dotDigital Group Regulatory News (DOTD)

9 October 2012

Analyst meeting today: 9.30am start - At the offices of Charles Stanley, 131 Finsbury Pavement, EC2

dotDigital Group Plc

("dotDigital" or the "Company")

Final Results for the year ended 30 June 2012

dotDigital Group Plc (AIM:DOTD), the leading provider of intuitive Software as a Service ("SaaS") and managed services to digital marketing professionals, is pleased to announce Final Results for the year ended 30 June 2012. 

2012 Highlights

·; Turnover & Profits ahead of market expectations:

o Turnover up 34% to £12m (2011: £9.0m)

·; Profit before tax and exceptional items increased 25% to £2.9 (2011: £2.3m)

·; Continued strong cash generation with cash balances of £4m at year end

·; Continued investment in upgrading the IT hosting infrastructure and further significant product development

·; dotMailer continues to be a significant source of revenue growth in the year with 1,813 new clients being added including an increased number "corporate" client wins

·; dotSurvey the new online survey tool only launched in May now has over 500 paying clients and nearly 2,500 trial users

·; Early results from international expansion are encouraging

·; Strengthening of the operational management team

·; Announced today: New Non-Executive Board appointment (See separate announcement)

Peter Simmonds, Chief Executive, commented: 

"Overall the Board is delighted with the progress made against plans during the year which reflect our continued focus on strong organic growth through new client acquisitions and investment in new products and services.

Our three key strategic goals for 2012/13 are to:

·; Further enhance the dotMailer platform to ensure it is capable of competing on the world stage as a leading self-service multi-channel marketing automation toolkit for mid-size and larger companies.

·; Increase the overall proportion of recurring revenues in the business and specifically to increase the level of longer term contracted revenues across the dotMailer user base.

·; Expand our global footprint through strategic partnerships and opening of sales offices in selected international locations.

Having carefully examined various acquisition opportunities in the year the board are firmly of the view that an organic growth strategy which focusses on building long term recurring contracted revenue will deliver more certainty over growth in long term shareholder value. Whilst services remain an important part of our overall client offering our main strategic focus will be on growing our revenues from SaaS products.

We anticipate the impact in the short term will be some increased sales and marketing costs ahead of the annuity revenue streams that will be delivered from international expansion and an impact on revenue due to pricing that encourages both new and existing clients to commit to longer term contracts.

Although we anticipate continued healthy top line growth, we anticipate that these planned changes will result in a very modest reduction in the growth of 2012/13 revenue compared to market expectations. Forecast pre-tax profits in 2012/13 are expected to be impacted as we invest further in sales and marketing to enable international growth and growth from our self service product propositions. We still expect very healthy growth in the SaaS revenues and the board is confident that both revenues and profits for the 2013/14 financial year will benefit from our strategy and return to levels above current expectations.

As with any fast growing business we have to steer a course that strikes the right balance between short term profits and long term growth. We believe that the strategy outlined above represents a sound course for the coming year.

 I would like to take the opportunity to thank our staff for their tremendous commitment and performance over the past year."

The Annual Report of dotDigital Group Plc for the year ended 30 June 2012 is available on the Group's website at http://www.dotdigitalgroup.com/annual-report2012/ or upon request from the Company Secretary.

Chairman's Statement

Dear Shareholder

I am pleased to report that despite the general economic climate dotDigital has increased sales and profitability before exceptionals in the past year. This continued strong performance is a testament to the quality of the Company's business model with a strong emphasis on recurring revenue, cash generation and cost management.

I recognise that an effective board is central to the long-term sustainable success of the Company. We have worked hard to cultivate a strong team spirit through the on-going review of the role and effectiveness of the Board combined with regular strategy reviews.

One of our non-Executive Directors, Nicholas Nelson, left the Board on 5th January 2012 and I would like to thank Nicholas for his valuable contribution to the business. It is my intention to appoint another non-Executive Director in the coming financial year.

Since joining the Company I have got to know many of our employees and have been repeatedly impressed by their enthusiasm, professionalism and dedication at every level of the organisation. On behalf of all our stakeholders, I thank our employees for their hard working contribution to another successful year.

I would also like to thank the Executive Management team for their continued commitment, hard work and passion in developing the business.

We are firmly committed to organic growth and we see a number of areas where we can develop our business. In the coming year we plan to increase our focus on geographic expansion, with particular emphasis on building our client list of larger businesses, by satisfying their demand for effective marketing automation solutions. We will continue to assess acquisition opportunities but only act when the Board believes acquisition represents excellent value.

We continue to innovate and develop products that stand out from the competition and the change in strategic focus on selling to larger enterprise organisations is starting to show excellent results.

Looking at the wider global situation, we see our market moving towards providing multi-channel marketing automation solutions and we believe our platform is well-positioned to compete in this space.

To conclude: as you will read in this Annual Report, dotDigital is in very good shape and continues to make great progress in delivering value to its shareholders and other stakeholders. The drivers of the business remain firmly in place. Despite current economic uncertainties, I am confident that we will continue to benefit in the years ahead from continued investment in our technology, our emphasis on the quality of our people and effective management of our costs.

Frank Beechinor

Chairman

Chief Executives Report

Financial Overview

The Group has enjoyed another year of profitable growth with the final outcome for revenue and profits slightly ahead of analysts' expectations.

Turnover increased from £9m to £12m, a growth of 34% in the year and profit before tax and exceptional items grew from £2.3m to £2.9m growth of 25%.

Overall the Board is delighted with the progress made against plans during the year, which reflect our continued focus on strong organic growth through new client acquisitions and investment in new products and services.

We have again focused on growing recurring revenues and profitability, while continuing to invest in people and product development to maintain future earnings. The total investment in hardware during the year was £0.3m and £1.1m in product research and development.

Cash Position

We continue to be strongly cash generative with cash from operations growing in the year and cash balances at the year-end reaching £4m. Other than small operating leases there is no debt finance.

We have continued to invest in the future of the business with significant investment in upgrading the IT infrastructure and further significant product development.

Growth Strategy

By business unit, the growth has been as follows:

·; SaaS Email Marketing Revenues & Email Managed Service from £6.9m to £9.5m - up 38%.

·; Services & Search from £2.1m to £2.5m - up 19%.

Digital Landscape

Current research shows that companies are continuing to shift money from traditional marketing to internet marketing for its effectiveness and ability to attribute results to specific activity, demonstrating improved ROI.

The significant increase in time being spent consuming online media has had a direct impact on marketing spend. A 6% drop in time spent consuming print media has seen a 29% drop in advertising spend, where as internet has a significant 16% growth in time spent consuming media with an ad spend growth of 22%.

We believe, it is the email's value within the context of broader personalised marketing programs that is bringing new value to the channel. Although unverified, sources estimate 2.9 billion email accounts and over 100 billion subscribed email messages are being sent daily. Email's reach is unmatched despite the rapid adoption of alternative channels for engaging consumers online. Despite the attention and reports surrounding social media marginalizing email, it remains the most logical centre for any multi-channel marketing platform.

As this trend persists the Board will continue to work with UK and international partners to identify and evaluate emerging opportunities for SaaS technology products across email and cross-channel online marketing to inform its product roadmap.

dotMailer

Email marketing continues to perform extremely strongly both in terms of new clients and recurring revenues from existing clients, with dotMailer's monthly recurring revenue now accounting for over 60% of total revenue across the Company, which equates to approximately 38% growth year-on-year. The Group's total recurring revenue from all products and services, now accounts for 67% of total revenue.

New customer signups for dotMailer have continued to be a significant source of revenue growth in the year, with 1,813 new clients being added. Of particular note during 2011/12, is that enhancements to the dotMailer platform and changes to the structure of the sales team have significantly increased client wins in the 'corporate' segment. Our portfolio of blue chip clients now includes names such as DHL, Nationwide, BBC Worldwide, Capita, AstraZeneca, Esso, Ryman, Tarmac, Nicole Farhi, Nicky Clarke, EDF Energy, Virgin Train and Betfair.

Based on historic experience the lifetime value of a corporate client should be in excess of £40k compared to an average lifetime value of £4k for a SME client.

The combination of flexible pricing options, ease-of-use and advanced marketing features enables us to win clients from SME's to global corporates. Moving forward we see growth opportunities in the mid - large company requiring a self service provider - a niche where we believe dotMailer can dominate.

dotSurvey

dotSurvey our new online survey tool was launched from beta at the beginning of May and although only marketed initially to existing clients has now over 500 paying clients and nearly 2,500 trial users. The Board recognises the enormous potential of this division as can be demonstrated by growth in the sector. Although marketing spend is crucial to the strategy of scaling this business, the Board believes the quality of the product will soon develop a brand to equal others in the market.

Services - Agency and Search

The Agency Services and Search division, which accounts for just under 20% of total revenue, grew revenues in the year by 19%.

We have appointed a new management team to head the combined Search and Agency team and strengthened the team in both search marketing and agency services.

While the growth in the Search division was behind management's expectations, we believe the organisational changes which have been made to this business during the second half of the year will enable us to deliver performance in line with revised plans during 2012/13.

Early signs are that these changes are being rewarded with some significantly higher-value client wins.

As a result of algorithm changes made by the major search engine during this period we have modified some of the search marketing methodologies, targeted different client profiles and recruited a new Head of Search Strategy. During June the Sywell office was closed and operations were transferred to the London office to improve knowledge sharing and fully integrate teams. Following the move of the Search Marketing team to London we have merged the Agency

Services and Search Marketing team and created an operational management Board to run this business unit.

The final deferred consideration for the purchase of the search marketing business, dotSearch (previously Netcallidus), was made in November 2011. The accounts contain further non-cash IFRS3 based accounting adjustments in the final accounts to unwind the impact of contingent consideration that was estimated on the acquisition in May 2009 but that was not paid to the vendors.

Investment in Hardware and Product R&D

Over the year, the Company, invested over £250k in new hardware for the technical infrastructure which supports its products, and in September 2012 moved to new offices to provide capacity for further growth.

The primary purpose of this investment was to provide greater capacity and scalability across all products, thereby ensuring that the Company can service its clients effectively, while continuing to

grow the business. The hardware architecture has been configured with this future growth in mind, in that the layers upgraded can now be scaled out at a relatively low capital cost as the business requires it. The hardware acquired, is also the first phase of a larger technical implementation which will allow the Company to release several new major product features in the coming years. There was an immediate additional benefit; as well as providing the platform for future growth, many existing workloads are now processed faster, providing direct performance benefits to customers.

Significant development work on the dotMailer platform has been completed in the year, including integration with several major CRM products (including Dynamics and Salesforce), integration with the eBay X-Commerce fabric, translation of the user interface into eight languages and development of a new visual drag and drop email template editor. Each of these initiatives endorses our development spend and demonstrates that we are proactive in extending our offering to clients which boosts our capacity to increase client wins and grow revenues.

People

As part of the Board's strategy to position the business for further sustained growth, there has been a considerable investment in people during the year, with a key focus on adding experience and depth to the senior management of the business.

The appointment of Frank Beechinor-Collins as Chairman and Richard Kellett-Clarke FCA as senior independent Director in Spring 2011 has significantly strengthened the experience and working of the Board during the year.

Both Richard and Frank bring CEO-level experience of running an AIM business in related sectors. Richard has been appointed chair of the remuneration committee and audit committee during the year. It is the intention of the Directors to add a further non-Executive Director during 2012/13, subject to identifying a candidate with the requisite experience, skills and industry knowledge.

In 2011, the Board had identified a number of key business areas where additional skills and experience would be an essential element of delivering on the growth strategy. New key hires have been made in the following areas:

With ambitious growth plans for the future, the Board believes that hiring the best people and providing a culture where all staff are engaged in the business, is vital to the continued success, albeit this will have a short impact on cost/income ratios.

As part of the strategy to ensure the business has the talent and culture to maintain growth the Board took the decision to enter the 'Sunday Times 100 Best Companies to Work For' competition.

Although we were just outside the Top 100 this year, we were delighted to receive a star rating and a good understanding of areas for improvement in coming years. As part of the maturing of the business, the Board have committed to further investment in training, development and mentoring with the aim of attracting and retaining the best people.

During the year, the Company significantly enhanced the training and development programmes available and has provided all employees with access to bespoke key skills training, as well as continuing specific niche skills development across industry and professional skills development. The Group has seen a greater percentage of employees than ever before studying towards and achieving professional qualifications, equipping themselves and the business with specialist expertise.

The Board's commitment to an open and honest working environment continues with clear communication of business progress through weekly Company meetings; including an anonymous 'Ask the Board' questions slot, regular newsletters, and lunches for new and existing employees with the Board.

The Board strives to offer a competitive benefits package in order to attract and retain the best talent, including share option schemes and bonuses based on Company and individuals' performances. Total reward statements are now available to all employees to provide complete visibility into the total value of salaries, benefits and rewards earned through the year.

I would like to take this opportunity to thank all our staff for their tremendous commitment and performance over the past year.

Outlook for the Year Ahead

During 2012/13 we anticipate that changes to the dotMailer platform and the reorganisation within the sales and client services teams will further improve sales in the corporate sector. Recent client wins in this sector suggest that ease-of-use combined with powerful features, effective integrations and marketing automation is providing a good ratio of client wins from pitches attended. The recent addition of multiple language user interface options together with, a soon to be launched, social broadcast capability are also expected to help open opportunities with global organisations.

Early results from our international expansion are encouraging and we expect to build the international sales team progressively during 2012/13 where we see growth opportunities.

Initial feedback on the newly launched dotSurvey has been extremely positive and in quarter one of the new financial year we plan to run trial marketing campaigns to establish the customer acquisition costs of various digital marketing channels. Based on the results of this trial, the Board will agree a plan for significant focused marketing of this product both in the UK and globally.

During the year, we evaluated a number of potential acquisition opportunities of email marketing businesses. However, given that we would effectively be acquiring clients, and not the brand, the software platform or the management, in the opinion of the Directors none of the businesses evaluated were judged to be value enhancing when predicted future revenues and profits were compared to asking prices.

Although, we will continue to proactively seek and evaluate acquisitions, our strategy will focus upon successful organic growth and as a business we need to invest in cost-effective marketing to ensure the growth is maintained. With a product like the new online survey tool, the income is annuity-based and one of the key decisions required will be to determine the level of upfront marketing investment to generate future annuity income streams.

To maintain our record of strong organic growth we will continue to focus on product innovation, understanding our clients' requirements and delivering return on investment for our clients. We will also continue to selectively expand our international activities.

The Future

The product roadmap for the business will be based around the vision of a SaaS (cloud) based digital marketing automation platform, built to enable marketers to define prospect and client engagement communications in a highly visual way, to define triggered messages via multiple channels, where the content delivered is segmented, timely and relevant to the recipient, eg. the platform will deliver triggered messages for events such as shopping cart abandonment or web page bounce automatically and in real time.

Our passion for ease of use and visual tools for non-technical users will enable the design, creation, and execution of campaign workflows across every digital channel while enabling the use of marketing best practices and management controls.

Peter Simmonds

Chief Executive and Chief Financial Officer

DOTDIGITAL GROUP PLC

ABBREVIATED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

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

ACCOUNTING POLICIES

Basis of Preparation

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

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

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

New and Amended Standards Adopted by the Company

There are no IFRSs or IFRIC interpretations that are effective for the first time in this financial period that would be expected to have a material impact on the Group.

Standards, Interpretations and Amendments to Published Standards that are not yet Effective

There are no other IFRSs or IFRIC interpretation that are not yet effective that would be expected to have a material impact on the group.

Basis of Consolidation

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

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

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

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

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

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

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

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

• The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less 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 who's 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. Inter Company transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation.

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

Revenue Recognition

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

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

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

Goodwill

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

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

Intangible Assets

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

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

• Domain Names

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

• Software

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

• Product Development

Product development expenditure is capitalised when it is considered that there is a commercially and viable technically product, the related expenditure is separable identifiable and there is a reasonable expectation that the related expenditure will be exceeded by future revenues. Following initial recognition, product developments are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of these intangible assets are assessed to have a finite life of five years.

Amortisation is charged on assets with finite lives, this expense is taken to the income statement and useful lives are reviewed on an annual basis. Amortisation is provided at the following annual rates' commencing from the date the asset is developed to a stage at which the Company can receive economic benefits from the asset.

Property, Plant and Equipment

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

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

The asset's residual values and useful economic lives are reviewed and adjusted, if appropriate, at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater 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. When devalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

Borrowings

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

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

Capital Risk Management

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

Taxation

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

Deferred Taxation

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

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

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

Research and Development

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

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

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

• There is an ability to use or sell the intangible;

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

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

and

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

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

Operating Leases

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

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

Use of Estimates and Judgements

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

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

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

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

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

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

Plant and Equipment, Intangible Assets & Impairment of Goodwill

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

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

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

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

The Directors have carried out a detailed impairment review in respect of goodwill. The Group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flows forecasts which have been discounted at 6.67%. The cash flow projections are based on the assumption that the Group can realise projected sales. A prudent approach has been applied with no residual value being factored. At the period end, based on these assumptions there was an indication of impairment of the value of goodwill for dotSearch.

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

• Share-based Compensation

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

• Contingent Considerations

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

Contingent Consideration

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

Trade Receivables

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

Equity

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

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

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

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

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

Share Based Payments

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

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

Trade Payables

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

Functional Currency Translation

• Functional and Presentation Currency

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

• Transaction and Balances

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

Employee Benefit Costs

The Group operates a defined contribution pension scheme.

Contributions payable by the Group's pension scheme are charged to the income statement in the period in which they relate.

Segment Reporting

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

EARNINGS PER SHARE

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

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

Reconciliations are as follows:-