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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
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 03
The Robert Burns Birthplace Museum, Ayrshire, Scotland
04 Paragon Entertainment Annual Report and Accounts 2012
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
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 05
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
06 Paragon Entertainment Annual Report and Accounts 2012
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
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 07
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
08 Paragon Entertainment Annual Report and Accounts 2012
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
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 09
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.
10 Paragon Entertainment Annual Report and Accounts 2012
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
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 11
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
12 Paragon Entertainment Annual Report and Accounts 2012
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
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 13
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
14 Paragon Entertainment Annual Report and Accounts 2012
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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Governance
Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 15
Chocolate – York’s Sweet Story, York
16 Paragon Entertainment Annual Report and Accounts 2012
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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Governance
Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 17
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
18 Paragon Entertainment Annual Report and Accounts 2012
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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Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 19
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.
Axio Capital Solutions Limited
Company Secretary
25 March 2013
Little Liverpool Gallery, Museum of Liverpool
20 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 21
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
22 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 23
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 notes on pages 26 to 59 are an integral part of these financial statements.
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
24 Paragon Entertainment Annual Report and Accounts 2012
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
The notes on pages 26 to 59 are an integral part of these financial statements.
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Paragon Entertainment Annual Report and Accounts 2012 25
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
The notes on pages 26 to 59 are an integral part of these financial statements.
26 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 27
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.
28 Paragon Entertainment Annual Report and Accounts 2012
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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Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 29
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.
30 Paragon Entertainment Annual Report and Accounts 2012
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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Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 31
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.
32 Paragon Entertainment Annual Report and Accounts 2012
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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Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 33
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.
34 Paragon Entertainment Annual Report and Accounts 2012
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
Total equity 3,803 5,114
Cash and cash equivalent (539) (2,420)
Capital 3,264 2,694
2012 2011 £000s £000s
Total equity 3,803 5,114
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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Financial Statem
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Paragon Entertainment Annual Report and Accounts 2012 35
(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
36 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 37
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:
38 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 39
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 -
40 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 41
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.
42 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 43
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%
44 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 45
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.
46 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 47
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
Year ended 31 December 2012
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.
48 Paragon Entertainment Annual Report and Accounts 2012
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
Year ended 31 December 2011
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
Year ended 31 December 2012
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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Paragon Entertainment Annual Report and Accounts 2012 49
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)
50 Paragon Entertainment Annual Report and Accounts 2012
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)
Cash and cash equivalents 539 2,288
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.
52 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 53
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.
54 Paragon Entertainment Annual Report and Accounts 2012
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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Paragon Entertainment Annual Report and Accounts 2012 55
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)
56 Paragon Entertainment Annual Report and Accounts 2012
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.
58 Paragon Entertainment Annual Report and Accounts 2012
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
Cash and cash equivalents 539 2,420
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
Overview
Op
erational Review
Governance
Financial Statem
ents
Paragon Entertainment Annual Report and Accounts 2012 59
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.
60 Paragon Entertainment Annual Report and Accounts 2012
Registered office
PO Box 309
Ugland House
Grand Cayman, KY1-1104
Cayman Islands
Company Secretary
Axio Capital Solutions Limited
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