Final Results

Delling Group PLC 24 June 2007 For Release 7:00 am 25 June 2007 DELLING GROUP PLC (DLG) The AIM-listed marketing services group FINAL RESULTS for the year ended 31 December 2006 Delling Group Plc ('Delling' or the 'Company'), the only listed marketing support services group on AIM whose principal assets are in Scandinavia, announces its results for the year ended 31 December, 2006. Financials • Turnover for the period was £10.5m with a pre-tax loss of £5.7m. The turnover is in line with expectations. The pretax profit level is disappointing and reflects the scale of investment, both in time and money, of Delling's major acquisition programme during the period and of the restructuring and integration work conducted in the last quarter of 2006 on those acquisitions. • The results include contributions from companies acquired during the period: n3prenor, a Swedish document production company (12 months' contribution) and Eckerud Scandinavia, a Swedish exhibition company (3 months' contribution) and reflect restructuring costs of £600,000. • Although the Company is announcing a disappointing pretax loss for 2006, since then it has experienced a modest recovery and a small group profit at EBIT level was generated in the 1st quarter of 2007. Operations • Contracts with a total expected revenue of £6m per annum have been secured so far in 2006 and 2007. • Four major acquisitions completed including Scandinavian Exhibition Group (Sandbergs) in February 2007. These acquisitions in addition to Delling's secured contracts, leave the group with an annualised turnover of £22m. • The group has built a strategic position in Scandinavia in the exhibition market through the acquisition of Eckerud Scandinavia and Scandinavian Exhibition Group (Sandbergs). Following the integration of its businesses within the exhibition market, which includes Delling's existing exhibition business in Norway, the combined business, which trades now under the name Delling Expo with internal production now located at a single site north of Stockholm, will have a single management structure and one integrated accounting system, the combination of which, Delling believes will prove to be a much stronger force in the market place and will enable the Company to service the largest international companies. Aksel Bratvedt, Executive Chairman of Delling Group Plc, said: 'In spite of very disappointing results for 2006, the Company has reached critical mass in its market segments, which supports the good potential for net revenue growth going forward. With all areas of the group currently focused on securing growth, and following the small profit generated in the 1st quarter this year, I look forward to the future with considerable confidence and enthusiasm.' For further information please contact: Delling Group Plc Aksel Bratvedt, Chairman Tel: 020 7484 5663 James Robinson, Finance Director Tel: 020 7484 5664 www.dellinggroup.com Seymour Pierce Nicola Marrin Tel: 020 7107 8000 Adventis Financial PR Tarquin Edwards Tel: 020 7034 4758 Notes to Editors Delling Group is a leading supplier of marketing support services for marketing and communication departments throughout The Nordic countries. Delling manages all fields of graphic support in many different forms and formats including trade fairs, exhibitions and interactive digital solutions for the web, mobile telephone marketing solutions, motion media for flat screens, plasma or LCD. It also supplies IT solutions which support and increase the efficiency of both marketing and information departments. However, its major strength is that the Group can deliver complete turnkey solutions, tailor-made for its customers' every need. Delling also offers outsourcing solutions that it believes can substantially save costs and improve efficiency. The Group's major activities are today concentrated in the Norwegian and Swedish markets, however, it is expanding into other Nordic areas, as well as having customers and production facilities in Eastern Europe. It also has well respected suppliers as far afield as China and Thailand. Delling Group has 130 employees. It is rapidly developing its organisation by focusing on supplying its customers with the quality they demand, delivered on time at the right price. Central to its philosophy lies the fact that its customers will obtain greater effects and efficiency for every pound they invest in marketing and information. The Group has strong growth, both through further development of existing clients and establishment of many new relationships, together with acquiring companies that enhance and further develop our business concept. Delling's goal is within the course of the next two years, through both satisfied customers and recommendations, to be the largest and most profitable company in the field of marketing support services within the Nordic countries, and a significant player within Eastern Europe. In October 2004 it was the first Scandinavian business to be listed on AIM, the London Stock Exchange's international market for smaller growing companies. This has given Delling the access it needs to capital funds needed to maintain and strengthen the further development of the Group. Chairman's statement The last eighteen months have been very active in terms of acquisitions for the Group, which saw Delling lay the foundations for a tripling of the Group's turnover from a base of c.£7m at the start of the period. Two acquisitions were made in Sweden, namely the annual report design and production company, n3prenor and the exhibition company, Eckerud Scandinavia with the acquisition of the Scandinavian Exhibition Group (Sandbergs) and D.O.G, a prepress company completed at the beginning of 2007. A number of outsourcing contracts were also entered into during the year, creating a marketing support services group with an annualised turnover of around £22m. Our turnover in 2006 doubled again compared to 2005 and currently, the Group is seeing revenues of twice the level in 2006. This growth should be seen in perspective - in the autumn of 2004, the Company had an annual turnover of approximately £1.8m pre-listing. However, disappointingly this growth has not been accompanied by the equivalent development in the pretax profit level. The management believed last year that the Group should be in the position to turn a profit. The reason for the below expectation performance should be seen in the light of the strains on the organisation that the speed of acquisitions generated. As previously explained in the trading update on 27/04/07, Delling's performance predominantly resulted from a combination of factors, not least that: the product mix did not develop in a manner to improve the gross profit margin in a business with high operating leverage; a problem with Eckerud Scandinavia, which was both very challenging and led to time consuming financing processes and finally, the fact that the capacity of our financial systems was insufficient to manage and control the growth of the business. All lead to a highly unsatisfactory pretax profit level. The majority of these problems have now been rectified. With this experience behind us the management has taken the decision to temporarily halt the acquisitions process and focus on net revenue growth. The first result of this was a small profit for the Group at EBIT level for the first quarter 2007. Apart from cutting and adapting costs in the original business to the present turnover levels, the management is focusing on integrating the exhibition business, which is today the leading player in its area in Scandinavia. The effect of closing down one production plant, has the potential within one year of improving the pretax margin by around 5%. Given the importance of net revenue growth in all areas of the Group, the Board and the management have decided that no major acquisitions will be implemented until sustainable revenues are generated. In this respect, developments within the first months of this year have been most encouraging. Regarding the financing of Delling's growth, the alternatives to equity financing have proven to be challenging. However, we have been able to secure bank financing on some of the acquisitions and with Delling showing a small profit for the 1st quarter in combination with the current size of the Group's turnover, the potential for further bank financing should increase. Therefore, the focus of the Board and the management currently is to make the fullest use of debt financing facilities going forward. I would like to thank our staff for all their hard work over last year. The acquisitions have impressively enhanced the competence and scope of the Group. Today with the size and its competence level the Group is better positioned than ever before to take advantage of its large customer base of multinational companies. Looking to the current financial year, we anticipate less growth compared to our historic rates and more focus on profits. I look forward to the future with considerable confidence and enthusiasm. Aksel Bratvedt Chairman 22nd of June 2007 Chief Executive's Statement Introduction Delling Group offers marketing departments in large and medium sized companies a unique opportunity to reduce costs, increase speed to market and increase the quality of production and handling of marketing and information material. Our offering includes graphical material as well as the digital distribution of content on to screens or the Web as well as mobile phones. Our wide ranging, but closely linked service offering makes it possible for customers to take advantage of the opportunity to outsource their back office marketing department requirements - further driving our organic growth. Business and operating review In 2006 our business was completely transformed in size as well as product mix. Everything was done to further our strategy which was to develop into a leading integrated marketing support group in the Nordic area. Our focus was to establish the basis for such a group, which was of a substantial size and was profitable within 1-2 years. The result in financial terms has disappointed, however we have taken a number of strategic steps forward from which we expect to see benefit in 2007 and an even larger benefit in 2008. We have now 3 business units: the outsourcing businesses operating under the name Delling Group, the Exhibition business operating under the name Delling Expo and the unit for annual and financial reports trading under the name of n3prenor. The Group companies have offices in Oslo and Stavanger in Norway and Stockholm, NorrtTalje, Linkoping, Gothenburg, and Gavle in Sweden. The market The market for our services is currently taking advantage of the good economic conditions in Scandinavia. As long as growth in the world economy is sustainable, the management does not see any major threats in our markets at this point in time. Human resources We focus on getting more and more out of our staff through investments in on-the-job training and competence development. This is vital so that Delling is able to benefit from potential synergies between the business units. We have an extraordinarily loyal and able staff that should be able to exploit the significant potential we see in the business in the short as well as the long term. Outlook In 2007 we are focusing our efforts on reaching profitability. We have integrated the acquired businesses both with each other as well as into our business concept on how to deliver marketing support services. We have taken a number of steps to reduce costs. Our purchasing power has increased substantially which has made it possible to get reduced prices from suppliers that have a positive effect on the gross profit margin. This gradually improves our competitiveness. The same effect follows from the fact that more and more of our production has been transferred to suppliers in low cost countries in Eastern Europe and elsewhere. We have closed down one production unit in the exhibition area so that we now just have one efficient unit. Furthermore some smaller investments in IT-solutions are improving our efficiency and help us in reducing costs. Our newly established specialist Printcenter in Stockholm is also expected to have a significant positive impact on profitability throughout 2007. We are working according to a cost reduction plan for the remainder of 2007 so that the Group is gradually and sustainably reducing the cost base significantly during 2007. Part of the drive to substantially increase profitability is to continue and improve organic growth without increasing costs in the sales processes. The possibility of expanding significantly across our existing customer base is a prime target. The response from our customers indicates that synergies between our sales efforts in the exhibition area and the rest of our businesses will deliver significant benefit this year. Geir Lolleng Chief Executive Financial review Turnover Group turnover increased by 97% to £10.5m of which £3.4m arose from the 2 acquisitions made during the year; of the total turnover approximately 42% was attributable to Delling in Norway and 58% attributable to Delling Group in Sweden. Operating loss The pre-tax loss for the year was £5.7m which is disappointing and reflects the scale of investment, both in time and money, of Delling's major acquisition programme during the period and of the restructuring and integration work conducted in the last quarter of 2006 on those acquisitions. The results include contributions from companies acquired during the period: n3prenor, a Swedish document production company (12 months' contribution) and Eckerud Scandinavia, a Swedish exhibition company (3 months' contribution) and includes restructuring costs of approximately £600,000. Interest The net interest charge for the year is £472,000 reflecting the increased drawdown of funds from our debt facility which has been utilised to finance our acquisition activities. Tax The tax charge for the year has increased from £Nil in 2005 to £129,000. This tax charge is purely in respect of profits earned by n3prenor AB, for whom group losses could not be utilised to reduce the tax charge. The Group has substantial losses carried forward to relieve against future profits. Balance sheet and cash flow The balance sheet for the year to 31 December 2005 has been restated to reflect the change in accounting policy with regard to share options. Please refer to the Accounting Policies for further information. Intangibles net of amortisation have increased from £3.1m to £7.3m as a result of our investment in 2 acquisitions during the year Trade debtors have risen from £1.3m in 2005 to £2.1m; an increase of 61%, while turnover has risen by 97%. During the year the Group issued shares for cash totalling £4.6m which funded the acquisitions made by the Group and general working capital. IFRS AiM listed companies are required to produce financial statements in accordance with International Financial Reporting Standards (IFRS) for accounting periods commencing on or after 1 January 2007. Delling is progressing its transitional programme and will publish its first IFRS financial statements in respect of the year ending 31 December 2007. Conclusion The year under review has seen some major changes. We have set out the foundations for future profit growth. We have completed 2 acquisitions in the time period and two further acquisitions in early 2007 leaving the Group on a very solid footing going forward. James Robinson Finance Director Group profit and loss account Year ended 31st December 2006 2006 2005 Note £'000 £'000 Turnover Continuing operations 7,053 5,315 Acquisitions 3,409 - ------------- ------------- Group turnover 2 10,462 5,315 Cost of sales (6,037) (2,439) _____________ _____________ Gross profit 4,425 2,876 Administrative expenses (9,628) (5,741) _____________ _____________ Operating loss Continuing operations (5,135) (2,865) Acquisitions (68) _____________ _____________ Group operating loss 3 (5,203) (2,865) Interest receivable 4 2 Interest payable 6 (472) (131) _____________ _____________ Loss on ordinary activities before taxation (5,671) (2,994) Tax on loss on ordinary activities 7 (129) - _____________ _____________ Loss for the financial year 9 (5,800) (2,994) ============= ============= Loss per share 8 (5.22)p (4.43)p ======== ======== All of the activities of the Group are classed as continuing. The Company has taken advantage of section 230 of the Companies Act 1985 not to publish its own Profit and Loss Account. Group Statement of Total Recognised Gains and Losses Year ended 31st December 2006 2006 2005 £000 £000 Loss for the financial year attributable to the shareholders of the (5,800) (2,994) parent company Currency translation differences on foreign currency net investments (238) 114 _______ _______ Total recognised gains and losses relating to the year (6,038) (2,880) ======= ======= Group Balance Sheet 31st December 2006 2006 2005 Note £'000 £'000 Restated Called up share capital not yet paid 11 1,148 1,148 Fixed assets Intangible assets 12 7,321 3,068 Tangible assets 13 599 612 _____ _____ 7,920 3,680 _____ _____ Current assets Stocks 15 55 70 Debtors 16 3,382 1,748 Cash at bank 290 304 _____ _____ 3,727 2,122 Creditors: Amounts falling due within one year 17 (11,360) (5,741) _____ _____ Net current liabilities (7,633) (3,619) _____ _____ Total assets less current liabilities 1,435 1,209 Creditors: Amounts falling due after more than one year 18 (625) (1,101) 810 108 ===== ===== Capital and reserves Called-up share capital 22 1,566 742 Shares to be issued under option 23 239 18 Share premium account 24 10,623 4,928 Profit and loss account 24 (11,618) (5,580) _____ _____ Shareholder funds 25 810 108 ===== ===== Company Balance Sheet 31st December 2006 2006 2005 Note £'000 £'000 Restated Called up share capital not yet paid 11 1,148 1,148 Fixed assets Tangible assets 13 8 13 Investments 14 2,269 1,820 _____ _____ 2,277 1,833 Current assets Debtors 16 8,466 3,691 Cash at bank - - _____ _____ 8,466 3,691 Creditors: Amounts falling due within one year 17 (1,780) (1,441) _____ _____ Net current assets 6,686 2,250 _____ _____ Total assets less current liabilities 10,111 5,231 Creditors: Amounts falling due after more than one year 18 (3) (354) _____ _____ 10,108 4,877 ===== ===== Capital and reserves Called-up share capital 22 1,566 742 Shares to be issued under option 23 239 18 Share premium account 24 10,623 4,928 Profit and loss account 24 (2,320) (811) Shareholders' funds 25 10,108 4,877 ===== ===== Group Cash Flow Statement Year ended 31st December 2006 2006 2005 £000 £000 Net cash outflow from operating activities (3,236) (2,237) Returns on investments and servicing of finance Interest paid (271) (130) Interest element of finance leases (1) (1) Interest received 4 2 _____ _____ Net cash outflow from returns on investments and servicing of finance (268) (129) Taxation - - Capital expenditure and financial investment Payments to acquire intangible fixed assets (2,143) (117) Payments to acquire tangible fixed assets (311) (233) _____ _____ Net cash outflow for capital expenditure and financial (2,454) (350) Investment Acquisition (Overdrafts)/cash acquired with subsidiaries (706) 58 _____ _____ Cash outflow before financing (6,664) (2,658) Financing Issue of equity share capital 4,670 1,104 Capital element of finance leases (6) (2) Repayment of loans (405) - Increase in loans 1,000 683 _____ _____ Net cash inflow from financing 5,259 1,785 _____ _____ Decrease in cash (1,405) (873) ===== ===== Major non-cash transactions In the year ended 31 December 2005 the Company issued a total of 5,468,796 ordinary shares of 1p at a price of 21p unpaid to the Directors in accordance with the Directors Share Acquisition Scheme as approved at the AGM on 15 June 2005. In the year ended 31 December 2006 the Company converted short term non-institutional loans totalling £1.4m into equity. The Company also issued shares to the value of £271,000 as part payment for the acquisitions of n3prenor AB and Eckerud Scandinavian Group AB. Additionally in the year ended 31 December 2006 the Company had share based payments totalling £398,000, being £203,000 (2005: £18,000) in option costs together with £195,000 as a commitment fee for a loan. Reconciliation of operating loss to net cash outflow from operating activities 2006 2005 £000 £000 Operating loss (5,203) (2,865) Amortisation 481 222 Depreciation 203 195 Loss on disposal shares held for resale - 3 Loss of disposal of fixed assets 121 - Share based payments 398 - Decrease/(increase) in stocks 19 (30) Increase in debtors (749) (1,068) Increase in creditors 1,494 1,306 --------- -------- Net cash outflow from operating activities (3,236) (2,237) ========= ======== Analysis of changes in net debt At 31 Cash Flows Foreign At 31 December 2005 exchange December 2006 movement £000 £000 £'000 £000 Net debt: Cash in hand and at bank 304 (29) 15 290 Overdrafts (215) (1,376) (12) (1,603) _____ _____ ______ _______ 89 (1,405) 3 (1,313) Loans (750) (595) - (1,345) _____ _____ ______ _______ (661) (2,000) 3 (2,658) ===== ===== ====== ======= Notes to the Financial Statements Year ended 31st December 2006 1. Accounting policies Basis of accounting The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and all group undertakings. These are adjusted, where appropriate, to conform to group accounting policies. Acquisitions are accounted for under the acquisition method and goodwill on consolidation is capitalised and written off over twenty years from the year of acquisition. The results of companies acquired or disposed of are included in the Group profit and loss account after or up to the date that control passes respectively. As a consolidated group profit and loss account is published, a separate profit and loss account for the parent company is omitted from the Group financial statements by virtue of section 230 of the Companies Act 1985. Turnover Turnover comprises the value of goods and services supplied by the Group, net of value added tax and trade discounts. Amortisation Amortisation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Goodwill - 5%-10% straight line Brands, licences and patents - 10% straight line Fixed assets All fixed assets are initially recorded at cost. Depreciation Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows: Plant & Machinery - 3-5 years straight line Stocks Stocks are valued at the lower of cost and net realisable value, after making due allowance for obsolete and slow moving items. Foreign Currencies The assets and liabilities of foreign operations, including goodwill and fair value adjustments, are translated into Pounds sterling at the foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to Pounds sterling at the average exchange rate ruling during the period. All exchange differences are taken to reserves. Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit. Investments Fixed asset investments are stated at cost less any necessary provision for impairment. Capital instruments Shares are included in shareholders' funds. Other instruments are classified as liabilities if they contain an obligation to transfer economic benefits and if not they are included in shareholders' funds. The finance cost recognised in the profit and loss account in respect of capital instruments other than equity shares is allocated to years over the term of the instrument at a constant rate on the carrying amount. Operating lease agreements Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease. Hire purchase agreements Assets held under hire purchase agreements are capitalised and disclosed under tangible fixed assets at their fair value. The capital element of the future payments is treated as a liability and the interest is charged to the profit and loss account on a straight line basis. Share based payments The Group operates a share option scheme to encourage participation by Directors and employees in the Group's performance. The fair value of the services received in exchange for the grant of options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of any options granted, excluding non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the Company revises its estimate of options that are expected to vest. All other share based payments are reflected at fair value within the financial statements. Pension costs The Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group. The annual contributions payable are charged to the profit and loss account. Deferred taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or to receive more tax, with the following exceptions: Provision is made for tax on gains arising from the revaluation (and similar fair value adjustments) of fixed assets, and gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold; Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Going concern United Kingdom company law requires the Company's Directors to consider whether it is appropriate to prepare the financial statements on the basis that the Group is a going concern. In considering this matter the Directors have reviewed the Group's budget for 2007 and its plan for 2008. This included consideration of the cash flow implications of the budget and plan and the receipt of an unconditional guarantee provided by a major shareholder. The Directors see no reason why the Group and the Company should not continue in operational existence for the foreseeable future. For this reason the Directors have adopted the going concern basis in preparing the Group's financial statements. 2. Turnover The turnover and loss before tax are attributable to the one principal activity of the Group. An analysis of turnover is given below: 2006 2005 £000 £000 Europe 10,462 5,315 ======= ====== 3. Operating loss Operating loss is stated after charging: 2006 2005 £000 £000 Amortisation 481 222 Depreciation of tangible fixed assets: Owned assets 198 192 Leased assets 5 3 Loss on disposal of fixed assets 121 - Auditors' remuneration - as auditors 16 14 - non-audit services - taxation 3 4 Remuneration of foreign auditors 37 42 ===== ===== 4. Particulars of employees The average number of staff employed by the Group during the financial year amounted to: 2006 2005 No No Management 10 8 Sales 32 24 Production and development 78 33 Administrative 10 6 ----- ----- 130 71 ===== ===== The aggregate payroll costs of the above were: 2006 2005 £000 £000 Wages and salaries 3,624 2,502 Social security costs 860 528 Other pension costs, life cover & medical costs 197 142 ------- ------- 4,681 3,172 ======= ======= 5. Directors' emoluments The Directors' aggregate emoluments in respect of qualifying services were: 2006 2005 £000 £000 Emoluments receivable - from the Company 215 227 - from group companies 309 320 Benefits receivable 44 25 Value of company pension contributions to money purchase schemes 12 7 ------- ------- 580 579 ======= ======= During the year one director participated in a money purchase pension scheme (2005: one) Emoluments of highest paid director: Total emoluments 200 197 ======= ======= 6. Interest payable and similar charges 2006 2005 £000 £000 Interest payable on bank borrowing 471 130 Interest element of finance leases 1 1 ------- ------- 472 131 ======= ======= 7. Taxation on ordinary activities (a) Analysis of charge in the year Current tax: 2006 2005 £000 £000 UK Corporation tax based on the results for the year at 30% (2005: 30%) - - Overseas taxation 129 - -------- ------- Total current tax 129 - ======== ======= (b) Factors affecting current tax charge The tax assessed on the loss on ordinary activities for the year is higher than the standard rate of corporation tax in the UK. 2006 2005 £000 £000 Loss on ordinary activities before taxation (5,671) (2,994) ======== ======= Loss on ordinary activities by rate of tax at 30% (2005: 30%) (1,701) (898) Disallowed expenditure 13 7 Overseas taxation 129 - Losses carried forward 450 200 Overseas losses 1238 691 -------- ------- Total current tax - debit (note 7(a)) 129 - ======== ======= Deferred tax assets have not been recognised in the financial statements as the Directors are uncertain as to when they will be utilised. 8. Loss per share 2006 2005 Pence Pence Loss per ordinary share (5.22) (4.43) ========= ======= The basic loss per share is calculated by dividing the loss on ordinary activities after tax of £5,800,000 (2005: £2,994,000) and the weighted average number shares in issue and carrying the right to receive dividend during year ended 31 December 2006 being 111,216,685 (2005: 67,467,351), which excludes shares issued to the Directors and not fully paid. The diluted earnings per ordinary share calculation is the same as the basic earnings per share calculation. This is because no dilution arises as there is a loss. 9. Loss attributable to members of the parent company The loss dealt with in the accounts of the parent company was £1,509,000 (2005: £672,000). 10. Dividends No dividends have been paid in respect of the year. 11. Called up share capital not yet paid Subsequent to the AGM that took place on 15 July 2005 the following directors were allotted ordinary shares at the then market price of 21p, under the Directors' Share Acquisition Scheme, the Directors that held these shares at 31 December 2006 were: Director Shares allotted Geir Lolleng 1,298,839 Aksel Bratvedt 1,298,839 James Robinson 1,435,559 Mike Hudgell 1,435,559 These shares were issued and remain unpaid and no application will be made for the shares to be admitted to trading on AIM whilst they remain unpaid. In the case of Mr Bratvedt and Mr Lolleng, the shares cannot be paid up until after 8 July 2006 and, in the case of Mr Hudgell and Mr Robinson, the shares cannot be paid up until after 1 June 2007. All directors have until the 15 July 2015 to pay up the shares. Whilst the shares remain unpaid they will have no voting or dividend rights. 12. Intangible fixed assets Group Brands, licences Goodwill Total & patents £000 £000 £000 Cost At 1 January 2006 215 3,372 3,587 Acquired in year - 4,734 4,734 --------------- --------------- --------------- At 31 December 2006 215 8,106 8,321 =============== =============== =============== Amortisation At 1 January 2006 29 490 519 Charge for the year 21 460 481 --------------- --------------- --------------- At 31 December 2006 50 950 1000 =============== =============== =============== Net book value At 31 December 2006 165 7,156 7,321 =============== ============== =============== At 31 December 2005 186 2,882 3,068 =============== ============== =============== 13. Tangible fixed assets Group Plant & Total machinery £000 £000 Cost At 1 January 2006 840 840 Acquired in year 311 311 Disposed in year (145) (145) -------- -------- At 31 December 2006 1,006 1,006 ======== ======== Depreciation At 1 January 2006 228 228 Charge for the year 203 203 On disposals (24) (24) -------- -------- At 31 December 2006 407 407 ======== ======== Net book value At 31 December 2006 599 599 ======== ======== At 31 December 2005 612 612 ======== ======== Company Plant & Total machinery £000 £000 Cost At 1 January 2006 16 16 Acquired in year - - -------- -------- At 31 December 2006 16 16 ======== ======== Depreciation At 1 January 2006 3 3 Charge for the year 5 5 -------- -------- At 31 December 2006 8 8 ======== ======== Net book value At 31 December 2006 8 8 ======== ======== At 31 December 2005 13 13 ======== ======== All of the assets held by the Company are held under hire purchase agreements. 14. Investments Company Total £000 Cost At 1 January 2006 1,820 Additions 449 ------ At 31 December 2005 2,269 ====== Net book value At 31 December 2006 2,269 ====== At 31 December 2005 1,820 ====== Subsidiary undertaking Holding Country of Proportion Nature of incorporation of voting business rights held Name of company Directly Held Azzets Limited Ordinary UK 100% Dormant Shares Butler Systems Limited Ordinary UK 100% Dormant Shares Depicta Limited Ordinary UK 100% Dormant Shares Dellinger Group Holding AB Ordinary Sweden 100% Holding company Shares Dellinger Group Holding II AB Ordinary Sweden 100% Holding company Shares Indirectly Held Dellinger Group AB Ordinary Sweden 100% Outsourced marketing Shares services Delling Group AS (previously called Ordinary Norway 100% Outsourced marketing Depicta Fame AS) Shares services n3prenor AB Ordinary Sweden 100% Preparation of annual Shares reports and other corporate documents Eckerud Scandinavian Group AB Ordinary Sweden 100% Provision of expo Shares services C Mag AB (previously called Dellinger Ordinary Sweden 100% Dormant Group) Shares Full Bredde AS Ordinary Norway 100% Dormant Shares Azzets AB Ordinary Sweden 100% Dormant shares On 1 January 2006 the Group transferred the trades of Depicta AB and Azzets AB into Dellinger Group AB, resulting in Depicta AB and Azzets AB becoming dormant. Subsequent to this transfer of trade Depicta AB was sold to Kanonladdaren AB for no consideration. Kanonladdaren AB is company controlled by Mr B Dysthe a significant shareholder in Delling Group plc. In 2005 the trades of Unikum Professional Imaging and Andre Worldwide Visual Communications were purchased for £75,000 giving rise to the same amount in goodwill. In 2006 a further payment of £97,000 was made in respect of Andre Worldwide Visual Communications, giving rise to additional goodwill of the same amount. In 2006 the Group acquired a 100% shareholding of n3prenor AS, a newly incorporated vehicle, which therefore only had the cash created on incorporation of £22,000. This vehicle then purchased the trade of n3prenor, an unincorporated business. The consideration comprised: shares to the value of £124,000, cash of £ 1,053,000 and a deferred cash payment of £493,000, giving rise to goodwill of £1,670,000. During 2006 the Group also acquired a 100% shareholding in Eckerud Scandinavian Group AB. Net assets/liabilities acquired are considered to be at fair value and comprise: £000 Intangible assets 694 Tangible assets 149 Debtors 797 Cash 35 Creditors (1,870) Overdraft (742) Net liabilities acquired (937) Cost: -shares issued 147 -cash 993 -deferred cash 196 ________ Goodwill arising 2,273 ======= Since the acquisition date a summary of the trading of the companies acquired in 2006 was as follows: Eckerud Scandinavian n3prenor AB Group AB £'000 £'000 Turnover 2,368 1,041 Operating profit /(loss) 410 (317) Profit/(loss) before taxation 390 (331) Taxation (129) - Profit /(loss)after taxation 261 (331) 15. Stocks Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Finished goods 55 70 - - ====== ====== ====== ====== 16. Debtors Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Trade debtors 2,115 1,279 - - Amounts owed by group - - 7,866 3,559 undertakings Other debtors 1,267 469 600 132 ------ ------ ------ ------ 3,382 1,748 8,466 3,691 ====== ====== ====== ====== Trade debtors of £408,000 (2005: £288,000) have been factored. 17. Creditors: Amounts falling due within one year Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Amounts due to debt factors 408 288 - - Bank loans & overdrafts 1,603 215 28 82 Finance leases 5 5 5 5 Trade creditors 3,711 1,691 162 133 Other taxation & social 501 952 24 42 security Other creditors 4,178 2,132 1,545 1,146 Accruals and deferred income 954 458 16 33 ------ ------ ------ ------ 11,360 5,741 1,780 1,441 ====== ====== ====== ====== The bank loans and overdrafts of the subsidiaries are secured by a fixed and floating change over the assets of those subsidiaries. Included in other creditors is a loan for £345,000 which has been guaranteed by a Director. 18. Creditors: Amounts falling due after more than one year Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Other creditors 622 1,092 - 345 Finance leases 3 9 3 9 ------ ------ ------ ------ 625 1,101 3 354 ====== ====== ====== ====== Finance leases falling due in more than one are repayable as follows: Group Company 2006 2005 2006 2005 £000 £000 £000 £000 Repayable in more than two years but not more than five years 3 9 3 9 ====== ====== ====== ====== 19. Treasury policy and financial instruments The Group operates informal treasury policies which include ongoing assessments of interest rate management and borrowing policy. The Board approves all decisions on treasury policy. Facilities are arranged, based on criteria determined by the Board, as required to finance the long term requirements of the Group. The Group has financed its activities by the raising of funds through the placing of shares. The Group has overdraft facilities across the Group of £1,603,000 at variable rates. The Group has a fixed loan of £345,000 at 7% pa until November 2007. The Group also has a loan of £1,000,000 with RAB Capital, further details of which are given in note 21. The Group has taken advantage of the exemption permitting it not to include short term debtors and in the disclosures required by FRS 13 'Derivatives and Other Financial Instruments: Disclosure' other than the currency disclosures. At 31 December 2006 there were no net monetary assets denominated in currencies other than the functional currencies of the operations. The Group's major operating currencies in its subsidiaries are Norwegian Kroner and Swedish Krona. It is not the Group's policy to hedge this exchange risk. There are no material differences between the book value and fair value of the financial assets at the year end. The Group had the following monetary assets and liabilities denominated in Swedish and Norwegian Kronor Swedish Kronor Norwegian Kronor £'000 £'000 Current assets 1,898 939 Cash 280 10 Current liabilities (7,304) (2,278) 20. Commitments under operating leases At 31 December 2005 the Group had annual commitments under non-cancellable operating leases as set out below. Group 2006 2005 Land and Other items Land and Other items Buildings Buildings £000 £000 £000 £000 Operating leases which expire: Within 1 year 12 - 77 - Within 2 to 5 years 858 5 185 5 ------ ------ ------ ------ 870 5 262 5 ====== ====== ====== ====== Company 2006 2005 Land and Other items Land and Other items Buildings Buildings £000 £000 £000 £000 Operating leases which expire: Within 1 year 12 - 30 - Within 2 to 5 years - 5 - 5 ------ ------ ------ ------ 12 5 30 5 ====== ====== ====== ====== 21 Related party transactions The Company is exempt from the requirement to disclose related party transactions with other group companies under the provisions of Financial Reporting Standard No. 8. All group transactions were eliminated on consolidation. During the year group companies were invoiced £117,000 (2005: £135,000) by Nordic Investment Management Ltd a company under the control of A Bratvedt for directors' services. There was no outstanding balance at the year end. During the year group companies were invoiced £192,000 (2005: £185,000) by Nordic Investment Management AS, a company under the control of G Lolleng for directors' services. There was no outstanding balance at the year end. During the year the Executive Directors held a number of shares unpaid. Further details of which can be found in note 11. The Group is owed £605,000 (2005 was owed: £552,000) by Mr B Dysthe, a significant shareholder in the company. The loans are interest free and unsecured with no fixed repayment date. The Group has entered into a loan with RAB Capital plc, a significant shareholder in the Company. The amounts owed is £1,000,000 (2005: £Nil) and £200,000 has been accrued in interest costs. Shares to the value of £195,000 were also issued and have been treated as a commitment fee. 22. Share capital Authorised share capital 2006 2006 2005 2005 No £000 No £000 Ordinary shares of £0.01 each 200,000,000 2,000 200,000,000 2,000 ============== ============== ============== ============== 2006 2006 2005 2005 No £000 No £000 Allotted, called up and fully paid: Ordinary shares of £0.01 each 151,172,514 1,511 68,726,542 687 Allotted, called up and unpaid Ordinary shares of £0.01 each 5,468,796 55 5,468,796 55 ______________ ______________ ______________ ______________ 156,641,310 1,566 74,195,338 742 ============== ============== ============== ============== The following shares were issued in the year £000 No Reason June 2006 818 10,218,850 Placing July 2006 2,559 31,988,586 Placing July 2006 1,383 17,291,100 Loan conversion August 2006 1,955 21,397,436 Placing September 2006 124 1,550,000 Acquisition -------- ---------- 6,839 82,445,972 ======== ========== Warrants The Company has two warrants in existence as follows: (1) 1% of the issued share capital at admission to AIM at the admission price exercisable at any time over 5 years from the admission, and (2) 3% of the issued share capital at admission to AIM at the admission price exercisable at any time over 3 years from the admission. 23. Shares to be issued under option Under FRS20 the prior year has been adjusted for options where the vesting period fell into the year ended 31 December 2006. The accounting policy is detailed in note 1. Options were valued using the Black-Scholes option pricing model. The assumptions used to value the options are set out below: Option granted on: 15 June 2005 18 September 2006 Shares under option 5,265,243 6,802,764 Exercise price 14p - 21p 12p Exercisable from (years) 2 0 Option life (years) 3-10 5 Risk free rate 4.34 4.34 Expected volatility 28.42% 28.42% Expected dividend yield 0% 0% Forfeiture rate 0% 0% Bid price discount 0% 0% Total fair value of options granted (£'000) 194 188 Recognised in the current year 15 188 In addition the Company has 585,000 options granted on 14 October 2004, exercisable at 14p. The expected volatility is based on historical volatility since listing on AiM on 14th October 2004. The total fair value has been spread over the relevant vesting periods and has resulted in a charge to the profit and loss account for the year ended 31 December 2006 of £203,000. Options to the value of £18,000 in respect of services received in respect of shares issued have been debited as a prior year adjustment to the share premium account. 24. Reserves Group Share premium account Profit and loss account 2006 2005 2006 2005 £000 £000 £000 £000 restated At 1 January (restated) 4,928 2,700 (5,580) (2,700) Premium arising on 6,015 2,382 - - shares issued Prior year adjustment (18) - (note 23) Less share issue costs (320) (136) - - ______ ______ ______ ______ 4,928 (5,580) (2,700) Loss for the year - - (5,800) (2,994) Exchange movement - - (238) 114 ______ ______ ______ ______ Balance carried forward 10,623 4,928 (11,618) (5,580) ====== ====== ====== ====== Company Share premium account Profit and loss account 2006 2005 2006 2005 £000 £000 £000 £000 restated At 1 January (restated) 4,928 2,700 (811) (139) Premium arising on shares 6,015 2,382 - issued Less share issue costs (320) (136) - Retained loss for the year - - (1,509) (672) Prior year adjustment (note - (18) - 23) ______ ______ ______ ______ Balance carried forward 10,623 4,928 (2,320) (811) ====== ====== ====== ====== 25. Reconciliation of movements in shareholders' funds Group Equity shareholders' funds 2006 2005 £000 £000 Restated Loss for the financial year (5,800) (2,994) Exchange movement (238) 114 Dividends - - ------- ------- (6,038) (2,880) Shares to be issued under share options 221 18 New equity share capital subscribed 6,519 2,373 ------- ------- Net increase/(decrease) to funds 702 (489) Capital reserve movement - (60) Opening shareholders equity 108 657 ------- ------- Closing shareholders' equity 810 108 ======= ======= Company Equity shareholders' funds Loss for the financial year (1,509) (672) Shares to be issued under option 221 18 New equity share capital subscribed 6,519 2,373 ------- ------- Net addition to funds 5,231 1,719 Opening shareholders' funds 4,877 3,158 ------- ------- Closing shareholders' equity funds 10,108 4,877 ======= ======= 26. Contingent liabilities Depicta Guarantee In 2002, Kanonladdaren AB sold software rights to a related party Cultmag AS. Kanonladdaren agreed to guarantee Cultmag's bank borrowings for that purchase. Subsequently, as part of Kanonladdaren's sale of its assets to members of the Group, Depicta took over 2.5 million Swedish kronor of that guarantee in favour of Sparebanken Spreetogo which it can be called on to pay and contains no recourse. Azzets Undertaking In 2002, Kanonladdaren AB sold software rights to a related party, Cultmag AD. Kanonladdaren agreed to guarantee Cultmag's bank borrowings for that purchase. Subsequently, as part of Kanonladdaren's sale of its assets to members of the Group. Azzets agreed to take over 14.3 million Swedish kronor of that guarantee in favour of DNBOR which it can be called on to pay and contains no recourse. 27 Controlling part There is no controlling party 28. Post balance sheet events Subsequent to the year end the Company has issued 11,500,000 shares at 10p per share. The Company has also acquired Sandbergs Exhibition Group AB, issuing 3,433,633 as part of the consideration. This information is provided by RNS The company news service from the London Stock Exchange

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