Final Results

Deal Group Media PLC 13 March 2006 Press Release 13 March 2006 Deal Group Media plc ('Deal Group Media', 'dgm' or 'the Group') Final Results Deal Group Media plc, the online marketing group whose activities include performance-based advertising and search engine marketing, today announces its Final Results for the year ended 31 December 2005. Highlights • Turnover increased 39% to £20,561,000 (2004: £14,802,000) • Gross profit increased by 16% to £6,685,000 (2004: £5,757,000) • Achieved operating profit of £800,000 before amortisation • Cash at Bank of £1,682,000 • Refined and well positioned products capturing a growing search market • Challenges with technology and an unexpected change with dgm's largest customer impacted profitability, excluding these, the group saw a 48% growth in underlying turnover and 29% growth at the underlying gross profit level. Commenting on the results, John Porter, Executive Chairman, said: 'The group has completed a review of each area of the business. I am pleased to find a committed team who are implementing the changes required. Underlying growth exceeds market growth which gives me a positive outlook..' For further information, please contact: Deal Group Media plc Andrew Dickson Tel: + 44 (0) 20 7691 1880 andrew.dickson@dgm-uk.com www.dealgroupmediaplc.com Panmure Gordon & Co. Grant Harrison / Katherine Roe Tel: +44 (0) 20 7459 3600 grant.harrison@panmure.com www.panmure.com katherine.roe@panmure.com Media enquiries: Abchurch Communications Ariane Comstive / Franziska Bohnke Tel: +44 (0) 20 7398 7700 ariane.comstive@abchurch-group.com www.abchurch-group.com franziska.boehnke@abchurch-group.com Chairman's statement for the year ended 31 December 2005 Since being appointed as Chairman in November 2005 I have had the opportunity to conduct a detailed review of operations and the market place. dgm is in an extremely high growth market. With a 5.8% share, the online advertising market has now exceeded radio (3.6%), outdoor (5.1%) and cinema (0.8%). (IAB/PwC, Sept 2005). dgm is well positioned to be a leader in this market that has a long term future. The management team is committed to tackling the challenges and lessons of 2005 and is putting in place a business model that allows us to move forward in the UK, whilst initiating growth overseas. In 2005 the Group made an operating profit of £800,000 before amortisation. Turnover has grown by 39% and gross profit by 16% to £6,685,000. There was a fall in the gross profit margin from 39% (2004) to 33% as well as an increase in the cost base of £1,500,000, due to increased technology spend. The Group did not hit its profit expectations due to an unexpected change in terms of trade with dgm's largest customer and disappointing implementation of our new technology in 2005. The Group now has a more balanced portfolio of customers with the top 10 representing 44% (2004: 69%) of the Gross Profit, and the largest customer representing 10% (2004: 36%). Once the major customer is stripped from the figures for 2004 and 2005, the underlying business shows 48% growth in turnover and a 29% growth at the gross profit level. There is a fall of 5% in the underlying gross profit margin from 2004. Technology Since its launch dgmPRO, our proprietary tracking and serving software has delivered 600 million impressions and 35 million clicks which have led to 1.4 million sales for our customers. The technology team continue to work on improving the interface and adding new features on the performance business. Change is never easy for users and internal plans to overhaul all dgm core technology with an 'in-house' solution led to a delayed roll out of dgmPRO in the Performance business. Going forward dgm will concentrate on making the software interface as intuitive as possible to make it easier for our publishers to find the information they require to run their businesses. Management The Board has made changes to the management structure to ensure a better focus on the business. Andrew Dickson, Chief Financial Officer, is now combining this role with Chief Operating Officer, reporting directly to the Chairman. Andrew is responsible for Group operations and technology. As part of the internal review the Chief Technical Officer resigned. Adrian Moss continues as CEO, and will focus on the international expansion of the business and developing new areas of business in this fast evolving market. Market Review 62% of the UK population are online (NOP World, June 2005). Broadband now accounts for 64% of all users in the UK, and this is evidenced by UK Shoppers spending £5 billion online during the 10-week run-up to Christmas 2005. The infrastructure for delivery of online advertising is now in place. dgm is well placed to provide advertisers with cost effective ways of marketing to customers while measuring the results of that marketing and calculating the Return on Investment. There are a range of pricing models the advertiser can choose from depending on the marketing requirement and the level of risk the advertiser wishes to take. dgmSearchlab dgmSearchlab operates in two distinct areas of search engine marketing. The first is the fine tuning of clients' websites to achieve superior listings on natural search engines. The second area involves the management of clients' ' pay for performance' search engine campaigns. Given the growth of Search Engine Marketing, dgm will increase its resources in this area in 2006. In line with our new approach to technology, Search will be using third party technology from Quarter 2. The new technology will allow for more sophisticated tracking and optimisation to increase the Return on Investment using a variety of indicators and the introduction of Natural Search Tools and Web analytics. dgmAdNetwork dgmAdNetwork offers advertising on a variety of large portals and content websites. The team are now representing websites such as Streetmap.co.uk, IWantOneOfThose.com, Match.com and Ecademy.com. This has been successful in 2005. Revenues have doubled to £2,300,000. In 2006 the AdNetwork team will use a third party system which will give their advertisers a new suite of services such as day time parting, regional and IP targeting and rich media serving capabilities. The costs of this software are expected to be compensated by increased volume and better managed campaigns. In order to give this area an additional boost our new commercial director for this division, Alex Khan, will be looking to expand this offering overseas. dgmPerformance dgmPerformance delivers sales, leads and email capture or other commercially valuable actions through a network of several thousand small online media owners and entrepreneurs. dgm receives a revenue share from the advertisers for every action that is taken. dgmPerformance represents 67% of the Group's gross profit margin. dgmPerformance works in a competitive environment with new entrants in 2005 from both Europe and the USA. This leads to lower gross profit margins in the future which will be offset by higher volumes of trade at the same time. We believe that advertisers will want to ensure that publishers get as much of the Cost Per Action as possible. We have reshaped our cost structures to anticipate this. dgm will demonstrate real added value to our clients with a transparent pricing model. A network of affiliate businesses is complex and we have to ensure that our clients' programmes will work and be a success with our publishers, before we accept them onto the network. In 2005 there was insufficient filtering to ensure that programmes were attractive enough to work. This lesson has been learned by the sales team. Our aim is that our Technology should be intuitive, efficient and allow all stakeholders to choose their level of involvement, from complete 'self-serve' to a fully managed service and we believe the roll out of dgmPro is starting to achieve this. Whilst the bulk of our operations are in the UK, we have growing operations in Australia and Spain, we are looking at the technology options to roll out a tried and tested system to overseas territories in a low cost way without having to replicate further head count. People The high turnover of staff in 2005 has been a reaction to the technology problems and a lack of clarity about roles within the business. We are pleased to note that this has stabilised in the last quarter, and we are confident that this now provides a platform to drive further growth and recruitment. In December the Board offered staff (but not Directors) the opportunity to cancel their current options and to be re-issued options at 5p. There was a strong response to this initiative. The Board consider the holding of options important for the motivation of staff and goal congruence. In 2005 we introduced management training for all levels of the staff and will continue this programme into 2006 with the introduction of skills training in all areas of the business. As part of the recruitment policy going forward dgm introduced a graduate scheme and had nine graduates join us in January 2006. We are highly satisfied with their progress within the business. Overall I am pleased with the greater focus on each of dgm's product areas. This combined with improved technology and a growing marketplace gives me a positive outlook for 2006. John Porter Chairman Consolidated profit and loss account for the year ended 31 December 2005 2005 2004 NOTES £'000 £'000 £'000 £'000 TURNOVER 2 20,561 14,802 COST OF SALES (13,876) (9,045) GROSS PROFIT 6,685 5,757 ADMINISTRATIVE EXPENSES - Amortisation of intangible assets (1,149) (1,149) - Fixed assets depreciation (292) (283) - Other administrative expenses (5,593) (4,105) (7,034) (5,537) OPERATING (LOSS)/PROFIT 2 (349) 220 NET INTEREST 3 36 (1) (LOSS)/PROFIT ON ORDINARY ACTIVITIES (313) 219 TAXATION 4 - 1,724 TOTAL (LOSS)/PROFIT AFTER TAXATION FOR THE PERIOD (313) 1,943 BASIC (LOSS)/EARNINGS PER SHARE 5 (0.08p) 0.54p FULLY DILUTED (LOSS)/EARNINGS PER SHARE 5 (0.08p) 0.50p There were no other recognised gains or losses other than the results for the periods. All operations are continuing. Consolidated balance sheet as at 31 December 2005 2005 2004 NOTES £'000 £'000 £'000 £'000 FIXED ASSETS Intangible assets 5,857 6,962 Tangible assets 647 498 6,504 7,460 CURRENT ASSETS Debtors 6 6,150 4,751 Cash at bank and in hand 10 1,682 1,937 7,832 6,688 CREDITORS: Amounts falling due within one year 8 (4,317) (4,039) NET CURRENT ASSETS 3,515 2,649 TOTAL ASSETS LESS CURRENT LIABILITIES 10,019 10,109 CREDITORS: Amounts falling due after more than one year 8 (65) (121) 9,954 9,988 CAPITAL AND RESERVES Called up share capital 3,798 3,715 Capital redemption reserve 13,188 13,188 Share premium account 21,458 21,262 38,444 38,165 Profit and loss account (28,490) (28,177) Shareholders' funds 9,954 9,988 The financial statements were approved by the board of directors and signed on their behalf on 10 March 2006. Consolidated cash flow statement for the year ended 31 December 2005 2005 2004 NOTES £'000 £'000 £'000 £'000 Net cash inflow from operating activities 9 32 1,450 Returns on investments and servicing of finance Interest received 40 6 Interest paid (4) (7) 36 (1) Taxation (44) (56) Capital expenditure and financial investments Purchase of tangible fixed assets (454) (240) Sale of tangible fixed assets - 199 Purchase of intangible assets (44) - (498) (41) Net cash (outflow)/inflow before financing (474) 1,352 Financing Issue of ordinary share capital 279 287 Capital element of hire purchase payments (15) (169) Repayment of loan notes (45) (94) 219 24 (Decrease)/increase in cash 10 (255) 1,376 Notes to the financial statements for the year 31 December 2005 1 ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards. The principal accounting policies of the Group have remained unchanged from the previous year. The directors have reviewed the accounting policies adopted by the Group and consider them to be the most appropriate. Financial Reporting Standards 21, 22, 25 (presentation only) and 28 have all been adopted for the first time this year. These had no effect on the group's financial statements. The Group financial statements incorporate the financial statements of the Company and its subsidiaries. The companies make up their accounts to the same date. 2 TURNOVER AND OPERATING (LOSS)/PROFIT The turnover is attributable to the principal activities, which are mainly carried out in the United Kingdom, Europe and Australia. An analysis of turnover and operating profit by geographical market is given below: Turnover Operating (loss)/profit 2005 2004 2005 2004 £'000 £'000 £'000 £'000 United Kingdom 18,551 13,422 (433) 368 Overseas 2,010 1,380 84 (148) 20,561 14,802 (349) 220 No segmental analysis of net assets has been provided, as the assets and liabilities attributable to overseas sales are not separately identified. 2. CONT. Operating profit is stated after charging: 2005 2004 £'000 £'000 £'000 £'000 Auditors' remuneration - Audit services 33 33 - Other assurance services 4 4 - Transaction services 9 - - Taxation services 9 9 - Other services 22 5 77 51 Operating lease rentals - land and buildings 109 125 - fixtures, fittings and equipment 110 29 219 154 Depreciation and amortisation - Tangible assets (owned) 272 251 - Tangible assets (held under hire purchase contracts) 20 32 - Goodwill amortisation 1,149 1,149 1,441 1,432 3 NET INTEREST 2005 2004 £'000 £'000 Interest payable and other similar charges (4) (7) Interest receivable and other similar income 40 6 36 (1) 4 TAXATION There are tax losses of approximately £7,136,000 (2004: £5,747,000) and excess capital allowances of £618,000 (2004:£422,000) to carry forward and use against future profits of the same trade. These losses represent a potential deferred tax asset of approximately £2,140,000 (2004: £1,850,000) at a corporation tax rate of 30%. Of this amount £1,724,000 was recognised at 31 December 2004. No additional deferred tax asset has been recognised during 2005 (see note 7). There is no current tax charge for the year. An explanation of the tax position compared to the Group's reported results is set out below: 2005 2004 £'000 £'000 (Loss)/profit on ordinary activities before (313) 219 taxation (Loss)/profit on ordinary activities before taxation multiplied by small companies corporation tax rate of 30% (94) 66 Effect of: Surplus of depreciation compared to capital allowances 46 (30) Tax deduction in respect of share options (413) - Amortisation of goodwill 345 345 Other expenses not deductible 38 38 Loss carried forward to be offset against future taxable trading profits 104 189 Accumulated losses utilised in the year (29) (609) Other differences 3 1 Current tax charge for the period - - 5 (LOSS)/EARNINGS PER SHARE The calculation for the basic earnings per share is based upon the (loss)/profit attributable to ordinary shareholders divided by the weighted average number of shares on issue during the period. Reconciliation of the (loss)/profit and weighted average number of shares used in the calculations are set out below: 2005 2004 (Loss)/profit on ordinary activities after tax (£'000) (313) 1,943 Weighted average number of shares 376,573,277 358,342,580 Amount of (loss)/profit per share in pence (0.08p) 0.54p On a fully diluted basis the weighted average number of shares is 411,393,393 (2004: 389,699,303) and amount of loss per share is 0.08p. (2004 profit per share of 0.5p) 6 DEBTORS Group Company 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Trade debtors 3,638 2,416 - - Amounts owed by group undertakings - - 297 943 Deferred taxation (refer note 7) - less than one year 570 - - - - more than one year 1,154 1,724 - - Other debtors 197 81 60 - Prepayments and accrued income 591 530 25 1 6,150 4,751 382 944 7 DEFERRED TAXATION A deferred tax asset of £1,724,000 recognised in 2004 remains unchanged at 31 December 2005. The asset represents the value of the unrelieved tax losses and excess capital allowances (see note 4) the benefit of which is expected to be realised in the foreseeable future. 8 CREDITORS Group Company 2005 2004 2005 2004 £'000 £'000 £'000 £'000 Amounts falling due within one year Loan notes 45 45 45 45 Amounts owed to group undertakings - - - 6 Trade creditors 2,599 2,293 - - Corporation tax 6 50 - - Social security and other taxes 445 592 - - Other creditors 1 315 - 226 Accruals and deferred income 1,211 730 7 14 Amount due under hire purchase contracts 10 14 - - 4,317 4,039 52 291 Amounts falling due after more than one year Loan notes 32 77 32 77 Amounts due under hire purchase contracts 33 44 - - 65 12 32 77 9 NET CASH FLOW FROM OPERATING ACTIVITIES 2005 2004 £'000 £'000 Operating (loss)/profit (349) 219 Depreciation 292 283 Loss on disposals of fixed asset 13 28 Amortisation 1,149 1,149 Increase in debtors (1,399) (329) Increase in creditors and provisions 326 100 Net cash flow from operating activities 32 1,450 10 ANALYSIS OF CHANGES IN NET FUNDS 2004 Cash flow 2005 £'000 £'000 £'000 Cash at bank and in hand 1,937 (255) 1,682 Debt (122) 45 (77) Finance leases (58) 15 (43) 1,757 (195) 1,562 - Ends - This information is provided by RNS The company news service from the London Stock Exchange

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