.0m.

The Board is immensely proud of the response of the Company's employees in the face of the current situation. As part of the turnaround programme over the past two years, the Company has seen a disciplined focus on profitability and diversification of the business. Considered together with the action taken to ensure liquidity, the Board is confident that r4e will be able to withstand the impact of Covid-19. That being said, the Directors have concluded that although the Company remains a Going Concern for the foreseeable future, the unknown future impact of Covid-19 represents a material uncertainty that may cast significant doubt on the Group's ability to continue as a Going Concern beyond the current forecasts which cover the period to 31 August 2021.

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2019

CONSOLIDATED STATEMENT OF TOTAL COMPREHENSIVE INCOME

For the year ended 31 December 2019

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2019

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2019

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2019

reconciliation of net debt 2019

*Adjusted net debt is before IFRS 16 finance leases and deferred consideration

reconciliation of net debt 2018

BASIS OF PRESENTATION

Reach4entertainment enterprises plc is a public limited company incorporated and domiciled in England and Wales under the Companies Act 2006. The address of its principal place of business and registered office is Wellington House, 125 Strand, London WC2R 0AP and the Company's registered number is 2725009. The principal activities of the Group are the provision of 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.

The preliminary financial information does not constitute full accounts within the meaning of section 434 of the Companies Act 2006 but is derived from accounts for the years ended 31 December 2019 and 31 December 2018, both of which are audited. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.

The statutory accounts for the year ended 31 December 2019 will be delivered to the Registrar of Companies. Statutory accounts for the year ended 31 December 2018 have been filed with the Registrar of Companies. The auditor's report for the year ended 31 December 2019 was unqualified, dd not contain a statement under section 498(2) or section 498(3) of the Companies Act 2006 and drew attention to a material uncertainty related to going concern as reproduced below:

We draw attention to the Going Concern note in the financial statements, which indicates that the company may be adversely affected by the growing impact of the Covid-19 (Coronavirus) outbreak. Whilst the directors are taking action to mitigate the impact, given the unpredictable nature and impact of the outbreak and how extensive and prolonged the effects will be, the directors are unable to predict the full extent of the impact with regards to the going concern basis of accounting and its related disclosures. As stated in the Going Concern note these events or conditions, along with the other matters as set forth in the note, indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

The auditor's report for the year ended 31 December 2018 was unqualified, did not include a reference to any matter to which the auditor drew attention by way of emphasis and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

A copy of this preliminary statement will be available to download on the Group's website www.r4e.com.

GOING CONCERN

As at 31 December 2019 the Group had net assets of £14.7million, pre IFRS 16 £13.8 million, (2018: net assets £9.4 million) and made an operating profit in the year then ended of £1.9 million (2018: profit of £0.6million).

At 31 December 2019, the Group's debt balance with its asset-based lending facility with PNC Business Credit Services Ltd (PNC) was £2.14 million and the Group had cash at bank of £5.10 million. As at 31 May 2020 the debt balance was zero and cash at bank was £12.0 million. The debt has reduced due to the natural functionality of the facility as there have been fewer invoices to draw against in 2020 than receipts in from client which repays the debt. PNC remain supportive and have agreed to waive the covenant measurements from April 2020 until further notice. The initial 3-year term of the facility expired in December 2018, and the facility has automatically continued in place and will do so indefinitely unless either party gives at least six months' notice.

In these uncertain times it is it is difficult to predict the overall outcome and impact of Covid-19 on the business but the effect on revenues to date has been significant. The Group acted quickly to implement a number of cost saving measures, and deferrals have been taken up where permissible for Rent, VAT, PAYE and NI. Personnel bonuses in relation to 2019 have also been deferred where payment had not already been made prior to April 2020. The strength of 2019, in addition to the cost saving initiatives put in place immediately after Covid-19 venue closure, has put the Group in a strong position and the Directors have prepared financial forecasts which shows the Group can continue to trade for the foreseeable future, this is inclusive of the first deferred consideration payment of £0.6 million being made to the seller of Sold Out. The current projections assume theatres and live events will begin to re-open in January 2021 with revenue increasing from October 2020 onwards. The directors have also assessed the impact if venue re-opening does not occur until later in 2021 and further cost saving measures were not made. At the time of approving these financial statements it is unclear when, and in what form, theatres and live events will re-open and therefore how long the groups revenues will be impacted by the current pandemic. Under certain of these scenarios the Group could have insufficient liquidity, however the Directors, at the date of this report, are still reviewing additional options available to the group to mitigate the impact of a longer closure on cash flows and liquidity. These include i) additional reductions in overheads, ii) the potential for the group to access additional forms of debt, iii) further negotiations with landlords in deferral of rent, and iv) other strategies available to the Group to protect it's Going Concern position.

The Directors have concluded that although the Company remains a Going Concern for the foreseeable future, the unknown future impact of Covid-19 represents a material uncertainty that may cast significant doubt on the Group's ability to continue as a Going Concern beyond the current forecasts which cover the period to 31 August 2021.

DEVELOPMENTS IN ACCOUNTING STANDARDS / IFRS:

· New and amended standards effective and adopted by the Group during the year beginning 1 January 2019:

· IAS 28 Investments in Associates and Joint Ventures - Amendments resulting from May 2008 Annual Improvements to IFRSs. Periods commencing on or after 1 January 2019.

· 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 for which the underlying lease is £5,000 or less.

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 discount rate used to calculate the lease liabilities is 4.5% on property and 3.0% on plant and machinery. The impact of the standard in the period to 31 December 2019, compared to the results if the standard had not been recognised, is that Adjusted EBITDA/EBITDA have increased by £1.52 million due to the elimination of rent costs. Conversely, operating profit in the period has increased by £0.01 million due to increased depreciation charges. Profit before tax has been impacted by a £0.39 million interest charges on the lease liabilities however in later years it is expected that profit before tax will increase when compared to if the standard had not been adopted. As a result of deferred tax a credit of £0.2 million has been recognised. The overall impact on profit after tax is an increase of £0.3 million.

At 31 December 2019 non-current assets have increased by £8.2 million as a result of the additional right-of-use assets. Total liabilities have increased by £8.4 million due to the addition of finance lease liabilities, but this is offset by £1.0 million as liabilities previously recognised under SIC 15 as operating lease incentives have been transferred to retained earnings. Total net asset effect is an increase of £0.9 million.

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

IFRS 16 impact on reported Consolidated Income Statement

*Sold Out results shown before effect of intergroup recharges

1 Elimination of rent costs previously recognised as operating leases

2 Depreciation charged on right-of-use assets

3 Interest unwinding on lease liabilities

4 Deferred tax effect