Half-year Report

20 September 2017

reach4entertainment enterprises plc ('r4e', 'the Company' or 'the Group')

Unaudited interim results for the six months ended 30 June 2017

r4e, the transatlantic media and entertainment Company, today announces its unaudited interim results for the six months ended 30 June 2017.

Highlights

1 Adjusted EBITDA is stated before exceptional items and share based payment charges

· PNC borrowing reduced by a further £1.564 million since 30 June 2016 with the outstanding term debt balance of £0.55 million repaid in July 2017;

· the new start up agency, Dewynters Germany, set up using proceeds from the fund raise in 2016, has had a very strong start with some positive contract wins resulting in a break-even performance in its first 9 months;

· against the prior period, Dewynters has produced a stronger adjusted EBITDA performance on a reduced turnover (2.2% increase versus 1.8% in prior period);

· SpotCo affected by a reduction in activity across its client base, increased competition and critically it has been involved in fewer new production launches;

· second half of current financial year expected to be satisfactory, but 2018 forecasts already looking like a return to form from the key companies with support from the new initiatives of Dewynters Germany and Jampot.

David Stoller, Executive Chairman, commented:

"The launch of new theatre productions is a key driver of profitability for the Group and historically has varied year to year. Whilst we are seeing fewer such launches this year, which has impacted upon our trading performance, there is a good pipeline of new shows for 2018.

We have significantly reduced group borrowings further enhancing the Group's financial base, and have seen our new venture Dewynters Germany complete a better than expected first year, aided by important new client wins.

Our strategy remains focused on providing unmatched service to the world's leading entertainment companies from our operations in London, New Yok and Hamburg, the three largest live entertainment centres globally, and advancing our core strategies focussed on increasing digitalisation of our services, development of our data and analytics business, and expansion into new geographies and non-theatre live entertainment business."

Enquiries:

EXECUTIVE CHAIRMAN'S STATEMENT

Introduction

r4e has had a relatively modest first six months compared to the same period in 2016 which was a very strong year, but the group has made good progress in building a strong pipeline of new business for 2018. The trading performance for the first six months of 2017 reflects this with revenues generated of £41.9 million (period ending 30 June 2016: £49.0 million), EBITDA of £0.4 million (period ending 30 June 2016: £1.6 million) and operating loss of £(0.1 million) (period ending 30 June 2016: £1.0 million).

In 2017 the Group has been involved in fewer launches of new theatre productions, particularly in the US, which is a key driver of profitability. This is mainly due to new industry competition in New York; shortage of theatres for new musical openings in London; and the effect of recent terrorist attacks in 2017 in the UK in on film premieres and events. However, r4e continues to be a leader in this sector across the three markets in which it operates, has a solid base of 2018 business expected, and has made good progress in pursuing its strategic objectives, focussing particularly on geographic expansion (like Hamburg), development of opportunities outside of its traditional theatre business, (Dewynters Vision) and building its data driven marketing and analytics business (through Jampot).

Dewynters Germany, launched in 2016, has had an excellent first year and has expanded the Company geographically into the world's third largest live entertainment market. In March 2016, the Company acquired Jampot, a data driven marketing and analytics business, which is now providing a significantly enhanced digital capability across each of the Company's agencies. Finally, in the last year the Group has seen significantly increased collaboration between our three offices with a focus on supporting individual shows in all three markets.

As previously announced, I will be stepping down from the Board on 30 Sept 2017, although I will remain involved with the Company as Chairman of SpotCo. I would like to thank everyone I have worked with over the last 7 years for their help and support. I leave with a great optimism for the future, with important financial and strategic building blocks in place.

The Company expects to make an announcement regarding the appointment of a new CEO shortly.

Trading performance

The results for the 6 months ended 30 June 2017 show the following:

1 Adjusted EBITDA is EBITDA before exceptional items and share based payment costs

Reflecting a more challenging trading period, the Group generated revenues of £41.9 million, 14.5% below the prior year which led to the Group recording an adjusted EBITDA of £0.43 million compared to £1.60 million in same period last year. The EBITDA margin was lower primarily due to the change in the mix of revenues which included less income from the launch of new theatre productions.

Dewynters in London has produced a solid first-half performance, increasing its contribution at the EBITDA level over last year, and Dewynters Germany had a strong first year; the main change in trading has resulted from a more modest performance of SpotCo in New York, as compared with a very strong 2016. This was the result of significant reduction in activity across SpotCo' s client base and fewer new shows. In addition, Newmans experienced a more challenging trading environment during the first half of the year.

The Company recorded a loss before tax of £0.28 million (H1 2016 profit before tax: £0.834 million). This led to the Company recording a loss per share of 0.053p, compared to earnings per share of 0.07p from the prior period last year.

In July 2017, the Group agreed a variation of the covenants on its 3-year secured asset based debt facility with PNC Business Credit ('PNC') to reflect the shift in the weighting of the Group's revenues in 2016 and 2017 which affected the 12-month rolling covenant test. The Company has met all the covenants to date in 2017 but a more recent shift in revenues towards the end of the year and into 2018 may result in a potential breach of the monitoring covenants in the third quarter; however, the Company does expect to still be comfortably within the banking covenants for the full year. The Company and PNC are monitoring the position carefully and remain in close correspondence, but the Directors of the Company understand that PNC remains supportive of r4e.

In addition to the July covenant amendments, the Company has been able to repay its Cash Flow Term Debt facility with PNC of £0.55 million. The repayment will result in reduced interest costs in 2017. Total borrowings with PNC as at 30 June 2017 were £2.79 million (31 December 2016: £4.36 million).

Operational review

Continuing Operations

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

SpotCo has had a modest first six months in 2017, particularly compared to the exceptionally strong performance it enjoyed in the prior year. Trading in 2017 has been affected by a reduction in activity across its client base, increased competition and fewer new production launches. However, the outlook in 2018 for SpotCo is much improved, the agency has already been engaged in some of Broadway's most anticipated new shows, and the management team expects to see a return to previous trading levels.

Dewynters has had a good trading period, increasing its contribution to the Group and successfully supporting the launch of new shows such as Bat Out of Hell and Annie. The business has benefitted from the re-organisation completed in 2016, driven by Dewynters' new CEO, James Charrington, and the broad effort to change the way theatre and live entertainment events are marketed, combining digital marketing, programmatic media buying, data-driven analysis and digital distribution of select services all designed to leverage Dewynters' capabilities, and enable our clients to build their audience while selling more tickets at a higher yield and lower cost.

Launched in September 2016, Dewynters Germany has had a very good first year, surpassing expectations and offering a good indication of the future potential of this new venture. Hamburg is an active market and is already linking well with SpotCo and Dewynters in London, drawing upon Company wide experience and resources.

Newmans' performance in the first 6 months of this financial year was affected by the cancellation of live events in the wake of the Manchester and London terror incidents and more generally from a fewer number of new theatre shows opening. That said, the second half of the year has begun positively and the division is expected to make up ground to achieve a satisfactory result for the year as a whole. The division continues to benefit from bringing printing and cutting in-house and enjoys a good mix of business from live events, theatre production and film premieres.

Summary and Outlook

Whilst 2017 is proving to be a more challenging period for the business, for reasons indicated above, the base business is strong and we are anticipating a significant improvement in all activity levels for 2018 with a strengthened financial base and a continuing growth from the key strategic initiatives launched over the last year.

David Stoller, Executive Chairman

reach4entertainment enterprises plc

20 September 2017

Unaudited Condensed Consolidated Income Statement

For the six months ended 30 June 2017

Unaudited Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2017

Unaudited Condensed Consolidated Balance Sheet

As at 30 June 2017

Unaudited Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2017

Unaudited Condensed Consolidated Statement of Cash Flows

For the six months ended 30 June 2017

Unaudited notes to the Condensed Consolidated Interim Financial Statements

For the six months ended 30 June 2017

1 Basis of Presentation

These unaudited condensed consolidated interim financial statements are for the six months ended 30 June 2017. 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 2015, 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 20 September 2017.

The comparative financial information for the year ended 31 December 2016 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 2016 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 but contained an emphasis of matter statement with regard to going concern. 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 2017 and 30 June 2016 is unaudited.

Accounting Policies

The accounting policies adopted in the preparation of the 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 2016, with exception of standards, amendments and interpretations effective in 2016.

Standards, amendments and interpretations effective in 2017

The following IFRS/IAS are either new, amended or have interpretations mandatory for the first time for the financial year beginning 1 January 2017, but had no significant impact on the Group:

· IFRS 12 - Disclosure of Interests in Other Entities.

· IAS 7 - Statement of Cash Flows.

· IAS 12 - Income Taxes.

The following IFRS/IAS are either new, amended or interpretations have been issued, but are not effective for the financial year beginning 1 January 2017 and have not been early adopted:

· IFRS 2 - Classification and measurement on share based payment transactions.

· IFRS 9 - Financial Instruments.

· IFRS 15 - Revenue from Contracts with Customers.

· IFRS 16 - Leases

· IAS 28 - Interests in Associates and Joint Ventures.

· IFRIC 23 - Uncertainty over Income Tax Treatments

Going Concern

These interim condensed consolidated financial statements have been prepared on a going concern basis.

During 2015 the Group obtained a new three year secured asset based debt facility of £9.5 million with PNC Business Credit Services Ltd being made up of a £1 million term loan and a revolving credit facility of up to £8.5 million based on qualifying accounts receivable. As at 31 June 2017 the debt owed to PNC totalled £2.79 million (2016: £3.75 million), a reduction of £.96 million. Subsequent to 30 June 2017, the balance of the term debt being £0.55 million, has been repaid in full, leaving only the revolving credit (asset based facility) with PNC remaining.

The asset based lending facility is a revolving credit line based upon qualifying accounts receivable. This means current debt is constantly being paid down and new debt being drawn. The facility will therefore fluctuate but will be no more than £8.5 million at any point. A new set of financial covenants were agreed with PNC in relation to this debt on 20 July 2017. The financial covenants are measured monthly and there have been no breaches in the 7 months through to 30 July 2017 but the weaker trading performance in the current financial year and in particular the shift in revenues towards the end of the year and into 2018 may result in a potential breach of the monitoring covenants in the third quarter this year. However, the Company does expect to be comfortably within the banking covenants for the full year. The Company and PNC are monitoring the position carefully and remain in close correspondence, but the Directors of the Company understand that PNC remains supportive of r4e.

The performance for the full year 2017 is forecast to be weaker than 2016 due to: new industry competition in New York; shortage of theatres for new musical openings in London; and the effect of recent terrorist attacks in 2017 in the UK in on film premieres and events. Although these events have impacted the Group in 2017, the outlook for 2018 is already expected to be more positive due to significant new musical wins in SpotCo which will generate revenue next year and stronger looking pipeline for both Dewynters and Newman's. In addition, Dewynters Germany has had a very strong start to its first year of operation and this is expected to continue.

Given the significant reduction in the debt levels of the group since the re-financing in 2015, plus the improvement to the balance sheet position and forecast for 2018 onwards, the Directors believe that the going concern basis is appropriate and the Group has adequate resources to continuing trading for the foreseeable future.

2 Finance Costs

3 (Loss)/earnings Per Share

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

4 Goodwill

In the prior period ending 30 June 2016, an impairment of £0.55m related to the purchase of Jampot Consulting Ltd. On 4 March 2016, it was announced that James Charrington had been appointed as CEO of Dewynters. In 2014, Mr Charrington had set up Jampot Consulting Limited ("Jampot") an Arts Marketing Consultancy, working with, amongst others, the National Theatre and Sonia Friedman on ticketing and marketing strategies. On 21 March 2016, the Company acquired 100% of Jampot for consideration totalling £55,000 by the issue of 3,666,666 ordinary shares in r4e at 1.5p per share.

The Board of r4e believes the IP in digital marketing that Jampot can bring will be beneficial to the Group and add to its service offering. As this benefit is related to the group as a whole and future revenues cannot be specifically allocated to the acquired company, the goodwill in Jampot has been written off.

A review has been undertaken at 30 June 2017 and has not identified any further need for impairment. The directors believe that at the current time no reasonably possible change in assumptions will cause an impairment in the intangible assets.

5 Borrowings

Term debt

When drawn down, the term debt with PNC was split between SpotCo and Dewynters based on expected future cash flows of the Companies and has interest payable at 4% over Barclays Bank plc. base rate (Dewynters) and the rate published by the central bank or monetary authority of the relevant territory (SpotCo). Repayments are in equal monthly instalments and were due to end in October 2018. £0.24 million was repaid in the period (30 June 2016: £0.03m).

Subsequent to the period end, on 20 July 2017, the Group repaid the remaining balance of the term debt of £0.55 million. 

Asset based lending

All 3 trading companies, SpotCo, Dewynters and Newmans, hold asset based lending facilities with PNC. Borrowing is determined by qualifying accounts receivable. The nature of the facility means that the balance will fluctuate from month to month and as the debt is paid down, new debt will arise to finance working capital, therefore the facility has been reflected as a current liability as it will be constantly revolving. Another effect of the facility is that cash balances across the group will be lower as cash drawdown incurs a higher rate of interest therefore cash will only be drawn down as required rather than being held on hand.

The facility with PNC has interest payable at 2.25% over Barclays Bank plc. base rate for amounts borrowed. Borrowings not utilised have interest payable at 0.5%. On top of a fixed and floating charge over its assets, the Group has given PNC an unlimited guarantee in respect of these borrowings. The Group has a set of financial covenants with PNC in relation to the loan which are measured monthly and were met in full as at 30 June 2017 and also at the most recent measurement date of 31 July 2017. Along with the term debt repayment in July 2017, the Company also agreed a variation of the financial covenants in place with PNC to reflect the shift in the weighting of the Group's revenues in 2016 and 2017 which affected the 12-month rolling covenant test . 

6 Other payables

Landlord reimbursement accrual

Amounts in non-current other payables of £0.61 million (30 June 2016: £0.66 million) relate to the re-imbursement of leasehold improvement costs from SpotCo's landlord at the new New York office which was moved into during 2013. As with many US leases SpotCo, as tenant, had to undertake a programme of complete refurbishment of the property and some of these expenses, related to the provision of basic utilities and services, were then refunded by the landlord. In line with SIC 15 this reimbursement has been recognised as a liability and will be unwound to the income statement reducing rental costs over the period of the lease. During the 6 months period to 30 June 2017, £0.04 million was unwound and credited to the income statement (30 June 2016: £0.03 million).

Amounts in current liabilities relating to the reimbursement total £0.07 million (30 June 2016: £0.07 million).

Rent holiday accrual

Other amounts in non-current other payables of £0.56 million (30 June 2016: £0.84 million) relate to an accrual for rental payments built up during a period of 'rent holiday' as provided for in the new leases for Dewynters and SpotCo's Offices which were moved into during 2013. In line with SIC Interpretation 15 the accrual will be released to the income statement over the term of the lease reducing rent costs.

7 Share-based payments

Equity-settled share option plan

The following options to subscribe for the Company's shares have been granted to directors and eligible employees in the period and had not lapsed at 30 June 2017:

All options granted to date have an exercise price of £0.01, £0.015, or £0.02. No options were exercised or expired during the period. No options were exercisable at 30 June 2017.

The share options outstanding as at 30 June 2017 had a weighted average remaining contractual life of 4.88years (30 June 2016: 5.75 years).

The weighted average fair value of options granted during the period was 0.011p. The fair value of equity-settled share options granted is estimated as at the date of grant using a binomial model, taking account of the terms and conditions upon which the options were granted. The key assumptions used to determine the fair value during the 6 months to 30 June 2017 are as follows:

The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

During the period ended 30 June 2017, the Group recognised total share-based payment expenses of £0.21 million (30 June 2016: £0.17 million).

8 Cash flows from operating activities

9 Related Party Disclosures

Richard Ingham, a non-executive director of the Board in the prior period up until his resignation on 11 May 2016, is the owner of Glen House Capital Strategies Ltd., a company which provides financial consultancy services. During the 4 months leading up to Mr Ingham's resignation on 11 May 2016, the Group procured services from Glen House Capital Strategies Ltd. totalling £0.05 million. £0.13 million was outstanding to Glen House Capital Strategies at 30 June 2016 and was fully paid up by 31 December 2016. No services were procured from Mr Ingham or his consultancy company in the period to 30 June 2017.

During the 6 months to 30 June 2017, the Group procured consultancy services totalling £0.01 million (2016: £0.01m) from Springtime Consultants Ltd., a company owned by Marcus Yeoman, a non-executive director of the Board during the period. £Nil was outstanding at 30 June 2017 (2016: £Nil).

Lord Grade (non-executive Director of r4e) is currently a director of Gate Ventures plc, a substantial shareholder in r4e. He is also a co-founder of The GradeLinnit Company Ltd ("GradeLinnit"). Dewynters has an existing agreement in place with GL 42nd Street Limited, a subsidiary company of GradeLinnit, for the provision of marketing and media services for the West End production of 42nd Street, which launched at the Theatre Royal Drury Lane earlier this year. The fees payable to Dewynters under the agreement are on the Company's normal commercial terms and not expected to be material to the Company's annual revenue. 

10 Transactions with Directors

At 30 June 2016, David Stoller owed the Group £Nil (30 June 2016: £37,258). The outstanding amount in the prior period relates to PAYE payments, whereby following a PAYE assessment it was determined that Mr Stoller's compensation for work in the UK for the Company should be subject to PAYE (as opposed to being taxed only in the US) and therefore the Company was required to immediately pay outstanding PAYE. Mr. Stoller repaid the amounts and no balance was outstanding as at 31 December 2016.

11 Subsequent events

On 20 July 2017, the Company agreed a variation of the covenants on its 3-year secured asset based debt facility (the 'Facility') with PNC Business Credit ('PNC') to reflect the shift in the weighting of the Group's revenues in 2016 and 2017 which affected the 12-month rolling covenant test. This variation of the covenants agreement follows on from the statement made in the Company's full year results for the year ended 31 December 2016, announced on 26 April 2017, regarding potential breaches of one of the covenants given by the Company to PNC due to the unusual weighting of revenues towards the first half of 2016.

In addition, on 20 July 2017, the Company repaid its Cash Flow Term Debt facility with PNC of £0.55 million. Repayment was made from unutilised proceeds from the October 2016 share placing, which have not been required for investment into the Company's new initiatives as a result of these initiatives performing better than expected in 2017.

12 Interim Report

This document is available on the Group's website at www.r4e.com.