Jaywing Regulatory News (JWNG)

27 Jun 2007 07:03

Digital Marketing Group PLC27 June 2007 Date: 27 June 2007On behalf of: Digital Marketing Group plc (the "Company" or the "Group")Embargoed: 0700hrs Digital Marketing Group plcPreliminary Results 2007 Digital Marketing Group plc (AIM: DIGI), the digital direct marketingspecialists, today announced its maiden results for the year ended 31 March2007. Performance Highlights • The admission to AIM of Digital Marketing Group via the merger with Seashell II • The completion of four excellent cornerstone acquisitions (HSM, Dig For Fire, Cheeze and Jaywing) • Post acquisition results of £8.39m Gross Profit (Revenue less direct cost of sales) and £2.00m EBITDA (before exceptional costs but after charges for share options) • When looked at on a pro forma annualised and normalised basis for the 12 months ended 31 March 2007 the acquired businesses would have delivered: - £23.95m Gross Profit up 25.1% on prior year - £6.0m EBITDA before charges for group share options, up 38.4% on prior year - £5.2m EBITDA after annualised company only costs of £0.85m • Each acquired business achieving to 31 March 2007 the financial forecasts upon which our investment decisions were based • Securing significant initial shareholder investment, excellent banking facilities and subsequent further shareholder equity investment enabling us to achieve a balance of sensible gearing and funds available for future acquisitions. Commenting on the maiden results, Stephen Davidson, Chairman of DigitalMarketing Group plc, said: "These are early days for our Group, but all our companies are performing wellboth individually and collectively. A stream of new business has been wonthrough cross referrals and joint pitches are also achieving notable successes.We are confident of sustaining high levels of organic growth and, selectively,attracting further complementary companies to the Digital Marketing Group." Ben Langdon, Chief Executive, added: "In 2006 we set out to create an innovative, highly focused group of companiesproviding personalised communications for clients across all digital and directchannels. The market context for the decision to create this business was (andremains) extremely encouraging". "Digital Marketing Group has now acquired four well established, profitable andfast growing businesses. In short; much achieved, much opportunity." Enquiries: Digital Marketing Group plc www.digitalmarketinggroup.co.ukBen Langdon, Chief Executive Via Redleaf Communications Cenkos SecuritiesAdrian Hargrave / Max Hartley Tel: 020 7397 8900 Redleaf CommunicationsEmma Kane/Sanna Lehtinen/Susan Quigley Tel: 020 7822 0200 Notes to Editors: • Publication quality photographs are available via Redleaf Communications. • Digital Marketing Group is not a "marketing services" group and will never seek to make investments in traditional marketing services such as mass-market advertising agencies, packaging, design, or sales promotion. • Digital Marketing Group aims to provide a range of integrated digital direct marketing services, coupled with database marketing skills. By doing this Digital Marketing Group offers clients the ability to coordinate their "online" and "offline" direct marketing strategy, thereby generating more effective digital direct marketing, higher brand-consumer loyalty and improved profitability. • Its strategy is to grow organically and by acquiring businesses with complementary skills in digital direct marketing. Chairman's Statement It is a pleasure to report our maiden results. We posted Revenue of £13.1m andprofit before tax and exceptional costs of £1.4m. After deducting exceptionalcosts of £0.3m, profit before tax on continuing operations amounted to £1.1m.EBITDA before exceptional costs was £2.0m. Gross Profit, which representsRevenue less direct costs of sales, is an important measure in our industry andI am therefore also pleased to report a Gross Profit of £8.4m. These results represent post acquisition figures to 31 March 2007 and comprise 6months for HSM Limited (HSM) and Scope Creative Marketing Limited (trading asDig For Fire), 3 months for Cheeze Limited and 2 months for Alphanumeric Group(trading as Jaywing). Two of these entities have moved their year ends to 31March from 31 December in order for us to report co-terminus results. Additionally under IFRS 5, our Financial Statements contain results fromdiscontinued operations relating to the activities of Seashell II Limited withwhom we merged in October 2006 prior to listing on AIM. In order therefore toaid comprehension we have provided in the Strategic Review, for illustrativepurposes, the results as if each business had been in the Group for the fullyear to 31 March 2007. The headline figures, for illustration purposes, showRevenue of £37.6m, Gross Profit of £24.0m and EBITDA of £5.2m. Importantly, these results fulfil our financial expectation for each of theGroup companies for this period. Digital Marketing Group is a recently formed Group of companies based in the UKand focused on the provision of direct digital marketing services to itsclients. Although the Group is recently formed, each of our companies: • has proven entrepreneurial leadership with a strong financial track record • is a recognised market leader • enjoys outstanding employee and client loyalty • is regionally based and serves a wide variety of largely blue chip clients • is passionate about a shared view of a highly dynamic and growing market and how to meet future client needs • includes senior managers who, as vendors, have invested significantly in the share capital of the Group. These are early days for our Group, but all of our companies are performing wellboth individually and collectively. A stream of new business has been wonthrough cross referrals and joint pitches are also achieving notable successes. In addition to the significant investments management has made in the Group,they are also incentivised by plans which reward the delivery of superior EPSgrowth over a three year period; we are very focused on delivering forshareholders as well as clients. I would like to thank fellow Board members for their support, and our employeesand managers under the exceptional leadership of Ben Langdon for these excellentresults and their commitment to our Group vision. In particular I would also like to thank the clients of Digital Marketing Groupfor their loyalty and support. A group in a business such as ours is genuinely 'nothing' without them. Our business is focused on delivering personalisedcommunications in a digital age. Our aim as a Group of integrated businesses isfocused on helping our clients generate more profitable and loyal customers, andimproved ROI ("Return On Investment") on marketing spend. We are confident of sustaining high levels of organic growth and, selectively,attracting further complementary companies to the Digital Marketing Group. On behalf of the Board, I would like to welcome Sarah Guest who will be joiningus as our new Financial Director and Company Secretary in September 2007, and tothank Bob Millington for his valued contribution in leading the Group throughthe AIM flotation process and the first phase of its development. We aredelighted to welcome Sarah Guest to our Board. She brings with her a wealth ofexperience and we are confident that she will make a substantial contribution tothe Group. Stephen Davidson Chairman 26 June 2007 Strategic Review In 2006 we set out to create an innovative, highly focused Group of businessesproviding personalised communications for clients across all digital and directchannels. Why? The market context for the decision to create this business was (and remains)extremely encouraging: • Advertising expenditure through traditional media channels is in decline (Source: Internet Advertising Bureau Factsheet: Online Ad Spend 2006); • Online advertising is experiencing significant growth, and is predicted to continue growing strongly into the future (Source: Internet Advertising Bureau Factsheet: Online Ad Spend 2006). According to a Pricewaterhouse Coopers report released on 21 June 2007 internet advertising in the UK will grow to £4.5bn and account for nearly 30% of all UK advertising by 2011; • The internet has emerged as a new tool for "direct" or one-to-one marketing; • The ongoing evolution of the internet creates a constant new feed of channels for brands to engage with consumers; • The growth in digital interactivity has created an explosion in customer data capture opportunities for brands. Most importantly, digital interactivity gives marketing clients much greater andmore identifiable returns on their investment: • Measurement: using technology, brands can now better measure the effectiveness of marketing campaigns by tracking "online" behaviour and transactions often in real-time; • Data capture: brands can develop direct and cost-effective communications with customers and gain a greater degree of consumer data than through traditional advertising channels, many of which contain no data capture opportunities; • Flexibility of medium: "online" campaigns can be adapted at very short notice (in some cases in real-time) as a result of information gleaned from previous marketing, which can increase the levels of personalisation and enhance ROI in the short-term at low cost. Core to the strategic vision of the Company therefore was that our businessfocused on the specialist area of digital direct marketing. Digital MarketingGroup is not a "marketing services" group and will never seek to makeinvestments in traditional marketing services such as mass-market advertisingagencies, packaging, design, or sales promotion. Upon the Company's admission to the Alternative Investment Market ("AIM") inOctober 2006, the company's stated objectives were to develop the businessthrough two key strategies: • "buy and build" through the acquisition of a number of businesses with complementary skills in digital direct marketing; and • "organic growth" driven by the inherent growth within the acquired businesses and the application of a group business development programme. Digital Marketing Group Digital Marketing Group has now acquired four well established, profitable andfast growing businesses. • HSM Limited (HSM) - one business with two divisions, Inbox Digital, an online marketing agency and HSM Telemarketing. The segmental reporting set out in Note 2 of the Consolidated Financial Statements combines these under outbound telemarketing and online marketing. • Scope Creative Marketing Limited (trades as Dig For Fire) - the UK's largest direct marketing agency operating exclusively outside of London. • Cheeze Limited (Cheeze) - one of the UK's leading digital media planning and buying agencies. • Alphanumeric Group (trades as Jaywing) - a leading provider of marketing, credit and fraud data services in the UK. All of the acquired businesses share common characteristics: • Desire to become part of a focused digital direct marketing company rather than a "marketing services" group • Proven expertise in their individual fields with experienced, high quality management teams • Entrepreneurially run, fast-growing, with complementary skills to one another in the focused area of digital direct marketing • All located outside of London where the focus of businesses in this sector is often more philosophically skewed to delivering ROI for clients, and where staff and client retention is strong. Through the acquisition of these businesses we can now offer clients the abilityto coordinate both their "online" and "offline" direct marketing strategyand concurrently offer the skills necessary to input, collect, analyse and applycustomer data in order to generate more effective digital direct marketing,higher brand-consumer loyalty and improved client profitability. The Group is now actively looking for selective and specialist businesses withskills in mobile marketing, and web development technology. The Group may alsoseek to acquire businesses in sectors where the need for digital directmarketing is most pronounced e.g. media and entertainment or where our platformcould significantly improve an existing business e.g. digital advertisingnetworks. In addition to our "buy and build" strategy we have implemented an organicgrowth strategy with a marketing and new business development programmetargeting clients who already use digital, direct or database marketing as partof their existing marketing mix. We implement a rigorous cross referralprogramme for new business across the existing client base of the Group, andhave had significant success already in attracting incremental revenue to theGroup. A recent example of a client that has chosen to employ the combined services ofDigital Marketing Group is Panasonic. As their digital communications agency,Inbox have already introduced other group companies to Panasonic and the resulthas been a highly successful joint viral video campaign through Inbox Digitaland Dig For Fire. The campaign which was featured on YouTube.com and myspace.comwas passed around the internet and not only was it viewed by over 1.3 millionpeople, it generated thousands of email registrations into the Panasonic eCRMprogramme which is managed by Inbox Digital. Another example of a blue-chip client using the combined services of DigitalMarketing Group is AA Business Services who have used a combination of Cheezefor online media planning and buying, Inbox Digital for online advertising andemail marketing, and HSM for telephone based sales generation and conversion.The AA prospect database is managed by HSM and the results of the entirecampaign activity can be measured centrally on a cost per click, cost perresponse, cost per sale and cost per channel basis. Importantly each of the companies within our group will now start to benefitfrom our own proprietary integrated Digital and Direct Marketing Platform "Digital Brain". In effect, Digital Brain is a combination of our individualagency technologies allowing us to offer our clients integrated data and contactstrategies in real time through digital and direct channels. Finally, the Group has an identified plan for integration produced incollaboration with the CEOs of each of the Group companies, and focused on thefollowing areas: • Marketing • Trade Press Relations • Office Premises • Financial Management • Information Technology • Human Resources • Telecomms • Insurance • Utilities 2006/7 Performance The Group was formed in October 2006 with the acquisitions of HSM and Dig ForFire. In January 2007 we acquired Cheeze and Jaywing. Our results represent post acquisition figures to March 2007 and comprise 6months for HSM and Dig For Fire, 3 months for Cheeze and 2 months for Jaywing.Onthis basis the Group achieved: • £8.39m Gross Profit (Revenue less direct cost of sales) • £2.00m EBITDA before exceptional costs but after charges for share options. Throughout the remainder of this report certain information is provided on anannualised and normalised basis. This information is provided for illustrativepurposes only. The information is based on the statutory accounts of theindividual entities prepared under UK GAAP, time apportioned where appropriate.The information has been adjusted for items which are considered to be nonrecurring, for example excess management remuneration, and excludes charges inrespect of share options. When looked at on a pro forma annualised and normalised basis the group'sresults for the 12 months ended 31 March 2007, as shown in the following table,would have been: • £23.95m Gross Profit up 25.1% on the previous year • £6.05m EBITDA for the four trading businesses before charges for group share options up 38.4% on the previous year • £5.2m EBITDA after annualised parent company only costs of £0.85m. The table below shows the summarised contributions of each Group companytogether with illustrative comparatives for the previous year. 06/07 annualised 05/06 annualised % Growth Gross Gross Gross Profit EBITDA Profit EBITDA Profit EBITDA £M £M £M £M yr/yr % yr/yr % HSM 5.81 1.16 4.05 0.70 43.5% 65.7% Dig For Fire 5.46 1.55 5.14 1.41 6.2% 9.9% Cheeze 2.50 0.86 1.47 0.42 70.1% 104.8% Jaywing 10.18 2.48 8.48 1.84 20.0% 34.8% 23.95 6.05 19.14 4.37 25.1% 38.4% Company only - (0.85) 23.95 5.20 The aforementioned figures are shown for illustrative purposes only. Theinformation is based on the statutory accounts or management accounts of eachgroup business and time apportioned where appropriate. The figures have beenadjusted for items which are considered to be non recurring, for example, excessmanagement remuneration and exclude charges in respect of group share options,which, on an annual basis would be £1.57m .The 05/06 columns for HSM and Cheezerepresents the year ended 31 December 2005. Liquidity Review The Group was originally funded by an equity placing and merger with Seashell IILimited which raised £10.6m. This allowed the Group to secure the acquisitionsof HSM and Dig For Fire with net cash outflow of £8.9m. In January 2007 the Group secured bank funding of £13.85m to allow theacquisitions of Cheeze and Jaywing for net cash outflows of £11.75m. Totalborrowings were approximately 2.6 times current EBITDA. The consolidated cash flow statement shows the Group to be cash generative fromits operations. In May 2007, the Group undertook an equity placing of14,285,715 shares raising a gross £10m. This has allowed the Group to pay down£2.5m of its borrowing and retain funds for potential further acquisitions. Outlook and Objectives for 2007/8 The trend towards online advertising and digital marketing is strong: • Online advertising spend in 2006 exceeded £2bn and spending on internet advertising grew by 41.6% year-on-year on a like-for-like basis; • The advertising industry as a whole managed growth of 1.1%. Online grew by £649.4m meaning that the rest of the advertising market declined. Press, TV, Radio, Cinema, and Direct Mail all experienced falling revenues; • Online's share of the market has grown to 11.4% for the whole of 2006 up from 7.8% for 2005. (Source: Internet Advertising Bureau Fact Sheet: Online adspend - 2006). All of the recently acquired businesses achieved their financial forecasts andgoals for 2006/7. However, we do not rest on the assumption that the underlyinggrowth in the digital market will inevitably deliver success, and we thereforemeasure our businesses and the Group against a number of key performanceindicators: • Each of our businesses is expected to contribute to our stated ambition of achieving 25% Compound Annual Growth Rate in Earnings Per Share ("EPS") between March 2007 and March 2010; • Each of the businesses is expected to achieve a level of top line revenue growth that will allow us to deliver this EPS performance without having to rely on cutting costs. We firmly believe that the ultimate test of strength of any business in this sector is its ability to generate strong revenue as well as EBITDA growth; • In addition to the strong organic growth being forecast by our businesses we hope to deliver incremental revenues to the Group through coordinated new business pitches. We are optimistic that these could generate significant additional revenue to the Group over and above the organic growth levels already forecast by the businesses in 2007/8; • In addition we aim to measure the performance of our business through "softer" measures such as client satisfaction and employee loyalty. Prior to the acquisition of each of our businesses we undertook a client satisfaction survey, and we intend to repeat that exercise during 2007/8. We also intend to conduct a similar survey of the 378 employees across the Group that were employed as at 31 March 2007; • Finally, we intend to implement some rationalisation of the cost base as part of our integration plan. This will contribute to improved margins over time. The integration plan is however focused on areas that will not impact on the Group's delivery of product and service to its clients. Long Term Strategic Vision The long term strategic vision for Digital Marketing Group remains extremelyexciting: • We have completed our cornerstone acquisitions more quickly than expected. • We have successfully begun the intensive task of delivering organic and cross-referred growth to the acquired businesses, and have an ongoing plan for further development in this area. • We have identified further specialist companies for acquisition that will help complete the full suite of digital marketing services. • The opportunity to develop the business into parallel areas of digital marketing is becoming more apparent by the day. • We can already envisage a time where Digital Marketing Group utilises its existing skills and resources to enter new digital sectors. Online PR Noize, the Group's Online PR offering is currently being developed fromcombining existing skills within Cheeze, Dig For Fire and Inbox Digital. The services of the division will focus on three main areas: 1. Mapping, Understanding and Stimulating Online Conversation Noize will work to identify 'online chatter' about particular subjects orbrands. The work done by Cheeze will encompass software solutions which trawlthe net (from forums, to blogs and chat rooms) and identify instances of phrasesor words being mentioned about client brands. Noize will also monitor the channels relevant to brands where we can usepaid-for promotion to stimulate conversations with key online influencers.Access to Cheeze's existing Blog and Podcast Directory ("BLAD") and the Inboxviral marketing database will also help Noize disseminate brand messages. 2. Content Creation & Dissemination Noize already has access to an online audience community that is willing toreceive content from Digital Marketing Group. Cheeze is already working with clients to create "blog builds" and strategy butnot content preparation. In combination with the skills of Dig for Fire andInbox Digital we will be able to offer an end to end blog solution providingboth strategy and execution. 3. Research Noize will test brand campaigns and messages via the Group's existing onlinecommunity (BLAD & Inbox) prior to full market roll-out. On a wider and more ambitious scale we can forsee an opportunity for DigitalMarketing Group to enter the following digital business sectors: Content • Digital Marketing Group already owns and manages websites and creates digital content that attracts millions of people every month e.g. inboxjunkies.com and gamenet.com. • The opportunity exists to develop a wider portfolio of Digital Marketing Group-owned websites that could generate advertising revenue. • Through new creative content owned by Digital Marketing Group we have the opportunity to attract consumers and develop revenue streams through: - Captured email address databases. - Advertising revenue, potentially managed by our own advertising network. Our experience of managing the third party advertising on Tesco.com site at Dig For Fire, encourages us to believe that a carefully managed entry into this sector of the digital market might prove fruitful. Technical Platforms • Within the Group we now have extensive technical expertise and a number of proprietary platforms. One of our stated objectives in 2006/7 was to pull together these complementary technologies in order to build a proprietary integrated digital and direct marketing platform, which we are calling our "Digital Brain". • Our platform and technology services are being continuously developed, and our aim is to create platforms which can not only deliver superior technical solutions for this sector, but can help introduce wider cross sell opportunities for all the Group's companies. Digital Advertising Network • Digital Marketing Group already possesses the skills necessary to help web publishers recruit more visitors, communicate with them better and increase loyalty. We believe our creative and strategic skills in this area will be superior to those of existing networks. • "Digital Brain" should enable us to help advertisers target ads more effectively thereby increasing quality response rates, increasing site revenue and the relevance of advertising on a site. We also believe our use of "Digital Brain" will prove attractive to publishers, advertisers and visitors alike. • There are two options available to Digital Marketing Group, both of which we are currently investigating: 1. Build a small network organically: Gamenet alone gets up to 3 millionimpressions per month 2. Acquisition: Find a network we could acquire and improve via the skills ofDigital Brain. The medium term organisational structure of Digital Marketing Group mighttherefore appear like this: Communications Agency Technical Platforms Content Division Digital Ad NetworkNetworkIntegrated group of digital "Digital Brain" and Using existing skills Combination of DMG- owneddirect marketing agencies other technology-driven to create our own sites (built by the contentproviding personalised services that provide a websites or content division) and third-partycommunications across platform for digital where we retain the IP sitesdigital and direct channels campaigns with intelligent advertising driven by "Digital Brain" Since our admission to AIM in October 2006 Digital Marketing Group has completeda great deal. We have: • Acquired four market-leading businesses • Delivered on the financial promises and commitments made to our shareholders to date • Built an integrated platform to deliver digital direct marketing to our clients • Secured new accounts and generated incremental revenue to the Group • Identified acquisition targets and new opportunities for the Group's development • Broadened our shareholder base to include blue chip institutions, as well as using bank debt sensibly to give us flexibility in the market • Short-listed targets for integration in collaboration with the CEOs of all the Group companies. In short; much achieved, much opportunity. Ben Langdon Chief Executive 26 June 2007 Consolidated Income Statement Note Period ended 31 March 2006 Year ended 31 March 2007 Before Exceptional Total Total exceptional items item (see note 3) £000 £000 £000 £000Continuing operations Revenue 2 13,057 - 13,057 -Direct costs (4,668) - (4,668) - Gross profit 8,389 - 8,389 -Other operating income 16 - 16 -Amortisation (321) - (321) -Operating expenses (6,568) (336) (6,904) - Operating profit 2 1,516 (336) 1,180 - Financial income 99 - 99 -Financial expenses (205) - (205) - Net financing costs (106) - (106) - Profit before tax 1,410 (336) 1,074 -Taxation (537) - (537) - Profit for year from continuing operations 873 (336) 537 - Discontinued operations(Loss)/profit for period on discontinued (640) 123operations (Loss)/profit for the year attributable to (103) 123shareholders Earnings per share 4From continuing and discontinued operations- basic (0.55)p 1.90p- diluted (0.51)p 1.90p From continuing operations- basic 2.87p 1.90p- diluted 2.62p 1.90p Consolidated Balance Sheet Note 2007 2006 £000 £000Non-current assetsProperty, plant and equipment 714 6Goodwill 30,734 -Other intangible assets 10,215 - 41,663 6 Current assetsInventories 165 -Trade and other receivables 6,102 10Cash and cash equivalents 5,569 3,564 11,836 3,574 Total assets 53,499 3,580 Current liabilitiesBank overdraft 6 2,664 -Other interest-bearing loans and borrowings 6 1,474 -Trade and other payables 6,980 190Tax payable 611 - 11,729 190 Non-current liabilitiesOther interest-bearing loans and borrowings 6 9,339 -Provisions 518 -Deferred tax liabilities 3,073 - 12,930 - Total liabilities 24,659 190 Net assets 28,840 3,390 Equity attributable to shareholdersShare capital 25,063 3,267Share premium account 2,986 -Shares to be issued 500 -Retained earnings 291 123 Total equity 28,840 3,390 Consolidated Cash Flow Statement Year ended 31 March Period ended 31 March 2007 2006 £000 £000Cash flows from operating activitiesLoss for the year (103) (213)Adjustments for:Depreciation, amortisation and impairment 487 -Financial income (99) -Financial expense 205 -Share-based payment expense 271 -Taxation 537 - Operating profit before changes in working 1,298 (213)capital and provisionsIncrease/(decrease) in trade and other 1 (10)receivablesDecrease in inventories (11) -(Decrease)/increase in trade and other (349) 190payables Cash generated from the operations 939 (33)Interest paid (205) -Interest received 99 103Tax paid (288) - Net cash inflow from operating activities 545 70 Cash flows from investing activitiesProceeds from sale of property, plant and 1,306 -equipmentAcquisitions of subsidiaries, net of cash (20,662) -acquiredAcquisition of property, plant and equipment (143) (6) Net cash outflow from investing activities (19,499) (6) Cash flows from financing activitiesProceeds from new loan 10,813 -Proceeds from the issue of share capital 7,532 3,267 Repayment of borrowings - -Payments to redeem share capital (50) - Net cash inflow from financing activities 18,295 3,267 Net increase in cash and cash equivalents (659) 3,331Cash and cash equivalents at beginning of 3,564 -periodEffect of exchange rate fluctuations on cash - 233held Cash and cash equivalents at end of period 2,905 3,564 Cash and cash equivalents comprise:Cash at bank and in hand 5,569 3,564Bank overdrafts (2,664) - Cash and cash equivalents at end of period 2,905 3,564 Consolidated Statement of Changes in Equity Retained Share premium Shares to be Share capital earnings account issued Total £000 £000 £000 £000 £000 At 21 October 2004 - - - - -Allotment of 50p Ordinary shares 3,217 - - - 3,217Allotment of £1 Convertible A shares 50 - - - 50Retained earnings - 123 - - 123 At 31 March 2006 3,267 123 - - 3,390 Allotment of 50p Ordinary shares 21,846 - 2,986 - 24,832Redemption of Convertible A shares (50) - - - (50)Retained earnings - (103) - - (103)Credit in respect of share based - 271 - - 271paymentsShares to be issued - - - 500 500 At 31 March 2007 25,063 291 2,986 500 28,840 1 Accounting policies Digital Marketing Group plc is a Company incorporated in the UK. The consolidated financial statements consolidate those of the Company and itssubsidiaries (together referred to as the "Group"). The consolidated financial statements have been prepared and approved by thedirectors in accordance with International Financial Reporting Standards asadopted by the EU ("Adopted IFRSs"). The consolidated financial statements havebeen prepared under the historical cost convention. The accounting policies set out below have, unless otherwise stated, beenapplied consistently to all periods presented in these consolidated financialstatements. Judgements made by the directors in the application of these accounting policiesthat have a significant effect on the consolidated financial statements togetherwith estimates with a significant risk of material adjustment in the next yearare discussed in note 8. The Group has not adopted IFRS 7 'Financial Instruments: Disclosures', IFRS 8'Operating Segments', IFRIC 7 'Applying the Restatement Approach under IAS 29Financial Reporting in Hyperflationary Economies', IFRIC 8 'Scope of IFRS 2',IFRIC 9 'Reassessment of Embedded Derivatives', IFRIC 10 'Interim FinancialReporting and Impairment', IFRIC 11 'IFRS 2: Group and Treasury Transactions'and IFRIC 12 'Service Concession Arrangements' which are not yet effective.These standards will take effect from 2008 and 2009 financial years respectivelyand are not expected to have a significant impact on the consolidated financialstatements. Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when the Grouphas the power, directly or indirectly, to govern the financial and operatingpolicies of an entity so as to obtain benefits from its activities. In assessingcontrol, potential voting rights that are currently exercisable or convertibleare taken into account. The financial statements of subsidiaries are included inthe consolidated financial statements from the date that control commences untilthe date that control ceases. Transactions between Group companies areeliminated on consolidation. On 24 October 2006 Digital Marketing Group plc merged with Seashell II Limited,and on that date the shareholders of Seashell II Limited exchanged their sharesfor equivalent shares in Digital Marketing Group plc. As Digital Marketing Groupplc was newly incorporated at the time of the transaction under the terms ofIFRS 3 'Business Combinations' this transaction has been accounted for as areverse acquisition, on the basis that the shareholders of Seashell II Limitedgained a controlling interest in the Group. The financial statements thereforerepresent a continuation of the financial statements of Seashell II Limited.Following the merger, the activities of Seashell II Limited were discontinued bythe Group, and have been presented as a discontinued activity in both thecurrent and previous periods. Revenue Revenue for all business segments other than media planning and buying comprisesincome earned in respect of amounts billed, and is stated exclusive of VAT,sales tax and trade discounts. Revenue is recognised on long term contracts iftheir final outcome can be assessed with reasonable certainty, by including inthe income statement revenue and related costs as contract activity progresses. Media planning and buying Revenue comprises gross billings to customers relating to media placements andfees for advertising services. Revenue may consist of various arrangementsinvolving commissions, fees, incentive-based revenue or a combination of thethree, as agreed upon with each client. Revenue is recognised when the service is performed, in accordance with theterms of the contractual arrangement. Incentive-based revenue typicallycomprises both quantitative and qualitative elements; on the element related toquantitative targets, revenue is recognised when the quantitative targets havebeen achieved; on elements related to qualitative targets, revenue is recognisedwhen the incentive is receivable. Foreign currency Transactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated atthe foreign exchange rate ruling at that date. Foreign exchange differencesarising on translation are recognised in the income statement. Classification of financial instruments issued by the Group Financial instruments issued by the Group are treated as equity (i.e. formingpart of shareholders' funds) only to the extent that they meet the following twoconditions: • they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or Group); and • where the instrument will or may be settled in the Company's own equity instruments, it is either a non-derivative that includes no obligation to deliver a variable number of the Company's own equity instruments or is a derivative that will be settled by the Company's exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments. To the extent that this definition is not met, the proceeds of issue areclassified as a financial liability. Where the instrument so classified takesthe legal form of the Company's own shares, the amounts presented in thesefinancial statements for called up share capital and share premium accountexclude amounts in relation to those shares. Finance payments associated with financial liabilities are dealt with as part offinance expenses. Finance payments associated with financial instruments thatare classified in equity are dividends and are recorded directly in equity. Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciationand impairment losses. Where parts of an item of property, plant and equipment have different usefullives, they are accounted for as separate items of property, plant andequipment. Depreciation is charged to the income statement on a straight-line basis overthe estimated useful lives of each part of an item of property, plant andequipment. Land is not depreciated. The estimated useful lives are as follows: • Freehold buildings 40 years • Leasehold improvements over period of lease • Motor vehicles 4 years • Office equipment 3 - 5 years • It has been assumed that all assets will be used until the end of their economic life. Intangible assets and goodwill All business combinations are accounted for by applying the purchase method.Goodwill represents the difference between the cost of the acquisition and thefair value of the net identifiable assets acquired. Identifiable intangiblesare those which can be sold separately or which arise from legal or contractualrights regardless of whether those rights are separable. Goodwill is stated at cost less any accumulated impairment losses. Goodwill isallocated to cash-generating units and is not amortised but is tested annuallyfor impairment. Other intangible assets that are acquired by the Group are stated at cost lessaccumulated amortisation and accumulated impairment losses. Amortisation is charged to the income statement on a straight-line basis overthe estimated useful lives of intangible assets unless such lives areindefinite. Intangible assets with an indefinite useful life and goodwill aresystematically tested for impairment at each balance sheet date. Otherintangible assets are amortised from the date they are available for use. Theestimated useful lives are as follows: • Customer relationships 8 to 12 years • Trademarks 12 years ImpairmentFor goodwill, assets that have an indefinite useful life and intangible assetsthat are not yet available for use, the recoverable amount is estimatedannually, the first assessment will take place during the year ended 31 March2008. For other assets the recoverable amount is only estimated when there isan indication that an impairment may have occurred. An impairment loss is recognised whenever the carrying amount of an asset or itscash-generating unit exceeds its recoverable amount. Impairment losses arerecognised in the income statement. Impairment losses recognised in respect of cash-generating units are allocatedfirst to reduce the carrying amount of any goodwill allocated to cash-generatingunits and then to reduce the carrying amount of the other assets in the unit ona pro rata basis. A cash generating unit is the smallest identifiable group ofassets that generates cash inflows that are largely independent of the cashinflows from other assets or groups of assets. Inventories Work in progress is valued on the basis of direct costs plus attributableoverheads based on normal level of activity on a FIFO basis. Provision is madefor any foreseeable losses where appropriate. No element of profit is includedin the valuation of work in progress. Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans arerecognised as an expense in the income statement as incurred. Share-based payment transactions The fair value at the date of grant of share based remuneration is calculatedusing a trinomial pricing model and charged to the Income Statement on astraight line basis over the vesting period of the award. The charge to theIncome Statement takes account of the estimated number of shares that will vest.All share based remuneration is equity settled. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event, and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material, provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and, where appropriate, the risks specific to theliability. Expenses Operating lease payments Payments made under operating leases are recognised in the income statement on astraight-line basis over the term of the lease. Lease incentives received arerecognised in the Income Statement as an integral part of the total leaseexpense. Net financing costs Net financing costs comprise interest payable and interest receivable on fundsinvested. Interest income and interest payable is recognised in profit or lossas it accrues, using the effective interest method. Taxation Tax on the profit or loss for the year comprises current and deferred tax. Taxis recognised in the income statement except to the extent that it relates toitems recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantively enacted at the balance sheet date, andany adjustment to tax payable in respect of previous years. Deferred tax is provided on temporary differences between the carrying amountsof assets and liabilities for financial reporting purposes and the amounts usedfor taxation purposes. The following temporary differences are not provided for: • the initial recognition of goodwill; • the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, • and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities,using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. Financial assets Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Bankoverdrafts that are repayable on demand and form an integral part of the Group'scash management are included as a component of cash and cash equivalents for thepurpose only of the statement of cash flows. Trade and other receivables Trade and other receivables are initially recorded at fair value and thereaftercarried at fair value amount less any required allowances for uncollectibleamounts. Financial liabilities Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. Trade and other payables Trade payables are carried at amounts expected to be paid to counterparties. Segmental reporting The Group's primary reporting format is business segments and its secondaryformat is geographical segments. Discontinued operations A discontinued operation is a component of the Group's business that representsa separate major line of business or geographical area of operations or is asubsidiary acquired exclusively with a view to resale, that has been disposedof, has been abandoned or that meets the criteria to be classified as held forsale. Exceptional items Exceptional items are items of significance which the Directors consider need tobe brought to the attention of the readers of the accounts. 2 Segmental reporting The Group's primary reporting segments are the following business segments: Continuing operations Year ended 31 March 2007 Outbound Direct Media Data Unallocated Group telemarketing marketing planning services and total and online services and buying consultancy marketing £000 £000 £000 £000 £000 £000 Revenue 3,111 3,906 3,501 2,539 - 13,057Direct costs (90) (997) (2,706) (875) - (4,668) Gross profit 3,021 2,909 795 1,664 - 8,389Other operating income - - 16 - - 16Operating expenses excludingdepreciation and amortisation (2,433) (2,028) (395) (1,018) (528) (6,402) EBITDA 588 881 416 646 (528) 2,003Depreciation (69) (25) (52) (20) - (166) Operating profit before 519 856 364 626 (528) 1,837amortisation chargeAmortisation charge (89) (103) (38) (91) - (321) Operating profit 430 753 326 535 (528) 1,516 Exceptional expenses (336) Operating profit - total 1,180 Finance income 99Finance costs (205) Profit before tax 1,074Taxation (537) Profit for year from continuingoperations 537 There were no results in the comparative period relating to continuingoperations. Assets Liabilities Capital employed 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000 Outbound telemarketing and online 9,981 - 1,696 - 8,285 -marketingDirect marketing services 9,656 - 1,102 - 8,554 -Media planning and buying 13,284 - 2,671 - 10,613 -Data services and consultancy 17,235 - 2,247 - 14,988 -Unallocated assets and liabilities 3,343 - 16,943 - (13,600) Total - continuing operations 53,499 - 24,659 - 28,840 - Discontinued activities - 3,580 - 190 - 3,390 Total 53,499 3,580 24,659 190 28,840 3,390 Unallocated assets and liabilities consist predominantly of external borrowingswhich have not been allocated across the business segments. Geographical segments All turnover is derived from and all assets and liabilities are located in, theUnited Kingdom. 3 Exceptional items Year ended Period ended 31 March 31 March 2007 2006 £000 £000 Costs incurred in listing the Company's shares on the Alternative Investment 336 -Market 4 Earnings per share From continuing and discontinued operations: Year ended Period ended 31 March 31 March 2007 2006 pence per share pence per share Basic (0.55)p 1.90pDiluted (0.51)p 1.90p Earnings per share has been calculated by dividing the profit attributable toshareholders by the weighted average number of ordinary shares in issue duringthe year. The numbers used in calculating basic and diluted earnings per shareare reconciled below: Year ended Period ended 31 March 31 March 2007 2006 £000 £000 (Loss)/profit for year attributable to shareholders (103) 123 Weighted average number of shares in issue: Basic 18,686 6,433Adjustment for share options, warrants and contingent shares 1,788 - Diluted 20,474 6,433 Year ended Year ended Period ended 31 March 31 March 31 March 2007 2007 2006 pence per share pence per share pence per share Discontinuing Continuing operations operationsBasic (3.43)p 2.87p 1.90pDiluted (3.13)p 2.62p 1.90p £000 £000(Loss)/profit for year attributable to shareholders (103) 123Add loss for year on discontinued operation 640 -Earnings from continuing operations 537 123 The denominators are the same as shown above for both basic and diluted earningsper share. 5 Acquisitions of subsidiaries During the year the Group made four acquisitions of subsidiary undertakings. Asummary of the net assets acquired, consideration paid, and goodwill uponacquisition of these subsidiary undertakings is shown below: Summary of all four acquisitions Acquiree's book Fair value Acquisition values adjustments Notes amounts £000 £000 £000Acquiree's net assets at the acquisition date:Other intangible assets - 10,523 1 10,523Property, plant and equipment 1,840 197 2 2,037Intangible assets 13 - 13Inventories 154 - 154Trade and other receivables 6,093 - 6,093Tax receivable 417 - 417Cash and cash equivalents 4,499 - 4,499Trade and other payables (6,939) - (6,939)Tax payable (609) - (609)Deferred tax (17) (3,226) 3 (3,243)Provisions (518) - (518) Net identifiable assets and liabilities 4,933 7,494 12,427 Goodwill on acquisition 30,734 43,161 Satisfied by:Cash consideration paid (Including legal andprofessional fees of £1,448,000) 25,161Deferred consideration payable 1 January 2008 200Contingent consideration payable in shares 500Issue of 20,983,333 ordinary shares at £0.57 to £0.60 per 17,300share 43,161 Summary of net cash outflows from acquisitions Cash paid 25,161Cash acquired (4,499) Net cash outflow 20,662 Fair value adjustments comprise: 1 Valuation of customer relationships. 2 Adjustments to value of property at open market value of £230,000 together with a harmonisation of depreciation rates of £33,000. 3 Deferred tax effect of valuation of property to open market value and valuation of customer relationships. All fair values are provisional and will be reviewed during the currentfinancial year. On 24 October 2006 Digital Marketing Group plc merged with Seashell II Limited,and on that date the shareholders of Seashell II Limited exchanged their sharesfor equivalent shares in Digital Marketing Group plc. As Digital Marketing Groupplc was newly incorporated at the time of the transaction under the terms ofIFRS 3 'Business Combinations' this transaction has been accounted for as areverse acquisition, on the basis that the shareholders of Seashell II Limitedgained a controlling interest in the Group. 6 Borrowings 2007 2006 £000 £000 Overdraft 2,664 -Bank borrowings 10,813 - 13,477 - Borrowings are repayable as follows: Within 1 year 4,138 - In more than 1 year but not more than 2 years 4,917 -In more than 2 years but not more than 3 years 1,474 -In more than 3 years but not more than 4 years 1,474 -In more than 4 years but not more than 5 years 1,474 - Due in more than 1 year 9,339 - Average interest rates at the balance sheet date were: 2007 2006 % % Overdraft 7.5 -Term loan 8 -Revolver loan 7.9 - The borrowing facilities available to the Group amounted to £13.85m and at thebalance sheet date, taking account of credit cash balances across the Group,there were £6.20m of undrawn borrowing facilities. A Composite Accounting System allows debit balances on overdraft to off setacross the Group with credit balance. No hedging facility was in place at theperiod end. 7 Contingencies The Group has a liability to pay deferred consideration if certain performancetargets are met. The maximum liability is £1,000,000 and the directors haveprovided £500,000, leaving £500,000 as an unprovided liability. 8 Accounting estimates and judgements Impairment of goodwill The carrying amount of goodwill is £27,577,000. The directors are confident thatthe carrying amount of goodwill is fairly stated but have not carried out animpairment review of this amount during the year. Other intangible assets The valuation of customer lists is based on key assumptions which the directorshave assessed, and are satisfied that the carrying value of these assets isfairly stated. Deferred consideration The directors have provided an estimate of the amount payable in respect ofdeferred contingent consideration. See note 7. Recognition of revenue as principal or agent The Directors consider that they act as a principal in transactions where theGroup assumes the credit risk. Where this is via an agency arrangement and theGroup assumes the credit risk for all billings it therefore recognises grossbillings as revenue. This information is provided by RNS The company news service from the London Stock Exchange