TIDMR4E
RNS Number : 2943O
Reach4Entertainment Enterprises PLC
27 May 2015
27 May 2015
reach4entertainment enterprises plc ('r4e', 'the Company' or
'the Group')
Final results for the year ended 31 December 2014
r4e, the transatlantic media and entertainment company, today
announces its results for the year ended 31 December 2014.
Highlights
2014 2013 Change
Revenue GBP83.3m GBP75.8m 10%
Gross profit GBP20.1m GBP19.4m 4%
Adjusted EBITDA(1) GBP2.6m GBP1.9m 37%
Operating (loss)/profit GBP(4.3)m(2) GBP1.1m (503)%
(Loss)/profit
before tax GBP(5.1)m(2) GBP0.31m (1,762)%
(1) Adjusted EBITDA is EBITDA before exceptional items and
impairment of goodwill
(2) Operating (loss)/profit and (loss)/profit before tax is
after impairment of goodwill
-- 2014 saw r4e launch 19 new theatre shows on Broadway and 14
more off Broadway and support the continuing success of long
running favourites in London, resulting in revenues increasing by
10% for the year.
-- Spotco, our New York based theatre and live entertainment
business, benefited from the positive US market and contributed
strongly to the Group's Adjusted EBITDA(1) and profit before tax
which increased by 37 per cent and 305 per cent respectively.
-- As announced on 7 February and 11 May 2015, the Directors are
in discussions with the Company's bank and third parties as to how
best to restructure the current bank loan or replace it altogether.
Whilst there can be no guarantee that these discussions will be
successful or that an agreement will be reached with the Company's
bankers, the Directors of r4e remain hopeful that a satisfactory
resolution will be achieved. As part of these discussions, a review
of the value of the goodwill relating to the Company's subsidiaries
has been undertaken and as a result an impairment was required in
the 2014 accounts resulting in an operating loss of GBP4.3m (2013:
profit of 1.07m).
Looking ahead, the Company remains focused on supporting its
first class teams across the business in continuing to deliver
modern, market leading promotional strategies for theatre, live
acts and film.
Commenting on the results, David Stoller, Executive Chairman,
said, "The Group has performed well in 2014, with an increase in
revenues and EBITDA, supported by a well-managed cost base. SpotCo
in particular achieved record revenues in the first half of the
year, although it should be noted that this was due to a number of
significant one-off projects. Dewynters had a more challenging year
due to a number of show closures in the West End, which was largely
offset by a reduction in overheads. Looking ahead, the business
remains well placed and we are continuing positive discussions with
our main lender to create a future financial base which will
support our ability to maintain and extend our position as market
leaders in promoting theatre, film and live entertainment
events."
31 December 2014 Full Report and Accounts
The Company will shortly post its report and accounts for the
year ended 31 December 2014 to shareholders, along with notice of
the annual general meeting to be held at 10.30a.m on 30 June 2015,
and both documents will soon be available on its website,
www.r4e.com.
Enquiries:
reach4entertainment
David Stoller, Executive Chairman +44 (0) 20 7968 1655
Novella Communications - Financial PR
Tim Robertson +44 (0) 207 6303843
Ben Heath +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
2014 benefited from continuing efficiency drives
2014 saw r4e promote 78 shows in both London and New York
theatres and support the launch of 70 international films,
confirming our position as the leader in theatre and film
promotion. Musicals continue to be the largest part of the theatre
market and therefore a critical segment of which r4e continues to
have a dominant share. Our experience in these markets runs deep,
confirmed by our underlying solid trading performance.
The Group benefitted from a positive trading performance,
particularly in New York, and the effects of the restructuring
undertaken during 2013, which further reduced central overheads,
have had a positive impact on the profitability of the business in
2014. Our market is highly competitive and we needed to refocus the
business on our core skills, with an aligned cost-base that
supports the future potential of the Company.
We have continued to enhance efficiencies during the twelve
month period and it is our objective that we will keep all costs
under continuous review.
Improved Trading performance
The Group delivered a significant improvement in revenue growth
and adjusted EBITDA in the twelve months to 31 December 2014.
Group revenue increased by 10 per cent to GBP83.3 million (2013:
GBP75.7 million), with trading more equally balanced between half
year periods of the financial year due to SpotCo's strong start in
the first six months.
Underlying profitability for r4e (Adjusted EBITDA*) improved by
37 per cent to GBP2.6 million (2013: GBP1.9 million), benefitting
from a reduction in administrative expenses and head office costs.
There were two exceptional items in the year: a net exceptional
benefit of GBP0.264 million relating to landlord compensation on
the Newmans property under the Landlord and Tenants Act 1954,
(2013: GBP0.91 million); and exceptional costs of GBP0.243 million,
which included GBP0.197 million relating to redundancy costs and
GBP0.046 million of costs related to the Newmans property lease
expiry (2013: GBP0.80 million in office move costs).
Result before tax reduced by GBP5.43 million to a loss of GBP5.1
million (2013: profit of GBP0.3 million) as a result of the
impairment of goodwill in relation to the Dewynters Group as
explained below.
Loss per share from total operations for the year is 8.03p
(2013: earnings of 0.54p). The reduction in EPS is due, in the
main, to the impairment of goodwill in Dewynters of GBP6.43m, but
also to a tax charge in the year of GBP0.9m (2013: a credit of
GBP0.01m), as SpotCo has utilised all brought-forward losses and is
now in a tax-paying position for the first time since
incorporation.
On 8 April 2014 the Company announced the completion of a
successful bank refinancing agreement with AIB to restructure its
existing GBP14.8 million revolving credit facility. The agreement,
for which covenants have been agreed, establishes a six year term
from 7 April 2014 and a new interest rate of 3 per cent over LIBOR.
The new agreement replaces r4e's previous agreement with AIB which
was due to expire in 2015 and had an interest rate of 4 per cent
over LIBOR, rising to 5 per cent over LIBOR from 26 April 2014. As
a result, an interest saving of GBP0.13m was realised in 2014
compared to the interest which would otherwise have been owed. The
Group has a new set of quarterly financial covenants under the
restructured AIB credit facility, and as at 31 December 2014, these
covenants were met in full.
On 7 February and 11 May 2015, the Company announced that the
Directors of r4e are in discussions with the Company's bank with
regards to a restructuring of the Company's bank loan or to replace
it altogether. Whilst there can be no guarantee that these
discussions will be successful or that an agreement will be reached
with the Company's bank, the Directors of r4e remain hopeful that a
satisfactory resolution will be achieved.
* Adjusted EBITDA is EBITDA before exceptional items and
impairment of goodwill
Market leading positions underpin continued trading success
The Group's operations consist of the London and New York based
theatre and live entertainment marketing businesses of Dewynters
and SpotCo respectively, together with the London based signage and
fascia business, Newman Displays Ltd ('Newmans').
In London, Dewynters and Newmans, generated combined revenues of
GBP31.2 million (2013: GBP36.0 million) and adjusted EBITDA of
GBP0.7 million (2013: GBP1.3 million).
Dewynters' performance was affected by the unanticipated
cancellation of a number of West End shows in the first six months
of trading. It continues to grow its non-West End related work of
theatrical and musical projects in Europe whilst the Touring
Division, established two years ago to provide marketing services
to touring productions of theatre and other live events, continues
to expand in the UK and Europe.
Newmans had a challenging first six months, during which there
was a decline in the number of film premieres in the UK market and
a major central London cinema chose to digitalise its external
advertising hoardings. Newmans did benefit from a busy lead up to
Christmas for film premieres, as well as the build-up to the
Oscars, in which the film industry invested heavily in promoting
Oscar contenders.
The Group's New York operating company, SpotCo, continued to
perform strongly in 2014, reporting a 31.2% per cent revenue
increase to GBP51.8 million (2013: GBP39.4 million), and an
improvement in Adjusted EBITDA(1) of 109 per cent to GBP2.3 million
(2013: GBP1.1 million).
This improvement was achieved through a combination of buoyant
market conditions on Broadway and the continued growth of its
client base, supplemented through the delivery of a number of
significant one-off projects. Additionally, a number of SpotCo's
shows enjoyed success in award ceremonies, resulting in longer than
expected runs. This exceptional performance is not expected to be
repeated in 2015; management expect that SpotCo will experience
solid, if more "normal" trading in the current year.
Dewynters Advertising Agency ("DAI"), now a much more modest
contributor to turnover, also saw an improvement in performance
from 2013 resulting from the restructuring of the business and a
substantial reduction in operating costs. Therefore, although
revenues were down on prior year by 22%, adjusted EBITDA in 2014
was GBP16,000 compared to an EBITDA loss of GBP30,000 in 2013.
Discussions on bank debt
While the business overall is in a good position, and management
has reduced costs as much as practicable, the level of debt is too
great for a Company of this size, and needs to be reduced,
particularly if the Company is to have the ability to invest in its
future potential in an evolving digital world, and maintain its
market leading position. In addition, under the current facility
agreement, the Company has a significant capital repayment to make
in 2016. Currently, the Group has borrowings of GBP14.8 million and
as at the date of these results the company's market capitalisation
was GBP0.82 million.
Therefore, we have initiated discussions with our lenders,
Allied Irish Bank, and third parties to restructure or replace the
current loan. An announcement will be released to the market as
soon as the outcome is known.
As part of these discussions, a review of the carrying value of
the subsidiaries was undertaken and as a consequence there was an
impairment of the goodwill held against the Company's subsidiaries
in in the 2014 accounts. This goodwill was generated from amounts
paid in consideration of the businesses based upon the acquisition
price, and an impairment of GBP6.43 million has been required in
the year in relation to the goodwill held in the Dewynters Group
(see note 8 of the accounts for more detail).
2015 will be another year of development and progress
2014 clearly benefitted from some exceptional one-off revenue
events in SpotCo which are unlikely to be repeated in 2015. That
said, the actions we have taken across the group to focus the
business on its core activities, and correspondingly reduce the
cost base in line with our operating activities, have helped to
both build on this profitability in the US, and reduce the impact
of the declining performance in the 2014 UK theatre market.
Looking ahead, the Directors of r4e remain hopeful of a
satisfactory resolution on discussions with AIB and that this will
enable the Company to build a much stronger financial position
which will allow the Group to expand, leveraging off the core
competencies of the businesses. We anticipate another year of
development and progress as we look to maintain our market leading
positions in London and New York, whilst investing in and expanding
new digital capacities and related markets.
David Stoller
Executive Chairman
26 May 2015
REVIEW OF PERFORMANCE BY COMPANY
Year ended 31 December 2014
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 27,600 3,570 31,170 51,827 285 52,112 - 83,282
Adjusted
EBITDA* 458 223 681 2,286 16 2,302 (336) 2,647
Operating
profit (6,194) 322 (5,872) 1,897 16 1,913 (342) (4,301)
Year ended 31 December 2013
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 32,299 3,704 36,003 39,380 366 39,746 - 75,749
Adjusted
EBITDA* 787 466 1,253 1,123 (30) 1,093 (439) 1,907
Operating
profit/(loss) 977 428 1,405 149 (30) 119 (456) 1,068
*Adjusted EBITDA is before exceptional items and goodwill
impairment.
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER
2014
2014 2013
Note GBP'000 GBP'000
Continuing operations
Revenue 1 83,282 75,749
Cost of sales 5 (63,170) (56,348)
GROSS PROFIT 20,112 19,401
Administrative expenses 5 (24,413) (18,333)
EBITDA before exceptional items 2,647 1,907
Exceptional administrative expenses 2 (243) (790)
Exceptional administrative income 2 264 907
Impairment of goodwill 8 (6,430) (181)
Depreciation (344) (313)
Amortisation of intangible assets 8 (195) (462)
OPERATING (LOSS)/PROFIT (4,301) 1,068
Finance income 3 60 121
Finance costs 4 (879) (881)
-------- --------
(LOSS)/PROFIT BEFORE TAXATION (5,120) 308
Taxation 6 (873) 93
(LOSS)/PROFIT FOR THE YEAR (5,993) 401
The (loss)/profit is attributable
to the equity holders of the
parent
Basic and diluted (loss)/earnings
per share
7 (8.03) 0.54
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR
ENDED 31 DECEMBER 2014
2014 2013
GBP'000 GBP'000
(LOSS)/PROFIT FOR THE YEAR (5,993) 401
-------- --------
Other comprehensive income:
Items that will not be reclassified
to profit and loss:
Currency translation differences 245 (107)
Other comprehensive income for
the year, net of tax 245 (107)
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR ATTRIBUTABLE TO THE
OWNERS OF THE PARENT (5,748) 294
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 6.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER
2014
2014 2013
Note GBP'000 GBP'000
NON-CURRENT ASSETS
Goodwill and intangible assets 8 10,859 17,158
Property, plant and equipment 2,448 2,496
Deferred tax asset 88 163
13,395 19,817
CURRENT ASSETS
Inventories 401 281
Trade and other receivables 12,240 10,343
Other current assets 473 445
Cash and cash equivalents 2,446 1,876
15,560 12,945
TOTAL ASSETS 28,955 32,762
======== =========
CURRENT LIABILITIES
Trade and other payables (15,840) (13,848)
Borrowings 9 (1,896) (634)
(17,736) (14,482)
NET CURRENT LIABILITIES (2,176) (1,537)
NON-CURRENT LIABILITIES
Deferred taxation (1,349) (1,224)
Other payables 10 (1,460) (1,250)
Borrowings 9 (14,155) (15,803)
(16,964) (18,277)
-------- ---------
TOTAL LIABILITIES (34,700) (32,759)
NET (LIABILITIES)/ASSETS (5,745) 3
EQUITY
Called up share capital 1,872 1,872
Share premium 13,501 13,501
Capital redemption reserve 15 15
Retained earnings (20,836) (14,843)
Own shares held (259) (259)
Foreign exchange reserve (38) (283)
TOTAL (DEFICIT)/EQUITY ATTRIBUTABLE
TO EQUITY HOLDERS OF THE PARENT (5,745) 3
======== =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 31 DECEMBER
2014
Capital Own Foreign
Share Share Redemption Retained Shares Exchange Total
capital premium reserve earnings held reserve Equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
ATTRIBUTABLE TO EQUITY HOLDERS OF
THE PARENT
At 31 December 2012 1,872 13,501 15 (15,244) (259) (176) (291)
Profit for the year - - - 401 - - 401
Other comprehensive income, net of
tax:
Currency translation differences - - - - - (107) (107)
--------- --------- ------------ ---------- --------- ---------- ---------
Total comprehensive income for the
year - - - 401 - (107) 294
At 31 December 2013 1,872 13,501 15 (14,843) (259) (283) 3
(Loss) for the year - - - (5,993) - - (5,993)
Other comprehensive income, net of
tax:
Currency translation differences - - - - - 245 245
Total comprehensive income for the
year - - - (5,993) - 245 (5,748)
At 31 December 2014 1,872 13,501 15 (20,836) (259) (38) (5,745)
--------- --------- ------------ ---------- --------- ---------- ---------
ATTRIBUTABLE TO EQUITY HOLDERS OF
THE PARENT 1,872 13,501 15 (15,244) (259) (176) (291)
At 31 December 2014
--------- --------- ------------ ---------- --------- ---------- ---------
- - - 401 - - 401
========= ========= ============ ========== ========= ========== =========
CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 31 DECEMBER 2014
2014 2013
Note GBP'000 GBP'000
Cash generated from operating
activities 11 2,494 2,485
Income taxes paid (723) (136)
Net cash generated from operating
activities 1,771 2,349
Investing activities
Finance income - 1
Purchases of property, plant
and equipment (194) (2,444)
Proceeds from disposal of
property, plant and equipment 3 1
Proceeds from landlord reimbursement
towards property, plant and
equipment 10 - 836
Proceeds from sale of investments - 20
Payment of deferred consideration 9 (615) (645)
Dividends received from associated
undertaking 3 60 93
Net cash used in investing
activities (746) (2,138)
Financing activities
Repayments of borrowings - (15)
Proceeds from loan granted
by Related Party 12 - 388
Repayment of loan granted
by Related Party 12 - (388)
Interest paid (502) (656)
Net cash used in financing
activities (502) (671)
Net increase/(decrease) in
cash and cash equivalents 523 (460)
Cash and cash equivalents
at the beginning of the year 1,876 2,316
Effect of foreign exchange
rate changes 47 20
Cash and cash equivalents
at the end of the year 2,446 1,876
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 2014 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 the opinion on the financial statements, which is not
modified, the auditors have considered the adequacy of the
disclosure set out below concerning the group's ability to continue
as a going concern. The group had net current liabilities of
GBP5.75 million as at 31 December 2014 and non-current borrowings
of GBP14.16 million. There are quarterly financial covenants
attached to the group's non-current bank borrowings of GBP14.8
million and quarterly repayments are due in relation to deferred
consideration outstanding.
These conditions, along with the other matters explained in the
disclosure below, indicate the existence of a material uncertainty
which may cast significant doubt about the group and the parent
company's ability to continue as a going concern. The financial
statements do not include the adjustments that would result if the
group was unable to continue as a going concern.
GOING CONCERN
As at 31 December 2014 the Group had net liabilities of GBP5.75
million (31 December 2013: net assets GBP0.003 million) and made an
operating loss in the year then ended of GBP4.3 million (year ended
31 December 2013: profit of GBP1.07 million).
In 2012 the Group agreed a debt repayment schedule for the
remaining deferred consideration in relation to the SpotCo
acquisition in 2008. During the 2014 year GBP0.62 million was
repaid against this debt (2013 year GBP0.65 million) and no
outstanding payments were due as at 31 December 2014 (2013: Nil).
The final cash payment of USD $1.0 million (GBP0.64 million) plus
interest is repayable in 2015, leaving a further remaining balance
at the end of October 2015 of USD $1.0 million (GBP0.64 million)
which r4e has the right to require satisfaction of by the
subscription of Ordinary Shares at the prevailing mid-market price
(see note 9).
In April 2014 the Group agreed a debt repayment schedule in
relation to the AIB Group bank debt of GBP14.8million. The facility
matures in April 2020 and numerous capital repayments will be made
over the term of the facility at amounts and dates specified in the
facility agreement. Subsequent to year end, the first repayment of
GBP0.2m has been paid in April 2015 and accelerated capital
repayments follow thereafter. A new set of financial covenants were
agreed with AIB Group in relation to this debt. The covenants are
measured quarterly over the remaining term of the facility and all
covenants were met during the year. The Directors have prepared and
reviewed detailed forecasts going out until 2020, which indicate
that there are material uncertainties over future significant
repayments of the bank debt. This has led to the initiation of
discussions with the Company's bankers AIB Group. The Board is
confident that these discussions 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 above factors, the existence of the bank debt
repayments, 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
and the discussions with AIB Group will result in a resolution over
the uncertainty of significant future repayments. 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.
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.
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.
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 credit facility with Allied AIB Group. More
details on the bank debt will be included in the full audited
report and accounts and also in the borrowings note 9 below. The
covenants were met in full during the year and as at 31 December
2014.
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 2014 is presented below.
NY London Head
operations operations Office Group
GBP'000 GBP'000 GBP'000 GBP'000
Revenue
Sale of goods 285 2,196 - 2,481
Provision of services 51,827 28,974 - 80,801
Revenue (all external
customers) 52,112 31,170 - 83,282
Adjusted EBITDA* 2,302 681 (336) 2,647
Exceptional administrative
expense - (243) - (243)
Exceptional administrative
income - 264 - 264
Depreciation (194) (144) (6) (344)
Amortisation and
impairment (195) (6,430) - (6,625)
Operating profit/(loss) 1, 913 (5,872) (342) (4,301)
Finance income - 60 - 60
Finance costs - (1) (878) (879)
Profit/(loss)
before tax 1,913 (5,813) (1,220) (5,120)
============ =============== ========= =========
Tax (charge)/credit (716) (753) 596 (873)
Profit/(loss)
after tax 1,197 (6,566) (624) (5,993)
============ =============== ========= =========
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.
*Adjusted EBITDA is before exceptional items.
Head
NY London Office
operations operations operations Group
GBP'000 GBP'000 GBP'000 GBP'000
Capital additions:
Property, plant and equipment 146 36 12 194
============ ============ ============ =========
Balance sheet:
Segment assets
Non-current assets 7,285 6,076 34 13,395
Current assets 9,229 6,295 36 15,560
------------ ------------ ------------ ---------
Total segment assets 16,514 12,371 70 28,995
============ ============ ============ =========
Liabilities
Total segment liabilities (11,658) (5,617) (17,425) (34,700)
Segment information for continuing operations of the Group for
the year ended 31 December 2013 is presented below
NY London Head
operations operations Office Group
GBP'000 GBP'000 GBP'000 GBP'000
Revenue
Sale of goods 366 2,196 - 2,562
Provision of services 39,380 33,807 - 73,187
Revenue (all external
customers) 39,746 36,003 - 75,749
Adjusted EBITDA* 1,093 1,253 (439) 1,907
Exceptional administrative
expense (393) (393) (4) (790)
Exceptional administrative
income - 907 - 907
Depreciation (180) (120) (13) (313)
Amortisation and
impairment (401) (242) - (643)
Operating profit/(loss) 119 1,405 (456) 1,068
Finance income 2 93 26 121
Finance costs (4) (4) (873) (881)
Profit/(loss)
before tax 117 1,494 (1,303) 308
============ ============ ========= =========
Tax credit/(charge) 107 (1,027) 1,013 93
Profit/(loss)
after tax 224 467 (290) 401
============ ============ ========= =========
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.
*Adjusted EBITDA is before exceptional items.
Head
NY London Office
operations operations operations Group
GBP'000 GBP'000 GBP'000 GBP'000
Capital additions:
Property, plant and equipment 1,690 749 5 2,444
============ ============ ============ =========
Balance sheet:
Segment assets
Non-current assets 7, 144 12,649 24 19,817
Current assets 6,429 6,310 206 12,945
------------ ------------ ------------ ---------
Total segment assets 13,573 25,959 230 32,762
============ ============ ============ =========
Liabilities
Total segment liabilities (8,437) (6,482) (17,840) (32,759)
2. EXCEPTIONAL ADMINISTRATIVE ITEMS
2014 2013
GBP'000 GBP'000
Office move costs (46) (790)
Employee contract termination (197) -
related costs
Exceptional administrative
expenses (243) (790)
Landlord and Tenants Act
reimbursement 264 907
Exceptional administrative
income 21 117
In 2014 the 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.
The surrender of the leases resulted in compensation from the
Landlord of GBP0.26m as the tenancy was within the scope of the
Landlords and Tenants Act 1954. 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. To this end the companies remain at the original
location but have received compensation due to the surrender of the
old lease, which has been recognised as exceptional administrative
income. The new lease does not fall under the Landlords and Tenants
Act 1954. Exceptional expenses of GBP0.05 million relate to the
search for new premises plus negotiation for the new leases with
the current landlord.
Exceptional expenses of GBP0.2m for Dewynters employee contract
termination costs are considered exceptional due to the level of
redundancy required as a result of company performance in 2014.
Exceptional office move costs in the prior year ended 31
December 2013 relate to relocation of SpotCo offices in New York
and the Dewynters offices in London. Costs include search fees,
legal and removal costs, plus rent required to be paid on both new
and old offices during the build-out of the moves. Operating profit
for London was boosted by exceptional income from Dewynters of
GBP0.91 million. This was compensation received as the lease was
under the scope of the Landlords and Tenants Act 1954, resulting
from the enforced move of Dewynters to enable redevelopment of the
premises.
3. FINANCE INCOME
2014 2013
GBP'000 GBP'000
Bank interest received - 1
Dividend income from associated
undertaking 60 93
Foreign exchange gain on
borrowings - 2
Foreign exchange gain on
deferred consideration (note
9) - 25
60 121
Dividend income received in the year ended 31 December 2014 of
GBP59,824 (2013: GBP92,727) is from the associate undertaking
Theatrenow Limited, in which Dewynters Limited has a 29.91%
shareholding.
4. FINANCE COSTS
2014 2013
GBP'000 GBP'000
Bank interest - 2
Interest on bank loans 563 644
Interest on related party
loan (note 12) - 10
Amortisation of arrangement
fees for bank loan 87 4
Unwinding of discounting
on deferred consideration
(note 9) 154 220
Foreign exchange loss on
trade - 1
Foreign exchange loss on 75 -
deferred consideration (note
9)
879 881
5. EXPENSES BY NATURE
2014 2013
GBP'000 GBP'000
Media, marketing and promotional
services 62,503 55,693
Staff costs 12,325 12,558
Depreciation, amortisation
and impairment 6,969 956
Exceptional administrative
income (note 2) (21) (117)
General office expenses 2,612 2,773
Operating lease payments:
Land and buildings 1,324 1,334
Plant and machinery 247 337
Professional costs 1,042 707
Travelling 423 370
Other 159 70
Total cost of sales and administrative
expenses 87,583 74,681
6. TAXATION
2014 2013
GBP'000 GBP'000
Current tax:
Overseas tax on profits/(losses)
of the year 716 (3)
Total current tax charge/(credit) 716 (3)
Deferred tax:
Deferred tax charge/(credit)
for the year 147 (137)
Deferred tax rate change - (88)
Deferred tax - adjustment in
respect of previous periods 10 135
Total deferred tax 157 (90)
Tax charge/(credit) on loss
of ordinary activities 873 (93)
Factors affecting the tax charge/(credit) for the year:
2014 2013
GBP'000 GBP'000
The tax assessed for the year
differs from the effective
average rate of corporation
tax in the UK of 21.5% (2013:
23.25%). The differences are
explained below:
(Loss)/profit on ordinary
activities before tax (5,120) 308
(Loss)/profit on ordinary
activities multiplied by effective
average rate of corporation
tax in the UK of 21.5% (2013:
23.25%) (1,101) 72
Effects of:
Expenses not deductible for
tax purposes 1,413 175
Income not subject to tax (14) (232)
Depreciation on non-qualifying
assets 5 5
Difference in tax rates on
overseas earnings 364 3
UK losses not utilised 192 42
Overseas losses utilised - (104)
Newly recognised deferred
tax - (104)
Change in corporation tax
rates 2 (85)
Adjustment in respect of previous
periods 12 135
Total tax charge/(credit)
for the year 873 (93)
A deferred tax asset of approximately GBP0.87 million (2013:
GBP0.69 million) has not been recognised due to uncertainty over
future profitability. At 31 December 2014, the Group had losses
carried forward of GBP4.3 million (2013: GBP3.5 million), available
for offset against future profits.
Taxation is calculated at the rates prevailing in the respective
jurisdictions. The standard tax rates in each jurisdiction are 40%
in the United States (2013: 40%) and 21% in the United Kingdom
(2013: 23%).
7. (LOSS)/EARNINGS PER SHARE
The calculations of earnings per share are based on the
following (loss)/profits and number of shares:
(Loss)/Profits attributable to equity holders of the company
2014 2013
GBP'000 GBP'000
For basic and diluted profit
per share
(Loss)/Profit for financial
year (5,993) 401
Number Number
Number of shares
Weighted average number of
ordinary shares for the purposes
of basic and diluted earnings
per share 74,635,792 74,635,792
=========== ===========
(Loss)/Earnings per share (pence)
after tax
Total operations after tax (8.03) 0.54
8. GOODWILL AND INTANGIBLE ASSETS
Brands Customer relationships Purchased goodwill Total
GBP'000 GBP'000 GBP'000 GBP'000
Cost
1 January 2013 4,086 4,154 13,478 21,718
Foreign exchange differences (34) (39) (85) (158)
31 December 2013 4,052 4,115 13,393 21,560
Foreign exchange differences 111 - 278 389
Write down - (1,508) - (1,508)
31 December 2014 4,163 2,607 13,671 20,441
Amortisation
1 January 2013 773 3,059 - 3,832
Charged in the year 155 307 - 462
Impairment charge - - 181 181
Foreign exchange differences (24) (49) - (73)
31 December 2013 904 3,317 181 4,402
Charged in the year 134 61 - 195
Write down - (1,508) - (1,508)
Impairment charge - - 6,430 6,430
Foreign exchange differences 63 - - 63
31 December 2014 1,101 1,870 6,611 9,582
Net book value
31 December 2014 3,062 737 7,060 10,859
31 December 2013 3,148 798 13,212 17,158
31 December 2012 3,313 1,095 13,478 17,886
Goodwill relates to the anticipated profitability and future
operating synergies arising on the acquisition of subsidiaries.
Write down of customer relationships relate to SpotCo intangible
assets with zero net book value where the relationship with the
client no longer exists.
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:
2014 2013
GBP'000 GBP'000
----------------------------- ---------- ----------
Dewynters Group (Dewynters,
Newmans, DAI) 2,316 8,745
SpotCo 4,744 4,467
Total Goodwill 7,060 13,212
An impairment charge of GBP6.43 million was incurred in the year
on the Dewynters Group (inclusive of Dewynters, Newman Displays and
DAI) (2013: GBP0.18 million in DAI alone). As a result of
discussions currently taking place with the Company's bank and
third parties on how best to restructure the Company's bank loan or
replace it altogether, an independent valuation was obtained which
highlighted to Management the possible need for a further review of
the valuations of its CGUs. Although the previous impairment
reviews were deemed appropriate and were compliant with accounting
standards, the process being undertaken with the Company's bank has
resulted in further review of these values and resulted in the
impairment to the goodwill in the Dewynters Group. The Company has
reviewed its value-in-use calculations and identified that the
goodwill held against the Dewynters Group of companies should be
impaired resulting in a GBP6.43 million write down recognised in
the 2014 year end accounts. As at 31 December 2014 the recoverable
amount of the Dewynters Group is GBP6.08 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 2015 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
2014 are as follows:
Dewynters
Group SpotCo
----------------------------------- --------- -------
Revenue growth/(fall) - 1 year 0.52% (12.2%)
Revenue growth per annum - years
2-5 1.5% 1.5%
Cost growth - employee costs
from year 1 (3.18%) 5.1%
Cost growth per annum - employee
costs from years 2-3 2% 2%
Cost growth per annum - employee
costs years 4-5 1.5% 1.5%
Cost growth - overhead costs
from year 1 1.5% 1.5%
Cost growth - overhead costs
from years 2-5 1.5% 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 CGUs 2015
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 percentage (fall)/increase in any
one of these key assumptions could result in a removal of the
headroom in the value-in-use calculations in 2014:
Dewynters
Group SpotCo
----------------------------------- --------- ------
Revenue (fall)- 1 year (0.5%) (4%)
Revenue (fall) - remainder (0.2%) (1.5%)
Cost growth - employee costs
from year 1 1% 5%
Cost growth per annum - employee
costs from years 2-3 0.5% 2%
Cost growth per annum - employee
costs years 4-5 2.5% 4%
Cost growth - overhead costs
from year 1 2% 20%
Cost growth - overhead costs
from year 2-5 1% 8%
Discount rate increase 2% 8%
Capitalisation rate increase 2% 18.5%
Brands and customer relationships are all derived from
acquisitions; there are no internally generated intangible assets.
The brand allocated to the Dewynters Limited CGU totalling GBP2.26
million (2013: GBP2.26m) 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 GBP0.80 million (2013: GBP0.88m) is being amortised
over 15 years and has 9 years remaining.
The useful economic life for customer relationships within
Dewynters is 20 years of which 13 are remaining as at 31 December
2014. It has a carrying value of GBP0.74 million and GBP0.06
million was charged to amortisation in the year. Customer
relationships within SpotCo were fully amortised in the prior year
resulting in a carrying value of GBPnil at year end (2013:
GBP0.0m).
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.
9. BORROWINGS
2014 2013
GBP'000 GBP'000
Current:
Deferred consideration 1,266 634
Bank loans 630 -
1,896 634
Non-current:
Bank loans 14,155 14,785
Deferred consideration - 1,018
Analysis of borrowings:
On demand or within one year
Deferred consideration 1,266 634
Bank loans 630 -
1,896 634
In the second to fifth years inclusive
Bank loan - revolving facility 14,155 14,785
Deferred consideration - 1,018
14,155 15,803
Amounts due for settlement 16,051 16,437
Less amounts due within one year (1,896) (634)
Amounts due for settlement after one year 14,155 15,803
Analysis of borrowings by currency:
Sterling USD Total
GBP'000 GBP'000 GBP'000
31 December 2014
Bank loans 14,785 - 14,785
Deferred consideration - 1,266 1,266
14,785 1,266 16,051
Sterling USD Total
GBP'000 GBP'000 GBP'000
31 December 2013
Bank loans 14,785 - 14,785
Deferred consideration - 1,652 1,652
14,785 1,652 16,437
The revolving credit facility (bank loan) with AIB Group has
interest payable at a rate 3% over LIBOR (2013: 4% over LIBOR). On
top of a fixed and floating charge over its assets, the Group has
given AIB Group an unlimited guarantee in respect of these
borrowings. The Group has a set of financial covenants with AIB
Group in relation to loan which are measured quarterly and were met
in full as at 31 December 2014.
DEFERRED CONSIDERATION
Deferred consideration results from the Group's acquisition of
SpotCo in 2008. On 14 November 2012 a debt repayment agreement was
entered into and the fixed outstanding debt was discounted at that
date. Interest from this discounting is unwinding over the term of
the repayment agreement. Details on the assumptions used in the
discount rate used on deferred consideration are the same as those
used to test goodwill for impairment and are disclosed in note
8.
Deferred consideration is payable as follows:
2014 2013
GBP'000 GBP'000
Within one year 1,266 634
Between one and two years - 1,018
1,266 1,652
========= =========
Included within deferred consideration of GBP1.27 million is
GBP0.64 million (USD$1 million) which can be converted to equity
once all other amounts are paid in full. Once GBP0.63 million has
been repaid in 2015, r4e has the right to require the remaining
US$1 million deferred consideration due to be satisfied by the
subscription of Ordinary Shares at the prevailing mid-market price.
If the number of Ordinary Shares so issued would cause an
obligation to make a mandatory offer for the entire issued share
capital of r4e under Rule 9 of the City Code on Takeovers and
Mergers, the vendor shall be obliged to subscribe only for such
number of Ordinary Shares as would not trigger such obligation, and
the balance of the debt due will be written off.
Movements on deferred consideration during the year are as
follows:
2014 2013
GBP'000 GBP'000
Opening balance 1,652 2,103
Unwinding of discounting on deferred consideration (note 4) 154 220
Payments of deferred consideration - cash (615) (645)
Foreign exchange differences 75 (26)
Closing balance 1,266 1,652
========= =========
Repayments which started on 1 January 2013, are being made in 12
quarterly cash instalments of US$0.25 million. As at 31 December
2014, 4 payments remain.
10. OTHER NON CURRENT PAYABLES
Landlord reimbursement accrual
Amounts in non-current other payables of GBP0.66 million (31
December 2013: GBP0.67 million) relate to the re-imbursement of
leasehold improvement costs from SpotCo's landlord at the new New
York office. As with many US leases SpotCo, as tenant, had to
undertake a programme of complete refurbishment of the property and
some of these expenses, related to the provision of basic utilities
and services, were then refunded by the landlord. 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.
GBP0.06 million was unwound during the year (31 December 2013:
GBP0.05 million). Amounts in current liabilities relating to the
reimbursement total GBP0.06 million (31 December 2013: GBP0.05
million).
2014 2013
GBP'000 GBP'000
Within one year 55 55
--------- ---------
Between two and five years 220 218
More than five years 435 454
655 672
========= =========
Rent holiday accrual
Other amounts in non-current other payables of GBP0.81 million
(31 December 2013: GBP0.58 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.
2014 2013
GBP'000 GBP'000
Within one year 38 36
--------- ---------
Between two and five years 523 238
More than five years 282 340
--------- ---------
805 578
Total non-current payables 1,460 1,250
========= =========
11. CASH GENERATED FROM OPERATIONS
2014 2013
GBP'000 GBP'000
Reconciliation of net cash
flows from operating activities
(Loss)/profit before taxation (5,120) 308
Adjustments:
Finance costs 879 881
Finance income (60) (121)
Depreciation 344 313
Amortisation of intangibles 195 462
Impairment of goodwill 6,430 181
Profit on sale of investment - (20)
Operating cash flows before
movements in working capital 2,668 2,004
(Increase) in inventories (120) (54)
(Increase) in trade and other
receivables (1,897) (1,031)
Increase in trade and other
payables 1,843 1,566
Cash generated from operating
activities 2,494 2,485
12. RELATED PARTY DISCLOSURES
During the year ended 31 December 2014, transactions with Key
Management Personnel are in relation to Directors of the Group and
are presented in Directors Remuneration tables on page 18 and note
6 to the audited financial statements.
During the prior year ended 31 December 2013, SpotCo entered
into a bridge loan facility agreement (the "Facility Agreement")
with Stoller Family Partners LP to augment internal cash-flows to
finance the up-front refurbishment costs of the office relocation
in New York. A maximum of $0.6 million could be drawn down under
the Facility Agreement which fell due for repayment within 90 days
of SpotCo having been reimbursed by the landlord. Under the terms
of the lease agreement entered into by SpotCo, the landlord had a
contractual obligation to repay a maximum of $1.25 million of
refurbishment costs incurred by SpotCo, once the works have been
completed. The Facility had an arrangement fee of $5,000 and
interest was charged on funds drawn down at a rate of 8 per cent
per annum. As at 31 December 2013, the $0.6 million loan plus
arrangement fee and GBP0.01 million of interest had been repaid to
Stoller Family Partners LP leaving no outstanding balance as at
2013 year end.
Stoller Family Partners LP is classified as a related party of
the Company by virtue of being an existing substantial shareholder
in the Company and also due to David Stoller, Executive Chairman of
the Company, being a General Partner and a substantial shareholder
in Stoller Family Partners LP.
Dividend income received in the year ended 31 December 2014 of
GBP59,824 (2013: GBP92,727) is from the associate undertaking
Theatrenow Limited, in which Dewynters Limited has a 29.91%
shareholding.
13. TRANSACTIONS WITH DIRECTORS
At 31 December 2014, the Group owed David Stoller GBP61 (2013:
GBP1,026 repaid in 2014). The loan was non-interest bearing and no
terms and conditions were attached.
14. SUBSEQUENT EVENTS
The Company is currently funded by a significant bank loan.
Subsequent to year end, and as at the current date of these
accounts, the Directors continue to be in discussions with the
Company's bank and third parties on how best to restructure this
bank loan or replace it altogether. Whilst there can be no
guarantee that these discussions will be successful or that an
agreement will be reached with the Company's bankers, the Directors
of r4e remain hopeful that a satisfactory resolution will be
achieved. The Company has, to date, made all the required
repayments under the existing bank facility agreement and is not in
breach of the financial covenants in the agreement. AIB Group
continues to charge interest on the credit facility at LIBOR + 3.0%
per annum.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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