Just tried GD2 - great result! Image size is about 70k smaller!! Varying the quality setting works and another bonus - images actually look better - the color is as it should be - whereas with imagemagick the images looked a bit washed out.
I'm still confused to what is the cause of the problem regarding imagemagick - but GD2 is working great.
Thanks Chuck.
NOTE: Just to make an amendment to what I have stated above - varying the quality setting is actually not resulting in a change to the file size. It generally is around 17k a bit more than the original image but significantly smaller than ImageMagick. But there does still appear to be a problem with the quality setting - in that it basically is not having any effect on the look or file size of the image?
Still, its way better than Imagemagick so I can live with it!