Final Results
Digital Marketing Group PLC
27 June 2007
Date: 27 June 2007
On behalf of: Digital Marketing Group plc (the 'Company' or the 'Group')
Embargoed: 0700hrs
Digital Marketing Group plc
Preliminary Results 2007
Digital Marketing Group plc (AIM: DIGI), the digital direct marketing
specialists, today announced its maiden results for the year ended 31 March
2007.
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 Digital
Marketing Group plc, said:
'These are early days for our Group, but all our companies are performing well
both individually and collectively. A stream of new business has been won
through 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 companies
providing personalised communications for clients across all digital and direct
channels. The market context for the decision to create this business was (and
remains) extremely encouraging'.
'Digital Marketing Group has now acquired four well established, profitable and
fast growing businesses. In short; much achieved, much opportunity.'
Enquiries:
Digital Marketing Group plc www.digitalmarketinggroup.co.uk
Ben Langdon, Chief Executive Via Redleaf Communications
Cenkos Securities
Adrian Hargrave / Max Hartley Tel: 020 7397 8900
Redleaf Communications
Emma 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 and
profit before tax and exceptional costs of £1.4m. After deducting exceptional
costs of £0.3m, profit before tax on continuing operations amounted to £1.1m.
EBITDA before exceptional costs was £2.0m. Gross Profit, which represents
Revenue less direct costs of sales, is an important measure in our industry and
I am therefore also pleased to report a Gross Profit of £8.4m.
These results represent post acquisition figures to 31 March 2007 and comprise 6
months for HSM Limited (HSM) and Scope Creative Marketing Limited (trading as
Dig 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 31
March from 31 December in order for us to report co-terminus results.
Additionally under IFRS 5, our Financial Statements contain results from
discontinued operations relating to the activities of Seashell II Limited with
whom we merged in October 2006 prior to listing on AIM. In order therefore to
aid comprehension we have provided in the Strategic Review, for illustrative
purposes, the results as if each business had been in the Group for the full
year to 31 March 2007. The headline figures, for illustration purposes, show
Revenue of £37.6m, Gross Profit of £24.0m and EBITDA of £5.2m.
Importantly, these results fulfil our financial expectation for each of the
Group companies for this period.
Digital Marketing Group is a recently formed Group of companies based in the UK
and focused on the provision of direct digital marketing services to its
clients. 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 well
both individually and collectively. A stream of new business has been won
through 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 EPS
growth over a three year period; we are very focused on delivering for
shareholders as well as clients.
I would like to thank fellow Board members for their support, and our employees
and managers under the exceptional leadership of Ben Langdon for these excellent
results and their commitment to our Group vision.
In particular I would also like to thank the clients of Digital Marketing Group
for their loyalty and support. A group in a business such as ours is genuinely
'nothing' without them. Our business is focused on delivering personalised
communications in a digital age. Our aim as a Group of integrated businesses is
focused on helping our clients generate more profitable and loyal customers, and
improved 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 joining
us as our new Financial Director and Company Secretary in September 2007, and to
thank Bob Millington for his valued contribution in leading the Group through
the AIM flotation process and the first phase of its development. We are
delighted to welcome Sarah Guest to our Board. She brings with her a wealth of
experience and we are confident that she will make a substantial contribution to
the Group.
Stephen Davidson
Chairman
26 June 2007
Strategic Review
In 2006 we set out to create an innovative, highly focused Group of businesses
providing personalised communications for clients across all digital and direct
channels.
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 and
more 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 business
focused on the specialist area of digital direct marketing. 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.
Upon the Company's admission to the Alternative Investment Market ('AIM') in
October 2006, the company's stated objectives were to develop the business
through 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 and
fast 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 ability
to coordinate both their 'online' and 'offline' direct marketing strategy
and concurrently offer the skills necessary to input, collect, analyse and apply
customer 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 with
skills in mobile marketing, and web development technology. The Group may also
seek to acquire businesses in sectors where the need for digital direct
marketing is most pronounced e.g. media and entertainment or where our platform
could significantly improve an existing business e.g. digital advertising
networks.
In addition to our 'buy and build' strategy we have implemented an organic
growth strategy with a marketing and new business development programme
targeting clients who already use digital, direct or database marketing as part
of their existing marketing mix. We implement a rigorous cross referral
programme for new business across the existing client base of the Group, and
have had significant success already in attracting incremental revenue to the
Group.
A recent example of a client that has chosen to employ the combined services of
Digital Marketing Group is Panasonic. As their digital communications agency,
Inbox have already introduced other group companies to Panasonic and the result
has been a highly successful joint viral video campaign through Inbox Digital
and Dig For Fire. The campaign which was featured on YouTube.com and myspace.com
was passed around the internet and not only was it viewed by over 1.3 million
people, it generated thousands of email registrations into the Panasonic eCRM
programme which is managed by Inbox Digital.
Another example of a blue-chip client using the combined services of Digital
Marketing Group is AA Business Services who have used a combination of Cheeze
for online media planning and buying, Inbox Digital for online advertising and
email marketing, and HSM for telephone based sales generation and conversion.
The AA prospect database is managed by HSM and the results of the entire
campaign activity can be measured centrally on a cost per click, cost per
response, cost per sale and cost per channel basis.
Importantly each of the companies within our group will now start to benefit
from our own proprietary integrated Digital and Direct Marketing Platform
'Digital Brain'. In effect, Digital Brain is a combination of our individual
agency technologies allowing us to offer our clients integrated data and contact
strategies in real time through digital and direct channels.
Finally, the Group has an identified plan for integration produced in
collaboration with the CEOs of each of the Group companies, and focused on the
following 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 For
Fire. In January 2007 we acquired Cheeze and Jaywing.
Our results represent post acquisition figures to March 2007 and comprise 6
months for HSM and Dig For Fire, 3 months for Cheeze and 2 months for Jaywing.On
this 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 an
annualised and normalised basis. This information is provided for illustrative
purposes only. The information is based on the statutory accounts of the
individual entities prepared under UK GAAP, time apportioned where appropriate.
The information has been adjusted for items which are considered to be non
recurring, for example excess management remuneration, and excludes charges in
respect of share options.
When looked at on a pro forma annualised and normalised basis the group's
results 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 company
together 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. The
information is based on the statutory accounts or management accounts of each
group business and time apportioned where appropriate. The figures have been
adjusted for items which are considered to be non recurring, for example, excess
management 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 Cheeze
represents the year ended 31 December 2005.
Liquidity Review
The Group was originally funded by an equity placing and merger with Seashell II
Limited which raised £10.6m. This allowed the Group to secure the acquisitions
of 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 the
acquisitions of Cheeze and Jaywing for net cash outflows of £11.75m. Total
borrowings were approximately 2.6 times current EBITDA.
The consolidated cash flow statement shows the Group to be cash generative from
its operations. In May 2007, the Group undertook an equity placing of
14,285,715 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 and
goals for 2006/7. However, we do not rest on the assumption that the underlying
growth in the digital market will inevitably deliver success, and we therefore
measure our businesses and the Group against a number of key performance
indicators:
• 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 extremely
exciting:
• 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 from
combining 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 or
brands. The work done by Cheeze will encompass software solutions which trawl
the net (from forums, to blogs and chat rooms) and identify instances of phrases
or words being mentioned about client brands.
Noize will also monitor the channels relevant to brands where we can use
paid-for promotion to stimulate conversations with key online influencers.
Access to Cheeze's existing Blog and Podcast Directory ('BLAD') and the Inbox
viral 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 to
receive content from Digital Marketing Group.
Cheeze is already working with clients to create 'blog builds' and strategy but
not content preparation. In combination with the skills of Dig for Fire and
Inbox Digital we will be able to offer an end to end blog solution providing
both strategy and execution.
3. Research
Noize will test brand campaigns and messages via the Group's existing online
community (BLAD & Inbox) prior to full market roll-out.
On a wider and more ambitious scale we can forsee an opportunity for Digital
Marketing 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 million
impressions per month
2. Acquisition: Find a network we could acquire and improve via the skills of
Digital Brain.
The medium term organisational structure of Digital Marketing Group might
therefore appear like this:
Communications Agency Technical Platforms Content Division Digital Ad Network
Network
Integrated group of digital 'Digital Brain' and Using existing skills Combination of DMG- owned
direct marketing agencies other technology-driven to create our own sites (built by the content
providing personalised services that provide a websites or content division) and third-party
communications across platform for digital where we retain the IP sites
digital and direct channels campaigns with intelligent
advertising driven by
'Digital Brain'
Since our admission to AIM in October 2006 Digital Marketing Group has completed
a 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 £000
Continuing 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) 123
operations
(Loss)/profit for the year attributable to (103) 123
shareholders
Earnings per share 4
From 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 £000
Non-current assets
Property, plant and equipment 714 6
Goodwill 30,734 -
Other intangible assets 10,215 -
41,663 6
Current assets
Inventories 165 -
Trade and other receivables 6,102 10
Cash and cash equivalents 5,569 3,564
11,836 3,574
Total assets 53,499 3,580
Current liabilities
Bank overdraft 6 2,664 -
Other interest-bearing loans and borrowings 6 1,474 -
Trade and other payables 6,980 190
Tax payable 611 -
11,729 190
Non-current liabilities
Other 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 shareholders
Share capital 25,063 3,267
Share 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 £000
Cash flows from operating activities
Loss 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 provisions
Increase/(decrease) in trade and other 1 (10)
receivables
Decrease in inventories (11) -
(Decrease)/increase in trade and other (349) 190
payables
Cash generated from the operations 939 (33)
Interest paid (205) -
Interest received 99 103
Tax paid (288) -
Net cash inflow from operating activities 545 70
Cash flows from investing activities
Proceeds from sale of property, plant and 1,306 -
equipment
Acquisitions of subsidiaries, net of cash (20,662) -
acquired
Acquisition of property, plant and equipment (143) (6)
Net cash outflow from investing activities (19,499) (6)
Cash flows from financing activities
Proceeds 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) 3,331
Cash and cash equivalents at beginning of 3,564 -
period
Effect of exchange rate fluctuations on cash - 233
held
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 3,564
Bank 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 - - - 3,217
Allotment of £1 Convertible A shares 50 - - - 50
Retained earnings - 123 - - 123
At 31 March 2006 3,267 123 - - 3,390
Allotment of 50p Ordinary shares 21,846 - 2,986 - 24,832
Redemption of Convertible A shares (50) - - - (50)
Retained earnings - (103) - - (103)
Credit in respect of share based - 271 - - 271
payments
Shares 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 its
subsidiaries (together referred to as the 'Group').
The consolidated financial statements have been prepared and approved by the
directors in accordance with International Financial Reporting Standards as
adopted by the EU ('Adopted IFRSs'). The consolidated financial statements have
been prepared under the historical cost convention.
The accounting policies set out below have, unless otherwise stated, been
applied consistently to all periods presented in these consolidated financial
statements.
Judgements made by the directors in the application of these accounting policies
that have a significant effect on the consolidated financial statements together
with estimates with a significant risk of material adjustment in the next year
are 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 29
Financial Reporting in Hyperflationary Economies', IFRIC 8 'Scope of IFRS 2',
IFRIC 9 'Reassessment of Embedded Derivatives', IFRIC 10 'Interim Financial
Reporting 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 respectively
and are not expected to have a significant impact on the consolidated financial
statements.
Basis of consolidation
Subsidiaries are entities controlled by the Group. Control exists when the Group
has the power, directly or indirectly, to govern the financial and operating
policies of an entity so as to obtain benefits from its activities. In assessing
control, potential voting rights that are currently exercisable or convertible
are taken into account. The financial statements of subsidiaries are included in
the consolidated financial statements from the date that control commences until
the date that control ceases. Transactions between Group companies are
eliminated 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 shares
for equivalent shares in Digital Marketing Group plc. As Digital Marketing Group
plc was newly incorporated at the time of the transaction under the terms of
IFRS 3 'Business Combinations' this transaction has been accounted for as a
reverse acquisition, on the basis that the shareholders of Seashell II Limited
gained a controlling interest in the Group. The financial statements therefore
represent a continuation of the financial statements of Seashell II Limited.
Following the merger, the activities of Seashell II Limited were discontinued by
the Group, and have been presented as a discontinued activity in both the
current and previous periods.
Revenue
Revenue for all business segments other than media planning and buying comprises
income earned in respect of amounts billed, and is stated exclusive of VAT,
sales tax and trade discounts. Revenue is recognised on long term contracts if
their final outcome can be assessed with reasonable certainty, by including in
the income statement revenue and related costs as contract activity progresses.
Media planning and buying
Revenue comprises gross billings to customers relating to media placements and
fees for advertising services. Revenue may consist of various arrangements
involving commissions, fees, incentive-based revenue or a combination of the
three, as agreed upon with each client.
Revenue is recognised when the service is performed, in accordance with the
terms of the contractual arrangement. Incentive-based revenue typically
comprises both quantitative and qualitative elements; on the element related to
quantitative targets, revenue is recognised when the quantitative targets have
been achieved; on elements related to qualitative targets, revenue is recognised
when the incentive is receivable.
Foreign currency
Transactions in foreign currencies are translated at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are translated at
the foreign exchange rate ruling at that date. Foreign exchange differences
arising 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. forming
part of shareholders' funds) only to the extent that they meet the following two
conditions:
• 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 are
classified as a financial liability. Where the instrument so classified takes
the legal form of the Company's own shares, the amounts presented in these
financial statements for called up share capital and share premium account
exclude amounts in relation to those shares.
Finance payments associated with financial liabilities are dealt with as part of
finance expenses. Finance payments associated with financial instruments that
are 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 depreciation
and impairment losses.
Where parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items of property, plant and
equipment.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of each part of an item of property, plant and
equipment. 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 the
fair value of the net identifiable assets acquired. Identifiable intangibles
are those which can be sold separately or which arise from legal or contractual
rights regardless of whether those rights are separable.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is
allocated to cash-generating units and is not amortised but is tested annually
for impairment.
Other intangible assets that are acquired by the Group are stated at cost less
accumulated amortisation and accumulated impairment losses.
Amortisation is charged to the income statement on a straight-line basis over
the estimated useful lives of intangible assets unless such lives are
indefinite. Intangible assets with an indefinite useful life and goodwill are
systematically tested for impairment at each balance sheet date. Other
intangible assets are amortised from the date they are available for use. The
estimated useful lives are as follows:
• Customer relationships 8 to 12 years
• Trademarks 12 years
Impairment
For goodwill, assets that have an indefinite useful life and intangible assets
that are not yet available for use, the recoverable amount is estimated
annually, the first assessment will take place during the year ended 31 March
2008. For other assets the recoverable amount is only estimated when there is
an indication that an impairment may have occurred.
An impairment loss is recognised whenever the carrying amount of an asset or its
cash-generating unit exceeds its recoverable amount. Impairment losses are
recognised in the income statement.
Impairment losses recognised in respect of cash-generating units are allocated
first to reduce the carrying amount of any goodwill allocated to cash-generating
units and then to reduce the carrying amount of the other assets in the unit on
a pro rata basis. A cash generating unit is the smallest identifiable group of
assets that generates cash inflows that are largely independent of the cash
inflows from other assets or groups of assets.
Inventories
Work in progress is valued on the basis of direct costs plus attributable
overheads based on normal level of activity on a FIFO basis. Provision is made
for any foreseeable losses where appropriate. No element of profit is included
in the valuation of work in progress.
Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans are
recognised 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 calculated
using a trinomial pricing model and charged to the Income Statement on a
straight line basis over the vesting period of the award. The charge to the
Income 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 present
legal or constructive obligation as a result of a past event, and it is probable
that an outflow of economic benefits will be required to settle the obligation.
If the effect is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of
the time value of money and, where appropriate, the risks specific to the
liability.
Expenses
Operating lease payments
Payments made under operating leases are recognised in the income statement on a
straight-line basis over the term of the lease. Lease incentives received are
recognised in the Income Statement as an integral part of the total lease
expense.
Net financing costs
Net financing costs comprise interest payable and interest receivable on funds
invested. Interest income and interest payable is recognised in profit or loss
as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax
is recognised in the income statement except to the extent that it relates to
items 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, and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used
for 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 of
realisation 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 that
future taxable profits will be available against which the asset can be
utilised.
Financial assets
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank
overdrafts that are repayable on demand and form an integral part of the Group's
cash management are included as a component of cash and cash equivalents for the
purpose only of the statement of cash flows.
Trade and other receivables
Trade and other receivables are initially recorded at fair value and thereafter
carried at fair value amount less any required allowances for uncollectible
amounts.
Financial liabilities
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any difference
between cost and redemption value being recognised in the income statement over
the 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 secondary
format is geographical segments.
Discontinued operations
A discontinued operation is a component of the Group's business that represents
a separate major line of business or geographical area of operations or is a
subsidiary acquired exclusively with a view to resale, that has been disposed
of, has been abandoned or that meets the criteria to be classified as held for
sale.
Exceptional items
Exceptional items are items of significance which the Directors consider need to
be 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 - 13,057
Direct costs (90) (997) (2,706) (875) - (4,668)
Gross profit 3,021 2,909 795 1,664 - 8,389
Other operating income - - 16 - - 16
Operating expenses excluding
depreciation and amortisation (2,433) (2,028) (395) (1,018) (528) (6,402)
EBITDA 588 881 416 646 (528) 2,003
Depreciation (69) (25) (52) (20) - (166)
Operating profit before 519 856 364 626 (528) 1,837
amortisation charge
Amortisation 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 99
Finance costs (205)
Profit before tax 1,074
Taxation (537)
Profit for year from continuing
operations 537
There were no results in the comparative period relating to continuing
operations.
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 -
marketing
Direct 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 borrowings
which have not been allocated across the business segments.
Geographical segments
All turnover is derived from and all assets and liabilities are located in, the
United 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 1.90p
Diluted (0.51)p 1.90p
Earnings per share has been calculated by dividing the profit attributable to
shareholders by the weighted average number of ordinary shares in issue during
the year. The numbers used in calculating basic and diluted earnings per share
are 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 6,433
Adjustment 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 operations
Basic (3.43)p 2.87p 1.90p
Diluted (3.13)p 2.62p 1.90p
£000 £000
(Loss)/profit for year attributable to shareholders (103) 123
Add 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 earnings
per share.
5 Acquisitions of subsidiaries
During the year the Group made four acquisitions of subsidiary undertakings. A
summary of the net assets acquired, consideration paid, and goodwill upon
acquisition of these subsidiary undertakings is shown below:
Summary of all four acquisitions
Acquiree's book Fair value Acquisition
values adjustments Notes amounts
£000 £000 £000
Acquiree's net assets at the acquisition date:
Other intangible assets - 10,523 1 10,523
Property, plant and equipment 1,840 197 2 2,037
Intangible assets 13 - 13
Inventories 154 - 154
Trade and other receivables 6,093 - 6,093
Tax receivable 417 - 417
Cash and cash equivalents 4,499 - 4,499
Trade 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 and
professional fees of £1,448,000) 25,161
Deferred consideration payable 1 January 2008 200
Contingent consideration payable in shares 500
Issue of 20,983,333 ordinary shares at £0.57 to £0.60 per 17,300
share
43,161
Summary of net cash outflows from acquisitions
Cash paid 25,161
Cash 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 current
financial 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 shares
for equivalent shares in Digital Marketing Group plc. As Digital Marketing Group
plc was newly incorporated at the time of the transaction under the terms of
IFRS 3 'Business Combinations' this transaction has been accounted for as a
reverse acquisition, on the basis that the shareholders of Seashell II Limited
gained 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 the
balance 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 set
across the Group with credit balance. No hedging facility was in place at the
period end.
7 Contingencies
The Group has a liability to pay deferred consideration if certain performance
targets are met. The maximum liability is £1,000,000 and the directors have
provided £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 that
the carrying amount of goodwill is fairly stated but have not carried out an
impairment review of this amount during the year.
Other intangible assets
The valuation of customer lists is based on key assumptions which the directors
have assessed, and are satisfied that the carrying value of these assets is
fairly stated.
Deferred consideration
The directors have provided an estimate of the amount payable in respect of
deferred contingent consideration. See note 7.
Recognition of revenue as principal or agent
The Directors consider that they act as a principal in transactions where the
Group assumes the credit risk. Where this is via an agency arrangement and the
Group assumes the credit risk for all billings it therefore recognises gross
billings as revenue.
This information is provided by RNS
The company news service from the London Stock Exchange
Wednesday, 15th May 2024
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