Preliminary results for the year to 31 Dec 2012

11 April 2013

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

Preliminary results for the year ended 31 December 2012

r4e, the transatlantic media and entertainment company, today announces its preliminary results for the year ended 31 December 2012.

Financial Highlights

¹ 2011 is for the 13 month period ended 31 December 2011

² Adjusted EBITDA is earnings before interest, tax, depreciation, amortisation and exceptional costs 

Operational Highlights 

·; Improvement of group performance compared to the 13 month period ended 31 December 2011, with an improvement of £1.6 million to Adjusted EBITDA, and an improvement of £3.6 million to profit after tax

·; Healthy performance from London operations with Adjusted EBITDA improved by £1.1 million to £1.4 million

·; New York operations delivered Adjusted EBITDA of £0.4 million

·; Increased focus on integration between New York and London operations

·; Launch of reach4events, which produces and designs events for theatre, film and arts organisations, in New York

Corporate Progress

·; Head Office operating loss reduced to £0.7 million from £1.8 million in 13 month period ending 31 December 2011; an improvement of £1.1 million

·; On 14 November 2012 agreed debt repayment schedule in relation to the Group's acquisition of SpotCo in 2008

·; On 15 November financial covenants agreed with AIB Group in respect of £14.8 million revolving credit facility

David Stoller, Executive Chairman, commented:

"There is no doubt that 2012 was a positive and productive year for r4e. Group business has been streamlined and is now focussed primarily on the core theatrical marketing businesses which are prominently positioned in the market and have strong and productive relationships.

"We entered 2013 confident of making further progress and I am pleased to report that we have made a positive start. The change in client portfolio at Dewynters and SpotCo, with a significant increase in the number of new show openings both businesses are supporting when compared to the previous year, should lead to a marked increase in revenue from both businesses.

"In addition to harnessing the strengths of our core theatre marketing businesses, our efforts to leverage this core skill-set to exploit opportunities in associated market sectors are beginning to bear fruit.

"In conclusion, the progress that has been achieved is encouraging but we believe the business is capable of much more. I am confident that we will be able to report further progress throughout 2013 and beyond."

Enquiries:

reach4entertainment enterprises plc +44 (0) 20 7993 0000

David Stoller, Executive Chairman

Shirley Stapleton, Finance Director

Blythe Weigh Communications +44 (0) 20 7138 3204

Paul Weigh +44 (0) 7989 129658

Cantor Fitzgerald Europe +44 (0) 20 7894 7000

Stewart Dickson/Tom Sheldon/Julian Erleigh (Corporate Finance)

Katie Ratner (Corporate Broking)

First Columbus

Katrina Perez/Kelly Gardiner +44 (0) 20 3002 2070

EXECUTIVE CHAIRMAN'S STATEMENT

Encouraging progress delivers a return to profit

I am very pleased to report preliminary results that highlight the significant progress that r4e has made in recent years. Despite the challenging market conditions that our operating divisions faced throughout 2012, the financial benefits derived from maximising opportunities from the leading market positions of each of our operating divisions and prior restructuring activity has led to a return to profit for the Company.

Following earlier extensive restructuring activity, our primary focus during 2012 was on leveraging the competencies of our theatre marketing businesses, Dewynters Ltd ("Dewynters") in London and Spot & Company of Manhattan Inc ("SpotCo") in New York, using their core skills and key relationships to exploit opportunities in associated sectors, whilst ensuring the cost conscious culture instilled across all Group businesses was maintained and enhanced.

The Group delivered a substantially improved financial performance in the year, reporting a profit after tax for the year of £0.7 million, an improvement of £3.6 million compared to a loss of £2.9 million for the 13 months to 31 December 2011. At revenue level, the Group reported a decline from £78.2 million in 2011 to £69.3 million in 2012. This decline was due to weaker revenue generation from the US Operations of SpotCo and Dewynters Advertising Inc ("DAI"), a trend that we anticipate will reverse in 2013. Despite the decline in revenue, gross margin improved from 23.5 per cent in 2011 to 26 per cent in 2012.

Earnings per share from continuing operations for the year is 1.04p (2011: loss of 4.77p), with a loss per share from discontinued operations of 0.02p (2011: loss of 0.21p).

Robust operational performance in challenging markets

Our London Operations, Dewynters and Newmans Displays Ltd ("Newmans"), produced a healthy performance with an increase in revenue and significant profit enhancement, reporting Adjusted EBITDA2 of £1.4 million compared to a profit of £0.3 million for the 13 month period ended 31 December 2011.

Dewynters' performance was particularly encouraging in light of the uncertainty the London theatre industry faced in the lead up to the 2012 Olympic Games, and the impact this had on shows and their marketing budgets. Dewynters continued to deliver for a number of long-term clients, such as Wicked, The Lion King, Mamma Mia!, We Will Rock You and The Phantom of the Opera, and successfully executed launch campaigns for several new productions including Singin' in the Rain, Top Hat, Viva Forever and The Bodyguard.

Newmans' performance was strong, with growth at both revenue and profit level despite disruption caused by the refurbishment work at Leicester Square which adversely impacted activity in the first half of the year. Following its reopening, Leicester Square hosted several large scale movie premieres including Dark Shadow, Snow White and the Huntsman, The Amazing Spiderman and The Dark Knight Rises, for all of which Newmans created and erected signage.

Our New York operations, SpotCo and DAI, delivered Adjusted EBITDA of £0.4 million in the year compared to £0.5 million in the 13 month period to 31st December 2011. Revenue of £36.1 million was generated, (2011: £45.5 million), despite operating in highly challenging market conditions.

2012 was a transitional year for Broadway theatre, with a number of major shows including Baby It's You, Billy Elliot, Catch Me If You Can, Memphis and Rain closing towards the end of 2011, followed by the likes of Ghost and Priscilla Queen of The Desert closing in 2012. Replacement shows were either launched with reduced marketing budgets or launches delayed until 2013. As a result, SpotCo's revenue declined by approximately £9 million during the year, a trend that we expect will reverse in 2013 as SpotCo has already secured mandates for a number of new shows including Big Fish, Cat on a Hot Tin Roof, Cinderella, Kinky Boots, Lucky Guy, Motown and Pippin. Highlights for the year included campaigns that launched One Man, Two Guvnors, Venus and Fur and Warhorse, and continued success with established shows such as Chicago, MTC and Roundabout.

We have taken further restructuring action with the reorganisation of our non-core, loss making New York based merchandising company, DAI, outsourcing the operational fulfilment of its activities. The company has been loss-making for a number of years, reporting a loss before interest, tax, depreciation and amortisation for 2012 of £0.04 million (2011: loss of £0.24 million), and this action will insulate the Group from further losses and should result in increasing Group profitability in the current year.

Growth initiatives gaining momentum

As stated above, a key strategic focus for the Group in 2012 was to leverage our core skills and key relationships to exploit opportunities in associated sectors. I am pleased to report that one such initiative, the launch of reach4events in New York, has enjoyed a positive start to 2013. reach4events produces and designs events for theatre, film and arts organisations. It has enjoyed a positive start to 2013, delivering opening night celebrations for Broadway shows Cat on a Hot Tin Roof and Cinderella, and has a strong pipeline of other high profile productions in the pipeline.

In addition to reach4events, we continue to make progress with a number of other initiatives in associated sectors and look forward to providing updates throughout the course of this year.  

Increased stability and financial robustness

The Company completed a number of corporate actions during the course of the financial year that enhanced its financial stability. In November 2012 we announced we had agreed a set of financial covenants with AIB Group in respect of our £14.8 million revolving credit facility, which matures in May 2015. We were pleased with this outcome and maintain the full support of AIB.

Also in November 2012 we announced that we had agreed a debt repayment schedule in relation to the Group's acquisition of SpotCo in 2008. This agreement provides clarity on the $4.2m outstanding debt, $0.7 million of which has now been repaid, which enables all parties to move forward with a shared focus.

With both these issues addressed, management is now exclusively focussed on driving growth and increasing efficiencies throughout Group business.

Financial impact of restructuring action apparent; focus shifts to driving synergies

Significant cost was also taken out of the business in 2012, with Head Office operating overheads reduced by approximately £1.2 million. We anticipate further head office cost reductions in 2013 as a result of certain consultancy arrangements ending and further benefits from earlier restructuring action, such as the elimination of duplicate costs and reduced professional fees. Throughout all Group divisions, we are seeking further improvement in terms of operating efficiencies and expect to make progress across the board in the current financial year.

We are also placing significant attention on working in an increasingly collaborative manner, providing trans-atlantic support between our divisions to assist in business generation. Additionally, within divisions, we are placing increased attention on the distribution of operational duties in order to enhance skill-sets and experience amongst personnel and ensure talent is enhanced and spread as widely as possible throughout our business.

Well positioned to deliver further progress

There is no doubt that 2012 was a positive and productive year for r4e. Group business has been streamlined and is now focussed exclusively on the core theatrical marketing businesses in which we hold prominent market positions and have strong and productive relationships.

We entered 2013 confident of making further progress and I am pleased to report that we have made a positive start. The change in client profile at Dewynters and SpotCo, with a significant increase in the number of new show openings both businesses are supporting when compared to the previous year, should lead to a marked increase in revenue from both businesses.

In addition to harnessing the strengths of our core theatre marketing businesses, our efforts to leverage this core skill-set to exploit opportunities in associated market sectors are beginning to bear fruit.

In conclusion, the progress that has been achieved is encouraging but we believe the business is capable of much more. I am confident that we will be able to report further progress throughout 2013 and beyond.

David Stoller

Executive Chairman

11 April 2013

OPERATING AND FINANCIAL REVIEW

Performance by Continuing Operations

Year ended 31 December 2012

13 month period ended 31 December 2011

Outline of Continuing Operations

The London segment is comprised of Dewynters Limited ("Dewynters") and Newman Displays Limited ("Newmans"). During the year the London operations generated adjusted EBITDA of £1.36 million compared to the 13 month period ended 31 December 2011 of £0.32 million. For Dewynters Limited, adjusted EBITDA was £0.75 million (13 month period ended 31 December 2011: a loss of £0.08 million) and for Newman Displays Limited adjusted EBITDA of £0.61 million (13 month period ended 31 December 2011: £0.40 million).

The New York segment consists of Spot and Company of Manhattan Inc. ("SpotCo") and Dewynters Advertising Inc ("DAI"). Adjusted EBITDA for the New York segment was £0.44 million compared to the 13 month period ended 31 December 2011 of £0.51 million. SpotCo generated adjusted EBITDA in the year of £0.48 million (13 month period ended 31 December 2011: £0.75 million) and DAI had adjusted EBITDA loss of £0.04 million in the year (13 month period ended 31 December 2011: loss of £0.24 million).

r4e Head Office costs represented adjusted EBITDA loss for the period of £0.50 million (13 month period ended 31 December 2011: £1.16 million loss).

Outline of Discontinued Operations

All discontinued operations were disposed of before the start of the year, however the following have been recognised in the year ended 31 December 2012:

·; receipt of remaining deferred consideration owed to r4e from the sale of First Artist Scandinavia A/S,

·; amounts owed in connection with Optimal Wealth Limited, plus

·; legal fees relating to the liquidation of Promosport SrL.

Exceptional Costs (excluding depreciation, amortisation and impairment)

Exceptional costs from Continuing Operations relate to termination of employee contracts at £0.19 million for the year (13 month period ended 31 December 2011: £0.31m) and in relation to costs of restructuring £Nil (13 month period ended 31 December 2011: £0.29m).

Amortisation

Amortisation costs for the year were £0.61 million (13 month period ended 31 December 2011: £0.76 million), and relate to Dewynters and SpotCo intangible assets amortisation (customer relationships and brands).

Finance Costs and Finance Income

Finance Costs for the year amount to £0.69 million (13 month period ended 31 December 2011: £0.95 million). These costs include £0.65 million in interest on bank loans (13 month period ended 31 December 2011: £0.74 million), £0.04 million arising from the unwinding of discounted interest on deferred consideration payable (13 month period ended 31 December 2011: £0.3 million) and £0.01million in relation to amortisation on arrangement fees (13 month period ended 31 December 2011: £0.16 million). In 2012 there were no Finance costs in relation to bank interest, adjustment to deferred consideration or interest on late settlement of deferred consideration (13 month period ended 31 December 2011: £0.03 million, £0.3 million income and £0.02 million respectively).

Finance income of £0.12 million is foreign exchange gain on deferred consideration (13 month period ended 31 December 2011: £0.15 million).

On 14 November 2012 a debt repayment agreement was signed to schedule payment of the deferred consideration outstanding in relation to the acquisition of SpotCo. The agreed repayment terms resulted in a gain of £0.51m (13 month period ended 31 December 2011: £nil), arising from rescheduling the outstanding debt.

Earnings Per Share

Basic earnings per share for continuing operations for the year are 1.04p (13 month period ended 31 December 2011: 4.77p loss). The basic loss per share for discontinued operations for the year is 0.02p (13 month period ended 31 December 2011: 0.21p).

Key Performance Indicators

The Group manages its internal operational performance through the monitoring of several key performance indicators ("KPI's"). These are monitored and evaluated with respect to the level at which they are used and their purpose. Currently the focus at Group level is on the following KPI's for continuing operations:

2012 2011

Adjusted EBITDA (£'000) 1,306 (331)

Gross profit % 25.9% 23.5%

Employee costs to gross profit 64.8% 69.1%

Net debt to adjusted EBITDA 11.17 (37.81)

Working capital (£'000) (1,272) (3,770)

Cash inflow/(outflow) in year/period (£'000) 176 1,206

At individual company level, the KPI's are a combination of profitability measures including achievement of annual budget, gross/net margin, productivity measures including employee costs/EBITDA, EBITDA per head and non-financial measures such as client profitability, client retention, and new business awarded.

Adjusted EBITDA is before exceptional administrative expenses.

Shareholders' Funds

Shareholders' Funds Deficit has reduced to £0.29million at year end from £0.99 million as at 31 December 2011. Share issues during the year generated £0.39 million in funds and trading profits of £0.69 million were offset by a debit to foreign exchange reserves of £0.39 million.

Cash Flow

Cash inflow from operating activities was £0.78 million in the year compared to an outflow of £0.79 million in the 13 month period ending 31 December 2011. The Group settled £0.13 million of the remaining deferred consideration and received final proceeds of £0.01 million from the sale of First Artist Scandinavia A/S. Financing activities resulted in an outflow of £0.27 million. This comprised £0.39 million received through share issues offset by £0.66 million paid in bank interest throughout the year. 

In November 2012 the Group agreed a set of financial covenants with Allied Irish Bank (AIB Group (UK)) in relation to the £14.8m revolving credit facility. The covenants shall be measured quarterly and take effect from 31 December 2012. All banking covenants had been met as at 31 December 2012. AIB Group (UK) continues to charge interest on the credit facility at LIBOR + 3.5% per annum in 2013 being the second year of the facility, then LIBOR + 4% for the third year and LIBOR + 5% for the final year. The facility matures in May 2015 (see note 14).

Gearing has reduced to 102% (2011: 109%). This is calculated using Bank Net Debt / Bank Net Debt plus Net Assets (or Shareholders' Funds). The level of net debt has increased from £12.51 million at 31 December 2011 to £14.59 million at 31 December 2012. This increase arises from the inclusion of the deferred consideration liability which resulted from the debt repayment agreement entered into during the year, confirming amounts previously included in provisions.

Deferred Consideration

On 14 November 2012 a debt repayment agreement was entered into to restructure the outstanding deferred consideration debt in relation to the Company's acquisition of SpotCo in 2008. The final amount owed to the vendor was agreed at $4.41m. This is repayable as follows:

·; $210,000 paid on 8 November 2012

·; $262,500 payable quarterly from 1 January 2013 until 01 November 2015

·; If all conditions are met on repayments as noted above, r4e has a put option and the vendor has a call option to convert the remaining $1,000,000 to shares at the prevailing market rate on the date the option is struck.

As at 31 December 2012 the remaining balance to be paid of $4.2m has been discounted at a rate of 12% over the revised payment period giving rise to Finance income of £0.51m which has been recognised in the income statement. This discounted interest on deferred consideration will be unwound and charged to the income statement over the remaining period of the debt repayment agreement.

Tax

A tax credit of £0.55 million has been recognised in the year (13 month period ending 31 December 2011: £0.12 million). £0.46 million of this relates to amounts arising following a change in estimate of the tax deduction in relation to goodwill arising on the acquisition of SpotCo in the United States (2011: £nil).

Risks Associated with the Group

The Group is not currently subject to any material, legal or economic restrictions on the ability of its subsidiaries to transfer funds to the Company in the form of dividends, loans or advances.

The Group is subject to a number of macroeconomic factors, in common with the rest of the economy, such as foreign exchange rate fluctuations, which are outside of the Company's sphere of influence. The Group does not hedge any borrowings in either Pound Sterling or US Dollars and so a risk exists in relation to foreign exchange rates.

The Groups new initiative into the events business in New York is not deemed to have a significant risk profile as there are minimal initial cost outlays. Management have been prudent in forecasting any possible profits achieved from this new venture.

In November 2012 the Group agreed a set of financial covenants with Allied Irish Bank (AIB Group (UK)) in relation to the £14.8m revolving credit facility. These covenants are measured quarterly and were met in full as at 31 December 2012. Should there be a continuing breach, the lender may require termination of the facility and repayments of outstanding advances which would pose a going concern risk to the business.

The Group recognises that there is a risk for the core continuing operations pertaining to the client relationships it has with key producers of West End/Broadway shows and in some cases, venues. If these relationships, for any reason, cease to yield further business, this could have an adverse effect on the trading results and therefore the Group results. The Group believe this risk to be low as in this situation the key focus of the business would be to replace any lost revenue.

There is recognition that the Group has key relationships with operational management within subsidiaries in the Group. In order to counteract this risk the Group has established and maintained succession plans for key positions to ensure a spread of key functions across the Group, including cross-fertilisation of roles between the two core businesses of Dewynters and SpotCo so that the onus is not entirely on specific individuals.

David Stoller

Executive Chairman

11 April 2013

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012

CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 31 DECEMBER 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2012

BASIS OF PRESENTATION

The above unaudited financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 December 2012 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. The audit report included a reference to matters to which the auditors drew attention by way of emphasis without qualifying their report in relation to going concern, as follows:

Emphasis of matter

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure set out on page 31 of the financial statements concerning the group's ability to continue as a going concern. The group's operating profit was £0.2m for the year ended 31 December 2012 and, at that date, the group's total liabilities exceeded its total assets by £0.3m and it had net current liabilities of £1.3m. There are covenants attached to the group's bank borrowings of £14.8m and quarterly repayments are due in relation to deferred consideration outstanding as detailed in note 14.

These conditions, along with the other matters explained on page 31 of the financial statements, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

The consolidated financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). The accounting policies applied in the year ended 31 December 2012 are consistent with those applied in the Financial Statements for 2011.

The preliminary announcement was approved by the Board and authorised for issue on 10 April 2013.

SIGNIFICANT ACCOUNTING POLICIES

GOING CONCERN

As at 31 December 2012 the Group had net liabilities of £0.29 million (31 December 2011: £0.99 million) and made an operating profit in the year then ended of £0.22 million (period ended 31 December 2011: £2.15 million loss).

During the year the Group agreed a debt repayment schedule for the remaining $4.2 million of deferred consideration in relation to the SpotCo acquisition in 2008. This is repayable over 2013 - 2015 (see note 14). In addition the AIB Group (UK) bank debt of £14.8million is repayable in 2015 and the Group has agreed a set of financial covenants with AIB Group (UK) in relation to this debt. The covenants will be measured quarterly over the remaining term of the facility. Repayment of these financial obligations and adherence to the covenants are key areas of management focus. The Directors have prepared and reviewed detailed forecasts which indicate that the Group will have sufficient cash flow to meet in full the deferred consideration debt obligation, and meet future covenant requirements. The Board is confident that these matters will be concluded in a manner which enables the going concern basis of accounting to be applicable.

Whilst the Directors believe that the going concern basis is appropriate, the existence of the bank debt repayment in 2015, the need to meet quarterly bank covenants, the use of estimates in the forecasts, and the continuing challenge of the trading environment represents uncertainties which may cast doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to discharge its liabilities in the normal course of business.

After making enquiries and considering the uncertainties described above, the Directors have concluded that the Group has adequate resources to continuing trading for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the Group financial statements. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

DEFERRED CONSIDERATION

Deferred consideration liability is recognised at present value. The difference between the present value and the total amount payable at a future date gives rise to a finance charge which will be charged to the income statement and credited to the liability over the period of the deferral.

NOTES

1. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

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

Principal continuing activities are as follows:

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

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

Head Office - finance and administration services for the Group.

Segment information for continuing operations of the Group for the year ended 31 December 2012 is presented below:

Segment information for continuing operations of the Group for the year ended 31 December 2011 is presented below

2. EXCEPTIONAL ADMINISTRATIVE EXPENSES/FINANCE INCOME

Employee contract termination costs are considered exceptional as they result from the Group's recent period of restructure. Discounted interest on the deferred consideration balance will be unwound and charged to the income statement over the period of the agreement being November 2012 to November 2015.

3 FINANCE INCOME

4 FINANCE COSTS

5 EXPENSES BY NATURE AND AUDITOR'S REMUNERATION

Year ended 31 December 2012

Year ended 31 December 2011

5 EXPENSES BY NATURE AND AUDITOR'S REMUNERATION (continued)

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

6 EMPLOYEES AND DIRECTORS

DIRECTORS' REMUNERATION

The remuneration of the Directors who served during the year ended 31 December 2012 is shown below:

* Denotes Non-Executive Director

The remuneration of the Directors who served during the 13 month period ended 31 December 2011 is shown below:

* Denotes Non-Executive Director

Recognised in the income statement

The number of directors for whom benefits were accruing under defined contribution pension schemes was 1 (2011: 2).

The key management within the Group are the directors as noted above and in the directors' report.

7. TAXATION

Factors affecting the tax credit for the period / year: