Vela Technologies Regulatory News (VELA)

11 Apr 2007 07:02

Deal Group Media PLC11 April 2007 Press Release 11 April 2007 Deal Group Media plc ("DGM" or the "Group") Final Results Deal Group Media plc, a leading online media-marketing Group, today announcesits Final Results for the year ended 31 December 2006. Highlights Financial • Results for the year ended 31 December 2006 broadly in line with market expectations • Gross Profit of £7.15 million (2005: £6.69 million) • EBITDA (before share based payments) of £(0.56) million (2005: £1.09 million) • EBITDA was positive in the second of half of 2006 • Announced in December 2006 that the Group had received commitment to a £1.05 million fund raising through a Placing to facilitate the ongoing growth of the Group Operational • Overseas operations contributed a material element in 2006 to turnover and gross profit. The Group has further international growth plans for 2007 • £1.8 million invested in technology platform (of which £700,000 is non-recurring) delivering a robust platform to serve UK and overseas business • Developed new UK initiatives for launch in 2007 including the broadening of the Group's offering for advertisers and agencies. New online advertising and technology-only services will be offered as well as a separate brand focused on servicing the requirements of media owners Commenting on the results, Adrian Moss, Chief Executive, said: "I am delightedto have returned as Chief Executive of Deal Group Media plc. We have nowdeveloped a clear strategy which will leverage the Group's eight years ofexperience in online advertising to recapture our strong position in the UK andfacilitate organic growth in our overseas operations, and specifically the AsiaPacific region. These initiatives, combined with a strong technology base, willassist the Group's evolution and I am very excited about our future prospects." For further information, please contact: Deal Group Media plcAdrian Moss, Chief Executive Tel: + 44 (0) 20 7691 1880 www.dealgroupmediaplc.com Evolution Securities LimitedTom Price, Corporate Finance Tel: +44 (0) 20 7071 4300 Jeremy Ellis, Corporate Finance www.uk.evosecurities.com Media enquiries:Abchurch CommunicationsAriane Comstive / Stephanie Cuthbert Tel: +44 (0) 20 7398 7700franziska.boehnke@abchurch-group.com www.abchurch-group.com Chairman's statement Performance during 2006 2006 was a significant year for Deal Group Media plc as we adjusted our UKbusiness structure to compete more effectively in the marketplace, expanded ouroverseas businesses and delivered a stable technology environment upon which tobase our growth. Results for the year ended 31 December 2006 are broadly in line withexpectations with Gross Profit of £7.15 million (2005: £6.69 million) and EBITDA(before share based payments) of £(0.56) million (2005: £1.09 million).Turnover for the period was £22.97 million (2005: £20.56 million). Theoperating loss for the period of £2.11 million was principally the result oftechnology costs of £1.8 million (of which £700,000 is non-recurring), which, inline with our accounting policies, have been expensed rather than capitalised.The loss of a key customer in addition to an increasingly competitivemarketplace in 2006, also impacted the performance of the UK business. The success of sales activity in the Asia Pacific region was very encouraging in2006 and has highlighted the opportunity in this region where the markets aregrowing at a fast pace, online advertising budgets are high and competition low,relative to Europe. We have significantly reduced both our UK operational and central cost base inthe final quarter of 2006. The benefits of this should be seen in the currentfinancial year. Board changes and senior management Adrian Moss was re-appointed as Chief Executive Officer in December 2006.Adrian founded the business in 1999 with £350,000 of seed funding. He is anacknowledged industry expert and a key strategic and operational driver for theGroup going forward. We are currently looking to appoint a Chief Financial Officer to strengthen theBoard. Andrew Dickson stepped down from the Board in December 2006 and I would like tothank him for his contribution during his tenure. Strategy The Group has put in place a number of initiatives in order to set thefoundations for DGM's future growth, both in the existing UK market andoverseas. In the UK, this includes an aggressive re-launch in the second quarter of 2007of the core product offerings both as individual elements and as a completecustomer acquisition strategy. This evolution has been facilitated by ourmaterial investment in technology in 2006. Overseas the Group's further evolution will be achieved through a new base inSingapore. The Board anticipates that a net investment of approximately £1million will be required to successfully enter this market over the currentfinancial year. Having successfully set up DGM in the UK in 1999 with aconsiderably smaller budget we believe that our ambitions for the region areachievable. The Board intends to rename Deal Group Media plc as DGM Holdings Plc in order toreflect the new business structure which will incorporate new overseassubsidiaries and separate the distinct UK operating brands from the PLC. Aresolution to that effect will be included in the Notice of Annual GeneralMeeting which is to be sent to shareholders later this month. Financing and offer talks DGM announced in December 2006 that it had received commitment to a £1.05million fund raising through a Placing to facilitate the ongoing growth of theGroup. The Group has ceased all offer talks to focus on organic expansion and the Boardis confident that pursuing the Group's growth strategy should deliver superiorreturns to shareholders. Market 2006 saw strong growth in e-commerce and internet advertising across Europe andAsia. As internet and broadband penetration continues to increase, users arespending a greater amount of time online (Jupiter Research, Oct 06). There were37 million internet users in 2006 in the UK (Internetworldstats) and they arebecoming more sophisticated in their knowledge of the internet. In addition,consumer purchasing trends have shown a significant increase in online shopping.As a result advertisers are allocating increasing proportions of their budgetstowards the internet. This positively affects the online advertisingexpenditure which in Europe increased by 41.2% to £2.07bn in 2006 (InternetAdvertising Bureau and Price Waterhouse Coopers, March 07). The Asia Pacific region shows an even higher level of anticipated growth goingforward. In July 2006 there were 137 million internet users in China and thisis anticipated to grow to 232 million by 2010 (i.research). This will bereflected in online advertising spend which exceeded £600 million in 2006 and isexpected to exceed £2.4 billion by 2010. (i.research) Prospects DGM is well positioned to recapture a strong market position in the UK andsuccessfully launch into new territories, taking a market leading position inthe Asia Pacific region. John PorterChairman Chief Executive's Report Introduction Since my reappointment as CEO in December 2006 the Board has taken stock of theGroup's performance in the year to 31 December 2006. The underlying performance of the Group in 2006 has been more encouraging thanthe EBITDA suggests with the high margin UK business that was lost towards theend of 2005 being replaced by growth in the overseas operations. The centralcost base is more closely controlled and the operational costs in the UKconsidered more appropriate to the lower margins experienced in the corebusiness areas. We continue to have a firm belief in our ability to deliver real value toshareholders and my commitment to participate in the recently announced Placingis evidence of this. A strategic committee, involving the Board and senior management, has identifiedkey tactics on how this will be achieved. DGM's main goals for 2007 are: • to reassert the Group's strong position in the UK online marketing sector • to leverage our experience in Australia to create a strong market position in the Asia Pacific region as a whole UK Operations DGM works with advertisers, agencies and media owners to help them achieve theire-business objectives - whether it is more sales or leads, increased traffic orbrand awareness. The offering in the UK consists of: • Affiliate Marketing • Search Engine Marketing • Advertising Network. Whereas the first two are strategies focused on delivering return from anadvertiser's online ad spend, the advertising network acts as an outsourcedsales team selling banner inventory on behalf of media owners looking tomaximise their revenue generation. The UK market has become highly competitivein all areas resulting in increased margin pressure over the last year, howeverit is still growing and margins appear to be stablising. Despite this, and the technology issues encountered in 2005, the UK operationwas EBITDA positive in the second half, successfully retained 90% of its clientsover the period and has won significant new clients. The affiliate business represents the majority of our UK operation and I ampleased to report that we set new records in 2006 for the level of commissionpayout to our affiliates. Going forward, the focus will be on increasing sales of our existing coreproduct channels, and expanding our offering into strategically related areasincluding the provision of complete online marketing solutions for advertisersin addition to a technology only offering which will give advertisers andagencies the ability to track their marketing campaigns more accurately. Overseas Operations From a breakeven position in 2005 the overseas operations have become a materialpart of the Group's performance in 2006. The offering consists of: • Affiliate Marketing• Search Engine Marketing• Strategic Media planning and buying All three areas work individually or as part of a co-ordinated offering, focusedon delivering advertisers' objectives from their online ad spend. Our Australian office has delivered well and has become increasingly importantto the Group both because of its financial delivery potential and alsostrategically, as part of our Asia Pacific growth strategy. In Q3 of 2006 the Group launched a small operation in South Africa which isexpected to generate positive monthly cash flow in the first half of 2007. We will continue with a low cost entry strategy into fast growing key marketsinitially servicing international agencies where our considerable experience andhistoric delivery, combined with our distinct approach to customer servicing canput us at an advantage over local and less experienced competitors. To this end I will be dividing my time between Singapore and our existingoperating businesses and going forward much of the strategic and othermanagement functions will be located in Singapore. It is anticipated that up to£1 million will be invested in evolving an Asia Pacific regional operationduring the current financial year to take advantage of the considerableopportunity that exists. Employees In the aftermath of a turbulent period in the Group's evolution I am committedto establishing strategies to retain and develop our employees. We acknowledgethat we are a people business and a clear strategy in this area is vital to ourfuture success. We have reviewed staff participation in the Group's equity and have revised thecurrent share option scheme to include all permanent staff, from all offices. Three significant senior management appointments have recently been made. We have retained an HR director, Danielle Tasker, with 15 years relevantexperience to ensure that our retention and development strategies are aseffective as possible. The UK business is now led by UK Managing Director Paul Mitchinson. He brings awealth of experience and proven expertise as an e-Commerce Managing Director,having previously been involved in the implementation of groundbreaking web,interactive channel, business intelligence, marketing, advertising and CRMplatforms delivering sustained profitable growth and reduced costs. Alex Khan was appointed Commercial Director and will be instrumental indeveloping elements of the overseas business. He was previously Sales Directorresponsible for elements of the UK operation. We were pleased to see the success of our graduate training scheme and intend torun it again in 2007. Technology In 2006 the Group invested £1.8 million in technology, of which £700,000 isnon-recurring. This investment was necessary to rebuild the core affiliateproduct and replace the DB2 infrastructure with SQL server. I am pleased toreport that this project was successful and is now complete. The development of DGM's technology over the last year has provided the Groupwith a stable technology platform to service our international affiliatemarketing business. In addition we have developed our tracking ability and are now able to work withadvertisers across multiple routes to customers to deliver their objectives fromonline advertising and provide more accurate reporting. This provides us with the ability to further increase our customers' return oninvestment for their online marketing spend and therefore enables DGM to betterservice its customers. Prospects Much of the ground work is now in place for the Group to deliver growth inexisting markets and establish itself as a market leader in new markets byapplying its industry expertise. Despite increased competition, the UK marketis still growing and continues to offer considerable opportunities for winningnew business as more advertisers are looking to the Internet for theirmarketing. The Group expects to continue to see the full benefit from last year's costcontrol programme over the course of 2007 and, despite the anticipatedinvestment in new markets, improved performance over the course of 2007 from itsexisting operations. Adrian MossChief Executive Consolidated profit and loss account for the year ended 31 December 2006 2006 2005 (restated) NOTES £'000 £'000 £'000 £'000 TURNOVER 2 22,965 20,561 COST OF SALES (15,828) (13,876) GROSS PROFIT 7,137 6,685 ADMINISTRATIVE EXPENSES - Amortisation of intangible assets (1,010) (1,149) - Depreciation of tangible fixed assets (385) (292) - Share based payments 6 (298) (181) - Other administrative expenses (7,697) (5,593) (9,390) (7,215) OPERATING LOSS 2 (2,253) (530) NET INTEREST 3 16 36 LOSS ON ORDINARY ACTIVITIES (2,237) (494) TAXATION 4 (1,806) - TOTAL LOSS AFTER TAXATIONFOR THE PERIOD (4,043) (494) BASIC LOSS PER SHARE 5 (1.06p) (0.13p) Consolidated balance sheet as at 31 December 2006 2006 2005 (restated) NOTES £'000 £'000 £'000 £'000 FIXED ASSETSIntangible assets 5,004 5,857Tangible assets 582 647Fixed asset investments 181 - 5,767 6,504 CURRENT ASSETSDebtors 4,962 6,150Cash at bank and in hand 584 1,682 5,546 7,832 CREDITORS:Amounts falling due within one year (5,039) (4,317) NET CURRENT ASSETS 507 3,515 TOTAL ASSETS LESS CURRENT LIABILITIES 6,274 10,019 CREDITORS:Amounts falling due after more than one year - (65) 6,274 9,954 CAPITAL AND RESERVESCalled up share capital 3,816 3,798Capital redemption reserve 13,188 13,188Share-based payments reserve 527 229Share premium account 21,505 21,458 39,036 38,673 Profit and loss account (32,762) (28,719) Shareholders' funds 6,274 9,954 Consolidated cash flow statement for the year ended 31 December 2006 2006 2005 NOTES £'000 £'000 £'000 £'000 Net cash (outflow) / inflow from 7operating activities (585) 32 Returns on investments and servicingof financeInterest received 27 40Interest paid (11) (4) 16 36 Taxation (3) (44) Capital expenditure andFinancial investmentsPurchase of tangible fixed assets (396) (454)Purchase of fixed asset investments (119) -Sale of tangible fixed assets 32 -Purchase of intangible assets (158) (44) (641) (498) Net cash outflowbefore financing (1,213) (474) FinancingAdvances in respect of ordinary share capital 203 279Capital element of hire purchase payments (43) (15)Repayment of loan notes (45) (45) 115 219 Decrease in cash 8 (1,098) (255) Notes to the financial information 1 BASIS OF PREPARATION The financial information set out in this announcement does not constitutestatutory accounts as defined in section 240 of the Companies Act 1985. The financial information has been extracted from the Company's financialstatements which have received an unmodified auditor's report but have not yetbeen delivered to the Registrar of Companies. The financial statements have been prepared in accordance with applicableaccounting standards, including a true and fair override, and under thehistorical cost convention. The principal accounting policies of the Group have remained unchanged from theprevious year except in respect of the adoption of FRS 20 "share based payments". The directors have reviewed the accounting policies adopted by the Group and consider them to be the most appropriate. The Group financial statements incorporate the financial statements of theCompany and its subsidiaries. The companies make up their accounts to the samedate. 2 TURNOVER AND OPERATING LOSS The turnover is attributable to the principal activity, which is mainly carriedout in the United Kingdom, Europe and Australia. An analysis of turnover and operating loss by geographical market is givenbelow: Turnover Operating (loss)/profit 2006 2005 2006 2005 (restated) (restated) £'000 £'000 £'000 £'000 United Kingdom 16,159 18,551 1,454 3,363Overseas 6,806 2,010 1,116 84Central costs - - (4,823) (3,977) 22,965 20,561 (2,253) (530) The presentation of the segmental analysis has been adapted from the previousyear as the directors feel this gives a more appropriate analysis of the Group'sperformance in the markets it operates in. No segmental analysis of net assets has been provided, as the assets andliabilities attributable to overseas sales are not separately identified. 3 NET INTEREST 2006 2005 £'000 £'000 Interest payable and other similar charges (11) (4)Interest receivable and other similar income 27 40 16 36 4 TAXATION 2006 2005 £'000 £'000 UK Corporation tax - -Foreign tax 82 -Deferred tax 1,724 - 1,806 - At 31 December 2005 the Group had a deferred tax asset of £1,724,000. TheDirectors feel it is prudent to write off this balance in full, due to theuncertainty of being able to utilise brought forward tax losses against futuretaxable profit. At 31 December 2006 the group has unutilised tax losses of £7,953,000 (2005£7,136,000) available to offset against future taxable trading profits. Theselosses represent an unrecognised deferred tax asset of £2,386,000 (2005£2,140,000) at a tax rate of 30%. 5 LOSS PER SHARE The calculation for the basic earnings per share is based upon the lossattributable to ordinary shareholders divided by the weighted average number ofshares on issue during the year. Reconciliation of the loss and weighted average number of shares used in thecalculations are set out below: 2006 2005 (restated)Loss on ordinary activities after tax£'000 (4,043) (494) Weighted average number of shares 380,831,210 376,573,277 Amount of loss per share in pence (1.06) (0.13) In view of the loss for the year, options in issue have no dilutive effect. 6 SHARE-BASED PAYMENT During the year 13,700,000 options (2005: 6,325,000) were issued at an averagefair value of 1.94 pence per share (2005: 4.17p). The fair values of the options granted during the period ended 31 December 2006were determined using the Binomial valuation model. The valuation was performedby Chiltern plc. The model has been applied to each issue of options at theprice prevailing at the time the options were issued. The value of the optionshas been adjusted for future dividends, the assumption being that they will bepaid from 2009 as a result of a capital reorganisation by the Group. The model takes into account a volatility rate of 80%, being the assumed ongoingvolatility for the future share based on historical experience and a risk freeinterest of between 3.8%-5.1%. The remaining life of options is assumed on the following basis: Executives and non-executives 8 yearsManagement 6 yearsNon-management 3.5 years The amount of employee remuneration expense in respect of the share optionsgranted amounts to £298,000 (2005 £181,000). 7 NET CASH FLOW FROM OPERATING ACTIVITIES 2006 2005 (restated) £'000 £'000 Operating loss (2,253) (530)Depreciation 385 292Loss on disposals of fixed asset 43 13Amortisation 1,010 1,149Share-based payment 298 181Increase in debtors (538) (1,399)Increase in creditors 470 326 Net cash flow from operating activities (585) 32 8 ANALYSIS OF CHANGES IN NET FUNDS 2005 Cash flow 2006 £'000 £'000 £'000 Cash at bank and in hand 1,682 (1,098) 584Debt (77) 45 (32)Finance leases (43) 43 - 1,562 (1,010) 552 Copies of the Report and Accounts will be sent to shareholders shortly and willbe available from the registered office 19 Cavendish Square, London, W1A 2AW. 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