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Strategic Investment by Prime Focus Limited

31 March 2006

• The Company today announced that, subject inter alia to the approval of Shareholders, it proposes to raise £4.2 million by way of a Placing of 12,062,990 New Ordinary Shares at a price of 35 pence per New Ordinary Share
• The Company also proposes to issue 1,428,571 New Ordinary Shares in exchange for the transfer of certain assets to the Company
• Prime Focus Limited (“PFL”), one of India’s largest integrated end-to-end post production and visual effects services houses, has conditionally subscribed for the Placing Shares
• An Extraordinary General Meeting has been convened for 24 April 2006, at which Shareholders will be asked to consider, and if thought fit, to approve the Resolutions in order to implement, inter alia, the Placing
• In the Board’s opinion the investment by PFL, and their addition as a major new shareholder in the Company, should better position the Group to take advantage of opportunities that exist in new and international markets
• In addition, the Board believes there is the potential for synergies to arise from the relationship with PFL, particularly in relation to PFL’s technological skills, that will benefit the Group in the medium term
• Following the completion of the Placing, Mr Namit Malhotra will be appointed to the Board as non-executive chairman and Philip Lovegrove will resign from the Board upon the passing of Resolutions at the EGM. In addition, Mr Naresh Malhotra, Mr Chandir Gidwani and Mr Rivkaran Chadha will be appointed to the Board as non-executive Directors

Commenting on the proposed investment by PFL Paul Tracey, Managing Director of VTR plc, said, “The proposed investment by PFL in VTR plc provides the company, its employees and shareholders with the potential to benefit from the increasing globalisation of the industry sectors within which we operate. Having identified the need for a strategic partner to compete effectively in our markets, I am delighted that PFL share our vision and desire to build a valuable and exciting business over the coming years.”

Namit Malhotra of PFL further commented, “We are very excited at the prospect of working with VTR to develop a global brand and expand the service offerings into new and potentially lucrative markets. The combination of our scale, technology and cost effective operations and VTR’s expertise and international reputation should provide us with an opportunity to build a highly attractive business”.

For further information please call:

Lawrence Dore / Nick Bishop, Mantra PR Tel: 020 7907 7800
Paul Tracey, VTR Plc Tel: 020 7437 0026
Philip Davies / Anthony Noakes, Charles Stanley Securities Tel: 020 7953 2000

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Introduction

The Company today announced that, subject inter alia to the approval of Shareholders, it proposes to raise £4.2 million by way of a Placing of 12,062,990 New Ordinary Shares at a price of 35 pence per New Ordinary Share. In addition, the Company proposes to issue 1,428,571 New Ordinary Shares in exchange for the transfer of certain assets to the Company as described below. Prime Focus Limited (“PFL”), one of India’s largest integrated end-to-end post production and visual effects services houses, has conditionally subscribed for the Placing Shares.

An Extraordinary General Meeting has been convened for 24 April 2006, at which Shareholders will be asked to consider, and if thought fit, to approve the Resolutions in order to implement, inter alia, the Placing.

Background to and reasons for the Transaction

As Shareholders are aware, the trading conditions facing the Group in recent years have proved to be particularly challenging and 2005 proved to be no exception. As reported in our trading updates in the latter half of last year the Group experienced a severe downturn in trading which started in April 2005 and continued throughout the second half, affecting all parts of the business. The reasons for this are largely driven by the increasingly competitive environment, recessions in some of our key markets and a general pressure on rates which adversely impacted on the Group’s profitability.

As detailed in the preliminary results for the year ended 31 August 2005, announced on 4 November 2005, the Board has taken the corrective action in re-aligning the Group to enable it to respond to a marketplace which has changed in terms of activity and economic dynamics over the last five years. The Board has taken a series of operational measures to increase the Group’s competitiveness including the re-shaping of both the Company and management of its subsidiaries, reducing costs and reorganising the Group’s operating companies into more clearly defined entities. Strategically, the Board has reviewed the markets in which VTR operates and identified several opportunities to grow both domestically and internationally. The advent of new media, the proliferation of media and the increasing requirement for assets to be digitised and managed are all driving growth across the industry and provide VTR with several areas to exploit. Additionally the Board has identified that in order for VTR to be able to pursue these opportunities, significant investment is required and that an appropriate way to achieve this would be to find an international partner to invest in VTR and help its development.

As a result of this requirement the Board approached PFL who have a stated strategy of overseas expansion, particularly into the London market, and who have previously expressed an interest in making a strategic investment in the Company. In the Board’s opinion the investment by PFL, and their addition as a major new shareholder in the Company, should better position the Group to take advantage of the opportunities outlined above.

In addition, the Board believes there is the potential for synergies to arise from the relationship with PFL, particularly in relation to PFL’s technological skills, that will benefit the Group in the medium term.

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Details of the Placing and use of proceeds

The Company has entered into an agreement with PFL whereby PFL shall subscribe for such number of ordinary shares in VTR, being 13,491,561 shares as shall give PFL 55.0 per cent. of the enlarged capital of VTR.

The subscription price shall be satisfied as to 35 pence per share in cash for 12,062,990 shares and as to the remainder, by the transfer of certain assets to the Company (including arranging and paying for delivery of those assets to the Company's premises) for 1,428,571 shares in the Company. These assets comprise (i) a Discreet Lustre digital intermediate system colour grading Master Station and (ii) a Northlight pin-registered film scanner for Digital Intermediate. A report, pursuant to s.103 of the Companies Act, has been prepared by Baker Tilly which supports the issue of 1,428,571 shares in the Company in exchange for the above assets.

The net proceeds of the Placing will be used by the Company to provide working capital, to reduce gearing and will be available to fund growth into the new areas set out above.

The Board, having been advised by Charles Stanley, consider that it is in the best interests of the Company and Shareholders as a whole for the funds to be raised by the Placing. If the Company had made an offer, by way of a rights issue or open offer, to allow existing shareholders to subscribe for any of the Placing Shares, this would have necessitated the publication of a prospectus at significant additional cost, imposition on management time and a delay which may have put the Placing in jeopardy.

Subject to the approval of the Resolutions, application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that trading in the Placing Shares will commence on AIM on 2 May 2006.

The Placing Shares will, when issued and fully paid, rank pari passu in all respects with the New Ordinary Shares, including the right to receive any dividend or other distribution declared, made or paid after the date of their unconditional allotment.

Current Trading and Prospects

The difficult trading conditions which the company reported on 4 November 2005 have persisted. Whilst the measures initiated by the Board, including a material reduction in staff costs and control on capital expenditure have put the Company on a firmer financial footing the Company has continued to be loss making. Following a period of reasonable trading in the first four months of the financial year to December 2005, in January 2006 there was a significant reduction in income resulting in increased losses for the month. There has been no upturn in income for the month of February. The Board remains confident of the underlying quality of its businesses.

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Strategy

Over the past five years the post production industry in the UK has altered as a result of globalisation, and the influx of new mediums of delivery, most significantly the internet, and new standards (high-definition) have taken effect. Whilst revenues and prices from traditional post-production remain under pressure the Board have identified several areas of business which potentially offer prospects to grow and deliver increased returns to shareholders. To date the Group has been unable to take full advantage of these opportunities. The investment by PFL will, in the Board’s opinion, allow developments in the following areas:

Film
VTR already has digital cinema facilities. To date it has lacked the scale and investment to win a high volume of national and international film projects, especially in the area of visual effects. PFL currently works on approximately 60 major film releases per year in the fast-growing Asian and Indian film markets, and has already made headway into the international film market. The combination of VTR and PFL will potentially open up new business opportunities to VTR.

Digital asset management
We are seeing an increasing requirement from our clients for sophisticated digital asset management solutions. The scope of these services ranges from content management for archives through to brand asset management for multinationals. VTR already has a presence in this market, through TMR Digital, but has lacked the scale to compete in what is increasingly a global marketplace. PFL’s infrastructure and its access to the Indian software market will help the growth of VTR’s digital asset management business.

New market sectors
New market sectors are developing with the divergence of use of technology by consumers. Consequently, demands for services tailored to produce output for devices such as mobile phones is growing at a fast pace. However, the low margins available, to date, have made it difficult for VTR to operate profitably. With PFL’s ability to deliver solutions at reduced costs, coupled with VTR’s industry knowledge, the Board is optimistic that new revenue streams can be opened.

Global
The UK post-production industry has, with a few exceptions, remained a relatively domestic industry. Through PFL’s existing operations and partners, VTR will acquire international access, allowing it to serve customers on a global, 24/7 basis. PFL’s intention is to expand its presence internationally with openings already planned in Los Angeles, USA and Dubai in the near future. This will create an international network when combined with VTR’s offices in London.

Financial investment
PFL’s investment will reduce VTR’s gearing, providing free cashflow to invest in growth areas of the business. In addition, the provision of equipment, as part of the investment, will enable the Group to expand its digital cinema operations.

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The Takeover Code

Under Rule 9 of the Takeover Code, any person who acquires shares which, taken together with shares already held by him or shares held or acquired by any person acting in concert with him (the “concert party group”), carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code is normally required to make a general offer to all the remaining shareholders to acquire their shares.

Similarly, when any person or persons acting in concert already hold more than 30 per cent., but not more than 50 per cent., of the voting rights of such company, a general offer will normally be required if any further shares increasing their percentage of the voting rights are acquired.

Any offer under Rule 9 must be in cash and at the highest price paid within the preceding 12 months for any shares in the company by the person required to make the offer or any person acting in concert with him.

PFL will hold 55.0 per cent. of the Enlarged Issued Share Capital following the completion of the Transaction.

The Takeover Panel has agreed, subject to the approval of Shareholders, to waive the requirement, which would otherwise arise as a result of the Transaction, for a general offer to be made to all Shareholders under Rule 9 of the Takeover Code. Accordingly Resolution 1 is being proposed at the EGM and will be taken on a poll of Shareholders.

Following the EGM, PFL will hold more than 50 per cent. of the Company’s voting share capital and may accordingly increase its shareholding without incurring any further obligation under Rule 9 to make a general offer.

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Intentions of PFL

In the event that the Resolutions are passed at the EGM, Philip Lovegrove has advised the Board that he will be resigning from the Board.

Following the completion of the Placing, Mr Namit Malhotra will be appointed to the Board as non-executive chairman. In addition, Mr Naresh Malhotra, Mr Chandir Gidwani and Mr Rivkaran Chadha will be appointed to the Board as non-executive Directors.

PFL has confirmed its intention that the business of the Company will be allowed to continue in substantially the same manner as at present, with no major changes. PFL has also confirmed that the existing employment rights, including pension rights of all employees of the Group, will be maintained.

Extraordinary General Meeting

An Extraordinary General Meeting of the Company is to be held at 37 Dean Street, London, W1D 4PT at 10 am. on 24 April 2006. A circular containing further details of the Proposals and the notice of the EGM is being posted to Shareholders today.

Irrevocable undertakings

The Company has received irrevocable undertakings to vote in favour of the Resolutions from Mr & Mrs Mark H. Dixon who have a beneficial interest in respect of 1,986,800 Ordinary Shares, Peter Cundill & Associates (Bermuda) Ltd who has a beneficial interest in respect of 1,100,000 Ordinary Shares, and Mr P Stone who has a beneficial interest in respect of 476,999 Ordinary Shares.

All of the Directors have irrevocably undertaken to vote in favour of the Resolutions in respect of their entire holdings of Ordinary Shares, which total 410,034 Ordinary Shares representing approximately 3.71 per cent. of the Existing Shares.

Therefore in aggregate irrevocable undertakings to vote in favour of the Resolutions have been received in respect of 3,973,833 Ordinary Shares representing approximately 36.0 per cent. of the Existing Shares.

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