Preliminary Results

Travelzest plc

Preliminary results

Travelzest plc (AIM:TVZ), the online travel group, announces its preliminary results for the year to 31 October 2011.

Financial Highlights

§ Record level of total transaction value, increased 13% to £246.6 million (2010: £217.6 million) driven by agency growth in Canada

§ Revenue decreased 14% to £37.7 million (2010: £43.8 million) due to a 49% decline in UK merchant revenue partially offset by a 16% increase in agency revenue

§ Gross profit decreased 2% to £23.7 million (2010: £24.2 million), however the gross profit percentage increased to 63% (2010: 55%) due to the decline in lower margin merchant revenue in the UK

§ Underlying* operating profit decreased 32% to £4.2 million (2010: £6.1 million) due to lower merchant sales and gross profit combined with higher marketing and operating lease expense, and foreign exchange losses

§ Operating profit increased £8.7 million to £0.7 million (2010: £8.0 million loss) due to a prior year goodwill impairment charge partially offset by higher separately disclosed item expenses, lower merchant gross profit, higher marketing and operating lease expense and increased foreign exchange losses

§ Renewal of the Group's bank facility to 30 June 2013

§ Cash flows generated from operations were down 59% to £2.0 million (2010: £4.9 million) primarily due to the reduction in underlying operating profit

§ Basic loss per share of 2.01p (2010: 8.80p loss per share) The prior year was impacted by a charge of £12.2 million in respect of goodwill impairment

* Underlying operating profit is adjusted for amortisation of intangible assets and goodwill impairment, separately disclosed items and excludes the profit and loss impact of options and warrants

Operational Highlights

§ Rationalisation of UK operations, de-risking our UK supplier contracts

§ Continued strong performance from the Group's Canadian operations

Jonathan Carroll, Travelzest's Chief Executive Officer, commented:

"We have had to make some difficult decisions in the period and have focused on those brands that we believe will drive both growth for the business and shareholder value in the longer term. The simplification of our business, post-rationalisation, will allow us to better focus on what makes us successful and we are already starting to see the operational and financial benefits of a more streamlined UK business.

"I am extremely proud and appreciative of our team's efforts and the resilience and commitment they have shown through these challenging times. I thank them for their dedication and contributions."

Nigel Jenkins, Travelzest's Non-executive Chairman, added:

"The work that has been done over the year, although difficult, has positioned the business to better weather the continued economic headwinds in the UK and will set us on a path for improved profitability. We believe that the business has the right foundations to grow and the initial key indicators are positive in 2012. We remain cautiously optimistic for the year ahead."

- Ends -

Enquiries:

Notes to Editors:

About Travelzest

Travelzest plc (LSE:TVZ.L) is a dynamic travel group, with a collection of online travel retailers and specialised merchant operators. Included in the Travelzest agency family are Travelzest Holidays, itravel2000, The Cruise Professionals, holiday.co.uk and flight.co.uk. Travelzest is traded on London's AIM Exchange under the symbol TVZ.

Chairman's statement

A challenging UK travel market in 2011 required the Group to rationalise UK operations. This difficult decision has allowed our UK operations to be better positioned to service both UK customers and also assume support for our Canadian customers from a state of the art call centre in Cheltenham. We also announced in December 2011 that we will begin to sell or wind down our non-performing UK brands. We recently completed the sale of J.M.B. Travel Consultants Limited and sale of assets related to Travelzest Holidays Limited. We continue to explore options for the remaining brands. The Canadian operations produced another successful year with revenue up 16% and now represent some 67% of Group revenues.

We are also pleased to announce extension of our Group banking facility with Barclays plc to 30 June 2013. The Board continues to review its bank facilities to ensure they remain appropriate for the future plans of the business from an operational and cost perspective. As part of both this review and as a condition of the extension to the banking facility the Board anticipates the Company will raise additional finance capital during 2012 which will be used primarily to significantly reduce the indebtedness of the business to Barclays as well as to provide the necessary working capital for the Group to continue its operations.

Results

A description of the performance of the Group's operations is given in the Chief Executive's statement.

People

I would like to thank everyone throughout the organisation for their hard work and dedication. Every year brings its challenges in the travel industry and last year was no exception.

Weak economic and market conditions in the UK forced us to make some difficult decisions. We have been able retain a well trained and highly efficient UK call centre operation in Cheltenham which is now also providing excellent service to our Canadian customers.

I would also like to thank Mark Molyneux for his service to the board as Chairman and I am grateful that Mark has elected to remain on the Board. I also welcome Jamie Brooke and Adrian Cobbold as new members, giving the Board wider expertise. I also announce that Jack Fraser will be leaving the Group to complete his Executive MBA and pursue other opportunities. The Board would like to thank Jack for his considerable and enduring contribution to the Group and its operating subsidiaries during his seven years with the organisation. He has made a significant contribution to the strategic direction of the Group and has worked hard to help establish the market leading position of our Canadian business units. We wish him well in his studies and for his future career. Jack's operating responsibilities will be assumed by other members of the executive management team.

Outlook

The UK economic climate is likely to remain weak during 2012 however current booking activity is ahead of the expectations we formed in late 2011. The Canadian economy has recently suffered from some weakening consumer confidence and in addition an unseasonably warm winter softened travel demand during the first half of our winter season. Bookings have however increased significantly in recent weeks and we are positive for the remainder of the year. Demand continues to grow for our luxury cruise offerings through The Cruise Professionals. As ever, the late booking market is important and we continue to focus marketing effort on this area.

A streamlined product offering and more cost efficient base for servicing our customers will set us on a path for improved profitability.

N J Jenkins

Chairman

29 March 2012

Chief Executive's statement

The past year proved to be a challenging environment as the rapid decline in the UK travel market forced us to rationalise our UK merchant model. Our efforts to de-risk ourselves from certain contracts and lower our operating costs are beginning to bear fruit, and I am pleased with the progress in our Canadian operations and encouraged by the initiatives we are pursuing in 2012 to drive top line growth and improved profitability.

Group performance

● While producing record transaction value growth of 13% to £246.6 million experienced a decline in revenues of 14% to £37.7 million due to a 49% decline in UK merchant revenue partially offset by a 16% increase in agency revenue. Gross profit decreased 2% to £23.7 million however gross profit percentage increased to 63% (2010: 55%) due to the decline in lower margin merchant revenue in the UK. Underlying* operating profit decreased 32% to £4.2 million (2010: £6.1 million) due to lower merchant revenue and gross profit combined with higher marketing and operating lease expenses, and foreign exchange losses. Cash flows generated from operations were down 59% to £2.0 million (2010: £4.9 million) primarily due to a decline in UK merchant revenue, costs to de-risk ourselves from certain contracts and non-recurring UK severance payments.

● The net debt position of the company £11.2 million (2010: £11.7 million) fell marginally from the prior year.

Separately disclosed items

During the year the Group incurred separately disclosed costs totaling £2.6 million (2010: £1.9 million), a 37% increase from the prior year due to severance and asset write-down costs in the UK, higher non cash related share-based payments and corporate legal fees. These have been separately disclosed to enable a better understanding of the results of the Group.

Summary

We are cautiously optimistic about our opportunities for growth, particularly at our flagship brand itravel2000. The simplification of our business, post-rationalisation, will allow us to better focus on what makes us successful. We are already starting to see the operational and financial benefits of a more streamlined UK business. I am extremely proud and appreciative of our team's efforts and the resilience and commitment they have shown through these challenging times. I thank them for their dedication and contributions.

J G Carroll

Chief Executive

29 March 2012

Consolidated income statement

* Refer to note 7

Consolidated statement of comprehensive income

Consolidated balance sheet

* Refer to note 7

Consolidated cash flow statement

* Refer to note 7

Unaudited consolidated statement of changes in equity

1 Principal accounting policies

General information

Travelzest plc (the 'Company') and its subsidiaries (together, the 'Group') provide retail travel sales and merchant operation services.

The Company is a public limited company, incorporated and domiciled in the UK and is listed on the AiM, a market operated by the London Stock Exchange plc. The address of its registered office is 2nd Floor Delta Place, 27 Bath Road, Cheltenham, Gloucestershire, GL53 7TH, United Kingdom.

Basis of preparation

The consolidated financial statements of Travelzest plc have been prepared in accordance with IFRS as adopted by the European Union, IFRIC Interpretations and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention as modified by financial assets and financial liabilities (including derivative instruments) at fair value. The financial statements have been prepared on a going concern basis.

Going concern

The Group is currently funded by a loan with Barclays which will be repaid in six monthly instalments of £0.5m from January 2013 to June 2013 with a final payment in June 2013. Under the terms of the loan, the Group is required to meet quarterly covenants which require the attainment of designated ratios of total debt to EBITDA, EBITDA to interest payable and cash flow to total debt service on a quarterly basis. During the year to 31 October 2011, management obtained a waiver in respect of compliance with its financial covenants. At 31 January 2012, the group met its covenants.

The directors have prepared a cash flow forecast based on the Group's approved budgets to June 2013 and have considered the forecast covenant position at each of the quarterly testing points from April 2012. The ability to meet these future cash flow and covenant forecasts is dependent on the Group's ability to raise additional finance to repay debts and provide adequate working capital to continue its operations following the signing of these financial statements. However, there is a risk that the raising of additional finance will be unsuccessful, and this represents a material uncertainty which may cast significant doubt about the ability of the Group to continue as a going concern. The directors have a reasonable expectation that funding will be obtained and as a result have adopted the going concern basis in preparing the financial statements. The financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.  

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

Judgements and estimates

The preparation of the Group's financial statements 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. Actual results may differ from these estimates.

The following are critical judgements in applying the accounting policies of the Group that have the most significant effect on the financial statements:

Revenue

Management make critical judgements in determining when to recognise income. The recognition is based on whether companies within the Group are an agent or merchant. Merchant operations revenue is primarily when the Group becomes principal on the transaction and defines the terms of the transaction with the consumer. Agency operations revenue is primarily when the Group passes on to the consumer the majority of the terms of sale from the ultimate supplier and earns a commission for completing the transaction. Revenue is recognised when it can be measured reliably. Revenue and direct expenses relating to tours arranged by the Group's merchant operators are taken to the income statement on the date of holiday departure. Revenue relating to agency commission receivable on third party leisure travel products is recognised when earned, which is on receipt of the full payment from the customer; and for business travel products is recognised when earned, which is upon booking from the customer as bookings are ticketed immediately and are non-refundable. In all cases recognition occurs when it is probable that the economic benefits associated with the transaction will flow into the Group, and the costs incurred or to be incurred can be measured reliably.

Impairment

An impairment loss is recognised for the amount by which the cash-generating unit's carrying amount exceeds its recoverable amount. Determining whether goodwill is impaired requires an estimate of value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate future cash flows from the cash-generating units and a suitable discount rate in order to calculate a fair value. In the process of measuring expected future cash flows, management makes assumptions about future gross profits. These assumptions relate to future events and circumstances. In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk and the appropriate adjustment to asset-specific risk factors.

Share-based payments

Management uses valuation techniques in determining the fair values of share-based payments at the date of grant; it adopts the Black-Scholes pricing model approved and unapproved options schemes, and it adopts the Monte-Carlo Simulation pricing model for management incentive options. Significant inputs into the calculation include the market price at the date of grant and exercise prices. Furthermore, the calculation takes into account the future dividend yield, the share price volatility rate and risk-free interest rate.

Fair value of financial instruments

Management make critical judgements both as to whether hedge accounting can be applied and to measure the fair value of the derivative financial instrument hedges. Management uses active market quotes to measure the fair value of derivative financial instrument hedges. The effectiveness of financial instrument hedges is assessed by considering the underlying liability to which the hedge relates. If the conditions for hedge accounting are no longer met and the previously designated hedged item is measured by means of the effective interest method, the necessary adjustment of the carrying amount of the underlying transaction has to be effected over its remaining term.

Deferred tax

The assessment of the probability of future taxable income in which deferred tax assets can be utilised is based on the Group's latest approved budget which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. If a positive forecast of taxable income indicates the probable use of a deferred tax asset, especially when it can be utilised without a time limit, that deferred tax asset is usually recognised in full.

Litigation

Where the Group has an outstanding legal claim against it and it is probable that an outflow will be required in settlement, an appropriate accrual or provision is recognised in respect of the expected settlement.

Business combinations

Business combinations are accounted for using the purchase method. The purchase method involves the recognition of the acquiree's identifiable assets and liabilities, including contingent liabilities, regardless of whether they were recorded in the financial statements prior to acquisition. On initial recognition, the assets and liabilities of the acquired subsidiary are included in the consolidated financial statements at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group's accounting policies. Any deferred consideration in respect of the acquisition is held as a liability until payment is due and reflected in the initial carrying value of the subsidiary. Any subsequent changes to the amount of deferred consideration are recognised against the liability and through the income statement. Goodwill is stated after separating out identifiable assets where applicable.

Goodwill and other intangible assets

Goodwill arising on acquisition represents any excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired less any provision for impairment. Under IFRS, goodwill is not amortised. Goodwill is recognised as an asset, and is reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any impairment is recognised immediately in the Group's income statement and is not subsequently reversed. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

Impairment tests for goodwill were conducted on the basis of cash-generating units ("CGUs"). According to the IFRS rules, a CGU is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. CGUs were established for the individual merchant operators, and for the agency businesses, in specific countries. The expected cash flows generated are discounted using rates that represent estimated weighted average cost of capital for the respective business.

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 2006 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Customer relationships acquired in a business combination are recognised at fair value at the acquisition date. The 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 relationship. These have been classified as other intangible assets.

Costs that are directly associated with the purchase and implementation of websites and unique software by the Group are recognised as intangible assets and are classed as website development and computer software. Expenditures that enhance and extend the benefits of these items and lives are recognised as a capital improvement and added to the original cost of the website and software. These assets are carried at cost less accumulated amortisation and impairment.

Other intangible assets are accounted for at cost whereby capitalised costs are amortised over their respective lives. Acquired computer software and website development are capitalised on the basis of costs incurred to acquire and install. The estimated useful economic life of these assets are as follows:

Property, plant and equipment

Property, plant and equipment are stated at cost, net of depreciation and any provision for impairment.

Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within administrative expenses in the income statement.

Financial assets

i) Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. Any derivatives expected to be settled in greater than twelve months are classified as non-current assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

ii) Recognition and measurement

The Group measures its financial assets initially at fair value. The subsequent measure depends on classification for example trade and other receivables which are fixed price are carried at amortised cost (if applicable) using an effective interest method if the time value of money is significant. Due to the nature of the businesses, credit risk is deemed low, therefore amortisation or impairment is unlikely. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the income statement within finance income or finance costs in the period in which they arise.

Financial liabilities

The Group's financial liabilities include borrowings, trade and other payables and derivative financial instruments. Financial liabilities are classified as financial liabilities measured at amortised cost or derivatives designated as hedging instruments.

The Group determines the classification at initial recognition and measures initially at fair value. The subsequent measurement depends on classification, for example financial liabilities measured at amortised cost having been initially recognised at fair value (in case of borrowing, fair value of proceeds net of issue costs), are subsequently measured at amortised cost (if applicable) using an effective interest method taking into account discounts and issue costs. This category of financial liability includes borrowings and trade and other payables.

Derivatives designated as hedging instruments are accounted for in accordance with the policy set out below.

Derivative financial instruments and hedging

Derivative financial instruments are initially measured at the fair value attributable to them on the day of the conclusion of the agreement. The follow-up measurement is also effected at the fair value applicable at the respective balance sheet date. The method applied in recording profits and losses depends on whether the derivative financial instrument is classified as a hedge, and on the type of hedged item. As a matter of principle, the Group classifies derivative financial instruments either as fair value hedges to hedge exposure to changes in the fair value of assets or liabilities or as cash flow hedges to hedge exposure to risks of varying cash flows from highly probable future transactions.

Upon inception of the transaction, the Group documents the hedging relationship between the hedge and the underlying item, the risk management goal and the strategy pursued in entering into the hedges. In addition, an assessment is made both at the beginning of the hedge relationship and on a continual basis as to whether the derivatives used for the hedge compensate for the changes in the fair values or cash flows of the underlying transactions in a highly effective manner. The Group currently has no fair value hedges in place. Changes in the fair values of derivative financial instruments not achieving the criteria for hedge accounting are directly recognised in the income statement.

Where a derivative financial instrument is designated as a hedge of the variability in cash flows arising from a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in the hedging reserve. Any ineffective portion of the hedge is recognised immediately in the income statement.

When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from the hedging reserve and is included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of financial asset or financial liability, the associated gains and losses that were recognised directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects profit or loss.

For cash flow hedges, the associated cumulative gain or loss is removed from equity and recognised in the income statement in the same period or periods during which the hedged forecast transaction affects in the income statement.

Prospective hedge effectiveness is performed at the commencement of hedge accounting, and subsequently at each balance sheet date, through comparison of the critical terms of the hedged forecast transaction and the hedging instrument. Critical terms are the maturity, amount and currency of the cash flows relating to the hedging instrument and the forecast hedged transaction. Retrospective hedge effectiveness is performed at each reporting date principally using a dollar offset analysis, comparing the cumulative changes in the fair values of the forecast hedged transaction and the hedging instrument.

When a hedging instrument no longer meets the criteria for the hedge accounting, expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship, hedge accounting is discontinued prospectively. If the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss is recognised in equity or recognised in the income statement immediately.

Total transaction value and revenue recognition

Total transaction value, which is stated net of value added tax, does not represent the Company's statutory revenue. Where companies within the Group act as agent or cash collector, total transaction value represents the price at which goods or services have been sold to the consumer and is recognised on the same time basis as statutory turnover.

Revenue represents the fair value of consideration receivable from inclusive tours, agency commissions receivable and other services supplied to customers in the ordinary course of business. Revenue and direct expenses relating to the inclusive tours arranged by the Group's merchant leisure travel providers are taken to the income statement on holiday departure. Revenue relating to agency commission receivable on third party leisure travel products is recognised when earned, which is on receipt of the full payment from the customer. Revenue relating to agency receivable on third party business travel products is recognised when earned on date of booking, which by the terms of contracts is the date the invoice is raised and the customer becomes liable for payment under the terms of their contract. In all cases recognition occurs when it is probable that the economic benefits associated with the transaction will flow into the Group, the costs incurred or to be incurred can be measured reliably. Other revenue and associated expenses are taken to the income statement as earned or incurred. Revenue and expenses exclude intra-Group transactions.

Income statement presentation and separately disclosed items

Profit or loss from operations includes the results from operating activities of the Group.

Separately disclosed items are those that are unusual because of their size, nature or incidence which the Group's management consider should be disclosed separately to enable a full understanding of the Group's results. Separately disclosed items include share-based payment charges.

Tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither. accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Pensions

The Group pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis. The group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

Foreign currency

(a) Functional and presentation currency

In the Group's financial statements, all assets, liabilities and transactions of the Group's entities are translated into sterling, the functional currency of the parent company. Average exchange rates are used to translate the income and expenses of all subsidiaries that have a functional currency other than sterling where there has been no significant fluctuation in the rate. The balance sheets of such entities are translated at period end exchange rates. All resulting exchange differences are recognised as a separate component of equity. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings designated as hedges of such investments, are recognised in equity.

(b) Transactions and balances

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 year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges. Foreign exchange gains and losses that relate to cash and cash equivalents are presented in the income statement within 'finance income or cost'. All other foreign exchange gains and losses are presented in the income statement within 'administrative expenses'.

Non-monetary items measured at historical cost are translated using the exchange rates at the date of transaction (not retranslated). Non-monetary items are measured at fair value and are translated using the exchange rates at the date when the fair value was determined. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets are included in other comprehensive income.

Share-based payments

The Group issues share-based instruments to certain employees as part of their total remuneration:

Share options

Share options are recorded as equity settled share-based compensation. The fair values of these instruments are calculated at the date of grant, using the Black-Scholes or Monte-Carlo Simulation pricing models. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognised in the income statement over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied with a corresponding increase in equity reserves. At the end of each reporting period, the Group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. The Group recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. Any waivers to share-based payments are treated as cancellations by the Group. When the options are exercised, the Company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

Cash bonus award

The Group also issued a cash bonus award which is recorded as cash settled share-based compensation. The fair value of the cash bonus award is calculated using the Monte-Carlo Simulation pricing model at each reporting date. The fair value is charged to the income statement with a corresponding entry to non-current liabilities.

Basis of consolidation

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated but considered to be an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Equity and reserves

Share capital presents the nominal value of shares that have been issued. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of shares and share awards are recognised as a deduction from equity, net of any tax effects.

Share premium includes any premiums received on the issue of share capital. Any transaction costs associated with the issuing of shares are deducted from the share premium, net of any related income tax benefits.

The translation and hedge reserve includes the effects of foreign currency translation differences arising on the translation of the Group's foreign entities and the gains and loss on financial instruments designated as effective hedges are also included.

The Company was entitled to the merger relief offered by section 131 of the Companies Act 1985 in respect of the consideration received in excess of the nominal value of the equity shares issued in connection with the acquisition of Peng Travel Limited, Fair's Fare Limited and the settlement of outstanding consideration on the acquisition of Holiday Express Group Limited.

On acquisition, the investments in the Company's immediate subsidiary companies were recorded in the Company's balance sheet at the fair value of the assets acquired, with the difference between this and the nominal value of the shares issued being credited to a merger reserve.

Brochure and advertising costs

The costs of brochure publication and advertising including web based advertising are charged to the income statement as incurred.

Operating lease agreements

In accordance with IAS 17 Leases, rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease.

Finance lease agreements

The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and the rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Finance lease agreements (continued)

Each lease payment is allocated between the liability and the finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to the income statement over the period of the lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

Segmental reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is the executive management, who are responsible for allocating resources and assessing performance of the operating segments.

Cash and cash equivalents

For the purpose of the cash flow statement, cash comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand.

Capital management policies and procedures

The Group's capital management objectives are:

·; to ensure the Group's ability to continue as a going concern; and

·; to provide an adequate return to shareholders

by pricing holidays effectively and considering the level of risk. The Group monitors capital on the basis of the carrying value of equity plus its facility loan, less cash and cash equivalents as presented in the face of the financial statements. The Group's goal in capital management is to comply with its covenants arising under the Group's current borrowing facility.

2. Segment reporting - unaudited

Management has determined the reportable operating segments based on the information which is reviewed by the executive management, which is considered to be the chief operating decision maker. The executive management considers the business from an operating division perspective. For management purposes, the Group is currently organised into two operating divisions: merchant operations and agency operations. Merchant operations revenue is primarily when the Group becomes principal on the transaction and defines the terms of the transaction with the consumer. Agency operations revenue is primarily when the Group passes on to the consumer the majority of the terms of sale from the ultimate supplier and earns a commission for completing the transaction.

The segment information provided to the executive management for the year ended 31 October 2011 is as follows:

All revenues in 2011 and 2010 are in respect of external customers. The group is not reliant on any one major customer (2010: none).

*Included within central costs is £8,000 of depreciation, £7,000 of amortisation and £nil of loss on disposal of property, plant and equipment and intangible assets (2010: £6,000, £3,000 and £10,000 respectively).

During the year merchant operations spent £2,000 on capital expenditure, agency operations spent £552,000, and central operations spent £2,000 (2010: £11,000, £672,000 and £24,000 respectively).

Group wide disclosures

The UK is the Company's country of domicile. Revenues from external customers and non-current assets are split geographically as follows:

Non-current assets include intangible assets and property, plant and equipment. During the year £111,000 was spent on the purchase of intangible assets and property, plant and equipment in the UK and £445,000 in Canada (2010: £337,000 and £370,000 respectively).

3 Finance income and costs

The expenses arising from interest rate hedges relates to the ineffective element of a basis points swap. Income arising from interest rate hedges reflects the overall credit from effective Canadian dollar and sterling interest rate swaps. Other financing costs were incurred in the renewal of the Company's banking facility as described in chairman's statement.

4 Income tax expense

Tax expense comprises:

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the standard rate of taxation in the UK of 26.83% (2010: 28.0%) as follows:

No current or deferred tax has been charged or credited to other comprehensive income in 2011 (2010: £nil). Deferred tax of £nil has been credited to equity (2010: £34,000).

A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement. The Finance (No 2) Act 2010, which was substantively enacted on 20 July 2010, includes legislation reducing the main rate of corporation tax from 28 per cent to 27 per cent from 1 April 2011. In the March 2012 Budget Statement, a further reduction of 2 per cent to 24 per cent from 1 April 2012 was announced with further reductions to the main rate proposed to reduce the rate by 1 per cent per annum thereafter to 22% from 1 April 2014. These further changes had not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements. The overall impact is not expected to be material to these financial statements.

5 Earnings per share - unaudited

The basic loss per share of 2.01p (2010: 8.80p loss per share) is based on a loss of £2,912,000 (2010: loss of £12,769,000) and 145,136,110 (2010: 145,136,110) shares of 2p, being the average number of shares in issue during the year.

The number of potentially dilutive instruments outstanding are set out in the following table:

As the Group made a loss during the current and prior year, the impact of potential ordinary shares is anti-dilutive and therefore the dilutive loss per share is the same as the basic loss per share at 2.01p (2010: 8.80p loss per share).

6 Notes to the cash flow statement

The cash flow statement shows the flow of cash and cash equivalents on the basis of a separate presentation of cash inflows and outflows from operating, investing and financing activities.

Reconciliation of operating profit/(loss) to net cash inflow from operating activities

7 Re-presentation of the 2010 consolidated income statement and the 2010 consolidated cash flow statement

The 2010 consolidated balance sheet has been re-presented to disclose restricted cash of £2,926,000 separately from cash and cash equivalents.

The 2010 income statement has been re-presented to reclassify £304,000 costs in respect of agents' commission from administrative expenses to cost of sales. The 2010 income statement has been re-presented to increase finance income by £306,000 and increase finance cost by £306,000.

The 2010 consolidated cash flow statement has been re-presented to reclassify interest paid of £1,748,000 from a financing activity to an operating activity. The 2010 consolidated cash flow statement has been re-presented to reclassify movement in restricted cash of £62,000 from net movement in cash and cash equivalents to a financing activity.