Final Results

RNS Number : 1832U

dotDigital Group plc

14 October 2014

 



FOR IMMEDIATE RELEASE                                                                                                14 OCTOBER 2014

Analyst meeting today: 9.30am start - at dotDigital's offices, No.1 London Bridge, SE1

Please call Lisa Baderoon if you would like to attend or email: [e-mail]

dotdigital's full 2014 Annual Report will shortly be available on dotdigital's website : www.dotdigitalgroup.com 

dotdigital Group Plc

("dotdigital", the "Company" or the "Group")

FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2014

"A year of continued strong organic growth"

dotdigital Group Plc (AIM:DOTD),  the leading provider of intuitive software as a service ("SaaS") and managed services to digital marketing professionals is pleased to announce its Final Results for the year ended 30 June 2014.

2014 Highlights

•    Turnover from continuing operations increased by 33% to £16.2m (2013: £12.2m)

•    EBITDA of £4.7m, up 13% (2013: £4.1m)

·    Recurring revenues from dotmailer's SaaS platform of 78% (2013: 76%)

·    Email creative and managed service revenues up 126% to £1.8m

•    Net cash generated from operating activities of £5.2m

·    Strong cash position of £9.3m at year end

•    Announced today: Final Dividend Proposed of 0.2p per share - please see separate announcement

•    Announced today: Board update - please see separate announcement

dotmailer

·    Successful rebranding of dotmailer - incorporates a new dotmailer platform, release of powerful new features and launch of new marketing website

·    New clients signed in the period include Land Securities Group, Thorntons, Ladbrokes International, Children with Cancer and National Express Bus

·    Average monthly recurring spend per client increased 35% with new clients spending approx. £410 per month

Magento connector

·    Over 100 clients are now using this platform - most recent wins in the UK include 7dayshop.com, Elemis, Fraser Hart, Gorgeous shop, Vax, Heals, Trunki and Fuji Film

·    New US Magento partners include: Blue acorn, Pod1, Classy llama, SLI Systems, Celebros and Peer1

·    Average recurring spend from clients of over £700 per month

·    Gold Partnership Status' awarded directly by Magento

International Initiatives

·   Strong expansion of revenues generated from customers outside of the UK - 2014 : 10% (2013 : 3%)

·    Revenues from the US region performed strongly, increasing from $0.4m to $1.4m, an increase of over 200% and successful penetration into Latin America with Panama's COPA Airlines

A summary of Peter Simmonds, Chief Executive, comments on current trading and outlook:

"I am pleased to report that the new financial year has started well and in the first quarter our new business sales and monthly recurring revenues have been in line with our plans.

"Demand for email marketing and marketing automation continues to be strong both in the UK and internationally and whilst the sector is competitive the Board believes that the dotmailer platform is well placed to continue to generate strong organic growth in revenues over the coming year."

For further enquiries please contact:

dotDigital Group Plc Peter Simmonds, Chief Executive Officer Milan Patel, Chief Financial Officer www.dotdigitalgroup.com	Tel: [phone] Tel: [phone]
Financial PR and Investor Relations Lisa Baderoon [e-mail]	Tel: [phone]
N+1 Singer, NOMAD & Broker Shaun Dobson, Head of Corporate Finance Nick Donovan, Corporate Finance	Tel: [phone]
finnCap, Joint Broker Stuart Andrews, Corporate Finance	Tel: [phone]

CHAIRMAN'S REPORT

Again, we are delighted to report that 2013/14 has been another successful year for dotdigital group plc.

In the past year we have aligned our direct sales activities so that we now primarily focus on what we define as the mid-market for our SaaS email platform, dotmailer. As a result, we have made good progress in signing larger clients with higher monthly spends who have a greater propensity to purchase ancillary services. A considerable amount of our sales effort this past year has also focused on exploiting the Magento sales channel. Magento is part of eBay Enterprise and has established itself as the world's leading ecommerce platform and users of Magento tend to be high volume email senders and match the target of our mid-market target customers.

Our North American operation has continued to grow and during this past year we have signed our largest US clients to date. Through a strong presence at the major trade shows in the US, there is growing recognition of the dotmailer brand, in particular in the Magento market.

The dotmailer professional services division has also developed considerably in the past year, largely due to more effective account management and our focus on selling into larger customers. Our decision during the last financial year to exit our Agency business has been vindicated as the focus of management's efforts on our core SaaS email business has ensured that dotdigital has continued to grow.

The marketing and technical teams have been busy for the past six months developing the new brand identity for dotmailer as well as releasing the latest version of our dotmailer platform. This work has been well received by customers and partners alike and again demonstrates the business and our ability to sustain our technical competitive advantage in the email marketing industry. Our policy on acquisitions remains unchanged. Organic growth continues to be our focus but, from time to time, consider acquisition opportunities should they allow us to accelerate growth in a market or provide us with a technical advantage.

Governance

The Board puts strong emphasis on ensuring its effectiveness and the effectiveness of governance processes across the entire organisation. Monthly meetings are held with the Board and the Non-Executives are provided with detailed management information in advance of these meetings. The remuneration, audit and risk committees meet regularly, ensuring the Non-Executive Board members are fully aware of potential issues in the business. The business holds a regular strategy review and these reviews include active involvement by the Non-Executive Board.

An Evolving Board

We continue to review our organisational structure to ensure we have the requisite skills to sustain growth and develop the business.

The business has continued to flourish under our CEO Peter Simmonds. As the business grows we have acknowledged that we need to broaden the skills and experience of the operational Board. To this end we have hired a number of executives from outside the business to ensure that we have the management capacity to achieve our objectives.

 In addition to the new executive appointments Milan Patel was promoted from Financial Controller to Chief Financial Officer this year and joined the Board. 

All of the above underlines our commitment to effective succession planning.

Our Responsibility as a Corporate Citizen

dotdigital prides itself on creating a close working family of employees and we recognise diversity and equal opportunity as a way to treat employees and support them to reach their full potential. We have many examples of senior and long-standing employees who joined dotdigital in junior positions and have moved up through the business, growing with us.

By aligning our goals with those of our clients, we consistently deliver products and services that ensure mutual benefit and ultimately make both parties more successful. To this end we foster strong relationships within the business community, working closely with partners and suppliers.

The dotdigital group is committed to working with local communities in the areas where we operate. We encourage and support employees volunteering in the areas of vocational skills and developing employability amongst young people. Through our charitable giving we support a number of national and international charities and these donations are evaluated by our employee-led dotcharity committee.

The Group maintains its commitment to its environmental responsibilities with emphasis on the Reduce, Reuse, Recycle philosophy across all offices, minimising our impact on the environment.

Outlook

The outlook for dotdigital over the coming years is very promising with interesting opportunities both in the UK and overseas. On behalf of all our stakeholders, I would like to thank the team at dotdigital for their fantastic contribution to another successful year. I would also like to say a special thank you to the Executive Management team for its continued commitment, hard work and passion in developing the business.

Frank Beechinor-Collins

Chairman
13 October 2014

CHIEF EXECUTIVE REPORT

I am pleased to announce that the Group delivered revenue growth, EBITDA, profits and cash position ahead of market guidance.

This performance is a result of continued strong organic growth in the high margin and long-term recurring revenues generated by our core email marketing product, dotmailer.

Financial highlights

Within the dotmailer core email marketing product division, revenues for the 12-month period grew by 33% compared to the same period in 2013, resulting in closing cash at the end of the period of £9.3m (2013: £6.1m).

A summary of revenues by division for the full year to 30 June 2014 is detailed below:

Revenue £'m

	12m to	12m to	%
	30.06.14	30.06.13	Change
dotmailer	£16.2m	£12.2m	33%
Discontinued*	£0.2m	£1.6m	-88%
Total Group	£16.4m	£13.8m	19%

* In March 2013 the Board announced its plans to wind down the Group's Search Marketing and Web Design Division, 'dotAgency', whilst continuing to service its existing clients for the remaining duration of their agreements. These agreements have now come to an end culminating in the successful closure of this division.

Review of 2013/14

Revenue performance was driven by strong growth of 33% across the dotmailer core product, ahead of plan.

This strong organic growth was underpinned by a combination of successful new client wins, particularly in the corporate and mid-market sector, growth in recurring revenue from existing clients and improved client retention through having a larger proportion of clients under contracts of 12-36 months. Notable client wins during the year included Land Securities Group, Thorntons, Ladbrokes International, Children with Cancer and National Express Bus.

Revenues from the US region performed strongly, increasing from $0.4m to $1.4m, an increase of over 200% compared to the same period in 2013. The New York sales office continues to focus on sector niches and higher value corporate clients that it has identified are the most attractive for the dotmailer product platform.

Penetration into Latin America has also materialised in the form of working with Panama's COPA Airlines, the third largest carrier in South America, demonstrating how the dotmailer platform is travelling from our US base into Central America and beyond. The US pipeline continues to grow with the belief it will be beneficial to allocate more investment in headcount and marketing activities over the coming year to capitalise on this territory.

The Email Creative and Managed Services offering (part of the wider dotmailer division) has had a very strong performance with an increase in revenue of 126% to £1.8m over the comparable period. We are confident that continued revenue growth can be unlocked from these new services by generating ROI for our clients and helping time-poor marketers to outsource their creative and campaign management/strategy to email marketing experts such as dotdigital.

Ebay's Magento Connector

dotdigital fully launched the Magento connector earlier in the year allowing ecommerce customers that use the Magento platform to synchronise their data between the dotmailer and Magento platforms. The client sign-up of the new Magento Connector has been strong with the average monthly recurring revenue spend for customers of over £700 per month. The product has been well received as evidenced by feedback gained from both clients and Magento implementation partners. Over 100 clients are now using this platform with most recent wins including 7dayshop.com, Elemis, Fraser Hart, Gorgeous shop, Vax, Heals, Trunki and Fuji Film in the UK.

The US Region has also demonstrated how invaluable the Magento relationship has become over a short period of time with 14 new clients won since the beginning of electronics companies in the US and listed in the top ten biggest brands in the world using Magento, is one of the most recent additions for dotdigital. New Magento partners in the US also include, Blue acorn, Pod1, Classy llama, SLI Systems, Celebros and Peer1.

A clear endorsement of the success of the Magento relationship was recently demonstrated when dotdigital was awarded 'Gold Partnership Status' directly by Magento, only one in four email service providers in the world to have been granted this prestigious status. Marketing efforts have also been continuous with dotdigital sponsoring Magento's premier eCommerce 'Imagine 2014' event held in Las Vegas earlier this year and the 'MagentoLive' event held in London in July of this year.

Cash Generation

The business continues to be highly cash generative with cash at the end of the period standing at £9.3m, an increase of 53% on the prior year (2013: £6.1m) after capital expenditure and product development of £2.0m. The Company continues to be debt free. Highly efficient cash collection processes, combined with over 45% of clients paying retainers by direct debit, contributed to the Company's strong cash position at the year end.

Dividend Policy

I am pleased to report that the Board has conducted a review of the business plans for the next three years including evaluating the cash needs for increased investment in both organic growth and capital expenditure and has decided that an increase in dividend can be proposed this year.

Therefore subject to approval at the AGM on 16 December 2014 the Board proposes that the Company will pay a dividend of 0.2 pence per share, payable at the end of January 2015.

Brand Positioning

The Company has successfully implemented a dotmailer re-branding initiative which incorporates a refresh of the dotmailer platform, release of powerful new features and the launch of a new marketing website. dotdigital also celebrated its 15-year anniversary and to commemorate this auspicious landmark the Company hosted a "15th Birthday Network Party" for over 200 clients, partners and institutional investors at dotdigital's new offices at No.1 London Bridge.

People

As part of the long-term strategy to build a high-performing team capable of sustaining our growth we have made a number of strategically important hires into the senior management team during the year.

These have included:

• HR Director

• Marketing Director

• IT Director

• Executive Vice-President US Operations

• Customer experience Director (starts 14 October 2014)

In addition, we appointed Milan Patel into the role of CFO in March this year when he joined the main Board.

I am confident that the skills and experience of the Executive team put us in a strong position to deliver on the strategy approved by the Board.

In addition to the senior hires appointed during the year, we also embarked on a period of accelerated investment in sales, marketing and product development.

The goal we set ourselves was to recruit a further 30 sales and account manager staff and to strengthen marketing and product development.

The hiring process has continued through the autumn of 2013 and throughout 2014. Over that period we have hired a net additional 29 sales and account management staff, 5 additional staff into our marketing team, 5 into managed service and design and a further 13 into the product development and systems team.

This has been a significant undertaking and I have now tasked the senior team with ensuring that the new staff are fully integrated into the business and performing to full capacity. We will also be reviewing our structure to ensure we have the correct management processes to support the enlarged team.

Market Size

The consulting firm Econsultancy estimate the total UK market for email marketing platforms and services to be worth around £500m. This, however, includes creative resources in agencies and client side resources. Our own estimate of the UK addressable market for email marketing automation providers is in the region of £180m with dotmailer enjoying a market share of 9% in a market with around 30 providers.

Over the past seven years, revenues have grown 548% from £2.5m to £16.2m (year to June 2014). This equates to a six-year CAGR of 37%, which is higher than the market growth in that time, reflecting market share gains. Whilst the Group has always enjoyed a high degree of repeat revenue, much work has been done in the last two years to shift its revenues to contractual, recurring revenues (which reduces churn), with the sales team incentivised on total contracted value of deals. The initiative has positively impacted the stickiness of customers, the ration of clients on long-term contracts albeit at the expense of a small erosion in margin as a result of incentives to sign multi year deals.

Growth Strategy

During the year we evaluated a number of potential acquisition opportunities in the email marketing space. However, as in prior years none of the businesses evaluated were judged to be likely to create long-term shareholder value when execution and integration risks were factored in.

Therefore our focus remains on organic growth by selectively investing in sales and account management staff to concentrate on key relationships and markets whilst at the same time investing in the dotmailer platform to maintain its technical lead, ease of use, and integration.

The focus on fast growing medium-sized businesses and corporate clients has driven average monthly spend per client up by 35% and the average contracted monthly spend of new clients added during the year was £410. This, combined with a focus on longer term contracts, (78% of clients are now on 12-24 month contracts) and client retention is importantly leading to significantly higher client lifetime values.

In September 2013, the Board agreed to invest around £3.5m to accelerate our organic growth by hiring a further 30 sales, account management executives and increasing marketing spend. This increase in headcount and additional marketing spend largely happened in the second half of the year and it is now starting to be possible to review the return on investment from this decision.

Based on the early results there are clear indications that the potential for significant further growth exists from greater investment in the US market and from forming strategic partnerships globally.

Building on the leading position of the dotmailer brand in the mid-market will be a key priority for 2015 and the Board believe that there are significant future growth opportunities from hiring additional sales personnel and account management staff in the US and further building the team developing strategic partnerships globally.

Outlook

The dotmailer email marketing/marketing automation platform continues to perform very strongly in its chosen markets and in quarter one of the new financial year has delivered total revenues in line with plan.

The strategy to focus on mid-sized businesses with higher lifetime values and lower attrition has demonstrably contributed to higher services revenues and higher average monthly contract values, strong retention and we continue to see strong demand within this niche both in the UK and US. We are ever mindful of the need to constantly innovate and enhance the features of the dotmailer platform to meet the needs of today's ever more demanding digital marketer. Our product management and development team are planning over 3-, 12- and 36-month time horizons to ensure the platform continues to deliver competitive advantage.

The marketing initiatives to build our US presence are now starting to deliver a strong pipeline of new clients, particularly in the mid-size online retail space which continues to be a core focus for 2015 and as the customer base continues to grow we will need to invest further into local account management and managed services.

The Board intends to conduct a review of the progress and opportunities in the US and South America in the coming months with a view to potentially investing further.

The focus on developing strategic partnerships is now resulting in a steadily growing pipeline of orders from partners in the UK, US and RoW. In particular, we have seen the growth in numbers of Magento partners in the US now referring business, and we have recently signed a major partner in Australia, where we have already seen the first orders flowing from this partnership.

In early October, we launched a white label partnership to test the market, selling email marketing into South America using a local language version of dotmailer. This will be the basis of further expansion into this large and growing market.

As part of the rebranding initiative some significant features have been added to the dotmailer platform which the board believes will open up new sales opportunities and provide enhanced revenue possibilities from existing clients.

Demand for email marketing and marketing automation continues to be strong both in the UK and internationally and whilst the sector continues to be competitive the Board believes that the dotmailer platform is well placed to continue to generate strong organic growth in revenues over the coming year.

P A Simmonds

Chief Executive and Chief Financial Officer
14 October 2014

DOTDIGITAL GROUP PLC

Consolidated Income Statement

For the year ended 30 June 2014

		30.6.14		30.6.13
		£'000		£'000
CONTINUING OPERATIONS
Revenue		16,213		12,197
Cost of sales		(1,533)		(887)
Gross profit		14,680		11,310
Administrative expenses		(11,059)		(7,338)
OPERATING PROFIT		3,621		3,972
Finance income		20		13
PROFIT BEFORE INCOME TAX		3,641		3,985
Income tax expense		(181)		(220)
Profit for the year from continuing operations		3,460		3,765
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations		(41)		(3,023)
Profit for the year		3,419		742
Attributable to the owners of the parent:
	Profit for the year from continuing operations	3,460		3,765
	Loss for the year from discontinued operations	(41)		(3,023)
	Profit for the year attributable to the owners of the parent	3,419		742
Earnings per share from continuing operations (pence per share)
	Basic	1.24		1.36
	Diluted	1.19		1.32
Earnings per share from continuing and discontinued operations (pence per share)
	Basic	1.22		0.27
	Diluted	1.18		0.26
Adjusted earnings per share from continuing and discontinued operations (pence per share)
Adjusted excluding exceptional items		1.22		1.11
Adjusted diluted		1.18		1.07

DOTDIGITAL GROUP PLC

Consolidated statement of comprehensive income

For the year ended 30 June 2014

			30.6.14		30.6.13
			£'000		£'000
PROFIT FOR THE YEAR			3,419		742
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit and loss:
Exchange differences on translating foreign operations			(4)		(2)
Total comprehensive income attributable to:
	Owners of the parent		3,415		740
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Comprehensive income from continuing operations			3,456		3,763
Comprehensive income from discontinued operations			(41)		(3,023)

DOTDIGITAL GROUP PLC

Consolidated statement of financial position

For the year ended 30 June 2014

				30.6.14				30.6.13
				£'000				£'000
ASSETS
NON-CURRENT ASSISTS
Goodwill				609			609
Intangible assets				2,991			2,449
Property, plant and machinery				827			472
				4,427			3,530
CURRENT ASSETS
Trade and other receivables				3,662			2,893
Cash and cash equivalents				9,306			6,072
				12,968			8,965
TOTAL ASSETS				17,395			12,495
EQUITY ATTRIBUTABLE TO THE
OWNERS THE PARENT
Called up share capital				1,414			1,387
Share premium				5,147			4,863
Reverse acquisition reserve				(4,695)			(4,695)
Other reserves				82			13
Retranslation reserve				(6)			(2)
Retained earnings				12,211			9,071
TOTAL EQUITY				14,153			10,637
LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax				58			14
CURRENT LIABILITIES
Trade and other payables				2,984			1,681
Current tax payable				200			163
				3,184			1,844
TOTAL LIABILITIES				3,242			1,858
TOTAL EQUITY & LIABILITIES				17,395			12,495

DOTDIGITAL GROUP PLC

Company statement of financial position

For the year ended 30 June 2014

30.6.14 30.6.13 £'000 £'000 ASSETS NON-CURRENT ASSISTS Investments 5,186 5,186 5,186 5,186 CURRENT ASSETS Trade and other receivables 3,845 5,423 Cash and cash equivalents 109 70 3,954 5,493 TOTAL ASSETS 9,140 10,679 EQUITY ATTRIBUTABLE TO THE OWNERS OF THE PARENT Called up share capital 1,414 1,387 Share premium 5,147 4,863 Other reserves 82 13 Retained earnings 2,423 3,065 TOTAL EQUITY 9,066 9,328 LIABILITIES CURRENT LIABILITIES Trade and other payables 74 1,351 74 1,351 TOTAL LIABILITIES 74 1,351 TOTAL EQUITY & LIABILITIES 9,140 10,679

DOTDIGITAL GROUP PLC

Consolidated statement of changes in equity

For the year ended 30 June 2014

			Called up share		Retained earnings		Share premium
			capital
			£'000		£'000		£'000
Balance as at 1 July 2012			1,377		8,202		4,755
Issue of share capital			10		-		108
Reclassification of reserves			-		127		-
Transactions with owners			10		127		108
Profit for the year			-		742		-
Other comprehensive income			-		-		-
Total comprehensive income			-		742		-
Balance as at 30 June 2013			1,387		9,071		4,863
Issue of share capital			27		-		284
Dividends			-		(279)		-
Transactions with owners			27		(279)		284
Profit for the year			-		3,419		-
Other comprehensive income			-		-		-
Total comprehensive income			-		3,419		-
Balance as at 30 June 2014			1,414		12,211		5,147

		Retranslation		Reverse acquisition		Other		Total equity
		reserve		reserve		reserves
		£'000		£'000		£'000		£'000
Balance as at 1 July 2012		-		(4,695)		127		9,766
Issue of share capital		-		-		-		118
Reclassification of reserves		-		-		(127)		-
Share based payments		-		-		13		13
Transactions with owners		-		-		(114)		131
Profit for the year		-		-		-		742
Other comprehensive income		(2)		-		-		(2)
Total comprehensive income		(2)		-		-		740
Balance as at 30 June 2013		(2)		(4,695)		13		10,637
Issue of share capital		-		-		-		311
Dividends		-		-		-		(279)
Share based payments		-		-		69		69
Transactions with owners		-		-		69		101
Profit for the year		-		-		-		3,419
Other comprehensive income		(4)		-		-		(4)
Total comprehensive income		(4)		-		-		3,415
Balance as at 30 June 2014		(6)		(4,695)		82		14,153

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

·               Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.

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

·               Retranslation reserve relates to the retranslation of a foreign subsidiary into the functional currency of the Group.

·               The reverse acquisition reserve relates to the adjustment required to account the reverse acquisition in accordance with International Financial Reporting Standards.

·               Other reserves relate to the charge for the share based payment in accordance with International Financial Reporting Standard 2.

DOTDIGITAL GROUP PLC

Company statement of changes in equity

For the year ended 30 June 2014

			Called up share		Retained earnings		Share premium
			capital
			£'000		£'000		£'000
Balance as at 1 July 2012			1,377		129		4,755
Issue of share capital			10		-		108
Reclassification of reserves			-		127		-
Transactions with owners			10		127		108
Profit for the year			-		2,809		-
Other compressive income			-		-		-
Total comprehensive income			-		2,809		-
Balance as at 30 June 2013			1,387		3,065		4,863
Issue of share capital			27		-		284
Dividends			-		(279)		-
Transactions with owners			27		(279)		284
Loss for the year			-		(363)		-
Other comprehensive income			-		-		-
Total comprehensive income			-		(363)		-
Balance as at 30 June 2014			1,414		2,423		5,147
					Other reserves			Total equity
					£'000			£'000
Balance as at 1 July 2012					127			6,388
Issue of share capital								118
Reclassification of reserves					(127)			-
Share based payments					13			13
Transactions with owners					(114)			131
Profit for the year					-			2,809
Other comprehensive income					-			-
Total comprehensive income					-			2,809
Balance as at 30 June 2013					13			9,328
Issue of share capital					-			311
Dividends					-			(279)
Share based payments					69			69
Transactions with owners					69			101
Loss for the year					-			(363)
Other comprehensive income					-			-
Total comprehensive income					-			(363)
Balance as at 30 June 2014					82			9,066

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

·      Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.

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

·      Other reserves relate to the charge for the share based payment in accordance with International Financial Reporting Standard 2.

DOTDIGITAL GROUP PLC

Consolidated statement of cash flows

For the year ended 30 June 2014

				30.6.14		30.6.13
				£'000		£'000
Cash flows from operating activities
Cash generated from operations				5,297		3,817
Tax paid				(100)		(253)
Net cash generated from operating activities				5,197		3,564
Cash flows from investing activities
Purchase of intangible fixed assets				(1,408)		(1,352)
Purchase of tangible fixed assets				(607)		(292)
Interest received				20		13
Net cash flows used in investing activities				(1,995)		(1,631)
Cash flows from financing activates
Equity dividends paid				(279)		-
Share issue				311		118
Net cash flows from financing activities				32		118
Increase in cash and cash equivalents				3,234		2,051
Cash and cash equivalents at beginning of year				6,072		4,021
Cash and cash equivalents at end of year				9,306		6,072
Increase in cash and cash equivalents from continuing operations				3,268		2,076
Increase in cash and cash equivalents from discontinued operations				(34)		(25)
Increase in cash and cash equivalents				3,234		2,051

The above does not include the effect of foreign exchange rate changes on cash and cash equivalents due to its immaterial nature.

DOTDIGITAL GROUP PLC

Company statement of cash flows

For the year ended 30 June 2014

				30.6.14		30.6.13
				£'000		£'000
Cash flows from operating activities
Cash generated from operations				7		(273)
				7		(273)
Net cash generated from operating activities
Cash flows from financing activities
Loan from Group companies				-		142
Equity dividends paid				(279)		-
Share issue				311		118
Net cash flows from financing activities				32		260
Increase in cash and cash equivalents				39		(13)
Cash and cash equivalents at beginning of year				70		83
Cash and cash equivalents at end of year				109		70

DOTDIGITAL GROUP PLC

Abbreviated notes to the consolidated financial statements

For the year ended 30 June 2014

1.    GENERAL INFORMATION

dotDigital Group Plc ("dotDigital") is a company incorporated in England and Wales and quoted on the AIM Market of the London Stock Exchange.

2.    ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS's as adopted by the EU) and those parts of Companies Act 2006 that applies 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.

New and amended standards adopted by the Company

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 July 2014 that would be expected to have a material impact on the Group.

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

Enclosed in the new 2014 Report & Accounts are standards, amendments to standards and interpretations which have been issued, but are not effective for the financial year beginning 1 July 2014 and have not been early adopted.

 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, 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 prepared on the same basis.

The following accounting treatment has been applied in respect of the acquisition of dotdigital:

- The assets and liabilities of dotdigital 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 than 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 since 30 January 2009, 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 its 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.

Going concern

The directors, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Business review.

Operating profit

Operating profit is stated after charging operating expenses but before finance costs.

Exceptional items

Exceptional items are non-recurring material items which are outside the normal scope of the Group's ordinary activities such as costs arising from the impairment of investments and closure of divisions. Such items are disclosed separately within the financial statements.

Dividends

Final dividend distributions to the Company's shareholders are recognised as a liability in the financial statements in the period in which the dividends are approved by the Company's shareholders while interim dividends distributions are recognised in the period in which the dividends are declared and paid.

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.

Investments in subsidiaries

Investments are held as non-current assets at cost less any provision for impairment. Where the recoverable amount of the investment is less then the carrying amount, impairment is recognised.

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 and until economic benefit can be received and recognised, this expense is taken to the income statement and useful lives are reviewed on an annual basis. Amortisation is charged from the point when the assets is available for use.

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.

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.

- 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.

Property, plant and equipment

Tangible non current assets are stated at historical cost less accumulated 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:                       over the term of the lease

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 reporting 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.

Capital risk management

The Group manages it's 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 equivalents and equity attributable to the owners of the parent as disclosed in the Statement of Changes in Equity.

Taxation

The tax expense for the year comprises current and deferred tax. Tax is recognised in the Income statement, extent to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income for directly in equity, respectively.

Current tax

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.

Operating leases

Rent payable under operating leases is not recognised in the Group's statement of financial position.  Such costs are expensed 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.

Financial instruments

Financial assets and financial liabilities are recognised on the statement of financial position when an entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that is directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the income statement.

Financial assets

The Group's accounting policies for financial assets are set out below.

Management determine the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, revaluate this designation at every reporting date.

All financial assets are recognised on a trade date when, and only when, the Group becomes a party to the contractual provisions of an instrument. When financial assets are recognised initially, they are measured at fair value plus transaction costs, except for those finance assets classified as at fair value through profit or loss ('FVTPL'), which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets at FVTPL, 'held-to-maturity' investments, 'available for sale' (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition.

De-recognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.

At each reporting date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised based on the classification of the financial asset.

Loans and receivables (including trade receivables, prepayments, deposits and other receivables, cash and bank balances) are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. At each reporting date subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in the statement of comprehensive income when there is objective evidence that the asset is impaired, and is measured as the difference between the asset's carrying amount and the present value of estimated future cashflows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset's recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

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.

Financial liabilities and equity

Financial liabilities and equity are recognised on the Group's statement of financial position when the Group becomes a party to a contractual provision of an instrument. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of transaction costs.

The Group's financial liabilities include trade payables and accrued liabilities.

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.

Foreign currency risk

Currency risk is the risk that the holding of foreign currencies will affect the Group's position as a result of a change in foreign currency exchange rates. The Group has no significant foreign currency risk as most of the Group's financial assets and liabilities are denominated in functional currencies of relevant group entities. Accordingly, no quantitative market risk disclosures or sensitivity analysis for currency risk have been prepared.

The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
(b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
(c) all resulting exchange differences are recognised in other comprehensive income.                                                  

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" measures 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 is 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.

Functional currency translation

Functional and presentation currency

Items included in the financial statements of 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 functional 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

Operating segments are reported in a manner consistent with the internal reporting provide to the chief operating decision-maker. The chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments as identified by the Board of directors.

Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below

Judgements

(a) Capitalisation of development costs

Our business model is underpinned by our email and cross-channel marketing automation platform, dotmailer. Internal activities are continually undertaken to enhance and maintain the product in a bid to stay ahead of our competition. Management review the work of developers during the period and make the following judgements:

Internal work relating to product development is reviewed against IAS 38 criteria and will be capitalised if management feel the criteria have been met.

Internal work relating to the maintenance of existing products is expensed to the income statement and accounted for in payroll costs.

Estimates and assumptions

(a)    Impairment testing of goodwill

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 using a pre-tax discount rate of 10%. 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.

Further detail on the estimates and assumptions we make in our annual impairment testing of goodwill are included in Note 12 to the Financial Statements. At the period end, based on these assumptions there was no indication of impairment to carrying value of goodwill.

(b)    Share-based compensation

Key management believe that there will not be only one acceptable choice for estimating the fair value of share-based payment arrangements. The judgments and estimates that management apply in determination of the share-based compensation are summarise below:

•     Selection of a valuation model

•     Making assumptions used in determining the variables used in a valuation model

i.    expected life

ii.   expected volatility

iii.  expected dividend yield

iv.  interest rate

Further detail on the estimates and assumptions we make in our share-based compensation are included in Note 27 to the Financial Statements of the Report & Accounts. The charge made to income statement for the period is also disclosed here.

(c)    Depreciation  and amortisation

The Group depreciates short leasehold, fixture and fittings, computer equipment and amortises computer software, internally generated development costs and domain names on a straight-line method over the estimated useful lives. The estimated useful lives reflect the directors' estimate of the periods that the Group intends to derive future economic benefits from the use of the Group's short leasehold, fixture and fittings, computer equipment, computer software, internally generated development costs and domain names.

 (d)         Bad debt provision

We perform ongoing credit evaluations of our customers and grant credit based upon past payment history, financial condition, and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based upon specific situations and overall industry conditions. Hence the provision is maintained for potential credit losses based upon management's assessment of the expected collectability of all accounts receivable. In making this assessment, management takes into consideration (i) any circumstances of which we are aware regarding a customer's inability to meet its financial obligations; and (ii) our judgements as to potential prevailing economic conditions in the industry and their potential impact on the Company's customers.

3.                SEGMENTAL REPORTING

The Group's single line of business is the provision of web based marketing services.

More than 90% of the Group's revenue arises in the UK and all of the Group's non-current assets are held there.

There are no customers who account for more than 10% of revenue (2013: none)

4.                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:

			30.06.14
					Weighted
					average		Per share
From continuing and discontinued operations			Earnings		number of		Amount
			£'000		shares		Pence
Basic EPS
Profit for the year attributable to the owners of the parent			3,419		279,107,898		1.22
Options and Warrants			-		11,272,536		-
Diluted EPS
Profit for the year attributable to the owners of the parent			3,419		290,380,434		1.18
			30.06.14
					Weighted
					average		Per share
From continuing operations			Earnings		number of		Amount
			£'000		shares		Pence
Basic EPS
Profit for the year attributable to the owners of the parent			3,460		279,107,898		1.24
Options and Warrants			-		11,272,536		-
Diluted EPS
Profit for the year attributable to the owners of the parent			3,460		290,380,434		1.19

From continuing operations		30.06.14		30.06.13
		£'000		£'000
Profit for the year attributable to the owners of the parent		3,419		742
Adjustments to exclude loss from discontinued operations		41		3,023
Profit for the year from continuing operations for the purpose of basic earnings per share excluding discontinued operations
		3,460		3,765

From discontinued operations
		30.06.14		30.06.13
		Per share (p)		Per share (p)
Basic EPS		(0.01)		(1.10)
Diluted EPS		(0.01)		(1.10)

There was no difference in the weighted average number of shares used for the calculation of basic and diluted earnings per share as the effect of all dilutive share outstanding was ant-dilutive.

Weighted average number of shares		Shares		Shares
Basic EPS		279,107,898		275,839,565
Diluted EPS		290,380,434		285,687,852

The denominations and numerators used are the same to those detailed above for both basic and diluted earnings per share from continuing and discontinued operations.

				30.06.13 Weighted
				average		Per share
		Earnings		number of		amount
		£'000		shares		pence
From continuing and discontinued operations Basic EPS
Profit for the year attributable to the owners of the parent		742		275,839,565		0.27
Diluted EPS
Profit for the year attributable to the owners of the parent		742		285,687,852		0.26
				30.06.13 Weighted
				average		Per share
		Earnings		number of		amount
		£'000		shares		pence
From continuing operations Basic EPS
Profit for the year attributable to the owners of the parent		3,765		275,839,565		1.36
Diluted EPS
Profit for the year attributable to the owners of the parent		3,765		285,687,852		1.32
Adjusted EPS
Effect of exceptional items:
-   Impairment of goodwill		2,326		-		-
Adjusted earnings
Effect of dilutive shares		3,068		275,839,565		1.11
Options and Warrants		-		9,848,287		-
Adjusted diluted EPS
Adjusted profit for the year		3,068		285,687,852		1.07

 

END

 

 

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