Final Results

RNS Number : 0930Q

dotDigital Group plc

13 October 2011

 



dotDigital Group Plc

Final Results for the year ended 30 June 2011

dotDigital is an award-winning digital marketing specialist with over 4000 clients generating strong recurring revenues from the provision of an integrated suite of digital marketing products and value added services with its first set of preliminary results on AIM being a year of continued strong progress.

2011 Highlights

·        Turnover & Profits ahead of market expectations:

o  Turnover up 49% to £8.95m (2010: £6.01m) on continued repeat income

o  Operating Profit up 68% to £2.30m (2010: £1.38m) before exceptional and one off items

§ PBT of £3.3m includes a one off P&L credit of £1.13m relating to a revised estimate of the final Netcallidus purchase consideration as prescribed by IFRS 3.

·        Cash £2.6m up from £1.3m

·        Considerable investment in hardware and product R&D

·        Continued strong growth in new client acquisition

·        1,470 new customers added in the period

·        Considerable product enhancement delivered

·        Total staff headcount grown from 103 to 142

Peter Simmonds, Chief Executive, commented:

"The market for the Company's products and services continues to remain buoyant despite the world economic crisis. Moreover, the growth in the number of customers remains unabated as they continue to embrace the power of digital marketing.

"With a growing customer base we plan to focus on cross-selling our integrated suite of digital marketing products and services to existing customers. Evidence thus far demonstrates that this is a very cost effective way to grow sales and we expect this trend to continue.

"Our cash position remains strong, even after the acquisition of Netcallidus and we expect the business to continue to be cash generative. Because of this we believe we are well placed to continue to invest in hardware, research and development and further acquisitions.

"Brand recognition of the Group's products continues to grow and through this strong awareness, combined with the customer testimonials, increased marketing activity and continuously improving products will position the business well in securing new clients in the future.

"We look forward to the new financial year with confidence, although remaining aware that the overall economic situation may cause some clients and potential new clients to defer decisions or ease back on marketing investment."

13 October 2011

Enquiries:

dotDigital Group Plc Peter Simmonds, Chief Executive	020 7654 8686
NOMAD  and Co- Broker Zeus Capital Ross Andrews/Nick Cowles	0161 831 1512
Co- Broker Charles Stanley Securities Dugald J.Carlean/ Luke Webster	020 7739 8200
Financial PR Hansard Communications Guy McDougall/Heather Armstrong/Nicholas Nelson	020 7245 1100

CHAIRMAN'S AND CHIEF EXECUTIVE'S REPORT

The Group has enjoyed another strong year of profitable growth, slightly ahead of analyst's expectations.

On turnover up 49% to £9.0m operating profits before exceptional items (AIM admission costs) grew 68%.

In accordance with IFRS 3 we have reviewed the likely final payment in October 2012 to the vendors of Netcallidus based on the Board's estimated financial outturn of the business for the year ended 30^th June 2012.

This has resulted in a reduction of the estimated total consideration by £1.1m and in accordance with the IFRS 3 this is shown as finance income in the consolidated income statement. The inclusion of this £1.1m means profit before tax has grown 140%.

Overall the board is delighted with the progress made over the year which reflects a continued focus on organic growth through new client acquisition and investment in new products and services.

Whilst the Group has been focused on achieving significant growth in recurring revenues and profitability, investment has continued in people and product development for the future.  To ensure the on-going development of existing products and the strengthening of the competitive position with new products and services, the Company has continued to commit significant resources to the underlying technical infrastructure which supports its products. The total investment this year has amounted to £150k of capital expenditure in hardware and £630K of research and development activity in products and services.

INTEGRATION OF NETCALLIDUS

Integration of Acquisition

The Group acquired Netcallidus, an SEO (Search Engine Optimisation) business in 2010. The business is based in Northhampton with a wholly owned operation in Minsk.

Excellent progress has been made on the integration of Netcallidus. All accounting and management information is now handled by our central finance team and sales effort includes an emphasis on teams across all of the dotDigitalGroup businesses have now been trained in the sale of SEO with cross sales from existing customers, forming a valuable source of new business.  Towards the end of the financial period the Board agreed to rebrand all of the search marketing activity as dotSearch.

In the year, search marketing contributed over £1.2m of revenue compared to £.01m in the previous year and is now a significant focus for the sales team.

Minsk, Belarus

In October 2010 the Company announced the opening of a new facility in Minsk initially employing fifteen staff to provide strengthened operational capability for search marketing and at the same time removing the requirement for outsourced services from India.

During the year, this team grew significantly and by the end of the financial year the headcount in Minsk stood at 45. The majority of staff are involved in search marketing, although a number are engaged in a pilot operation to provide technical support for the whole Group.

GROWTH STRATEGY

dotDigital won the National Business Awards best growth strategy award in 2009. This was in recognition of the Company's organic growth strategy in pursuing new client acquisition. This was achieved by a culmination of online marketing, attendance at trade shows and through an increased level of cross-sell to existing clients through focused account management and provision of complimentary and adjacent services.

By focusing on search engine optimisation on the Company's behalf across a wide range of keywords and through the implementation of a comprehensive CRM system, dotDigital has continued to see high levels of organic growth with new client numbers increasing by 1,470 in the year. 

During this time, the Company has continued its strategy of building the business by focusing on four key areas:-

·        Targeted marketing activity and delivering high quality sales leads to a fully motivated and goal aligned sales team;

·        Recruitment of the best available talent in all business areas;

·        Designing and building innovative products which are intuitive to use and deliver high levels of functionality to assist our clients in beating their business objectives;

·        Delivering outstanding levels of support and client care.

Through provision of an integrated suite of digital marketing products backed up by excellent services, the Company believe that its business is uniquely positioned to enable our clients to exceed their marketing capacity, grow their business and achieve visible return on investment.

STAFF

As a technology business we acknowledge that our people are critical to our success. We have a young team, whose average age is 29 (excluding directors). The team has taken on extra responsibilities, learned new skills and responded to new challenges in the year.

The quality and commitment of our team is one of the factors which gives the Board great confidence that we can continue to grow even in difficult economic times. We believe in giving employees sufficient autonomy to make good decisions about everything from product design to dealing with customer service issues. It is because of the quality of our staff that we have continued to grow our customer base and deliver great new products and services to our clients.

Once again, the Board would like to thank all of the management and staff for their continued hard work, dedication and commitment to the business during the past year.

With this in mind we aim to share the success of the Group with the staff through bonus payments and share options. The Directors are open about the business objectives and senior managers actively engage with their teams so that everyone understands how their efforts contribute to the overall success of the business.

Staff who have completed their probation are eligible to be granted share options managed through an HMRC approved employee share option scheme.

Despite becoming a much larger enterprise, the Directors firmly believe that maintaining the entrepreneurial culture that was fundamental to the success of the Company in its initial stages, remains critical in achieving success today. The communication of these ideas is essential to dotDigital and it uses a number of channels and tools to ensure that a common vision exists across the Group. This in turn promotes a sense of belonging to the business.

During the year we have undertaken two surveys of all staff to ascertain the levels of job satisfaction. The Board has also engaged an interim HR Director to progress a variety of initiatives focussed on talent development, communication, and ensuring dotDigital is a great place to work.

OUR COMMITMENT TO EXCEPTIONAL CLIENT SERVICE

The Board firmly believes that the key to a long-term, sustainable growing business emanates from delighting our customers. Everyone in the business is customer driven and the Company is striving to develop a culture that is passionate about customer relations.

The business is structured to ensure that all customers receive client service and support appropriate to their needs and the revenue they generate. During the year, a number of new initiatives were introduced to ensure our products and services meet and exceed customer needs, including:

·     Expanding the friendly and effective telephone support teams as well as employing new technologies such as Live Chat to enhance the overall customer experience;

·     Boosting our team of user-experience specialists to enhance even further the usability of our products;

·     In-depth client interviews to understand how our service can be improved further with ongoing surveys  simple surveys to get quantitative data on client needs;

·     The use of user groups, forums and social media to obtain first-hand feedback from customers about new product features.

IT INFRASTRUCTURE

The Group has made significant investment in its IT infrastructure during the period. As part of the strategy to ensure the business is well positioned to exploit future growth opportunities, the Board has approved capital expenditure on a number of projects including:

·     Ensuring future scalability through the use of latest blade server technology and SAN data storage systems;

·     Creating a full-scale test facility;

·     Reducing dependencies on single suppliers;

·     Reducing environmental impact by selecting low power consumption hardware;

·     Fully documenting  systems and security policies;

·     Increasing resilience by eliminating single points of failure and implementing  mirroring technology;

·     Ongoing extensive security audits, including external penetration testing and responding to recommendations.

IMPROVING GROSS MARGIN ON BESPOKE PROJECTS

Following successful trials last year, the Group  modified its approach to managing bespoke projects carried out on behalf of clients. Whilst project management, project specification and account management are still carried out by employees based in the UK, much of the development activity will be carried out by our Belarusian team and partner organisations operating with a lower cost and fixed prices to ensure margins are managed.

The Directors are pleased to report that this approach has increased profitability, gives greater flexibility of scheduling, and ensures a greater capacity to scale to meet client demands.

PRODUCT DEVELOPMENT

The Board has a clear strategy to increase the proportion of income derived from products with recurring revenues. The development team working on product development has been significantly strengthened during the year.  Throughout the year, a significant number of new features and usability improvements for the email marketing product, dotMailer, including the release of an innovative, market leading visual editor, were introduced.  Other product developments, included new versions of the content management tool, and a new survey tool.

STRATEGY FOR THE COMING YEAR

We are entering the second year of our three year business plan that the Board believes will continue to deliver growth whilst investing in the business to provide a springboard for significant growth in future years.

We plan to streamline the organisation structure and operationally the business will be separated  into a products division based around the dotMailer platform and a services division providing, search, ecommmerce, web design, digital strategy and managed service.

Some key elements of the plan are as follows:

·        dotDigital recognises that dynamic growth in this market is occurring worldwide. Part of the Group's short term objective is to identify the geographic areas in which the Company could make the maximum impact without adding significantly to the cost base;

·        Progress the programme of international expansion of the product ranges utilising third party channel partners  and reseller agreements with suitably qualified overseas partners, allowing us to grow our sales cost effectively;

·        Explore consolidation opportunities in the email marketing sector;

·        Further increase the resources focused on dotDigital's own search engine optimisation and business marketing, expanding the use of social media marketing, PR, educational client events and reviewing our branding. To further expand the technical development resources both in the UK and internationally to focus on the delivery of innovative new products and services which compliment our existing offerings. We will continue to add innovative new features to our existing products, ensuring we maintain technical leadership in the market;

·        Expand the strategy of building Application Programming Interface (API), driven connectors to CRM platforms, such as Microsoft Dynamics, and utilising CRM integrators as a distribution channel for our email marketing platform.

DIVIDEND POLICY

Whilst consideration is routinely given to the commencement of dividend payments, it is the Board's intention to achieve capital growth on the strength of continued investment in new products and identifying further earning enhancing acquisitions. Accordingly, it is not the Board's intention to recommend the payment of dividends at this time.

OUTLOOK

The market for the Company's products and services continues to remain buoyant despite the world economic crisis. Moreover, the growth in the number of customers remains unabated as they continue to embrace the power of digital marketing.

With a growing customer base we plan to focus on cross-selling our suite of products and services to existing customers. Evidence thus far demonstrates that this is a very cost effective way to grow sales and we expect this trend to continue.

Our cash position remains strong, even after the acquisition of Netcallidus and we expect the business to continue to be cash generative. Because of this we believe we are well placed to continue to invest in hardware, research and development and further acquisitions.

Brand recognition of the Group's products continues to grow and through this strong awareness, combined with the customer testimonials, increased marketing activity and continuously improving products will position the business well in securing new clients in the future.

We look forward to the new financial year with confidence.

Frank Beechinor-Collins

Chairman

Peter Simmonds

Chief Executive

DOTDIGITAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2011

		30.6.11		30.6.10
		£		£
CONTINUING OPERATIONS
Revenue		8,952,488		6,014,101
GROSS PROFIT		8,952,488		6,014,101

Administrative expenses		(6,647,493)		(4,638,328)
OPERATING PROFIT BEFORE EXCEPTIONAL ITEMS		2,304,995		1,375,773
Exceptional items: Cost relating to listing on AIM		(119,826)		-
OPERATING PROFIT		2,185,169		1,375,773
Finance costs		(1,468)		(1,607)
Finance income		1,127,862		3,088
PROFIT BEFORE INCOME TAX		3,311,563		1,377,254
Income tax expense		(273,743)		(233,104)
PROFIT FOR THE YEAR		3,037,820		1,144,150

Profit attributable to: Owners of the parent

3,037,820

1,144,150

Earnings per share expressed
in pence per share:
Basic		1.16		0.44
Adjusted		0.78		0.44
Diluted		0.72		0.41

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2011

	30.6.11 £		30.6.10 £
PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME	3,037,820		1,144,150
	-		-
TOTAL COMPREHENSIVE INCOME FOR THE YEAR	3,037,820		1,144,150
Total comprehensive income attributable to: Owners of the parent	3,037,820		1,144,150

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 JUNE 2011

			30.6.11		30.6.10
			£		£
ASSETS
NON-CURRENT ASSETS
Goodwill			4,120,561		4,120,561
Intangible assets			990,557		559,082
Property, plant and equipment			238,124		173,120
			5,349,242		4,852,763
CURRENT ASSETS
Trade and other receivables			1,658,044		1,234,645
Cash and cash equivalents			2,568,265		1,277,617
			4,226,309		2,512,262
TOTAL ASSETS			9,575,551		7,365,025
EQUITY ATTRIBUTABLE TO THE
OWNERS OF THE PARENT
Called up share capital			1,374,861		1,292,500
Share premium			4,737,053		4,533,754
Unissued share capital			-		152,660
Reverse acquisition reserve			(4,695,465)		(4,695,465)
Other reserves			70,160		29,493
Retained earnings			5,734,342		2,696,522
TOTAL EQUITY			7,220,951		4,009,464
LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables
Financial instruments			1,243,492		2,366,320
Financial liabilities - borrowings
Interest bearing loans			-		6,319
CURRENT LIABILITIES
Trade and other payables			1,007,743		668,764
Financial liabilities - borrowings
Interest bearing loans and borrowings			6,076		12,151
Tax payable			97,289		302,007
			1,111,108		982,922
TOTAL LIABILITIES			2,354,600		3,355,561
TOTAL EQUITY AND LIABILITIES			9,575,551		7,365,025

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF FINANCIAL POSITION

30 JUNE 2011

		30.6.11		30.6.10
		£		£
ASSETS
NON-CURRENT ASSETS
Investments		8,704,468		8,704,468
		8,704,468		8,704,468
CURRENT ASSETS
Trade and other receivables		25,746		4,826
Cash and cash equivalents		235,274		385,332
		261,020		390,158
TOTAL ASSETS		8,965,488		9,094,626
EQUITY ATTRIBUTABLE TO THE
OWNERS OF THE PARENT
Called up share capital		1,374,861		1,292,500
Share premium		4,737,053		4,533,754
Unissued share capital		-		152,660
Other reserves		70,160		29,493
Retained earnings		498,060		(329,205)
TOTAL EQUITY		6,680,134		5,679,202
LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities - borrowings
Interest bearing loans and borrowings		1,243,492		2,366,320
CURRENT LIABILITIES
Trade and other payables		1,041,862		1,049,104
TOTAL LIABILITIES		2,285,354		3,415,424
TOTAL EQUITY AND LIABILITIES		8,965,488		9,094,626

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2011

			Share Capital £				Retained Earnings £			Share Premium £
Balance at 1 July 2009			1,292,500				1,552,372			4,533,754
Profit for the year			-				1,144,150			-
Total comprehensive income			-				1,144,150			-
Balance at 30 June 2010			1,292,500				2,696,522			4,533,754
Issue of share capital Reclassification of equity			67,467 14,894				- -			65,533 137,766
Transactions with owners			82,361				-			203,299
Profit for the year			-				3,037,820			-
Transactions with owners			-				3,037,820			-
Balance at 30 June 2011			1,374,861				5,734,342			4,737,053
	Unissued share capital £		Reverse acquisition reserve £				Other reserves £			Total equity £
Balance at 1 July 2009	-		(4,695,465)				5,302			2,688,463
Share based payment Equity on acquisition	- 152,660		- -				24,191 -			24,191 152,660
Transactions with owners	152,660		-				24,191			176,851
Profit for the year	-		-				-			1,144,150
Total comprehensive income	-		-				-			1,144,150
Balance as at 30 June 2010	152,660		(4,695,465)				29,493			4,009,464
Issue of share capital Share based payment Reclassification of equity	- - (152,660)		- - -				- 40,667 -			133,000 40,667 -
Transactions with owners	(152,660)		-				40,667			173,597
Profit for the year	-		-				-			3,037,820
Total comprehensive income	-		-				-			3,037,820
Balance at 30 June 2011	-		(4,695,465)				70,160			7,220,951

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2011

		Share Capital		Retained Earnings		Share Premium
		£		£		£
Balance at 1 July 2009	1,292,500			(148,728)		4,533,754
Deficit for the year	-			(180,477)		-
Total comprehensive income	-			(180,477)		-
Balance at 30 June 2010	1,292,500			(329,205)		4,533,754
Issue of share capital	67,467			-		65,533
Reclassification of equity	14,894			-		137,766
Transactions with owners	82,361			-		203,299
Profit for the year	-			827,265		-
Total comprehensive income	-			827,265		-
Balance at 30 June 2011	1,374,861			498,060		4,737,053
	Unpaid Share Capital			Other Reserves		Total Equity
	£			£		£
Balance at 1 July 2009	-			5,302		5,682,828
Share based payment	-			24,191		24,191
Equity on acquisition	152,660			-		152,660
Transactions with owners	152,660			24,191		176,851
Deficit for the year	-			-		(180,477)
Total comprehensive income	-			-		(180,477)
Balance at 30 June 2010	152,660			29,493		5,679,202
Issue of share capital	-			-		133,000
Reclassification of equity	(152,660)			-		-
Share based payment	-			40,667		40,667
Transactions with owners	(152,660)			40,667		173,667
Profit for the year	-			-		827,265
Total comprehensive income	-			-		827,265
Balance at 30 June 2011	-			70,160		6,680,134

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2011

					30.6.11			30.6.10
					£			£
Cash flows from operating activities
Cash generated from operations					2,462,734			1,275,938
Interest paid					(1,468)			(1,607)
Tax paid					(478,461)			(182,614)
Net cash generated from operating activities					1,982,805			1,091,717
Cash flows from investing activities
Purchase of goodwill					-			(1,000,000)
Purchase of intangible fixed assets					(657,172)			(405,725)
Purchase of tangible fixed assets					(160,624)			(115,556)
Interest received					5,034			3,088
Funds acquired from acquisition					-			41,407
Net cash used in investing activities					(812,762)			(1,476,786)
Cash flows from financing activities
Loan repayments in period					(12,395)			(11,912)
Amount withdrawn by directors					-			(3,304)
Share issues					133,000			-
Net cash generated from financing activities					120,605			(15,216)
Increase/(Decrease) in cash and cash equivalents					1,290,648			(400,285)
Cash and cash equivalents at beginning of year					1,277,617			1,677,902
Cash and cash equivalents at end of year					2,568,265			1,277,617

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2011

		30.6.11		30.6.10
		£		£
Cash flows from operating activities
Cash generated from operations		(257,589)		(139,637)
Net cash generated from operating activities		(257,589)		(139,637)
Cash flows from investing activities
Purchase of fixed asset investments		-		(1,000,000)
Net cash used in investing activities		-		(1,000,000)
Cash flows from financing activities
Loan from/(to) group		(25,469)		960,438
Share issues		133,000		-
Net cash generated from financing activities		107,531		960,438
Increase/(Decrease) in cash and cash equivalents		(150,058)		(179,199)
Cash and cash equivalents at beginning of year		385,332		564,531
Cash and cash equivalents at end of year		235,274		385,332

DOTDIGITAL GROUP PLC

ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2011

Dotdigital Group Plc ("dotDigital") is a company incorporated England and Wales and quoted on the AIM Markets. The address of the registered office is Finsgate, 5 - 7 Cranwood Street, London, EC1V 9EE. The principle of activity of the group is that of digital marketing.

ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention.

The group has applied all accounting standards and interpretations issued by the International Accountancy Standards Board and International Accounting Interpretations Committee effective at the time of preparing the financial statements.

The financial statements are presented in sterling (£), rounded to the nearest pound.

Issued International Financial Reporting Standards (IFRS's) and interpretations (IFRICS) relevant to company operations.

The following interpretations to published standards is mandatory for accounting periods beginning on or after 1 July 2010.

IFRS 3 (revised), 'Business combinations' and consequential amendments to IAS 27, 'Consolidated and separate financial statements', IAS 28, 'Investments in associates' and IAS 31, 'Interests in joint ventures', effective prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009.

The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the statement of comprehensive income. There is a choice on an acquisition-by-acquisition basis to measure the minority interest in the acquiree either at fair value or at the minority interest's proportionate share of the acquiree's net assets. All acquisition-related costs should be expensed. This amendment will have no impact on the company.

IAS 27 (revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in profit or loss. This amendment will have no impact on the company.

IAS 38 (amendment), 'Intangible assets'. The amendment is part of the IASB's annual improvements project published in April 2009 and the company will apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendment clari?es guidance in measuring the fair value of an intangible asset acquired in a business combination and it permits the grouping of intangible assets as a single asset if each asset has a similar useful economic life. The amendment will not result in a material impact on the company's financial statements.

IAS 32 (amendment), 'Financial instruments: presentation - classification of rights issue', is effective from annual periods beginning on or after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro-rata to all of the existing owners of the same class of an entity's non-derivative equity instruments, or to acquire a fixed number of the entity's own equity instruments for a fixed amount in any currency. This amendment will have no impact on the company after initial application.

IFRS 2, Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010. The IASB issued an amendment to IFRS2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The company adopted this amendment as of 1 January 2010. It did not have an impact on the financial position or performance of the company.

IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items effective 1 July 2009. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flows variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The company has concluded that the amendment will have no impact on the financial position or performance of the Company, as the Company has not entered into such hedges.

The following new standards, amendments to standards and interpretations are mandatory for the first time for the financial year beginning 1 May 2010, but are not currently relevant for the company:

IFRIC 17, 'Distributions of non-cash assets to owners', effective for annual periods beginning on or after 1 July 2009. This is not currently applicable to the company, as it has not made any non-cash distributions.

IFRIC 18, 'Transfers of assets from customers', effective for transfers of assets received on or after 1 July 2009. This is not relevant to the company, as it has not received any assets from customers.

Standards, interpretations and amendments to published standards that are not yet effective

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 July 2010 and have not been early adopted:

IAS 24 (Amendment), 'Related party transactions'. The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government-related entities. The company does not expect any impact on its financial position or performance.

IFRIC 14 (Amendment), 'Prepayments of a minimum funding requirement'. The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the company.

IFRS 9, 'Financial instruments: classification and measurement', as issued reflects the first phase of the IASB work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early 2011. The adoption of the first phase of IFRS 9 might have an effect on the classification and measurement of the company's assets. At this juncture it is difficult for the company to comprehend the impact on its financial position and performance.

IFRS 7, 'Financial instruments: disclosures (amendment), is effective for annual periods beginning on or after 1 July 2011. The amendments requires additional quantitative and qualitative disclosures relating to transfers of financial assets, where financial assets are derecognised in their entirety, but where the entity has a continuing involvement in them and where financial assets are not derecognised in their entirety. The adoption of this will have no effect on the financial statements of the company.

IFRIC 19, 'Extinguishing financial liabilities with equity instruments', is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be reliably measured, the instruments are measured at the fair value of the liability extinguished. Any gain or loss is recognised in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the company.

IAS 12, 'Income taxes (amendment) - Deferred taxes: recovery of underlying assets', is effective for annual periods beginning on or after 1 January 2012. It introduces a rebuttable presumption that deferred tax on investment properties measured at fair value will derecognised on a sale basis, unless an entity has a business model that would indicate the investment property will be consumed in the business. If consumed a use basis would need to be adopted. The amendments also introduce the requirement that deferred tax on non-depreciable assets measured using the revaluation model in IAS16 should always be measured on a sale basis. The adoption of this interpretation will have no effect on the financial statements of the company.

IFRS 10 Consolidated Financial Statements is effective from 1 January 2013. It introduces a new control model which applies to all entities, including those that were previously considered 'special purpose entities'. Understanding the purpose and design of an investee is critical to the assessment of control. The adoption of this will have no effect on the financial statements of the company.

IFRS 11 Joint Arrangements is effective from 1 January 2013.  The core principle of the standard is that a party to a joint arrangement determines type of joint arrangements in which it is involved by assessing the rights and obligations and accounts for those rights and obligations in accordance with the type of joint arrangement.  Joint ventures now must be accounted for using the equity method. Joint operator which is a newly defined term recognises its assets, liabilities, revenues and expenses and relative shares thereof. The adoption of this will have no effect on the financial statements of the company.

IFRS 12 Disclosures of Interests with Other Entities is effective from 1 January 2013. It requires increased disclosure about the nature, risks and financial effects of an entity's relationship with other entities along with its involvement with other entities. The adoption of this will have no effect on the financial statements of the company.

IFRS 13, 'Fair Value Measurement' is effective from 1 January 2013. It defines fair value, sets out in a single IFRS a framework for measuring fair value and requires disclosures about fair value measurements. It includes a three-level fair value hierarchy which priorities the inputs in a fair value measurement. The adoption of this will have no effect on the financial statements of the company.

IFRS 10, 'Consolidated Financial Statements', IFRS 11 Joint Arrangements, IFRS 12 Disclosures of Interests with Other Entities along with related amendments to IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures will have an effective date of 1 January 2013. Early adoption of these standards is permitted, but only if all five are early adopted together.

Improvements to IFRS (issued in May 2010). The IASB issued improvement to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not been adopted as they become effective for annual periods on or after 1 January 2011 or 1 July 2010. The amendments listed below, are considered to have a reasonable possible impact on the company:

IFRS 3 Business combinations

IFRS 7 Financial instruments: disclosures

IAS 1 Presentation of financial statements

IAS 27 Consolidated and separate financial statements

IFRIC 13 Customer loyalty programmes

IAS 34 Interim Financial Reporting

The company expects no impact from the adoption of the above amendments on its financial position or performance.

Basis of consolidation

In the period ended 2009 the Company acquired via a share for share exchange the entire issued share capital of dotMailer Limited, whose principle activity is that of web and email based marketing.

Under IFRS 3 'Business combinations' the dotMailer Limited share exchange has been accounted for as a reverse acquisition. Although these consolidated financial statements have been issued in the name of the legal parent, the company it represents in substance is a continuation of the financial information of the legal subsidiary, dotMailer Limited. The following accounting treatment has been applied in respect of the reverse acquisition:

- The assets and liabilities of the legal subsidiary, dotMailer Limited are recognised and measured in the consolidated financial statements at their pre combination carrying amounts, without restatement to their fair value;

- The retained reserves recognised in the consolidated financial statements for the beginning of the prior period reflect the retained reserves of dotMailer Limited to 30 April 2008. However, in accordance with IFRS3 'Business combinations' the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent dotDigital Plc, including the equity instruments issued under the share exchange to effect the business combination;

- A reverse acquisition reserve has been created to enable the presentation of a consolidated balance sheet which combines the equity structure of the legal parent with the non statutory reserves of the legal subsidiary;

- Comparative numbers are based upon the consolidated financial statements of the legal subsidiary, dotMailer Limited for the year ended 30 June 2009 apart from the equity structure which reflects that of the parent.

- The following accounting treatment has been applied in respect of the acquisition of dotDigital Plc:

- The assets and liabilities of dotDigital Plc are recognised and measured in the consolidated financial statements at their fair value at the date of acquisition.

- The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.   Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less then the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Subsidiaries

A subsidiary is an entity whose operating and financing policies are controlled by the group. Subsidiaries are consolidated from the date on which control was transferred to the group. Subsidiaries cease to be consolidated from the date the group no longer has control. Intercompany transactions, balances and unrealised gains on transactions between group companies have been eliminated on consolidation.

As a result of applying reverse acquisition accounting in the prior period, the consolidated IFRS financial information of dotDigital group Plc is a continuation of the financial information of dotMailer Limited.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the group's activities. Revenue is shown net of value added tax returns, rebates and discounts after eliminating sales within the group.

The group recognises revenue when the amount of revenue can be reliably measured and it is probable that the future economic benefits will flow to the entity. The group bases it's estimates on historical results, taking in to consideration the type of customer, the type of transaction and the specifics of each arrangement.

The group sells web based marketing services to other businesses and services are either provided on a usage basis or fixed price bespoke contract. Revenue from contracts are recognised under percentage of completion method based on a percentage of services performed to date as a percentage of the total services to be performed.

Goodwill

Goodwill represents the excess of the fair value of the consideration over the fair values of the identifiable net tangible and intangible assets acquired.

Under IFRS 3 "Business Combinations" goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment testing. Any impairment is recognised immediately in the income statement and not subsequently reversed.

Intangible assets

Intangible assets are recorded as separately identifiable assets and recognised at historical cost less any accumulated amortisation. These assets are amortised over their useful economic lives 4-5 years, with the charge included in administrative expenses in the income statement.

Intangible assets are reviewed for impairment annually. Impairment is measured by determining the recoverable amount of an asset or cash generating unit (CGU) which is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU.

Domain names

Acquired domain names are shown at historical cost. Domain names have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using straight line method to allocate the cost of domain names over their useful lives of four years.

Software

Acquired software and websites are shown at historical cost. They have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using straight line method to allocate the cost of software and websites over their useful lives of four years.

Product development

Product development expenditure is capitalised when it is considered that there is a commercially and viable technically product, the related expenditure is separable identifiable and there is a reasonable expectation that the related expenditure will be exceeded by future revenues. Following initial recognition, product developments are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of these intangible assets are assessed to have a finite life of five years. Amortisation is charged on assets with finite lives, this expense is taken to the income statement and useful lives are reviewed on an annual basis. Amortisation is provided at the following annual rates' commencing from the date the asset is developed to a stage at which the company can receive economic benefits from the asset.

Property, plant and equipment

Tangible non current assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits are associated with the item will flow to the company and the cost of the item can be measured reliably. the carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is provided at the following rates in order to write off each asset over its estimated useful life and are based on the cost of assets less residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Short leasehold: 25% on cost

Fixtures and fittings: 25% on cost

Computer equipment:.25% on cost

The asset's residual values and useful economic lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater then its estimated recoverable value.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other (losses) or gains in the income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

Borrowings

Borrowings are recognised at their fair value net of transaction costs incurred. They are classified as current liabilities unless the group has an unconditional right to defer the settlement of the liability of at least 12 months after the balance sheet date.

Borrowing costs are recognised in the income statement in the period in which they are incurred.

Capital risk management

The group manages its capital to ensure it is able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the group consists of, cash and cash equivalents, short term finance and equity attributable to the owners of the parent as disclosed in the Statement of Changes in Equity.

Taxation

Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the balance sheet date.

Deferred taxation

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference will be utilised.

Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when they related deferred income asset is realised or deferred income tax liability is settled.

Research and development

Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled:

- It is technically feasible to complete the intangible asset so that it will be available of use or resale

- Management intends to complete the intangible asset and use or sell it

- There is an ability to use or sell the intangible

- It can be demonstrated how the intangible asset will generate possible future economic benefits

- Adequate technical, financial and other resource to complete the development and to use or sell the intangible asset are available and

- The expenditure attributable to the intangible asset during its development can be reliably measured.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which they are ready for use on a straight line basis over its useful life.

Foreign currency translation

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 transaction. Exchange differences are taken into account in arriving at the operating result.

Operating leases

Leases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance the accounting policy applicable to that asset.

Other leases are operating leases and are not recognised in the group's statement of financial position on a straight line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total expense, over the term of the lease.

Use of estimates and judgements

The group makes judgements, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The resulting accounting estimates calculated using these judgements and assumptions will, by definition, seldom equal the related actual results but are based on historical experience and expectations of future events. The estimates and underlying assumptions are reviewed on a ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision effects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below:

Impairment of non financial assets (excluding goodwill)

At each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Plant and equipment, intangible assets & impairment of goodwill

Intangible assets excluding goodwill and plant and equipment are amortised or depreciated over their useful lives. Useful lives are based on management's estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to the estimates used can result in significant variations in the carrying value.

The group assesses the impairment of plant and equipment and intangible assets subject to amortisation or depreciation whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Additionally, goodwill arising on acquisitions is subject to impairment review. The group's management undertakes an impairment review of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable.

The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the group's accounting estimates in relation to plant and equipment and intangible assets affect the amounts reported in the financial statements, especially the estimates of the expected useful economic lives and the carrying values of those assets. If business conditions were different, or if different assumptions were used in the application of this and other accounting estimates, it is likely that materially different amounts could be reported in the group's financial statements.

The directors have carried out a detailed impairment review in respect of goodwill. The group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flows forecasts which have been discounted at 5%. The cash flow projections are based on the assumption that the group can realise projected sales. A prudent approach has been applied with no residual value being factored. At the period end, based on these assumptions there was no indication of impairment of the value of goodwill.

However, if the projected sales do not materialise there is a risk that the value of the intangible assets shown above would be impaired.

Share-based compensation

The fair value of options and warrants are determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates if any, in the income statement, with corresponding adjustment to equity.

Contingent considerations

The future consideration payable to the vendors of Netcallidus in respect to the contingent consideration (earnouts) is based on the directors' best estimate of future obligations which are dependent on the future anticipated profits after tax. It is assumed that the operating company improves profits in line with the directors' estimates. When earnouts are to be settled by both cash and equity consideration, the fair value of the consideration is obtained by discounting the amounts expected to be payable in the future to their present value. Reviews of the fair values are undertaken at each period end with any resulting adjustments being made through the groups income statement.

Contingent consideration

Contingent consideration is measured at fair value at the time of the acquisition. If the amount of the contingent consideration changes as a result of a post acquisition event (such as meeting profit targets) the accounting for the change in consideration depends on whether the additional consideration is in cash or equity. If it is in equity the original amount is not recalculated but if the change is in cash or other assets the change is recorded in the income statement.

Trade receivables

Trade receivables are recognised initially at the lower of their original invoiced value and recoverable amount. A provision is made when it is likely that the balance will not be recovered in full. Terms on receivables range from 30 to 90 days.

Equity

Share capital is the amount subscribed for shares at their nominal value.

Share premium represents the excess of the amount subscribed for the share capital over the nominal value of the respective shares net of share issue expenses.

Retained earnings represent the cumulative earnings of the group attributable to equity Shareholders.

The reverse acquisition reserve relates to the adjustment required by accounting for the reverse acquisition in accordance with IFRS3 'Business combinations'.

Other reserves relate to the charge for share based payments in accordance with IFRS2 'Share based payments'.

Share based payments

For equity settled share based payment transactions the group, in accordance with IFRS 2  "Share  Based Payments" measuring their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity  instruments granted. The fair value of those equity instruments is measured at the grant date using the trinomial method. The expense is apportioned over the vesting period of the financial instrument and is based on the number which are expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vested immediately, the expense is recognised in full.

The assumptions on the expected life of share options, volatility of shares and risk free yield to maturity and expected dividend yield on shares are used in the fair value calculation of the share options outstanding at the year end (see note 25).

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Terms on accounts payables range from 10 to 90 days.

Functional currency translation

Functional and presentation currency

Items included in the financial statements if the company are measured using the currency of the primary economic environment in which the entity operates (functional currency), which is mainly pounds sterling (£) and it this currency the financial statements are presented in.

Transaction and balances

Foreign currency transactions are translated in to the presentation currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Employee benefit costs

The group operates a defined contribution pension scheme. Contributions payable by the group's pension scheme are charged to the income statement in the period in which they relate.

Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environment.

EARNINGS PER SHARE

Earnings per share data is based on the consolidated profit using and the weighted average number of shares in issue of the parent company. Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

Reconciliations are as follows:-

	Earnings £		30.6.11 weighted average number of shares		Per share amount pence
Basic EPS
Net income attributable to owners of the parent	3,037,820		261,891,138		1.16
Adjusted EPS
Effective of exceptional items
Cost related to listing on AIM	119,862		-		-
Revisions to financial instruments	(1,122,828)		-		-
Adjusted earnings	2,034,854		261,891,138		0.78
Effect of diluted shares
Options and warrants	-		22,268,222		-
Diluted EPS
Adjusted earnings	2,034,854		284,159,360		0.72
	Earnings £		30.6.10 Weighted number of shares		Per share amount Pence
Basic EPS
Earnings attributable to owners of the parent	1,144,150		258,500,000		0.44
Adjusted EPS	-		-		-
Adjusted Earnings	1,144,150		258,500,000		0.44
Effect of diluted shares
Options and warrants	-		17,886,690		-
Diluted EPS
Adjusted earnings	1,144,150		276,386,690		0.41

Earnings per share for this reporting period and respective comparatives have been presented post the share consolidation made reference to in note xx. Had the consolidation not taken place the EPS for the reporting period would be the following

Basic: 0.14p (2010- 0.09)

Diluted: 0.13 (2010- 0.08)

 

END

 

 

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