Simplified profit and loss statement in IFRS

I – Growth allows for combination of profitability and development plans

The company achieved its profitability targets and launched many development projects in a high growth context.
The financial room for manoeuvre ensured by group business exceeding the scheduled €23.5 million in turnover was used to finance market studies, launch business in China and the network of TKN sponsored links. The company acquired additional relays for growth in the next few years and also invested in human capital to develop the means to continue its policy of expansion and consolidation in the on-line communication sector with the recruitment of a deputy managing director and a bolstered administrative and financial division.

These decisions were justified by the robust position of the Hi-Media economic model in a strong growth context. Margin rates were stable, a clear absence of correlation between turnover growth and growth in operating costs (primarily overheads) and limited investment requirements. In light of the 73% increase in turnover:

• Gross margins remained in a bracket ranging between 37% and 40%. Margins in the second half of 2005 posted an exceptional drop of 34%, primarily due to an accounting restatement in Numériland which had a three margin point impact.

• Overall payroll rose :
  - By 16% in the first half of the year
  - By 43% in the second half of the year as a result firstly of the acquisition of Numériland and Publicityweb and secondly of bolstered management teams.
  
  Overall staff levels therefore amounted to 82 employees at the end of 2005.

• At the same time, other operating costs rose by a mere 37%, an increase due to a large extent to the integration of the two acquired companies.

The company’s very strong growth therefore made it possible to improve profitability in line with its current operational result targets before consideration of stock option values.
The transition to IFRS led to the value of stock options issued in the last three years to be booked as a €0.2 million charge. Excluding the impact of the stock option plans, current operating result amounted to €+1.5 million compared to a €0.4 million loss in 2004.

Pre-tax results for the 2005 financial year amounted to €1.1 million after consideration of the transaction settling the Abacho dispute which was booked in the accounts for the first half of the year.

With over €30 million in deficits that can be carried over and the outlook of strong profitability, the company activated a proportion of its carry-over deficits with a positive impact of €1.2 million. Net results therefore amounted to €2.3 million.

II – A new structure and upwardly revised profitability outlook

Hi-Media acquired Allopass (published by the Eurovox group, the French leader in micro-payments) after the 2005 accounts were closed.

The company was consolidated for €18.5 million in cash and posted turnover of €29. million in 2005, making Hi-Media one of the main European players in on-line communication.

Its three businesses are:

• Advertising sales: 39% of the group’s pro forma business in 2005
• Direct marketing consulting: 4% of the group’s pro forma business in 2005
• Micro-payments: 57% of the group’s pro forma business in 2005.

The new group would have posted €53.8 million turnover in 2005 with current operating results of €3.4 million.

Forecasts for turnover in 2006 are now set at €70 million equally divided between advertising sales and micro-payments (each accounting for 47% of the consolidated whole). Direct marketing consulting should increase to 6% of group business.
As the gross margin rate for Eurovox is lower than for Hi-Media, the consolidated gross margin rate should be close to 30% from 2006 onwards.
The acquisition should generate integration costs estimated at €500,000 over 2006 which are offset by economies of scale that should total €1 million over the full year.

For 2006, in which all integration costs arising from the acquisition will be booked, operational profitability for the group should amount to between 10% and 12%, i.e., an operational result of €7-8.5 million.

Hi-Media will hold its annual general meeting of shareholders on 20 April 2006