IDE.L Regulatory News (IDE)

Cupid plc

Final Results for the year ended 31 December 2012 and Trading Update

Cupid plc (AIM: CUP), a global leader in online dating, is pleased to announce its final results for the year ended 31 December 2012 ('FY 2012') and an update on current trading.

Financial highlights

§ Revenues increased by 51% to £80.9m (FY 2011: £53.6m)

§ Adjusted EBITDA1 increased by 45% to £16.4m (FY 2011: £11.3m)

§ Revenues in Established Markets2 grew by 15% to £34.9m (FY 2011: £30.5m)

§ Revenues in New Markets3 grew by 102% to £44.8m (FY 2011: £22.2m)

§ Contribution margin percentage increased to 47% (FY 2011 44%)

§ Reported profit before tax increased by 31% to £9.2m (FY 2011: £7.0m)

§ Cash position increased to £14.1m at 31 Dec 2012 (31 Dec 2011: £7.8m)

§ Adjusted Earnings per Share (diluted) increased to 13.99p (FY 2011: 10.01p)

§ Proposed final dividend of 3.00p per share (FY11: 2.25p per share)

Operational highlights

§ Strong growth within existing international footprint

§ Continued focus on improvement in product quality and customer experience

§ Further growth in Mobile volumes

§ Two significant acquisitions, AGL and Uniform Dating, integrated into the Group

§ Significant strengthening of management team

Commenting on the results, Bill Dobbie, Chief Executive of Cupid plc, said:

"We are very pleased to be reporting such a strong set of results with a significant improvement in all key metrics against the prior year. In addition to the strong financials, it has again been a year of investment, both through acquisitions, and also in our customer service levels, processes and procedures. We will continue this hard work to ensure significant steps are made towards our ambition to be an internationally recognised and admired leader in online dating and social discovery.

"Whilst it is still early in the year, we are confident that the business is well positioned for another year of healthy revenue growth, profitability and cash generation."

1Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, share based payments, acquisition costs and non-recurring French labour costs.

2 Established Markets are the UK, Australia, New Zealand, South Africa and Ireland.

3 New Markets are mainly USA, Canada, France, Italy, Spain, Germany plus any newly entered countries.

For further information please contact:

Notes to Editors:

§ Cupid plc listed on AIM in June 2010 and is a leading provider of online dating services

§ Cupid has built significant and growing revenues in 15 countries.

§ Cupid offers a wide variety of online dating services allowing members to interact with each other and access content available on the Group's websites. These websites are intended to appeal to dating users of diverse ages, cultures and social interest groups. The Group's most heavily visited websites include www.cupid.com www.flirt.com, www.benaughty.com and www.girlsdateforfree.com. The Group also promotes niche brands including www.datingforparents.com, www.indiandating.com, www.loveagain.com and www.uniformdating.com.

§ Cupid plc products are available across the web and across smartphone platforms.

§ Further information on the Company can be found at www.cupidplc.com.

Chairman's statement

Throughout 2012 Cupid plc has continued to grow into a truly international business. This growth has been generated whilst delivering strong financial returns, continuing to improve the quality of the customer experience and product innovations.

While our more established markets in the UK and Australia continued to perform very strongly I was particularly gratified to see the significant growth in 2012 in the newer markets of France and the USA. Revenue from our New Market segment is now greater than from our more Established Markets. As these New Markets are much larger in scale than our Established Markets this represents an exciting opportunity for the Company in the coming years.

During 2012 the strong organic growth of the Company has been complemented by several exciting additions. In July we acquired the Paris based business AGL along with several strong French and potentially international brands. In September the acquisition of Uniform Dating was completed, supported by a fundraising of newly issued capital. The Board of Cupid plc appreciates the shareholder support in completing the fundraising to support this acquisition and firmly believes that this is a niche brand that can continue to grow in the UK as well as developing internationally.

The Company continues to invest in innovative developments of new products and features and this is a core part of the business. All of our main products now allow users to access our products seamlessly via the web and across smartphone platforms such as Apple iOS and Android.

We continue to devote resources both to improving the quality of our member database and encouraging potential customers to utilise our products, over others in the market, whether they are seeking serious relationships or something more casual.

Over the past two years the business has grown in scale and our international footprint has increased significantly. We have continued to invest in the people, systems, policies and procedures to manage this growth. In the customer support function we have introduced a range of integrated tools to improve functionality and also the customer's experience.

The Company has ambitious growth plans and to assist in ensuring the achievement of its full potential we recently announced the recruitment of Niall Stirling as CFO, to replace Mark Doughty, who is now Commercial Director focussing on opening up new markets and identifying acquisition targets and Phil Gripton as Managing Director Dating Services. Niall and Phil both come with strong brand and marketing backgrounds, which I believe, will add to our senior team's skillset.

The Company has a strong financial position and a well-developed and robust product platform, both of which provide the Board with confidence in our ability to continue to execute on our growth strategy. The strong start to 2013 reinforces this view.

Finally I would like to take this opportunity to thank our shareholders for their support. The Board continues to value your support and we believe that the recent share buyback and the announcement of a dividend of 3.00p per share are positive steps towards creating and returning shareholder value.

George Elliott

Non Executive Chairman

5 March 2013

Chief Executive Officer's review

Review of 2012

This report is our third year as a public company, having come to the market in June 2010. I reminded myself of the initial 2012 target contained within the broker research - just over £30m revenue, a healthy profit, and to have a growing international presence. Over the 32 months since listing on AIM we have consistently delivered results that have been ahead of our IPO plan.

2012 has been another successful year, with revenues up 51% to £80.9m (FY 2011: £53.6m) and adjusted EBITDA up 45% to £16.4m (FY 2011: £11.3m).

The key driver of our strong revenue growth in 2012 has been organic development within our existing international footprint. We have seen particularly strong growth in our market share in France and the USA, both of which form part of our New Markets category along with our existing strong and growing positions in our Established Markets, especially the UK and Australia.

We estimate that the scale of the market opportunity within New Markets is approximately six times the market size of our Established Markets, therefore it is pleasing that we have continued to make inroads into this opportunity. Within New Markets we have reinforced our positions in both France and the USA in the second half of the 2012 with the acquisition of AGL and its small office in Paris, and the opening of a business development office in San Francisco.

Thinking longer term we will continue to commit to spend on marketing our products in countries such as India and Brazil. Where we see the ability to monetise strongly in any of these markets, or other developing economies, we will increase marketing and resource allocation.

We continue to grow strongly, expanding our international footprint, and look for earnings and value enhancing opportunities in the UK and overseas, with the ultimate goal of becoming an internationally recognised and admired leader in online dating and social discovery.

The Market

Internet dating, relationship building and socialising via the internet continue to gain social acceptance as people use the internet not only to find potential partners, but common interests, companionship, advice, travel tips and for many other social interactions - and even in some sectors just having fun. The market is clearly global and growing. Our opportunity is twofold: we believe Cupid can continue to increase its market share within the countries in which we currently operate and secondly there is also additional potential for expansion into countries that are currently outside our existing monetisation footprint - such as most of the countries of South America, Asia and in the longer term Africa.

Mobile access to our content continues apace. In Q4 2012 we saw 30% (Q4 2011 - 22%) of new registrations coming via mobile devices. All our main products are available on the web and across smartphone platforms such as Apple iOS and Android and tablet devices.

Cupid's products continue to operate across a wide spectrum of dating and relationship activity from the traditional dating product Cupid.com and the recently launched serious relationship product LoveAgain.com through to the cheeky Benaughty.com.

Within our marketplace we have seen the recent emergence of a category called "social discovery" broadening the appeal of online dating into markets where people simply want to meet new people with similar interests. We will be addressing this new opportunity through our Cupid Labs division.

Operational Review

-People

The growth of our business internationally allows us to leverage the large team and knowledge base that we have developed in Ukraine where we now have 566 team members. This is complemented by operational teams in the UK, Germany, France, Cyprus and the USA - once more I thank them all for their effort and commitment, and look forward to a continued bright future for them and the Company.

-Quality

We are committed to building the existing Cupid plc range of products into a handful of growing global niche products that will eventually match and possibly overtake our existing portfolio. Uniform Dating, and the products we evolve for the mature relationships sector (LoveAgain and Mature Dating), are our first two niche products. We are currently investigating the addition of other globally expandable niches during 2013.

We continue to invest further in customer service where we believe a quality offering will build the brand in the long term. We have increased the number of people within our support team from 93 to 132 during the year while also upgrading the systems at the call centre to allow better tracking and monitoring. Our customer support team now operates in more than eight languages to offer a 24x7 service across all of our key markets, checking the quality of new members, improving the quality of our existing member database, screening for inappropriate behaviour and responding swiftly to any questions from members.

The quality of our clients' user experience is of paramount importance to us and we take any issues of customer experience very seriously. The Company devotes significant amount of time and resource, including a dedicated team of 10 staff, actively seeking to detect and close down any suspicious profiles using our systems and services.

We intend to introduce another set of quality metrics to the business that starts to measure customer re-engagement and satisfaction in our traditional and niche segments, as well as relevant measures of customer satisfaction in our casual products. In 2013 therefore we are planning an Independent audit of customer experience as well as an independent third party audit of the member database.

-Brands

The largest single cost within Cupid plc is our marketing spend which is targeted specifically at acquiring registrations and converting them to paying subscribers. Our ability to spend this wisely has been developed over seven years, and we believe that this experience and pricing power is one of the barriers to successful growth for other businesses wishing to compete in this market.

Our marketing strategy continues to be predominantly digital reinforced by offline advertising to support brand awareness. During 2012 our direct marketing spend of £43.0m was a 44% increase on the previous year (FY 2011: £29.9m) and our marketing team continues to utilise our software platform to spend wisely across a range of marketing channels to ensure that we achieve the best return on investment. We also ensure that we do not depend too heavily on a single marketing channel, so that we have greater control of our cost to acquire members and subscribers.

During 2012 our marketing spend was allocated across a combination of Google, direct advertising deals, mobile advertising networks, affiliate networks, Facebook, TV, radio and billboard. We see this blend and mix vary from country to country and also month to month as pricing and effectiveness varies.

In 2013 we will be developing a stronger brand identity for our key products, which will include a better understanding of consumer needs, differentiating our marketing recruitment and retention strategies across traditional, casual and niche brands, in order to ensure that we optimise their growth.

-Innovation

We firmly believe that in dating and social discovery, the "one size fits all" strategy is not the only approach. We see brands such as LoveAgain, Dating for Parents and Uniform Dating all forming part of a niche and community strategy. This strategy does not require the same level of scale for each of the sites as is needed with a more general global approach. We believe that each niche can be of a reasonable scale in its own right within each country, and many can be taken into international markets. We also recognize that within niche brands and communities it is important that the products have a strong community feel and distinct identity, and we are therefore planning to invest in product quality and branding to match that requirement.

Our Cupid Labs division has been established to explore and develop opportunities outside our core dating business but leveraging our proprietary technology and know-how. Towards the end of 2012 Cupid launched Canoodle.com, a dating site that uses social discovery techniques to connect people with the same interests and who like the same things. This is our first offering into this market via our newly established Cupid Labs division and further products are under test for launch later this year.

-Acquisitions

Over the course of 2012 we have acquired the FriendsReunitedDating license, several French and Italian databases and domains, AGL the Paris based dating company and the UK based Uniform Dating business. We continue to believe that our strong organic growth can be enhanced by such selective acquisitions, allowing us to migrate the acquired products on to our existing platform and leverage our existing cost base.

The FriendsReunitedDating business and Paris-based AGL have been successfully migrated onto the Company's existing Flex software platform, and we have chosen to retain a small team in Paris with French country expertise.

In September 2012 the acquisition of Uniform Dating was completed, supported by a fundraising of £3.6m of newly issued capital. This is a good quality niche brand that has the potential to continue to grow in the UK and develop internationally. We are pleased to report that Uniform Dating trading is progressing to plan and that it will be launched in USA and Australia in the second half of this year.

We are often asked about the role M&A plays in the growth of Cupid plc. Since the IPO of Cupid plc at the end of June 2010 we have invested £21.7m in acquisitions to help enhance our product and territory offering. When acquired, these businesses had combined total revenues of £12.8m. The sites acquired are then transferred onto our proprietary Flex software platform, where they can be rolled out to new markets and marketed more widely using our marketing channels. These acquisitions, including those just made in the second half of 2012, now have total annual revenues of around £26.7m, a 109% increase overall.

-Focus

As we broaden our business, both geographically and in terms of product, it is vital that we structure ourselves to provide the right focus on these competing areas. Phil Gripton has joined us as Managing Director Dating Services with the remit to drive more customer orientation, revenue and profitability from our core business. He will be supported in this by Tatyana Seredyuk, who will be leading a dedicated team focussed on the key US market. Vladimir Levykin is now leading our new, Cupid Labs division. Mark Doughty, as Commercial Director, is now focussed on opening up new markets and identifying potential acquisition targets. This structure gives us a clear focus on the areas that will make a difference.

Financial Review

At £80.9m, our total revenue for 2012 is up 51% on 2011 (FY 2011: £53.6m) while contribution of £37.9m is up by 60% (FY 2011: £23.6m). This result comes from continued growth in revenue and profit across all three segments.

Our split of revenues and contribution into three segments allows us to monitor progress in those markets that we have entered more recently versus those in which we have been participating for longer. For consistency, and to enable comparison the countries included within each territory are the same as 2011 and 2010.

Established Markets:

Our most established market position (our "Established Markets") is in the UK, Australia, New Zealand South Africa and Ireland. We have grown our revenue by 15% from FY 2011 to FY 2012 within these countries to £34.9m. These established markets, where we have a firm base of members and subscribers, are very profitable for us. These countries generate a 55% profit contribution and we expect ongoing revenue growth within these countries to be at a sustained rate of around 10%.

New Markets:

The new markets that we have entered within the past three years (our "New Markets") include the USA, Canada, France, Italy, Spain and Germany plus any other newly entered countries. Our revenues within these countries are growing even faster than our revenues within the more established markets, though from a lower initial market share. Our revenue in these countries combined was £44.8m in 2012, a 102% increase on 2011 (FY 2011: £22.2m). During 2012 revenue from New Markets has overtaken the Established Markets.

We continue to market heavily within these New Markets as we see significant potential for more growth. As we grow rapidly, our online marketing spend is high as a percentage of revenues and in 2012 the rate of direct marketing spend was 59% of revenues, compared to 45% in Established Markets, thereby generating a 41% profit contribution. As each of these markets becomes more established for us, we see a trend where we achieve user critical mass thereby allowing a lower percentage of marketing spend and improved profit margin, consistent with the Established Markets.

Developing Territories:

Those markets that have a medium to longer term potential for Cupid plc we classify as Developing Territories. These include Brazil and India. Our revenues within these countries continue to grow but are still a relatively small part of the business.

Group Profit:

Our adjusted EBITDA shows significant growth, up by 45% to £16.4m (FY 2011: £11.3m)

During 2012 the cost of doing business in several of the New Markets such as the USA, Germany and France, being much greater scale and complexity, has had an impact on Other Cost of Sales and Overheads. This has included an increase in staffing costs, as well as costs associated with delivery of a reliable product such as the cost of a second server centre, based in North America, the cost of delivering millions of email messages to members, providing additional member ID filters and membership fee processing costs.

The policy of amortisation of intangible assets includes the writing down over seven years the value of all domains purchased.

Acquisition costs includes the cost of completing M&A as well as non-recurring employment costs associated with staff in Paris who were not required following the transition of the AGL products on to the Cupid plc Flex platform.

First half versus second half:

An important feature of our industry is the seasonal trend. The early part of the year is seen as a good time to attract the customer's attention and the Company's marketing spend in 2012 was weighted accordingly. Therefore from January 2012 the Company targeted an increase in marketing spend across several key markets such as the New Markets of USA and France to deliver a period of very strong revenue growth.

This higher marketing spend in the first half of the year has an impact on the annual phasing of profitability, with the second half of the year producing increased profitability due to stable revenues on slightly lower marketing spend.

With the impact of the second half acquisitions excluded it can be seen that in H1 and H2 of 2012, revenues were similar, with £38.6m of revenue in H1 versus £39.0m of revenue in H2, whilst marketing spend was £5.1m lower in H2 than H1, excluding the impact of the second half acquisitions.

Statement of Cash Flows

The Group's cash balance was £14.1m at 31 December 2012, up 82% from £7.8m at 31 December 2011.

In FY 2012 the cash flow generated from operations was £15.1m a 346% increase on last year (FY 2011: £3.4m).

The principal reason for this improvement is the management of gateway debtors, where the balances have not increased significantly during the years despite the increase in revenue.

Investing activities during the 2012 financial year include the purchases of AGL and Uniform Dating.

Capitalised development expenditure reflects the increased investment made in innovative new products and technologies during 2012.

The cash flows from financing activities include the September 2012 placing of 1.8million shares at £2.00 each to finance the purchase of the Uniform Dating business and the exercising of share options by employees and a director. In addition a dividend of 2.25p per share was paid in June 2012.

Trading KPIs

1 ARPU is the 12 monthly average revenue (net of VAT) per subscriber

2 Subscriber Acquisition Cost (SAC) is the 12 monthly average of the monthly marketing cost divided by the monthly number of new subscribers

3 Monthly churn is the 12 monthly average of cancelled subscribers divided by monthly subscribers

4New subscribers is the total number of new subscribers in the year

5Subscriber is the 12 monthly average number of subscribers

6 Active users are members who have logged into the site at least once in the 6 months prior to December.

ARPU has increased by 29% to £12.67 (FY 2011: £9.85) due a combination of pricing models, customers paying for additional features and country mix.

Cost to acquire subscribers has increased by 8% to £23.64 (FY 2011: £21.82) due to changes in marketing mix and country mix.

Monthly churn has increased to 29.1% (FY 2011: 22.5%) due to a combination of the increased value of subscriptions from New Markets, which have higher churn, and slightly higher churn in some Established Markets. New Markets now amount to a higher proportion of the customer base than in 2011, with the two largest countries within New Markets having average monthly churn in 2012 of 37% in USA and 35% in France. The acquisition of AGL should reduce the churn in France by giving us more critical mass in that market.

The number of new subscribers we have secured at 1.78m is up by 31% (FY 2011: 1.36m).

The average number of subscribers has increased by 19% to 533k (FY 2011: 447k) and the number of active users has increased by 18% to 19.2m (FY 2011: 16.3m).

Share buyback

On 7 January 2013 we started a share buyback as a means to reinforce shareholder value utilising the strong cash flows generated by the company. Between 7 January and 1 March 2013 1.725m shares, at a total cash cost of £3.0m, had been acquired through the buyback.

Dividend

The directors propose a final ordinary dividend in respect of the current financial year of 3.00p per share (FY 2011: total dividend of 2.25p per share). This has not been included within creditors, as it was not approved before the year-end. Subject to approval at the Annual General Meeting on 21 June 2013, the final dividend will be paid on 2 July 2013 to shareholders on the register on 7 June 2013.

The level of dividend is intended to deliver a dividend yield the directors believe is appropriate for a company of this size and nature. The Board intends to continue with a progressive dividend policy based on the Group's retained annual earnings. The level of distributions will, however, be subject to the Group's working capital requirements and the ongoing needs of the business.

Trading Update and Outlook for 2013

Though it is still early in the financial year we have had another strong start in 2013.

As well as growing the scale of our business during 2013, our intention is to continue to develop and enhance the quality of consumer experience and brand positioning of some of the potentially higher quality niche brands at a faster rate than in 2012. This reflects our view that it is important for the Company to have a medium term goal of improved quality in the eyes of the consumer.

We believe that this will cost an additional £2m in brand building marketing across several of our key profit generating markets and our social discovery brands during 2013. We believe that this will result in improved overall future value in these brands and an enhanced long term qualitative positioning of the Cupid plc group.

We are confident that the business is well positioned for another year of strong revenue growth, profitability and cash generation.

Overall we believe that the scale of the market opportunity justifies our five year goal for the business of achieving well over 1m subscribers globally through operating a small portfolio of distinctive niche brands.

We also believe that focussing more heavily on quality of service, the customer experience and building clearly differentiated brands will be the key to improving the sustainability and quality of our financial performance and providing the best platform for future growth.

We remain resolute in our ambition to be an internationally recognised and admired leader in online dating and social discovery.

Bill Dobbie

Chief Executive Officer

5 March 2013

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2012

The Company has elected to take the exemption under section 408 of the Companies Act 2006 to not present the parent company statement of comprehensive income.

Consolidated Balance Sheet

at 31 December 2012

Consolidated statement of changes in equity

Cash Flow Statements

for the year ended 31 December 2012

Notes

(forming part of the financial statements)

1 Background and basis of preparation

Cupid plc is a company incorporated and domiciled in the UK. Its registered office is at 7 Castle Street, Edinburgh EH2 3AH.

The financial information set out in the announcement does not constitute the company's statutory accounts for the years ended 31 December 2012 or 2011. The financial information for 2011 is derived from the statutory accounts for 2011 which have been delivered to the registrar of companies. The auditor has reported on the 2011 accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. The statutory accounts for 2012 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies in due course.

2 Acquisition of subsidiaries

AGL

On 23 July 2012 the Company acquired 100% of the share capital of French dating company Assistance Genie Logiciel (AGL), for a total consideration of £3.0m (€3.7m). The consideration was satisfied by cash and there is no deferred consideration. The Company acquired this business due to the potential for international expansion offered by its brands, and to enable the Company to become one of the largest online dating businesses in France.

Goodwill arose on the acquisition because of the difference between the cost of the acquisition and the book value of the net assets acquired. This represents the value of synergies that will be realised by the Group on integration. The fair value of the identifiable assets, consisting of domain names, trademarks and copyright, customer databases and contracts with suppliers and partners was £2,668,000, resulting in goodwill of £352,000.

Effect of acquisition

The company incurred expenses of acquisition totalling £93,000 that were expensed. Post-acquisition restructuring costs of £535,000 were also incurred.

The acquisition contributed revenue of £1.8m and an operating profit of £0.1m in the period from acquisition to 31 December 2012.

Notes (continued)

2 Acquisition of subsidiaries (continued)

Uniform Dating (continued)

On 14 September 2012 the Company acquired the entire issued share capital of NSI (Holdings) Limited, trading as Uniform Dating, for a consideration of up to £7.2m. The consideration comprises an initial cash consideration of £3.8m (£3.6m on completion and a £0.2m adjustment based on net assets upon acquisition), up to £2.0m deferred consideration payable in March 2013, up to £1.0m deferred consideration payable in July 2013, and a further £0.4m deferred consideration payable based on EBITDA performance during the first six months of 2013. The Company acquired this business due to the strength of the niche Uniform Dating brand and the opportunity to grow the brand internationally.

Goodwill arose on the acquisition because of the difference between the cost of the acquisition and the book value of the net assets acquired. This represents the value of synergies that will be realised by the Group on integration. The fair value of the identifiable assets, consisting of domain names, trademarks and copyright, customer databases and contracts with suppliers and partners was £5,980,000, resulting in goodwill of £1,258,000.

Effect of acquisition

The company incurred expenses of acquisition totalling £37,000 which were expensed.

The acquisition contributed revenue of £1.5m and an operating profit of £0.5m in the period from acquisition to 31 December 2012.

Other acquisitions

On 2 February 2012, the Company entered a 10 year lease agreement with FriendsDating Limited to acquire the rights to certain brands, include Friends Reunited Dating, Friends Over Fifty, and Swoon. The initial license fee paid was £0.6m.

3 Segmental analysis

The chief operating decision-maker has been identified as the Chief Executive Officer ("CEO") of the Company. The CEO reviews the Group's internal reporting in order to assess performance and to allocate resources. The Company has determined its operating segments based on these reports. The Group currently has three reportable segments, which are based upon geographical territories. The location of the user is the basis for determining the segment.

The three segments are:

·; Established Markets (UK, Australia, New Zealand, Ireland, South Africa)

·; New Markets (USA, Canada, France, Italy, Spain, Germany plus any newly entered countries)

·; Developing Territories (Brazil, India)

Notes (continued)

3 Segmental analysis (continued)

Each of the three segments has different performance characteristics within its Key Performance Indicators as they are at different levels of maturity and critical mass for the Group. The CEO uses this basis of assessing progress due to the volume of countries in which the Group operates increasing, and the characteristics being better aligned by maturity rather than international region.

Information regarding the operation of the reportable segments is included below. The CEO assesses the performance of the business at the operating segment level based on revenue and revenue less direct marketing costs, which gives a measure of the effectiveness and contribution after deduction of direct marketing costs.

The segment information is prepared using accounting policies consistent with those of the Group as a whole.

Therefore none of the Group's assets and liabilities are segmental assets and liabilities and are all unallocated for segmental disclosure purposes. Segmental assets and liabilities are not presented to the CEO and on this basis the Group has not disclosed details of segmental assets and liabilities.

All segments are continuing operations. No customer accounts for more than 10% of external revenues. There are no inter-segment transactions.

Notes (continued)

3 Segmental analysis (continued)

4 Taxation

Recognised in the income statement

Notes (continued)

4 Taxation (continued)

Tax recognised directly in equity (i.e. not in comprehensive income)

Reconciliation of effective tax rate

Notes (continued)

5 Earnings per share

Basic earnings per share

The calculation of basic earnings per share at 31 December 2012 was based on the profit attributable to ordinary shareholders of £7,306,000 (2011: £5,665,000) and a weighted average number of ordinary shares outstanding of 82,203,131 (2011: 79,299,393) calculated as follows:

Weighted average number of ordinary shares

Diluted earnings per share

The calculation of diluted earnings per share at 31 December 2012 was based on profit attributable to ordinary shareholders of £7,306,000 (2011: £5,665,000) and a weighted average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares of 1,448,116 (2011: 2,631,538), calculated as follows:

Weighted average number of ordinary shares (diluted)

The average market value of the company's shares for purposes of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.

Notes (continued)

5 Earnings per share (continued)

Adjusted earnings per share

The measure of adjusted earnings per share, as calculated above, is a non-statutory measure which we believe is useful to investors and is commonly used to evaluate the performance of businesses where M&A activity is significant.

6 Intangible assets - Group

Notes (continued)

6 Intangible assets - Group (continued)

Amortisation charge

The amortisation charge is recognised in the following line item in the consolidated statement of comprehensive income:

No impairment charges have been booked.

Impairment testing

Goodwill considered significant in comparison to the Group's total carrying amount of such assets has been allocated to cash generating units or groups of cash generating units as follows:

The recoverable amount of goodwill has been calculated with reference to its value in use. The key assumptions of this calculation are shown below:

Forecasts used for the 2013 to 2017 years reflect internal management forecasts for the Group based on past performance and the experience of growth rates. The growth rates used in the value in use calculation beyond 2017 reflect the average growth rate experienced by the online dating industry in North America and the UK. The Group itself is currently growing at a faster rate than the rest of the industry.

Based on an analysis of the impairment calculation's sensitivities to changes in key parameters (growth rate, discount rate and pre-tax cash flows) there are no probable scenarios where the CGU's recoverable amounts would fall below their carrying amount.

Notes (continued)

7 Trade and other payables - Group

8 Capital and reserves - Group

Share capital