dotDigital Group Regulatory News (DOTD)

FOR IMMEDIATE RELEASE 24 FEBRUARY 2015

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 dotdigital's website: www.dotdigitalgroup.com 

dotdigital Group Plc

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

INTERIM RESULTSFor the six months ended 31 December 2014

"STRONG ORGANIC GROWTH FUELS INTERNATIONAL EXPANSION STRATEGY"

dotdigital Group Plc (AIM:DOTD), the leading provider of intuitive software as a service and managed services to digital marketing professionals, announces its results for the six months ended 31 December 2014.

Six Month Key Highlights

· Revenue from continuing operations up 32% to £10.0m from £7.6m in the prior period

· Recurring monthly revenue from dotmailer's Software as a Service ("SaaS") based usage charges up 28% to £7.4m

· Email related creative and managed service up 38% to £1.1m

· Group operating profit before tax up 17% to £2.5m

· Net cash generated from operating activities of £1.4m

· Strong net cash position of £9.5m as at 31 December 2014

dotmailer

· Over 300 new clients signed in the period including Screwfix, govtoday, Hornby, Sony Music, Calor, MobileFun, Mustela, Worldata, Honeywell, Unison and Knight Frank

· Average monthly recurring spend across all clients increased from £284 to £400

Magento Connector

· Over 150 clients on the newly launched Magento connector

· Average recurring spend from clients of £775 per month

International Initiatives

· Revenue from the US region grew from $456k in the prior period to $1.14m, reflecting good progress in building our presence and the number of clients

Commenting on current trading and outlook, Simone Barratt, CEO said:

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

"With continued good hiring and carefully managed investment we are confident that revenue from the US region will build significantly and we plan to invest more in expanding the US team in the West Coast and Mid-America.

We will also start to build out a channel sales team in Australia which will be the springboard into the Asia Pacific markets. The value of the eCommerce market in APAC is US$37 billion and early due diligence confirms that the dotmailer Magento connector which serves the eCommerce sector will be well received by the market. Magento is the leading ecommerce platform with a 45% market share in Australia. We will leverage our strong relationships with the Magento system implementers and key channel partners to build out a partner network across the Asia Pacific region.

"Recent marketing product innovations delivered in January 2015 will also open new revenue growth opportunities over the next 12 - 24 months.

"To this end we are embarking on a carefully executed accelerated investment plan to scale the business further through both geographic expansion and product innovation, investing up to £3 million over the next two years. This strategy should fully exploit the exciting growth opportunities the dotmailer platform has to offer.

"Based on the strong performance at the half year, 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, 2016 and beyond."

For further enquiries please contact:

OVERVIEW

As announced in the trading update on the 20 January 2015, dotdigital continued to deliver strong revenue growth and profits in line with market guidance for the six months ended 31 December 2014.

dotmailer: Email Marketing & Marketing Automation Software - SaaS Products

The performance from the higher margin SaaS product based email marketing platform continues to go from strength to strength with revenue growth for the six month period of 32% to £10.0m (H1 2013/14: £7.6m) with strong recurring revenue continuing to form a significant part of this total. Profit before tax grew by 17% to £2.5m which reflects the ongoing investment dotdigital is making in the business in order to accelerate future organic growth.

This strong growth was helped by a 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. The average monthly billing from all clients increased by 40% from £284 per month to £400. Following the strategy to focus on the mid-market, the monthly commitment from new clients increased by 63%. In the interim period we signed over 300 clients with an average monthly committed spend of £480 compared to £295 in the same period last year. Client numbers were lower than in the corresponding period last year reflecting the Company's strategy to focus on fast growing mid-size businesses and enterprise clients with a notably higher lifetime value. The average monthly commitment in the pipeline suggests that this will trend upwards.

With the Board's strategy of continued investment in the business to capitalise on long term organic growth, an additional 11 people in sales and account management have been recruited. The addition of this headcount has already started to pay off, generating additional incremental revenue.

Revenues from the US region have continued to grow strongly. The New York sales office continues to focus on sector niches and higher value corporate clients which it has identified as being the most attractive for the dotmailer product platform. The pipeline is continuing to grow with prudent additional investment in headcount and marketing activities. It is anticipated that further investment will be made in growing the US sales and account management team in the next 12 months.

Our email creative and managed services revenue grew from £0.8m to £1.1m during the period. There is 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.

Further Product Innovation

The dotmailer platform continues to develop to provide high levels of marketing automation to our clients and the product release in January 2015 includes some exciting new multi-channel marketing capabilities.

Financial Summary

Consolidated EBITDA

Group EBITDA rose from £2.7m in the prior period to £3.3m, an increase of 22%, reflecting the strong performance in the core UK market and further investment into organic growth.

Balance Sheet & Cash Position

dotdigital continues with its strong cash generation from operations with the interim end net cash balance growing to £9.5m after capital expenditure of £0.5m, hardware/software upgrades of £0.3m and research and product development of £0.8m. The Company also has no debt.

Share Buyback Scheme

dotdigital announced on 11 November 2014 that it was to commence a Share Buyback Scheme. The size of the proposed Share Buyback is up to 3.0m shares. The Share Buyback will be funded from the Company's existing cash resources and made through market purchases of ordinary shares. The repurchased ordinary shares are to be held in treasury in anticipation of the first tranche of lapsing staff share options being exercised over the coming 12 months. Currently the Company has purchased, in aggregate, 285,000 ordinary shares of 0.5 pence each.

Dividend Policy

A dividend of 0.2p per ordinary share was proposed by the Company at the time of its Final Results in October last year demonstrating a clear commitment from the Board to delivering value by focusing on total shareholder return in the future. This dividend was approved by shareholders at the Annual General Meeting on the 16 December 2014 and paid on 30 January 2015. The Company's current policy will be to review dividends at the time of the year end. The Board is therefore not proposing an interim dividend.

Board Evolution

At the time of dotdigital's Final Results in October last year it was announced that Simone Barratt, from her role as Non-Executive Director, would be appointed as Chief Executive (Designate). With immediate effect Simone Barratt now takes on the full role of Chief Executive Officer. Peter Simmonds, who has been CEO for the past eight years and a major contributor to dotdigital's success, will continue, at this current time, as Deputy Chief Executive.

Current Trading & Outlook

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

The Company's organic growth strategy continues to be focussed around four core areas:

· Product Innovation;

· Geographic expansion;

· Developing strategic partnerships; and

· Identifying new customer niches.

In the six months to 31 December 2014, key performance highlights against these areas were:

· Development of key new product features which were released on 20 January 2015;

· Growth of our US region revenue, which grew by approximately 150% from US$456k in the six months to 31 December 2013 to US$1.14m;

· Strengthening the channel sales team and formalising partner proposition;

· Revenue attributable to partner channels grew by 146% to £2.2m; and

· The initiative to build revenue by creating a strongly integrated offering to the Magento mid-market ecommerce retail niche has generated over 150 clients with annualised revenues of approximately £2.0m.

The client take up of the Magento connector continues to deliver good growth with the average monthly spend of new customers increasing to over £775 per month. The product has been well received as evidenced by feedback gained from both clients and Magento implementation partners. Recent product enhancements have also made this an even more attractive solution for online retailers.

In the US our analysis shows that we have more potential customers with larger email databases which should translate into greater recurring revenue from US clients. With continued good hiring and carefully managed investment we are confident that revenue from the US region will build significantly and we plan to invest more in expanding the US team in the West Coast and Mid-America.

Based on the successful formula deployed in entering the US market, we will start to build out a channel sales team in Australia which will be the springboard into the Asia Pacific markets. Early due diligence confirms that the dotmailer platform has been well received by the market. The value of the eCommerce market in APAC is US$37 billion and early due diligence confirms that the dotmailer Magento connector which serves the eCommerce sector will be well received by the market. Magento is the leading ecommerce platform with a 45% market share in Australia. We will leverage our strong relationships with the Magento system implementers and key channel partners to build out a partner network across the Asia Pacific region. Expansion into this region will be headed up by our current Head of Sales who has a deep knowledge of both dotmailer and the Australian marketing technology market, which will prove invaluable in the initial stages of growth.

We are delighted that the strategy of focusing on fast growing medium sized businesses and corporate clients has driven average monthly spend up by 63%. This combined with a focus on longer term contracts and client retention is leading to notably higher client lifetime values.

Recent marketing product innovations delivered in January 2015, frame the potential to move the Company into the marketing automation sector of the marketing technology landscape, where average monthly revenue per client is currently at a sizeable premium to existing pricing. The Board believes this will open new revenue growth opportunities over the next 12 - 24 months.

To this end we are embarking on a carefully executed accelerated investment plan to scale the business further through both geographic expansion and product innovation, investing up to £3 million over the next two years. This strategy should fully exploit the exciting growth opportunities the dotmailer platform has to offer.

Based on the strong performance at the half year to 31 December 2014, 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, 2016 and beyond.