Annual Report

Travelzest Plc Annual Report 2007

Travelzest plc 2007

Financial and Operational Highlights Financial highlights

» Total transaction value increased 285% to £169.9 million (2006: £44.1 million) » Turnover increased 101% to £38.5 million (2006: £19.2 million) » Gross profit margin of £20.6 million increased to 53.5% of turnover (2006: £7.3 million, 37.8%) » EBITDA (before share based payments of £0.5 million, 2006: £0.2 million) of £4.3 million – 11.1% of turnover (2006: £0.8 million – 4.5% of turnover) » Underlying profit before tax, goodwill amortisation and share based payments increased 256% to £3.2 million (2006: £0.9 million) » Normalised* fully diluted earnings per share increased by 88% to 8.1 pence (2006: 4.3 pence) Operational highlights

» Excellent performance from Canadian online retailer, itravel2000.com » Strong growth achieved in UK specialist tour operators » Acquisition of four UK specialist tour operators » Development of holiday.co.uk and flight.co.uk on track * Normalised fully diluted earnings per share is before goodwill amortisation (£1.9 million), post tax share based payments charge (£0.3 million) and includes the income effect of conversion of options and warrants (£0.4 million).

CONTENTS 01 Financial highlights 02 About us 04 Chairman’s statement 06 Chief Executive’s statement 08 Case study: VFB Holidays 10 Case study: itravel2000.com 12 Case study: Best of Morocco 14 Directors 16 Senior management 18 Directors’ report

23 Independent Auditor’s report 24 Principal accounting policies 26 Consolidated profit and loss account 27 Consolidated balance sheet 28 Company balance sheet 29 Consolidated cash flow statement 29 Statement of total recognised gains and losses 30 Notes to the financial statements 45 Company information

Reports and financial statements for the year ended 31 October 2007

01

Travelzest plc 2007

The Travelzest Group

Travelzest is a dynamic travel group, with strong brands in the most attractive, rapidly growing sectors of the travel market

02

About us

The company was founded by Chris Mottershead and floated on AIM in 2005. His vision remains the same after two years; to build a highly profitable, fast-growing travel group for the modern holiday market; offering travellers the best available online travel retail experience and a range of outstanding specialised holiday experiences. This vision is being achieved through careful acquisition of online agency businesses and niche holiday companies in expanding sectors, then working with retained or hired management to accelerate profit growth through best-in-class marketing and operations, and through broadening the distribution reach. Travelzest has operations in the UK and Canada. The strategy is focussed on the two most profitable, fastest growing sectors in the travel market; online agency and specialist experience-based tour operations.

At the start of 2008, eleven companies had joined the Travelzest Group, three of which are agency businesses, and eight are specialist tour operators. In all cases, the companies are operating in the fastest growing sectors of the market, are low in fixed assets and have unique, hard-to-copy propositions and attributes that make them resistant to the ‘unbundling’ and price competition being experienced in the mainstream parts of the market.

For the online businesses, these attributes include branding and best-of-breed technology to provide unbeatable search and booking experiences for customers. For the tour operators, the propositions revolve around destination or activity-based expertise, giving rise to high levels of client satisfaction and loyalty.

The combination of agency and tour operating brings several benefits; there are two clear platforms for future growth, one based on volume and the other on margin and there is synergy between the two, with cross-selling possibilities having not yet been fully exploited.

Travelzest is a relatively young company, but the leadership team’s vision, strategy, and ability to deliver excellent results are based on years of extensive industry experience. At the group level, Chris Mottershead, Colin McKinlay and Nishma Robb bring outstanding capabilities in financial discipline, yield management, customer insight, client relationship management and marketing execution. At subsidiary level, each online agency and specialist tour operator company has a high calibre Managing Director who fully understands his or her client base and has a passion for delivering outstanding customer experiences.

The central team is very lean, and, after agreeing operational improvements, control frameworks and financial targets, they allow the subsidiary management teams to operate with relative autonomy. Local management can access the central team’s expertise as needed. This operating model is compelling and is appealing to other niche tour operators keen to take part in more rapid growth. As a result, the possibilities for further acquisitions appear almost endless, both in the UK and Canada, and also potentially in continental Europe.

Reports and financial statements for the year ended 31 October 2007

03

Travelzest plc 2007

Chairman’s statement

The year to 31 October 2007 has been a very successful one for Travelzest.

We have achieved record operating profits, acquired four more tour operators, integrated our Canadian business (bought in October 2006) and substantially improved our operational efficiency. The management team has proven its ability both to improve the underlying operations of acquired businesses and attract new businesses which meet our strict acquisition criteria.

Results During the year we achieved our planned improvement in the operational results of the business and I am pleased to report another record performance. Total transaction value has grown 285% from £44.1 million to £169.9 million. Turnover has more than doubled from £19.2 million to £38.5 million, gross profit has grown 184% to £20.6 million and profit for the year before tax, goodwill amortisation and the impact of FRS 20 (share based payments) has increased by 256% from £0.9 million to £3.2 million.

Normalised diluted earnings per share adding back goodwill amortisation (£1.9 million), the impact of FRS 20 (£0.3 million) and the income effect of conversion of share options and warrants (£0.4 million) increased by 88% from 4.3 to 8.1 pence.

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Chairman’s statement

Another important landmark achieved during 2007 was that Travelzest generated an operating profit in both the first half and the second half of the year, thanks to the balanced nature of our portfolio. This balance provides our business with great resilience as the Group is not dependent on any one market, destination or season for its profit and cash generation.

The Group will continue to invest the cash generated from operations into its future development and consequently no dividend is proposed.

We use the experience of our management team to, firstly, identify and either develop or acquire good opportunities in these sectors, and then secondly, to improve the performance of each business added to the portfolio.

Having acquired businesses which meet our strict acquisition criteria, we aim to: »

»

» A description of the performance of the Group’s operating companies is given in the Chief Executive’s Statement.

» »

Vision We remain committed to our original vision; to be a highly profitable, fast growing travel group suitable for the modern market. We will offer travellers the best available online travel retail experience and a range of outstanding specialist holidays.

Strategy Travelzest’s strategic focus is on the two fastest growing sectors in the travel market; online agency and specialist experience based tour operations.

Rapidly improve the operations of each acquired company to prepare it for growth; Grow market share and margin for each company through superior marketing and distribution; Diversify the geographic and seasonal mix of profit streams; Exploit the potential synergy benefits between the portfolio companies; and Maintain low, decentralised overhead costs.

Customer Trends: Travelzest is Focused on Growth Sectors The travel market continues to evolve and change significantly, creating exciting new opportunities for growth.

The internet is one of the main catalysts for change. At one end of the spectrum, it provides opportunities for budget travellers to buy flights and accommodation directly from the suppliers, ‘dynamically packaged’,

to suit their needs. At the other end, it provides greater opportunities for discerning travellers to find exactly the right travel or holiday experience to suit their preferences. Customers are already depending on the internet to research their holidays, and increasingly using it to book. This is a major opportunity for Travelzest, where we have online agency businesses with potential to take an increasing share of this growth sector, both in the UK and Canada.

Best practice operations delivers growth in earnings

Fundamental consumer tastes are also changing, with a growing preference for diverse types of holiday experience such as cruising, activity holidays, adventures, nature and wild life and escorted tours.

City, beach and traditional packages will all remain important, but the higher levels of growth will be in the more specialist holiday sectors. These sectors also tend to attract less price-sensitive customers, prepared to pay a premium for a great holiday experience. Holidays like this are also less likely to be ‘unbundled’ and are harder to copy. This is the second major opportunity area for Travelzest, where we have already acquired eight specialist tour operators across a variety of experience types and geographical locations. The growth in online booking, combined with the underlying growth of the holiday type, make the potential of these businesses very appealing.

Identifying good opportunities

Portfolio approach increases upside and minimises downside Travelzest operates two business models; the agency business that relies on volume and cross selling, and the specialist tour operator business that delivers high margin on smaller volumes. Our business model is also lower risk than traditional tour operators, in that we have almost no fixed commitments for flights and beds.

We have also diversified both the source and destination markets and have an excellent balance between winter and summer seasons.

Most of the value being created is achieved through improving operations and marketing, enabling profitable growth. For the tour operating businesses this may include changes to yield management, cost reduction, bringing more sales online, extending the product range, search engine optimisation or invigorating marketing and PR.

Travelzest will continue to acquire online agency businesses and niche tour operators. We are constantly assessing potential targets using a very strict set of criteria. For tour operators, these include the clarity of their market proposition, online presence, and, most importantly, potential to grow. For online agencies, we are looking for great brands (itravel2000.com is one of Canada’s leading online travel retailers), unique attributes (e.g. holiday.co.uk is one of the top free listed websites for popular holiday search terms in Google), and scalability.

Acquisitions The Group successfully acquired four businesses during the year – Tapestry Collection (November 2006), Wow House Company (December 2006), Captivating Cuba (August 2007) and JMB Travel Consultants (September 2007). Overall, I am pleased with the way in which these acquisitions have performed.

People The Travelzest concept was created by Chief Executive Chris Mottershead early in 2005. He was formerly Managing Director of TUI UK, which included Thomson Holidays and Lunn Poly, and is a leading travel industry expert with a proven record of delivery. Chris has again worked tirelessly this year, leading and building the business. As the company has developed in line with his original plan,

Chris has decided to waive his right to any further issues of warrants in order to avoid dilution for new investors.

Chris, together with Finance Director Colin McKinlay and Distribution Director Nishma Robb, has extensive experience of all aspects of this business. Core capabilities that are fundamental to Travelzest’s success include financial discipline, marketing strategy and execution, online distribution and a track record in the UK and Canada.

Their reputations and relationships across the industry are a key asset.

While excellent senior leadership is essential to deliver a successful business, the enthusiasm, passion for great customer service and commitment of everyone who works for us is equally important. I would like to thank everybody in the Group for their continued hard work and dedication.

Summary Our ambition for 2007 was to acquire and start businesses that had the potential to grow quickly under our ownership, as well as improving the businesses we had already acquired.

I am pleased that we have done this successfully.

Our specialist travel businesses predominantly serve older and more affluent customers who are less affected by economic uncertainty. The Group also offers holidays to a broad range of destinations, and is not reliant on a single domestic market or season. Our largest business, itravel2000.com is based in Canada, which economically is currently enjoying prosperity and provides considerable potential. As we complete an important year for the development of the Group, Travelzest has established itself in the travel industry.

Mark T J Molyneux Chairman 1 April 2008

Reports and financial statements for the year ended 31 October 2007

05

Travelzest plc 2007

Chief Executive’s statement I am very pleased to report that Travelzest has exceeded the board’s financial expectations for the financial year and achieved the operational objectives it set itself at the beginning of the year.

Consistent with our vision, strategy and priorities for 2007, these were; first, to improve the performance of the individual businesses within the Group; second, to identify and acquire other businesses with great potential for further growth in profit; and finally, to attract and recruit the very best travel professionals in the industry.

It has been a very busy year for everyone involved and I would like to thank them all for their tremendous effort.

Continuing businesses online and agency itravel2000.com The acquisition of itravel2000.com in October 2006 significantly changed the size and shape of the Group, accounting for 33% of turnover in 2007. It is one of the largest pure online retailers in Canada, with great potential to expand from its leading position in Ontario into other provinces. The Canadian market is counter cyclical to the UK and as a result the business generates the majority of its profits and cash in the winter period.

During 2007 it successfully introduced its own dynamic packaging system and another planned area of growth is to create a link to the specialist content provided by the UK tour operating businesses, expanding the accessibility of specialist holidays to the Canadian market. I am particularly pleased with the performance of this business which surpassed its maximum earnout target in 2007.

Fair’s Fare Fair’s Fare was established in 1995 and is one of the UK’s leading firms of airfare analysts, offering a unique travel planning service to both private and business clients. The company seeks out the very best financial options, on all major airlines, primarily for long-haul travellers in the first and business class cabins of the world’s leading airlines. Travelzest acquired the business in June 2006, and its founder,

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Chief Executive’s statement

Ranjit Anand, has stayed with the business to further develop the potential opportunity. Since then, the company has won several new contracts and continues to grow steadily.

Holiday Express Holiday Express, which operates the websites holiday.co.uk and flight.co.uk, has undergone a year of extensive redevelopment. The goal for holiday.co.uk is to become one of the leading online travel agencies in the UK. After a significant investment in building the team and introducing best-in-class technology on both sites, they will be relaunched in early 2008. This best-in-class technology will provide online customers an excellent search, dynamic packaging, and booking experience, which, in turn, should dramatically improve the conversion rates on both sites. Robin Sutherland joined in April 2007 as Managing Director. He was formerly Director of Retail at Expedia.co.uk, and brought with him invaluable experience to define and drive our continuing development of the holiday.co.uk and flight.co.uk portals. With the right technology and management now in place, a marketing campaign is planned for 2008 to grow the business.

Continuing businesses tour operations VFB Holidays VFB Holidays, the Group’s founding business, provides a range of specialist holidays principally to France. The core revenue of the business has traditionally been generated from the sale of French cottage holidays, but over the last few years the range has been expanded to include five new types of holiday, including new destinations and river cruises across Europe. This, along with other operational improvements, allowed the business to improve its profit from break even in 2004 to another record year in 2007. This business is now approaching its £1 million operating profit target set at the inception of the Travelzest concept in 2005.

Best of Morocco Best of Morocco specialises in high quality, tailor-made holidays to Morocco for individuals or small groups. It is also the premier agent for the Marathon des Sables, a foot race that takes place in the Sahara in April each year. The combination of these activities creates a sales cycle that generates profits in the winter and summer months. Best of Morocco was acquired in November 2005 and following the appointment of a new Managing Director has completed two successful years generating an increase in sales over the period of almost 20% and an increase in operating profit of 40%.

Peng Travel Peng Travel was formed in 1971 to arrange naturist holidays overseas for the UK market. Since then, it has grown to become Britain’s biggest naturist tour operator and has unrivalled experience of its market. Operating in a very specialised and growing niche, it enjoys exceptional repeat business from its loyal clientele.

Since its acquisition by Travelzest in May 2006 a new management team has been appointed and an improved online experience has attracted a healthy growth in new customers.

Faraway Holidays Faraway Holidays, a specialist in luxury tailor-made holidays and tours to Vietnam, Cambodia, Bali and Thailand was set up by Travelzest in August 2006.

Since inception Faraway Holidays has achieved sales in excess of £1.5 million.

Acquisitions During the year, Travelzest added four new businesses to the portfolio of UK specialist tour operators. These additions were Tapestry Collection, Wow House Company, Captivating Cuba and JMB Travel Consultants.

The Tapestry Collection The Tapestry Collection provides, through a knowledgeable and experienced team, high quality and bespoke programmes in

Turkey, Crete and Cephalonia. The business has a very strong reputation in these markets and a loyal customer base. It is performing well and I am particularly pleased to be able to report that the business has generated a small profit in its first nine months of operation.

has connections with every major opera house and music festival in Europe and a small number in America. Existing management will stay with the business and together with VFB will extend the offering to a wider audience through the VFB customer database.

The Wow House Company

Group performance

Wow House Limited, trading as Wow House Company, was acquired in December 2006. It was initially set up to capitalise on the growing popularity of renting large, prestigious houses for corporate events and gatherings of families and friends, either for short durations and special occasions or longer holidays. The current portfolio consists of 25 properties across England, Scotland and Ireland.

The increase in total transaction value of 285% to £169.9 million from £44.1 million is mainly attributed to our online agency businesses which have improved by 432% from £28.5 million to £151.3 million due principally to the inclusion of a full year’s trading of our Canadian business, itravel2000.com. The remaining increase in total transaction value of £2.9 million or 18% from £15.6 million to £18.5 million relates to the impact of growth in the Group’s specialist tour operators and acquisitions during the year.

Captivating Cuba Captivating Cuba, an award-winning Cuba specialist, was acquired in August 2007.

Each member of the sales team has a deep knowledge of Cuba, which they use to provide detailed advice on planning a holiday in that country. With over 200 properties across the Caribbean island, holidays can be tailor-made to meet customer’s individual requirements and ensure they have the ideal experience. Escorted tours are also available. Although it currently sells holidays only to the UK market, Canadians represent the largest number of visitors to Cuba and there are strong synergies with Travelzest’s Canadian business, itravel2000.com. We expect to see significant operational improvements in its first full year of operation under the Travelzest umbrella following the launch of its new website in January 2008.

Turnover has more than doubled from £19.2 million to £38.5 million with an increase of £16.4 million or 460% coming from the Group’s online agency businesses. Our Canadian business generated 33% of the Group’s turnover.

I am also pleased to report that the gross profit percentage has increased to 53.5% from 37.8% in the previous year. This again reflects the inclusion of a full year of itravel2000.com and further improvements in the margins in the Group’s tour operating companies.

The number of passengers carried by the Group’s tour operators and booked through our online distribution channels, during the period these companies were part of the Group, increased by over 180% to over 277,000.

and other investors, raising approximately £1.5 million. The proceeds were used to enable the Group to continue its strategy of the acquisition of specialist tour operators as the opportunities arose.

In addition the Group repaid £250,000 of its £11 million debt facility in accordance with the terms of the facility.

International Financial Reporting Standards (“IFRS”) As an AIM listed business Travelzest will report under IFRS in the financial year ending 31 October 2008 with comparative information. Planning is underway to achieve this. In 2007 the Group’s results include for the first time the effect of IFRS 2/FRS 20 Share based payment.

Further information on the transition to reporting under IFRS is included in the Directors’ report.

Summary After two years of acquiring, and improving 11 businesses, our 2007 results demonstrate the value of our strategy. Travelzest now has three online travel agencies which have the potential to grow substantially. We have a rapidly growing and profitable Canadian business. We also have a portfolio of profitable, high growth, specialist tour operators.

Our priorities for 2008 are clear; firstly, to complete the introduction of leading technology in our online businesses to generate strong growth; secondly, to continue to improve operations of our specialist tour operators; and thirdly, to acquire further brands in Europe and North America that fit our strategy and strict selection criteria.

JMB Travel Consultants JMB Travel is a leading UK specialist in opera holidays offering an extensive range of destinations noted for their opera, classical music concerts and music festivals. Travelzest acquired the business in September 2007. It has unrivalled experience in catering for the particular needs of the opera and music lover and

At the end of the financial year the Group employed 308 staff compared with 126 staff at the end of the previous year.

Chief Executive Chris Mottershead 1 April 2008

Financing During the year the Group issued 1.06 million new ordinary shares for cash at a premium of 143 pence to institutional

Reports and financial statements for the year ended 31 October 2007

07

Travelzest plc 2007

VFB Holidays

VFB Holidays is an award winning provider of an imaginative and varied programme of escorted discovery holidays. It is also the pioneer of the gîte concept of independent holidays in France, which is its main destination. It now offers Discovery Tours, Short Breaks, Character Hotels, and River Cruises, not only in France but also in Germany and Belgium.

ABOUT VFB Established in 1970, VFB Holidays pioneered the concept of self-catering holidays in rural France. Over the years the company has built its reputation for service, quality, reliability and innovation. This has been recognised by numerous awards over the past 20 years, which have helped the company retain its position as a leading French Specialist. To this day, the company remains the ‘French specialist par excellence’, as it has been dubbed in the press.

VFB Holidays is one of the longest established and most highly regarded of Britain’s 800 or so tour operators.

THE TRAVELZEST DIFFERENCE VFB was the original vehicle for Travelzest when it started in 2005. It was already recognised as an expert in its destination, and had the potential to expand its concept to new destinations and to a wider segment of international travellers. The business had been breaking even for several years, and could clearly benefit from an injection of new capital, as well as the new approach to driving earnings growth that Travelzest could bring.

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Case study

In its first year in the Travelzest portfolio, the main focus of improvement was on expanding the product range, reducing costs and improving online marketing. A new management team was put in place as the founder, also the previous Chairman of Travelzest, was ready for retirement. Building from VFB’s already strong reputation, it broadened the range of holidays on offer and now includes: • Cottage Holiday in France, with over 350 holiday properties of all kinds; • France a la Carte, offering around 100 character hotels; • Corsica, a range of apartments and hotels on the island; • Classic Interludes, escorted discovery tours for small groups; • River Cruises on the Seine, Danube and Rhine rivers; • Short Breaks in France and Belgium.

In the second year, much of the momentum was continued, and the operations, marketing and product development have all continued, reinforcing VFB’s strong positioning as a specialist tour operator. In particular, there has been an effort to improve online booking, with an emphasis on online marketing improvements and changes to the online booking experience.

RESULTS In 2006, VFB achieved record trading profits. 2007 has continued to be strong with a further growth in profit and a pleasing increase in online conversion together with an 18% increase in customers booking online. Passenger volumes and gross margin increased modestly in 2007, and margin per passenger remains strong for the sector. “ It is amazing how much you can achieve in business if senior managers are given the right support and then allowed to get on with it. This is exactly what happens at Travelzest and VFB’s results since joining the group are the clearest evidence there can be that local management works best” JONATHAN WHITE, Managing Director, VFB Holidays.

THE TEAM The VFB team includes 36 very enthusiastic, bilingual staff members who are all passionate about delivering excellent holidays to their loyal customer base. They inspect all accommodation regularly, ensuring that standards are maintained to the company’s own criteria and that the sales staff are able to provide detailed information and advice to customers based upon their personal knowledge of VFB’s properties and their locations.

It is this policy, above all, which explains the company’s reputation for service, quality and reliability.

Reports and financial statements for the year ended 31 October 2007

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Travelzest plc 2007

itravel2000.com

itravel2000.com is a Canadian online travel agent specialising in the sale of travel and travel related products. Sales are made via internet web sites and a customer call centre located in Mississauga, Ontario, Canada.

ABOUT itravel2000.com itravel2000.com was founded in 1994 with the purpose of offering the Canadian travel consumer superior customer service, travel selection, the best value and the lowest prices guaranteed on travel and travel-related products. The proposition has been very appealing to Canadian travellers, to the extent that itravel2000.com is now one of Canada’s largest online travel retailers. The company employs over 150 people, more than half of which are agents handling over one million calls each year in its full service, state-of-the-art call centre.

THE TRAVELZEST DIFFERENCE Travelzest’s objective of building a diversified portfolio of both online agencies and specialist tour operators led it naturally to itravel2000.com in late 2006. The business clearly had great potential as a growing online travel agency. It was already the leading online agent in Ontario, and had potential for growth into other provinces in Canada. Unlike the British holiday market, a high proportion of Canadian travel abroad is concentrated in the winter months, and it therefore had the potential to smooth the profile of business within the Group. In addition, the Canadian online holiday market is less developed than the British market, with clear signals that usage will continue to grow to much higher levels. The business was already profitable, and the opportunities for scalable growth were very appealing.

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Case study

Travelzest has been working with itravel2000 over the past 12 months to further develop its technology to provide the best online customer experience and to capitalise on search engine marketing opportunities. The business executed some excellent marketing initiatives to increase online traffic, passenger numbers as well as further strengthen national brand awareness. The call centre has also been improved by developing operational support for new products, such as the new cruise product.

RESULTS In one year, itravel2000.com has clearly shown the power of being part of the Travelzest Group. The number of unique site visitors has risen nearly 20% and there has been an important migration from off-line to online bookings. Online now represents nearly half of total volume. Gross margin has increased by 15% and margin per passenger has grown 4%. This momentum will continue into 2008, as we continue to scale up the business and improve earnings.

“As part of the Travelzest plc team, itravel2000 will be able to offer Canadian travel consumers ever expanding international and unique travel product lines and offers.

This allows our itravel2000 dedicated team of travel professionals and myself to continue to drive value and service to the Canadian travel consumer.”

JONATHAN CARROLL, President, itravel2000.

THE TEAM The team now comprises 154 people, all working hard to build the reputation of itravel2000.com in the Canadian market.

They are excited and enthusiastic about the opportunity for growth and dedicated to providing excellent service both through the call centre and online.

Reports and financial statements for the year ended 31 October 2007

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Travelzest plc 2007

Best of Morocco Best of Morocco is a tour operator specialising in high quality, tailor-made holidays to Morocco for individuals or small groups. It provides a personalised service and its highly experienced and knowledgeable staff help each customer select the most appropriate hotels and resorts to suit their preferred style of holiday.

ABOUT BEST OF MOROCCO Best of Morocco was started in 1967, offering skiing holidays in the High Atlas Mountains and Land Rover safaris in the Sahara Desert. 40 years later, the business is regularly adding new destinations and activities to its range of holidays. Whether it is camel riding through the desert, or taking a weekend break in a riad in Marrakech, or any other type of holiday anywhere in Morocco for any duration, it will be available through Best of Morocco. It is also the premier agent for the Marathon des Sables, a foot race that takes place in Morocco in April each year, covering some 230km. Best of Morocco provides the largest contingent of runners for the race every year.

THE TRAVELZEST DIFFERENCE

In its first year in the Travelzest portfolio, the focus was on improving the business model and reinforcing the brand’s positioning as a specialist. A new management team, led by Steve Diederich, was brought in, and they streamlined processes, increased the product range and adapted the product positioning to allow for greater margin growth.

Having created a stable base from which to grow, the team then concentrated on driving up passenger volumes. Recognising the importance of ‘specialisation’, they further adapted the product, adding unique accommodation and activities, and reinforcing Best of Morocco’s position as the expert on Morocco. They doubled the marketing spend and added one person to the team.

RESULTS After two years in the Travelzest portfolio, Best of Morocco has achieved some very pleasing returns on those operational investments. Some improvements came through in the first year, but the results in 2007 have demonstrated significant improvement. “ Being part of the Senior Management team within Travelzest allows me to run a business as if it was my own, with the support, know-how and access to principles of best practice available at the end of a phone.

With none of the ‘big company overheads’ of top heavy structure and slow decision making, I can make the right choices for the business and share intellectual assets within the group companies.”

STEVE DIEDERICH, Managing Director, Best of Morocco.

THE TEAM The staff members are extremely knowledgeable about the country, its people and culture. They visit at least twice a year to familiarise themselves with any changes, and can all speak firsthand about all aspects of visiting Morocco. Each one is passionate about Morocco and urges potential visitors to share and enjoy their sense of adventure and creativity. This attention to detail has earned the company an enviable and unequalled reputation.

Travelzest bought Best of Morocco at the end of 2005. In line with Travelzest’s rigorous criteria, the business had clear potential as it was well positioned in a growing segment of the market. Its quality image and reputation as a Morocco expert, as well as its well established links to the Marathon des Sables were appealing, and UK travellers have been showing an increasing interest in North Africa – visitors from the UK have doubled from 2002 to 2006.

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Case study

Reports and financial statements for the year ended 31 October 2007

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Travelzest plc 2007

Directors Chris Mottershead Chief Executive Chris, 49, has extensive experience in the travel industry having worked for both large and small organisations. He was Managing Director of TUI UK between 2001 and 2004 with responsibility for Thomson Holidays, Lunn Poly, Travelhouse and other travel businesses based in the UK. During that time, he steered the company through one of the most difficult periods for travel and still achieved record profits.

Prior to this, he was President and CEO of North American Leisure Group, Airtours plc. He originally joined Airtours Holidays in 1993 as Finance Director and later became Managing Director.

He joined Airtours from Aspro Travel & Inter European Airways where he was Group Finance Director.

Colin McKinlay ACA Group Finance Director Colin, 38, has held a number of senior financial positions within the travel industry.

Operating at an international level, he has extensive experience in periods of aggressive growth and expansion and the handling of restructuring and turnaround environments.

Colin was previously Chief Financial Officer of Thomas Cook UK & Ireland where he was responsible for all aspects of finance, IT, and central support functions during a period of record profitability.

•2 007 Finalist for M&A Personality of the Year, M&A Awards;

Prior to this, he enjoyed a nine year career in MyTravel Group (formerly Airtours Plc). During that time he gained considerable international experience both in continental Europe and Canada where he was Chief Financial Officer of MyTravel’s North American Leisure Group, working closely with its then Chief Executive Chris Mottershead.

•2 007 Finalist for Entrepreneur of the Year, Quoted Company Awards;

Colin qualified as a Chartered Accountant at Coopers & Lybrand in Manchester.

Recent accolades:-

Mark Molyneux Chairman

Richard Hall TD, MA, FCA Non-executive Director and Company Secretary

Mark Molyneux, 53, was appointed to the Travelzest Board as a non-executive director in October 2006. He is a Chartered Accountant and also Chairman of two Private Equity backed companies. Until 2006 he was a Managing Partner at Ernst & Young (UK) and member of the four man Main Board responsible for management of the accountancy and consulting firm during a period of unprecedented growth and profitability. He was jointly responsible for the day-today management of the accountancy and consulting firm during a period of unprecedented growth and profitability. Mark built his career as a chartered accountant at Ernst & Young and was made a partner in 1986. His initial specialisation was audit, mainly entrepreneurial companies, later moving into corporate finance with a focus on M&A, due diligence and restructuring.

With a Cambridge degree in engineering and law, Richard qualified as a Chartered Accountant in 1966 and carried out the duties of Finance Director and Company Secretary for a number of international companies including INMOS International Plc. He was latterly Finance Director of Information Technology Plc and National Telecommunications Plc, both of which companies he took to the main market. Since 1989, Richard has run his own consultancy with a number of non-executive directorships, including an AIM listed company offering corporate, commercial and financial advice to major clients. He joined the board of VFB in 2003 (name changed to Travelzest in 2005) prior to the company joining the OFEX market.

•2 007 Finalist for Credit Suisse Entrepreneur of the Year Awards for the South East of England, National Business Awards.

Nishma Robb Group Distribution Director Nishma, 34, has extensive online travel distribution experience and has previously held senior commercial roles within the media industry. As Group Distribution Director she is responsible for developing the Group’s online capability and marketing.

She joined Travelzest from Teletext Holidays, a subsidiary of Associated Newspapers (a division of Daily Mail & General Trust plc) of which she was a Board Director. As Managing Director of Teletext Holidays, Nishma had strategic and P&L responsibility for the advertising revenues generated from the services on TV and online.

Nishma has received numerous accolades including Asian Women of Achievement’s Asian Business Woman of 2004, Travolution’s Most Powerful Online People (2007), Media Week’s Top 30 Executives under 30 (2000), and Trade Travel Gazette’s Top 50 women in travel.

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DIRECTORS

Jonathan Carroll itravel2000.com

Peter Thomson Non-executive Director

Jonathan Carroll, President of itravel2000, co-founded the company in 1994 with long time best friend Jeffrey MacKenzie. With Jonathan’s vision and leadership skills, both he and Jeffrey formed a team of dedicated travel professionals that set the standard in the Canadian market place. Through the positioning of Jonathan as itravel2000’s spokesperson, he has become a trusted resource in the Canadian market on travel topics by the media and speaks often as an advocate of the Canadian consumer.

Peter joined ICI Paints after reading mathematics and economics at Cambridge.

After a spell in North America, he was successively Marketing Manager, General Sales Manager and European Manager, and played a significant role in developing the Dulux brand. He moved on to Courtaulds as Group Marketing Director and was subsequently Group Managing Director of the seven office furniture companies then owned by Wagon Industrial Holdings. Since 1983, he has worked with a number of small or medium-sized developing companies as a part-time director or adviser. He is a Fellow-Commoner of Downing College, Cambridge.

Jonathan is a strong believer in giving back to the community.

Jonathan’s charity work extends into the community through his extensive work with Jays Care Foundation. He is also a founding Board Member of the Lakefield College School Foundation, which boasts his Royal Highness, the Duke of York as a Trustee.

Jonathan also sits on the board of the charity ONEXONE. In 2006 Jonathan Carroll was awarded the prestigious Top 40 Under 40 Award honouring the best and most accomplished young professionals in Canada.

Reports and financial statements for the year ended 31 October 2007

15

Travelzest plc 2007

Senior management Jonathan White VFB Holidays

Corri Boyle Peng Travel

Jonathan White joined French specialist VFB holidays in 1997, becoming Head of Product and Marketing in 1999 and appointed Managing Director in 2006. In this time, he has been responsible for launching VFB’s award-winning short breaks programme and for developing VFB’s online strategy, culminating in the relaunch in 2005 of a highly successful website.

Corri Boyle joined Peng Travel from Greece specialist Laskarina, where she was General Manager since 2005. Her career in travel began overseas in 1984 before returning to the UK as Operations Manager for Just Holidays. In 1990 she moved to Panorama Holidays as Ski Product Manager, with additional responsibility for various summer programmes. In 2000 she moved to French Life as Product Manager for short breaks before being recruited back to Panorama as Head of Specialist Products in 2002.

Jonathan has 20 years experience in the travel industry including senior management positions at Inghams, where he managed the French ski and summer programmes between 1992 and 1997, and with specialist operator JAC Travel, as well as a number of overseas based positions. He is passionate about France, having lived and worked in many parts of the country and speaks fluent French.

Steve Diederich Best of Morocco & Captivating Cuba Steve Diederich joined Best of Morocco from Greece specialist Laskarina, where he was Managing Director from 2004. His career in travel began in 1982 as an overseas manager for ILG, for which he also held a number of sales and marketing roles, before he moved to Avro in 1994. In 1995 he became head of sales for Kuoni and then, after a brief time as head of e-miles for Air Miles, started his own business and marketing consultancy before joining Laskarina. Since taking on the role of MD for Best of Morocco, Steve has been able to dramatically improve both the revenue and profitability of the business. He was given additional responsibility for Captivating Cuba in 2007.

16

Senior management

Ranjit Anand Fair’s Fare Ranjit founded Expotel in 1971, which remains to this day the market leader in the UK hotelbookings agency industry. Following the acquisition in 1981, of the ticket agency Keith Prowse, group turnover grew to £250 million with some 500 employees internationally. The business suffered during the first Gulf War, forcing the sale of key elements of the business. Ranjit reinvented himself with Fair’s Fare, a niche travel agency for premium travellers.

David Oak Faraway Holidays David Oak joined Travelzest to set up Faraway Holidays in June 2006, from THG Holidays (TUI UK) where he was Head of Sales & Product. With over 40 years travel experience he started his travel career at Swans Tours in 1961 before joining the original Lunn Poly.

Then in 1969 he joined P&O Travel as a Branch Manager, rising to Managing Director before he left in 1979 to set up his own business, Air Ticket Centres. In 1999 he sold out to Thomson Holidays (TUI UK) and set up THG Holidays for them.

Robin Sutherland Holiday.co.uk

Nick Wrightman Tapestry Collection

Robin is Managing Director of Holiday Express, with responsibility for driving sales through the development of the websites Holiday.co.uk and Flight.co.uk as well as developing the Holiday Express business-to-business partnerships.

Robin joined Holiday Express from Expedia where he was Director of Retail, and before that he had stints at British Airways and The First Resort. As Director of Retail at Expedia he was responsible for the commercial performance of Expedia’s UK business including product and merchandising strategy as well as optimisation of online marketing and customer communications/profitability.

During his time at Expedia he played a crucial role in driving significant business growth, taking the UK business first to profitability and then to the market leading position that it is today, through tight management of marketing performance, continued site innovation and excellent customer service.

Nick House Wow House Nick House founded The Wow House Company in January 2006. Previously he had been Chief Executive of Rural Retreats for 14 years, establishing it as the leading holiday cottage agency at the premium end of the UK market.

He started out life as a banker in London and New York, having had various marketing roles in corporate and personal finance. As a stepping stone to his career in travel, Nick gained an MBA at Cranfield.

After graduating from Aston University, Nick became a graduate trainee within the Thomson Holidays group. Following four years as Marketing Executive and Product Manager he moved on to Sunmed Holidays as General Manager for New Products. In 1986 he set up First Resort Holidays until it was taken over by Mosaic Holidays, part of Nobel Reardon plc. In 1991 he set up the award winning Tapestry Holidays. In November 2006, Travelzest acquired the assets of Tapestry Holidays and, with Nick, have relaunched the product as The Tapestry Collection.

Jonathan Blizard JMB Travel Jonathan has over 28 years experience in the travel industry working mainly for specialist companies. He began his career working for an independent retail travel agent, Malvern Travel, in 1979 and progressed to its tour operation division MTS Safaris, specializing in Kenya and South Africa. In 1983 he joined the luxury travel group Serenissima Travel as Contracts Manager. During that time he was responsible for developing new products and destinations for the company before creating his own company JMB Travel, a leading Opera Travel Specialist, building on his keen interest in Classical Music.

Reports and financial statements for the year ended 31 October 2007

17

Travelzest plc 2007

Directors’ report

The directors present their report and the financial statements of the Group for the year ended 31 October 2007.

Retirement of directors

Principal activities and business review

In accordance with the Company’s Articles of Association, J G Carroll, R G Hall and C A L Mottershead will retire and being eligible, will offer themselves for re-election at the forthcoming annual general meeting.

The principal activity of the Company during the year was that of a parent and holding company. The principal activity of the Group during the year was that of the provision of a wide range of online and specialist holidays.

Major shareholders

The business is reviewed in detail in the Chairman’s and Chief Executive’s statements. Management review a number of indicators when assessing the performance of the Group. Key amongst those are total transaction value, turnover, gross profit and passenger numbers. These are discussed in the Chief Executive’s statement.

Post balance sheet events are detailed in note 27 to the accounts.

The directors and their interests The directors who served the Company during the year or up to the date of this report together with their beneficial interests in the shares of the Company were as follows: Class of share

M J Bruce-Mitford (resigned 30/11/06) J G Carroll (appointed 12/2/07) R G Hall C G McKinlay M T J Molyneux (appointed 01/11/06) C A L Mottershead N Robb (appointed 01/11/06) P Thomson

At 31 October 2007 At 31 October 2006

Ordinary 2p – Ordinary 2p Ordinary 2p Ordinary 2p Ordinary 2p Ordinary 2p Ordinary 2p

2,436,300 – 21,100 40,000 39,682 82,539 – 180,000

2,746,300 – 21,100 40,000 39,682 82,539 – 180,000

The following directors had interests in options to purchase shares in the Company: Number held at Expiry date Exercise price

C G McKinlay

C A L Mottershead

N Robb

3 April 2016 30 January 2017 1 April 2017 17 September 2017 31 March 2008 30 January 2009 18 April 2016 30 January 2017 17 September 2017

127.5p 144.5p 168.0p 140.0p 126.0p 122.5p 129.5p 144.5p 140.0p

31 October 2007

31 October 2006

156,862 69,204 59,524 250,000 40,000 81,632 77,220 27,682 150,000

156,862 – – – 40,000 81,632 77,220 – –

C A L Mottershead had interests in 2,559,693 warrants to purchase shares in the company at an exercise price ranging between 122.5p and 140p. The subscription rights attached to each warrant issue must be exercised within 10 years of the date of grant.

J G Carroll had interests in 2,268,109 exchangeable 2p ordinary shares.

On 1 April 2008 the Company’s share register showed the following interests in 3 per cent or more of the Company’s shares: Percentage Class of share Number of class

Citygate Nominees Ordinary 2p Mr and Mrs M J Bruce-Mitford Ordinary 2p Chase Nominees Ordinary 2p Investec Bank (UK) Ltd Ordinary 2p HSBC Global Custody Nominees Ordinary 2p Pershing Keen Nominees Ordinary 2p BNY (OCS) Nominees Limited Ordinary 2p Ranjit Singh Anand Ordinary 2p Vidacos Nominees Ordinary 2p S G Carroll Exchangeable 2p J G Carroll Exchangeable 2p J D Mackenzie Exchangeable 2p J B Hewlitt Exchangeable 2p

4,809,550 2,431,009 1241,738 1,119,314 1,049,356 1,031,867 787,017 787,017 769,528 2,268,109 2,268,109 2,268,109 1,134,452

27.5% 13.9% 7.1% 6.4% 6.0% 5.9% 4.5% 4.5% 4.4% 28.57% 28.57% 28.57% 14.29%

Employment policy The Group is committed to a policy of recruitment and promotion on the basis of aptitude and ability without discrimination of any kind. The Group gives full consideration to disabled applicants for employment, having regard to their particular aptitudes and abilities and they share in opportunities for training, career development and promotion. It is management policy to keep its employees informed on matters affecting them through regular briefings and consultations.

Policy on the payment of creditors The Group seeks to maintain good relations with all of its trading partners. In particular it is the Group’s policy to abide by the terms of payment agreed with each of its suppliers. As the Company does not trade, no information has been provided about the Company’s creditor payment policy or its creditor days.

Corporate Governance The board of the Group is committed to high standards of corporate governance.

On 1 April 2008 the board comprised the non executive Chairman, two further independent non executive directors and four executive directors. The board structure ensures that no individual or Group dominates the decision making process.

The board meets twelve times a year. The board receives appropriate and timely information, Board and Committee papers normally being sent out several days before meetings take place. All directors have access to the advice and services of the Company Secretary. The board delegates specific responsibilities to the Board Committees detailed below.

The Group’s Articles of Association require that at the Annual General Meeting any director then in office who has been appointed by the Board since the previous Annual General Meeting or has held office for three years or more since he was appointed or last reappointed by the Group in general meeting, shall retire and be eligible for reappointment.

18

Directors’ report

Reports and financial statements for the year ended 31 October 2007

19

Travelzest plc 2007

Directors’ report (continued) Audit Committee The Audit Committee, which intends to meet at least three times a year, comprises R G Hall (Chairman), M T J Molyneux and P Thomson, all of whom are independent non executive directors.

The Committee’s terms of reference include: monitoring the integrity and clarity of the financial statements and any formal announcements relating to the Group’s financial performance and reviewing any significant financial reporting issues and judgements which they contain; reviewing the consistency of, and any changes to, accounting policies, the application of appropriate accounting standards and the methods used to account for significant or unusual transactions; reviewing the effectiveness of the Group’s internal controls and risk management systems; making recommendations as to the appointment, terms of engagement and remuneration of the external auditors; assessing the external auditors’ independence, objectivity and effectiveness; approving the annual external audit plan and reviewing with the external auditors the nature, scope and results of their audit and any issues raised by them.

Remuneration Committee The Remuneration Committee comprises P Thomson (Chairman), R G Hall and M J T Molyneux who was appointed during the year, all of whom are independent non executive directors and meets as necessary. The Committee is responsible for the Executive directors’ remuneration and other benefits and terms of employment, including performance related bonuses and share options.

Financial risk management objectives and policies The Group uses various financial instruments. These include loans and cash together with various items, such as trade debtors and trade creditors that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the Group’s operations and group acquisitions.

The existence of these financial instruments exposes the Group to a number of financial risks, which are described in more detail below. In order to manage the Group’s exposure to those risks, in particular the Group’s exposure to interest rate risk and currency risk, the Group enters into a number of derivative transactions including, but not limited to, variable to fixed rate interest rate swaps and forward foreign currency contracts.

The table below shows the extent to which the Group had residual financial assets and liabilities at the year end in currencies other than sterling:

2007

Functional currency of operations

Sterling £000’s

Canadian Dollars Sterling Canadian Dollars CAD$ 000’s £000’s CAD$ 000’s

Cash at Bank and in Hand Euros 54 – 280 Canadian dollars 1,744 462 116 US dollars 61 – 3 Other currencies – – 7

– Bank Loans

Canadian dollars 1,329 – 1,222

At the year end the Group had the following forward exchange contracts:

Fair value of Fair value of forward element Total sterling forward element of contract commitment of contract

£000’s

Euro Canadian dollars US dollars

4,771 2,139 162

£000’s

(32) 168 (4)

£000’s

£000’s

(80) 3 (4)

Liquidity risk The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Currently the Group has no need for bank overdraft facilities to finance day to day operations.

The main risks arising from the Group’s financial instruments are currency risk, liquidity risk, interest rate risk and credit risk. The directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years.

The Group finances its operations through retained profits. Acquisitions are financed through a combination of share capital, loan notes and bank borrowings. The Group exposure to interest rate fluctuations on its borrowings is managed by the use of interest rate swaps. Details of interest rate bases on borrowings is given in note 15 to the accounts.

Currency risk

Credit risk

Directors’ report

2006

7,051 1,000 227

Interest rate risk

20

– –

Total sterling commitment

2007

– 326 105 –

All transactions in derivatives are undertaken to manage the risks arising from underlying business activities and no transactions of a speculative nature are undertaken.

The Group is exposed to translation and transaction foreign exchange risk. In relation to translation risk, as far as possible the assets held in the foreign currency are matched to an appropriate level of borrowings in the same currency. Transaction exposures, including those associated with forecast transactions, are hedged when known, principally using forward currency contracts. Transaction exposures primarily comprise accommodation and other costs of overseas holidays payable in currencies other than sterling. Due to the nature of the transaction exposure the Group does not have material long term risk. Whilst the aim is to achieve an economic hedge the Group does not adopt an accounting policy of hedge accounting for these financial statements.

2006

Functional currency of operations

The principal credit risk arises from trade debtors. The Group seeks to reduce credit risk by securing advance payment for services wherever possible. Where credit facilities are provided, limits are set with reference to a combination of payment history and third party credit references.

Going concern After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements.

Reports and financial statements for the year ended 31 October 2007

21

Travelzest plc 2007

Travelzest PLC 2007

Directors’ report (continued)

Report of the independent auditor to the members of Travelzest plc

International Financial Reporting Standards (“IFRS”) As an AIM listed company Travelzest will report under IFRS in the financial year ending 31 October 2008 with comparative information. In 2007 the Group’s results include for the first time the effect of IFRS 2/FRS 20 Share based payments. In future years the adoption of FRS 20 will introduce volatility to the Group’s reported operating profit. The normalised result before share based payments will be unaffected by the adoption of FRS 20. A detailed review has been undertaken in planning for the adoption of IFRS. In-depth analysis and comparison has been carried out on the current year financial statements to consider the impact of conversion.

IFRS 1 “First-time Adoption of International Financial Reporting Standards” provides guidance for entities applying IFRS for the first time. It also provides a number of exemptions; the following significant exemptions will be adopted by the Group: IFRS 3 “Business Combinations” will not be applied retrospectively to business combinations prior to the date of transition 1 November 2006, therefore the amount of goodwill carried on the Group’s IFRS balance sheet at transition shall be the same as was carried on the Group’s UK GAAP balance sheet and the Group will not be restating comparative information for IFRS 7 and IAS 39.

The application of IFRS will result in a number of significant changes in accounting policy most notably:

Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the group and company for that period. In preparing these financial statements, the directors are required to: » » »

»

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 1985.

They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

In so far as the directors are aware: » »

IFRS 3 “Business Combinations” prohibits the amortisation of goodwill but requires an annual test of impairment.

IAS 38 “Intangible Assets” requires that expenditure on advertising and promotions is written off as incurred, current group policy states such expenditure is charged to the profit and loss in the year to which it relates. IAS 38 also requires computer software that is not an integral part of the related hardware be treated as an intangible asset.

IAS 39 “Financial Instruments” requires derivative instruments to be carried at their fair values on the balance sheet. Whilst the rules for hedge accounting are strict, Travelzest is working to meet the requirements of hedge accounting.

The forthcoming changes from the adoption of IFRS in the year ending 31 October 2008 are accounting changes only and do not affect the underlying operations or cash flows of the Group.

Directors’ responsibilities The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business.

there is no relevant audit information of which the Group’s and Company’s auditors are unaware; and the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

We have audited the Group and parent company financial statements (the ‘’financial statements’’) of Travelzest plc for the year ended 31 October 2007 which comprise the principal accounting policies, the consolidated profit and loss account, the consolidated and company balance sheets, the consolidated cash flow statement, the consolidated statement of total recognised gains and losses and notes one to 26. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely to the company’s members, as a body, in accordance with Section 235 of the Companies Act 1985.

Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with United Kingdom law and Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.

Auditors

In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

By order of the Board

Company Secretary R G Hall 1 April 2008

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board.

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

Opinion In our opinion: »

» Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Grant Thornton UK LLP offer themselves for reappointment as auditors in accordance with section 385 of the Companies Act 1985.

Basis of audit opinion

»

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 parent company’s affairs as at 31 October 2007 and of the Group’s loss for the year then ended; 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.

GRANT THORNTON UK LLP REGISTERED AUDITOR CHARTERED ACCOUNTANTS BRISTOL 1 April 2008

We read other information contained in the Annual Report, and consider whether it is consistent with the audited financial statements. This other information comprises only the Chairman’s Statement, Chief Executive’s Statement and the Directors’ Report.

We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare financial statements in accordance with United Kingdom

22

Directors’ report

Reports and financial statements for the year ended 31 October 2007

23

Travelzest plc 2007

Principal accounting policies Basis of accounting

Operating lease agreements

Financial instruments

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.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.

An equity instrument is any contract that evidences a residual interest in the assets of the entity after deducting all of its financial liabilities.

The financial statements have been prepared under the historical cost convention, and in accordance with UK GAAP. The accounting policies have remained unchanged from the previous year other than as noted below.

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.

Change in accounting policy

Acquisitions

The Group has applied the requirements of FRS 20 Share based payments in preparation of the financial statements for the current year end. This has resulted in a change in accounting policy in respect of share-based payments.

In accordance with Financial Reporting Standard No.3, the turnover and contribution to operating profit relating to acquisitions is shown separately for the year in which the acquisition occurred.

The pension costs charged against operating profits are the contributions payable to defined contribution pension schemes in respect of the accounting period. There are no defined benefits scheme within the group.

Turnover and total transaction value (TTV)

Government grants

Turnover is the total amount receivable by the Group for services provided, excluding Value Added Tax. Turnover in respect of tour operations is recognised on the date of holiday departure. The recognition as turnover and total transaction value of customer deposits is deferred until departure date. Turnover for the travel agency business is recognised based on the commission receivable and on receipt of the final balance from the customer. Total transaction value represents the price at which services have been sold where the Group acts either as principal or agent.

Regional Selective Assistance grants which are project related are released to the profit and loss account over a period to match the grant received rateably with the constituent parts of the project expenditure towards which the grant is assisting. Revenue grants are credited to the profit and loss account to match the expenditure to which they relate.

Pension costs

The Group issues equity-settled share-based payments to certain employees. Equity-settled share based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.

Fair value is measured by use of the Black Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

This has resulted in the prior years profit and loss account and reserves being restated by £150,000, being the net effect of a charge of £214,343 after deferred tax.

Basis of consolidation The Group financial statements consolidate those of the Company and of its subsidiary companies drawn up to 31 October 2007.

Intra-group transactions are eliminated on consolidation and all figures relate to external transactions only. Acquisitions of subsidiaries are dealt with by the acquisition method of accounting except for those qualifying as group reconstructions where merger accounting is used. The results of newly acquired companies are consolidated from the date that control passed.

As a consolidated profit and loss account is published, a separate profit and loss account for the parent company is omitted from the Group financial statements by virtue of section 230 of the Companies Act 1985.

Brochure and advertising costs The costs of brochure publication and advertising are charged to the profit and loss account in the year to which they relate.

Intangible fixed assets – goodwill Purchased goodwill, representing the excess of the fair value of the consideration (including deferred consideration) given over the fair value of the separable net assets acquired, arising on consolidation in respect of acquisitions is capitalised. Goodwill is fully amortised by equal annual instalments over its estimated useful life and is calculated separately for each acquisition. Goodwill’s useful economic life has been estimated by the directors at 20 years, being the period over which economic benefit is expected to accrue.

Tangible fixed assets and depreciation Tangible fixed assets are stated at cost less depreciation. Where internally generated software development gives long term benefit to the Group the costs of such development are capitalised as computer equipment. Depreciation is provided at rates calculated to write off the cost of fixed assets, less their estimated residual value, over their expected useful lives on a straight line basis:

Merger relief 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.

Property improvements – five years Fixtures and fittings – two to five years Office and Computer equipment – two to five years Motor vehicles – two to five years

Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more, tax.

Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

Foreign currencies

Where the contractual obligations of financial instruments (including share capital) are equivalent to a similar debt instrument, those financial instruments are classed as financial liabilities.

Financial liabilities are presented as such in the balance sheet.

Finance costs and gains or losses relating to financial liabilities are included in the profit and loss account. Finance costs are calculated so as to produce a constant rate of return on the outstanding liability.

Where the contractual terms of share capital do not have any terms meeting the definition of a financial liability then this is classed as an equity instrument. Dividends and distributions relating to equity instruments are debited direct to equity.

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

Liquid resources are current asset investments which are disposable investments which are disposable without curtailing or disrupting the business and are either readily convertible into known amounts of cash at or close to their carrying values or traded in an active market. Liquid resources comprise term deposits of less than one year (other than cash).

Monetary assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit.

The financial statements of foreign subsidiaries are translated at the rate of exchange ruling at the balance sheet date.

The exchange differences arising from the retranslation of the opening net investment in subsidiaries are taken directly to reserves. Where exchange differences result from the translation of foreign currency borrowings raised to acquire foreign assets (including equity investments) they are taken to reserves and offset against the differences arising from the translation of those assets.

All other exchange differences are dealt with through the profit and loss account.

Investments Investments held as fixed assets are stated at cost less provision for any permanent diminution in value.

24

Principal accounting policies

Reports and financial statements for the year ended 31 October 2007

25

Travelzest plc 2007

Travelzest Plc 2007

Consolidated profit and loss account

Consolidated balance sheet

Note

31 October 2007 £000’s

31 October 2006 £000’s

Total transaction value 1 Continuing operations – Acquisitions

167,569 2,284 169,853

26,147 17,936 44,083

Group turnover 1 Continuing operations – Acquisitions

36,183 2,284 38,467

13,840 5,349 19,189

Cost of sales Gross profit

(17,903) 20,564

(11,937) 7,252

Administrative expenses

(19,113)

(7,214)

Operating profit/(loss) Continuing operations – Acquisitions

2

1,936 (485) 1,451

(893) 931 38

5

(577)

152

874

190

Net interest (payable)/receivable

Profit on ordinary activities before taxation Tax on profit on ordinary activities

6

(1,000)

(233)

Loss for the financial year

23

(126)

(43)

Loss per share

8 (0.52)p Basic Diluted –

(0.42)p –

31 October

2007

Note £000’s

Fixed assets Intangible fixed assets 9 10 Tangible assets

Current assets Stock 12 Debtors Cash at bank and in hand

31 October 2006 restated £000’s

36,871 2,735 39,606

36,106 2,016 38,122

2 7,921 10,480 18,403

2 3,496 10,989 14,487

Creditors: amounts falling due within one year 13 Net current assets Total assets less current liabilities

(13,453) 4,950 44,556

(8,377) 6,110 44,232

Creditors: amounts falling due after more than one year

14

(14,836)

(18,198)

Provisions for liabilities and charges Deferred taxation 16

(223) 29,497

(250) 25,784

Capital and reserves Called-up equity share capital Share premium account Exchangeable shares Merger reserve Profit and loss account Shareholders’ funds

350 14,233 10,365 2,320 2,229 29,497

313 11,632 10,003 2,320 1,516 25,784

22 23 22 23 23 24

These financial statements were approved by the Directors on 1 April 2008 and are signed on their behalf by:

C A L Mottershead C G McKinlay Director Director

26

financial statements

Reports and financial statements for the year ended 31 October 2007

27

Travelzest plc 2007

Travelzest Plc 2007

Company balance sheet

Consolidated cash flow statement

31 October

2007

Note £000’s

Fixed assets Tangible fixed assets 10 11 Investments

Current assets Debtors 12 Cash at bank

Creditors: amounts falling due within one year 13 Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year

14

8,183 3,302 11,485 (2,907) 8,578 47,060

7,229 5,565 12,794 (3,152) 9,642 44,644

Returns on investments and servicing of finance Interest received Interest paid Net cash (outflow)/inflow from returns on investments and servicing of finance

382 (959) (577)

217 (65) 152

Taxation

(236)

(323)

Capital expenditure Purchases of tangible fixed assets

(1,069)

(409)

(14,521)

(17,795)

Net cash (outflow) from capital expenditure

(1,088)

(409)

Acquisitions

Purchase of subsidiary companies Net cash acquired with subsidiary Net cash (outflow) for acquisitions

(3,604) 865 (2,739)

(16,730) 2,998 (13,732)

Cash (outflow) before financing

(1,796)

(12,792)

Financing Issue of equity share capital Loans Net cash inflow from financing

1,537 (250) 1,287

7,317 10,741 18,058

(509)

5,266

Capital and reserves Called-up equity share capital Share premium account Exchangeable shares Merger reserve Profit and loss account Shareholders’ funds

350 14,233 10,365 3,357 4,437 32,742

313 11,632 10,003 3,357 1,608 26,913

23 23 24

These financial statements were approved by the Directors on 1 April 2008 and are signed on their behalf by:

C A L Mottershead C G McKinlay Director Director

1,520

4 34,998 35,002

64 26,913

22

2,825

18 38,464 38,482

203 32,742

23

31 October 2006 £000’s

Note

Provisions for liabilities and charges Deferred taxation 16

22

31 October 2007 £000’s

31 October 2006 restated £000’s

Net cash inflow from operating activities

(Decrease)/increase in cash

25

25

Statement of total Recognised gains and losses

31 October

2007

Note £000’s

28

financial statements

31 October 2006 restated £000’s

Loss for the financial year 23 Exchange difference arising on consolidation Total gains and losses recognised in the period

(126) 358 232

(43) 42 (1)

Prior year adjustment Total gains and losses recognised since the last financial statements

64 296

– (1)

Reports and financial statements for the year ended 31 October 2007

29

Travelzest plc 2007

Notes to the financial statements 1. Segmental and geographical

3. Employees

Total transaction value represents the gross value of business carried out by the Group during the year and is derived as follows:

The average numbers of staff employed by the Group during the year were:

Total transaction value Tour operations Travel agency: Direct sales Agency sales

Turnover Tour operations Travel agency: Direct sales Agency sales

31 October 2007 £000’s

31 October 2006 £000’s

18,518

15,631

127 151,208 169,853

349 28,103 44,083

18,518

15,631

127 19,822 38,467

349 3,209 19,189

31 October 31 October 2007 2006 No No

129 179 308

48 78 126

31 October

2007

£000’s

31 October 2006 restated £000’s

8,342 524 481 132 9,479

2,997 286 214 79 3,576

Administrative staff Sales staff

The aggregate payroll costs were:

Salaries Social security costs Share based payments Value of company pension contributions to money purchase schemes

4. Directors The turnover and net assets employed were attributable to the principal activities of the Group, which originate in:

Remuneration of the directors was:

31 October 2007 31 October 2006

31 October 2007 £000’s

31 October 2006 £000’s

Emoluments receivable Value of company pension contributions to money purchase schemes

1,232 70 1,302

501 28 529

31 October 2007 £000’s

31 October 2006 £000’s

Highest paid director

499

372

Turnover Net assets Turnover Net assets

restated

£000’s £000’s £000’s £000’s

United Kingdom Canada

25,901 12,566 38,467

16,397 13,100 29,497

18,658 531 19,189

24,650 1,134 25,784

2. Operating profit/LOSS Operating profit is stated after charging/(crediting):

Amortisation of goodwill Depreciation of owned fixed assets (Profit)/Loss on disposal of fixed assets Auditors’ remuneration – Group: – Audit fees – Taxation Auditors’ remuneration – Company: – Audit fees – Taxation Net loss on foreign currency translation Operating lease costs: – Office equipment – Vehicles – Property

30

Notes to the financial statements

31 October 2007 £000’s

31 October 2006 £000’s

1,883 547 (2)

459 147 1

130 19

74 12

18 3 58

5 2 4

– 26 100

44 14 189

Included in the above are emoluments, excluding pension contributions paid to:

The value of the Company’s contributions paid to a money purchase pension scheme in respect of the highest paid director amounted to:

31 October 2007 £000’s

31 October 2006 £000’s

Highest paid director

41

21

In accordance with FRS 20 Share based payments directors also received share based payments amounting to £394,000 (2006: £113,000). Included in this amount are share based payments to the highest paid director of £230,000 (2006: £26,000).

During the year no directors (2006: Nil) exercised their share options.

Reports and financial statements for the year ended 31 October 2007

31

Travelzest plc 2007

Notes to the financial statements (continued) 5. Net interest (payable)/receivable

31 October 2007 £000’s

Bank interest receivable Interest payable on bank borrowing

8. Loss per share 31 October 2006 £000’s

382 (959) (577)

217 (65) 152

6. Taxation on ordinary activities (a) Analysis of charge in the year

31 October

2007

£000’s

Current tax: UK corporation tax based on the results for the year at 30% (2006 – 30%) Overseas taxation (Over)/Under provision in prior year Total current tax Deferred tax: Origination and reversal of timing differences Tax on profit on ordinary activities

31 October 2006 restated £000’s

149 1,178 (300) 1,027

185 69 27 281

(27) 1,000

(48) 233

(b) Factors affecting current tax charge

31 October

2007

£000’s

31 October 2006 restated £000’s

874

190

Profit on ordinary activities before taxation Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2006 – 30%) Amortisation of goodwill not deductible for tax purposes Depreciation for the year in excess of capital allowances Expenses disallowed for tax purposes Utilisation of tax losses Losses available for Group relief not yet utilised Other adjustments Differences between UK and overseas rate Adjustment to prior years tax Total current tax (note 6(a))

262 565 2 268 – 152 – 78 (300) 1,027

57 138 57 64 (29) – (42) 9 27 281

Basic loss per share of (0.52)p is based on an equity loss of £126,000 (2006 – loss of £43,000 (restated)) and 24,231,242 (2006 – 10,282,082) shares of 2p, being the average number of shares in issue during the year, including exchangeable shares.

The diluted earnings per share is based on average fully diluted share capital of shares of 30,626,763 (2006 – 13,312,212 shares) derived as follows: The normalised per share based payments of earnings per share of 8.1p is based on an equity loss of £126,000 adding back amortisation of goodwill (£1,883,000), post tax share based payments (£343,000) and the income effect of conversion of share options and warrants (£400,000).

Average number

Issued ordinary shares and exchangeable shares Share options Warrants

24,231,242 1,149,075 5,246,446 30,626,763

9. Intangible fixed assets Group Goodwill

£000’s

Cost At 1 November 2006 Additions (see note 26) Adjustment to deferred consideration (see note 26) At 31 October 2007

36,581 3,293 (645) 39,229

Amortisation At 1 November 2006 Charge for the year At 31 October 2007

475 1,883 2,358

Net book value At 31 October 2007 At 31 October 2006

36,871 36,106

Additions to goodwill primarily relate to the acquisition of Tapestry Collection Limited, Wow House Limited, Captivating Cuba Limited and JMB Travel Consultants Limited. See note 26 for further details.

7. Profit attributable to shareholders of the parent company The profit dealt with in the accounts of the parent company was £2,348,000 (2006 – £1,504,000 restated).

32

Notes to the financial statements

Reports and financial statements for the year ended 31 October 2007

33

Travelzest plc 2007

Notes to the financial statements (continued) 10. Tangible fixed assets Group Property

improvements

£000’s

11. Fixed asset investments Company Fixtures & Computer fittings equipment £000’s £000’s

Office equipment £000’s

Motor vehicles £000’s

Cost At 1 November 2006 125 701 3,037 586 27 Additions – 4 1,034 64 – Exchange adjustments 4 13 107 (24) – At 31 October 2007 129 718 4,178 626 27

Depreciation At 1 November 2006 52 486 1,488 424 10 Charge for the year 24 83 374 49 17 Exchange adjustments (2) (7) (48) (7) – At 31 October 2007 74 562 1,814 466 27 Net book value At 31 October 2007 55 156 2,364 160 – At 31 October 2006 73 215 1,549 162 17

Total £000’s

Shares in group

companies

£000’s

4,476 1,102 100 5,678

Cost At 1 November 2006 Additions (see note 26) Adjustment to deferred consideration (see note 26) At 31 October 2007

34,998 4,111 (645) 38,464

Net book value At 31 October 2007 At 31 October 2006

38,464 34,998

2,460 547 (64) 2,943

2,735 2,016

Company

Office Computer equipment equipment £000’s £000’s

Total £000’s

Cost At 1 November 2006 Additions At 31 October 2007

– 8 8

5 11 16

5 19 24

Depreciation At 1 November 2006 Charge for the year At 31 October 2007

– 2 2

1 3 4

1 5 6

Net book value At 31 October 2007 At 31 October 2006

6 –

12 4

18 4

At 31 October 2007, the Group held more than of the allotted share capital of the following trading and holding companies: Proportion Proportion Country of Class of share held by held by Nature of

registration capital held Group Company business

VFB Holidays Limited England & Wales Ordinary – 100% Vacances Franco-Britanniques Limited England & Wales Ordinary 100% – Holiday Express Group Limited England & Wales Ordinary – 100% Holiday Express (UK) Limited England & Wales Ordinary – 100% Digital Travel Services Limited England & Wales Ordinary – 100% Best of Morocco Limited England & Wales Ordinary – 100% Peng Travel Limited England & Wales Ordinary – 100% Fair’s Fare Limited England & Wales Ordinary 100% – 4358736 Canada Inc. (trading as iTravel2000.com) Canada Common 100% – Montpelier Collection Limited England & Wales Ordinary – 100% Travelzest Holdings Inc. Canada Common 100% – 0763756BC Limited Canada Common 100% Travelzest Canco Limited England & Wales Ordinary 100% Tapestry Collection Limited England & Wales Ordinary – 100% Wow House Limited England & Wales Ordinary – 100% Captivating Cuba Limited England & Wales Ordinary – 100% JMB Travel Consultants Limited England & Wales Ordinary – 100%

Tour operator Travel services Travel agents Travel agents Technology support Tour operator Tour operator Travel agents Travel agents Holding company Holding company Holding company Holding company Tour Operator Tour Operator Tour Operator Tour Operator

The shareholdings above also represent the proportion of voting rights held. All subsidiaries have been included in the consolidated accounts.

34

Notes to the financial statements

Reports and financial statements for the year ended 31 October 2007

35

Travelzest plc 2007

Notes to the financial statements (continued) 12. Debtors

15. Creditors – capital instruments (continued)

The Group

The Company

31 October 2007 £000’s

31 October 2006 £000’s

31 October 2007 £000’s

31 October 2006 £000’s

Trade debtors Amounts owed by Group companies VAT recoverable Other debtors Prepayments and accrued income

4,074 – – 1,586 2,261 7,921

1,935 – 170 676 715 3,496

– 7,795 – 308 80 8,183

– 6,736 151 307 35 7,229

The Group

The Company

31 October 2007 £000’s

31 October 2006 £000’s

31 October 2007 £000’s

31 October 2006 £000’s

Bank loans and overdraft Loan notes Trade creditors Other creditors Corporation tax Social security and other taxes Customer deposits Accruals and deferred income Deferred consideration (see note 26)

750 1,120 4,380 1,368 1,025 131 1,596 3,042 41 13,453

250 880 2,315 784 207 187 1,724 1,289 741 8,377

750 1,120 121 – – 42 – 833 41 2,907

250 880 554 – – 21 – 706 741 3,152

The loan notes relate to the deferred consideration payable on acquisition of Fair’s Fare Limited.

The Group

The Company

31 October 2007 £000’s

31 October 2006 £000’s

31 October 2007 £000’s

31 October 2006 £000’s

Bank loans Loan notes Customer deposits Deferred consideration (see note 26) Accruals and deferred income

9,860 – – 4,661 315 14,836

10,491 1,120 94 6,184 309 18,198

9,860 – – 4,661 – 14,521

10,491 1,120 – 6,184 – 17,795

15. Creditors – capital instruments Bank loans and loan notes are repayable:

The Group

The Company

31 October 2007 £000’s

31 October 2006 £000’s

31 October 2007 £000’s

31 October 2006 £000’s

In one year or less or on demand Between one and two years Between two and five years

1,870 1,500 8,360 11,730

1,130 1,870 9,741 12,741

1,870 1,500 8,360 11,730

1,130 1,870 9,741 12,741

Notes to the financial statements

The Company

31 October 2007 £000’s

31 October 2006 £000’s

31 October 2007 £000’s

31 October 2006 £000’s

Variable interest rate Fixed interest rate

10,610 1,120 11,730

10,741 2,000 12,741

10,610 1,120 11,730

10,741 2,000 12,741

Repayment of the bank loan commenced in May 2007 with repayments every six months thereafter with a balloon payment in November 2009. Loan notes are repayable in May 2008.

16. Deferred taxation The movement in the deferred taxation provision during the year was:

The Group

The Company

31 October

2007

£000’s

31 October 31 October 2006 2007 restated £000’s £000’s

31 October 2006 restated £000’s

Provision brought forward Acquired with subsidiaries Decrease in provision Provision carried forward

250 – (27) 223

(64) – (139) (203)

18 280 (48) 250

– – (64) (64)

The Group

The Company

31 October

2007

£000’s

31 October 31 October 2006 2007 restated £000’s £000’s

31 October 2006 restated £000’s

Excess of taxation allowances over depreciation on fixed assets 395 (172) Other short term timing differences

223

359 (109) 250

– (203) (203)

– (64) (64)

17. Commitments under operating leases At 31 October 2007 the Group had annual commitments under non cancellable operating leases as set out below.

The group

The bank loan is secured on the assets of Travelzest plc.

36

The Group

The provision for deferred taxation consists of the tax effect of timing differences in respect of:

14. Creditors: amounts falling due after more than one year

In respect of the variable rate instrument, interest is set at 2.75% above LIBOR of which 75% has been fixed by means of an interest rate swap agreement. The loan notes carry a fixed interest rate of 5%.

13. Creditors: amounts falling due within one year

Interest is payable on bank loans and loan notes:

Land and buildings £000’s

Other items £000’s

2007 Land and buildings £000’s

Other items £000’s

Operating leases which expire: Within one year Within two to five years After more than five years

– 580 332 912

– 263 – 263

34 244 – 278

5 106 3 114

2006

Reports and financial statements for the year ended 31 October 2007

37

Travelzest plc 2007

Notes to the financial statements (continued) 18. Share based payments SHARE OPTIONS

WARRANTS Details of the share warrants outstanding during the year as are follows:

The Group has a share option scheme for certain employees. Options are exercisable at a price equal to the average quoted market price of the Company’s shares on the date of grant. The vesting period is three years. If the options remain unexercised after a period of ten years from the date of grant, the options expire. Options are forfeited if the employee leaves the Group before the options vest.

Details of the share options outstanding during the year as are follows:

2007

2006

Weighted Number Weighted average of share average exercise options exercise price 000’s price

2007

2006

Number of share warrants 000’s

Weighted Number Weighted average of share average exercise warrants exercise price 000’s price

Outstanding at the beginning of the year Granted during the year Outstanding at the end of the year

5,219 28 5,247

135p 141p 140p

2,150 3,069 5,219

133p 128p 135p

Exercisable at the end of year

5,247

140p

5,219

135p

Number of share options 000’s

Outstanding at the beginning of the year Granted during the year Outstanding at the end of the year

696 624 1,320

128p 144p 136p

113 583 696

133p 127p 128p

The warrants outstanding at 31 October 2007 had a weighted average exercise price of £1.40 and a weighted average contractual life of nine years. The subscription rights attached to each warrant in issue must be exercised within ten years of the date of grant.

Exercisable at the end of year

1,320

136p

696

128p

The fair value of warrants granted were determined using the Black Scholes pricing model. 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.

The options outstanding at 31 October 2007 had a weighted average exercise price of £1.36 and a weighted average contractual life of nine years.

The fair value of options granted were determined using the Black Scholes pricing model. 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.

The underlying expected share price volatility was determined by reference to historical data. The company expects the volatility of its share price to reduce as it matures. The risk-free interest rate was determined by the implied yield available on a zero-coupon government bond.

The underlying expected share price volatility was determined by reference to historical data. The Company expects the volatility of its share price to reduce as it matures. The risk-free interest rate was determined by the implied yield available on a zero-coupon government bond.

The Group recognised total expenses of £204,000 related to equity-settled, share-based warrant payment transactions in 2007.

19. Contingent liabilities The Group recognised total expenses of £277,627 and £214,343 related to equity-settled share-based payment transactions in 2007 and 2006 respectively. This has resulted in a prior year adjustment of £150,000 after deferred tax.

The Company has issued guarantees to the Civil Aviation Authority in respect of VFB Holidays Limited, Vacances Franco-Britanniques Limited, Holiday Express (UK) Limited, Best of Morocco Limited, Peng Travel Limited and Fair’s Fare Limited.

On 30 January 2007, the Company granted options of 124,568 ordinary 2p shares at an exercise price of 144.5p.

VFB Holidays Limited, Vacances Franco-Britanniques Limited, Holiday Express (UK) Limited, Best of Morocco Limited, Peng Travel Limited, Tapestry Collection Limited and Fair’s Fare Limited have jointly provided a bond in favour of the Civil Aviation Authority amounting to £1,726,230 (2006 – £1,155,875).

On 1 April 2007, the Company granted options of 59,524 ordinary 2p shares at an exercise price of 168p.

On 10 October 2007, the Company granted options of 40,000 ordinary 2p shares at an exercise price of 141.5p.

Barclays Bank plc holds an unlimited debenture over the assets of the holding company, including the shares in subsidiary companies in respect of loans made to the holding company. Barclays Bank plc holds an unlimited debenture over the assets of the Company and UK subsidiaries in respect of ancillary facilities.

All share options must be exercised between three and ten years of the date of grant.

20. Related Party Transactions

On 17 September 2007, the Company granted options of 400,000 ordinary 2p shares at an exercise price of 140p.

During the year Holiday Express (UK) Limited sold holidays to C G McKinlay and N Robb amounting to £12,983 (2006: Nil).

The Company has taken advantage of the exemption within Financial Reporting Standard 8 not to disclose any transactions with entities that are part of the group headed by the Company on the grounds that it prepares consolidated group accounts.

All of the above transactions were on normal commercial terms and an arm’s length basis.

38

Notes to the financial statements

Reports and financial statements for the year ended 31 October 2007

39

Travelzest plc 2007

Notes to the financial statements (continued) 21. Capital commitments

23. Reserves Group

The Group had the following capital commitments at the year end:

31 October 2007 £000’s £

31 October 2006 £000’s £

Share premium

account

£000’s

Merger Profit and loss reserve account £000’s £000’s

Website development

71,000 71,000

– –

At 1 November 2006 Prior year adjustment (see note 16)

11,632 –

2,320 –

1,452 64

At 1 November 2006 as restated Loss for the year Premium on shares issued Share based payments Cost of share placing Exchange difference arising on consolidation At 31 October 2007

11,632 – 2,679 – (77) – 14,234

2,320 – – – – – 2,320

1,516 (126) – 481 – 358 2,229

22. Share capital Authorised share capital:

31 October 2007 £000’s

31 October 2006 £000’s

59,550,000 ordinary shares of £0.02 each (2006 – 59,550,000 shares) 450,000 deferred shares of £0.02 each

1,191 9

1,191 9

Allotted, called up and fully paid: 31 October 2007 31 October 2006

No

Ordinary shares of £0.02 each

17,489,274

£000’s No

350

£000’s

15,670,784

313

On 18 June 2007, the Company issued 705,490 ordinary 2p shares at a premium of 154p as partial deferred settlement for the acquisition of Montpelier Collection (holding company of Fair’s Fair Limited).

On 3 August 2007, a further 1,060,000 ordinary 2p shares were issued at a premium of 143p and additional 53,000 ordinary 2p shares were issued at a premium of 143p as a placing fee.

Exchangeable Shares

2007

2006

No

£000’s No

£000’s

Exchangeable shares of £1.26 each

8,065,327

10,365

7,938,780

Company Share premium

account

£000’s

Merger Profit and loss reserve account £000’s £000’s

At 1 November 2006 Prior year adjustment (see note 16)

11,632 –

3,357 –

1,544 64

At 1 November 2006 as restated Profit for the year Premium on shares issued Share based payments Placing costs of share issue At 31 October 2007

11,632 – 2,679 – (77) 14,234

3,357 – – – – 3,357

1,608 2,348 – 481 – 4,437

10,003

0763756 BC Limited, an indirect wholly owned subsidiary of Travelzest plc, issued 7,938,780 exchangeable shares on 13 October 2006 as part consideration for the acquisition of itravel2000.com at £1.26 per share. These shares are required to be exchanged on a one for one basis for ordinary 2p shares in Travelzest within five years of completion of the acquisition (13th October 2006). The exchange of the shares is not dependent on any other external factors.

0763756BC Limited issued a further 126,547 exchangeable shares on 10 January 2007 as further part consideration of itravel2000.com at £1.26 per share. Included with the current year value is £200,000 exchange difference arising on translation.

If all the exchangeable shares were to be exchanged then the holders of the exchangeable shares would hold 31.6% of the outstanding ordinary shares.

40

Notes to the financial statements

Reports and financial statements for the year ended 31 October 2007

41

Travelzest plc 2007

Notes to the financial statements (continued) 24. Reconciliation of movements in shareholders’ funds Group

31 October

2007

£000’s

Loss for the financial year Issue of shares Exchange difference arising on consolidation Share based payments Net addition to shareholders’ equity funds Opening shareholders’ equity funds as previously stated Prior year adjustment Closing shareholders’ equity funds as restated

(126) 3,000 358 481 3,713 25,720 64 29,497

25. Notes to the statement of cash flows (continued) Reconciliation of net cash flow to movement in net funds 31 October 2006 restated £000’s

(43) 18,865 42 214 19,078 6,706 – 25,784

The opening shareholders equity funds restated are £25,784,000 for the group.

31 October 2007 £000’s

31 October 2006 £000’s

(Decrease)/increase in cash in the period Movement of bank loan Exchange adjustment Change in net funds

(509) 250 (119) (378)

5,266 (10,741) – (5,475)

Net funds at 1 November 2006 Net funds at 31 October 2007

248 (130)

5,723 248

Analysis of changes in net funds At Exchange At

1 Nov 2006 adjustment Cash flows 31 Oct 2007

£000’s £000’s £000’s £000’s

Company

31 October

2007

£000’s

31 October 2006 restated £000’s

2,348 3,000 481 5,829 26,849 64 32,742

1,504 18,865 214 20,538 6,330 – 26,913

Profit for the financial year Issue of shares Share based payments Net addition to shareholders’ equity funds Opening shareholders’ equity funds as previously stated Prior year adjustment Closing shareholders’ equity funds as restated

Net cash: Cash in hand and at bank Bank loan Net funds

10,989 (10,741) 248

– (119) (119)

(509) 250 (259)

10,480 (10,610) (130)

26. Acquisitions The Company made the following acquisitions during the year: Company Date

The opening shareholders equity funds restated are £26,913,000 for the company.

25. Notes to the statement of cash flows Reconciliation of operating profit to net cash inflow from operating activities

These acquisitions have been dealt with using the acquisition method of accounting and there is no difference between net book value and the fair value of assets required.

31 October

2007

£000’s

Operating profit Amortisation Depreciation (Profit)/loss on disposal (Increase)/decrease in stock (Increase) in debtors Share based payments Increase in creditors Net cash inflow from operating activities

42

Notes to the financial statements

1,451 1,883 547 (2) (1) (3,141) 481 1,607 2,825

31 October 2006 restated £000’s

38 459 147 1 1 (571) 214 1,231 1,520

8 November 2006 19 December 2006 9 August 2007 10 September 2007

Business segment

Tapestry Collection Limited Wow House Limited Captivating Cuba Limited JMB Travel Consultants Limited

Tour Operations Tour Operations Tour Operations Tour Operations

The post acquisition results of the companies are as follows:

Tapestry Wow JMB Travel Collection House Captivating Consultants Limited Limited Cuba Limited

£000’s £000’s £000’s £000’s

Total £000’s

Total transaction value

1,589

60

611

23

2,283

Turnover Cost of sales Gross profit Administrative expenses Operating profit (before amortisation)

1,589 (1,143) 446 (418) 28

60 – 60 (208) (148)

611 (525) 86 (229) (143)

23 (18) 5 (18) (13)

2,283 (1,686) 597 (873) (276)

Reports and financial statements for the year ended 31 October 2007

43

Travelzest plc 2007

Travelzest Plc 2007

Notes to the financial statements (continued) 26. Acquisitions (continued)

26. Acquisitions (continued)

The fair values in respect of these acquisitions are summarised as follows:

The loss after taxation of the companies acquired for the latest financial period to the date of the acquisition were as follows:

Tapestry Wow JMB Travel Collection House Captivating Consultants Limited Limited Cuba Limited

£000’s £000’s £000’s £000’s

Wow JMB Travel

House Captivating Consultants Limited Cuba Limited

£000’s £000’s £000’s

Total £000’s

Net assets acquired: Tangible fixed assets Debtors Cash at bank and in hand Creditors and provisions Fair value

– – 255 – 255

31 10 – (188) (147)

– 1,262 340 (2,099) (497)

2 11 526 (91) 448

33 1,283 1,121 (2,378) 59

Goodwill

696 951

166 19

1,285 788

306 754

2,453 2,512

Satisfied by: Cash Deferred consideration Acquisition Costs

255 600 96 951

– – 19 19

740 – 48 788

730 – 24 754

1,725 600 187 2,512

Additional goodwill of £844,000 has been generated by further consideration relating to the acquisitions in prior year of Peng Travel Limited and itravel2000.com, amounting to total goodwill addition for the year of £3.3 million (see note 9).

Further investment in previous years’ acquisitions has resulted in additional investment in Holiday Express Limited of £1 million, Peng Travel Limited £0.2 million and itravel2000.com of £0.4 million (see note 11).

The deferred consideration in respect of Tapestry Collection Limited is payable based on the results of Tapestry Collection Limited for the years ended 31 December 2007 and 31 December 2008 and due for payment on agreement of the calculation of the results. The maximum level of contingent consideration payable is £600,000 and the minimum £Nil. The consideration is payable in shares.

Deferred consideration outstanding

31 October 2007 £000’s

At 1 November 2006 Settled – cash Settled – shares Acquisitions in year Reduction in deferred consideration in Fair’s Fare Limited Exchange adjustment

6,925 (700) (1,261) 600 (645) (217) 4,702

Due within one year Due after more than one year

41 4,661 4,702

44

Notes to the financial statements

Total transaction value

60

611

23

Turnover Cost of sales Gross profit Administrative expenses Operating (loss)/profit Interest receivable (net) (Loss)/profit before taxation Tax on (loss)/profit on ordinary activities (Loss)/profit after taxation

60 – 60 (208) (148) – (148) 24 (124)

611 (525) 86 (229) (143) 10 (133) – (133)

23 (18) 5 (18) (13) 1 (12) 3 (9)

Tapestry Collection Limited did not trade prior to acquisition.

The profit/(loss) after taxation of the companies acquired for the full financial period prior to the period of the acquisition were as follows: Wow JMB Travel

House Captivating Consultants Limited Cuba Limited

£000’s £000’s £000’s

Total transaction value

2,934

682

Turnover Cost of sales Gross profit Administrative expenses Operating profit /(loss) Interest receivable (net) Profit /(loss) before taxation Tax on profit /(loss) on ordinary activities Profit/(loss) after taxation

2,934 (2,441) 493 (790) (297) 1 (296) – (296)

682 (516) 166 (152) 14 20 34 (29) 5

– – – (68) (68) – (68) – (68)

26. Post balance sheet events There have been no significant post balance sheet events since 31 October 2007.

Reports and financial statements for the year ended 31 October 2007

45

Travelzest plc 2007

Travelzest plc 2007

Company Information

Notes

Company registration number

04520457

Registered office Farm Cottage

Heath House Wedmore

BS28 4UG Principal place of business Ashridge Business Centre

Berkhamsted House

121 High Street

Berkhamsted

HP4 2DJ

01442 874322 Executive directors C G McKinlay C A L Mottershead N Robb

J G Carroll Non executive directors R G Hall

M T J Molyneux (Chairman) P Thomson Company Secretary R G Hall Bankers Barclays Bank plc Pall Mall Corporate Group

80 Pall Mall London SW1A 1QA Solicitors Joelson Wilson & Co

30 Portland Place London W1B 1LZ Broker Investec Bank (UK) Limited

2 Gresham Street London EC2V 7QP Auditor Grant Thornton UK LLP Chartered Accountants

and Registered Auditors

43 Queen Square

Bristol

BS1 4QR

Designed by Bladonmore Design T +44 (0)20 7631 1155 46

Notes to the financial statements

Reports and financial statements for the year ended 31 October 2007

47

www.travelzestplc.com