PEL.L Regulatory News (PEL)

Paragon Entertainment Limited

Preliminary Results Statement

Paragon Entertainment Limited (AIM: PEL), the attractions design, production, fit-out and operations business, is pleased to announce its preliminary results for the year ended 31 December 2013.

Financial Highlights

• Revenue increased 64% to £10.0 million (2012: £6.1 million)

• Two year average growth rate of 52%

• Gross profit increased 33% to £2.6 million (2012: £2.0 million)

• Underlying EBITDA increased 97% to £0.6 million (2012: £0.3 million)

• Funding round of £780,000 in July 2013

• Net cash increased by £0.4m to £0.9 million (2012: £0.5 million)

Operational Highlights

• Creation of Licensing division in January 2014

• Successful completion of the Olympic Museum in Lausanne, the Group's largest project to date

Commenting on the announcement, Mark Pyrah, CEO of Paragon Entertainment said:

"It has been an important year for the Group, and we have accelerated our strategy of diversifying the Group's revenue streams by developing our younger divisions, Licensing and Attractions. Whilst still in early stages, we are encouraged by the progress we have made and look forward to continuing to update the market on our strategic progress.

"Our Creative division, the foundation of the Group, has gone from strength to strength with historic growth and profits. The completion of our largest ever project, the Lausanne Olympic Museum, is testament to the strong reputation our Creative division holds within the industry, and illustrates our strong capabilities. Growth is anticipated to continue throughout the year thanks to our excellent pipeline of opportunities.

"We are a very ambitious company, and our fantastic growth figures reflect that fact. We look forward to continuing our hard work in the year ahead, and driving growth for our shareholders."

- ENDS -

Notes to Editors:

Paragon Entertainment Limited (AIM:PEL) is an award winning provider of attraction services from initial design and production through to the direct operation and development of themed attractions.

It is the holding company for:

§ Paragon Creative Limited, a visitor attraction design, production and fit-out business;

§ Paragon Entertainment (Attractions) Limited, a visitor attraction and licensing company; and

§ The Visitor Attraction Company (TVAC), an attraction consultancy, feasibility and operations company.

The Group's projects have included:

§ The design and build of the new Olympic Museum for the IOC in Lausanne Switzerland;

§ The design and build of the Titanic exhibition, Belfast's new £97 million visitor attraction;

§ The build of the Wallace and Gromit ride at Blackpool Pleasure Beach;

§ Through licensing agreement with Hasbro, the design, build and operation of several Nerf attractions;

§ Acting as the lead thematic and interactive contractor for the Florya Aquarium in Istanbul.

The Group listed on AIM in 2011.

Further information can be found at: http://www.paragonent.com/

CHAIRMAN'S STATEMENT

I am pleased to present the Annual Report and Accounts of Paragon Entertainment Limited ("Paragon Entertainment" or the "Company"). As Interim Chairman, I continue to be impressed with the vision of the Company. We use our unique mix of skills and expertise to create, develop and operate world class visitor attractions experiences that enrich and entertain our customers and deliver sustainable growth to our stakeholders.

Corporate update

We embarked on our journey as an AIM-listed company just over two years ago. At that time, we were a small, York-based family company turning over £4.3 million and have now achieved £10.0 million. What excited us then was that we were recognised in many parts of the world as a leading player in our niche, the 'design and build' of family attractions and heritage venues, with a superlative reputation for quality and innovation. Our plan was to grow Creative (through which we conduct our 'design and build' business) while using it as the flywheel off which we could diversify the Company into separate but complementary areas of business. This plan to diversify, grow, and improve the quality of our earnings is now well under way and I am pleased to report on our progress.

As we've grown, we've considered and refined our strategic options. We have always believed in building, owning and operating our own attractions, so this has always been a key strategy. However, as we began to work with brands such as Hammer House of Horror and Nerf, we realised that our ability to interpret brands from an attractions perspective enables us to add unique and significant value to brand owners. We have matured this over the last year and a half and the result is our new Licensing division.

We now comprise three pillars: Creative ('Design and Build'), Attractions and Licensing (formerly Leisure). Each pillar requires different skills, so we have focused on managing risk and recruiting great talent. A little over two years later and our revenue is up nearly 2.5 times.

Creative ('Design and Build') is the cornerstone of our business, and is continuing to grow. Over the past two years the capacity has increased such that, in 2013, Creative successfully completed a project of £7m which, when considered on its own, dwarfs our entire turnover when we listed. Therefore our primary objective of growing our existing business is well in hand.

The Attractions business was launched in 2012 with Quest, our own attraction which we opened in Westfield Merry Hill. This first attraction has served as a test market for the Group to explore and develop a number of concepts, including concepts for some of our licensing partners. Further opportunities for growth and expansion of attractions exist at a number of locations on which we are having discussions.

Licensing was formally launched in 2013. Our expertise makes us the 'go to' partner for brands seeking to expand into family attractions experiences and our existing strong reputation has accelerated the division's progress. We are pleased to report that the opportunities for growth and expansion are extensive.

Each of our three pillars has different financial characteristics which allow for diversified revenue streams within the Group's financial model and offering. 

Creative has solid revenue visibility and good margins reflecting the specialist nature of our offering, high barriers to entry, and is scalable. We manage cash in this division carefully owing to the nature of project-based work and the fact that our contracts have varied working capital requirements.

Attractions should have a positive working capital cycle after the initial capital investment. We prefer smaller, repeatable attractions where we can mitigate one-off project development costs. This division has the potential to generate predictable revenue.

Licensing requires some modest operating capital investment while we build up our base of sub-licensees. The long term return on investment is potentially significant. The sub-licence agreements are typically around 5 years, so we should produce predictable and valuable revenue streams with good margins and cash flow.

Issue of ordinary shares

In July 2013, the Company raised £780,000 in a round of funding to ensure our continued growth. Management and Directors subscribed for over half the round, underscoring their belief in the future of the business.

Dividend policy

The Board is not recommending a dividend at this stage, as the Company intends to retain any future earnings for the foreseeable future to finance the growth of the Company. However, we intend to consider the payment of dividends when it becomes commercially prudent to do so in accordance with applicable laws and subject always to the Company 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 £10.0 million and adjusted EBITDA of £0.6 million compared with a turnover of £6.1 million and an EBITDA of £0.3 million for the prior year. An overall loss for the year of £0.9 million (2012: £1.6 million) has been reported after depreciation, amortisation, impairments and exceptional items.

The Company has experienced exceptional organic growth, with revenues growing by 64% on 2012 to £10.0 million. The performance in 2013 followed what was a strong 2012 which saw revenues increase by over 40% to £6.1 million. Growth has been underpinned by the Creative division's contracted order book and pipeline of opportunities, and Management expects growth to continue throughout 2014.

To complement our organic development we continue to consider strategic acquisition opportunities for Paragon Entertainment.

Staff and management

In December 2013, our Chairman, Robert Hersov, stepped down to focus on his own business, having played an important role in our Re-admission to AIM. He remains a supportive investor in Paragon Entertainment and we thank him for his advice and guidance. In July 2013, Mark Watts stepped down as a Non-Executive Director, having sat on our board for nearly 2 years and we also thank him for his support and help.

We are also delighted to have appointed Martin Barratt, who holds considerable industry experience, as a Non-Executive Director and Richard Arden as our CFO, both in early 2014 and look forward to their input.

We are an ambitious company and our progress 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.

Mark Taylor

INTERIM CHAIRMAN

CHIEF EXECUTIVE OFFICER'S STATEMENT

As a business, we can proudly trace our history back more than quarter of a century to when we revolutionised the way that heritage attractions are presented in the UK, the genesis of what is now one of the leading 'design and build' companies in the industry, Paragon Creative.

As we have grown extensively over the past two years, we've started to deliver on our intention of creating a diversified and vertically integrated group of companies. We have three pillars to our business: Creative ('Design and Build'), Attractions and Licensing (formerly Leisure).

We aim to consolidate our market leading position over the next five years by remaining focused on delivering extraordinary enriching and exciting attractions to the market. Our confidence is rooted in a team with unparalleled capabilities unique to our industry coupled with a constructive and co-operative approach to all our business dealings.

Our vision

Our vision is to use our unique mix of skills and expertise to create, develop and operate world class visitor attractions experiences that enrich and entertain our customers and deliver sustainable growth to our stakeholders.

Over the past two years we have developed the building blocks to achieve this vision:

· The strong management team was recently enhanced with the addition of attractions expert Martin Barratt as Non-Executive Director and Richard Arden accepting the role of Chief Financial Officer. Mark Taylor moved to Vice Chairman late in 2013 and is currently supporting us as Interim Chairman.

· Creative's 'Design and Build' operations has significantly increased in both scale and scope over the last two years to achieve over 50% average growth per annum.

· We have expanded our portfolio of IP licences and products to include those with universal appeal, including Nerf, Yu Kids and HiLo.

· The first proprietary attraction as The Quest at Westfield Merry Hill shopping centre contained and tested a mixture of proprietary and licensed intellectual property.

Review

Our core segments on which we report are the same as our three pillars; Creative, Attractions and Licensing, and I am pleased to report a strategic and operational update on the individual divisions, the Group, and an outlook.

Creative ('Design and Build')

The Creative division has been a true success this year, and has exceeded our expectations. We have previously outlined the visibility we have on revenue streams in this area and we have seen third party revenues increase from £6.0 million in 2012 to £9.5 million in 2013: nearly a 60% increase.

The scale of our projects has also increased significantly and we now have a number of contracts ranging between £1 million and £7 million in size.

We invested over £0.4 million in 2012 and a further £0.1 million during the year in our workshops, increasing our productive capacity by more than 50%. This allows us 60,000 sq ft of manufacturing space and supports over 80 staff. This has paid off in 2013 with the delivery of significantly larger projects.

The past year has seen a number of exciting and high profile projects with work completed on over 20 major projects plus a number of smaller projects. Some of the most notable are the Me and My Body Exhibition at Eureka! Children's Museum, the Olympic Museum in Lausanne, Switzerland, Duxford Imperial War Museum, Alnwick Castle's Knight's Quest and Twickenham Rugby Museum.

We continue to see considerable growth in the sector and our pipeline of potential opportunities has increased considerably to in excess of £70 million. We have been successful in our conversion of this pipeline having already confirmed orders of over £10 million in 2014/2015 and the Creative division starts 2014 in a solid position.

Attractions

Our corporate strategy remains to expand further into the attractions market, leveraging on Paragon Creative's existing track record of delivering attractions to third parties, thereby developing and operating a portfolio of proprietary and licensed branded attractions.

Our first attraction, located within Westfield Merry Hill shopping centre in Birmingham, opened fully in April 2013. It was initially based on an extreme indoor high ropes climbing course. As more space became available at Merry Hill we added a number of co-located attractions which we also own and operate, creating a family leisure destination within the shopping centre under the name of 'Quest', our proprietary brand. Our investment into this leisure destination is approximately £1.3 million.

As an attractions 'show room', Quest has proved instrumental in securing significant new business and growth for both the Creative and Licensing divisions. To date, financial performance for this attraction has not met our expectations and it is not yet generating an operating profit. We have, however, implemented a number of strategies for the Quest brand to achieve profitability this year, and reduced the Group's investment in the site.

Licensing

Licensing has been in development for about twelve months and was established as a separate business unit in January 2014. Since its inception as a key pillar of the Group, interest in our unique portfolio has been very encouraging.

Licensing is now in an exceptional position to take advantage of key third party intellectual property, licences, partnership and distribution agreements.

The Licensing division is expected to steadily build a base of long term annuity-based licensees and is targeted to contribute positively to EBITDA in the latter part of 2014.

Outlook

It has been a transformational year for Paragon. Revenue and profits have grown and the Group has established three distinct divisions - Creative, Attractions and Licensing. We have successfully retained our market leading position, and our largest ever project, produced for the exacting International Olympic Committee, was completed in February 2014.

We have generated a strong profile in the industry through our well-known client base and innovative work. This is proving crucial to the growth of our new divisions and clearly illustrates the fact that now is the right time to accelerate our stated strategy.

The Group's revenue streams are being diversified and this is a crucial element of our growth strategy, and the Group is encouraged by its progress so far. We look forward to continuing to update the market with further developments and will continue to drive growth for shareholders.

The year has really made Paragon a compelling, fun and very serious business! It has been a very exciting year for the Group, with some of the very best work we have ever produced being completed this year. We start 2014 in an excellent position, with a brilliant team and a strong order book.

Mark Pyrah

CHIEF EXECUTIVE OFFICER

Financial Review

Results and proforma comparison with previous period

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

(3) Underlying operating profits are defined as EBITDA less depreciation and amortisation on intangibles not related to acquisition.

Reported results for the year

These financial statements report the financial performance of the Group for the year ended 31 December 2013. The financial performance for the year ended 31 December 2012 is taken from the audited accounts for that year.

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 increased 64% to £10.0 million (2012: £6.1 million). The two year average rate of growth has been 52%.

Creative projects contributed £9.5 million and the remainder is due to ticket sales on our sole attraction at Merry Hill.

Gross profit

The gross profit of the Group increased 33% to £2.6 million (2012: £2.0 million).

Gross margins have seen a decline from 31.9% to 25.9%. This is due to the running of a significant project that had several elements where Paragon could not add its usual value in design and engineering due to specialist sub-contract nature.

Operating expenses

Reported operating expenses for the year were £3.6 million (2012: £3.8 million).

Underlying operating expenses, which are operating expenses before depreciation, impairment, amortisation, share based payments and exceptional items, were £2.0 million (2012: £1.7 million). The increase in expenses reflects the full year of operation of our Attractions division.

EBITDA and operating profit

The underlying EBITDA was a profit of £0.6 million (2012: £0.3 million).

Reported operating losses of £1.0 million (2012: £1.8 million) have reduced as the Group has increased its size and generated more profits from the Creative division.

The loss per ordinary share for the year was 0.53 pence (2012: loss of 0.98 pence). Adjusted earnings per share, before charging amortisation, depreciation, charges for share options and exceptional items, was 0.15 pence (2012: 0.08 pence).

Interest and facilities

The Group incurred an interest charge of £44,000 for the year of which £23,000 was payable against bank loans, bank overdraft and financial leases.

The Group has debt facilities with HSBC which amount to a £0.3 million term loan and a £0.8 million overdraft facility. The Group has also entered into several financial leases and premium credit arrangements.

At the end of December 2013, the Group was not utilising the overdraft facility.

Taxation

The Group has incurred no taxation in respect of the year to December 2013. The low reported taxable profit coupled with the ability to utilise certain tax losses brought forward has meant that that 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 £0.1 million is reported.

Cash flow and financing

Operating cash flow

The Group achieved an operating cash inflow for the year to 31 December 2013 of £0.2 million (2012: cash outflow of £0.4 million). This is a pleasing result given the increased requirements for working capital associated with over 60% increase in business revenues.

Investing activities

The Group has continued to make investments during the year to 31 December 2013 of £0.5 million in property, plant and equipment (2012: £1.4 million). Of this, £0.4 million relates to investment at our first attraction site at Westfield Merry Hill shopping centre bringing the total invested to £1.3 million and £0.1 million in Quest at the Istanbul Aquarium.

Cash position

The Group's net cash position at 31 December 2013 was £0.9 million (2012: £0.5 million).

Net assets

As at 31 December 2013, the Group had net current assets of £0.3 million (2012: 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.

Richard Arden

CHIEF FINANCIAL OFFICER

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. Basis of preparation

Financial statements

The full year results for the year ended 31 December 2013 have been extracted from the audited consolidated financial statements which have not yet been sent to shareholders. The financial information set out in this preliminary announcement does not constitute statutory accounts but is derived from those accounts. While the financial information in this preliminary announcement has been prepared in accordance with International Financial Reporting Standards ('IFRS'), this announcement does not itself contain sufficient information to comply with IFRS.

The financial information shown in this announcement has been extracted from, and is consistent with, the audited financial statements for the year ended 31 December 2013. The auditors have reported on those accounts and their reports were unqualified and did not draw any attention to any matters by way of emphasis without qualifying their report. The Group has published its Annual Report and Accounts for the year ended 31 December 2013 on its website www.paragonent.com.

Additional performance measures

The Group presents one-off items, underlying EBITDA, adjusted profit before tax and adjusted earnings per share information. These measures are used by the Group for internal performance analysis and incentive compensation arrangements for employees. The terms 'one-off items', 'underlying' and 'adjusted' may not be comparable with similarly titled measures reported by other companies. The term 'EBITDA' refers to operating profit or loss excluding operating one-off items, share-based payment charges, depreciation and amortisation of intangible assets. The term 'underlying operating profits' refers to EBITDA less depreciation. Finally, 'normalised earnings per share' refers to EBITDA less depreciation, net finance costs and attributable tax.

2. Segment reporting

Management currently identifies the Group's four operating segments. These operating segments are monitored by the Group's Chief Operating Decision Maker and used to make strategic decisions on the basis of adjusted 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, the Statement of Financial Position and the Statement of Cash Flows and other financial and non-financial information used to manage the business on a consolidated basis.

Segment revenues comprise of revenues made to external customers and made between operating segments.

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:

2013

2012

Information about geographical areas

Major customer

Revenues from the largest customer of the Group's Creative segment represents £6,145,000 (2012: £686,000) of the Group's total revenues for the period.

3. Revenue

4. Earnings per share

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 Company generated a loss for the year, share options are anti-dilutive.

The calculations of basic and diluted loss per share are:

Weighted average number of ordinary shares in issue:

Normalised earnings per share has been calculated by dividing the loss attributable to shareholders before amortisation, charges for share options and exceptional items including impairment charge on property, plant and equipment 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:

5. Borrowings

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.

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

The year of maturity of the loan is 2022. The maturity of the hire purchase varies from 2014 to 2015. The future minimum payments are payable as follows:

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:

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

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:

The facilities expiring within one year are annual rolling facilities subject to a periodic review during each year. The next review date is July 2014.

6. Cash used in operations

Non-cash transactions

There are no significant non-cash transactions.

7. Annual report and accounts

The audited Annual Report and Accounts for the year ended 31 December 2013 are available from our investor relations website at www.paragonent.com.