DGM results

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RNS Number:6642Z
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
END

FR SFLFWSSMSELD

[hpops]

Congratulations DGM on this set of results after what must have been the most taxing year imaginable. I hope that this marks a corner turned and look forward to increasing business through them over the next twelve months.

[drivetowin]

It will be interesting to see how investors react to these results but from a personal standpoint I must say that the results are much better than I expected.

Let's hope that the coming year proves to be less turbulent for DGM than 2005 and that in particular the technology issues can be fully resolved and staff complement stabilised.

[plussize.co.uk]

I'm not surprized at today's results. We have found that DGM are working harder and performing better for us than any other network.
The increase in turnover will continue into this year too. { we have seen a 12% rise this quarter [so far] over last }
Repricing the options to 5p for the staff is a good move, and will raise moral even more.
I like the idea of tackling Spain - the Hispanic web is really in it's infancy as far as affiliate goes, and none of the majors are in there yet.