Deal Group Media PLC 29 March 2005 Press Release 29 March 2005 Deal Group Media plc ("Deal Group Media" 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 2004. Highlights • Turnover increased to £14,802,000 (9 months in 2003: £2,965,000) • EBITDA increased to £1,652,000 (9 months in 2003: Loss £926,000) • Pre-tax profit up to £219,000 (9 months in 2003: Loss £1,832,000) • Diluted earnings per share up to 0.50p (9 months in 2003: Diluted loss per share of 1.15p) • £300,000 invested in reporting systems and technology in last quarter of 2004 in anticipation of future growth Commenting on the results, Adrian Moss, Chief Executive, said: "The Group underwent a complete transformation from 2003 to 2004, from being loss making to a profitable Group with three distinct products sold through the UK trading name 'dgm'. Our expansion has been fuelled by significant growth in the online marketing sector, that in turn has been driven by broadband penetration and an increased consumers' propensity to spend online. The outlook for the Group continues to be extremely positive." For further information, please contact: Deal Group Media plc Adrian Moss / Andrew Dickson + 44 (0) 20 7691 1880 adrian.moss@dgm-uk.com www.dealgroupmediaplc.com andrew.dickson@dgm-uk.com Durlacher Limited Richard Swindells / Katherine Roe + 44 (0) 20 7459 3600 richard.swindells@durlacher.com www.durlacher.com katherine.roe@durlacher.com Media enquiries: Abchurch Communications Ariane Comstive / Julian Bosdet Tel: +44 (0) 20 7398 7700 ariane.comstive@abchurch-group.com www.abchurch-group.com Chairman's statement for the year ended 31 December 2004 Deal Group Media plc has seen a complete transformation in the performance of the business since the reverse takeover of The Deal Group in October 2003. The Group has moved from being loss making to a profitable Group with three distinct products sold through the UK trading name 'dgm'. During 2004, the Group achieved an above market growth rate with turnover increasing to £14,802,000 (9 months in 2003: £2,965,000) that produced pre-tax profit of £219,000 (9 months in 2003: Loss £1,832,000). On an EBITDA basis, the Group generated £1,652,000 in 2004 (9 months in 2003: Loss £926,000). The Group generated operating cash flow of £1,450,000 which led to an overall increase in cash during the year of £1,376,000. Performance in the final quarter of 2004 when compared to that of 2003 on a like for like basis shows that turnover has increased 170% and the Group has moved from an operating loss of £662,000 to an operating profit of £965,000 for that period. Key Business Drivers The growth of the Group has been driven by a number of factors, both external and internal: There has been an increase in online advertising spend, which in the UK has been influenced by a combination of consumers' propensity to purchase goods online and broadband penetration. An internal focus on selling our range of products to our existing client base alongside a drive to acquire new clients. Our client base reflects closely what consumers are purchasing online, in particular, retail, travel, gaming, telecoms and financial products. Strategy The Board's aim is to continue to grow dgm above the industry average and we believe that we will be able to do this through a combination of approaches:- • Continuing to optimise the existing clients' return on online spending. Last year 67% of the Group's gross profit growth can be attributed to this approach. • Winning new clients is a key part of the Group's continuing success. To ensure a regular pipeline of additional business, dgm tripled the size of its sales team in 2004 and is targeting blue-chip companies that are capable of delivering at a material gross profit level. This strategy is already proving to be a success. • In addition, the Group is looking to diversify its portfolio of services through complementary acquisitions. Management will continue to focus on the UK operations, although advantage will be taken of any acquisition opportunities in Europe. Any target company needs to have an immediate positive impact on the Group's earnings and a committed, experienced management team. Board Changes In January 2005 I was appointed to the Board as Non-Executive Chairman. My appointment was announced at the same time as Andrew Dickson, who was appointed as Finance Director. I believe the appointment of a Finance Director is a sign of an evolving business and facilitates growth within an environment of strong financial governance. Additionally, it frees up the Chief Executive to focus on the strategic evolution of the Group in a rapidly changing sector. David Lees stepped down as Non-Executive Chairman but remains on the board as a Non-Executive Director, and I am pleased to have retained his knowledge of the business on the Board. Review of operations The Group has undergone a massive transformation at an operational level to reflect the increase in the size of the business and to provide a structure for the anticipated growth. Aside from the integration of The Deal Group into IBNet plc, the UK operations have been restructured, the product channels have been rebranded and the technical infrastructure has been upgraded. Products The rebranding of the UK operations as 'dgm' has coincided with the rebrand of the three distinct product channels: dgmPerformance, dgmAdNetwork, dgmSearchLab: - 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. Advertisers pay once a predetermined action has been completed by a consumer, such as the ordering of a brochure or the sale of a product. The fee paid for this cost-per-acquisition model is influenced by market forces and by how much an advertiser is willing to pay to generate a result. dgmAdNetwork offers low cost advertising on a variety of large portals and content websites. dgm acquires inventory at a low cost from various media owners which is bundled and sold to advertisers at a discounted rate. The advantage to advertisers is that the space is acquired at relatively inexpensive rates on high traffic websites that enhance the prospect of a return on spend. dgmSearchLab operates in two distinct areas of search engine marketing. The first is the fine tuning of clients' websites to allow superior listings on search engines. Revenues are based on fixed fees and on improved listings on search engines. The second area involves the management of clients 'pay for performance' search engine campaigns. dgm bids on behalf of advertisers for listings on specific ' keyword' search terms. The advertiser is listed as a 'Sponsored Link'. dgm derives its revenue from fees for the management of campaigns and commission from the search engines on the media spend. Technology In the last quarter of 2004, the Group invested approximately £300,000 into dgm in anticipation of future growth. Much of this was spent on enhancing dgm's online reporting systems that allows the user to track the success of their campaigns and to improve the robustness of our systems. Such improvements are necessary to maintain a competitive advantage and provide a service that befits dgm's evolving blue-chip client base. The changes have allowed dgm to compete successfully for larger customers who have stringent procurement processes in place and require an extensive level of real time reporting and high availability of service. People As a young company we have an enthusiastic and talented team delivering for our clients. They are supported through training programmes to develop them to meet the future challenges and their goals are aligned through share options and bonus schemes. The management of the Group has been strengthened by the appointment of Mark Hopwood as Chief Technical Officer, who has extensive experience in interactive marketing and best practice IT management having spent time with PwC Technical Consulting and WPP Group companies, and Jonathan Lines as Chief Marketing Officer, who was formerly sales and marketing Director at fish4 and the BBC's commercial web operation. With these two key appointments, and our approach to developing our team, I feel that the Group is well placed to achieve its objectives. Market The online advertising market has been extremely buoyant in the last 12 months, currently accounting for 3.4 per cent of total advertising spend (IAB H1 2004) and forecasters remain optimistic of further growth. The growth is being fuelled by online consumer spending and broadband penetration. Online consumer spending is forecast to more than double from £28 billion in 2004 to £72 billion in 2007 (IMRG & Forester Research), whilst broadband penetration in the UK is expected to grow from 10.4 per cent. in 2004 to 42.3 per cent. in 2010 (The Future Foundation / Technology Futures / Volterra 2004). This level of growth is also reflected in analyst estimates for UK online advertising spend which predict that it will double by 2010 (PWC/ Interactive Advertising Bureau/Keynote 2005). The perception that online goods are more attractively priced than goods on the high street and the visibility between online advertising and consumer response is likely to make the online advertising industry more robust to economic pressures than other advertising channels. Within this context and the highly positive market forecasts, the outlook for the Group remains strong. Lord Stone of Blackheath Chairman Consolidated profit and loss account for the year ended 31 December 2004 Year to 9 months to 31 Dec 04 31 Dec 03 NOTES £'000 £'000 £'000 £'000 TURNOVER 2 - Continuing activities 14,802 1,097 - Acquisition - 1,868 14,802 2,965 COST OF SALES (9,045) (2,038) GROSS PROFIT 5,757 927 ADMINISTRATIVE EXPENSES - Amortisation of goodwill (1,149) (485) - Depreciation of tangible fixed assets (283) (119) - Other administrative expenses (4,105) (1,853) (5,537) (2,457) OPERATING PROFIT/(LOSS) 2 - Continuing activities 220 (1,247) - Acquisition - (283) 220 (1,530) Exceptional items - (280) Profit/(loss) after exceptional items 220 (1,810) NET INTEREST 3 (1) (22) PROFIT/(LOSS) ON ORDINARY ACTIVITIES 219 (1,832) TAXATION 4 1,724 - TOTAL PROFIT/(LOSS) AFTER TAXATION FOR THE PERIOD 1,943 (1,832) BASIC EARNINGS/(LOSS) PER SHARE 5 0.54p (1.15p) FULLY DILUTED EARNINGS/(LOSS) PER SHARE 5 0.50p (1.15p) There were no other recognised gains or losses other than the results for the periods. All operations are continuing. The accompanying accounting policies and notes form part of these financial statements. Consolidated balance sheet as at 31 December 2004 As at As at 31 Dec 04 31 Dec 03 NOTES £'000 £'000 £'000 £'000 FIXED ASSETS Intangible fixed assets 6,962 8,111 Tangible fixed assets 498 622 7,460 8,733 CURRENT ASSETS Debtors 6 4,751 2,698 Cash at bank and in hand 1,937 561 6,688 3,259 CURRENT LIABILITIES Creditors: Amounts falling due within one year 7 (4,039) (4,541) Net current assets/(liabilities) 2,649 (1,282) Total assets less current liabilities 10,109 7,451 Creditors: Amounts falling due after more than one year 7 (121) (193) 9,988 7,258 CAPITAL AND RESERVES Called up share capital 3,715 3,504 Capital redemption reserve 13,188 13,188 Share premium account 21,262 20,686 38,165 37,378 Profit and loss account (28,177) (30,120) Shareholders' funds 9,988 7,258 The financial statements were approved by the board of directors and signed on their behalf on 24 March 2005. Andrew Dickson Director Consolidated cash flow statement for the year ended 31 December 2004 Year to 9 months to 31 Dec 04 31 Dec 03 NOTES £'000 £'000 £'000 £'000 Net cash inflow/(outflow) from operating activities 8 1,450 (817) Returns on investments and servicing of finance Interest received 6 5 Interest paid (7) (25) (1) (20) Corporation tax paid (56) - Capital expenditure and financial investments Purchase of tangible fixed assets (240) (332) Sale of current asset investment - 84 Sale of tangible fixed assets 199 - (41) (248) Acquisition Cash acquired on acquisition - 169 Expenses paid in connection with Acquisition - (342) - (173) Net cash inflow/(outflow) before financing 1,352 (1,258) Financing Issue of ordinary share capital 287 1,750 Capital element of finance lease rentals (169) (7) Repayment of loan notes (94) (28) 24 1,715 Increase in cash 9 1,376 457 Notes to the financial statements for the year 31 December 2004 1. ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost convention. The financial statements have been prepared for the year ended 31 December 2004. Comparative figures were prepared for the nine month period ended 31 December 2003. 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. 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 PROFIT The turnover is attributable to the principal activities, which are mainly carried out in the United Kingdom and Europe. An analysis of turnover and operating profit by geographical market is given below: Turnover Operating profit/(loss) Year to 9 months to Year to 9 months to 31 Dec 04 31 Dec 03 31 Dec 04 31 Dec 03 £'000 £'000 £'000 £'000 United Kingdom 13,422 2,146 368 (1,145) Overseas 1,380 819 (148) (385) 14,802 2,965 220 (1,530) No segmental analysis of net assets has been provided, as the assets and liabilities attributable to overseas sales are not separately identified. Operating profit is stated after charging: Year to 9 months to 31 Dec 04 31 Dec 03 £'000 £'000 £'000 £'000 Auditors' remuneration - Audit services 33 31 - Non audit services 18 20 51 51 Operating lease rentals - land and buildings 125 70 - equipment 29 - 154 70 Depreciation and amortisation - Tangible fixed assets (owned) 251 110 - Tangible fixed assets (held under hire purchase contracts) 32 9 - Goodwill amortisation 1,149 485 1,432 604 3 NET INTEREST Year to 9 months to 31 Dec 04 31 Dec 03 £'000 £'000 Interest payable and other similar charges (7) (27) Interest receivable and other similar income 6 5 (1) (22) 4 TAXATION There are tax losses of approximately £5,747,000 (31 December 2003: £7,200,000) to carry forward and use against future profits of the same trades. These losses represent a potential deferred tax asset of approximately £1,724,000 (31 December 2003: £1,368,000) at a corporation tax rate of 30% (31 December 2003: 19%). This deferred tax asset has been recognised in the year resulting in a credit to the profit and loss account of £1,724,000. 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: Year to 9 months to 31 Dec 04 31 Dec 03 £'000 £'000 Profit/(loss) on ordinary activities before 219 (1,832) taxation Profit/(loss) on ordinary activities before 66 (348) taxation multiplied by corporation tax rate of 30% (2003: 19%) Effect of: Surplus of depreciation compared to capital allowances (30) 32 Amortisation of goodwill 345 74 Other expenses not deductible 38 13 Loss carried forward to be offset against future taxable trading profits 189 229 Accumulated losses utilised in the year (609) - Other differences 1 - Current tax charge for the period - - 5 EARNINGS/(LOSS) PER SHARE The calculation for the basic earnings per share is based upon the profit/ (loss) attributable to ordinary shareholders divided by the weighted average number of shares on issue during the period. Reconciliation of the profit/(loss) and weighted average number of shares used in the calculations are set out below: Year to 9 months to 31 Dec 04 31 Dec 03 Profit/(loss) on ordinary activities after tax 1,943 (1,832) (£'000) Weighted average number of shares 358,342,580 159,517,300 Amount of earnings/(loss) per share in pence 0.54p (1.15p) On a fully diluted basis the weighted average number of shares is 389,699,303 and amount of earnings per share is 0.5p 6 DEBTORS Group As at As at 31 Dec 04 31 Dec 03 £'000 £'000 Trade debtors 2,416 2,164 Amounts owed by group undertakings - - Deferred taxation 1,724 - Other debtors 81 85 Prepayments and accrued income 530 449 4,751 2,698 7 CREDITORS Group As at As at 31 Dec 04 31 Dec 03 £'000 £'000 Amounts falling due within one year Loan notes 45 591 Amounts owed to group undertakings - - Trade creditors 2,293 1,032 Corporation tax 50 106 Social security and other taxes 592 316 Other creditors 315 1,285 Accruals and deferred income 730 1,197 Amount due under hire purchase contracts 14 14 4,039 4,541 Amounts falling due after more than one year Loan notes 77 125 Amounts due under hire purchase contracts 44 68 121 193 All amounts fall due after one and within five years. The loan notes represent part of the consideration for the acquisition of Webgravity Limited. The loan notes are interest free and unsecured. Subsequent to the acquisition, a loan note repayment schedule was approved by the Board to discharge this liability by monthly instalments by August 2007. During 2004 £500,000 of loan notes were converted into ordinary shares. 8 NET CASH FLOW FROM OPERATING ACTIVITIES Year to 9 months to 31 Dec 04 31 Dec 03 £'000 £'000 Operating profit/(loss) 220 (1,530) Exceptional items - (280) Depreciation 283 119 Loss on sale of fixed assets 27 20 Loss on sale of investment - 22 Amortisation 1,149 485 (Increase) in debtors (329) (1,864) Increase in creditors and provisions 100 2,211 Net cash flow from operating activities 1,450 (817) 9 ANALYSIS OF CHANGES IN NET (DEBT)/FUNDS As at Non cash As at 31 Dec 03 Cash flow items 31 Dec 04 £'000 £'000 £'000 £'000 Cash at bank and in hand 561 1,376 - 1,937 Loan notes (716) 94 500 (122) Finance leases (82) 169 (145) (58) Net (debt)/funds (237) 1,639 355 1,757 10 Copies of this announcement will be available for collection from the Company's head office at Unit 800 Highgate Studios, 53 - 79 Highgate Road, London NW5 1TL - Ends - This information is provided by RNS The company news service from the London Stock Exchange