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R4E Reach4entertainment Enterprises Plc

0.225
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Reach4entertainment Enterprises Plc LSE:R4E London Ordinary Share GB00B1HLCW86 ORD 0.1P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 0.225 0.20 0.25 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Reach4Entertainment Enterprises PLC Final Results (3269D)

26/04/2017 7:00am

UK Regulatory


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TIDMR4E

RNS Number : 3269D

Reach4Entertainment Enterprises PLC

26 April 2017

26 April 2017

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

Final results for the year ended 31 December 2016

r4e, the transatlantic media and entertainment company, today announces its results for the year ended 31 December 2016.

Highlights

 
                             2016        2015    Change 
 Revenue                 GBP96.6m    GBP85.9m     12.5% 
 Gross Profit            GBP22.8m    GBP20.2m     12.9% 
  EBITDA before           GBP1.5m     GBP1.8m    -16.7% 
  exceptional items 
 Adjusted EBITDA*         GBP1.9m     GBP1.8m      5.6% 
 Operating profit        GBP0.85m    GBP5.19m      -84% 
 Profit before 
  tax (including 
  exceptional items)      GBP0.5m     GBP4.5m      -89% 
 Profit before 
  tax (excluding 
  exceptional items 
  and share based 
  payments)               GBP0.9m     GBP0.6m       50% 
 

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

-- Represented some of the best known theatre shows and won new shows to be launched in 2017/2018 including Bat out of Hell, 42(nd) Street, Waitress, Mean Girls and Pretty Woman

-- Launched a new agency in Hamburg Germany, such that r4e now operates in the world's three largest commercial centres for theatre - London, New York and Hamburg.

-- Appointed James Charrington to lead Dewynters and acquired his data driven marketing and analysis business Jampot Consulting Ltd

   --    Appointed Jim Edwards to lead SpotCo 

-- Expanded the Board with the appointment of Lord Michael Grade, Claire Hungate and Charlie Lycett as non-executive Directors

-- Implemented the r4e plc Long Term Incentive Plan (LTIP) to incentivise and rewards key members of staff. Adding back these non-cash affecting costs of GBP0.35 million, the Group has a core trading EBITDA of GBP1.9 million

-- Successfully raised GBP2 million (gross proceeds) from an equity placing in October 2016, to support the Company's data-driven marketing and analytics initiative, geographic expansion and the reorganisation of key aspects of the business

Commenting on the results, David Stoller, Executive Chairman, said, "2016 was a good year for r4e building upon the financial transformation achieved in the prior year. In addition to a positive trading performance which saw revenues increase by 12.5%, we set out our strategy for growth and have made significant headway towards executing it, recruiting a superb leadership team across the company, expanding our presence geographically into Germany, so that we are now operate in the three largest live entertainment centres in the world, London, New York and Hamburg, and launching our data driven marketing and analytics business through Jampot, which we believe will be a key driver of our future success.

31 December 2016 Full Report and Accounts

The Company will shortly post its report and accounts for the year ended 31 December 2016 to shareholders, along with notice of the annual general meeting to be held at 11.30am on 27 June 2017, and both documents will soon be available on its website, www.r4e.com. The annual general meeting will be held at the offices of the Company at Wellington House, 125 Strand, London, WC2R 0AP.

Enquiries:

reach4entertainment

David Stoller, Executive Chairman +44 (0) 20 7968 1655

Novella Communications - Financial PR

Tim Robertson +44 (0) 207 6303843

Toby Andrews +44 (0) 207 6303848

Allenby Capital Ltd - AIM Nominated Adviser and Broker

Jeremy Porter/ James Reeve +44 (0) 20 3328 5656

EXECUTIVE CHAIRMAN'S STATEMENT

A Clear Strategy for Long-Term Growth

In 2016, r4e delivered a good trading performance slightly ahead of the previous year and set out a clear strategy for the future long-term growth of the business, centred around three key areas:

   -       Geographic expansion; 
   -       Launching a new data-driven marketing and analytics division; and 
   -       Re-organisation and integration of key business groups. 

Good progress was made against all three objectives alongside a significant strengthening of the senior management team. In March 2016, the Company announced the appointment of James Charrington as the new CEO for Dewynters as well as the acquisition of data and marketing analytics business Jampot Consulting. In August 2016, the Company appointed Jim Edwards as the new CEO for Spotco, and in September 2016 the Company announced the creation of a Dewynters agency in Hamburg under Michael Hildebrandt, expanding the business geographically and adding another highly experienced individual to the team.

To support the Company's strategic objectives, an equity placing was completed raising GBP2.0 million gross proceeds (GBP1.9 million net) in October 2016. Charlie Lycett joined the Board of Directors as a Non-Executive in May 2016 and since the year end, the Company has welcomed Lord Michael Grade and Claire Hungate (currently head of Warner Bros UK) as Non-Executive Directors.

The combination of the above changes together with a re-organisation of the London office will significantly strengthen the business and provide the platform for long-term growth.

Positive Trading Performance

Group revenue increased by 12.5% to GBP96.6 million (2015: GBP85.9 million), boosted by positive currency translation. On a constant currency basis, revenues increased by 3.8%.

Underlying profitability for r4e (Adjusted EBITDA*) was slightly ahead at GBP1.9 million (2015: GBP1.84 million), driven by a strong performance from SpotCo and a much improved performance from Newmans. The gross profit margin was consistent at 23.6% (2014: 23.5%).

Profit before tax decreased to GBP0.50 million (2015: GBP4.54 million). Excluding exceptional items and share based payment charges, profit before tax has increased by 350% to GBP0.85 million (2015: loss of GBP0.34 million).

Earnings per share from total operations for the year is 0.02p (2015: 4.01p).

Subsequent to the substantial debt refinancing in December 2015, 2016 saw the first full year with the new debt provider PNC Business Credit ('PNC'). Over the course of the year, total borrowings have reduced further by GBP1.70 million to GBP5.03 million (31 December 2015: GBP6.74 million).

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

New York, London and now Hamburg

In opening Dewynters Germany in September, r4e has taken a major step towards building a leading global agency. Adding Hamburg to its market-leading presence in London and New York, r4e now has a presence in the three largest commercial theatre markets in the world. This, combined with a commitment, avidly shared by each of these agencies, to utilise Jampot's new data-driven marketing and analytics capabilities (which can and will be increasingly applied to the broader categories of live entertainment, in addition to commercial theatre), and the highly collaborative approach adopted by the new leadership teams, will drive the Company's future growth. r4e is re-inventing itself, with a clear global vision and strategy.

New York

SpotCo delivered a good performance in 2016, driven by an especially strong first six months of the year. Ahead of the prestigious Tony awards in June 2016, SpotCo's clients required significant support from the company. This investment assisted the result of every Tony award being won by a SpotCo client. Boosted by this high level of activity plus a beneficial currency translation, revenues for the period increased by 19% on the previous year to GBP65.2 million (2015: GBP54.6 million) with Adjusted EBITDA increasing by 25% to GBP1.5 million (2015: 1.2 million), and operating profit increasing by 16.22% to GBP1.0 million (2015: GBP0.86 million). SpotCo has a very strong track record, and expects to maintain its market leading position under the leadership of Jim Edwards. The company has a growing focus on utilising the strengths of the Group, including its growing data and analytics capabilities. Another area of growth is winning new clients who have theatre presented outside of New York but whom have the potential to subsequently transfer to Broadway.

London

Under new CEO James Charrington, Dewynters has been re-organised, establishing a new structure that will support its long-term strategy, featuring a more streamlined service delivery and a determined cultivation of a wider live entertainment client base, all supported by a substantial commitment to data and analytics. As a result, 2016 was a year of transition for Dewynters which was reflected in the financial performance of the division with revenues flat at GBP27.5 million (2015: GBP27.5 million), however focus on overhead control resulted in an increased Adjusted EBITDA at GBP0.98 million (2015: GBP0.85 million). Operating profit has also increased by GBP1.13 million to GBP0.69 million (2015: loss of GBP0.44 million) due to the prior year impairment of goodwill. Dewynters is now well placed to improve on this performance in 2017.

Newmans enjoyed significant success in 2016, growing its revenues by 19% to GBP3.9 million (2015: GBP3.5 million) and generating EBITDA of GBP0.22 million (2015: GBP0.16 million). Management decisions in 2015 to switch from outsourcing to investing in in-house printing and cutting machinery has made an immediate and positive impact on the profitability of the division. Newmans also benefited from an increase in theatre signage, including the Harry Potter play and an increase in film premier work generally. Operating profit has remained consistent with prior year at GBP0.14 million (2015: GBP0.14 million) due to the new PNC debt costs which have impacted 2016. The division remains committed to providing an increasing level of digital services and is well placed going into 2017.

Hamburg

Launched in September 2016, Dewynters Germany is still in its infancy but is already seeing signs of strong future performance under the leadership of Michael Hildebrandt, who has worked in Hamburg, the capital of the German entertainment market, for the past 17 years and is an established industry figure. Michael's leadership and market knowledge, combined with the skills and capabilities that this division is able to draw upon from the wider Group, particularly from Dewynters in London, provides a strong platform for growth, focussing particularly on two key service models:

   -     Strategic and commercial support for brands in the entertainment and leisure industry: 

- Event creation for major brands looking for entertainment-driven solutions to marketing challenges.

During 2016, r4e invested in establishing this division and 2017 will be another year of investment.

Forward Momentum

The progress we have made in the last 18 months has re-invigorated the business with change occurring at nearly every level. In 2015, we transformed the financial base of the Company and in 2016 we have transformed the senior team and operational structure and set out our strategic plan for the future, featuring geographic expansion (evidenced by our launch into Germany), customer expansion (following and participating in the globalisation of live entertainment), and a powerful push to develop and provide our customers with industry-leading digital, data-driven marketing and analytics (led by the launch of Jampot). Our performance for 2017 has to date been in line with our expectations and we are enthusiastic about the growth prospects that our new initiatives will bring. Although these initiatives will inevitably increase the costs previously anticipated for 2017 (which did not factor for the costs of initiatives yet to launch), we expect them to provide a real benefit to the profitability of the group in future years.

David Stoller

Executive Chairman

REVIEW OF PERFORMANCE BY COMPANY

Year ended 31 December 2016

 
                                                                                   New   Dewynters 
                                                  London                          York        GmbH      Head     Group 
                  Dewynters   Newmans   Jampot     Total    SpotCo       DAI     Total                Office     Total 
                    GBP'000   GBP'000            GBP'000   GBP'000   GBP'000   GBP'000     GBP'000   GBP'000   GBP'000 
 
 Revenue             27,536     3,909        -    31,445    65,153         -    65,153           8         -    96,606 
 EBITDA before 
  exceptional 
  items                 876       216     (45)     1,047     1,383      (11)     1,372       (124)     (743)     1,552 
 Adjusted 
  EBITDA*               983       216     (45)     1,154     1,507      (11)     1,496       (124)     (624)     1,902 
 Operating 
  (loss)/profit         694       139     (45)       788       996       (3)       993       (124)     (803)       854 
 

Year ended 31 December 2015

 
                                                                           New 
                                          London                          York      Head     Group 
                   Dewynters   Newmans     Total    SpotCo       DAI     Total    Office     Total 
                     GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000   GBP'000 
 
 Revenue              27,496     3,512    31,008    54,610       231    54,841         -    85,849 
 Adjusted 
  EBITDA*                846       161     1,007     1,218        10     1,228     (392)     1,843 
 Exceptional 
  admin 
  items                (138)       (6)     (144)         -         -         -     5,020     4,876 
 Operating 
  (loss)/profit        (432)       130     (302)       863        10       873     4,621     5,192 
 

CONSOLIDATED INCOME STATEMENT FOR THE YEARED 31 DECEMBER 2016

 
                                                 2016      2015 
                                       Note   GBP'000   GBP'000 
 Continuing operations 
 Revenue                                1      96,606    85,849 
 Cost of sales                          4    (73,779)  (65,684) 
 GROSS PROFIT                                  22,827    20,165 
 Administrative expenses                4    (21,973)  (14,973) 
 
 EBITDA before exceptional items                1,552     1,843 
 Exceptional administrative expenses    2           -   (1,149) 
 Exceptional administrative income      2           -     6,025 
 Impairment of goodwill                 7        (55)     (965) 
 Depreciation                                   (447)     (370) 
 Amortisation of intangible assets      7       (196)     (192) 
 
 OPERATING PROFIT                                 854     5,192 
 Finance income                                     -        61 
 Finance costs                          3       (355)     (714) 
                                             --------  -------- 
 
 PROFIT BEFORE TAXATION                           499     4,539 
 Taxation                               5       (409)     (273) 
 PROFIT FOR THE YEAR                               90     4,266 
 
 The profit is attributable to 
  the equity holders of the parent 
 
 Basic and diluted earnings per 
  share (p) 
 Basic earnings per share               6        0.02      4.01 
 Diluted earnings per share             6        0.02      4.01 
                                             ========  ======== 
 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARED 31 DECEMBER 2016

 
                                            2016      2015 
                                         GBP'000   GBP'000 
 
 PROFIT FOR THE YEAR                          90     4,266 
                                        --------  -------- 
 
 Other comprehensive income: 
 
 Items that will not be reclassified 
  to profit and loss: 
 Currency translation differences             89       147 
 
 Other comprehensive income for 
  the year, net of tax                        89       147 
 
 TOTAL COMPREHENSIVE INCOME FOR 
  THE YEAR ATTRIBUTABLE TO THE 
  EQUITY HOLDERS OF THE PARENT               179     4,413 
 
 
 

Items in the statement above are disclosed net of tax. The income tax relating to each component of other comprehensive income is disclosed in note 5.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2016

 
                                            2016      2015 
                                  Note   GBP'000   GBP'000 
 NON-CURRENT ASSETS 
 Goodwill and intangible assets    7      10,946     9,985 
 Property, plant and equipment             2,720     2,359 
 Deferred tax asset                          167       145 
 
                                          13,833    12,489 
 CURRENT ASSETS 
 Inventories                                 139       152 
 Trade and other receivables              14,263    12,906 
 Other current assets                        601       498 
 Cash and cash equivalents                 2,097     1,160 
 
                                          17,100    14,716 
 
 TOTAL ASSETS                             30,933    27,205 
                                        ========  ======== 
 
 CURRENT LIABILITIES 
 Trade and other payables               (17,582)  (14,709) 
 Borrowings                        8     (4,489)   (6,002) 
 
                                        (22,071)  (20,711) 
 
 NET CURRENT LIABILITIES                 (4,971)   (5,995) 
 
 NON-CURRENT LIABILITIES 
 Deferred taxation                       (1,733)   (1,470) 
 Other payables                    9     (1,241)   (1,478) 
 Borrowings                        8       (537)     (739) 
 
                                         (3,511)   (3,687) 
                                        --------  -------- 
 TOTAL LIABILITIES                      (25,582)  (24,398) 
 
 NET ASSETS                                5,351     2,807 
 
 EQUITY 
 Called up share capital           10      3,074     2,374 
 Share premium                            16,645    15,329 
 Deferred shares                           1,498     1,498 
 Capital redemption reserve                   15        15 
 Share option reserve              11        349         - 
 Warrant reserve                             311       311 
 Retained earnings                      (16,480)  (16,570) 
 Own shares held                           (259)     (259) 
 Foreign exchange reserve                    198       109 
 
 TOTAL EQUITY ATTRIBUTABLE TO 
  EQUITY HOLDERS OF THE PARENT             5,351     2,807 
                                        ========  ======== 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER 2016

 
                                                      Capital     Share                            Own        Foreign     Total 
                      Share     Share   Deferred   Redemption    Option   Warrant   Retained    Shares       Exchange    Equity 
                    capital   premium     shares      reserve   reserve   reserve   earnings      held        reserve   GBP'000 
                    GBP'000   GBP'000    GBP'000      GBP'000   GBP'000   GBP'000    GBP'000   GBP'000        GBP'000 
 ATTRIBUTABLE TO 
 EQUITY 
 HOLDERS OF THE 
 PARENT 
 At 31 December 
  2014                1,872    13,501          -           15         -         -   (20,836)     (259)           (38)   (5,745) 
 
 Profit for the 
  year                    -         -          -            -         -         -      4,266         -              -     4,266 
 Other 
 comprehensive 
 income, 
 net of tax: 
 Currency 
  translation 
  differences             -         -          -            -         -         -          -         -            147       147 
                   --------  --------  ---------  -----------  --------  --------  ---------  --------  -------------  -------- 
 Total 
  comprehensive 
  income 
  for the year        1,872    13,501                      15         -             (16,570)     (259)            109   (1,332) 
 Transactions 
  with owners 
  in their 
  capacity as 
  owners: shares 
  issued              2,000     1,828          -                      -         -          -         -              -         - 
 Share 
  re-organisation   (1,498)         -      1,498                      -         -          -         -              -         - 
 Issue of                                      -                      -         -                                             - 
 warrants                 -         -                                                    311         -              - 
 
 At 31 December 
  2015                2,374    15,329      1,498           15         -       311   (16,570)     (259)            109     2,807 
 
 Profit for the 
  year                    -         -          -            -         -         -         90         -              -        90 
 Other 
 comprehensive 
 income, 
 net of tax: 
 Currency 
  translation 
  differences             -         -          -            -         -         -          -         -             89        89 
 Total 
  comprehensive 
  income 
  for the year        2,374    15,329      1,498           15         -       311   (16,480)     (259)            198     2,986 
 Transactions 
  with owners 
  in their 
  capacity as 
  owners: shares 
  issued                700     1,316          -            -         -         -          -         -              -      2016 
 Share based 
  payments 
  charge                  -         -          -            -       349         -          -         -              -       349 
 
 At 31 December 
  2016                3,074    16,645      1,498           15       349       311   (16,480)     (259)            198     5,351 
                   ========  ========  =========  ===========  ========  ========  =========  ========  =============  ======== 
 

CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 31 DECEMBER 2016

 
 
                                                2016       2015 
                                     Note    GBP'000    GBP'000 
 
Cash generated from/(used 
 in) operating activities             12       3,196      (642) 
Income taxes paid                              (436)      (213) 
 
Net cash generated from/(used 
 in) operating activities                      2,760      (855) 
 
Investing activities 
Purchases of property, plant 
 and equipment                                 (356)      (193) 
Proceeds from disposal of 
 property, plant and equipment                 (133)          - 
Payment of deferred consideration                  -      (661) 
Dividends received from associated 
 undertaking                                       -         60 
 
Net cash used in investing 
 activities                                    (489)      (794) 
 
 
Financing activities 
Net proceeds from the issue 
 of share capital                     10       1,909      3,828 
Proceeds from asset based 
 lending                              8      108,684      6,690 
Repayments of asset based 
 lending                              8    (111,396)    (9,630) 
Repayment of term loan                8        (287)          - 
Repayments of obligations 
 under finance leases                           (13)          - 
Interest paid                                  (338)      (604) 
 
Net cash (used in)/generated 
 from financing activities                   (1,441)        284 
 
 
Net increase/(decrease) in 
 cash and cash equivalents                       921    (1,365) 
 
Cash and cash equivalents 
 at the beginning of the year                  1,160      2,446 
 
Effect of foreign exchange 
 rate changes                                    107         79 
 
Cash and cash equivalents 
 at the end of the year                        2,097      1,160 
 
 
 

BASIS OF PRESENTATION

The above financial information in this announcement does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 December 2016 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 disclosures in the accounting policies on page 32-33 of the annual report and accounts concerning the group and company's ability to continue as a going concern following a breach of loan covenants that occurred during 2016 and breaches that are forecast to occur in 2017. These events or conditions indicate the existence of a material uncertainty that may cast significant doubt about the group's or company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the group or company was unable to continue as a going concern.

GOING CONCERN

As at 31 December 2016, the Group had net assets of GBP5.35 million (31 December 2015: net assets GBP2.81 million) and made an operating profit in the year then ended of GBP0.85 million (year ended 31 December 2015: loss of GBP5.19 million).

During 2015, the Group obtained a new three year secured asset based debt facility of GBP9.5 million with PNC Business Credit Services Ltd being made up of a GBP1 million term loan and a revolving credit facility of up to GBP8.5 million based on qualifying accounts receivable. As at 31 December 2016 the debt owed to PNC totalled GBP4.83 million (2015: GBP6.68 million), a reduction of GBP1.85 million.

The term loan held with PNC is a 3 year facility against which monthly capital repayments commenced from March 2016. The debt will be fully paid down by October 2018. 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 GBP8.5 million at any point. A set of financial covenants are in place with PNC in relation to this debt and are measured monthly. One of these covenants was breached for 3 months from August to October 2016 due to seasonal fluctuations in revenue. PNC provided a waiver for these breaches and an amendment to the covenant terms was agreed in 2017 to help mitigate the impact of seasonality. At the latest measurement date prior to these accounts being released, the covenants had been met, however, trading in 2016 was unusually weighted towards the first half of the year and 2017 is expected to return to the typical trading pattern of a stronger second half of the year. This means that, on a 12 month rolling basis the Group may once again be affected by seasonality issues in the covenant measurement. The Company and PNC are monitoring the position carefully, remain in close correspondence, and are working towards a solution.

The directors of the Company understand that PNC remains supportive of r4e, but that PNC cannot provide a waiver of a potential future breach as of the date of these accounts.

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, the Directors believe that the going concern basis is appropriate and the Group has adequate resources to continuing trading for the foreseeable future. Regarding the aforementioned PNC covenants, the Directors are confident that although breaches are possible later in 2017, these would only be temporary as a result of seasonal fluctuations and not due to the performance of the Group as a whole and are working with PNC to come to an agreement.

SIGNIFICANT ACCOUNTING POLICIES

GOODWILL

Goodwill is reviewed for impairment at least annually and any impairment will be recognised in the income statement and is not subsequently reversed. As such it is stated at cost less provision for impairment in value. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

IMPAIRMENT OF ASSETS (INTANGIBLE AND PROPERTY, PLANT AND EQUIPMENT)

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

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

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

EXCEPTIONAL ITEMS

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

SHARE BASED PAYMENTS

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

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

CAPITAL RISK MANAGEMENT

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to adjust the capital structure, the Group may issue new shares or sell assets to reduce debt.

As part of the Capital Risk Management process the Group acknowledges the need to monitor, and meet in full, covenants held over the revolving asset based facility with PNC. More details on the bank debt are in the borrowings note 8. Although breached from August to October 2016, the covenants have been met in full since November 2016 until the date of the release of these accounts.

NOTES

1. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into four 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, and publishing.

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

London - marketing, design, advertising, promotions, digital media services, publishing, 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 2016 is presented below.

 
                                       NY        London       Germany       Head 
                               operations    operations    operations     Office      Group 
                                  GBP'000       GBP'000       GBP'000    GBP'000    GBP'000 
                    Revenue 
 Sale of goods                          -         1,168             -          -      1,168 
 Provision of services             65,153        30,277             8          -     95,438 
 
 Revenue (all external 
  customers)                       65,153        31,445             8          -     96,606 
 
 
 
 EBITDA before exceptional 
  items                             1,372         1,047         (124)      (743)      1,552 
 Impairment of Goodwill                 -             -             -       (55)       (55) 
 Depreciation                       (244)         (198)             -        (5)      (447) 
 Amortisation                       (135)          (61)             -          -      (196) 
 
 Operating profit/(loss)              993           788         (124)      (803)        854 
 
 
 Finance costs                      (260)          (95)             -          -      (355) 
 
 Profit/(loss) before 
  tax                                 733           693         (124)      (803)        499 
 
 
 Tax (charge)/credit                (338)         (971)             -        900      (409) 
 
 Profit/(loss) after 
  tax                                 395         (278)         (124)         97         90 
                             ============  ============  ============  =========  ========= 
 

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

 
                                           NY        London       Germany 
                                   operations    operations    operations   Head Office      Group 
                                      GBP'000       GBP'000       GBP'000       GBP'000    GBP'000 
 
 Capital additions: 
 Property, plant and equipment             42           502             1             -        545 
                                 ============  ============  ============  ============  ========= 
 
 Balance sheet: 
 Segment assets 
 Non-current assets                     8,559         5,248             1            25     13,833 
 Current assets                         9,831         6,268           127           874     17,100 
                                 ------------  ------------  ------------  ------------  --------- 
 
 Total segment assets                  18,390        11,516           128           899     30,933 
                                 ============  ============  ============  ============  ========= 
 
 Liabilities: 
 Total segment liabilities           (16,806)       (7,060)          (42)       (1,674)   (25,582) 
 
 

Segment information for continuing operations of the Group for the year ended 31 December 2015 is presented below.

 
                                        NY        London       Head 
                                operations    operations     Office           Group 
                                   GBP'000       GBP'000    GBP'000         GBP'000 
                     Revenue 
 Sale of goods                         231         1,749          -           1,980 
 Provision of services              54,610        29,259          -          83,869 
 
 Revenue (all external 
  customers)                        54,841        31,008          -          85,849 
 
 Adjusted EBITDA*                    1,228         1,007      (392)           1,843 
 Exceptional administrative 
  expense                                -         (299)      (850)         (1,149) 
                                                                                  ) 
 Exceptional administrative 
  income                                 -           155      5,870           6,025 
 Impairment of 
  Goodwill                               -         (965)          -           (965) 
 Depreciation                        (224)         (139)        (7)           (370) 
 Amortisation                        (131)          (61)          -           (192) 
 
 Operating profit/(loss)               873         (302)      4,621           5,192 
 
 
 Finance income                          1            60          -              61 
 Finance costs                        (32)          (28)      (654)           (714) 
 
 Profit/(loss) 
  before tax                           842         (270)      3,967           4,539 
 
 
 Tax (charge)/credit                 (250)         (393)        370           (273) 
 
 Profit/(loss) 
  after tax                            592         (663)      4,337           4,226 
                              ============  ============  =========       ========= 
 
 
                                                                     Head 
                                           NY        London        Office 
                                   operations    operations    operations      Group 
                                      GBP'000       GBP'000       GBP'000    GBP'000 
 Capital additions: 
 Property, plant and equipment            104            88             1        193 
                                 ============  ============  ============  ========= 
 
 Balance sheet: 
 Segment assets 
 Non-current assets                     7,408         5,056            25     12,489 
 Current assets                         8,842         5,450           424     14,716 
                                 ------------  ------------  ------------  --------- 
                                       16,250        10,506           449     27,205 
 Total segment assets 
                                 ============  ============  ============  ========= 
 
 Liabilities 
 Total segment liabilities           (15,177)       (7,376)       (1,845)   (24,398) 
 
 
   2.     EXCEPTIONAL ADMINISTRATIVE ITEMS 
 
                                             2016        2015 
                                          GBP'000     GBP'000 
 
 Office move costs                               -       (14) 
 Employee contract termination 
  related costs                                  -       (13) 
 Costs relating to debt restructure              -      (539) 
 Costs of merchandise division 
  sale                                           -      (272) 
 Issue of warrants to AIB                        -      (311) 
 Exceptional administrative 
  expenses                                       -    (1,149) 
 
 Landlord and Tenants Act                       -           - 
  reimbursement 
 Income from transfer of merchandise 
  division                                       -        155 
 Gain on deferred consideration 
  write off                                      -        715 
 Gain on debt write off                          -      5,155 
 Exceptional administrative 
  income                                         -      6,025 
 
 

Office move and Landlord reimbursement

Newmans premises and Dewynters warehouse, which are on the same site in London, were given notice by the Landlord to vacate by December 2014 in order that the land could be developed. Subsequent to the commencement of the search process for new premises, the current Landlord agreed to a new lease on the premises due to the planned development being put on hold. Exceptional expenses of GBP0.01 million in prior year 2015 relate to the search for new premises plus negotiation for the new leases with the current landlord.

Employee contract termination costs

Exceptional expenses of GBP0.01 million in prior year 2015 relate to Dewynters employee contract termination costs in prior year which are considered exceptional due to the level of redundancy required as a result of company performance.

Deferred consideration on the acquisition of SpotCo

Deferred consideration payments were made as scheduled during 2015 leaving a further remaining balance at the end of October 2015 of USD $1.0 million (GBP0.65 million) which the Company had the option to pay by the issue of new ordinary shares in the Company. It was agreed during the year that the vendor would waive the final liability of $1 million which resulted in exceptional income of GBP0.72 million including interest.

Gain on debt write off

The debt restructure which took place in prior year December 2015 paid AIB Group GBP9 million of the debt outstanding at that date of GBP14.16 million. The remaining balance of GBP5.16 million was written off resulting in an exceptional gain to the Income Statement. The process of negotiating the debt restructure included service from legal professionals, consultants, brokers, advisors etc. Fees in relation to the restructure totalled GBP0.53 million.

Issue of warrants to AIB

As part of the refinancing deal with AIB in 2015, the Company granted 24,994,462 Warrants to AIB Joint Ventures, a subsidiary of AIB.

   3.     FINANCE COSTS 
 
                                      2016       2015 
                                   GBP'000    GBP'000 
 
 Finance lease interest                 13          1 
 Interest on AIB bank loans              -        482 
 Interest on new debt                  200         15 
 Fees on new debt                      137         37 
 Amortisation of arrangement 
  fees for bank loan                     -         66 
 Unwinding of discounting 
  on deferred consideration 
  (note 9)                               -         91 
 Foreign exchange loss on 
  trade                                  5          3 
 Foreign exchange loss on 
  deferred consideration (note 
  9)                                     -         19 
 
                                       355        714 
 
 
   4.     EXPENSES BY NATURE 
 
                                               2016       2015 
                                            GBP'000    GBP'000 
 
 Media, marketing and promotional 
  services                                   73,071     65,029 
 Staff costs                                 14,990     12,854 
 Share based payment costs 
  (note 11)                                     349 
 Depreciation, amortisation 
  and impairment                                699      1,526 
 Exceptional administrative 
  income (note 2)                                 -    (4,876) 
 General office expenses                      2,975      2,996 
 Operating lease payments: 
     Land and buildings                       1,339      1,378 
      Plant and machinery                       160        142 
 Professional costs                           1,373      1,004 
 Travelling                                     547        534 
 Other                                          249         70 
 Total cost of sales and administrative 
  expenses                                   95,752     80,657 
 
 

1.

   5.     TAXATION 
 
                                         2016      2015 
                                      GBP'000   GBP'000 
 
  Current tax: 
                                          (6)         - 
  Overseas tax on profits/(losses) 
   of the year                            338       251 
 
  Total current tax charge                332       251 
 
  Deferred tax: 
  Origination and reversal of 
   timing differences                      69        82 
  Deferred tax rate change                  8        17 
  Deferred tax - adjustment in 
   respect of previous periods              -      (77) 
 
  Total deferred tax                       77        22 
 
  Tax charge on loss of ordinary 
   activities                             409       273 
 
 
 

Factors affecting the tax charge for the year:

 
                                          2016       2015 
                                       GBP'000    GBP'000 
 The tax assessed for the year 
  differs from the effective 
  average rate of corporation 
  tax in the UK of 20.00% (2015: 
  20.25%). The differences are 
  explained below: 
 Profit on ordinary activities 
  before tax                               499      4,539 
 
 
 Profit on ordinary activities 
  multiplied by effective average 
  rate of corporation tax in 
  the UK of 20.00% (2015: 20.25%)          100        919 
 Effects of: 
 Fixed asset differences                    30         13 
 Expenses not deductible for 
  tax purposes                               -        342 
 Income not subject to tax               (439)    (1,182) 
 Other tax adjustments, reliefs 
  and transfers                           (30)      (144) 
 Temporary difference on overseas          (7)          - 
  tax 
 Difference in tax rates on 
  overseas earnings                        173        185 
 Timing differences not recognised 
  in the computation                       132        131 
 Change in corporation tax 
  rates                                      -        123 
 Adjustments to brought forward 
  values                                     -       (13) 
 Adjustment in respect of previous 
  periods                                  (6)       (59) 
 Deferred tax not recognised               460       (42) 
 
 Total tax charge for the year             409        273 
 
 

A deferred tax asset of approximately GBP1.25 million (2015: GBP0.96 million) has not been recognised due to uncertainty over future profitability. At 31 December 2016, the Group had losses carried forward of GBP7.4 million (2015: GBP5.3 million), available for offset against future profits in the UK. Taxation is calculated at the rates prevailing in the respective jurisdictions. The standard tax rates in each jurisdiction are 40% in the United States (2015: 40%) and 20% in the United Kingdom (2015: 20%).

   6.     EARNINGS PER SHARE 

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

Profits attributable to equity holders of the company

 
                                                                                                  2016          2015 
                                                                                               GBP'000       GBP'000 
 For basic and diluted profit per share 
 Profit for financial year                                                                          90         4,266 
 
                                                                                                Number        Number 
   Number of shares 
 Weighted average number of ordinary shares for the purposes of basic earnings per share   500,208,593   106,416,614 
 
 Dilutive effect of share options                                                              483,688             - 
                                                                                          ------------  ------------ 
 Weighted average number of ordinary shares for the purposes of diluted earnings per 
  share                                                                                    500,692,281   106,416,614 
 
 
 
 
  Earnings per share (pence) 
   after tax 
 
  Basic earnings per share     0.02  4.01 
  Diluted earnings per share   0.02  4.01 
 
 
 
   7.     GOODWILL AND INTANGIBLE ASSETS 
 
                                 Brands  Customer relationships  Purchased goodwill     Total 
                                GBP'000                 GBP'000             GBP'000   GBP'000 
Cost 
1 January 2015                    4,163                   2,607              13,671    20,441 
Foreign exchange differences         98                       -                 244       342 
                               --------  ----------------------  ------------------  -------- 
31 December 2015                  4,261                   2,607              13,915    20,783 
                               --------  ----------------------  ------------------  -------- 
 
Additions                             -                       -                  55        55 
Foreign exchange differences        409                       -               1,026     1,435 
                               --------  ----------------------  ------------------  -------- 
31 December 2016                  4,670                   2,607              14,996    22,273 
                               --------  ----------------------  ------------------  -------- 
 
Amortisation 
1 January 2015                    1,098                   1,870               6,611     9,579 
Charged in the year                 131                      61                   -       192 
Impairment charge                     -                       -                 965       965 
Foreign exchange differences         62                       -                   -        62 
 
31 December 2015               1,291                      1,931               7,576    10,798 
                               --------  ----------------------  ------------------  -------- 
 
Charged in the year                 135                      61                   -       196 
Impairment charge                     -                       -                  55        55 
Foreign exchange differences        278                       -                   -       278 
 
31 December 2016                  1,704                   1,992               7,631    11,327 
                               --------  ----------------------  ------------------  -------- 
 
Net book value 
 
31 December 2016                  2,966                     615               7,365    10,946 
                               ========  ======================  ==================  ======== 
 
 
31 December 2015                  2,970                     676               6,339     9,985 
                               ========  ======================  ==================  ======== 
 
 

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

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

Impairment tests for goodwill

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

 
 
                                     2016        2015 
                                  GBP'000     GBP'000 
-----------------------------  ----------  ---------- 
 
 Dewynters Group (Dewynters, 
  Newmans, DAI)                     1,351       1,351 
 SpotCo                             6,014       4,988 
 
 Total Goodwill                     7,365       6,339 
 
 

An impairment of GBP0.55 million in the year is related to the purchase of Jampot Consulting Ltd (2015: GBP0.97 million related to Dewynters Group - see note below). 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 GBP55,000 by the issue on 29 March 2016 of 3,666,666 ordinary shares in r4e at 1.5p per share. The Board of r4e believed the IP in digital marketing that Jampot held 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 could not be specifically allocated to the acquired company, the goodwill in Jampot was written off as reflected in the half year 30 June 2016 report. Subsequent to the write off management have decided to operate the Group's new data marketing analytics business through Jampot.

An impairment charge of GBP0.97 million was incurred in the prior year ended 31 December 2015 on the Dewynters Group (inclusive of Dewynters, Newman and DAI). The merchandise division of Dewynters was transferred during 2015 and as a result the royalties from merchandise sales in the USA were no longer collected by DAI and so the company was dissolved in December 2016. The Company allocated to DAI a portion of the goodwill in the Dewynters Group, which arose on its acquisition in 2006, based on its proportion of the EBITDA of the Dewynters Group at the time of the acquisition. This resulted in an impairment of GBP0.97 million recognised in the 2015 accounts. As at 31 December 2016 the recoverable amount of the Dewynters Group is GBP7.96 million. No class of asset other than goodwill was deemed impaired.

The recoverable amount of CGUs has been determined based on value-in-use calculations which cover a period of 5 years plus a terminal value. These calculations use pre-tax cash flow projections based on financial budgets for the year ended 31 December 2017 as approved by management and cash flows beyond the one-year period are extrapolated using straight line growth rates stated below. Prudent assumptions have been used in the value-in-use calculations as detailed below.

The key assumptions used for the value-in-use calculations in 2016 are as follows:

 
                                     Dewynters 
                                         Group   SpotCo 
-----------------------------------  ---------  ------- 
 
  Revenue (fall) - 1 year               (8.6)%  (11.4)% 
  Revenue growth per annum - years 
   2-5                                    1.5%     1.5% 
  Cost growth - employee costs 
   from year 1                          (2.2)%   (9.2)% 
  Cost growth per annum - employee 
   costs from years 2-3                   1.5%     2.0% 
  Cost growth per annum - employee 
   costs years 4-5                          1%     1.5% 
  Cost growth - overhead costs 
   from year 1                         (16.4)%   (7.0)% 
  Cost growth - overhead costs 
   from years 2-5                           1%     1.5% 
  Discount rate                            12%      12% 
  Capitalisation rate                    17.5%    17.5% 
 
 

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

Initial growth rates in year 1 are taken from the CGU's 2017 operational budgets, and so in some cases can show a difference to the straight line growth rates applied to subsequent years. Growth after year 1 has been determined on the basis of general industry market growth and so the rate reduces and remains consistent. The growth rates used are considered by management to be in line with general trends in which each CGU operates and deemed by management to be a reasonable expectation for the media CGU.

The following table reflects the level of movements required in revenue or costs which could result in a potential impairment per the value in use calculation. A further percentage (fall)/increase, of the magnitude indicated in the table below, in any one of the key assumptions set out above would result in a removal of the headroom in the value-in-use calculations in 2015:

 
                                                          Dewynters  Reasonable Change?  SpotCo  Reasonable* Change? 
                                                            Group 
--------------------------------------------------------  ---------  ------------------  ------  ------------------- 
 
  Revenue (fall)- year 1 only                               (43.0)%                  No  (7.0)%                  Yes 
  Revenue (fall) - year 1 with onwards effect                (6.0)%                 Yes  (1.0)%                  Yes 
  Cost growth - employee costs in year 1 only                 68.6%                  No   10.0%                   No 
  Cost growth per annum - employee costs from years 2-3        3.1%                  No    0.5%                  Yes 
  Cost growth - overhead costs in year 1 only                220.0%                  No   40.0%                   No 
  Cost growth - overhead costs from year 2-5                   9.5%                  No    2.0%                  Yes 
  Discount rate increase                                      16.0%                  No    2.5%                   No 
  Capitalisation rate increase                               110.5%                  No    4.5%                   No 
 

* Reasonable change is when the Board considers the change to be possible in the future

Brands and customer relationships all arise on acquisition; there are no internally generated intangible assets. The brand allocated to the Dewynters CGU totalling GBP2.26 million (2015: GBP2.26 million) is determined to have an indefinite life. It is subject to an annual impairment review using the same assumptions as for goodwill. The brand value allocated to SpotCo CGU totalling GBP0.70 million (2015: also GBP0.70 million due to gain in FX rates) is being amortised over 15 years and has 8 years remaining.

Intangible customer relationships are attributable to Dewynters only. The useful economic life for customer relationships within Dewynters is 20 years of which 11 are remaining as at 31 December 2016. It has a carrying value of GBP0.61 million and GBP0.06 million was charged to amortisation in the year. Where there are any indications of impairment within these businesses the Group carries out impairment reviews on brands and customer relationships using the same assumptions as for goodwill.

   8.     BORROWINGS 
 
                                                  2016       2015 
                                               GBP'000    GBP'000 
 Current: 
 Term debt                                         378        314 
 Asset based lending facility                    4,037      5,665 
 Finance leases                                     74         23 
 
                                                 4,489      6,002 
 
 Non-current: 
 Term debt                                         410        697 
 Finance leases                                    127         42 
                                             ---------  --------- 
                                                   537        739 
 
 Analysis of borrowings: 
 On demand or within one year 
 Term debt                                         378        314 
 Asset based lending facility                    4,037      5,665 
 Finance leases                                     74         23 
 
                                                 4,489      6,002 
 In the second to fifth years inclusive 
   Term debt                                       410        697 
   Finance leases                                  127         42 
                                                   537        739 
 
 Amounts due for settlement                      5,026      6,741 
 
 Less amounts due within one year              (4,489)    (6,002) 
 
 Amounts due for settlement after one year         537        739 
 
 

Analysis of borrowings by currency:

 
                        Sterling        USD      Total 
                         GBP'000    GBP'000    GBP'000 
 31 December 2016 
 Asset based lending 
  facility                   960      3,077      4,037 
 Term debt                   240        548        788 
 Finance leases              201          -        201 
 
                           1,401      3,625      5,026 
 
 
 
                           Sterling        USD      Total 
                            GBP'000    GBP'000    GBP'000 
 31 December 2015 
 Bank loans                     731      4,934      5,665 
 Deferred consideration         350        661      1,011 
                                 65          -         65 
 
                              1,146      5,595      6,741 
 
 

Term debt

The term debt with PNC (GBP0.79 million) totalled GBP1 million when drawn down on 4 December 2015 (GBP1.01 million at 31 December 2015 due to foreign exchange) and was split between SpotCo and Dewynters based on expected future cash flows of the Companies. The debt 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 began in March 2016. The debt will be fully repaid by October 2018.

The non-current element of the term debt is due to be paid in 2018. As at 31 December 2016 this could be reflected as current due to the breach of covenants in the year, however, as at year end PNC informed the Company that it would continue to be supportive and subsequently, in 2017, it provided a waiver. Therefore the debt has been reflected in non-current liabilities.

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 0.25%. 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. These were breached in August to October 2016, but were met in full both before and after these months and were also met in full as at 31 December 2016. The covenants were also met in full at each subsequent month to year end until the latest measurement date prior to these accounts being 31 March2017. Forecasts for 2017 currently reflect possible breaches in the fixed charge cover financial covenant due to the 12 month rolling measurement picking up the unusually weak second half of 2016 and, in a return to normal trading patterns, a weaker first half of 2017. However, given current negotiations with PNC and that the current forecast for the full year 2017 EBITDA is in line with expectations, the Directors are confident the Group remains a going concern - see Going Concern explanation above for further details.

   9.     OTHER NON CURRENT PAYABLES 

Landlord reimbursement accrual

Amounts in non-current other payables of GBP0.61 million (2015: GBP0.63 million) relate to the re-imbursement of leasehold improvement costs from SpotCo's landlord at the New York office. As with many US leases SpotCo, as tenant, had to undertake a programme of complete refurbishment of the property. Some of the expenses, related to the provision of basic utilities and services, were then refunded by the landlord. GBP0.84 million ($1.25 million USD) was received in cash from the Landlord in 2013. In line with SIC Interpretation 15 this reimbursement has been recognised as a liability and is being unwound to the income statement over the period of the lease, reducing rental costs. GBP0.07 million was unwound during the year (2015: GBP0.06 million). Amounts in current liabilities relating to the reimbursement total GBP0.07 million (2015: GBP0.06 million).

 
                                   2016       2015 
                                GBP'000    GBP'000 
 Within one year                     74         61 
                              ---------  --------- 
 
 Between two and five years         296        244 
 More than five years               315        384 
 
                                    611        628 
                              =========  ========= 
 

Rent holiday accrual

Other amounts in non-current other payables of GBP0.63 million (31 December 2015: GBP0.85 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. In line with SIC Interpretation 15 the accrual will be released to the income statement over the term of the lease thus reducing rent costs.

 
                                   2016       2015 
                                GBP'000    GBP'000 
 Within one year                    133        144 
                              ---------  --------- 
 
 Between two and five years         393        577 
 More than five years               237        273 
                              ---------  --------- 
                                    630        850 
 
 Total non-current payables       1,241      1,478 
                              =========  ========= 
 

10. SHARE CAPITAL

 
                                                                                                     2016       2015 
                                                                                                  GBP'000    GBP'000 
 Authorised, allotted, issued and fully paid: 
 614,992,671 ordinary shares at 0.5 pence each (2015: 474,894,792 ordinary shares of 0.5 pence 
  each)                                                                                             3,074      2,374 
 
 
 
 
 Authorised, allotted, issued and fully paid:                                Nominal Value   Number of shares 
                                                                                   GBP'000                No. 
 Date                                            Detail 
 1 January 2016                                  Balance brought forward             2,374        474,894,792 
 12 February 2016                                Shares issued                           5          1,000,000 
 29 March 2016                                   Shares issued                          18          3,666,666 
 1 November 2016                                 Shares issued                         667        133,333,334 
 21 December 2016                                Shares issued                          10          2,097,879 
 
 31 December 2016                                Balance carried forward             3,074        614,992,671 
 
 
 

12 February 2016 Fees payable

1,000,000 share at 1.0p were issued in satisfaction of fees payable in connection with the placing completed in December 2015.

29 March 2016 Jampot Acquisition

3,666,666 shares at 1.5p were issued for the acquisition of Jampot on 29(th) March 2016 resulting in share premium of GBP0.04 million.

1 November 2016 Fund Raise

133,333,334 shares at 1.5p were issued on the fund raise in November 2016 resulting in share premium of GBP1.33 million. Costs of issue totalled GBP0.091 million.

21 December 2016 Dewynters GmbH CEO

2,097,879 shares at 2.0p were issued to the CEO of Dewynters GmbH, in accordance with the terms of his service agreement, as part of his remuneration package.

11. SHARE BASED PAYMENTS

Equity-settled share option plan

Under the Group plan, share options are granted at the average price of the Company's shares at the grant date. The employee is entitled to the exercise the options at 1p per share as to 50 per cent on the third anniversary of the date of grant and as to 50 per cent on the fourth anniversary of the date of grant. In addition, Options held by David Stoller and certain other senior employees and management may be exercised earlier if the Board determines that any exercise condition as set out below has been met:

Should the Company's mid-market closing share price meet or exceed the following targets for five trading days (which may be non-consecutive) within a period of 30 consecutive calendar days prior to the third anniversary of the date of grant, the Option shall be exercisable as follows:

(a) One third of the Option shall become exercisable on meeting a share price target of GBP0.035 per share;

(b) A further one third of the Option shall become exercisable on meeting a share price target of GBP0.045 per share; and

(c) The remaining one third of the Option shall become exercisable on meeting a share price target of GBP0.055 per share.

However, subject to the Board's discretion, the Option holder shall be required to retain the shares received on exercise of an Option on the Share Price Targets having been met until the earlier of:

i) Twelve months following the date the Option is exercised; or

ii) The third anniversary from the date of grant has passed.

If options remain unexercised after a period of 6 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group as a "bad leaver" before they become entitled to exercise the share option.

The following options to subscribe for the Company's shares have been granted to directors and eligible employees and had not lapsed at 31 December 2016:

 
    Granted to           Date of Option      Number of Shares   First exercisable       Expiry date     Exercise Price 
 
    David Stoller        4 March 2016        23,750,000         4 March 2019 or on      4 March 2022    1.00 pence 
                                                                share price target 
    Eligible Employees   4 March 2016        25,450,000         4 March 2019 or on      4 March 2022    1.00 pence 
                                                                share price target 
                                                                where applicable 
    Eligible Employees   21 March 2016       9,500,000          21 March 2019 or on     21 March 2022   1.00 pence 
                                                                share price target 
    Eligible Employees   2 June 2016         24,900,000         2 June 2019 or on       2 June 2022     1.00 pence 
                                                                share price target 
                                                                where applicable 
    Eligible Employees   27 September 2016   7,800,000          27 September 2019 or    29 Sept 2022    1.00 pence 
                                                                on share price target 
    Eligible Employees   20 December 2016    9,500,000          20 December 2019 or     29 Dec 2022     2.00 pence 
                                                                on share price target 
 
 
       Movement in number of options in the period:     31 December 
                                                               2016 
                                                        No. Options 
            Outstanding at 1 January 2016                         - 
            Granted during the period                   100,900,000 
            Forfeited during the period                 (7,800,000) 
                                                      ------------- 
            Outstanding at 31 December 2016              93,100,000 
 

All options granted to 27 September have an exercise price of GBP0.01, 9,500,000 granted on 20 December 2016 have an exercise price of GBP0.02. No options were exercised or expired during the period. No options were exercisable at 31 December 2016.

The share options outstanding as at 31 December 2016 had a weighted average remaining contractual life of 5.36years.

The weighted average fair value of options granted during the period was 0.0119p.

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 are as follows:

 
 Exercise price                          0.01 pence 
 Share price at valuation date        0.01825 pence 
 Expected life                              6 years 
 Volatility                                100%-40% 
 Risk free interest rate          From 0.24% - 1.5% 
 Exit rate of employees                          5% 
 

During the year the Group recognised total share-based payment expenses of GBP0.35 million (31 December 2015: Nil).

12. CASH GENERATED FROM OPERATIONS

 
                                         2016                  2015 
                                      GBP'000               GBP'000 
 
 Reconciliation of net cash 
  flows from operating activities 
 Profit before taxation                   499                 4,539 
 Adjustments: 
 Finance costs                            355                   714 
 Finance income                             -                  (61) 
 Depreciation                             447                   369 
 Amortisation of intangibles              196                   192 
 Impairment of goodwill                    55                   965 
 Exceptional debt write offs                -               (6,018) 
 Share based payment charges              349                     - 
 
 Operating cash flows before 
  movements in working capital          1,901                   700 
 
 Decrease in inventories                   13                   249 
 (Increase) in trade and other 
  receivables                         (1,357)                 (666) 
 Increase/(Decrease) in trade 
  and other payables                    2,639                 (925) 
 
 Cash generated from/(used 
  in) operating activities              3,196                 (642) 
 
 

13. BUSINESS COMBINATIONS

On 21st March 2016 the Group acquired 100% of the share capital of Jampot Consulting Ltd, an arts marketing consultancy working on ticketing and marketing strategies, and obtained control of the company. 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. In the period ending 31 December 2016 the company has been developing tools in ticketing data analysis, yield maximisation and dynamic pricing. The acquired business contributed no revenues, an EBITDA loss of GBP0.045 million and net loss before tax of GBP0.045 million, to the Group for the period from 21 March 2016 to 31 December 2016.

The fair value of the total consideration transferred was GBP0.055 million, this consideration was in the form of 3,666,666 ordinary shares in r4e at 1.5p per share.

The assets and liabilities as of 21 March 2016 arising from the acquisition were minimal with assets of GBP0.01 million and liabilities of GBP0.01 million resulting in nil net asset value. All assets acquired were deemed to be at fair value. The consideration of GBP0.055 million was therefore goodwill which was written off to the income statement and was not deductible for tax purposes.

If the acquisition had occurred on 1 January 2016, Jampot would have contributed revenue of GBP0.005 million and loss before tax of GBP0.043 million to the group in the year.

14. RELATED PARTY DISCLOSURES

During the year ended 31 December 2016, transactions with Key Management Personnel are in relation to Directors of the Group and are presented in Directors Remuneration tables on page 19 and note 6 to the audited financial statements.

Dividend income received in the year ended 31 December 2016 was Nil. In 2015 GBP0.06 million was from the associate undertaking Theatrenow Limited, in which Dewynters had a 29.91% shareholding until the company was dissolved in September 2016.

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 is due to launch at the Theatre Royal Drury Lane in the first half of 2017. 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.

15. TRANSACTIONS WITH DIRECTORS

At 31 December 2016, David Stoller owed the Group GBP268 (2015: GBP35,982).

During the year ended December 2016, the Group procured consultancy services totalling GBP0.05 million (2015: GBP0.19 million) from Glen House Capital Strategies Ltd., a company owned by Richard Ingham who was a non-executive director of the Board up until his resignation on 11 May 2016. No balance was outstanding at 31 December 2016 (2015: GBP0.12 million).

During the year ended December 2015, the Group procured consultancy services totalling GBP0.03 million (2015: GBP0.03 million) from Springtime Consultants Ltd., a company owned by Marcus Yeoman, a non-executive director of the Board during the period. No balance was outstanding at 31 December 2016 (2015: GBP0.02 million).

16. SUBSEQUENT EVENTS

On 24 January 2017, 3 new members were appointed to the Board of Directors:

Lord Michael Grade - Non Executive

Claire Hungate - Non Executive

Linzi Allen - Executive (Group Finance Director)

On 31(st) March 2017 PNC entered into an Amendment, Consent and Waiver agreement with the Group. The waiver covered the Groups beach of covenant in August, September and October of 2016 and was effective from January 2017. The monthly financial covenants were also amended to be measured each month end on a rolling 12 month basis from January 2017 onwards.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR OKPDPOBKDAQB

(END) Dow Jones Newswires

April 26, 2017 02:00 ET (06:00 GMT)

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