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Final Results - year end results for 2006

19 April 2007

Highlights

• Group losses were �2,050,317 (2005: �662,809) before tax and including write back of restructuring provision
• Group turnover was �17.7 million (2005: �21.5 million)
• Gearing down to 48% from 111% in August 2005
• Net borrowings decreased to �3.8 million from �5.8 million in 2005
• Prime Focus (India) buys controlling stake in VTR and invests in business
• VTR acquires Clear, award-winning digital visual effects studio

Namit Malholtra, Chairman, VTR plc comments, �This has been a year of transformation for VTR. The company faced continuing tough market conditions and was not structured to succeed in a fast-changing global post-production market. We have introduced new management and fresh investment to attract the very best creative talent and set the business on the right track.

There is no doubt that 2006 was a difficult year for VTR but a restructured business is emerging which is equipped to compete and win global contracts. I am excited to be leading this company and I am confident that 2007 will see VTR performing strongly.�

For further information please contact:
Neil Lane, Managing Director, VTR plc                           020 7565 1000
Philip Davies, Charles Stanley Securities                       020 7149 6000
Gavin Partington, Parys Communications                      020 7819 2462
Ryszard Bublik, Parys Communications                         020 7819 2466

Chairman�s Statement

In the year to 31 August 2006 group turnover was �17,692,273 compared to �21,505,511 for the previous year. The overall loss for the year was �2,050,317 (2005: �662,809). This included an exceptional charge of �297,735 for the cost of a fundamental group restructuring (2005: credit of �37,358).

Overview

This is my first statement as Chairman of VTR plc (VTR) and it comes at the end of a year in which we have taken decisive steps to put the Company in a position to exploit industry changes and new opportunities in the market.

Prime Focus (India) bought a controlling stake in VTR because we had faith in the business and believed it could flourish. It has been tough making the changes necessary to stabilise the business and prepare it for the future. However, we are confident that the new structure we have begun to put in place and the injection of fresh leadership and investment will deliver the success our shareholders deserve.

You will be well aware of the challenges that have faced us and other businesses in the media sector as a whole. The downturn in advertising continued to have a negative effect in the last financial year. More specifically, the film industry faced a continuing period of financial uncertainty over the issue of tax relief on productions.

Set against a backdrop of increasing global competition, with competitive tendering resulting in falling rates for post-production, it was clear that radical steps would be required to place the business on a firm footing.

It was also clear to this management that there had been a fundamental change in the post-production market. It has become a global market, both in terms of creative talent and in relation to costs, with outsourcing now delivering significant business advantages.

If VTR was to compete successfully it required a revised structure with the right investment and creative talent in place. The ongoing restructuring, which began in 2004, has been painful in personal and financial terms. But it has been critical to the long term future of the business.

It is clear that the changes we are making are putting the business in a position to compete globally for work that has hitherto been beyond our reach. This includes longer term film projects, enabling us to build a forward order book which in turn gives us a more stable cash flow.

As part of our strategy to invest in the business VTR acquired Clear (Post Production) Limited (Clear), the award-winning digital visual effects and CG animation studio, in July 2006. This acquisition is now helping us to compete better in the higher margin commercials sector of our market.

We look forward to updating you on the impact of our restructuring in due course.

Management Changes

In June 2006 VTR announced that Peter Samengo-Turner, Finance Director, would be leaving the Company to pursue another opportunity within the financial services sector.

In August 2006, following a successful management handover, Paul Tracey, Group Managing Director, announced his resignation from the board. Neil Lane, formerly Operations Director, was appointed Managing Director.

Dividend

No dividend has been declared this year or in the prior year. Your board will continue to keep the matter under review.

Cashflow and Gearing

There was a significant improvement in gearing for the financial year. It fell to 48% from 111% in the previous year. Indebtedness continued to fall, with net borrowings decreasing to �3.8m from �5.8m in 2005.

The detail of our business performance is set out below by our Managing Director, Neil Lane.

Outlook

The benefits of the restructuring are beginning to be felt and the Group�s performance since the start of the current financial year has been encouraging. The Board is confident of a much improved performance in the period to 31 March 2007.

Namit Malhotra

April 19, 2007

Managing Director�s Review

This has been a challenging year for the businesses within VTR. The impact of difficult market conditions has been felt throughout the group. With the investment of Prime Focus Limited, we have been able to push ahead with the restructuring of VTR that is addressing every element of the business � sales, costs, property, marketing and branding. On the property front we are looking at re-organising all the existing businesses, in a manner that at least 6,000 square feet of space can be surrendered back or sub-leased, hence reducing the overall cost of rent and incidental property costs. On the sales front, a dedicated sales team has been put into place, for each individual business. In addition we have been reviewing our cost base to ensure we have the right people and the right equipment to cement our position as a leading post production facility.

In terms of our individual businesses, VTR, which specialises in the post-production of high end commercials, pop promos and feature films, felt the impact of the downturn in advertising and poor market rates for post-production.

Hive, which offers high-end CGI animation, graphic design and visual effects to the broadcast and commercial markets, post year end has post year end merged with Clear following VTR�s acquisition of Clear in July. Clear is an award-winning digital visual effects studio which brings fresh creative talent to VTR in a high margin area.

Blue is VTR�s broadcast on-air promo and long-form programming specialist. It made steady progress during the year, consolidating its strong position in the market, with a particular emphasis on drama projects.

TMR (The Machine Room) provides specialist physical and digital restoration, DVD authoring and telecine to the film, television, corporate and entertainment markets. Its activities were scaled down during the year with a view to re-deploying various elements of its work throughout the Group.

KPost is VTR�s facility based in the Knightsbridge offices of J Walter Thomson, one of the UK�s top advertising agencies. It specialises in TV commercials, vox pops and pitches for new business and has become an integral part of the agency�s workflow. This venture continued to perform in line with expectations.

The changes taking place across our business are designed to make us leaner, more flexible and better-equipped to compete for global contracts. Inevitably this process has resulted in some job losses (net job losses of 31). It is always difficult to say goodbye to longstanding colleagues but I am confident we now have the best team of creative talent in the business. Fresh investment in the Group by Prime Focus (India) has made this possible and its involvement is delivering significant advantages in terms of costs and quality.

In summary, 2006 has been extremely tough but developments during the year have sown the seeds of what we confidently predict will be a strong business performance in 2007. We have a strong new management in place and an injection of investment in VTR which is being used to ensure we have the best creative talent, facilities and equipment in the industry.

The relationship with Prime Focus Limited, has been extremely beneficial, as it has enabled us to take advantage of the stronger negotiating positions enjoyed by Prime Focus Limited vis-�-vis industry suppliers. Prime Focus Limited has also provided VTR with access to a low cost base for service offered by VTR enabling VTR to be able to be more cost competitive in the Industry and still be able to make a better margin than made previously by executing the entire job in London.

These are the right ingredients for success and we look forward to updating you on our performance later in the year.

Neil Lane

April 19, 2007

Consolidated Profit and Loss Account

FOR THE YEAR ENDED 31 AUGUST 2006

�	�	�	�
�	2006	�	2005
�	�	�	�
�	�	�	�
Turnover	17,692,273	�	21,505,511
�	�	�	�
Cost of sales	(1,805,211)	�	(1,523,023)
�	�	�	�
�	�	�	�
� Gross profit	� 15,887,062	�	� 19,982,488
�	�	�	�
Administrative expenses	(17,419,373)	�	(20,261,844)
�	�	�	�
Operating loss	(1,532,311)	�	(279,356)
�	�	�	�
Exceptional item � fundamental Group restructuring	(297,735)	�	37,358
�	�	�	�
Interest receivable	32,799	�	166
�	�	�	�
Interest payable and similar charges	(444,559)	�	(538,107)
�	�	�	�
�	�	�	�
Loss on ordinary activities before taxation	(2,241,806)	�	(779,939)
�	�	�	�
Tax credit / (charge) on loss on ordinary activities	191,489	�	117,130
�	�	�	�
�	�	�	�
Loss for the year	(2,050,317)	�	(662,809)
�	�	�	�
�	�	�	�
Basic and diluted loss per share	(12.8p)	�	(6.0p)
�	�	�	�

Turnover and operating results are derived from the Group�s continuing operations.

Consolidated Balance Sheet

AT 31 AUGUST 2006

�	�	2006	�	2005
�	�	�	�	�
Fixed assets	�	�	�	�
Intangible assets	�	1,437,861	�	-
Tangible assets	�	9,154,690	�	10,319,974
Investments	�	58,980	�	83,283
�	�	10,651,531	�	� 10,403,257
�	�	�	�	�
Current assets	�	�	�	�
Stock	31,436	�	23,970	�
Debtors	5,641,700	�	4,394,220	�
Cash at bank and in hand	588,488	�	11,611	�
�	� 6,261,624	�	� 4,429,801	�
�	�	�	�	�
Creditors: amounts falling due within one year	�	�	�	�
Bank loans and overdrafts	2,777,037	�	1,785,033	�
Hire purchase creditors	1,194,445	�	1,566,622	�
Trade and other creditors	3,353,443	�	3,518,664	�
Corporation tax	47,489	�	120,867	�
�	� 7,372,414	�	� 6,991,186	�
�	�	�	�	�
Net current liabilities	�	(1,110,790)	�	(2,561,385)
Total assets less current liabilities	�	9,540,741	�	7,841,872
� Creditors: amounts falling due after more than one year	�	(450,657)	�	� (2,433,171)
� Provisions for liabilities	�	(637,545)	�	� (227,114)
�	�	8,452,539	�	� 5,181,587
�	�	�	�	�
Capital and reserves	�	�	�	�
Share capital	�	1,387,814	�	551,928
Share premium account	�	8,556,624	�	4,071,241
Capital redemption reserve	�	270,000	�	270,000
Profit and loss account	�	(1,761,899)	�	288,418
� Funds attributable to equity shareholders	�	8,452,539	�	� 5,181,587
�	�	�	�	�

Consolidated Cash Flow Statement

FOR THE YEAR ENDED 31 AUGUST 2006

�	2006	�	2005
�	�	�	�
Net cash flow from operating activities	(433,874)	�	3,195,340
Returns on investments and servicing of finance	(411,760)	�	(537,941)
Taxation	(25,807)	�	(51,326)
Capital expenditure and financial investment	(327,592)	�	(118,995)
Acquisitions (note 9(c))	(403,604)	�	-
Cash (outflow) / inflow before financing	(1,602,637)	�	2,487,078
Financing	2,510,557	�	(2,340,215)
Increase in cash in the year	907,920	�	146,863
Reconciliation of net cash flow to movement in net debt	�	�	�
Increase in cash in the year	907,920	�	146,863
Cash flow from decrease in debt and lease financing	1,820,372	�	2,340,215
Change in net debt resulting from cash flows	2,728,292	�	2,487,078
Loans and finance leases acquired with subsidiary	(321,618)	�	-
New hire purchase agreements	(467,110)	�	(2,020,794)
Movement in net debt in the year	1,939,564	�	466,284
Net debt at 1 September 2005	(5,773,215)	�	(6,239,499)
Net debt at 31 August 2006	(3,833,651)	�	(5,773,215)

Notes to the Consolidated Cash Flow Statement

FOR THE YEAR ENDED 31 AUGUST 2006

Reconciliation of operating loss to net cash (outflow)/inflow from operating activities	2006	�	2005
�	�	�	�
Operating loss	(1,532,311)	�	� (279,356)
Depreciation	2,813,241	�	3,276,024
Profit on disposal of tangible fixed assets	(122,348)	�	(53,252)
(Increase) / Decrease in debtors	(860,804)	�	1,642,595
Decrease in creditors	(459,398)	�	(705,397)
Exceptional items	(297,735)	�	(715,071)
(Increase) / Decrease in stock	(5,535)	�	3,297
Investment impairment	25,000	�	26,500
Amortisation of goodwill	6,016	�	-
�	(433,874)	�	3,195,340
�	�	�	�

Notes to the Accounts

31 AUGUST 2006

1.�������� Segmental Reporting

(a) ��� Turnover by geographical markets

�	2006	�	2005
�	�	�	�
United Kingdom	16,954,689	�	20,694,909
Rest of Europe	470,495	�	160,517
Other	267,089	�	650,085
Total	17,692,273	�	21,505,511
�	�	�	�
(b)� Loss before taxation by geographical markets	�	�	�
United Kingdom	(2,148,346)	�	(750,541)
Rest of Europe	(59,617)	�	(5,821)
Other	(33,843)	�	(23,577)
Total	(2,241,806)	�	(779,939)
�	�	�	�
(c) Net assets by geographical markets	�	�	�
� United Kingdom	8,277,790	�	5,181,587
� Other	118,000	�	-
Total	8,395,790	�	5,181,587

2.�������� Dividends

No dividend has been declared for the year (2005: Nil)

3.�������� Loss per share

Basic and diluted loss per share is based on a loss of �2,050,317 (2005: loss � 662,809) and 15,985,984 (2005: 11,038,550) weighted average number of ordinary 5p shares in issue during the year.

The outstanding share options, do not give rise to any dilution and therefore the basic and diluted loss per share are the same.

4.�������� Acquisition Note

On July 25^th 2006, the Company acquired a 100% stake in Clear (Post Production) Limited for a total consideration of �1,431,291, satisfied as payment in cash of �299,990 and the issue of 2,001,675 new VTR ordinary shares to the vendors of Clear (Post Production) Limited, and the proposed issue of a further 1,225,000 new VTR ordinary shares to Prime Focus Limited, in consideration for the guarantee given on behalf of VTR to the vendors that VTR�s ordinary shares will have a mean closing bid price of not less than 60 pence per share over the three month period ending on 25 July 2008, being two years from completion of the acquisition. The share issue to Prime Focus is subject to approval at the Annual General Meeting.

The assets and liabilities of Clear (Post Production) Limited have included using the acquisition method of accounting and have been consolidated at their fair values to the group as set out below.

�	Book value at acquisition	Fair value adjustment	Fair value at acquisition
�	�	�	�
�	�	�	�
Tangible fixed assets	�������� 230,907	�������������� -��	������� 230,907
Stock	1,931	-	1,931
Trade and other debtors	382,466	-	382,466
Prepayments and accrued income	4,210	-	4,210
Bank loans	(173,046)	-	(173,046)
Trade and other creditors	(174,043)	-	(174,043)
Accruals and provisions	(120,122)	-	(120,122)
Taxation	��������� (23,399)	�������������� -��	��������� (23,399)
Cash at bank and in hand	���������� ��7,082	�������������� -��	����������� 7,082
Finance leases	������� (148,572)	�������������� -��	����� (148,572)
Net liabilities acquired	��������� (12,586)	�������������� -��	��������� (12,586)
Goodwill capitalised	�	�	1,443,877
Consideration	�	�	1,431,291
� Satisfied by:	�	�	�
Cash to vendor	�	�	299,990
Related costs of acquisition	�	�	110,000
Discounted contingent consideration (gross �660,500)	�	�	530,950
Shares allotted	�	�	490,351
�	�	�	1,431,291
Pre acquisition profits	�	�	�
Period covered	July 1, 2005 �to	�	�
�	�25 July 2006	�	�
�	�	�	�
Turnover	����� 3,011,393	�	�
Operating profit	���������� 33,916	�	�
Interest expense	��������� (23,653)	�	�
Profit before taxation	���������� 10,263	�	�
Taxation	��������� (23,399)	�	�
Loss after taxation	��������� (13,136)	�	�

5.�������� Contingent liabilities

The bank loans of the Group undertakings are secured by cross-guarantees between Group companies. At 31 August 2006 the liability of the bank loans was borne by the Company at a value of �2,010,370 (2005: �2,935,033).

In 2006 the Company guaranteed some leases for VTR North Limited, a company in which it has a 19% shareholding. At 31 August 2006 the outstanding payments due under the leases was �nil (2005: �222,263).

Mr John Banks, the former Managing Director of the Company has issued legal proceedings clAIMing �358,363 by way of damages for breach of his Contract of Employment. These proceedings are being defended by the Company.

6.�������� Related party balances

The Company has taken advantage of the exemption conferred by FRS8 not to disclose related party transactions with subsidiary undertakings 90% or more of whose voting rights are controlled within the Group.

The Company has inter � alia paid �300,000 cash for the acquisition of Clear (Post Production) Limited, the funding for which was through the issue of 1,224,900 shares at 24.5p per share to Prime Focus Limited. Shares have been issued and a liability created as of August 31, 2006.

Apart from the above, during the year, the company has sold certain other obsolete goods to Prime Focus Limited, the parent company, at their net book value of �24,624. Furthermore, the company has also paid certain expenses amounting to �18,809 relating to the parent company�s personnel. Prime Focus Limited has agreed to reimburse these expenses. At the Balance Sheet date, the net balance due from Prime Focus Limited was �344,433 (2005: �nil).

The Company also acquired as a part of the transaction with Prime Focus Limited, tangible fixed assets worth �500,000 from Prime Focus Limited, for which the Company, as per the terms of the transaction, issued shares to Prime Focus Limited (see note 18).

On July 25^th 2006, the Company acquired, 100% stake in Clear (Post Production) Limited. The Company proposes to issue of a further 1,225,000 new VTR ordinary shares to Prime Focus Limited, in consideration for the guarantee on behalf of VTR to the vendors that VTR�s ordinary shares will have a mean closing bid price of not less than 60 pence per share over the three month period ending on 25 July 2008, being two years from completion of the acquisition. The share issue to Prime Focus is subject to approval at the Annual General Meeting.

7.������ The consolidated financial information for the year ended 31 August 2006 has been prepared on a basis consistent with the previous year and in accordance with applicable UK accounting standards.� The financial information included in this announcement does not constitute the Group's statutory financial statements within the meaning of s240 of the Companies Act 1985.�

This announcement contains information extracted from the audited financial statements of the Group for the year ended 31 August 2006 and the year ended 31 August 2005. The Group's 2005 accounts, which contain an unqualified audit report, have been filed with the Registrar of Companies.

The statutory accounts for the year ended 31 August 2006 will be sent to the shareholders shortly. The auditors have reported on these financial statements. Their report was qualified, and extract of which is as follows:

�Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group�s and Company's circumstances, consistently applied and adequately disclosed.

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. The group has undergone significant changes in the period following the acquisition of the majority of its shares by Prime Focus Limited. As a result it has not been possible for us to obtain a sufficient degree of reliability with respect to the group�s forecast trading and cash flows in order to confirm the supportability of the Company�s carrying value of investments in subsidiaries (�6,202,767) and the recoverability of inter-company balances (�18,050,257). It has also not been possible to confirm the supportability of the Group�s goodwill (�1,437,861). As a result, and in the absence of any alternative evidence available to us, we have been unable to form a view as to the carrying value of the Company�s investments in subsidiaries, the recoverability of the Company�s inter-company balances, the carrying value of the Group�s goodwill and we are also unable to form a view on the applicability of the going concern basis.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion: disclAIMer on view given by the financial statements

Because of the possible effect of the limitation in evidence available to us, we are unable to form an opinion as to whether the financial statements give a true and fair view, in accordance with United Kingdom Generally Accepted Accounting Practice, of the state of the Group�s and the Company's affairs as at 31 August 2006 and of the Group�s loss for the year then ended.

In respect solely of the limitation of our work referred to above we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.

Notwithstanding our disclAIMer on the view given by the financial statements, in our opinion the financial statements have been properly prepared in accordance with the Companies Act 1985 and the information given in the Directors' Report is consistent with the financial statements.�

8.������ The annual accounts for 2006 will be posted to shareholders today and copies will be available on request from the Company Secretary, VTR plc, 64 Dean Street, London W1D 4QQ.�

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