a4 pel report&accounts 21.03.13 v3 - paragon...

Stock Code: PEL.L

ParagonENTERTAINMENT LIMITED

Annual Report and AccountsFor the year ended 31 December 2012

The White Tower, The Tower of London

Paragon Entertainment Annual Report and Accounts 2012 01

02 Introducing Paragon Entertainment

04 Chairman’s Statement

06 Report of the Chief Executive Officer

08 Financial Review

10 Board Members

12 Directors’ Report

16 Corporate Governance Statement

20 Report of the Remuneration Committee

21 Independent Auditor’s Report to the Members

of Paragon Entertainment Limited

22 Consolidated Statement of Comprehensive Income

23 Consolidated Statement of Financial Position

24 Consolidated Statement of Changes in Equity

25 Consolidated Statement of Cash Flows

26 Notes to the Consolidated Financial Statements

60 Company Information

Contents

02 Paragon Entertainment Annual Report and Accounts 2012

Introducing Paragon Entertainment

Every day, we deliver leading creative projects to our

clients through a complete range of integrated services.

From design through to installation each project is

bespoke and requires a highly skilled workforce and

experienced managers to consistently deliver above

and beyond expectation.

Over the past 25 years, the team has completed more

than 1,000 projects in over 26 countries. With more than

60,000 sq. ft of workshops and studios, Paragon’s range

and scope of creative Design and Build services is one of

the largest in Europe.

Each project receives the highest level of expert

attention. With considerable experience in costing, project

management, site management, procurement and CDM

regulatory administration, the management team steer

each project to a successful conclusion, combining the best

of traditional craftsmanship mixed with technology and the

latest production techniques.

Since November 2012, Paragon has started operating its

proprietary and licensed visitor attractions.

We are now a group which is focused in two areas:

• Growth built on designing and building visitor attractions

• Development and operation of a portfolio of own

and licensed brand attractions

Our first proprietary attraction opened in November

2012 and is Quest Merry Hill, a family entertainment

centre based in Westfield’s Merry Hill shopping centre in

the West Midlands. The attraction is aimed primarily at

families and blends adventure, action and entertainment

for customers of all ages and abilities. The attraction

includes some unique activities and an offering that

customers may never have tried before.

Quest Merry Hill activities include:

• High Ropes Extreme – the UK’s highest indoor ropes

course

• Nerf Combat Arena and Blaster Target Range – the

world’s first Nerf branded attractions

• Quest for Golf – a nine hole mini golf course, set in

a world of illusions

• Quest for Adventure under 7’s – a whole world of fun

for little ones, including a challenging ropes course

and an innovative new soft play system.

During 2012 we also saw our first attraction opened by

a third party under licence from Paragon, with Paragon

also responsible for the design and build and retaining an

economic interest in the attractions post opening whilst

not operating the attraction. These were two activities

within the Istanbul Aquarium, a themed mirror maze and

a Quest to Save the Rainforest, a fully-themed interactive

walk through attraction.

Paragon has also secured the exclusive rights to design,

build and operate attractions worldwide for Exclusive

Media’s brand Hammer, of Hammer House of Horror fame,

and sole rights for Nerf, one of Hasbro’s biggest selling

toy brands.

Paragon’s increasing portfolio of branded attraction

concepts gives it the ability to offer licences to third party

owners and operators in designated locations for an

agreed annuity or revenue-based fee, with Paragon also

able to offer the design and build of the attraction for the

third party operator.

Paragon’s vision of growing an attractions business that

will operate on all levels, at all scales and in a local and

global market is now an exciting reality.

Paragon Entertainment was formed with a vision to create a diversified attractions business with the scope to service a global entertainment industry. By leveraging on its market-leading Design and Build business and bringing together experienced industry leaders, the company seeks to create a unique market proposition.

Overview

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Governance

Financial Statem

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The Robert Burns Birthplace Museum, Ayrshire, Scotland


Strategic update

Our vision, to create a diversified attractions business with

the scope to service an extensive global entertainment

industry, started to become reality in 2012 by leveraging

Paragon Creative’s third party Design and Build business,

with over 25 years of industry experience, with a strong

management team that was expanded through the

acquisition of The Visitor Attraction Company in April 2012.

In September 2012 we announced that we had secured

space at one of Westfield’s UK Shopping Centres in the

West Midlands. This is our first owned and operated

development and by November we had opened the

first phase to the public. The final phase is due to open

ahead of Easter 2013, completing the development.

In October 2012 we announced the signing of a licensing

agreement with Hasbro to use their Nerf brand within

attractions.

In December 2012 we announced the signing of a world-

wide licencing agreement with Exclusive Media for the use

of the Hammer brand and associated IP within attractions.

The company is currently at the early stages of

commercialising both of these agreements and more

detail will be announced in due course.

These two agreements demonstrate the trust that

internationally recognised brands place in Paragon

Entertainment to deliver branded attractions.

The broader strategy still remains to create a diversified

attractions business, expanding through both organic and

acquisitive means to gain access to more of the value

chain in our core leisure attractions market.

Dividend policy

No final dividend is proposed to be paid for the year

ended 31 December 2012 and the Company intends

to retain any future earnings for the foreseeable future

to finance the growth of the Group. However, the

Company intends to consider the payment of dividends

when it becomes commercially prudent to do so in

accordance with applicable laws and subject always

to the Group having sufficient cash and distributable

reserves for this purpose.

Financial performance

After accounting for exceptional items, we are pleased

to report an overall turnover of £6.1 million and adjusted

EBITDA of £0.3 million compared with an EBITDA loss of

£0.4 million for the prior year which did not include any

trading income as the Company had existed as a cash

shell for materially all of the year.

In the Company’s first full year of ownership of Paragon

Creative it saw its revenues increase by 40% over the

twelve month period ended 31 August 2011, reported

to shareholders in December 2011 as part of the

original acquisition. In addition, the business saw strong

sequential growth in the year with revenues for the

second half of the year up 68% versus the first half.

The results evidence the strong growth the Company

has seen in its contracted order-book and speculative

pipeline within its Design and Build division, a trend

management expects to continue through 2013.

I am pleased to present the Annual Report and Accounts of Paragon Entertainment Limited (“Paragon Entertainment” or the “Company” or the “Group”). This being the first full year of trading following the acquisition of Paragon Creative Limited in December 2011 and an exciting year in the development of the Group.

Chairman’s Statement

Overview

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Staff and management

The first year of implementing the Group vision is

always the most challenging. The strategic progress

in the Group is testament to the skills and dedication

of our staff. Their hard work and determination is now

showing benefits and our people should be proud of

what they have achieved. I would like to extend my

thanks to the management and all of our staff for

their efforts throughout the past year.

Business prospects

The Company has responded rapidly and effectively

to a significant opportunity to grow the Design and

Build division during 2012. The successful conversion

and continued opportunities to tender for large and

prestigious design and build contracts provides long-term

revenue visibility and a pipeline far larger than any we

have previously experienced.

Alongside this success in Design and Build, the Company

has progressed its strategic aim to develop proprietary

attractions. The first such attraction was opened in

November 2012 under the Quest brand with further

attractions scheduled to open at the same site ahead of

Easter 2013 creating a leisure destination with five separate

attraction offerings. This division of the Group is still very

much in its infancy but is showing promising potential.

Having secured key third party IP in the form of Nerf

and Hammer and having developed our own proprietary

IP in the form of Quest attractions we have identified

significant opportunities to expand the business further by

leveraging our unique ability to provide turn-key attraction

solutions to the market place. The first licensed Quest

attraction opened in September 2012 in Istanbul and

further opportunities to license IP are being developed.

To complement our organic development we continue

to consider strategic acquisition opportunities for the

Paragon Entertainment Group.

Robert Hersov

Chairman


Our vision

By forming the Paragon Entertainment Group, our aim was

to bring together a strong management team from within

the visitor attractions sector and to leverage off the scale,

diversification and market position of Paragon Creative’s

Design and Build operations through both organic and

non-organic growth opportunities to extend into the

development and operation of a portfolio of proprietary,

owned and licensed, branded attractions.

In addition we intended to broaden our service offering

across the value chain such that our core operating

divisions now cover:

Design and Build of third party attractions

Attractions that are built, owned and operated by

Paragon or licensed for third party operators

Operation of attractions for third party developers

Support services to the industry such as design,

consultancy and project feasibility

Design and build

Design and Build has been our success story of the year

and has exceeded our expectations.

The past year has seen a number of exciting and high

profile projects. Some of the most notable being the

new Titanic visitor attraction in Belfast, Sea City Museum

Southampton, Chocolate – York’s Sweet Story, The Lost

Cellars at Alnwick Castle, The Orb at York Minster, Weblab

Google Project at the Science Museum, Me and My

Body Exhibition at Eureka! Children’s Museum and the

Olympic Museum in Lausanne, Switzerland.

There has been considerable growth in the sector and our

pipeline of potential opportunities has increased considerably

from £20 million to in excess of £60 million. We have been

successful in our conversion of this pipeline having already

confirmed orders of £9.4 million with a further £20 million

in progress under tender for delivery in 2013 and 2014.

The scale of our projects has also increased significantly

and we now have a number of contracts ranging between

£1 million and £5 million in size.

We have seen structural changes within the sector which

have led to a resurgence of opportunities, which we are

well placed to exploit. We invested over £0.4 million

during the year in our workshops and increased our

productive capacity by more than 50%. Along with

investment in additional working capital, this has enabled

us to win larger Design and Build contracts and scale the

business aggressively.

Attractions

At the time of the Admission, too Aim the Company

outlined its strategy to leverage Paragon Creative’s

existing track record for delivering attractions to third

party customers and to develop and operate a portfolio

of branded attractions.

The business model has been well received in its target

sectors, however, as a new concept it took longer than

expected for us to finalise locations. Progress was made

and in November we opened the first phase at our first

site at Westfield Merry Hill, in the West Midlands.

The final phase becoming fully operational at Easter 2013.

Report of the Chief Executive Officer

The year to December 2012 saw Paragon Entertainment embark on an exciting and creative growth strategy to develop a diversified and integrated attractions business. The acquisition of Paragon Creative Limited and The Visitor Attraction Company Limited together with the appointment of a senior management team with extensive industry experience were of foremost importance in delivering that vision. Since then we have continued to develop the business horizontally to provide attraction operations as well as the Design and Build services for which Paragon Creative is a respected industry leader.

Overview

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This site is not only important in the strategic

development of the Group, but it has enabled the

development of a close working relationship with

Westfield Shopping Centres as a trusted leisure partner.

We have also developed our portfolio of licensed

brands. These broaden our attraction offering to suit the

requirements of the locations we identify. In particular,

we have entered into licensing agreements with Hasbro

for their Nerf brand and with Exclusive Media for

attractions based on the Hammer House of Horror

brand and associated intellectual property.

We now boast over 12 attraction concepts that sit

underneath the Quest brand. This means that we can

be much more adaptable and strategic about finding

locations which opens up more opportunities to us.

Concepts include Mirror Mazes, High Ropes, Hilo,

City Golf, Yu Kids, Nerf Arena and Nerf Target Zones.

A Quest attraction was also opened at the Aquarium

in Istanbul. Consisting of two attractions, a ‘Mirror Maze’

and a ‘Quest for the Rainforest’, these separately ticketed

attractions within the Aquarium went live in November

and January, respectively, and have proved to be very

successful with royalty income being provided as well

as the initial Design and Build work.

Corporate acquisitions and strategic recruitments

Following the acquisition of Paragon Creative on 22

December 2011, the Board was pleased to announce in

April 2012 the exciting acquisition of The Visitor Attraction

Company Limited (“TVAC”), a respected industry

provider of strategic development, operating and project

management services to the leisure attractions industry.

Established in early 2010 through the combination of

a team of independent specialists, each with over 10

years of leisure attraction development and operational

experience, TVAC’s projects include; Wedgwood, Carlsberg,

The London Olympic Legacy, ArcelorMittal Orbit, The British

Olympic Experience, Skyvue (Las Vegas, USA) and the

Lisbon Story Centre. since acquisition, TVAC has become

active in Africa where it has won several assignments.

Together, Paragon Creative, TVAC and the experienced

management team are in a position to bring a more

holistic proposition to our customers, further extending

Paragon’s reach into new services and markets.

Outlook

To date in 2013, the number and scale of contracts

coming up for tender within our Design and Build division

has been without precedent. The profile of the client base

and industry visibility afforded by securing such contracts

has duly steered our attention in the last few months.

At time of writing, Design and Build is contracted to

deliver more revenues on larger projects than ever before.

To complement this, our record pipeline of potential

projects looks ever more attainable in light of the recent

successes. We have never had such a full order book three

months into the year. It is very exciting.

Our success in capitalising upon these opportunities

has been countered by the external delays we have

experienced in the Attractions division with the

implementation of our proprietary attraction roll-out

strategy. However, now that Quest is available to be

seen and viewed at Merry Hill we have had an increased

amount of interest from people with sites. Last year we

had a concept, this year we have a substantial visitor

attraction, designed, built and being operated.

This makes a huge difference when selling our concept.

This is a very exciting time for the Attractions division and

I look forward to updating shareholders on our progress.

We have also just licensed three Nerf attractions to

a third party which reinforces our developing Licensing

division. We have some very valuable IP in Quest,

Nerf and Hammer and this will be leveraged as the

year progresses.

The uniqueness of Design and Build, our owned

Attractions and Licensing will drive our growth strategy to

develop an integrated and diversified attractions business.

Mark Pyrah

Chief Executive Officer


Reported results for the year

These financial statements report the financial performance

of the Group for the year ended 31 December 2012.

The comparative period reported the financial results of

Paragon Entertainment Limited for the 12 months ended

31 December 2011 but were essentially only those of

the previous cash shell prior to the acquisition of Paragon

Creative Limited in December 2011.

In order to present a more meaningful comparator for

the Group’s performance, an Unaudited proforma of the

results has been constructed which comprises those of

the Paragon Creative group for the year to 31 August 2011

which were presented in the admission document with

those of Paragon Entertainment Limited for the year to

31 December 2011.

Revenue

Revenue for the year was £6.1 million compared to £nil

in the prior year when the Company was a cash shell.

Proforma revenues for the prior year were £4.3 million

representing a 40% increase in 2012 on the prior period.

The majority of revenues, being £5.8 million, were

derived from Design and Build projects. The remainder

was for consultancy services carried out by The Visitor

Attraction Company of £0.2 million and ticket sales of

£0.1 million from the newly opened attraction at Merry Hill.

Gross profit

Reported gross profit for the year was £2.0 million

compared to £nil in the prior year. Proforma gross profit

for the prior year was £1.4 million, and so the 2012

figure represents a 44% increase.

The gross margins have seen a marginal improvement

from 31% to 32%. The increase has been due to a

number of high quality projects which have allowed

Paragon to add value in design and engineering.

Operating expenses

Reported operating expenses for the year were £3.8

million compared to £2.9 million in the prior year.

Proforma operating expenses for 2012 were £4.3 million.

Underlying operating expenses, which includes

adjustments for exceptional items, amortisation and

share based payment charges were £1.7 million for the

year compared to £1.1 million for the prior period on

a proforma basis. The increase in expenses reflects the

increased size of business including the expansion of

workshop space and capacity and the additional costs

associated with being an AIM listed entity.

Financial Review

Results and proforma comparison with previous period

2012 Unaudited Proforma Group Results (1) 2011

£000s £000s

Revenue 6,129 4,336

Gross profit 1,955 1,359

Underlying EBITDA (2) 305 301

Underlying operating profits (3) 212 251

(1) Proforma results of the Group are presented being the consolidation of the Paragon Creative group for the 12 month period to 31 August 2011 with those of Paragon Entertainment Limited for the 12 months period to 31 December 2011. These results are unaudited and are provided purely for comparative purposes to enable a better understanding of the performance of the Group.

(2) Underlying EBITDA is defined as earnings before depreciation, amortisation, interest, share based payments, exceptional items and tax.

(3) Underlying operating profits are defined as Underlying EBITDA less depreciation.

Overview

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Governance

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EBITDA and operating profit

The underlying EBITDA was £0.3 million compared prior

period proforma EBITDA of £0.3 million for the year.

Reported operating losses of £1.9 million have reduced

from £2.9 million in the prior period as the Group has

moved into being a trading entity.

The loss per ordinary share for the year was 0.98 pence

(2011: loss of 5.50 pence). Adjusted earnings per share,

before charging amortisation, depreciation, charges for

share options and exceptional items, was a profit of 0.08

pence (2011: loss of 0.69 pence).

Interest and facilities

The Group incurred interest of £30,000 for the year.

The Group has debt facilities with HSBC which amount

to a £0.3 million term loan and a £0.6 million overdraft

facility. The Group has also entered into several financial

leases and a premium credit arrangement.

As at the end of December 2012 none of the overdraft

had been utilised.

Taxation

The Group has incurred no taxation in respect of the year

to December 2012. The low reported taxable loss coupled

with the ability to utilise certain tax liability losses brought

forward has meant that the current tax is £nil. Deferred tax

balances have increased with a reduction in relation

to tax assets from a utilisation of tax losses being more

than offset by the unwinding of the tax liability associated

with the intangible assets. A tax credit of £0.3 million

is reported.

Cash flow and financing

Operating cash flow

The Group incurred an operating cash outflow for the

year to 31 December 2012 of £0.4 million (2011: cash

outflow of £2.0 million). Of this, approximately £0.5 million

relates to exceptional items in relation to the acquisition of

Paragon Creative group giving rise to operating cash inflow

before exceptional items of £0.1 million.

Investing activities

The Group has made significant investment during the year

to 31 December 2012 of £1.4 million in property, plant and

equipment. Of this, £0.9 million relates to investment at

our first attraction site at Westfield’s Merry Hill Shopping

Centre and £0.1 million in Quest at the Istanbul Aquarium.

The remainder of £0.4 million was in the development and

expansion of the workshops of Paragon Creative in York to

meet increased project demand.

Cash position

The Group’s cash position at 31 December 2012 was

£0.5 million (2011: £2.3 million).

Net assets

As at 31 December 2012, the Group had net current

liabilities of £0.4 million. However, of this, £0.9 million

is a liability recorded against the payment of deferred

and contingent consideration on the acquisition of

Paragon Creative Limited and The Visitor Attraction

Company Limited. In accordance with the terms of the

purchase agreements, this amount can be settled in

shares or cash at the discretion of the company.


Robert Basil Hersov Chairman and Non-Executive Director

Robert Hersov (52) has over 20 years of experience in the global investment banking,

media and private aviation sectors. Alongside his role as managing partner at merchant

bank Sapinda, Rob continues to hold a number of senior executive and non-executive

roles in addition to significant interests as a private investor and entrepreneur.

Previously, Rob served as CEO of Marquis Jet, vice-chairman of NetJets Europe, chairman

of Sportal Ltd, was CEO of Telepiu Pay TV in Milan (now Sky Italia) and ran Morgan

Stanley’s European media investment banking Group. Rob has an M.B.A from Harvard

Business School.

Mark Colin PyrahChief Executive Officer

Mark Pyrah (41) has 20 years of experience in the entertainment industry including film

& media, museums and attractions and has spent three years as the UK director of the

Themed Entertainment Association.

Mark developed Paragon Creative into a market leading theming, interactives, fit-out and

model-making business with an extensive global client base. Prior to Paragon Creative,

Mark worked on communication strategies for M&C Saatchi, the BBC, Financial Dynamics,

Lloyds TSB, BT, M&S and British Airways.

Peter Edward HoldsworthProduction Director

Peter Holdsworth (43) has over 22 years of experience in the realisation of interactive

visitor attractions, themed environments and immersive displays, 20 of which were

at the helm of his own company, Paragon 3D. After studying 3 Dimensional Design

and subsequently running Paragon 3D for 12 years, Peter founded Paragon Creative

alongside Mark Pyrah in 2003, completing numerous high profile projects both in the UK

and Worldwide for a range of clients. Peter is involved in most elements of Paragon’s

production development, design, build and installation process and has a wealth of

experience in costing, cost control, senior project management and turning concept

design into practical reality.

Board Members

Overview

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Governance

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Mark Jonathan George Taylor Commercial Director

Mark Taylor (51) has over a decade’s private equity and venture capital experience. He

has held a number of executive positions at LSE-listed Richemont and VenFin, and as CEO

of JSE-listed Intervid where he led the successful turnaround of the group. As part of

these roles, Mark managed teams in excess of 500 staff spread across four continents.

Mark has spent the last five years as managing director of Global Aquariums BV, a

business which develops, owns and manages aquariums in emerging markets where

he successfully developed Turkey’s first giant public aquarium, Turkuazoo, in Istanbul.

Mark Irvine John Watts Non-Executive Director

Mark Watts (38) has advised the boards of quoted UK small and mid-cap companies since

1998. Previously, Mark worked as a management consultant completing international

strategic development projects for clients including Ford Motor Company (US), Cummins

(Japan) and 3M (Europe) and undertook financial analysis and modelling for Barclays

Bank, Shell and BP in the UK.

Mark is currently a managing partner of Marwyn Capital and Marwyn Investment

Management, an executive director of Marwyn Management Partners plc as well as a

director of investee companies such as Advanced Computer Software PLC, Silverdell PLC,

Fulcrum Utility Services Ltd and Entertainment One Ltd. He was previously a Director of

Melorio PLC, Inspicio PLC, Zetar PLC and Talarius PLC


Registered office and basis of preparation

The registered office of Paragon Entertainment Limited

is PO Box 309, Ugland House, Grand Cayman, KY1-1104,

Cayman Islands.

The Directors’ report is presented as a voluntary disclosure

in order to aid the understanding of the accounts.

Principal activities

The Group’s principal activities are the design and build of

third party attractions and the ownership and operation of

proprietary and licensed branded leisure attractions.

The Group designs, produces and project manages

the development of third party attractions (including

interactive exhibits, models and fully themed attractions)

for museums, shopping malls, theme parks, science

centres and other third party clients globally.

In addition, the Group has a stated aim of owning and

operating proprietary visitor attractions. In the last quarter

of 2012, the Group opened its first owned attraction and

therefore the principal activities have expanded to be

those of an owner and operator of leisure attractions.

Business review

The Chairman’s Statement, the report of the Chief

Executive Officer and the Financial Review describe the

Group’s development and performance during the period.

Principal risks and uncertainties

The Board considers risk assessment, identification of

mitigating actions and internal control to be fundamental

to achieving the Group’s strategic objectives. The Corporate

Governance Report on page 16 provides a description of

the systems and processes through which the Directors

manage and mitigate risks. The principal risks to achieving

the Group’s objectives are set out below. The Board

recognises that the nature and scope of the risks can

change and so regularly reviews the risks faced by the

Group as well as the systems and processes in place to

mitigate them.

Proprietary attraction development

The Group’s ability to grow its business is dependent on

securing new sites in the right locations, on the right

terms and on obtaining necessary permissions. The Group

continually evaluates potential site locations, working

closely with developers and planners in key cities.

Changes in public and consumer tastes

The Group plans to launch a series of attraction concepts.

The success of these concepts will, amongst other factors,

depend on their consumer appeal. If these concepts lose

favour with consumers, the Group’s revenues and growth

prospects may decline and adversely affect profitability.

Alternatively, additional capital may need to be invested

to re-theme attractions which will impact profitability and

return on capital invested.

To mitigate this risk, the Group focuses on concepts with

significant brand value created by members of the Group

or licensed from third party rights holders to ensure broad

consumer appeal. The Group already has licences in place

with Exclusive Media for the Hammer House of Horror

brand and with Hasbro for Nerf.

Seasonality

Tourists and families are expected to constitute a

material portion of the Group’s ultimate customer base

and, as such, revenues are expected to fluctuate with

the seasonal nature of vacation travel and non-school

days. Peak attendance and resort occupancy generally

occur during the summer months when school vacations

occur and during early winter and spring holiday periods.

Accordingly, if there is a short term negative performance

by the Group during a time of high seasonal demand, the

Group’s financials could be adversely affected.

The seasonal fluctuation and exposure is mitigated to

some extent by the third party Design and Build arm of

the Group which, in order to serve customers ahead of

these peak periods, is expected to have higher revenues

during the quieter periods for the visitor facing business.

Directors’ ReportThe Directors present their annual report and the audited consolidated financial statements of the Group for the year ended 31 December 2012.

Overview

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Governance

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Competition

There is a risk that competing attraction groups or new

entrants to the market place will look to compete directly

with the Group for locations, brand rights and consumer

discretionary spend, which could adversely affect the

Group’s profitability.

While the Group has competitors providing theming

services within specific segments of their product offering,

the Directors believe there are relatively few suppliers

within Europe able to provide a broad range of theming

services in-house. The ability of the Group to provide a

single quote for work without clients having to rely on

sub-contracting out to more than one supplier provides

the Group with a strong differentiator in the market place.

The Group’s attractions compete for consumer time and

expenditure with other offerings in the attractions sector

and also with other leisure and recreational activities.

Furthermore, at present the Group does not have exclusive

relationships with its suppliers. In recognition of this, the

Group intends to utilise established intellectual property

rights or internally generated concepts which the Directors

feel have the potential to generate significant brand

awareness and appeal amongst target consumers.

The Group intends to undertake regular and thorough

market research across its business to provide insight

and understanding of its customers’ expectations and

whether their needs are being met.

Retention of key employees

The Group’s future success is dependent on the continued

services and continuing contributions of its Directors,

senior management and other key individuals. The Group

will compete with various other businesses with respect

to attracting and retaining qualified management and

staff. Whilst the Group has in place policies and procedures

to train, develop and incentivise such individuals, this does

not provide complete assurance that it will be able to

retain such individuals.

The loss of the services of a number of the Group’s

executive officers or other senior employees could have

a material adverse effect on the Group’s future strategy

and business.

A review of pension and incentive schemes is also

underway for all staff. In addition, appropriate staff

development programmes are in place to assess, manage

and develop the leadership skills of all staff throughout

the organisation.

Share capital

Details of new shares issued during the period are shown

in note 25 to the financial statements.

Directors

The Directors of the Company during the period and up

to the date of signing the financial statements, unless

otherwise stated were:

David Gray (Resigned 5 April 2012)

Robert Hersov

Peter Holdsworth

Mark Pyrah

Mark Taylor

Mark Watts

Directors’ interests

The beneficial interests of the Directors and their connected

parties in the shares of the Company are shown in the

table below. Options granted under the management

participation plan are shown in note 9 to the financial

statements. At 1 January 2012 and

31 December 2012 No of ordinary shares

Robert Hersov 8,442,900

Mark Pyrah 18,775,075

Peter Holdsworth 15,274,325


Employees

The Group’s executive management regularly delivers

company-wide briefings on the Group’s strategy and

performance. These briefings contain details of the

Group’s financial performance where appropriate.

The Group remains committed to fair treatment of people

with disabilities in relation to job applications, training,

promotion and career development. Every effort is made

to find alternative jobs for those who are unable to

continue in their existing job due to disability.

The Group takes a positive approach to equality and

diversity. The Group promotes equality in the application

of reward policies, employment and development

opportunities, and aims to support employees in

balancing work and personal lifestyles.

Going concern

As highlighted in the Financial Review the Group has

net cash at 31 December 2012 of £0.5 million.

The Group’s strategy is to develop horizontal growth

opportunities into new market segments and in branded

attraction roll outs. This will necessarily require a level

of cash resources. However, the Group’s forecasts and

projections, taking account of sensitivity analysis of

changes in trading performance, show the Group is well

placed to operate within this level of cash resource for

the foreseeable future.

Therefore after making enquires, the Directors have a

reasonable expectation that the Company and the Group

have adequate resources to continue in operational

existence for the foreseeable future. Accordingly they

continue to adopt the going concern basis in preparing

the annual report and financial statements.

Directors’ indemnities and insurance

Paragon Entertainment Limited indemnifies its officers

and the officers of its subsidiary companies against

liabilities arising from the conduct of the Group’s business,

to the extent permitted by law, by the placing of directors’

and officers’ insurance. The insurance policy indemnifies

individual directors’ and officers’ personal legal liability

and cost for claims arising out of actions taken in

connection with Group business.

Statement of disclosure of information to auditors

As at the date this report was signed, so far as each of

the Directors is aware, there is no relevant information

of which the auditors are unaware and each director has

taken all steps that he ought to have taken as a director

in order to make himself aware of any relevant audit

information and to establish that the auditors are aware

of that information.

On behalf of the Board.

Axio Capital Solutions Limited

Company Secretary

25 March 2013

Overview

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Chocolate – York’s Sweet Story, York


Principles of the Code

Board of Directors

The Group is controlled through the Board of Directors

which comprises the Non-Executive Chairman, the Chief

Executive, one other Non-Executive Director and three

other Executive Directors. Details of the names and dates

of appointment and resignation of the directors during

the year are shown in the Directors’ Report. The roles of

Chairman and Chief Executive are separate and have

been so throughout the year.

Of the Non-Executive Board members, only Robert

Hersov is considered to be independent. Mark Watts is not

considered to be independent by virtue of his relationship

with Marwyn Value Investors L.P. (“Marwyn”), a significant

shareholder of the Company. The Non-Executive Directors

bring a wide range of experience to the Group’s activities

and provide a strong balance to the Executive Directors.

Non-executive directors are appointed on a six month

rolling term and are subject to re-election along with

the Executive Directors.

Board meetings are scheduled to take place in

alternate months, with additional Board meetings held

when and as the Chairman or other Board members

deem necessary. The Board is provided with extensive

Board papers, usually during the week before each

Board meeting.

There is a Company procedure which describes the

matters which are reserved for the Board and all

members of the Board have access to this document.

The main items reserved for the Board include

acquisitions, disposals, treasury, major capital expenditure

and research and development. In addition, approval

of the annual budget and the quarterly re-forecasts are

performed by the main Board.

If required, the Directors are entitled to take independent

advice and, if the Board is informed in advance, the cost

of the advice will be reimbursed by the Company.

The Company Secretary’s services are available to all

members of the Board. The appointment and removal

of the Company Secretary is a decision for the Board

as a whole.

Committees

The Remuneration Committee, the report of which is

on page 20, comprises the Non-Executive Directors and

is chaired by Mr M Watts. It is responsible for the terms

and conditions of employment and remuneration of the

Executive Directors. The Remuneration Committee may

consult external agencies when ascertaining market

salaries. The Remuneration Committee has written terms

of reference and the Chairman of the Remuneration

Committee is available at the Annual General Meeting

to answer any Shareholder questions.

As an AIM listed company, Paragon Entertainment Limited is not required to comply with the provisions of the UK Corporate Governance Code (‘the Code’) that applies to companies with a premium London Stock Exchange listing. However, the Board recognises the importance and value of good corporate governance procedures and accordingly has selected those elements of the Code that it considers relevant and appropriate to the Group, given its size and structure. An overview of the Group’s corporate governance procedures is given below.

Corporate Governance Statement

Overview

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The Company has an Audit Committee chaired by

Mr R Hersov and comprising the other Non-Executive

Director. No-one other than the members are entitled to

be present at a meeting of the Audit Committee, however,

the committee can and does invite other persons of the

company to attend including the Group’s Head of Finance,

the Chief Executive Officer and the Group’s Auditor.

The Committee meets at least twice a year and has

written terms of reference. It monitors the adequacy

of the Group’s financial controls and provides the

opportunity for the external Auditor to communicate

directly with the Non-Executive Directors.

The Audit Committee also undertakes a formal assessment

of the Auditor’s independence each year which includes:

a review of non-audit services provided to the Group

and related fees; discussion with the Auditor detailing

all relationships with the Group and any other parties

that could affect independence or the perception of

independence; a review of the Auditor’s own procedures

for ensuring the independence of the audit firm and

partners and staff involved in the audit, including the

regular rotation of the audit partner; and obtaining written

confirmation from the Auditor that, in their professional

judgement, they are independent. An analysis of the fees

payable to the external audit firm in respect of both audit

and non-audit services during the year is set out in note 7

to the financial statements.

Shareholder communications

The Company gives high priority to its communication

with Shareholders by means of an active investor relations

programme. This is achieved through correspondence

together with extensive corporate information that is

regularly updated on the Company’s website

www.paragonent.com. This is kept in accordance with

AIM rule 26. In addition, the Company visits its main

institutional investors bi-annually and makes available,

free of charge, its Interim and Annual Reports from the

Company’s head office. At the AGM, the Shareholders are

given the opportunity to question most of the members

of the Board. All Board members are available to answer

questions at the AGM.

Internal control

The Board of Directors acknowledges its responsibility

for establishing and monitoring the Group’s systems of

internal control. There are inherent limitations in any

system of internal control and accordingly, even the most

effective systems can provide only reasonable, and not

absolute, assurance against material misstatement or

loss. The Group’s control environment is the responsibility

of the Directors and managers at all levels. The Group’s

organisational structure has clear lines of responsibility.

Operating and financial responsibility for the subsidiary

company is delegated to the operational management,

including key risk assessment.

Florya Aquarium, Istanbul


In addition, this team is responsible for resource allocation,

internal communication and enforcing the Group’s policies

and procedures. The chairperson for the management

Board sits on the main Board and is mandated to report

monthly to the Board, highlighting financial performance,

operational achievements, significant risks attached to

achieving the Group’s objectives and to seek approval for

matters reserved for the Board. This structure facilitates

a continuing process for identifying, evaluating and

managing risk within the business and is supported by

the Audit Committee that meets with the Auditor twice

a year. Recommendations from reviews from Auditor

or other sources are considered, and necessary actions

are progressed to remedy any significant failings or

weaknesses identified.

The Group operates a comprehensive budgeting and

financial reporting system and, as a matter of routine,

compares actual results with budgets that are approved

by the Board.

Management accounts are prepared on a monthly

basis. Material variances from budget are thoroughly

investigated. In addition, updated forecasts are prepared,

at least quarterly, to reflect actual performance and the

revised outlook for the year. The Board considers that,

in light of the control environment described above,

there is no current requirement for a separate internal

audit function.

Other matters

Directors’ responsibilities statement

The Directors are responsible for preparing the Annual

Report, Remuneration Report and the Accounts in

accordance with applicable law and regulations.

The AIM Rules require the Directors to prepare financial

statements for each financial year. Under the AIM Rules

the Directors have elected to prepare the financial

statements in accordance with International Financial

Reporting Standards (IFRSs) as adopted by the European

Union. The Directors must not approve the financial

statements unless they are satisfied that they give a true

and fair view of the state of affairs and profit or loss of

the Group for that period. In preparing these financial

statements, the Directors are required to:

• select suitable accounting policies and then apply

them consistently;

• make judgments and accounting estimates that are

reasonable and prudent;

• state whether applicable IFRSs have been followed,

subject to any material departures disclosed and

explained in the financial statements;

• prepare the financial statements on the going concern

basis unless it is inappropriate to presume that the

Company will continue in business.

The Directors are responsible for keeping adequate

accounting records sufficient to show and explain the

Company’s transactions and disclose with reasonable

accuracy at any time the financial position of the Company

and enable them to ensure that the financial statements

comply with applicable laws and regulations. They

are also responsible for safeguarding the assets of the

company and hence for taking reasonable steps for the

prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and

integrity of the corporate and financial information

included on the Company’s website. Legislation in

the United Kingdom governing the preparation and

dissemination of financial statements may differ from

legislation in other jurisdictions.

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The Company is incorporated in the Cayman Islands and

registered in the Cayman Islands. The Company is not

required to prepare audited financial statements under

Cayman Island company law, however the Company is

required under AIM rule 19 to provide Shareholders with

annual audited consolidated financial statements for the

financial year.

The Directors have requested Grant Thornton UK LLP

to undertake an audit of the Company’s consolidated

financial statements in order to discharge their

obligations under AIM rule 19.

On behalf of the Board.


Company Secretary

25 March 2013

Little Liverpool Gallery, Museum of Liverpool


Basis of preparation

The Report of the Remuneration Committee is presented

as a voluntary disclosure in order to aid the understanding

of the accounts.

Remuneration Committee

The Remuneration Committee comprises Mr R Hersov and

Mr M Watts.

The Remuneration Committee decides the remuneration

policy that applies to Executive Directors. It also decides

on employee rewards in relation to the Company bonus

scheme including, but not limited to, the awards of share

options and/or other share based payment schemes, long

term incentive plans and annual bonus structures. It also

provides advice on senior management remuneration.

The Board determines the remuneration of each of the

Non-Executive Directors with the support of external

professional advice if required. No director participates

in any discussion regarding their own remuneration.

Policy on Executive Directors’ remuneration

The Remuneration Committee meets at least once a year

in order to consider and set the annual remuneration

for Executive Directors, having regard to personal

performance and independently compiled salary survey

information. In determining that policy, it considers a

number of factors including:

(a) the basic salaries and benefits available to Executive

Directors of comparable companies;

(b) the need to attract and retain Directors of an

appropriate calibre; and

(c) the need to ensure Executive Directors’ commitment

to the success of the Group.

The Chairman and other Non-Executive Directors have

contracts that can be terminated by six months notice

by either party. Non-executive directors received fees

for their time in relation to the Board and Committee

meetings attended. The fees of Non-Executive Directors

were determined by the Board and did not include

pension payments.

All of the Executive Directors have contracts of services

that can be terminated by either side with a maximum

notice period of six months.

All payments are salary, fees and share based payments. There are no other benefits paid.

Mr Watts’ fees were charged by Marwyn LLP for his services as Non-Executive Director. Messrs Pyrah and Holdsworth

received salaries through subsidiary undertakings of the Company. Mr Taylor received a salary through a subsidiary

undertaking of the Company and his consultancy business received fees.

Directors’ interests in share options

The interests in share options of the current Directors at 31 December 2012 are disclosed in note 9 to the financial statements.

Report of the Remuneration Committee

Directors emoluments

The remuneration of each of the Directors for the year ended 31 December 2012 (or the period that they served

as a director during the financial period) is set out as follows: 2012 2011 £ £

Mark Watts 25,000 630

Robert Hersov 36,137 806

David Gray 7,500 1,613

Peter Holdsworth 87,069 2,258

Mark Pyrah 87,069 2,258

Mark Taylor 56,475 1,600

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We have audited the group financial statements of

Paragon Entertainment Limited for the year ended

31 December 2012 which comprise the Consolidated

Statement of Comprehensive Income, the Consolidated

Statement of Financial Position, the Consolidated

Statement of Changes in Equity, the Consolidated

Statement of Cash Flows and the related notes.

The financial reporting framework that has been applied

in their preparation is applicable law and International

Financial Reporting Standards (IFRSs) as adopted by

the European Union.

This report is made solely to the company’s members,

as a body. Our audit work has been undertaken so that we

might state to the company’s members those matters we

are required to state to them in an auditor’s report and for

no other purpose. To the fullest extent permitted by law,

we do not accept or assume responsibility to anyone other

than the company and the company’s members as

a body, for our audit work, for this report, or for the

opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Directors’ responsibilities

statement set out on pages 18 and 19 the Directors are

responsible for the preparation of the group financial

statements and for being satisfied that they give a true

and fair view. Our responsibility is to audit and express an

opinion on the group financial statements in accordance

with applicable law and International Standards on

Auditing (UK and Ireland). Those standards require us to

comply with the Auditing Practices Board’s (APB’s) Ethical

Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts

and disclosures in the financial statements sufficient to

give reasonable assurance that the financial statements

are free from material misstatement, whether caused by

fraud or error. This includes an assessment of: whether

the accounting policies are appropriate to the company’s

circumstances and have been consistently applied and

adequately disclosed; the reasonableness of significant

accounting estimates made by the directors; and the

overall presentation of the financial statements. In addition,

we read all the financial and non-financial information

in the Annual Report and Accounts to identify material

inconsistencies with the audited financial statements. If we

become aware of any apparent material misstatements or

inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the group financial statements give a true

and fair view of the state of the group’s affairs as at

31 December 2012 and of its loss for the year then ended

in accordance with IFRSs as adopted by the European Union.

Grant Thornton UK LLP

Statutory Auditor, Chartered Accountants

Sheffield

25 March 2013

Independent Auditor’s Report to the Members of Paragon Entertainment Limited


Consolidated Statement of Comprehensive IncomeFor the year ended 31 December 2012

Note 2012 2011

£000s £000s

Revenue 6 6,129 -

Cost of sales (4,174) -

Gross profit 1,955 -

Operating expenses 7 (3,808) (2,888)

Analysed as:

EBITDA 305 (361)

Share based payment charges 9 (21) (401)

Exceptional and other items 10 (104) (2,025)

Amortisation of acquired intangibles 7 (1,940) (100)

Depreciation 7 (93) (1)

Operating loss (1,853) (2,888)

Finance costs (30) -

Loss before income tax (1,883) (2,888)

Income tax credit 11 308 25

Loss and total comprehensive income attributable (1,575) (2,863)

to the owners of the parent

Earnings per share from continuing operations attributable to the equity holders of the Company during the year

(expressed in pence share)

Basic Earnings per Share 12 (0.98) (5.50)

Diluted Earnings per Share 12 (0.98) (5.50)

The notes on pages 26 to 59 are an integral part of these financial statements.

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Consolidated Statement of Financial PositionAs at 31 December 2012

Note 2012 2011

£000s £000s

Non-current assets

Intangible assets 14 2,862 4,437

Property, plant and equipment 15 2,005 698

Deferred income tax asset 24 44 155

Total non-current assets 4,911 5,290

Current assets

Inventories 6 -

Current income tax asset - 60

Deferred income tax asset 24 149 -

Trade and other receivables 16 1,882 1,494

Cash and cash equivalents 17 539 2,420

Total current assets 2,576 3,974

Total assets 7,487 9,264

Current liabilities

Trade and other payables 18 2,847 2,489

Deferred income 19 99 448

Borrowings 20 56 163

Total current liabilities 3,002 3,100

Non-current liabilities

Borrowings 20 365 344

Provisions 22 18 65

Deferred income tax liabilities 24 299 641

Total non-current liabilities 682 1,050

Total liabilities 3,684 4,150

Equity attributable to the owners of the parent

Share capital 25 162 158

Share premium 25 8,884 8,645

Retained earnings (5,243) (3,689)

Total equity 3,803 5,114

Total equity and liabilities 7,487 9,264


The financial statements on pages 22 to 59 were approved and authorised for issue by the Board of Directors

on 25 March 2013 and were signed on its behalf by:

Mark Pyrah Robert Hersov

Chief Executive Officer Chairman


Consolidated Statement of Changes in EquityFor the year ended 31 December 2012

Share Share Accumulated capital premium Losses Total £000s £000s £000s £000s

Balance at 31 December 2010 49 4,665 (826) 3,888

Comprehensive income

Loss for the year - - (2,863) (2,863)

Total comprehensive income - - (2,863) (2,863)

Transactions with owners

Issue of share capital 109 4,262 - 4,371

Costs directly related to the issue of shares - (282) - (282)

Transactions with owners 109 3,980 - 4,089

Balance at 31 December 2011 158 8,645 (3,689) 5,114

Comprehensive income

Loss for the year - - (1,575) (1,575)

Total comprehensive income - - (1,575) (1,575)

Transactions with owners

Issue of share capital (note 25) 4 239 - 243

Reversal of share based payment - - 21 21

charges (note 9)

Transactions with owners 4 239 21 264

Balance at 31 December 2012 162 8,884 (5,243) 3,803


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Consolidated Statement of Cash FlowsFor the year ended 31 December 2012

Note 2012 2011

£000s £000s

Cash flows from operating activities

Cash used in operations 26 (426) (2,012)

Finance costs (8) -

Taxation paid (8) -

Net cash used by operating activities (442) (2,012)

Cash flows from investing activities

Acquisition of subsidiary, net of cash and overdraft acquired 4 6 (1,787)

Addition to property, plant and equipment (1,327) -

Net cash used in investing activities (1,321) (1,787)

Cash flows from financing activities

Proceeds from issuance of share capital 25 43 2,457

Payment for share issue costs - (282)

Proceeds from borrowings 350 -

Repayment of borrowings (379) -

Net cash from financing activities 14 2,175

Net decrease in cash and cash equivalents (1,749) (1,624)

Cash and cash equivalents and bank overdrafts at beginning of year 2,288 3,912

Cash and cash equivalents and bank overdraft at end of year 17 539 2,288



1. General information

Paragon Entertainment Limited (the “Company”) is a

company limited by shares and domiciled in the Cayman

Islands and is exempt from the requirement to prepare

audited financial statements under Cayman Islands Law.

The address of the Company’s registered office is PO Box

309, Ugland House, Grand Cayman, KY1-1104, Cayman

Islands. The Company was incorporated on 4 December

2009.

However, the Company has its primary listing on the

Alternative Investment Market (AIM) on the London Stock

Exchange. As such, it is required under rule 19 to provide

the shareholders with annual audited consolidated

financial statements for the year to 31 December 2012.

Parent company information is not required and has not

been prepared.

The Company is registered with Companies House

in the United Kingdom as a UK Establishment of an

overseas company, company number FC030890 and UK

Establishment registration number BR015952.

The consolidated financial statements of the Company as

at and for the period ended 31 December 2012 comprise

the Company and its subsidiaries, Paragon Entertainment

Investments Limited, Paragon Creative Limited, Pyrah

Holdsworth Limited, The Visitor Attraction Company

Limited, Paragon Entertainment (Attractions) Limited and

Drinkall Dean (London) Limited (together referred to as

the “Group” and individually as “Group entities”).

2. Significant accounting policies

Basis of preparation

The consolidated financial information is prepared on a

going concern basis and in accordance with International

Financial Reporting Standards, as adopted by the European

Union (“IFRS”) and issued by the International Accounting

Standards Board (“IASB”) and the IFRIC Interpretations

applicable to companies reported under IFRS.

The preparation of consolidated financial statements

in conformity with IFRSs requires the use of certain

accounting estimates. It also requires management

to exercise its judgement in the process of applying the

Group’s accounting policies. The actual results may differ

from these estimates. The areas involving a higher degree

of judgement or complexity, or areas where assumptions

and estimates are significant to the financial statements,

are highlighted in note 3.

Functional and presentation currency

The financial information is presented in Pounds Sterling

(£), which is both the functional currency of the parent

and presentational currency of the group. All amounts are

rounded to the nearest thousand (£’000) except where

otherwise indicated.

Foreign currency transactions

Foreign currency transactions are translated into the

functional currency using the exchange rates prevailing at

the dates of the transactions or valuation where items are

re-measured. Foreign exchange gains and losses resulting

from the settlement of such transactions and from the

translation at period-end exchange rates of monetary

assets and liabilities denominated in foreign currencies

are recognised in the Statement of Comprehensive Income.

Standards, amendments and interpretations to

existing standards that are not yet effective and

have not been adopted early by the Group

At the date of authorisation of these financial statements,

certain new standards, amendments and interpretations

to existing standards have been published by the IASB but

are not yet effective, and have not been adopted early

by the Group. Management anticipates that all of the

relevant pronouncements will be adopted in the Group’s

accounting policies for the first period beginning after the

effective date of the pronouncement.

Notes to the Consolidated Financial StatementsFor the year ended 31 December 2012

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Information on new standards, amendments and

interpretations that are expected to be relevant to

the Group’s financial statements is provided below.

Certain other new standards and interpretations have

been issued but are not expected to have a material

impact on the Group’s financial statements.

IFRS 9 Financial Instruments (IFRS 9)

The IASB aims to replace IAS 39 Financial Instruments:

Recognition and Measurement in its entirety. IFRS 9 is

being issued in phases. To date, the chapters dealing with

recognition, classification, measurement and derecognition

of financial assets and liabilities have been issued. These

chapters are effective for annual periods beginning on

or after 1 January 2013. Further chapters dealing with

impairment methodology and hedge accounting are still

being developed. The Group’s management have yet to

assess the impact of this new standard on the Group’s

consolidated financial statements. However, they do not

expect to implement IFRS 9 until all of its chapters have

been published and they can comprehensively assess

the impact of all changes.

Consolidation standards

A package of consolidation standards is effective for annual

periods beginning on or after 1 January 2013. Information

on these new standards is presented below. The Group’s

management have yet to assess the impact of these new

and revised standards on the Group’s consolidated financial

statements.

IFRS 10 Consolidated Financial Statements (IFRS 10)

IFRS 10 supersedes IAS 27 Consolidated and Separate

Financial Statements (IAS 27) and SIC 12 Consolidation –

Special Purpose Entities. It revised the definition of control

together with accompanying guidance to identify an

interest in a subsidiary. However, the requirements and

mechanics of consolidation and the accounting for any

non-controlling interests and changes in control remain

the same.

IFRS 11 Joint Arrangements (IFRS 11)

IFRS 11 supersedes IAS 31 Interests in Joint Ventures

(IAS 31). It aligns more closely the accounting by the

investors with their rights and obligations relating to the

joint arrangement.

In addition, IAS 31’s option of using proportionate

consolidation for joint ventures has been eliminated. IFRS

11 now requires the use of the equity accounting method,

which is currently used for investments in associates.

IFRS 12 Disclosure of Interests in Other Entities

(IFRS 12)

IFRS 12 integrates and makes consistent the disclosure

requirements for various types of investments, including

unconsolidated structured entities. It introduces new

disclosure requirements about the risks to which an

entity is exposed from its involvement with structured

entities. Consequential amendments to IAS 27 and IAS

28 Investments in Associates and Joint Ventures (IAS 28)

IAS 27 now only deals with separate financial statements.

IAS 28 brings investments in joint ventures into its scope.

However, IAS 28’s equity accounting methodology remains

unchanged.

IFRS 13 Fair Value Measurement (IFRS 13)

IFRS 13 does not affect which items are required to

be fair-valued, but clarifies the definition of fair value

and provides related guidance and enhanced disclosures

about fair value measurements. It is applicable for annual

periods beginning on or after 1 January 2013. The Group’s

management have yet to assess the impact of this

new standard.

Amendments to IAS 1 Presentation of Financial

Statements (IAS 1 Amendments)

The IAS 1 Amendments require an entity to group items

presented in other comprehensive income into those that,

in accordance with other IFRSs: (a) will not be reclassified

subsequently to profit or loss and (b) will be reclassified

subsequently to profit or loss when specific conditions are

met. It is applicable for annual periods beginning on or

after 1 July 2012. The Group’s management expects this

will change the current presentation of items in other

comprehensive income; however, it will not affect the

measurement or recognition of such items.


Amendments to IAS 19 Employee Benefits

(IAS 19 Amendments)

The IAS 19 Amendments include a number of targeted

improvements throughout the Standard. The main

changes relate to defined benefit plans. They:

• eliminate the ‘corridor method’, requiring entities to

recognise all gains and losses arising in the reporting

period

• streamline the presentation of changes in plan assets

and liabilities

• enhance the disclosure requirements, including

information about the characteristics of defined benefit

plans and the risks that entities are exposed to through

participation in them.

The amended version of IAS 19 is effective for financial

years beginning on or after 1 January 2013. The Group’s

management have yet to assess the impact of this revised

standard on the Group’s consolidated financial statements.

Disclosures – Offsetting Financial Assets and

Financial Liabilities (Amendments to IFRS7)

Qualitative and quantitative disclosures have been added

to IFRS 7 ‘Financial Instruments: Disclosures’ (IFRS 7)

relating to gross and net amounts of recognised financial

instruments that are (a) set off in the Statement of

Financial Position and (b) subject to enforceable master

netting arrangements and similar agreements, even if

not set off in the Statement of Financial Position. The

amendments are effective for annual reporting periods

beginning on or after 1 January 2013 and interim periods

within those annual periods. The required disclosures

should be provided retrospectively. Management does not

anticipate a material impact on the Group’s consolidated

financial statements from these amendments.

Annual Improvements 2009-2011 (the Annual

Improvements)

The Annual Improvements noted below are effective

for annual periods beginning on or after 1 January 2013.

Management does not anticipate a material impact

on the Group’s consolidated financial statements from

these amendments.

The Annual Improvements 2009-2011 (the Annual

Improvements) made several minor amendments to

a number of IFRSs. The amendments relevant to the

Group are summarised below:

Clarification of the requirements for opening statement

of financial position:

• clarifies that the appropriate date for the opening

Statement of Financial Position is the beginning of the

preceding period (related notes are no longer required

to be presented)

• addresses comparative requirements for the opening

Statement of Financial Position when an entity changes

accounting policies or makes retrospective restatements

or reclassifications, in accordance with IAS 8

Clarification of the requirements for comparative

information provided beyond minimum requirements:

• clarifies that additional financial statement information

need not be presented in the form of a complete set

of financial statements for periods beyond the minimum

requirements

• requires that any additional information presented

should be presented in accordance with IFRS and the

entity should present comparative information in the

related notes for that additional information.

Tax effect of distribution to holders of equity instruments:

• addresses a perceived inconsistency between IAS 12

‘Income Taxes’ (IAS 12) and IAS 32 ‘Financial

Instruments: Presentation’ (IAS 32) with regards to

recognising the consequences of income tax relating

to distributions to holders of an equity instrument and

to transaction costs of an equity transaction

• clarifies that the intention of IAS 32 is to follow the

requirements in IAS 12 for accounting for income tax

relating to distributions to holders of an equity

instrument and to transaction costs of an equity

transaction.

Segment information for total assets and liabilities:

• clarifies that the total assets and liabilities for a

particular reportable segment are required to be

disclosed if, and only if: (i) a measure of total assets

or of total liabilities (or both) is regularly provided

to the chief operating decision maker; (ii) there has

been a material change from those measures disclosed

in the last annual financial statements for that

reportable segment.

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Basis of consolidation

The Group financial statements consolidate those of

the parent company and all of its subsidiaries as of 31

December 2012. Subsidiaries are all entities over which

the Group has the power to control the financial and

operating policies. The Group obtains and exercises

control through more than half of the voting rights.

All transactions and balances between Group companies

are eliminated on consolidation, including unrealised gains

and losses on transactions between Group companies.

Where unrealised losses on intra-group asset sales are

reversed on consolidation, the underlying asset is also

tested for impairment from a group perspective. Amounts

reported in the financial statements of subsidiaries have

been adjusted where necessary to ensure consistency

with the accounting policies adopted by the Group.

Profit or loss and other comprehensive income of

subsidiaries acquired or disposed of during the year

are recognised from the effective date of acquisition,

or up to the effective date of disposal, as applicable.

Revenue

Contract revenue includes the initial amount agreed in the

contract plus any variations in contract work and claims,

to the extent that it is probable that they will result in

revenue and can be measured reliably. As soon as the

outcome of a contract can be estimated reliably, contract

revenue is recognised in the Statement of Comprehensive

Income in proportion to the stage of completion of the

contract. Profit is recognised based on the Directors’

best estimate of final outcome. Contract expenses are

recognised as incurred unless they create an asset related

to future contract activity.

The stage of completion is based upon a review of the

contract progress, the type of work and fees charged

and the proportion of contract costs incurred for work

performed to date compared to the estimated total

contract costs for each project element. When the

outcome of a contract cannot be estimated reliably,

contract revenue is recognised only to the extent of

contract costs incurred that are likely to be recoverable.

An expected loss on a contract is recognised immediately

in the Statement of Comprehensive Income.

Other revenues, which includes ticket and merchandise

sales are recognised as received.

Amounts receivable on contracts and deferred

revenue

Amounts receivable on contracts represents the

gross unbilled amount expected to be collected from

customers for contract work performed to date.

It is measured at cost plus profit recognised to date less

progress billings and recognised losses. Cost includes

all expenditure related directly to specific projects.

Construction contracts in progress are presented as part of

trade and other receivables in the Statement of Financial

Position for all contracts in which costs incurred plus

recognised profits exceed progress billings. If progress

billings exceed costs incurred plus recognised profits, then

the difference is presented as deferred revenue in the

Statement of Financial Position.

Inventories

Inventories are valued at the lower of cost and net

realisable value after making due allowance for obsolete

and slow-moving items. Cost includes direct materials,

direct labour and those overheads that have been incurred

in bringing the inventory to its present location and condition.

Property, plant and equipment

The Group’s freehold property is stated at the cost to the

Group less accumulated depreciation and impairment losses.

Plant and equipment is stated at cost less accumulated

depreciation and impairment losses.

Depreciation is provided to write off the cost less the

estimated residual value of each asset over their

expected useful lives on a straight line basis, as follows:

Freehold properties Over 50 years

Property improvements At 10% per annum

Plant and machinery At 15% per annum

Fixtures and fittings At 15% per annum

Office equipment At 15% per annum

Motor vehicles At 20% per annum

The carrying values of property, plant and equipment

are reviewed at each Statement of Financial Position

date to determine whether there are any indications of

impairment. If any such indication exists, the assets are

tested for impairment to estimate the assets’ recoverable

amounts. Any impairment losses are recognised in The

Statement of Comprehensive Income.

The assets’ residual values and useful lives are reviewed,

and adjusted if appropriate, at each Statement of

Financial Position date. Gains and losses on disposals are

determined by comparing the proceeds with the carrying

amount and are recognised within The Statement of

Comprehensive Income.


Intangible assets

Goodwill

Goodwill represents amounts arising on the acquisitions

of subsidiaries or the purchase of a trade and is stated at

cost less any accumulated impairment losses. Goodwill

represents the excess of the fair value of the consideration

transferred in an acquisition of a subsidiary over the

fair value of the net identifiable assets of the acquired

subsidiary at the date of acquisition.

Goodwill on acquisition of subsidiaries is included

in intangible assets. Goodwill is tested annually for

impairment and carried at cost less accumulated

impairment losses. Any impairment on goodwill is

recognised immediately in Statement of Comprehensive

Income and is not subsequently reversed.

Goodwill is allocated to cash generating units for the

purpose of impairment testing. The allocation is made to

those cash generating units or groups of cash generating

units that are expected to benefit from the business

combination in which the goodwill arose.

Contractual customer relationships

Contractual customer relationships acquired in a business

combination are recognised at fair value at the acquisition

date. The contractual customer relationships have a finite

useful life and are carried at cost less accumulated

amortisation. Amortisation is calculated using the straight-

line method over the expected life of the customer

relationship.

Impairment of non-financial assets

The Group assesses at each reporting date whether there

is an indication that an asset may be impaired. If any

such indication exists, or when annual impairment testing

for an asset is required, the Group makes an estimate of

the asset’s recoverable amount. An asset’s recoverable

amount is the higher of an asset’s or cash generating

unit’s fair value less costs to sell and its value in use and is

determined for an individual asset, unless the asset does

not generate cash inflows that are largely independent of

those from other assets or groups of assets in which case

they are tested at the cash generating unit level.

Where the carrying amount of an asset exceeds its

recoverable amount, the asset is considered impaired

and is written down to its recoverable amount.

In assessing value in use, the estimated future cash flows

are discounted using a discount rate which reflects the

time value of money and the risks specific to the asset.

Impairment losses of continuing operations are recognised

in profit or loss in those expense categories consistent

with the function of the impaired asset.

Trade receivables and other receivables

Trade and other receivables are recognised initially at fair

value. Subsequent to initial recognition they are measured

at amortised cost using the effective interest method, less

any impairment losses.

Other receivables are recognised initially at their fair value.

Subsequent to initial recognition they are measured at

amortised cost using the effective interest method, less

any impairment losses.

Cash and cash equivalents

Cash and cash equivalents are carried in the Statement

of Financial Position at cost and comprise cash in hand,

cash at bank and deposits held at call with banks. Bank

overdrafts that are repayable on demand are included

within borrowings in current liabilities on the Statement

of Financial Position. For the purposes of the Statement

of Cash Flow, cash and cash equivalents also include bank

overdrafts if they form an integral part of the Group’s

cash management.

Financial instruments

Financial instruments are recognised in the Statement of

Financial Position when the Group has become a party to

the contractual provisions of the instrument.

Financial instruments are classified as liabilities or equity

in accordance with the substance of the contractual

agreement. Interest, dividends, gains and losses relating

to a financial instrument classified as liabilities, are

reported as expenses or income.

Distributions to holders of financial instruments classified

as equity are charged directly to equity.

Financial instruments are offset when the Group has

a legally enforceable right to offset and intends either to

settle on a net basis or to realise the asset and settle the

liability simultaneously.

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Ordinary shares

Ordinary shares are classified as equity. Costs directly

attributable to the increase of new shares or options

are shown in equity as a deduction from the proceeds.

Trade payables

Trade payables are recognised at fair value on initial

recognition. Subsequently, they are measured at

amortised cost. Trade payables are classified as current

liabilities unless the Group has an unconditional right to

defer settlement of the liability for at least 12 months

after the Statement of Financial Position date.

Borrowings

Borrowings are initially recognised at fair value of the

consideration received net of transaction costs incurred.

After initial recognition, borrowings are subsequently

measured at amortised cost and any difference between

the proceeds (net of transaction costs) and the redemption

value is recognised in Statement of Comprehensive Income

over the period of the borrowings using the effective

interest method.

Borrowings are classified as current liabilities unless the

Group has an unconditional right to defer settlement of

the liability for at least 12 months after the Statement

of Financial Position date.

Current and deferred income tax

The tax expense recognised in the Statement of

Comprehensive Income comprises the sum of

deferred tax and current tax not recognised in other

comprehensive income or directly in equity.

Current income tax assets and/or liabilities comprise those

obligations to, or claims from, fiscal authorities relating

to the current or prior reporting periods, that are unpaid

at the reporting date. Current tax is payable on taxable

profit, which differs from profit or loss in the financial

statements. Calculation of current tax is based on tax rates

and tax laws that have been enacted or substantively

enacted by the end of the reporting period.

Deferred income taxes are calculated using the liability

method on temporary differences between the carrying

amounts of assets and liabilities and their tax bases.

However, deferred tax is not provided on the initial

recognition of goodwill, or on the initial recognition of

an asset or liability unless the related transaction is a

business combination or affects tax or accounting profit.

Deferred tax on temporary differences associated with

investments in subsidiaries and joint ventures is not

provided for if reversal of these temporary differences

can be controlled by the Group and it is probable that

reversal will not occur in the foreseeable future.

Deferred tax assets and liabilities are calculated, without

discounting, at tax rates that are expected to apply to

their respective period of realisation, provided they are

enacted or substantively enacted by the end of the

reporting period.

Deferred tax assets are recognised to the extent that it

is probable that they will be able to be utilised against

future taxable income, based on the Group’s forecast of

future operating results which is adjusted for significant

non-taxable income and expenses and specific limits to

the use of any unused tax loss or credit. Deferred tax

liabilities are always provided for in full.

Deferred tax assets and liabilities are offset only when

the Group has a right and intention to set off current tax

assets and liabilities from the same taxation authority.

Changes in deferred tax assets or liabilities are

recognised as a component of tax income or expense

in the Statement of Comprehensive Income, except

where they relate to items that are recognised in other

comprehensive income (such as the revaluation of land)

or directly in equity, in which case the related deferred

tax is also recognised in other comprehensive income or

equity respectively.

Employee benefits

Short term employee benefits

Wages, salaries, paid annual leave, paid sick leave,

bonuses and non-monetary benefits are recognised

as an expense in the period in which the associated

services are rendered by employees.

Post-employment benefits

The Group does not participate in any post-employment

benefit scheme.


Share-based payments

The Group measures the cost of equity-settled transactions

by reference to the fair value of the equity instruments

at the date at which they are granted. Estimating fair

value for share-based payment transactions requires

determining the most appropriate valuation model,

which is dependent on the terms and conditions of the

grant. This estimate also requires determining the most

appropriate inputs to the valuation model including the

expected life of the share option, volatility and dividend

yield and making assumptions about them.

Provisions

A provision is recognised in the Statement of Financial

Position when a present legal or constructive obligation

arises as a result of a past event, that can be reliably

measured and it is probable that an outflow of economic

benefits will be required to settle the obligation.

Provisions are measured at the best estimate of the

expenditure required to settle the present obligation at

the reporting dates.

Leases

Leases in which the Group assumes substantially all the

risks and rewards of ownership of the leased asset are

classified as finance leases. Leased assets acquired by

way of finance leases are stated at an amount equal to

the lower of their fair value and the present value of the

minimum lease payments at inception of the lease, less

accumulated depreciation and accumulated impairment

losses. Minimum lease payments are apportioned

between the finance charge and reduction of the

outstanding liability. The finance charge is allocated to

each period during the lease term so as to produce

a constant periodic rate of interest on the remaining

balance of the liability.

Payments made under operating leases are recognised in

the Statement of Comprehensive Income on a straight line

basis over the term of the lease. Lease incentives received

are recognised in profit or loss as an integral part of the

total lease expense.

Financial income and expenses

Financial income comprises interest receivable on cash

balances and deposits. Interest income is recognised

when the right to receive payments is established.

Financial expenses comprise interest payable on bank

loans, charges in relation to hire purchase and other

financial costs and charges. Interest payable is recognised

on an accruals basis.

Exceptional items

Exceptional items are those items that, in management’s

judgement, need to be disclosed by virtue of their size

or incidence in order to provide greater visibility of the

underlying results of the business and which management

believes provide additional meaningful information in

relation to on-going operational performance.

Segmental reporting

An operating segment is a component of the Group that

engages in business activities from which it may earn

revenues and incur expenses. IFRS 8 requires disclosure

of the operating segments that are reported to the Chief

Operating Decision Maker (“CODM”).

The CODM has been identified as the Group’s management

team consisting of the Executive Directors, the Group’s

Head of Finance and the Group’s Head of Operations,

which has responsibility for planning and controlling the

activities of the Group. The Group has three operating

segments; Design and Build, Attractions and Head Office.

In identifying these operating segments, management

generally follows the Group’s service lines representing

the main products and services.

Each of these operating segments is managed separately

as each requires different assets, marketing approaches

and other resources. All inter-segment transfers are

carried out at arm’s length prices.

For management purposes, the Group uses the same

measurement policies as those used in its financial

statements, except for certain items not included in

determining operating profit of the operating segments,

as follows:

• Share-based payment expenses

• Amortisation of intangible assets

In addition, corporate assets which are not directly

attributable to the business activities of any operating

segment are not allocated to a segment. This primarily

applies to the Group’s head office functions.

Financial risk management

The Group has exposure to the following risks from its

use of financial instruments:

• Credit risk

• Interest rate risk

• Currency risk

• Liquidity risk

• Market risk

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The following paragraphs present information about the

Group’s exposure to each of the above risks, the Group’s

objectives, policies and processes for measuring and

managing risk, and the Group’s management of capital.

Further quantitative disclosures are included throughout

these consolidated financial statements.

Risk management framework

The Board has overall responsibility for the establishment

and oversight of the Group’s risk management framework.

The Board is responsible for developing and monitoring

the Group’s risk management policies. The Group’s risk

management policies are established to identify and

analyse the risks faced by the Group, to set appropriate

risk limits and controls, and to monitor risks and

adherence to limits. Risk management policies and

systems are reviewed regularly to reflect changes in

market conditions and the Group’s activities. The Group,

through its training and management standards and

procedures, aims to develop a disciplined and constructive

control environment in which all employees understand

their roles and obligations.

Credit risk

Credit risk is the risk of financial loss to the Group if a

customer or counterparty to a financial instrument fails

to meet its contractual obligations, and arises principally

from the Group’s receivables from customers and cash

deposits with financial institutions.

The creditworthiness of the Group’s banks has been under

constant scrutiny during the period. Before placing cash

with a bank and following such placement, the Group

has due consideration to both investment return and

credit risk.

The exposure to credit risk on trade, other receivables

and accrued income is influenced primarily by the

individual characteristics of each customer. The Group

considers carefully the demographics within the active

Group’s customer base, including location, sector and

historical performance. Each customer is subject to review

by the Directors prior to contractual arrangements being

agreed with the payments and terms and conditions on

each contract being adjusted accordingly. Accruals for

revenue yet to be invoiced is made in accordance with

the Group’s revenue policy.

Interest rate risk

Interest rate risk is the risk of an adverse impact to the

Group’s position following a change in interest rates.

The Group has interest bearing financial liabilities.

The Group is exposed to interest rate risk on the bank

borrowing facilities and cash balances. The Directors

monitor the interest rate on facilities on a frequent basis.

Currency risk

Currency risk is the risk of an adverse impact or financial

loss to the Group if there are changes to the UK or other

exchange rates.

A significant proportion of the Group’s sales are outside of

the United Kingdom resulting in exposure to currency risk.

The Directors manage this risk by factoring in the risk into

the project budget and/or billing in sterling where possible.

Liquidity risk

Liquidity risk is the risk that the Group will not be able

to meet its financial obligations as they fall due. The

Group’s approach to managing liquidity is to ensure, as

far as possible, that it will always have sufficient liquidity

to meet its liabilities when due, under both normal and

stressed conditions, without incurring unacceptable losses

or risking damage to the Group’s reputation.

The Group meets all liabilities from cash reserves and

pre-approved banking facilities. The Group’s liability for

operating expenses is monitored on an ongoing basis to

ensure cash resources are adequate to meet liabilities as

they fall due.

Market risk

Market risk is the risk that changes in market prices, such

as foreign exchange rates, interest rates and equity prices

will affect the Group’s income or the value of its holdings

of financial instruments.

Market risk – Foreign exchange risk

The Group has limited exposure to foreign currency risk

as the majority of the Group’s trading transactions and its

assets and liabilities are denominated in Sterling.

Market risk – Interest rate risk

Other than cash, the Group has no interest bearing

financial instruments.

Market risk – Equity price risk

The Group has no listed equity investments and therefore

has no exposure to equity price risk.


The interest rate profile of the financial assets (cash and cash equivalents) of the Group as at 31 December was as

follows:

The Group is not significantly exposed to interest rate fluctuations.

Borrowing facilities

At 31 December 2012 the Group had overdraft facilities of £0.6 million of which £nil was drawn.

Capital management

The Board’s policy is to maintain a strong capital base so as to maintain creditor and market confidence and to sustain

future development of the business. The Group’s goal is to maintain a capital to overall financing ratio up to 80%. There

were no changes in the Group’s approach to capital management during the period.

Capital for the reporting periods is summarised as follows:

Floating rate Financial Financial Total financial liabilities liabilities on which liabilities at a fixed no interest is paid rate of interest £000s £000s £000s £000s

At 31 December 2011 488 - 19 507

At 31 December 2012 348 - 73 421

Floating rate Financial Financial Total financial assets assets on which no liabilities at a fixed interest is received rate of interest £000s £000s £000s £000s

At 31 December 2011 - 2,420 - 2,420

At 31 December 2012 - 539 - 539

2012 2011 £000s £000s


Cash and cash equivalent (539) (2,420)

Capital 3,264 2,694

2012 2011 £000s £000s


Borrowings 421 507

Overall financing 4,224 5,621

Capital to overall financing rates 77% 48%

Fair values

Generally, the carrying amounts of all financial assets and liabilities of the Group as disclosed in the notes to the financial

information are approximately their fair values.

Interest rate risk profile of the financial liabilities and financial assets

The interest rate profile of the financial liabilities (borrowings) of the Group as at the 31 December was as follows:

The level of capital to overall financing has increased over the year reflecting lower total equity as a result of high levels

of amortisation of intangible assets acquired and reducing cash balances. Borrowings have remained relatively static.

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(a) Use of non-GAAP measures in the Group’s

financial statements

The Group has identified certain measures that it believes

will assist understanding of the performance of the

business. The measures are not defined under IFRS

and they may not be directly comparable with other

companies’ adjusted measures.

The non-GAAP measures are not intended to be a

substitute for, or superior to, any IFRS measures of

performance but management has included them as

they consider them to be important comparables and

key measures used within the business for assessing

performance. These are also measures which have

been used in market forecasts.

The following are the key non-GAAP measures identified

by the Group:

Earnings before Interest, Taxation, Depreciation and

Amortisation (‘EBITDA’): EBITDA is defined as profit

before amortisation of acquisition intangibles, goodwill

impairments, charges in respect of share based incentive

plans, exceptional items, net financing costs, tax,

depreciation and other amortisation.

Normalised Earnings: Normalised Earnings represent

EBITDA less depreciation interest and finance costs and

attributable tax.

Normalised Earnings per Share (‘Normalised EPS’):

Normalised EPS represents Normalised Earnings divided

by the weighted average number of shares in issue,

and is disclosed to indicate the underlying profitability

of the Group.

(b) Judgements, estimates and assumptions

The preparation of financial information in conformity

with IFRSs requires management to make judgements,

estimates and assumptions that affect the application

of accounting policies and the reported amounts of

assets and liabilities, income and expenses. Judgements

and estimates are continually evaluated and are based

on historical experience and other factors, including

expectations of future events that are believed to be

reasonable under the circumstances. The resulting

accounting estimates may differ from the related

actual results.

The areas of judgement that have the most significant

effect on the amounts recognised in the financial

statements are as follows:

Exceptional items

The company categorises certain items as exceptional

items due to their size and non-recurring nature being

material in the understanding of the Group’s financial

activities. An explanation of exceptional items is

contained in note 10.

The estimates and assumptions that have a risk of causing

material adjustment to the carrying amounts of assets and

liabilities within the future financial years are as follows:

Depreciation, useful lives and residual values of

property, plant and equipment

The Group estimates the useful lives and residual values

of property, plant and equipment in order to calculate

the depreciation charges. Changes in these estimates

could result in changes being required to the annual

depreciation charges in the Statement of Comprehensive

Income and the carrying values of the property, plant

and equipment in the Statements of Financial Position.

3. Critical accounting estimates and judgements


Deferred tax liability

The Group estimates future profitability in arriving at the

fair value of the deferred tax assets and liabilities. If the

final tax outcome is different to the estimated deferred

tax amount the resulting changes will be reflected in

the Statement of Comprehensive Income, unless the tax

relates to an item charged to equity in which case the

changes in tax estimates will also be reflected in equity.

Long term contract accounting

The Group uses the stage of completion method to

determine the appropriate amount to recognise in a given

period. The stage of completion is measured by reference

to the contract costs incurred up to the Statement of

Financial Position date as a percentage of total estimated

costs for each contract.

Business combinations

The Group uses valuation techniques in determining

the fair values of the various elements of a business

combination. Particularly, the valuation of the intangible

assets, including contractual relationships and customer

relationships, require a significant number of variables.

Any change in these can affect future profitability.

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Fair value £000s

Cash and cash equivalents 6

Trade and other receivables 65

Trade and other payables (72)

Total identifiable net liabilities (1)

Provisional goodwill 314

Total net assets 313

Consideration satisfied by:

Fair value of shares issued (note 25) 200

Cash 13

Contingent consideration (payable in shares) 100

Total consideration 313

4. Business combinations

Acquisition of The Visitor Attraction Company Limited in 2012

On 5 April 2012 the Group acquired the entire share capital of The Visitor Attraction Company Limited (“TVAC”) by

means of a share for share exchange and cash with a total consideration of £313,154. TVAC is a provider of strategic

development, operating and project management services to the leisure attractions industry.

Under the terms of the purchase agreement, the Company has agreed to a maximum consideration of £313,154. This was

satisfied by the issue of 2,317,497 ordinary shares on completion, up to a maximum of 1,158,750 ordinary shares on the

first anniversary of the acquisition subject to certain performance criteria and £13,154 to be paid in cash.

TVAC has extensive expertise in the development and operation of leisure attractions and complements Paragon’s wide

array of attraction services which range from initial design and production for third party clients through to direct operation

and development of proprietary themed attractions. The acquisition of TVAC is in line with the Paragon’s broader strategy,

announced on readmission to AIM in December 2011, to expand through organic and acquisitive means and thereby gain

access to more of the value chain in its core leisure attractions market.

Together, Paragon and TVAC are in a position to bring a more holistic proposition to their customers, further extending

Paragon’s reach into new services and markets.

The details of the business combination are as follows:


Consideration transferred

The consideration was settled on completion by the issue of 2,317,497 ordinary shares at 8.63 pence per share

amounting to fair value of £200,000. The purchase agreement also included an element of contingent consideration

which is to be settled by the issue of ordinary shares of the company at the prevailing share price at the time of issue,

subject to a maximum number of shares of 1,158,750 or cash, at the Company’s option. A final sum of £13,154 is to

be paid in cash based upon the net assets of the company at 29 February 2012.

At and around the time the shares were issued the official quoted price of the shares on AIM was 8.63p and therefore

that is deemed to be the fair value of the shares.

The total amount of directly related acquisition costs of £21,000 have been charged to operating expenses of the business

and are included within exceptional items (note 10).

Goodwill

The goodwill of £314,000 is primarily related to growth expectations and the ability to be able to leverage on the

company’s substantial skill and expertise within both its existing sector and the expansion into the ownership and

operation of licensed and proprietary visitor attractions. Goodwill has been allocated to the ‘Design and Build’

segment which includes consultancy work and is not expected to be deductible for tax purposes.

TVAC’s contribution to Group results

TVAC contributed total revenues of £168,000 and a total loss after tax of £155,000 to the Group for the period from the

date of acquisition to 31 December 2012. If the acquisition had occurred on 1 January 2012, Group revenue would have

been £6.1 million and the net loss would have been £1.6 million. These amounts have been calculated using the Group’s

accounting policies and by adjusting the results of the subsidiary to reflect the additional depreciation and amortisation

that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible

assets had applied from 1 January 2012, together with the consequential tax effects. No allowance has been made for a

change in the Group strategy which would have occurred had the acquisition taken place at the start of the financial year.

.

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5. Segment reporting

The Group has three operating segments. These operating segments are monitored by

the Group’s Chief Operating Decision Maker and strategic decisions are made on the basis of adjustment segment

operating results.

Performance is measured based on EBITDA before exceptional items as management believes that such information

is the most relevant in evaluating the results of certain segments relative to other entities that operate within these

industries.

Inter-segment pricing is determined on an arm’s length basis. The information provided to the Board comprises the

Statement of Comprehensive Income for each segment, and Statements of Financial Position and Statement of Cash

Flows and other financial and non-financial information used to manage the business on a consolidated basis.

The “Head Office” segment comprises the corporate activities which are unrelated to the individual segments and the

elimination of inter-segmental transactions.

Segment information for the reporting periods is as follows:

Geographical Segments

Major customer

Revenues from the largest customer of the Group’s Design and Build segment represents £686,000 (2011: £nil) of the

Group’s total revenues for the period.

2012

Design and Build Attractions Head Office Total £000s £000s £000s £000s

Total Revenues 6,768 145 - 6,913

Of which from external customers 5,984 145 - 6,129

Segment revenues 6,768 145 - 6,913

EBITDA before share based payments 1,274 (156) (813) 305

and exceptional items

2011

Design and Build Attractions Head Office Total £000s £000s £000s £000s

Total Revenues - - - -

Of which from external customers - - - -

Segment revenues - - - -

EBITDA before share based payments - - (361) (361)

and exceptional items

2012 2011 £000s £000s

United Kingdom 4,936 -

Switzerland 686 -

Turkey 455 -

Other 52 -

Total revenues 6,129 -


6. Revenue

2012 2011 £000s £000s

Design and Build 5,984 -

Attractions 145 -

Total revenues 6,129 -

7. Operating expenses

Included in the operating loss are the following charges:

2012 2011 £000s £000s

Amortisation of intangible assets (note 14) 1,940 100

Depreciation of property, plant and equipment (note 15) 93 1

Operating leases – land and buildings 118 2

Auditor’s remuneration:

- Audit of the Group financial statements 6 16

Amounts receivable by auditors and their associates in respect of:

- Audit of financial statements of subsidiaries pursuant to legislation 35 -

- Taxation services 3 4

- Other services 11 2

8. Employee benefit expense and numbers

The average monthly number of persons employed by the Group (including directors) during the period, analysed by category, was as follows:

2012 2011 No No

Production 44 -

Customer services 5 -

Consultants 4 -

Administration 9 -

62 -

The aggregate payroll costs of these persons were as follows:

2012 2011 £000s £000s

Wages and salaries 2,045 30

Social security costs 215 3

Share based payments (note 9) 21 -

2,281 33

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9. Share based payments

2012 2011

Expense in respect of share based payments: £000s £000s

Shares issued in respect of services provided to the Group (note 25) - 401

Marwyn participation option 1 -

Management participation shares 12 -

Enterprise Management Incentive scheme 8 -

Total share based payments 21 401

Shares issued in respect of services provided to the Group

The shares have been accounted for on the basis of the value of the services provided to the Group. On 22 December

2011, the company issued 10,036,528 ordinary shares of 0.1p each at a premium of 3.9p per share pursuant to a

commitment agreement entered into with David Gray, Vulcan and Robert Hersov in relation to introducing the acquisition

of Paragon Creative Limited to the company and in respect of a Deed of Undertaking relating to the introduction of

future opportunities to the Group.

Share-based incentive schemes

There are currently three share-based incentive schemes in operation within the Group. A charge of £21,000 has been

recognised in the period in relation to a) the Management participation shares issued to directors, b) the Marwyn

participation option, and c) an Enterprise Management Incentive scheme. The details of each scheme are described below.

(a) Management participation shares (“MPS”)

Participation shares were issued via the Company’s subsidiary Paragon Entertainment Investments Limited under share-

based payment arrangements established by the Group to incentivise directors and key employees.

The Directors believe that the Group’s future success will depend to a high degree upon the performance of the Company’s

management team. The purpose of the MPS is to align executive management with the interests of shareholders and

to reward management for creating shareholder value. The scheme is designed such that management will share in a

proportion of the total increase in value created for shareholders.

Upon exercise, the Company may purchase the participation shares either for cash or for the issue of new ordinary shares

in the Company at its discretion. The details of and value of the participation shares are discussed below. The participation

shares may only be sold on this basis, if both the growth and the vesting conditions have been satisfied. If these conditions

have not been satisfied, the participation shares must be sold to the Company for a nominal amount.

During 2012, upon stepping down from the Board, Mr Gray voluntarily returned his shares to the Company.

Growth condition

The growth condition is that the compound annual growth of the Company’s equity value must be at least 12.5% per

annum. The growth condition takes into account new shares issued, dividends and capital returned to shareholders.

Vesting condition

The vesting condition is a time period which ends on the third anniversary following re-admission to trading i.e. 22

December 2014 or, if earlier, on the sale or change of control of the Company. However, if the growth condition is not

met on the third anniversary, the vesting period will be extended until the fifth anniversary following re-admission to

trading or, if earlier, when the option growth condition is met.


Value

Subject to the provisions detailed above, the Management participation shares can be sold for a value equal to 10%

of the increase in “Shareholder Value” in the Company. The increase in shareholder value is broadly defined for the

purposes of the Management participation shares as the difference between: (a) the sum of the market capitalisation

of the Company at a point in time and aggregate dividends and capital returns up to that point in time; and (b)

the aggregate subscription proceeds of all Ordinary Shares issued following Admission plus the cash balance of the

Company on the day prior to Admission.

(b) Marwyn participation option

The Group entered into a performance participation agreement with Marwyn Management Partners LP (“Marwyn”) under

which Marwyn has agreed to assist the Company in meeting its business strategy. In exchange, Marwyn was granted an

option to subscribe for ordinary shares at an exercise price equal to their nominal value, subject to growth and vesting

conditions being satisfied as described below. The option was modified on 15 December 2011 and the vesting conditions

were changed to those shown below. The growth conditions and vesting conditions described above are identical for the

Marwyn participation option as for the management participation scheme.

Value

Subject to the provisions detailed above, the Marwyn participation option can be exercised for a value equal to 10%

of the increase in “Shareholder Value” in the Company. The increase in shareholder value is broadly defined for the

purposes of the Marwyn participation option as the difference between: (a) the sum of the market capitalisation of the

Company at a point in time and aggregate dividends and capital returns up to that point in time; and (b) the aggregate

subscription proceeds of all Ordinary Shares issued from Original Admission (being the date that the Company was first

admitted to AIM on 22 December 2009) up to that point in time.

Management participation shares issued to employees and others

These are Class A Shares in the Group’s subsidiary, Paragon Entertainment Investments Limited.

Irrespective of the number of Class A shares in issue, the participation in shareholder value remains 10%.

Marwyn participation option

Valuation of Management participation shares and Marwyn participation option

When the Marwyn participation option was first issued, the Company was an unlisted shell-company and had not

entered into any transactions up to that date other than the issue of 1 Ordinary Share for £0.001. In the current

period, a charge of £1,466 has been charged to the Statement of Comprehensive Income in respect of the Marwyn

participation option and £12,274 in respect of the Management participation shares

Participation in Issue price Number of shareholder value £ participation shares

At 1 January 2011 - - -

Granted during the period 10% 0.004 684,500

At 31 December 2011 10% 0.004 684,500

Forfeited during the period - - (136,900)

Total Class A shares at 31 December 2012 10% 547,600

Participation in shareholder value

Marwyn Management Partners LP 10.0%

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The Group measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at

the date at which they are granted. The total scheme value of the Marwyn participation option and the Management

participation shares was £4,195 and £35,124 respectively. The Binomial valuation model uses the following

assumptions in arriving at values for the share-based payment plans:

(c) Enterprise Management Incentive scheme

Share options were granted to selected employees in July 2012 under a scheme approved by HMRC. The exercise price

of the granted options is equal to the closing mid-market price on the day before the grant date. Options are conditional

on employees completing three years’ service (the vesting period). The options are exercisable starting three years

from the grant date or, if earlier, on the sale or change of control of the Company. The Group has no legal or constructive

obligation to repurchase or settle options in cash.

On 31 July 2012 5,550,178 share options were granted with an exercise price of 8.13p. All of these were outstanding

but not exercisable at 31 December 2012. A charge of £7,790 has been recognised in respect of these options in the

year ended 31 December 2012 representing five months of vesting. The annual share based payment charge for these

options will be £18,596.

The fair value of the options granted, determined using the Black-Scholes valuation model was 1.26p per option. The

significant inputs into the model were:

Share price at date of grant 8.13p

Exercise price 8.13p

Volatility 23.7%

Dividend yield Nil

Expected option life 3 years

Annual risk free interest rate 0.8%

Expected volatility has been based on the actual volatility of the Company’s shares measured over a 200 day period

prior to grant date.

Valuation date 14 Dec 2011

Share price at valuation date 4.0p

Exercise price Nil

Expected volatility 19.83%

Dividend yield Nil

Expected option life 3 Years

Annual risk free rate 0.8%


10. Exceptional and other items

2012 2011 £000s £000s

Costs of the acquisition of Paragon Creative Limited 43 387

Costs of the acquisition of The Visitor Attraction Company Limited 21 -

Cost of legal restructuring of Group 12 -

Onerous contracts acquired on Drinkall Dean (London) Limited 28 -

Exceptional pre-acquisition costs of the company not related to current business - 1,638

104 2,025

The costs of the acquisition of Paragon Creative Limited and of The Visitor Attraction Company Limited include due diligence,

legal and other exceptional costs entirely related to the such acquisitions. Management do not expect any further related

costs to arise.

The costs related to onerous contracts acquired on Drinkall Dean (London) Limited relate to specific contracts which the

company had an obligation to fulfil.

The exceptional pre-acquisition costs of the Company not related to the current business in the prior year include all those

non-recurring costs, which includes a level of aborted due diligence costs, relating to the previous activity of the Company

in seeking one or more acquisitions of quoted and unquoted companies prior to identifying and making the acquisition of

Paragon Creative Limited in December 2011. Management do not expect any further related costs to arise.

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The parent company and all its subsidiaries were previously registered and resident in the Cayman Islands for tax and

as such were an exempted company and were not subject to taxation in the Cayman Islands or anywhere else.

Following the acquisition of Paragon Creative Limited on the 22 December 2011, the Company and its subsidiaries

became a UK resident company for tax purposes.

The tax on the Group’s losses before tax differs from the theoretical amount that would arise using the weighted average

tax rate applicable to losses of the consolidated entities as follows:

11. Income tax

2012 2011 £000s £000s

Current tax:

Current tax on profits for the year - -

Adjustments in respect of prior years 72 -

Total current tax 72 -

Deferred tax (note 24):

Origination and reversal of temporary differences (380) (25)

Total deferred tax (380) (25)

Income tax credit (308) (25)

2012 2011 £000s £000s

Loss before tax: (1,883) (2,888)

Tax calculated at domestic tax rates applicable to losses in the respective countries (433) (38)

Tax effects of:

- expenses not deductible for tax purposes 152 13

- depreciation in excess of capital allowances (15) -

- tax losses utilised (12) -

Tax credit (308) (25)

The weighted average applicable tax rate was 23% (2011: 0.55%). The increase is caused by a change in the Company’s

residence tax status from the Cayman Islands to the UK following the acquisition of a trading subsidiary which is UK resident.

The Group has corporation tax loss of £820,000 representing an asset of approximately £189,000. A deferred tax asset

has been recognised in full on these losses due to the current expected profit position of the Group and taking into

account its ability to generate sufficient future taxable profits against which to utilise these losses.


12. Earnings per share

2012 2011 Pence per Pence per share share

Basic (0.98) (5.50)

Diluted (0.98) (5.50)

Earnings per share have been calculated by dividing the loss attributable to shareholders by the weighted average number

of ordinary shares in issue during the year. As the basic earnings per share is a loss, a dilution does not take place.

The calculations of basic and diluted loss per share are:

2012 2011 £000s £000s

Loss for the year attributable to shareholders (1,575) (2,863)

Weighted average number of ordinary shares in issue:

2012 2011 Number Number

Basic 161,049,642 52,098,000

Normalised earnings per share:

2012 2011 Pence per Pence per share share

From continuing operations

Basic normalised earnings/(loss) per share 0.08 (0.69)

Normalised earnings per share have been calculated by dividing the loss attributable to shareholders before amortisation,

charges for share options and exceptional items by the weighted average number of ordinary shares in issue during the

year. The numbers used in calculating the normalised basic earnings per share are reconciled below:

2012 2011 £000s £000s

Loss before tax (1,883) (2,888)

Amortisation 1,940 100

Charges for share options 21 401

Exceptional items 104 2,025

Normalised earnings/(loss) attributable to shareholders 182 (362)

Current year tax (charge)/credit excluding tax effect of above items (57) 5

Normalised earnings/(loss) 125 (357)

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13. Investments in subsidiaries

Name Country of Nature of Proportion of Proportion of incorporation business ordinary shares ordinary shares held by parent held by Group

Paragon Entertainment Cayman Islands Immediate holding 100% 100%

Investment Limited company

Paragon Creative Limited UK Design and Build - 100%

Pyrah Holdsworth Limited UK Property Holding - 100%

The Visitor Attraction Company Limited UK Consultancy - 100%

Drinkall Dean (London) Limited UK Design Consultancy - 100%

Paragon Entertainment (Attractions) UK Leisure attractions - 100%

Limited

Paragon Entertainment (Licences) UK Dormant - 100%

Limited

14. Intangible assets

Goodwill Customer Customer Customer Total contracts pipeline relationships £000s £000s £000s £000s £000s

Year ended 31 December 2011

Opening net book amount - - - - -

Acquisitions 1,231 828 1,468 1,010 4,537

Amortisation charge (note 7) - (68) (26) (6) (100)

Closing net book amount 1,231 760 1,442 1,004 4,437

At 31 December 2011

Cost or valuation 1,231 828 1,468 1,010 4,537

Accumulated amortisation - (68) (26) (6) (100)

Net book amount 1,231 760 1,442 1,004 4,437


Opening net book amount 1,231 760 1,442 1,004 4,437

Acquisitions 365 - - - 365

Amortisation charge (note 7) - (760) (979) (201) (1,940)

Closing net book amount 1,596 - 463 803 2,862

At 31 December 2012

Cost or valuation 1,596 828 1,468 1,010 4,902

Accumulated amortisation - (828) (1,005) (207) (2,040)

Net book amount 1,596 - 463 803 2,862

Impairment tests for goodwill

Goodwill is allocated to the Group’s cash generating units or segments (CGUs) identified according to the operating

segment. The acquisitions which have been made are all included with the Design and Build segment and therefore

all of the goodwill is allocated to that segment.

The recoverable amount of all CGUs has been determined based on value-in-use calculations. These calculations use

pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. Cash

flows beyond the five-year period are extrapolated using the estimated growth rates stated below. The growth rate

does not exceed the long-term average growth rate for the Design and Build business in which the CGU operates.


The key assumptions used for value-in-use calculations in 2012 are as follows:

Gross Margin 31%

Growth Rate nil%

Discount Rate 10%

The gross margin has been determined by management. It is based upon the past performance of the Design and Build

segment along with known expected margins for 2013 taken from the pipeline of confirmed orders and is in line with

the historical average. A growth rate of nil% has been chosen, using expected revenues for 2013 as the baseline as it is

considered that the business is operating at near capacity without further investment. The discount rates used are pre-

tax and reflect market risk and specific risks relating to the relevant Design and Build segment. There are no expected

efficiency improvements taken into account.

Changing the key assumptions to reasonably possible alternative assumptions would not give rise to the recognition of

any impairment.

15. Property, plant and equipment

Land and Property Fixtures, Plant, Total buildings improvements fittings machinery and office and motor equipment vehicles £000s £000s £000s £000s £000s


Opening net book amount - - - - -

Acquisitions 550 36 22 91 699

Depreciation charge (note 7) (1) - - - (1)

Closing net book amount 549 36 22 91 698

At 31 December 2011

Cost or valuation 550 36 22 91 699

Accumulated depreciation (1) - - - (1)

Net book amount 549 36 22 91 698


Opening net book amount 549 36 22 91 698

Additions - 561 160 679 1,400

Depreciation charge (note 7) (8) (19) (18) (48) (93)

Closing net book amount 541 578 164 722 2,005

At 31 December 2012

Cost or valuation 550 597 182 770 2,099

Accumulated depreciation (9) (19) (18) (48) (94)

Net book amount 541 578 164 722 2,005

Depreciation expense of £93,000 (2011: £1,000) has been charged in operating expenses.

Bank borrowings of £348,000 (2011: £356,000) are secured on land and buildings (note 20).

Plant, machinery and motor vehicles includes the following amounts where the Group is a lessee under a finance lease:

The Group leases various equipment under non-cancellable finance lease agreements. The lease terms are between three

and five years and ownership of the assets lies with the Group.

2012 2011 £000s £000s

Cost – capitalised finance leases 86 23

Accumulated depreciation (16) -

Net book value 70 23

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16. Trade and other receivables

2012 2011 £000s £000s

Trade receivables 791 800

Less: impairment provision (86) (36)

Net trade receivables 705 764

Amounts receivable on contracts 509 111

Prepayments and other debtors 60 11

Amounts due from related parties 608 608

Total trade and other receivables 1,882 1,494

The Group’s trade credit terms are assessed and approved on a case-by-base basis. The Group at times may have exposure

to credit risk by virtue of significant debtor balances with its customers. However, it manages contracts with a positive cash

profile to mitigate this. Exposure to credit and currency risks related to trade and other receivables is disclosed in note 2.

The Directors consider that the carrying amount of trade and other receivables approximates to their fair values.

All of the Group’s trade receivables have been reviewed for indicators of impairment.

Credit quality of financial assets and impairment losses

The ageing of trade and other receivables at the Consolidated Statement of Financial Position date was:

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit

ratings (if available) or to historical information about counterparty default rates:

Group 1 – new customers/related parties (less than 6 months).

Group 2 – existing customers/related parties (more than 6 months) with no defaults in the past.

Group 3 – existing customers/related parties (more than 6 months) with some defaults in the past. All defaults were fully recovered.

2012 2011 £000s £000s

Trade receivables

Counterparties without external credit rating

Group 1 576 315

Group 2 100 265

Group 3 29 184

Total unimpaired trade receivables 705 764

Gross Impairment £000s £000s

Not past due 483 -

Past due less than 1 month 72 -

Past due 1-2 months 30 (15)

More than 2 months past due 206 (71)

791 (86)


At 31 December 2012 the trade and other receivables includes retentions of £84,000 (2011: £106,000) related to

contracts in progress.

The movement in the allowance for impairment in respect of trade receivables during the period was as follows:

The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no

recovery of the amount owing is possible. At that point, the amounts considered irrecoverable are written off against the

trade receivables directly.

During the period the Group has not experienced a significant deterioration in the quality of receivable balances due to

the current economic conditions.

There were no allowances made against other receivables during the period ended 31 December 2012.

17. Cash and cash equivalents

Cash and cash equivalents in the Statement of Financial Position comprise the following:

Cash and cash equivalents include the following for the purposes of the Statement of Cash Flows:

Credit quality of financial assets and impairment losses

2012 2011 £000s £000s

Cash at bank 539 2,420

Cash and cash equivalents (excluding overdrafts) 539 2,420

2012 2011 £000s £000s

Cash and cash equivalents 539 2,420

Bank overdrafts (note 20) - (132)


2012 2011 £000s £000s

Cash at bank and short term deposits

AA 539 2,417

A - 3

539 2,420

£000s

At 1 January 2012 36

Fair value adjustment on acquisition of Paragon Creative 50

At 31 December 2012 86

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19. Deferred income

2012 2011 £000s £000s

Billing in advance of work completed 99 448

20. Borrowings

2012 2011 £000s £000s

Current liabilities

Bank overdrafts (note 17) - 132

Bank loans 22 19

Hire purchase liabilities 34 12

56 163

Non-current liabilities

Bank loans 326 337

Hire purchase liabilities 39 7

365 344

Total borrowings 421 507

Security

The bank loan and bank overdraft are secured by an unlimited debenture by each of the companies in the Group.

The hire purchase liabilities are secured against the assets that are subject to the specific arrangement.

Interest rates

The bank loan incurs interest at 2.95 percent above the Bank of England base rate.

18. Trade and other payables

2012 2011 £000s £000s

Trade payables 910 276

Social security and other taxes 793 897

Other liabilities 863 750

Accrued expenses 281 566

Total trade and other payables 2,847 2,489

The normal credit terms granted to the Group are 30 days. Exposure to liquidity and currency risks related to trade and other

payables is disclosed in note 2. The Directors consider that the carrying amount of trade and other payables approximates to

their fair value.


Maturity analysis

The year of maturity of the loan is 2022. The maturity of the hire purchase varies from 2013 to 2015. The maturity profile

of the liabilities is as follows:

2012 2011 £000s £000s

Within one year 77 163

Between one and two years 62 26

Between two to five years 121 80

In over five years 250 238

Total 510 507

Exposure to interest rate changes

The exposure of the Group’s borrowings to interest rate changes and contractual re-pricing dates at the end of the

reporting periods are as follows:

2012 2011 £000s £000s

6 months or less 348 488

1-5 years 73 19

Total 421 507

The carrying amounts and fair value of the non-current borrowings are as follows:

Carrying Amount Fair Value

2012 2011 2012 2011 £000s £000s £000s £000s

Bank loans 326 337 326 337

Hire purchase liabilities 39 7 39 7

Total 365 344 365 344

The fair value of current borrowings is broadly equal to their carrying amount, as the impact of discounting is not

significant. The fair values are based on cash flows discounted using a rate based on the borrowing rate of 7.5%.

The Group has the following undrawn borrowing facilities:

2012 2011 £000s £000s

Floating rate:

- Expiring within one year 600 18

600 18

The facilities expiring within one year are annual rolling facilities subject to a periodic review during each year.

The next review date is July 2013.

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21. Financial instruments measured at fair value

Financial assets and financial liabilities measured at fair value in the Statement of Financial Position are grouped into three

levels of a fair value hierarchy. This grouping is determined based on the lowest level of significant inputs used in fair value

measurement, as follows:

• level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities

• level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly (ie as prices) or indirectly (ie derived from prices)

• level 3 – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The Group has no financial assets or liabilities which fall under level 1 or level 2.

2012 2011

Level 3 £000s £000s

Liabilities:

Contingent consideration (100) -

Total and net fair value (100) -

Measurement of fair value

The methods and valuation techniques used for the purpose of measuring fair value are unchanged compared to the

previous reporting periods.

Contingent consideration

The fair value of contingent consideration related to the acquisition of The Visitor Attraction Company Limited is estimated

using a valuation technique. The terms of the agreement are such that the certain conditions need to be met within a one

year period for such consideration to be payable and it is assumed that these will be met. The significant inputs into the

model are based on management’s assumption of the expected cash inflow of the Group and a discount rate of 10%.

Level 3 fair value measurements

The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:

2012 2011

Contingent consideration £000s £000s

At 1 January - -

Arising from a business combination (note 4) (100) -

At 31 December (100) -

Changing inputs to the Level 3 valuations to reasonably possible alternative assumptions would not change significantly

the amounts recognised in the total liabilities.


22. Provisions for other liabilities and charges

Remedial Dilapidation Total provisions provisions £000s £000s £000s

At 1 January 2011 - - -

Acquired during the year 50 15 65

At 31 December 2011 50 15 65

At 1 January 2012 50 15 65

Provisions created during the year - 3 3

Utilised during the year (50) - (50)

At 31 December 2012 - 18 18

Dilapidation provisions: the Group has certain buildings which are utilised under leasing arrangements which contain

clauses related to re-instating the building back to its original position. Consequently, a provision is made for dilapidations

approximating to the expense required to fulfil the terms of the lease. This provision is not expected to be utilised until

such time that the Group decides to vacate the building.

Remedial provisions: certain necessary works are required within the properties of the acquired subsidiary business (note

4) to be able to meet the committed business plan and orders. As a consequence, a fair value provision was established

to meet these costs. The provision was utilised during the year.

23. Operating leases

The Group leases workshop and production buildings under operating leases. The future minimum lease payments are as

follows: 2012 2011 £000s £000s

Within one year 68 -

One to five years 294 -

After five years 10 -

Total 372 -

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The movement in deferred income tax assets and liabilities during the year, without taking into consideration the

offsetting of balances within the same tax jurisdiction, is as follows:

Deferred tax liabilities

Accelerated tax Fair value Total depreciation gains £000s £000s £000s

At 1 January 2012 17 624 641

Credited/(debited) to the consolidated statement of 28 (370) (342)

comprehensive income

At 31 December 2012 45 254 299

Deferred tax assets

Provisions Tax losses Total £000s £000s £000s

At 1 January 2012 12 143 155

(Debited)/credited to the consolidated statement of (8) 46 38

comprehensive income

At 31 December 2012 4 189 193

Deferred tax assets are recognised to the extent that they can be offset against future trading profits of the relevant

company. The Directors have recognised the basis that the underling profitability of the Group will continue into the

future and generate sufficient relevant profits for the deferred tax assets to be recognised.

24. Deferred income tax

The analysis of deferred tax assets and deferred tax liabilities is as follows:

2012 2011 £000s £000s

Deferred tax assets:

Deferred tax asset to be recovered after more than 12 months 44 155

Deferred tax asset to be recovered within 12 months 149 -

Deferred tax assets 193 155

Deferred tax liabilities:

Deferred tax liability to be paid after more than 12 months (166) (641)

Deferred tax liability to be paid within 12 months (133) -

Deferred tax liabilities (299) (641)

Deferred tax liability (net) (106) (486)

The gross movement on the deferred income tax account is as follows:

2012 2011 £000s £000s

At 1 January (486) -

Acquisition of subsidiary (note 4) - (511)

Consolidated statement of comprehensive income credit 380 25

At 31 December (106) (486)


25. Share capital and share premium

Authorised 2012 2011 £000s £000s

500,000,000 ordinary shares at £0.001 each 500 500

Issued and fully paid Number of Ordinary Share Total shares shares premium £000s £000s £000s

At 1 January 2011 49,000,000 49 4,665 4,714

Consideration shares issued on share 37,826,525 38 1,475 1,513

for share exchange

Shares issued in exchange for services 10,036,528 10 391 401

Issue of ordinary shares 61,425,000 61 2,114 2,175

At 31 December 2011 158,288,053 158 8,645 8,803

At 1 January 2012 158,288,053 158 8,645 8,803

Consideration shares issued on share 2,317,497 3 197 200

for share exchange

Issue of ordinary shares 1,075,000 1 42 43

At 31 December 2012 161,680,550 162 8,884 9,046

Share Capital

The share capital of Paragon Entertainment Limited consists of only Ordinary shares. The Ordinary shares carry one vote

per share and carry the right to receive dividends when declared. They rank pari passu with each other in all respects

including receipt of dividends and proceeds in the winding up of the company.

Additional shares were issued during the year as follows:

On 11 January 2012, the Company successfully raised £43,000, gross, by way of placing of 1,075,000 ordinary shares of

0.1p each at a price of 4p. The new shares were placed with existing institutional shareholders.

On 5 April 2012, the Company issued 2,317,497 ordinary shares of 0.1p each at a premium of 8.53 per share pursuant to

a share for share agreement to acquire the share capital of The Visitor Attraction Company Limited.

Share premium

Proceeds received in addition to the nominal value of the shares issued during the year have been included in share

premium, less registration and other regulatory fees net of related tax benefits.

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26. Cash used in operations

2012 2011 £000s £000s

Loss before taxation (1,883) (2,888)

Adjustments for:

- finance costs 30 -

- depreciation (note 15) 93 1

- amortisation (note 14) 1,940 100

- share based payments (note 9) 21 401

- trade and other receivables (379) (184)

- trade and other payables (248) 558

Cash used in operations (426) (2,012)

Non-cash transactions

The principal non-cash transaction is the issue of shares as consideration for the acquisition as discussed in note 4 and for

the issue of shares as consideration for services provided by a related party as discussed in note 26.


27. Financial assets and liabilities

The carrying amounts in the Statement of Financial Position relate to the following categories of assets and liabilities:

2012 2011 Financial assets £000s £000s

Loans and receivables:

Trade and other receivables (included amounts owed by related parties) 1,812 1,483


2,351 3,903

2012 2011 Financial liabilities £000s £000s

Financial liabilities measured at amortised cost

Non-current:

Borrowings 365 344

Current:

Borrowings 56 163

Trade and other payable (including contingent consideration and deferred consideration) 2,054 1,592

2,475 2,099

As at 31 December 2012, the Group’s non derivative financial liabilities have contracted maturities (including interest

payments where applicable) as summarised below:

Current Non-current 6 Months 6 to 12 1 to 5 years Later than months 5 years

£000s £000s £000s £000s

Bank loan 17 17 140 250

Hire purchase liabilities 27 15 43 -

44 32 183 250

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28. Related party transactions

Key management compensation

The Key management is defined as the Board of Directors. Their compensation amounted to £286,975 (2011: £19,000)

for the year as follows:

2012 2011 £000s £000s

Short-term employee benefits pre-acquisition - 10

Short-term employee benefits post-acquisition 287 9

287 19

In 2011, the company also made a payment of 8,442,900 ordinary shares with a fair value of £337,716 to Vulcan

International Trading Limited, a company in which Mr Hersov has a beneficial interest and a payment of 1,593,628 ordinary

shares with a fair value of £63,745 to Mr Gray, both payments being made as consideration for introductions made to

the Company and ongoing commitments made through Deeds of Undertakings. The agreement was conditional on the

acquisition of Paragon Creative Limited and became unconditional on 22 December 2011, the date on which both Mr

Hersov and Mr Gray were appointed directors of the business.

Transactions with other related parties

Axio Capital Solutions Limited, a related party due to occupying the position of Company Secretary, was paid £31,195

(2011: £28,934) in administration fees for company secretarial services during the year and was due an amount of

£5,270 (2011: £9,133) as at the Statement of Financial Position date.

Marwyn Investment Management LLP, a related party, over which a Director of the Company has significant influence,

recharged £nil (2011: £830,575) in professional fees from various parties during the period and owed an amount of £nil

as at the Statement of Financial Position date to the Company.

Marwyn Capital LLP, a related party over which a Director of the Company has significant influence, recharged £nil

(2011: £19,748) in professional fees from various parties and charged £120,000 (2011: £220,130) pursuant with an

ongoing corporate finance advisory agreement during the period. An amount of £38,762 (2011: £55,130) was owed

to Marwyn Capital LLP as at the Statement of Financial Position date.

Marwyn Partners Limited, a related party over which a Director of the Company has significant influence, recharged £nil

(2011: £10,412) in professional fees from various parties and charged £22,250 (2011: £69,000) in office costs during the

period. An amount of £300 (2011: £3,600) was owed to Marwyn Partners Limited as at the Statement of Financial Position date.

Adoreum Partners Limited, a related party over which a Director of the Company has significant influence, charged

£6,000 (2011: £nil) in professional fees in relation to marketing and public relation activities during the period.

An amount of £6,000 (2011: £nil) was owed to Adoreum Limited as at the Statement of Financial Position date.

All outstanding balances with related parties are priced on an arm’s length basis and are to be settled in cash within

six months of the reporting date. None of the balances is secured.

29. Events after the Statement of Financial Position date

On 18 February 2013, the company entered into a Sale and Purchase agreement to dispose of the entire share capital

of Drinkall Dean (London) Limited for a nominal sum of £1.00. The transaction was not material to the Group.


Registered office

PO Box 309

Ugland House

Grand Cayman, KY1-1104

Cayman Islands

Company Secretary


6 Britannia Place

St. Helier

Jersey, JE2 4SU

Channel Islands

Financial Adviser to the Company

Marwyn Capital LLP

11 Buckingham Street

London

WC2N 6DF

Nominated Adviser and Broker

to the Company

Cenkos Securities plc

6.7.8 Tokenhouse Yard

London

EC2R 7AS

Solicitors to the Company as to English law

DLA Piper UK LLP

101 Barbirolli Square

Manchester

M2 3DL

Legal Advisers to the Company as

to Cayman Islands law

Maples and Calder

Princes Court

7 Princes Street

London, EC2R 8AQ

Registrars

Capita Registrars (Guernsey) Limited

Mont Crevelt House

Bulwer Avenue

St. Sampson

Guernsey, GY2 4JN

Channel Islands

Auditor to the Company

Grant Thornton UK LLP

2 Broadfield Court

Sheffield

S8 0XF

Investor relations website

www.paragonent.com

Company Information

Children’s Centre for Civilisation and Creativity Museum, Cairo

Contacts

Mark PyrahChief Executive Officer

Unit 8, Harrier Court, The Airfield, Elvington, York, YO41 4EA United Kingdom.

Tel: +44 (0)1904 608020 Fax: +44 (0)1904 608011

Email: [email protected]

Rob HersovChairman

25 Park Lane, London, W1K 1RA United Kingdom.

Tel: + 44 (0)207 647 9871 Email: [email protected]

ParagonENTERTAINMENT LIMITED

a4 pel report&accounts 21.03.13 v3 - paragon...

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