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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Venue Sol | LSE:VSH | London | Ordinary Share | GB00B0T4GP95 | ORD 2P |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
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0.00 | 0.00% | 0.525 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
Venue Solutions Holdings Plc Interim Results for the six months ended 31 May 2008 Venue Solutions Holdings Plc ("VSH" or "the Company"), a specialist in venue management technologies, developing, delivering and managing integrated system solutions (hardware and software) for all types of venue, announces its interim results for the six months ended 31 May 2008. RESULTS SUMMARY * Revenue £0.54m (H1 2007: £2.33m) * Pre-tax loss: £1.15m (H1 2007: loss £0.67m) * Complete business restructuring to remove loss making activities * Focus on Your Day with world first installation at Alton Park * Early discussions with other theme venues expected to result in further news Stephen Thomson, Chairman, commented: "Following the successful conclusion of the YourDay installation the overheads of Company will be significantly reduced over the next three months, taking it into profitability as income will begin to considerably outweigh expenditure. After an extended period of change, reorganisation and refocusing, we believe that operationally and financially we are on a much sounder footing and look forward to the future with confidence." 29 August 2008 Enquiries: Venue Solutions Holdings Plc +44 (0) 870 243 0908 Oliver Iny, CEO Haggie Financial LLP +44 (0) 207 417 8989 Nicholas Nelson/Kathy Boate Arden Partners plc +44 (0) 207 398 1632 Richard Day CHAIRMAN'S STATEMENT Business Overview VSH is a specialist in providing complete solutions for every type of venue: from management software systems for sporting arenas and retail centres to audio-visual technology and theme park installations such as the YourDay system. In recent months the focus has very much been on the YourDay system, which allows theme park visitors to have personalised videos made of their day out, with video cameras around the venue triggered by RFID (Radio Frequency Identification) wristbands worn by the visitor. The first half of the financial year has seen good progress with the YourDay system at Alton Towers, which opened with the theme park for the 2008 season in March to significant demand for the personalised DVDs. VSH has seen a change in its management structure with the appointment of Oliver Iny to the Board of Directors as Chief Executive Officer. Originally appointed as a Director to oversee the changes in the Company's development strategy, Mr Iny has extensive experience in managing and developing companies and will help lead VSH while a suitable long term candidate is sought. As part of the management restructure, Dominic Berger has resigned from the Board. We wish him success in future ventures. Financial Summary Revenue for the first half at £535,209 comprises £613,053 for Venue Solutions, less £189,001 of inter company sales, and £111,157 for YourDay. The loss of £ 18,179 at gross profit level is attributable to the YourDay loss of £58,728 as Venue Solutions recorded a gross profit of £40,549 for the period. The restructure of the Venue Solutions business in February 2008 allowed the company to focus efforts on system design and project management services as well as delivering R&D and technical support to YourDay. Monthly overheads have been significantly reduced, with more reductions to come, and the result has been gross profit margins in excess of 30% during the second quarter as opposed to losses of 9% in the first quarter. This trend is expected to continue and management is anticipating profits during the last quarter of 2008. YourDay losses are expected to continue, albeit at a much reduced level, as the last ride comes on line at Alton Towers and the new, improved RFID tags become available during September 2008. The consolidated loss for the period of £1,152,140 is after deduction of minority shareholders interest and comprises a loss of £620,662 from Venue Solutions (May 2007: loss of £454,367) and a loss of £531,478 from YourDay (May 2007: associate loss of £220,106). Working Capital The Company's cost base has been drastically reduced due to initiatives put in place by management at the time of the restructure in February 2008 and further cost reductions are planned for the second half of the year. As previously announced discussions continue with various parties in respect of potential funding options and further information will be announced in due course. Trading Summary VSH underwent several changes in order to refocus the business, and over the past months has seen a turnaround of fortunes based upon the reduction in overheads and focus on the higher margin system design and project management aspects of the business, as well as the continuing R&D technology support services offered to YourDay. Destination Media Limited At the time of the last final results, the Company referred to negotiations between subsidiary company Destination Media Limited and one of the UK's largest outdoor media sales companies. These negotiations continue and shareholders will be informed of progress when further information becomes available. YourDay YourDay, which creates an individualised video from pre-existing stock video combined with personal video from theme park rides taken during the day's visit, was launched for the first time in late summer 2007 at Alton Towers. Since then it has received interest from other venues globally, and has demonstrated great commercial progress over this summer season. The Company hopes to be in the position to announce the commencement of discussions with other venues in the months ahead. Initial figures from the 2008 summer season show significant take up and a 28% increase in takings from the park when compared to last year. The system capacity was dramatically improved over the winter and is now capable of producing nearly 7,000 individual ride videos daily. Recently it was announced that the YourDay video capture system had been refined at Alton Towers and modularised for ease of installation in future parks. This technology is a world first and the Board is proud to have designed and championed it. Although there has been some delay in the completion and commissioning of the system, we feel that that some allowance has to be given to certain minor teething problems associated with this world first installation, designed and implemented, in our belief, by one of the best teams in the business. Accordingly, our technology team will be given its own department which will offer services to the entertainment and venue industry to create further world firsts in entertainment technology. We can now move to build their sales and marketing programmes and focus on further installations globally. YourDay is an integral component of VSH and the Company is keen in seeing it progress, with YourDay providing a significant proportion of revenue. The remainder of the financial year will focus on developing and marketing the system to other theme parks both in the UK and abroad which will help us grow YourDay and VSH in turn. We expect to report further developments in the near future. Summary Following the successful conclusion of the YourDay installation, the overheads of Company will be significantly reduced over the next three months, taking it into profitability as income will begin to considerably outweigh expenditure. After an extended period of change, reorganisation and refocusing, we believe that operationally and financially we are on a much sounder footing and look forward to the future with confidence. Stephen Thomson Chairman VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED BALANCE SHEETS (UNAUDITED) as at 31 May 2008, 31 May 2007 and 30 November 2007 31 May 31 May 30 November 2008 2007 2007 £'000 £'000 £'000 As restated As restated ASSETS Non-current assets Property, plant and equipment 1,951,545 307,874 2,191,325 Goodwill 2,171,300 - 2,171,300 Other intangible assets 1,394,521 133,625 1,491,026 Investments held for - 2,670,090 - trading _______ _______ _______ 5,517,366 3,111,589 5,853,651 Current assets Inventories 562,629 406,453 532,814 Trade and other 251,273 1,302,001 683,570 receivables Cash and cash equivalents 4,024 - 14,442 _______ _______ _______ 817,926 1,708,454 1,230,826 _______ _______ _______ TOTAL ASSETS 6,335,292 4,820,043 7,084,477 ====== ====== ====== EQUITY AND LIABILITIES Equity attributable to the equity holders of the parent Share capital 2,391,803 1,919,359 2,236,553 Share premium reserve 5,901,220 3,531,375 5,745,970 Other reserves 200,871 163,161 261,823 Retained earnings (5,251,736) (2,434,236) (4,165,268) _______ _______ _______ 3,242,158 3,179,659 4,079,078 Non-current liabilities Long-term borrowings 401,466 22,303 25,000 Trade and other payables - - - _______ _______ _______ 401,466 22,303 25,000 Current liabilities Current portion of long-term 15,441 30,881 94,606 borrowings Trade and other payables 1,793,902 1,645,302 1,590,133 Current tax liabilities 20,966 (58,102) 69,560 _______ _______ _______ 1,830,309 1,618,081 1,754,299 MINORITY INTERESTS 861,359 - 1,226,100 _______ _______ _______ TOTAL EQUITY AND LIABILITIES 6,335,292 4,820,043 7,084,477 ====== ====== ====== VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED INCOME STATEMENTS (UNAUDITED) for the six month period ended 31 May 2008, for the six month period ended 31 May 2007, and for the year ended 30 November 2007 Total operations, including continuing and acquired * Six month Six month Period ended period ended Year ended 31 May 2008 31 May 30 November TOTAL 2007 2007 Notes £'000 £'000 £'000 As restated As restated REVENUE 2 535,209 2,336,982 2,930,431 Cost of sales (553,388) (2,049,516) (2,895,976) _______ _______ _______ GROSS PROFIT (18,179) 287,466 34,455 Other operating expenses (1,034,268) (659,223) (1,914,820) _______ _______ _______ RESULT FROM OPERATING ACTIVITIES (1,052,447) (371,757) (1,880,365) Depreciation (271,076) (33,761) (272,765) Amortisation of (211,588) (44,205) (271,592) intangibles Share of Associate's operating loss - (220,106) (222,603) Share based payment costs - - (98,662) Investment income 120 3,319 5,448 Finance costs (12,039) (7,963) (23,770) _______ _______ _______ LOSS BEFORE TAX (1,574,030) (674,473) (2,764,309) Income tax expense (1,168) - (6,711) _______ _______ _______ LOSS AFTER TAX (1,548,198) (674,473) (2,771,020) Minority interests 396,058 - 366,086 _______ _______ _______ PROFIT/(LOSS) FOR THE PERIOD (1,152,140) (674,473) (2,404,934) ====== ====== ====== Earnings per share: Basic 3 (1.73) p (1.48) p (4.92) p ====== ====== ====== Diluted 3 (1.73) p (1.48) p (4.92) p ====== ====== ====== * Refer to the table below for the analysis of continuing and acquired operations for the year ended 30 November 2007. VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED INCOME STATEMENT (UNAUDITED) for the year ended 30 November 2007 Continuing Acquired TOTAL £'000 £'000 £'000 As restated As restated As restated REVENUE 2,845,083 85,348 2,930,431 Cost of sales (2,718,044) (177,932) (2,895,976) _______ _______ _______ GROSS PROFIT 127,039 (92,584) 34,455 Other operating expenses (1,702,224) (346,464) (2,048,688) _______ _______ _______ RESULT FROM OPERATING (1,575,185) (439,048) (2,014,233) ACTIVITIES Depreciation (226,307) Amortisation of (184,182) intangibles Share of Associate's operating loss (222,603) Share based payment costs (98,662) Investment income 5,448 Finance costs (23,770) _______ LOSS BEFORE TAX (2,764,309) Income tax expense (6,711) _______ LOSS AFTER TAX (2,771,020) Minority interests 366,086 _______ LOSS FOR THE PERIOD (2,404,934) ====== VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) for the six month period ended 31 May 2007 ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT Share Share premium Other Retained TOTAL capital reserve reserves * earnings EQUITY £'000 £'000 £'000 £'000 £'000 As restated As restated BALANCE AT 1 December 2006 BROUGHT FORWARD Adjusted balance 1,893,951 3,306,783 163,161 (1,760,334) 3,603,561 CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 MAY 2007 Net gains not recognised in the income statement: _______ _______ _______ _______ _______ Net expense recognised directly in equity - - - - - Loss for the period (673,902) (673,902) _______ _______ _______ _______ _______ TOTAL RECOGNISED INCOME AND EXPENSE FOR THE PERIOD Dividends - - - - - Issue of share 25,408 224,592 250,000 capital Exercise of share - - - - - options Grant of options - - - - - _______ _______ _______ _______ _______ BALANCE AT 31 May 2007 CARRIED FORWARD 1,919,359 3,531,375 163,161 (2,434,236) 3,179,659 ====== ====== ====== ====== ====== * At 31 May 2007, other reserves includes a merger revenue of £ 71,815, and a share option reserve of £ 91,346. VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) for the six month period ended 30 November 2007 ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT Share Share premium Other Retained TOTAL capital reserve reserves * earnings EQUITY £'000 £'000 £'000 £'000 £'000 As restated As restated BALANCE AT 1 June 2007 BROUGHT FORWARD 1,919,359 3,531,375 163,161 (2,434,236) 3,179,659 CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 NOVEMBER 2007 Net gains not - - - - - recognised in the income statement _______ _______ _______ _______ _______ Net expense recognised directly in equity - - - - - Profit (Loss) for the (1,731,032) (1,731,032) period _______ _______ _______ _______ _______ TOTAL RECOGNISED INCOME AND EXPENSE FOR THE PERIOD Dividends - - - - - Issue of share 317,194 2,214,595 2,531,789 capital Exercise of share - - - - - options Grant of options - - 98,662 - 98,662 _______ _______ _______ _______ _______ BALANCE AT 30 November 2007 CARRIED FORWARD 2,236,553 5,745,970 261,823 (4,165,268) 4,079,078 ====== ====== ====== ====== ====== * At 30 November 2007, other reserves includes a merger revenue of £71,815 and a share option reserve of £190,008. VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) for the six month period ended 31 May 2008 ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT Share Share premium Other Retained TOTAL capital reserve reserves * earnings EQUITY £'000 £'000 £'000 £'000 £'000 As restated As restated BALANCE AT 1 December 2007 BROUGHT FORWARD 2,236,553 5,745,970 261,823 (4,165,268) 4,079,078 CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 31 MAY 2008 Net losses not recognised in the income statement _______ _______ _______ _______ _______ Net expense recognised directly in equity Profit (Loss) for (1,086,468) (1,086,468) the period _______ _______ _______ _______ _______ TOTAL RECOGNISED INCOME AND EXPENSE FOR THE PERIOD Issue of share 155,250 155,250 - 310,500 capital Exercise of share options Grant of options Translation reserve (60,952) (60,952) _______ _______ _______ _______ _______ BALANCE AT 31 May 2008 CARRIED FORWARD 2,391,803 5,901,220 200,871 (5,251,736) (3,242,158) ====== ====== ====== ====== ====== * At 31 May 2008, other reserves includes a merger revenue of £71,815, a share option reserve of £190,008 and a translation reserve of £60,952. VENUE SOLUTIONS HOLDINGS PLC CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED) for the six month period ended 31 May 2008, for the six month period ended 31 May 2007, and for the year ended 30 November 2007 Six month Six month period period Year ended ended ended 31 May 31 May 30 November 2008 2007 2007 Notes £'000 £'000 £'000 As As restated restated CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 4 (494,790) (360,860) (1,478,005) Interest paid (12,039) (7,963) (23,770) Income taxes paid (1,168) - (2,280) _______ _______ _______ NET CASH (USED IN)/GENERATED FROM OPERATING ACTIVITIES (507,997) (368,823) (1,504,055) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries - - (670,075) Net cash acquired on acquisition of - - - subsidiaries Purchase of minority interests in - - - subsidiaries Purchase of property, plant and (36,294) (140,689) (706,832) equipment Proceeds from sale of property, plant - - - and equipment Purchase of intangibles (77,082) (1,592) Purchase of available for sale - - - investments Proceeds from sale of available for - - - sale investments Interest received 120 3,319 5,448 _______ _______ _______ NET CASH USED IN INVESTING ACTIVITIES (113,256) (138,962) (1,371,459) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from the issue of share 310,500 250,000 2,781,789 capital Proceeds from the exercise of share - - - options Proceeds from long-term borrowings 376,466 - - Dividends paid - - - Finance leases (15,441) (30,882) (100,000) _______ _______ _______ NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES 671,525 219,118 (2,681,789) _______ _______ _______ NET DECREASE IN CASH AND CASH EQUIVALENTS 50,272 (288,667) (193,725) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD (194,059) (334) (334) _______ _______ _______ CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (143,784) (289,001) (194,059) ====== ====== ====== VENUE SOLUTIONS HOLDINGS PLC NOTES TO THE INTERIM GROUP FINANCIAL STATEMENTS (UNAUDITED) for the six month period ended 31 May 2008 1. BASIS OF PREPARATION The financial information in these interim group financial statements has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") for the first time. The disclosures required by IFRS 1 concerning the transition from United Kingdom Generally Accepted Accounting Practice ("UK GAAP") to IFRS are given in a separate document entitled "Restatement of Financial Information under International Financial Reporting Standards". The date of transition to IFRS is 1 December 2007. The interim group financial statements have been prepared on the historical cost basis. Basis of consolidation The consolidated financial statements incorporate the financial statements of VENUE SOLUTIONS HOLDINGS PLC (the "company") and enterprises controlled by the company (its "subsidiaries", together referred to as the "group"). Status of financial information The comparative figures for the year ended 30 November 2007 are not the group's statutory financial statements for that financial year as defined in Section 240 of the Companies Act 1985. Those statutory financial statements, which were prepared under using accounting policies generally accepted in the UK, have been reported on by the group's auditor and delivered to the Registrar of Companies in the UK. The report of the auditor was unqualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its report and did not contain statements under either Section 237(2) or Section 237(3) of the Companies Act 1985. Accounting policies The accounting policies that the group intends to apply for the year ending 30 November 2008 are set out in the separate document entitled "Restatement of Financial Information under International Financial Reporting Standards". The accounting policies have been applied consistently to all periods presented in these interim group financial statements, subject to the exemptions contained in IFRS 1 that the group has elected to use. 2. BUSINESS AND GEOGRAPHICAL SEGMENTS Business segments For management purposes, the group is currently organised into only one business segment generating income from the group's three main revenue categories of software sales, maintenance revenues and professional services. Geographical segments The group has only one geographical segment, being the United Kingdom. 3. EARNINGS PER SHARE The calculation of the basic and diluted earnings per share is based on the following data: Six month Six month period period Year ended ended ended 31 May 31 May 30 November 2008 2007 2007 £'000 £'000 £'000 As As restated restated Earnings Earnings for the purposes of basic and dilutes earnings per share, being the net profit for the period attributable to the equity holders (1,152,140) (674,473) (2,404,934) of the parent ====== ====== ====== Number Number Number Number of shares Weighted average number of ordinary shares for the purposes of basic earnings 66,613,483 45,396,450 48,849,846 per share ========== ========== ========== Weighted average number of ordinary shares for the purposes of diluted earnings 66,613,483 45,396,450 48,849,846 per share ========== ========== ========== 4. CASH GENERATED FROM OPERATIONS Six month Six month period period Year ended ended ended 31 May 31 May 30 Nov 2008 2007 2007 £'000 £'000 £'000 As restated As restated Result from operating activities (1,052,447) (371,186) (2,014,233) Adjustments for: Profit on disposal of property, plant - - - and equipment _______ _______ _______ Operating cash flows before movements in (1,052,447) (371,186) (2,014,233) working capital Increase in inventories (29,815) (156,941) (283,302) Decrease/(increase) in receivables 432,297 370,400 332,266 (Decrease)/increase in payables 155,175 537,667 487,264 _______ _______ _______ Cash used in operations (494,790) (360,860) (1,478,005) ====== ====== ====== 5. Reconciliation of Net Assets and Loss under UK GAAP to IFRS (unaudited) Reconciliation of loss Six months to Six months to Year ended 31 May 31 May 30 November 2008 2007 2007 £'000 £'000 £'000 Operating loss under UK GAAP (1,547,030) (674,473) (2,835,844) Change in amortisation period of - - 71,535 goodwill (note (a) below) Operating loss under IFRS (1,547,030) (674,473) (2,764,309) Retained loss under UK GAAP (4,111,517) (2,342,889) (4,236,804) Change in amortisation period of - - 71,535 goodwill (note (a) below) Retained loss under IFRS (4,111,517) (2,342,889) (4,165,269) 31 May 2007 30 November 2007 UK GAAP Effect of IFRS UK GAAP Effect of IFRS change change £'000 £'000 £'000 £'000 £'000 £'000 Assets Non current assets Goodwill (note (a) - - - 2,099,765 71,535 2,171,300 below) Intangible assets 133,625 - 133,625 1,491,026 - 1,491,026 Property, plant and 307,874 - 307,874 2,191,325 - 2,191,325 Investments 2,670,090 - 2,670,090 - - - 3,111,589 - 3,111,589 5,782,116 71,535 5,853,651 Current assets Trade and other 1,302,001 - 1,302,001 683,570 - 683,570 receivables Cash and cash - - - 14,442 - 14,442 equivalents Inventory 406,453 - 406,453 532,814 - 532,814 1,708,454 - 1,708,454 1,230,826 - 1,230,826 Total assets 4,820,043 - 4,820,043 7,012,942 71,535 7,084,477 31 May 2007 30 November 2007 UK Effect of IFRS UK Effect of IFRS change change GAAP GAAP £000's £000's £000's £000's £000's £000's Liabilities Current liabilities Trade and other payables (1,645,302) - (1,645,302) (1,590,133) - (1,590,133) Current tax 58,102 - 58,102 (69,560) - (69,560) Financial liabilities - (30,881) - (30,881) (94,606) - (94,606) borrowings (1,618,081) - (1,618,081) (1,754,299) - (1,754,299) Non-current liabilities Financial liabilities - (22,303) - (22,303) (25,000) - (25,000) borrowings Total liabilities (1,640,384) - (1,640,384) (1,779,299) - (1,779,299) Net assets 3,179,659 - 3,179,659 5,233,643 71,535 5,305,178 Shareholders' equity Called up share capital 1,919,359 - 1,919,359 2,236,553 - 2,236,553 Share premium 3,531,375 - 3,531,375 5,745,970 - 5,745,970 Other reserve - merger 71,815 - 71,815 71,815 - 71,815 Other reserve - share 91,346 - 91,346 190,008 - 190,008 based payments Accumulated losses (2,434,236) - 2,434,236 (4,236,803) 71,535 (4,165,268) Total shareholders' 3,179,659 - 3,179,659 4,007,543 71,535 4,079,078 equity Minority interests - - - 1,226,100 - 1,226,100 Total 3,179,659 - 3,179,659 5,233,643 71,535 5,305,178 There is no difference between UK GAAP and IFRS for the balance sheet as at 31 May 2007. Explanation of reconciling differences between UK GAAP and IFRS a. The goodwill arising from the acquisition of YourDay Inc. was previously amortised under UK GAAP on a straight-line basis over its estimated useful life of 20 years. This goodwill is no longer amortised, but is subject to reviews for impairment. VENUE SOLUTIONS HOLDINGS Plc RESTATEMENT OF FINANCIAL INFORMATION UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS __________________________________________________________________________________________ Venue Solutions Holdings Plc will be reporting its financial results in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") with effect from 1 December 2007. The financial information in the interim group financial statements for the six month period ended 31 May 2008 have been prepared in accordance with IFRS for the first time, and the first annual report to be prepared in accordance with IFRS will be for the year ended 30 November 2008. The last set of group financial statements presented by the company under United Kingdom Generally Accepted Accounting Practice ("UK GAAP") were for the year ended 30 November 2007. The date of the transition to IFRS was therefore 1 December 2007. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in this document, as follows. VENUE SOLUTIONS HOLDINGS Plc SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES __________________________________________________________________________________________ BASIS OF CONSOLIDATION The consolidated financial statements incorporate the financial statements of Venue Solutions Holdings Plc (the "company") and enterprises controlled by the company (its "subsidiaries", together referred to as the "group"). The excess of cost of acquisition over the fair values of the group's share of identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair value of identifiable net assets acquired (a discount on acquisition) is recognised directly in the income statement. The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The costs of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date irrespective of the extent of any minority interest. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses. Depreciation is charged so as to write off the cost of assets, other than land, to their estimated residual values over their estimated useful lives, using the straight-line method, on the following bases: Leasehold improvements over four to five years Network infrastructure over four to five years Plant and machinery over four to five years Office equipment over four to five years Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. The incremental costs of staff working on specific network projects are capitalised under network infrastructure costs. GOODWILL Goodwill arising on consolidation represents the excess of the cost of acquisition over the group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill on acquisition of subsidiaries is separately disclosed. Goodwill on acquisition of associates and jointly controlled entities is included in investment in associates and jointly controlled entities. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and is not subsequently reversed. On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the amount previously calculated under UK GAAP subject to being tested for impairment at that date. OTHER INTANGIBLE ASSETS The Group capitalises costs it has incurred in developing software products for eventual sale or licensing. Amortisation of the capitalised amounts begins when the product is first sold or licensed and is calculated using the straight-line method over three years. At the time of capitalisation and periodically thereafter, reviews are performed to ensure that unamortised costs remain recoverable from future revenues. IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS EXCLUDING GOODWILL At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised on the group's balance sheet when the group has become a party to the contractual provisions of the instrument. Trade receivables Trade receivables are initially recognised at fair value and then subsequently measured at amortised cost using the effective interest rate method. Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Financial liability and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities. Bank borrowings Bank borrowings are initially recognised at fair value and then subsequently measured at amortised cost using the effective interest rate method. Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accrual basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise. Trade payables Trade payables are initially recognised at fair value and then subsequently measured at amortised cost using the effective interest rate method. Trade payables are not interest bearing and are stated at their nominal value. Equity instruments Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. TURNOVER Turnover represents the amount earned from the sale of goods and the provision of services rendered during the year and is recognised on delivery. Delivery is measured on product or systems installation contracts where the Group has to install hardware, or has to design, develop or modify a software product to suit the customer's requirements, on a percentage of completion method by reference to the costs incurred to date and total costs estimated to be incurred to fulfil the contracts. ASSOCIATED UNDERTAKINGS Undertakings in which the Group has a participating interest of not less than 20% in the voting capital and over which it exerts significant influence are defined as associated undertakings. The financial statements include the appropriate share of the results and reserves of these undertakings. INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Provision is made for obsolete and slow moving items. FOREIGN CURRENCIES Assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at date of transaction. All differences are taken to the profit and loss account. TAXATION The tax expense represents the sum of the current tax and the deferred tax elements. The current tax is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated by using tax rates that have been enacted or substantively enacted by the balance sheet date. The Finance Bill 2007 received Royal Assent on 19 July 2007 and as a result the tax rate applicable to the group in the United Kingdom for 2008/2009 will be 28% (2007/2008 and previous years: 30%). Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in jointly controlled entities, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. LEASING Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the group at their fair value or, if lower, at the present value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the group's general policy on borrowing costs. Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight line basis over the lease term. SHARE-BASED PAYMENTS The group has applied the requirements of IFRS 2: Share-based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested as of 1 January 2005. The group issues equity-settled and cash-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the group's estimate of shares that will eventually vest. Fair value is measured by use of a binomial model. The expected life used in the model has been adjusted, based on management's best estimate, for the effect of non-transferability, exercise restrictions, and behavioural considerations. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgements 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 group makes estimates and assumptions concerning the future. The resulting accounting judgements will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: * Goodwill has been tested for impairment by comparing the amount of goodwill against a multiple of forecast profit and/or revenue expected to be generated in the future by the appropriate asset, cash-generating unit, or business segment. * The fair value of share-based payments is measured using a binomial model which inherently makes use of significant estimates and assumptions concerning the future applied by the directors. * Deferred tax assets and liabilities are assessed on the basis of assumptions regarding the future, the likelihood that assets will be realised and liabilities will be settled, and estimates as to the timing of those future events and as to the future tax rates that will be applicable. END
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