Preliminary Results

RNS Number : 1163E

dotDigital Group plc

16 October 2018

dotdigital Group plc

("dotdigital" or the "Group")

Preliminary results

dotdigital Group plc (AIM: DOTD), a leading omnichannel marketing automation platform, announces preliminary results for the year ended 30 June 2018 with strong growth in revenue and profit driven by the Group's organic growth strategy and the addition of omni-channel functionality.

Highlights

· Group revenues grew 35% to £43.1m (2017: £32.0m)

· Adjusted EBITDA¹ grew 21% to £12.5m (2017: £10.3m)

· Adjusted operating profit² grew 22% to £10.0m (2017: £8.2m)

· Strong cash balance at period end of £15.0m (2017: £20.4m)

o Includes the acquisition and funding of Comapi for £11.5m (£10.7m acquisition cost)

· Comapi omni-channel acquisition fully integrated and performing in line with expectations

· ARPU³ grew 18%, increasing from £715 per month to £845 per month

· Customers signed in the period increased 26% to 689 (2017: 548)

· Strong momentum in Q4 from contracted monthly recurring revenues

Product innovation

· Recurring revenue increased 41% driven by enhanced product functionality

· Comapi omni-channel functionality integrated into Dotmailer

· Three substantial product releases, with focus on automation and personalisation

· Accelerated investment in AI and machine learning

Strategic partnerships

· Magento partnership shows strong growth with ARPU increasing 7% to £1,512 per month

· Expanding relationships with Shopify, BigCommerce and Shopware enhancing ecommerce

· Microsoft Dynamics integration delivers 42% ARPU growth to £1,405 per month

"Magento's policy is to work with best in class on-point solutions - of which our premier partners are shining examples of this. Our customers are, and will always be, free to use whatever add-on technology they determine best matches their requirement." Mark Lavelle, CEO of Magento Commerce

Geographic expansion

· EMEA revenue grew 11% (excluding Comapi) to £27.3m (2017: £30.4m) despite impact of GDPR. Sales cycles normalised post GDPR implementation (25 May 2018)

· USA revenue grew 43% (excluding Comapi) to $7.1m (2017: $5.0m) following a strong focus on strengthening the Group's channel management team

· APAC revenue growth of 85% (excluding Comapi) to AUS$2.1m (2017: AUS$1.2m) due to relationships with channel partners and increased direct sales client conversion rates

Milan Patel, CEO of dotdigital, commented:

"We have continued to deliver on our three strategic pillars, expanding our geographic footprint and increasing our addressable market through integrations built into our strategic partnerships.

The addition of Comapi expands our functionality significantly through the addition of omni-channel, driving innovation in a dynamic business environment impacted in 2018 by significant regulatory change.

With continued investment in our platform and people, we are in a strong position to identify and deliver upon further opportunities for long term growth.

The transition towards becoming an AI-driven, omni channel platform continues to gather pace, better placing dotdigital to capitalise on the opportunity of a global market for marketing automation technology and customer engagement.

We remain focussed on delivering against our strategy and are confident for the year ahead."

For more information, please contact:

dotdigital Group Plc Milan Patel, CEO Paraag Amin, CFO	Tel: 020 3953 4445
FTI Consulting (Financial PR and Investor Relations) Matt Dixon Adam Davidson	Tel: 020 3727 1000
N+1 Singer (Nominated Adviser and Joint Broker) Shaun Dobson, Head of Corporate Finance Rachel Hayes, Corporate Broking Alex Bond, Corporate Finance	Tel: 020 7496 3000
finnCap (Joint Broker) Stuart Andrews, Corporate Finance Rhys Williams, Sales Camille Gochez, Equity Capital Markets Alice Lane, Equity Capital Markets	Tel: 020 7220 0500

Prior to this announcement's release, the statement contained inside information for the purposes of Article 7 of Regulation (EU) 596/2014 (MAR) (Market Abuse Regulation).

1. EBITDA is earnings before interest, tax, depreciation and amortisation and adjusted for acquisition costs and share-based payments

2. Operating profit is adjusted for acquisition costs and share-based payments

3. ARPU means Average Revenue Per User

Operational Review

Total revenue in the year grew by 35% to £43.1m, of which organic revenue growth was 15% and the remainder as a result of the Comapi acquisition, which contributed £6.2m for a period of seven and a half months, from mid-November 2017. We saw double-digit growth in the EMEA region (excluding Comapi) of 11%, from £27.3m to £30.4m, despite regulatory change in the European market. This growth was also helped through a combination of higher value new client wins, an increase in the number of new customers (we saw a 26% increase in new customers signed up), our ability to continually monetise advanced features alongside the additional marketing channels adopted by existing clients. This is evident by revenues from enhanced functionality and licence fees monthly recurring charges now achieving £8.9m, which is an increase of 41%.

We have seen substantial progress in the international markets, with revenues outside of the core UK market (excluding the Comapi acquisition) growing by 33% and now represent 26% of the Group's revenues. International expansion remains a core pillar in our organic growth strategy. The Group has added notable clients across its market both locally and internationally.

In addition, we have continued to see strong growth from a professional service offering (excluding Comapi) which is adding value to our customers, with the revenues growing 24% to £4.1m.

During the year, dotmailer's average revenue per user rose by 18% from £715 per month to £845 per month. This was the result of continued focus on mid-market, enterprise clients and customers that use the Magento integration spending on average over £1,500 per month. dotmailer saw an increase of 26% in new customers signing up which represents circa. 680 clients. Overall volume of messages sent out by dotmailer increased by 21% to 14.4bn from 11.9bn, reflecting the change in demographic but also increasing the recurring revenue growth and adding to the increasing ARPU. The other area adding to the expansion is the new channels that are being sold following the integration of Comapi.

We saw double-digit growth from the UK market, which was slightly impacted by regulation change. GDPR caused slight delays in monthly message revenue coming through following sign-up to the Dotmailer platform, whilst customers got ready for their own compliance in the necessary departments that needed to get involved to validate the technology chosen (typically legal and IT). As we went past the implementation date in May, we have seen sales cycles normalising. In the year, we have also refocused on a customer success strategy that is even more attentive and value focused. This has resulted in improved customer satisfaction and retention.

Market

The marketing automation market is set to expand from £8.8bn in 2017 to £19.3bn by 2023, which shows a global compound annual growth rate (CAGR) of approximately 14%, according to Forrester Research. Currently email marketing automation represents 30% of the global market, closely followed by other channels such as mobile application marketing and social media marketing. According to the research, email marketing is anticipated to govern the marketing automation market. This is due to the increased adoptions of digitalisation and the channel's status as a relatively low cost but effective marketing method.

The retail segment is anticipated to lead the marketing automation space, and this supports dotdigital's strategy to continue integrating with e-commerce platforms in order to increase the addressable market in this space.

North America, Europe and Asia will lead, with the fastest growth across those markets. The Group currently has three separate hubs that mirror these markets, with a user interface translated into multiple languages and a scalable infrastructure that has in-region data processing and storage to mirror these growth areas. The Group is therefore well placed to capture market share in those areas.

Geographic Progress

North America

Revenue in our North American region accelerated. It grew by 43% to $7.1m following the successful changes and investment through the period. Changes that were made in the period were to strengthen the channel management team and increase the number of people within the region to support our customers. The e-commerce connectors that have been built and enhanced in the year has also helped expand the addressable market in the region. We continue to invest in the region with the opening of the West Coast office that will allow closer client and partner interaction in the region and continue to build a strong pipeline in the market.

APAC

Growth from the APAC region of 85% (excluding Comapi) saw revenues increasing from AUS$1.2m to AUS$2.1m, partly due to the continuous relationships with the channel partners and the increase in conversion of prospects to clients by our direct sales team. For the best customer experience in APAC, we continue to invest in our support, customer success and the sales teams. Strong relationships are building in Far East Asia to help raise brand awareness and thought leadership. Early signs are good with the introduction of our omni-channel strategy, with Asia being heavily focused on mobile marketing.

EMEA

EMEA saw revenue growth of 11% (excluding Comapi) from £27.3m to £30.4m. We still see strong double-digit growth from the region. EMEA revenue were slightly impacted in the first half of the financial year by delays, in customer spending, ahead of GDPR implementation. As anticipated, the region's sales cycles have normalised post GDPR. The region saw an increase in the number of customers signed up following the changes made in the training and development programme for the sales and customer success teams.

The continued focus on the Nordics and Benelux region has resulted in stronger partnerships and growing revenue stream in the region. With the early success in the market, we continue to add to the dedicated channel managers and sales teams that sell into the EMEA market as the pipeline builds. We have started to test the German market with employees in-region as our partnership with Shopware strengthens. Shopware is the largest e-commerce platform in Germany for mid-market clients. We continue to develop stronger partnerships with system integrators and raise brand awareness in that market.

During the period, we withdrew the self-service offering from the South African market and some of the early learnings we took from the test was that the platform was well placed to serve the needs of mid-market and enterprise clients which will only transact with us through the direct sales team in the EMEA region.

Product innovation

We continue to invest in research and development of our technology, aiming to be the world's best data-driven marketing and customer engagement platform. In the year we've continued to scale the platform across all regions. The acquisition of Comapi that was completed in November 2017 has accelerated the platform development with new omni-channel features being integrated into the platform for upsell opportunities to existing customers and attracting more marketeers that are sophisticated in the digital marketing strategies. The move into omni-channel, although early days, has proved to be successful and puts us in a unique position against our competitors.

There were many enhancements made to connectors with the introduction of a Salesforce Commerce Cloud and Shopware solutions. With the premium integrations that we have built into e-commerce platforms, this now allows us to address at least 50% of midmarket e-commerce merchants globally.

As part of a continued commitment to accelerating functionality progress, we continue to add globally to our development teams. These teams will allow us to continue innovating our technology which will give us a stronger competitive advantage. Next year will also see an acceleration in development within the artificial intelligence and machine learning space. We have released significant features that take us into this space. The data science team has also been added to our product development teams. The recurring revenues from our enhanced functionality increased by 41% (excluding Comapi) compared to the previous year and now represent £8.9m of the Group's revenues.

Strategic partnerships

Magento: We continue to enhance the connector to make it easy for our customers to attribute better ROI from their digital marketing campaigns from the value proposition we provide. We have continued to deepen our relationship with the release of Magento bundling in November 2017, where the platform ships with the core codebase to their customers using Magento version 2.2 or newer. Magento was recently acquired by Adobe and, after speaking to their senior executives, we are pleased to report that it is business as usual with our partnership. The connector is now used by over 670 clients and generating annualised recurring revenues of more than £9.2m. We continue to see strong pipelines building and good level of take-up from the Magento customer base. The average revenue per month from Magento customers increased by 7% to £1,512 per month.

Shopify: The Shopify connector now serves over 40 clients. We continue to add new functionality that helps the retailer build out their digital marketing strategies. Average monthly recurring revenues from these clients is £1,032 per month. The pipeline and partnership continue to build, and we feel optimistic in growth from this partnership in the next financial year.

Big Commerce: It is still early days with the Big Commerce connector which we continue to enhance. dotmailer has been named as the first European-based Elite partner which will help in endorsing our connector. Both companies continue to work on the go to market strategies and promotion of the dotmailer platform to their e-commerce merchants.

Other e-commerce connectors: We have continued to develop relationships with the likes of Shopware and Salesforce Commerce cloud including adding new e-commerce integration partners globally. We will maintain this development as we move into the next financial year.

As part of our commitment to our B2B marketing customers, we added new functionality and continue to build our relationships with Microsoft for our integration into Microsoft Dynamics CRM and Salesforce. These connectors are now used by over 503 clients and generate annualised recurring revenues of more than £6m. As there is more value being put in data by our customers for personalisation and targeting we see a good upsell opportunity and attracting more integrated clients. We have seen our significant growth in ARPUs from the Dynamics connector clients increasing 42% to £1,405 per month.

People

We have continued to strengthen and develop the senior management team that look after the day-to-day running of the business, both by adding new members to the leadership team, and promoting from within through our learning and development programme. This has strengthened the foundations in place - from a management bandwidth and skills perspective.

We invested in sales, customer success, marketing and product development in the year to continue supporting our product innovation goals, but also allow us to further develop global brand awareness. With the continued success of international markets, we added another 41 people to allow us to provide our customers with a scalable business model and to support overall business growth. We believe our people are crucially important to our business and its future; further investment will be made in the training and development of all our employees.

The Group also welcomed Paraag Amin as Chief Financial Officer in February 2018, and to help support Milan in day-to-day responsibilities. Paraag brings a wealth of experience in financial and operational analysis and comes with broad experience in the industry and public markets. He also has experience across several departments through the business he founded.

Acquisitions

In the year, we completed the acquisition of Comapi, which was a business focused on omni-channel messaging and cloud communications market for a cash consideration of £10.7m (which includes the payment of loans in Comapi), with a potential consideration of £1.2m in share options for the management team dependent on them achieving specific performance targets over a two-year post acquisition and remaining with the business. The acquisition will:

· Extend dotdigital's marketing automation platform to provide an industry-leading solution offering fully integrated omni-channel and conversational commerce support to marketers,

· Enable dotdigital to deliver aligned conversational messaging across channels including email, mobile push, SMS, Facebook messenger, Apple business messenger, Twitter and live chat

· Enable dotdigital customers to meet consumer demand for a more personalised communication experience and

· Position dotdigital as the most advanced platform on the market and make dotdigital more relevant in the strategic mobile-first Asian market.

We continue to investigate opportunities beyond organic growth. We do have very strict value-enhancing criteria to finding strategic acquisitions. The areas in which we would consider making an acquisition are:

1) Companies that can help us expand into new geographic markets or allow us to grow faster in a market that we currently operate within;

2) Companies that can allow us to build on our multi-channel capabilities, beginning initially in the mobile and social marketing space; and

3) Companies that can bring new functionality (e.g. artificial intelligence) that will add value to our customer base within the mid- and small enterprise market.

Financial review

Revenues

The Group achieved revenue growth of 35% (15% excluding Comapi; 2017: 19%), which delivered record overall revenues of £43.1m. The quality of the revenue growth is evidenced by stable recurring revenues of 85%. The Group continued to grow internationally with revenues accounting for 22% of the Group's total (26% excluding Comapi). Comapi contributed £6.2m of revenue in the seven and half months that it has been part of the Group.

Business model

The Group generates the majority of its revenues from annual message plans which are recognised equally over the life of the contract. In addition, we sell upgrade packages to customers allowing them to use additional modules and features of our platform. For more sophisticated customers we offer customised functionality and integrations so that they can maximise the use of their customer data. These professional services contracts are recognised as revenue as the work is performed.

Gross margins

The gross margin for the period was 79%, impacted by the consolidation of Comapi (87% excluding Comapi; 2017: 86%). We continue to see value in both the direct and indirect models of selling in our international regions, and hence continue to invest in building long-term annuity revenues.

Operating expenses

Adjusted EBITDA grew by 22% from £10.3m to £12.5m. Part of this growth was due to the improvement in margins from moving the infrastructure into the cloud last year and hence seeing the full benefit this year. Investments that have been made in previous years in product development and sales and marketing are also paying off.

Operating expenses as a percentage of revenues dropped from 61% to 56%, reflecting the growth in revenue. dotdigital continues to invest in people in the areas of development, sales and marketing, particularly within the regional offices, to continue enhancing and adding to the product suite.

Balance sheet

There was strong cash management in the year with cash generated from operations of £13.1m (2017: £8.8m). The cash at the end of the period was standing at £15.0m (2017: £20.4m), despite the acquisition of Comapi for a cash consideration of £10.7m. The Group continues to be debt free and maintains a healthy balance sheet. A combination of a highly efficient cash collection process and an incentivisation push to move more customers onto Direct Debit and automated credit card collection helped with the year-end position.

Trade receivables have only grown by 12% (excluding Comapi) in the year reflecting revenue growth and good cash management. Overall receivables have grown 40% (excluding Comapi) as a result of a large increase in prepayments due to the move to the hybrid cloud infrastructure and deferred commission.

The Group continues to invest heavily in the software platform to increase functionality around marketing automation, and in building connectors to e-commerce and CRM platforms to allow our customers to make the most of their data and provide excellent customer engagement. This continued investment is demonstrated by the increase in product development of £2.1m.

Goodwill

£9.1m of Goodwill reflects the acquisition of Comapi in the year, for a cash consideration of £10.7m. Identifiable intangible assets included £1.2m of technology and £1.2m of customer relationships which will be amortised over 10 and 9 years respectively.

Tax

The Group continues to grow its profitability; however this is not reflected within the tax charge, which is now £0.7m with an effective tax rate of 2.8%, the reason being enhanced R&D tax credits and favourable movement in share-based payments.

EPS

In the year the adjusted basic EPS increased by 28% to 3.16p (2017: 2.47p) and adjusted diluted EPS has increased to 3.12p (2017: 2.46p). The increase in adjusted EPS is driven by the increased profitability and the reduction in the effective tax rate to 2.8% from 10.5%.

Dividend policy

As announced last year, the Board conducted its review of its organic business plan for the following three years. This included evaluating the cash needs required for opportunities in organic growth to increase shareholder value and capital expenditure. The Board decided that it will continue to keep a progressive dividend in line with EBITDA growth. Therefore, subject to approval at the AGM in December 2018, the Board proposes that the Group will pay a final dividend of 0.64 pence per ordinary share (2017: 0.55p); to be payable at the end of January 2019.

Outlook

The first few months of the new financial year have started very well and in line with our plan. There has been an increase in the customer numbers across all regions compared to the previous year. As we look ahead we continue to invest in both our people and the product, to further strengthen our position as an innovator as the platform continues to evolve to be a data-driven, omni-channel marketing automation platform with artificial intelligence and machine learning, which empowers our customers to get a return on investment from their digital marketing. The market continues its very strong growth which puts us in an advantageous position to capitalise on our organic growth strategy.

The Group has a strong position in changing markets and the Board remains confident about the future growth prospects, assuming that there is no adverse change in market conditions and delivery against the planned strategy.

Milan Patel

Chief Executive Officer

15 October 2018

Paraag Amin

Chief Financial Officer

15 October 2018

DOTDIGITAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2018

				30.6.18	30.6.17
				£'000	£'000
			Notes
CONTINUING OPERATIONS
Revenue				43,094	31,966
Cost of sales			7	(9,074)	(4,459)

Gross profit				34,020	27,507

Administrative expenses			7	(23,979)	(19,269)
Share based payments				(450)	(162)
Exceptional costs			5	(357)	-

OPERATING PROFIT				9,234	8,076

Finance income			6	9	15

PROFIT BEFORE INCOME TAX			7	9,243	8,091

Income tax expense			8	(685)	(945)

Profit for the year from continuing operations				8,558	7,146

	Profit for the year attributable to the owners of the parent			8,558	7,146

Earnings per share from continuing operations (pence per share)
		Basic	11	2.89	2.42
		Diluted	11	2.85	2.41
		Adjusted Basic	11	3.16	2.47
		Adjusted Diluted	11	3.12	2.46

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2018

			30.6.18	30.6.17
			£'000	£'000
		Notes

PROFIT FOR THE YEAR			8,558	7,146

OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to profit and loss:
Exchange differences on translating foreign operations			20	(54)

Total comprehensive income attributable to:
	Owners of the parent		8,578	7,092

TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Comprehensive income from continuing operations			8,578	7,092

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

30 JUNE 2018

		30.6.18	30.6.17
		£'000	£'000
	Notes
ASSETS
NON-CURRENT ASSETS
Goodwill	12	9,680	609
Intangible assets	13	9,787	4,519
Property, plant and equipment	14	1,046	1,033

		20,513	6,161

CURRENT ASSETS
Trade and other receivables	16	12,953	7,847
Cash and cash equivalents	17	15,005	20,428

		27,958	28,275

TOTAL ASSETS		48,471	34,436


EQUITY ATTRIBUTABLE TO THE
OWNERS OF THE PARENT
Called up share capital	18	1,490	1,481
Share premium	19	6,791	6,290
Reverse acquisition reserve	19	(4,695)	(4,695)
Other reserves	19	661	305
Retranslation reserve	19	(26)	(46)
Retained earnings	19	32,331	25,306

TOTAL EQUITY		36,552	28,641


LIABILITIES
NON-CURRENT LIABILITIES
Deferred tax	23	1,697	814

CURRENT LIABILITIES
Trade and other payables	20	10,217	4,440
Financial liabilities - borrowings:
- Interest bearing loans		5	-
Current tax payable		-	541

		10,222	4,981

TOTAL LIABILITIES		11,919	5,795

TOTAL EQUITY & LIABILITIES		48,471	34,436

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF FINANCIAL POSITION

30 JUNE 2018

		30.6.18	30.6.17
		£'000	£'000
	Notes
ASSETS
NON-CURRENT ASSETS
Investments	14	14,924	5,187
	5
		14,924	5,187

CURRENT ASSETS
Trade and other receivables	16	1,105	4,633
Cash and cash equivalents	17	646	591

		1,751	5,224

TOTAL ASSETS		16,675	10,411


EQUITY ATTRIBUTABLE TO THE
OWNERS OF THE PARENT
Called up share capital	18	1,490	1,481
Share premium	19	6,791	6,290
Other reserves	19	661	305
Retained earnings	19	5,761	2,239

TOTAL EQUITY		14,703	10,315


LIABILITIES
CURRENT LIABILITIES
Trade and other payables	20	1,972	96

TOTAL LIABILITIES		1,972	96

TOTAL EQUITY & LIABILITIES		16,675	10,411

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2018


	Called up share	Retained	Share
	capital	earnings	premium
	£'000	£'000	£'000

Balance as at 1 July 2016	1,473	20,611	6,138

Issue of share capital	8	-	152
Dividends	-	(2,479)	-
Transfer in reserves	-	28	-
Share-based payment	-	-	-
Transactions with owners	8	(2,451)	152

Profit for the year	-	7,146	-
Other comprehensive income	-	-	-
Total comprehensive income	-	7,146	-

Balance as at 30 June 2017	1,481	25,306	6,290

Issue of share capital	9	-	501
Dividends	-	(1,627)	-
Transfer in reserves	-	94	-
Share-based payment	-	-	-
Transactions with owners	9	(1,533)	501

Profit for the year	-	8,558	-
Other comprehensive income	-	-	-
Total comprehensive income	-	8,558	-

Balance as at 30 June 2018	1,490	32,331	6,791

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2018

CONTINUED…
	Retranslation	Reverse acquisition	Other	Total equity
	reserve	reserve	reserves
	£'000	£'000	£'000	£'000

Balance as at 1 July 2016	8	(4,695)	174	23,709

Issue of share capital	-	-	(3)	157
Dividends	-	-	-	(2,479)
Transfer in reserves	-	-	(28)	-
Share-based payments	-	-	162	162
Transactions with owners	-	-	131	(2,160)

Profit for the year	-	-	-	7,146
Other comprehensive income	(54)	-	-	(54)
Total comprehensive income	(54)	-	-	7,092

Balance as at 30 June 2017	(46)	(4,695)	305	28,641

Issue of share capital	-	-	-	510
Dividends	-	-	-	(1,627)
Transfer in reserves	-	-	(94)	-
Share-based payments	-	-	450	450
Transactions with owners	-	-	356	(667)

Profit for the year	-	-	-	8,558
Other comprehensive income	20	-	-	20
Total comprehensive income	20	-	-	8,578

Balance as at 30 June 2018	(26)	(4,695)	661	36,552

· 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 net of the share issue expenses.

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

· The reverse acquisition reserve relates to the adjustment required to account for 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 and shares repurchased in the year classified as treasury shares.

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2018


	Called up share	Retained	Share	Other
	capital	earnings	premium	Reserves	Total equity
	£'000	£'000	£'000	£'000	£'000

Balance as at 1 July 2016	1,473	5,080	6,138	174	12,865

Issue of share capital	8	-	152	(3)	157
Dividends	-	(2,479)	-	-	(2,479)
Transfer in reserves	-	28	-	(28)	-
Share-based payments	-	-	-	162	162
Transactions with owners	8	(2,451)	152	131	(2,160)

Profit for the year	-	(390)	-	-	(390)
Total comprehensive income	-	(390)	-	-	(390)

Balance as at 30 June 2017	1,481	2,239	6,290	305	10,315

Issue of share capital	9	-	501	-	510
Dividends	-	(1,627)	-	-	(1,627)
Transfer in reserves	-	94	-	(94)	-
Share-based payments	-	-	-	450	450
Transactions with owners	9	(1,533)	501	356	(667)

Profit for the year	-	5,055	-	-	5,055
Total comprehensive income	-	5,055	-	-	5,055

Balance as at 30 June 2018	1,490	5,761	6,791	661	14,703

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

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

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

· Other reserves relate to the charge for the share-based payment in accordance with International Financial Reporting Standard 2 and shares repurchased in the year classified as treasury shares.

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2018

		30.6.18	30.6.17
		£'000	£'000
	Notes
Cash flows from operating activities
Cash generated from operations	28	13,129	8,813
Tax paid		(501)	(685)

Net cash generated from operating activities		12,628	8,128


Cash flows from investing activities
Purchase of subsidiary, net of cash acquired*		(9,578)	-
Purchase of intangible fixed assets		(6,876)	(2,379)
Purchase of tangible fixed assets		(475)	(375)
Sale of tangible fixed assets		-	48
Interest received		9	15

Net cash flows used in investing activities		(16,920)	(2,691)


Cash flows from financing activities
Equity dividends paid		(1,627)	(2,479)
Loan repayments		(14)	-
Share issue		510	157

Net cash flows from financing activities		(1,131)	(2,322)


(Decrease)/Increase in cash and cash equivalents		(5,423)	3,115

Cash and cash equivalents at beginning of year	29	20,428	17,313

Cash and cash equivalents at end of year	29	15,005	20,428

*Cash acquired £157,884, please refer to Note 12.

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2018

		30.6.18	30.6.17
		£'000	£'000
	Notes
Cash flows from operating activities
Cash generated from operations	28	10,909	2,274

		10,909	2,274
Net cash generated from operating activities

Cash from investing activities

Purchase of investments		(9,737)	-

Net cash flows from investing activities		(9,737)	-

Cash flows from financing activates
Equity dividends paid		(1,627)	(2,479)
Share issue		510	157

Net cash flows from financing activities		(1,117)	(2,322)


Increase in cash and cash equivalents		55	(48)

Cash and cash equivalents at beginning of year	29	591	639

Cash and cash equivalents at end of year	29	646	591

DOTDIGITAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2018

1. GENERAL INFORMATION

dotdigital Group Plc ("dotdigital") is a company incorporated in England and Wales and quoted on the AIM Market. The address of the registered office is disclosed on the inside back cover of the financial statements. The principal activity of the Group is described on page 34.

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 (IFRSs as adopted by the EU) and those parts of 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.

New and amended standards adopted by the Company

There are no IFRSs or IFRIC interpretations that are effective for the first time in the financial year beginning on or after 1 July 2017 that would be expected to have a material impact on the Company.

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 2017 and have not been early adopted.

Reference	Title		Summary		Application date of standard	Application date of Group

IFRS 2	Share Based Payments		Amendments to clarify the classification and measurement of share based transactions		Periods beginning on or after 1 January 2018	1 July 2018
IFRS 3	Business Combinations		Amendments resulting from the annual review cycle.		Periods beginning on or after 1 January 2019	1 July 2019
IFRS 4	Insurance Contracts		Amendments regarding the interaction of IFRS 4 and IFRS9		Periods beginning on or after 1 January 2018	1 July 2018
IFRS 9	Financial Instruments		Amendments regarding the interaction of IFRS 4 and IFRS9		Periods beginning on or after 1 January 2018	1 July 2018
IFRS 9	Financial Instruments		Amendments regarding prepayment features with negative compensation and modifications of financial liabilities		Periods beginning on or after 1 January 2019	1 July 2019
IFRS 11	Joint Arrangements		Amendments resulting from the annual review cycle.		Periods beginning on or after 1 January 2019	1 July 2019
IFRS 15	Revenue from Contracts with Customers		Original issue	Periods beginning on or after 1 January 2018		1 July 2018
			Amendments to defer the effective date	Periods beginning on or after 1 January 2018		1 July 2018
			Clarifications to IFRS	Periods beginning on or after 1 January 2018		1 July 2018
IAS 40	Investment Property		Amendments to clarify transfers or property to, or from, investment property.	Periods beginning on or after 1 January 2018		1 July 2018
IFRS 1, IFRS 2, IAS 28		Annual improvements 2014-2016 Cycle	Amendments resulting	Annual periods beginning on and after 1 January 2018		1 July 2018
IFRS 16		Leases	Original issue	Annual periods beginning on or after 1 January 2019		1 July 2019
Amendments to IFRIC 22		Foreign Currency transactions and advance consideration	Amendments to clarify the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency.	Annual periods beginning on or after 1 January 2019		1 July 2019
IFRIC 23		Uncertainty over income tax treatment	Address how to reflect uncertainty in accounting for income tax	Annual periods beginning on or after 1 January 2019		1 July 2019

The Directors anticipate that the adoption of these Standards and the Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early. In regard to IFRS 15, the Board has initiated a project to assess the likely impact ahead of its implementation and expects this to have an immaterial impact on the financial statements for the year ended 30 June 2018 of circa £500k on revenue.

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

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 principal activity is that of providing SaaS via a leading omni-channel marketing automation platform and managed services to digital marketing professionals.

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 Group 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 prepared on the same basis.

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

- The assets and liabilities of dotdigital Group 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 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.

The Group applies the acquisition method to account for business combinations. In the statement of financial position, the acquiree's identifiable assets and liabilities are initially recognised at their fair values at the acquisition date.

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 into consideration the type of customer, the type of transaction and the specifics of each arrangement.

The Group sells omni-channel 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, have 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 Directors' report.

Operating profit

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

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 and is allocated to cash generating units.

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 than 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 of four to five 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 technically viable product, the related expenditure is separately 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 asset is available for use.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. 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 their 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 for 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 assets;

- 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.

-Technology

Technology represents the cost that would be incurred to build the entire Comapi platform had the acquisition not occurred. The useful life of this intangible asset is assessed to have a finite life of 10 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 asset is available for use.

-Customer relationships

This represents the value of high value customer contracts within Comapi. The useful life of this intangible asset is assessed to have a finite life of 9 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 asset is available for use.

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 is 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 assets' 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 than 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 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 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, 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 or 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 the 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 are 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.

Derecognition 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 cash flows 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 payable 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 risks 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 IFRS 3 'Business combinations'.

Other reserves relate to the charge for share-based payments in accordance with IFRS 2 '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 vest 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 is this currency the financial statements are presented in.

- Transaction and balances

Foreign currency transactions are translated into 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 provided to 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 data-driven omni--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.

(b) Valuation of intangibles

The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of assets acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements and estimates in relation to the fair value allocation of the purchase price. If any unallocated portion is positive it is recognised as goodwill and if negative, it is recognised in the consolidated income statement.

Judgement is required in determining the fair value of identifiable assets, liabilities and contingent assets and liabilities assumed in a business combination and the fair value of the consideration payable. Calculating the fair values involves the use of significant estimates and assumptions, including expectations about future cash flows, discount rates and the lives of assets following purchase.

Estimates and assumptions

(a) Estimated impairment 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 flow forecasts which have been discounted at 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 details 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 the assumptions, there was no indication of impairment to the 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 judgements and estimates that management apply in determination of the share-based compensation are summarised 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. The charge made to income statement for period is also disclosed here.

The Group depreciates short leasehold, fixtures 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 fixtures 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 take 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 Group's customers.

3. SEGMENTAL REPORTING

On the 21 November 2017, the Group completed the acquisition of Comapi whose line of business is the provision of omni-channel messaging and cloud communication. dotmailer's single line of business remains the provision of data-driven omni-channel marketing automation. The chief operating decision-maker considers the Group's segments to be by geographical location, this being UK, US and rest of the world ("RoW") operations and by business activity, this being dotmailer and Comapi as shown below:

Geographical revenue and results

	30.6.2018
	UK	US	RoW	Total
	£'000	£'000	£'000	£'000
Income statement
Revenue	33,471	5,257	4,366	43,094
Gross profit	25,412	4,578	4,030	34,020
Profit before income tax	5,180	1,877	2,186	9,243
Total comprehensive income attributable to the owners of the parent	4,640	1,732	2,186	8,558

Financial position
Total assets	45,136	2,183	942	48,261
Net current assets	15,260	1,804	672	17,736

Revenue from external customers is attributed to the geographical segments noted above based on the customers' location. There were no customers who account for more than 10% revenue (2017: none).

	30.6.2017
	UK	US	RoW	Total
	£'000	£'000	£'000	£'000
Income statement
Revenue	24,743	3,907	3,316	31,966
Gross profit	21,291	3,293	2,923	27,507
Profit before income tax	4,779	1,062	2,250	8,091
Total comprehensive income attributable to the owners of the parent	3,929	967	2,250	7,146

Financial position
Total assets	32,578	1,556	302	34,436
Net current assets	21,961	1,120	213	23,294

Business activity revenue and results

	30.6.2018
		Dotmailer	Comapi*	Total
		£'000	£'000	£'000
Income statement
Revenue		36,891	6,203	43,094
Gross profit		32,266	1,754	34,020
Profit before income tax		8,619	624	9,243
Total comprehensive income attributable to the owners of the parent		7,936	622	8,558

Financial position
Total assets		44,413	3,848	48,261
Net current assets/(liabilities)		17,944	(208)	17,736

	30.6.2017
		Dotmailer	Comapi*	Total
		£'000	£'000	£'000
Income statement
Revenue		31,966	-	31,966
Gross profit		27,507	-	27,507
Profit before income tax		8,091	-	8,091
Total comprehensive income attributable to the owners of the parent		7,146	-	7,146

Financial position
Total assets		34,436	-	34,436
Net current assets		23,294	-	23,294

*The numbers included within Comapi are from the date of acquisition being 21 November 2017.

4. EMPLOYEES AND DIRECTORS

			30.6.18	30.6.17
			£'000	£'000

		Wages and salaries	14,149	11,217
		Social security costs	1,562	1,146
		Other pension costs	291	252

			16,002	12,615

The average monthly number of employees during the year is as follows

			30.6.18	30.6.17

		Directors	5	6
		Sales and Marketing product	150	120
		Development and system engineers	71	56
		Administration	53	56

			279	238

	During the year the Group also capitalised staff-related costs of £4,023,222 (2017: £2,072,417) in relation to internally generated development costs.

5. EXCEPTIONAL COSTS
Exceptional costs incurred in the year relate to the one-off acquisition costs of Comapi of £208,805 (2017: £nil) and amortisation of acquired intangibles of £148,110 (2017: £nil).
6. NET FINANCE INCOME
			30.6.18	30.6.17
			£'000	£'000
		Finance income:
		Deposit account interest	9	15

			9	15

7. OPERATING PROFIT

Costs by nature
Profit from continuing operations has been arrived after charging/(crediting):-
		30.6.18		30.6.17
		£'000		£'000

Direct marketing			4,586		2,073
Outsourcing			2,121		186
Other costs			2,367		2,200

	Total cost of sales		9,074		4,459


			30.6.18		30.6.17
			£'000		£'000

Staff related costs (inc Directors emoluments) - note 4			16,002		12,615
Operating leases: Land and buildings			937		954
Operating lease: Other			38		43
Audit remuneration			49		40
Amortisation of intangibles			1,971		1,544
Depreciation charge			495		494
Legal, professional and consultancy fees			518		424
	Computer expenditure		2,161		1,809
Bad debts			22		8
Foreign exchange (gains)/losses			124		(21)
Travel and subsistence costs			501		425
Office running			152		158
Staff welfare			406		301
Other costs			603		475

Total administration costs			23,979		19,269

During the year the Group obtained the following services from the Group's auditor at costs detailed below:

	30.6.18		30.6.17
	£'000		£'000

Fees payable to the Company's auditor for the audit of Parent Company and consolidated financial statements		8		8
Fees payable to the Company's auditor for other services		37		28
- audit of Company subsidiaries
- non-audit fees: Tax and review of interim accounts		4		4

		49		40

8. INCOME TAX EXPENSE

Analysis of the tax charge from continuing operations:
	30.6.18		30.6.17
	£'000		£'000

Current tax on profits for the year		259		847
Deferred tax on origination and reversal of timing differences		426		98

		685		945



Factors affecting the tax charge:
		30.6.18		30.6.17
		£'000		£'000

Profit on ordinary activities before tax		9,243		8,091
Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 19% (2017: 19.75%)		1,756		1,598
Effects of:
Expenses not deductible		137		12
Research and development enhanced claim		(1,908)		(1,004)
Expenditure permitted on exercising options		(217)		(141)
Overseas tax losses		72		64
Capital allowances in excess of depreciation		419		318

Total income tax		259		847

Deferred tax was calculated using the rate 19% (2017: 19.75%). For further details on deferred tax see note 23.

Taxation for each region is calculated at the rates prevailing in the respective jurisdiction

A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020)

were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was

substantively enacted on 6 September 2016. This will reduce the Company's future current tax charge accordingly.

UK deferred tax assets and liabilities have been recognised at the rate applying in the period they are expected to

unwind.

9. PROFIT OF PARENT COMPANY

As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the parent Company is not presented as part of these financial statements. The parent Company's profit before exceptional items for the financial year was £5,055,276 (2017: loss: £390,345)

10. DIVIDENDS

Amounts recognised as distributions to equity holders in the period
	30.6.18		30.6.17
	£'000		£'000

Paid dividend for year end 30 June 2018 of 0.505p (2017: 0.857p) per share		1,505	2,449

Proposed dividend for the year end 30 June 2018 of 0.64p (2017: 0.55p) per share		1,907	1,629
The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

11. 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. Adjusted earnings per share is based on the consolidated profit deducting the acquisition related exceptional costs and share-based payment.

A number of non-IFRS adjusted profit measures are used in this annual report and financial statements. Adjusting items are excluded from our headline performance measures by virtue of their size and nature, in order to reflect management's view of the performance of the Group. Summarised below is a reconciliation between statutory results to adjusted results. The Group believes that alternative performance measures such as adjusted EBITDA are commonly reported by companies in the markets in which it competes and are widely used by investors in comparing performance on a consistent basis without regard to factors such as depreciation and amortisation, which can vary significantly depending upon accounting methods (particularly when acquisitions have occurred), or based on factors which do not reflect the underlying performance of the business. The adjusted profit after tax earnings measure is also used for the purpose of calculating adjusted earnings per share.

Reconciliations to earnings figures used in arriving at adjusted earnings per share are as follows:

	30.6.18	30.6.17
From continuing operations	£'000	£'000

Profit for the year attributable to the owners of the parent	8,558	7,146
Amortisation of acquisition related intangible fixed asset (see note 13)	148	-
Other exceptional costs	209	-
Share based payment	450	162
Adjusted profit for the year attributable to the owners of the parent	9,365	7,308

Management does not consider the above adjustments to reflect the underlying business performance.

The other exceptional costs relate to one-off acquisition costs of Comapi.

	30.6.18
			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		8,558	296,596,304	2.89

Adjusted Basic EPS
Adjusted profit for the year attributable to the owners of the parent		9,365	296,596,304	3.16

Options and warrants		-	3,728,052	-

Diluted EPS
Profit for the year attributable to the owners of the parent		8,558	300,324,356	2.85

Adjusted Diluted EPS
Adjusted profit for the year attributable to the owners of the parent		9,365	300,324,356	3.12

	30.6.17
			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		7,146	295,457,101	2.42

Adjusted Basic EPS
Adjusted profit for the year attributable to the owners of the parent		7,308	295,457,101	2.47

Options and Warrants		-	1,061,738	-

Diluted EPS
Profit for the year attributable to the owners of the parent		7,146	296,518,839	2.41

Adjusted Diluted EPS
Adjusted profit for the year attributable to the owners of the parent		7,308	296,518,839	2.46

Weighted average number of shares

	30.6.18	30.6.17
	Shares	Shares

Basic EPS	296,596,304	295,457,101

Diluted EPS	300,324,356	296,518,839

12. GOODWILL

Group
	30.6.18	30.6.17
COST	£'000	£'000
At 1 July	4,121	4,121
Additions	9,071	-
At 30 June	13,192	4,121

AMORTISATION
At 1 July	3,512	3,512
Impairment	-	-

At 30 June	3,512	3,512

NET BOOK VALUE	9,680	609

On 21 November 2017, the Group acquired all the voting rights of Comapi for a cash consideration of £10.7m (which includes the payment of loans in Comapi) in exchange for all Comapi shares, with a potential consideration of £1.2m in share options for the management team, dependent on them achieving specific performance targets over a 2-year post acquisition period and remaining with the business. Comapi's business is the provision of omni-channel messaging and cloud communication.

The Directors believe the acquisition will:

• Extend dotdigital's marketing automation platform to provide an industry leading solution offering fully integrated omni-channel and conversational commerce support to marketers,

• Enable dotdigital to deliver aligned conversational messaging across channels including email, mobile push, SMS, Facebook messenger, Apple business messenger, Twitter and live chat

• Enable dotdigital customers to meet consumer demand for a more personalised communication experience and

• Position dotdigital as the most advanced platform on the market and make dotdigital more relevant in the strategic mobile first Asian market.

Goodwill of £9.1m was recognised on the acquisition, being the excess of the purchase consideration over the provisional fair value of net assets acquired as set out below and represents Comapi's platform, key customer relationships, employee knowledge and skills and the acceleration of bringing the technology to our platform rather than building in-house.

Provisional Fair value of assets acquired

		£'000s
Net assets acquired
Identifiable intangible assets
Technology		1,205
Customer relationships		1,200
Deferred tax recognised on identifiable intangible assets
Technology		(228)
Customer relationships		(229)
Development costs		501
Property, plant and equipment		42
Trade and other receivables		1,156
Cash and cash equivalents		158
Trade and other payables		(2,497)
Tax payable		(643)
Net identifiable assets acquired		665
Goodwill		9,071
Total consideration		9,736

Purchase consideration		9,736
Cash acquired		(158)
Consideration net of cash acquired		9,578

The results of the acquired entity which have been consolidated in the income statement from 22 November 2017 contributed £6.2m of revenues and a profit of £0.6m to the profit attributable to equity shareholders of the Group during the year. Had Comapi been acquired at the start of the year, the contribution would have been £10.0m of revenue and a profit of £0.4m.

Goodwill is allocated to the Group's two cash generating units identified, that being dotmailer and Comapi. The goodwill addition in the year ended 30 June 2018 relates to the acquisition of Comapi and the goodwill at the beginning of the period relates to dotmailer.

Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated, at acquisition, to cash generating units (CGUs) that are expected to benefit from that business combination.

The carrying amount of goodwill relates to the Group's two trading activities and business segments. This has been tested for impairment during the current period by comparison with the recoverable amounts of the CGU. Recoverable amounts for CGUs are based on the higher of value in use and fair value less costs to sell. The recoverable amounts of the CGU have been determined from value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions for the value in use calculations are those regarding discount rates, growth rates, and expected changes in margins. Management estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the CGUs. Changes in income and expenditure are based on past experience and expectations of the future changes in the market. The pre-tax discount rate used to calculate the value in use is 10% (2017: 10%). The valuations indicate sufficient headroom such that a reasonably possible change in key assumptions would not result in impairment of goodwill.

13. INTANGIBLE ASSETS

Group

	Customer
	relationships	Technology
	£'000	£'000
COST
At 1 July 2017	-	-
Additions	-	-
Introduced on acquisition	1,205	1,200

At 30 June 2018	1,205	1,200

AMORTISATION
At 1 July 2017	-	-
Amortisation for the year	-	-
Introduced on acquisition	78	70

At 30 June 2018	78	70

NET BOOK VALUE At 30 June 2018	1,127	1,130

Group

	Computer	Internally generated development	Domain
	software	costs	names	Totals
	£'000	£'000	£'000	£'000
COST
At 1 July 2017	497	10,351	16	10,864
Additions	94	4,377	-	4,471
Introduced on acquisition	215	558	21	3,199

At 30 June 2018	806	15,286	37	18,534

AMORTISATION
At 1 July 2017	320	6,009	16	6,345
Amortisation for the year	76	1,891	4	1,971
Introduced on acquisition	215	57	11	431

At 30 June 2018	611	7,957	31	8,747

NET BOOK VALUE At 30 June 2018	195	7,329	6	9,787

	Computer	Internally generated development	Domain
	software	costs	names	Totals
	£'000	£'000	£'000	£'000
COST
At 1 July 2016	362	8,107	16	8,485
Additions	135	2,244	-	2,379

At 30 June 2017	497	10,351	16	10,864

AMORTISATION
At 1 July 2016	264	4,521	16	4,801
Amortisation for the year	56	1,488	-	1,544

At 30 June 2017	320	6,009	16	6,345

NET BOOK VALUE At 30 June 2017	177	4,342	-	4,519

Development cost additions represents resources the Group have invested in the development of new innovative and ground breaking technology products for marketing professionals. This platform allows them to create, send and automate marketing campaigns. Following development of the products the Group intends to licence the use of the platform.

Technology represents the cost that would be incurred to build the entire Comapi platform had the acquisition not occurred. Customer relationships represent the value of high value customer contracts within Comapi.

14. PROPERTY, PLANT AND EQUIPMENT

Group

	Short	Fixtures &	Computer
	leasehold	fittings	equipment	Totals
	£'000	£'000	£'000	£'000
COST
At 1 July 2017	499	534	1,393	2,426
Additions	46	88	341	475
Disposals	-	(28)	(18)	(46)
Introduced on acquisition	68	50	284	402
Exchange differences	(1)	(1)	-	(2)

At 30 June 2018	612	643	2,000	3,255

DEPRECIATION
At 1 July 2017	214	379	800	1.393
Depreciation for the year	62	91	342	495
Eliminated of disposal	-	(24)	(17)	(41)
Introduced on acquisition	64	34	264	362
Exchange differences	-	1	(1)	-

At 30 June 2018	340	481	1,388	2,209

NET BOOK VALUE
At 30 June 2018	272	162	612	1,046


	Short	Fixtures &	Computer
	leasehold	fittings	equipment	Totals
	£'000	£'000	£'000	£'000
COST
At 1 July 2016	444	448	1,760	2,652
Additions	55	86	234	375
Disposals	-	-	(601)	(601)

At 30 June 2017	499	534	1,393	2,426

DEPRECIATION
At 1 July 2016	147	293	1,070	1,510
Depreciation for the year	67	86	341	494
Eliminated on disposal	-	-	(611)	(611)

At 30 June 2017	214	379	800	1,393

NET BOOK VALUE
At 30 June 2017	285	155	593	1,033

15. INVESTMENTS

Company

	Shares in	Shares in
	Group	Group
	undertakings	undertakings
	30.6.18	30.6.17
COST	£'000	£'000

At 1 July 2017 Additions	8,706 9,737	8,705 1
At 30 June 2018	18,443	8,706

AMORTISATION
At 1 July 2017 and 30 June 2018	3,519	3,519

NET BOOK VALUE
At 30 June 2018	14,924	5,187

The Group's or the Company's investments at the balance sheet date in the share capital of companies include the following:

Subsidiaries	Nature of business	Class of share	Proportion of
			voting power
			held %
dotmailer Limited	Web and email-based	Ordinary	100
	marketing	Ordinary A	100
dotsurvey Limited	Dormant	Ordinary	100
dotsearch Europe Limited	Branch company	Ordinary	100
dotcommerce Limited	Dormant	Ordinary	100
doteditor Limited	Dormant	Ordinary	100
dotSEO Limited	Dormant	Ordinary	100
dotagency Limited	Dormant	Ordinary	100
dotmailer Inc	Web and email-based	Ordinary	100
	marketing
dotmailer Pty Limited	Web and email-based	Ordinary	100
	marketing
dotmailer Development Ltd	Holding company	Ordinary	100
dotmailer SA Pty	Development hub	Ordinary	100
dotmailer LLC	Development hub	Ordinary	100
Dynmark International Ltd	Omni-channel communication platform	Ordinary	100
Dynmark S.p z.o.o	Omni-channel communication platform	Ordinary	100
Donky Networks Ltd	Omni-channel communication platform	Ordinary	100

All of the above subsidiaries have been included within the consolidated results. All the above companies with the exception of dotmailer Inc, dotmailer SA Pty, dotmailer LLC, dotmailer Pty Limited and Dynmark S.p. z.o.o were incorporated in England and Wales. dotmailer Inc was incorporated in Delaware (US), dotmailer Pty Limited was incorporated in New South Wales (Australia), dotmailer SA Pty was incorporated in South Africa, dotmailer LLC was incorporated in the Republic of Belarus and Dynmark S.p. z.o.o. was incorporated in Poland.

16. TRADE AND OTHER RECEIVABLES

	Group		Company
	30.6.18	30.6.17	30.6.18	30.6.17
	£'000	£'000	£'000	£'000
Current:
Trade receivables	8,677	6,425	-	-
Less: Provision for impairment of trade receivables	(403)	(502)	-	-

Trade receivables - net	8,274	5,923	-	-
Other receivables	151	111	-	-
Amounts owed by Group undertakings	-	-	966	4,609
VAT	-	-	12	14
Tax receivable	312	-	-	-
Prepayments and accrued income	4,216	1,813	127	10

	12,953	7,847	1,105	4,633

Further details on the above can be found in note 22.

Included within prepayments is an amount of £852,504 (2017: £621,065) in relation to deferred commission which is considered to be long term.

17. CASH AND CASH EQUIVALENTS

	Group		Company
	30.6.18	30.6.17	30.6.18	30.6.17
	£'000	£'000	£'000	£'000

Bank accounts	15,005	20,428	646	591

	15,005	20,428	646	591

Further details on the above can be found in note 22.

18. CALLED UP SHARE CAPITAL

Allotted, issued, fully paid	Nominal	30.6.18	30.6.17
number	value	£'000	£'000

298,030,565 (2017: 296,238,485)	£0.005	1,490	1,481

		1,490	1,481

During the reporting period the Company undertook the following transactions involving the issuing and reclassifying of issued share capital:

On 28 November 2017 a number of employees exercised their share options increasing the issued share capital by 250,000 shares at a premium price of 95.5p.

On 11 May 2018 a number of employees exercised their share options increasing the issued share capital by 1,542,080 shares at a premium price of 91.5p.

19. RESERVES

Group

	Retained	Share	Reverse acquisition
	earnings	premium	reserve
	£'000	£'000	£'000

As at 1 July 2017	25,306	6,290	(4,695)

Issue of share capital	-	501	-
Dividends	(1,627)	-	-
Profit for the year	8,558	-	-
Transfer of reserves	94	-	-
Other comprehensive income: Currency translation	-	-	-
Share-based payment	-	-	-

Balance as at 30 June 2018	32,331	6,791	(4,695)

19.		RESERVES - continued
			Retranslation	Other
			Reserve	reserves	Totals
			£'000	£'000	£'000

	As at 1 July 2017		(46)	305	27,160

	Issue of share capital		-	-	501
	Dividends		-	-	(1,627)
	Profit for the year		-	-	8,558
	Transfer of reserves		-	(94)	-
	Other comprehensive income: Currency translation		20	-	20
	Share-based payment		-	450	450

	Balance as at 30 June 2018		(26)	661	35,062

Group

	Retained		Share		Reverse acquisition
		earnings		premium		reserve
		£'000		£'000		£'000

As at 1 July 2016		20,611		6,138		(4,695)

Issue of share capital		-		152		-
Dividends		(2,479)		-		-
Profit for the year		7,146		-		-
Transfer in reserves		28
Currency translation		-		-		-
Share-based payment		-		-		-

Balance as at 30 June 2017		25,306		6,290		(4,695)

	Retranslation	Other
	reserve	reserves	Totals
	£'000	£'000	£'000

As at 1 July 2016	8	174	22,236

Issue of share capital	-	(3)	149
Dividends	-	-	(2,479)
Profit for the year	-	-	7,146
Transfer in reserves		(28)	-
Currency translation	(54)	-	(54)
Share-based payment	-	162	162

Balance as at 30 June 2017	(46)	305	27,160

19.	RESERVES - continued

Company
	Retained	Share	Other
	earnings	premium	Reserves	Totals
	£'000	£'000	£'000	£'000

At 1 July 2017	2,239	6,290	305	8,834

Issue of share capital	-	501	-	501
Dividends	(1,627)	-	-	(1,627)
Profit for the year	5,055	-	-	5,055
Transfer of reserves	94	-	(94)	-
Share-based payment	-	-	450	450

At 30 June 2018	5,761	6,791	661	13,213


Company
	Retained	Share	Other
	earnings	premium	Reserves	Totals
	£'000	£'000	£'000	£'000

At 1 July 2016	5,080	6,138	174	11,392

Issue of share capital	-	152	(3)	149
Dividends	(2,479)	-	-	(2,479)
Loss for the year	(390)	-	-	(390)
Transfer in reserves	28	-	(28)	-
Share-based payment	-	-	162	162

At 30 June 2017	2,239	6,290	305	8,834

20. TRADE AND OTHER PAYABLES

	Group		Company
	30.6.18	30.6.17	30.6.18	30.6.17
	£'000	£'000	£'000	£'000
Current:
Trade payables	6,184	1,194	15	52
Amounts owed to Group undertakings	-	-	1,913	-
Social security and other taxes	480	415	-	-
Other payables	60	32	-	-
VAT	989	830	-	-
Accruals and deferred income	2,504	1,969	44	44

	10,217	4,440	1,972	96

Further details on liquidity and interest rate risk can be found in note 22.

21. LEASING AGREEMENTS

Minimum lease payments under non-cancellable operating leases fall due as follows:

	30.6.18
	Land &
	Buildings	Others	Totals
	£'000	£'000	£'000

Within one year	1,094	45	1,139
Between two to five years	1,310	55	1,365

	2,404	100	2,504

	30.6.17
	Land &
	Buildings	Others	Totals
	£'000	£'000	£'000

Within one year	591	27	618
Between two to five years	3,024	7	3,031

	3,615	34	3,649

Operating leases represent rents payable by the Group for its office properties and car leases. Leases are negotiated for an average term of five years and rentals are fixed on an average of two years with the option to extend for a further five years at the prevailing market rate at the time.

22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Group's activities expose it to a number of financial risks that include credit risk, liquidity risk, currency risk and interest rate risk. These risks and the Group's policies for managing them have been applied consistently during the year and are set out below.

The Group holds no financial or other non-financial instruments other than those utilised in the working operations of the Group and that are listed in this note. It's the Group's policy not to trade in derivative contracts.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument rate risk arises, are as follows:

-Trade receivables

-Cash and cash equivalents

-Trade and other payables

22. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT - continued

Financial instruments by category

The following table sets out the financial instruments as at the reporting date:

	Group		Company
	30.6.18	30.6.17	30.6.18	30.6.17
	£'000	£'000	£'000	£'000
Financial assets
Trade and other receivables	12,953	7,847	139	24
Bank balances	15,005	20,428	646	591

	27,958	28,275	785	615

Financial liabilities
Trade payables	6,184	1,194	15	52
Amounts owed to group undertakings	-	-	1,913	-
Accrued liabilities and other payables	4,033	3,246	44	44

	10,217	4,440	1,972	96

The fair value of the financial assets and financial liabilities is equal to their carrying values. All financial assets are categorised as loans and receivables and all financial liabilities are categorised as financial liabilities at amortised costs.

General objectives, policies and processes

The Board has overall responsibility for the determination of the Group's risk management objectives and policies and whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's risk committee. The Board receives quarterly reports from the Risk Committee through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company's competitiveness and flexibility. Further details regarding these policies are set out below:

Interest rate risk

The Group's interest rate risk arises from interest-bearing assets and liabilities. The Group has in place a policy of maximising finance income by ensuring that cash balances earn a market rate of interest offsetting where possible cash balances, and by forecasting and financing its working capital requirements. As at the reporting date the Group was not exposed to any movement in interest rates as it has no external borrowings and therefore is not exposed to interest rate risk. No sensitivity analysis has been prepared.

The Group's working capital requirements are managed through regular monitoring of the overall cash position and regularly updated cash flow forecasts to ensure there are sufficient funds available for its operations.

Liquidity risk

The Group's working capital requirements are managed through regular monitoring of the overall position and regularly updated cash flow forecasts to ensure there are funds available for its operations. Management forecasts indicate no new borrowing facilities will be required in the upcoming financial period.

Trade and other payables of £7,233,000 (2017: £2,056,000) are expected to mature in less than a year.

Credit risk

Credit risk arises principally from the Group's trade receivables, as there are no trade receivables within the Company, which comprise amounts due from customers. Prior to accepting new customers a credit check is obtained. As at 30 June 2018 there were no significant debts past their due period which had not been provided for. The maturity of the Group's trade receivables is as follows:

	30.6.18	30.6.17
	£'000	£'000

0-30 days	6,172	4,845
30-60 days	720	67
More than 60 days	1,785	1,513

	8,677	6,425

The maturity of the Group's provision for impairment is as follows:

	30.6.18	30.6.17
	£'000	£'000

0-30 days	-	8
30-60 days	-	8
More than 60 days	403	486

	403	502

The movement in the provision for the impairment is as follows:

	30.06.18	30.6.17
	£'000	£'000

As at 1 July	502	824

Provision for impairment	40	82
Receivable written off in the year	(72)	(65)
Unused amount reversed	(67)	(339)

As at 30 June	403	502

The Group minimises its credit risk by profiling all new customers and monitoring existing customers of the Group for changes in their initial profile. The level of trade receivables older than the average collection period consisted of a value of £2,041,922 (2017: £1,581,391) of which £402,985 (2017: £460,837) was provided for. The Group felt that the remainder would be collected post year end as they were with long-standing relationships, and the risk of default is considered to be low and write-offs due to bad debts are extremely low. The Group has no significant concentration of credit risk, with the exposure spread over a large number of customers.

The credit risk on liquid funds is low as the counterparts are banks with high credit ratings assigned by international credit rating bodies. The majority of the Company's cash holdings are held at NatWest Bank which has a BBB+ credit rating.

The carrying value of both financial assets and liabilities approximates to fair value.

Capital policy

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide optimal returns for shareholders and to maintain an efficient capital structure to reduce the cost of capital.

In doing so the Group's strategy is to maintain a capital structure commensurate with a strong credit rating and to retain appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this, the Group monitors key credit metrics, risk and fixed charge cover to maintain this position. In addition the Group ensures a combination of appropriate short term and long-term liquidity headroom.

During the year the Group had a short-term loan balance of £nil (2017: £nil) and amounts payable over one year are nil (2017: £nil). The Group had a strong cash reserve to utilise for any short-term capital requirements that were needed by the Group.

The Group has continued to look for a further long-term investments or acquisitions and therefore, to maintain or re-align the capital structure, the Group may adjust when dividends are paid to shareholders, return capital to shareholders, issue new shares or borrow from lenders.

23. DEFERRED TAX

	30.6.18	30.6.17
	£'000	£'000

As at 1 July	814	716
Current year provision	426	98
Provision on recognition of intangibles on acquisition	457	-

	1,697	814

The deferred tax liability above comprises the following temporary differences:

	30.6.18	30.6.17
	£'000	£'000

Capital allowances in excess of depreciation	607	113
R&D relief in excess of amortisation	1,204	858
Share option relief	(114)	(157)

	1,697	814

Deferred tax provision relates to taxes to be levied by the same authority on the same entity expected to be settled at the same time. As such deferred tax assets and liabilities have been offset.

24. CAPITAL COMMITMENTS

The Company and Group have no capital commitments as at the year end.

25. RELATED PARTY DISCLOSURES

Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Group

The following transactions were carried out with related parties

			30.6.18	30.6.17
			£'000	£'000
Sale of services
Cadence Performance	Entity under common directorship	Email marketing services	2	2
Cloudcall Group Plc	Entity under common directorship	Email marketing services	16	-

			18	2

Year end balances arising from sale of services
Cloudcall Group Plc	Entity under common directorship	Email marketing services	16	-

			16	-

Directors

	30.6.18	30.6.17
	£'000	£'000

Aggregate emoluments	701	558
Ex-gratia payment	40	-
Company contributions to money purchase pension scheme	26	50
Share-based payments from the LTIP options granted	145	123

	912	731

Directors' pay summary does not include Non-Executive Directors.

Information in relation to the highest paid Director is as follows:

	30.6.18	30.6.17
	£'000	£'000

Salaries	395	372
Other benefits	12	10
Pension costs	13	25
Share-based payments on the LTIP options granted	145	-

	565	407

Company

The following transactions were carried out with related parties

			30.06.18	30.06.17
			£'000	£'000
Year end balances arising from sales/purchase of services

dotmailer Limited	Subsidiary	Payables	(5,350)	(5,338)

			(5,350)	(5,338)

The receivables and payables are unrestricted in nature and bear no interest. No provisions are held against receivables from related parties.

Loans to/from related parties

		30.6.18	30.6.17
		£'000	£'000
dotmailer Limited	Subsidiary
As at 1 July		9,950	12,417
Loans advanced		97	40
Loans repaid		(12,606)	(2,507)

		(2,559)	9,950

26. ULTIMATE CONTROLLING PARTY

There is no ultimate controlling party of the Group. dotdigital Group PLC acts as the parent Company to dotmailer Limited, dotsearch Europe Limited, dotmailer Inc, dotmailer Pty Limited, dotagency Limited (Dormant), dotsurvey Limited (Dormant), dotSEO Limited (Dormant), dotcommerce Limited (Dormant), doteditor Limited (Dormant), dotmailer Developments Limited, dotmailer SA Pty, dotmailer LLC, Dynmark International Ltd, Dynmark S.p. z.o.o. and Donky Networks Ltd.

27. SHARE-BASED PAYMENT TRANSACTIONS

The measurement requirements of IFRS 2 have been implemented in respect of share options that were granted after 7 November 2002. The expense recognised for share-based payment made during the year is £450,000 (2017: £162,000).

Vesting conditions of the options dictate that employees must remain in the employment of the Group for the whole period to qualify.

Movement in issued share options during the year

The table illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the period. The options outstanding at 30 June 2018 had a WAEP of 9.43p (2017: 33.35p) and a weighted average contracted life of 4.16 years (2017: 2.67 years) and their exercise prices ranged from 0.5p to 68.50p. All share options are settled in form of equity issued.

	30.06.18		30.6.17
	No of options	WAEP	No of options	WAEP

Outstanding at the beginning of the period	2,540,145	33.35p	4,104,029	26.69p
Granted during the year	2,984,197	0.5p	230,985	68.50p
Forfeited/cancelled during the period	-	0p	706,460	35.30p
Exchanged for shares	1,792,080	28.46p	1,088,409	694.91p
Outstanding at the end of the period	3,732,262	9.43p	2,540,145	33.35p
Exercisable at the end of the period	517,080	34.57p	500,000	15.63p

The weighted average share price at the date of the exercise for share options exercised during the period was 28.46p (2017: 694.91p).

June

2017

25 November

2015

28 November 2014

18 October 2013

Number of options granted

230,985

809,160

1,525,000

3,554,794

Share price at grant date

68.50p

40.50p

29.00p

17.82p

Exercise price

68.50p

40.25p

28.50p

18.25p

Option life in years

5 years

Risk free rate

1.33%

1.35%

1.40%

Expected volatility

30%

Expected dividend yield

0.4%

Fair value of

12.04p

6.46p

5.33p

3.31p

options/warrants

19 December 2017

21 November 2017

Number of options granted

1,375,000

1,609,197

Share price at grant date

85.95p

78.30p

Exercise price

0.50p

Option life in years

5 years

Risk free rate

1.33%

Expected volatility

30%

Expected dividend yield

Fair value of

81p

74p

options/warrants

Expected volatility was determined by calculating the historical volatility of the Group's share price from the date it listed to the grant date of the share option. The expected life used in the model is based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The share options granted on the 21 November 2017 were in respect of the acquisition of Comapi to the management team for retention and performance post acquisition.

The share options granted on 19 December 2017 were following the approval of the LTIP scheme at the AGM on 19 December 2017 and the end-to-end awards that were granted to the Chief Executive Officer.

28.	GROUP RECONCILIATION OF PROFIT BEFORE CORPORATION TAX TO CASH GENERATED FROM OPERATIONS

	Group		Company
	30.6.18	30.6.17	30.6.18	30.6.17
	£'000	£'000	£'000	£'000
Current:
Profit before tax from all operations	9,243	8,091	5,055	(390)
Currency revaluation	20	(54)	-	-
Depreciation	2,614	2,038	-	-
Gain/(loss) on disposal of fixed assets	2	(58)	-	-
Share-based payments	450	162	450	162
Finance income	(9)	(15)	-	-

	12,320	10,164	5,505	(228)

(Increase)/decrease in trade receivables	(4,794)	(1,641)	3,528	2,469
Increase/(decrease) in trade payables	5,603	290	1,876	33

Cash generated from operations	13,129	8,813	10,909	2,274

29. GROUP CASH AND CASH EQUIVALENTS

The amounts disclosed in the statement of cash flow in respect of cash and cash equivalents are in respect of these statements of financial position amounts:

	Group	Company
	£'000	£'000

As at 1 July 2016	17,313	639

As at 30 June 2017	20,428	591

As at 30 June 2018	15,005	646

30. PROJECT DEVELOPMENT

During the period the Group incurred £4,376,645 (2017: £2,243,687) in development investments. All resources utilised in development have been capitalised as outlined in the accounting policy governing this area.

31. POST BALANCE SHEET EVENTS

There are no post balance sheet events which impact the Group's financial statements.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

FR EAPESFDKPFFF

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DotDigital Group (DOTD)

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