dotDigital Group Regulatory News (DOTD)

FOR IMMEDIATE RELEASE 23 FEBRUARY 2016

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

Please call Lisa Baderoon on 07721 413 496 if you would like to attend or email: lisa.baderoon@dotdigitalgroup.com

dotdigital's Interim Report will shortly be available on the website: www.dotdigitalgroup.com 

dotdigital Group Plc

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

INTERIM RESULTSFor the six months ended 31 December 2015

"CONTINUED STRONG REVENUE & PROFIT GROWTH"

dotdigital Group Plc (AIM:DOTD), the leading provider of intuitive software as a service ("SaaS") and managed services to digital marketing professionals, announces its results for the six months ended 31 December 2015.

Six Month Key Highlights

· Revenue from operations up 29% to £12.9m from £10.0m in the previous interim period

· Recurring monthly revenue from dotmailer's SaaS based usage charges up 35% to £10.0m

· Email related creative and managed service up 36% to £1.5m

· Recurring revenue charges from market automation functionality has increased by 156% compared to the previous interim period

· Profit before tax up 30% to £3.3m

· Earnings per share has increased by 35% to 1.04 from 0.77 in the previous interim period

· Healthy growth in net cash generated from operating activities of 139% to £3.3m

· Strong net cash position of £14.8m as at 31 December 2015

dotmailer

· Over 200 new clients signed in the period including Paul Smith, Asana, Jet2, Woodland Trust, Huntress, TUI Travel, Stagecoach, Dune and Hawes & Curtis

· Average monthly recurring spend across all clients increased from £400 to £525

dotmailer's Magento Connector

· Chosen by Magento as the only Platinum Technology Partner for Marketing Automation globally (November 2015)

· Over 250 active clients now using dotmailer's Magento connector

· Average recurring spend from clients of £1,200 per month compared to £775

· Annualised revenues of more than £3.0m

International Initiatives

· Revenue from the US region grew by 91% to US$2.1m from US$1.1m, reflecting good progress made in building both our presence and the number of clients

· Strong pipeline now started via relationships built across the APAC region

Commenting on current trading and outlook, Milan Patel, CEO & CFO said:

"The strategy of focusing on fast growing medium/light-enterprise businesses and Magento clients has driven average monthly spend up by 31%. This combined with a focus on longer term contracts and client retention is leading to notably higher client lifetime values.

H1 2016 will see a keen focus on developing a robust channel and reseller pipeline especially in support of our geographic ambitions in USA and APAC.

Based on the strong performance at the half year to 31 December 2015, the growing demand for marketing automation, the newly released product features and investment strategy, the Board remains confident of delivering strong growth, underlying profitability and increasing shareholder value for this year. The investments were slower than expected in 15/16 and therefore will lead to an increased EBITDA in the current year but will see a marginally slower revenue growth in 16/17. The long term outlook for dotdigital remains positive and we look forward to providing further progress at the time of our year end trading update in July 2016."

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OVERVIEW

As announced in the trading update on the 19 January 2016, dotdigital delivered strong revenue growth in line with expectation. Profits for the interim period were slightly ahead of market expectation.

dotmailer: Email Marketing and Marketing Automation Software - SaaS Products

The performance from the SaaS product based email marketing platform continues to grow with revenue increasing by 29% for the six month period to £12.9m (H1 2015: £10m) with strong recurring revenue continuing to form a significant part of this total.

Profit before tax grew by 30% to £3.3m after further investment in building out the Mid and West of America, Australia and the addition of the hybrid cloud infrastructure in the US which will assist with the future organic growth of the business.

This focus on winning higher value clients, as well as growth in recurring spend from existing clients and higher levels of client retention driven by clients signing up longer term contracts has led to strong organic growth. This is evident by the average monthly billing from all clients increasing by 31% from £400 per month to £525.

Revenues from the US region have continued to build strongly. The New York sales office maintains its focus on sector niches including Magento and higher value corporate ecommerce clients, identified as being the most attractive for the dotmailer product platform. The Magento team has been strengthened and now mirror's key Magento system integrators on the East Coast, the Mid West and West Coast. It is anticipated that further investment will be made in expanding the US sales, channel and account management and support teams in the next 12 months.

We successfully opened our APAC office, based in Australia in July 2015, and have already seen strong relationships built with influential and successful partners.

Globally, our email creative and managed services revenue again grew this time from £1.1m to £1.5m during the period. Hence, highlighting further revenue growth potential that can be unlocked from these new services. This offering helps generate positive return on investment (ROI) for our clients and helps time-poor marketers to outsource their creative and campaign management/strategy to email marketing experts. These activities are also designed to encourage further technology uptake across the customer base thereby leading to greater adoption of the latest product innovation which in turn delivers better results for customers and higher recurring revenues for dotdigital.

Further Product Innovation

The dotmailer platform continues to evolve to provide higher levels of marketing automation for our eCommerce, B2C and B2B clients and the product releases in July and November 2015 including some exciting new capabilities e.g.

- A new connector for the new Magento 2 platform;

- Hyper personalised emails using Advanced Personalisation;

- Hyper personalised Landing Pages;

- Omni-channel marketing automation within our Program Builder with Channel Extensions;

- Lead scoring

We have now seen an increase of 156% in incremental recurring revenues by the adoption of our recently built marketing automation feature add-ons from our clients, which has also helped in delivering strong margins.

Financial Summary

Balance Sheet & Cash Position

dotdigital continues with its strong cash generation from operations with the interim end net cash balance growing to £14.8m after a total capital expenditure of £1.1m invested mainly in hardware/software upgrades of £0.3m and product development of £0.8m. The Group continues to maintain a healthy balance sheet with gross assets of £25.4m and has no debt.

Dividend Policy

A dividend of 0.36p per ordinary share, (an increase of 80% on the prior period), was proposed by the Company at the time of its Final Results in October last year hence clearly demonstrating a commitment from the Board to deliver value by focusing on total shareholder return in the future. This dividend was approved by shareholders at the Annual General Meeting on the 15 December 2015 and paid on 29 January 2016. The Group's current policy continues to be that a full review of dividends will be held at the time of the year end, therefore the Board is not proposing an interim dividend.

Current Trading & Outlook

The core business continues to perform strongly and the strategy to continue to invest in the business is delivering pleasing results.

The Group's organic growth strategy continues to be focussed around four main areas:

1. Geographic expansion;

2. Developing strategic partnerships;

3. Product Innovation and Features;

4. Identifying new customer niches.

In the six months to 31 December 2015, key performance highlights against these areas were:

1. Geographic expansion

o Growth of our US region revenue, which grew by approximately 91% from US$1.1m to US$2.1m

o During the six months period to 31 December 2015 dotmailer explored a series of options and strategies for growth via channel/reseller in the US market. As a result, rather than find, hire and build a team with appropriate expertise, in December dotdigital engaged with a US based specialist Marketing Management Consultancy company to assist with this initiative. Often engaged by US Venture Capitalists to kick start growth, the chosen organisation has specific expertise, credentials and manpower to define and roll out a robust plan for dotdigital in the US in H2 2016. The Board are confident that this more concentrated approach will ultimately be more successful and quicker.

o H2 2016 (Jan - June 2016) will see a period of refinement across product, marketing, pricing and support to ensure the business is well placed to compete, and a period of aggressive sales-focussed effort.

o In alignment with this approach, in February 2016, a new Sales and Marketing focussed SVP/General Manager of dotmailer USA was hired to strengthen our senior operating team within the market and to provide local leadership for this important growth initiative.

Growth in our APAC region:

o The operations in Australia (which will act as the hub for broader APAC) has now been established. We have signed up eight key partners that help underpin our indirect channel sales strategy. A strong sales pipeline has now started to be built from these partnerships. The APAC region has already generated $AUS 0.3m in the interim period.

2. Developing strategic partnerships

o dotdigital was delighted to announce on 17 November 2015 that we had been appointed by Magento* as their only choice of Platinum Provider of Email and Marketing Automation for their entire customer base globally. The only other provider to achieve this accreditation (in a different sector) was PayPal, whose credentials underpin the significance of this appointment.

o "When we seek out partners, we look for companies that like Magento Commerce drive exceptional experiences across every stage of the commerce lifecycle and provide merchants with a distinct competitive advantage", said Mark Lavelle, CEO of Magento Commerce. "dotmailer's ease-of-use and ease-of-integration is in complete alignment with our strategy to enable retailers to extend Magento with the most advanced capabilities provided by our partners."

o "We are obviously delighted that following an extremely successful relationship between dotmailer and Magento over the last two years we have been awarded this prestigious global Platinum Partnership status which clearly recognises the unique strengths of our dotmailer platform", said Simone Barratt, CEO of dotdigital. "We believe that this enhanced relationship will provide greater opportunities for dotmailer particularly as part of our international growth strategy." 

*About Magento Commerce

Trusted by more than 240,000 businesses worldwide, Magento Commerce is the leading provider of open omnichannel innovation to retailers, brands and branded manufacturers across retail B2C and B2B industries. In addition to its flagship open source digital commerce platform, Magento Commerce boasts a strong portfolio of cloud-based omnichannel solutions empowering merchants to successfully integrate digital and physical shopping experiences. With over $50B in gross merchandise volume transacted on the platform annually, Magento Commerce is the dominant provider to the Internet Retailer Top 1000, counting more than double the clients to the next closest competitor, and to the Internet Retailer Hot 100. Magento Commerce is supported by a vast global network of solution and technology partners, a highly active global developer community and the largest eCommerce marketplace for extensions available for download on the Magento Marketplace. More information can be found at www.magento.com.

o The dotdigital Magento team has been considerably strengthened resulting in a well-seasoned and experienced team which now covers the geo footprint of key Magneto system integrators on the East Coast, Mid-West and West Coast.

o The Magento connector revenue stream has been growing and now generates more than £3.0m on an annualised basis.

3. Product innovation and features

o Key product features which were released in July and November 2015 included; a new connector for the new Magento 2 platform, hyper personalised Landing pages, Advanced personalisation and Omni-channel Channel Extensions

o Deployment of a new dotmailer platform instance into the US utilising the latest hybrid-cloud technology, enabling new US customers a performant hosting environment that will cater for in-region data privacy requirements

o A new Support centre and Developer hub implemented to enhance customer experience and drive the developer eco-system

o The product development team had its annual 'Hackathon', where new ideas and technologies are rapidly developed in a short time frame. New and exciting innovations, solving customer's pain points, created in the event are making their way onto the product roadmap and future releases

o dotdigital's agile product team develop to 4 cycles per annum of formalised and managed releases. Input for prioritisation comes from:

§ Externally from client and prospects needs and requests

§ Internally from a continuous focus on efficiencies to support dotdigital's growth and scale

§ Commercially from the identification of additional opportunities for technology adoption which, in turn drives recurring revenues

§ Strategically to exploit any potential strategic partnerships/initiatives that will drive value for the business

4. Identifying new customer niches

o dotmailer continues to explore the 'localisation and translation' capabilities of the core platform through strategic partnerships where the cost of sales and marketing is borne by the partner. This low-risk approach protects shareholder value whilst at the same time enables dotdigital to learn, test and make prudent decisions regarding further investment.

Outlook Summary

The strategy of focusing on fast growing medium/light-enterprise businesses and Magento clients has driven average monthly spend up by 31%. This combined with a focus on longer term contracts and client retention is leading to notably higher client lifetime values.

H2 2016 will see a keen focus on developing a robust channel and reseller pipeline especially in support of our geographic ambitions in USA and APAC.

Based on the strong performance at the half year to 31 December 2015, the growing demand for marketing automation, the newly released product features and investment strategy, the Board remains confident of delivering strong growth, underlying profitability and increasing shareholder value for this year. The investments were slower than expected in 15/16 and therefore will lead to an increased EBITDA in the current year but will see a marginally slower revenue growth in 16/17. The long term outlook for dotdigital remains positive and we look forward to providing further progress at the time of our year end trading update in July 2016.

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

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

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

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

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

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