dotDigital Group Regulatory News (DOTD)

dotDigital Group Plc

Interim Results for the six months ended 31 December 2011

dotDigital Group Plc ("dotDigital" or "the Group") announces interim results for the six months to 31 December 2011.

Highlights

·; Revenues increased by 33% (from £4.1m (2010) to £5.5m (2011))

·; Profit after tax increased by 57% (from £0.8m (2010) to £1.2m (2011))

·; Operating profit before exceptional increased by 23%

·; 831 new clients in the period

·; An expansion of products & services

·; Earnings per share before exceptional up 27% to 0.38p (0.3p:2010)

·; Net cash generated from operations of £1.2m

Peter Simmonds, CEO, Commented:

"I am delighted to announce results for the first six months which show a 33% growth in revenues and a 23% growth in operating profit before exceptional items. This continued high growth in the current economic climate is the result of the hard work and commitment of our staff together with a clear focus on our growth strategy. We have continued to create new products and add innovations to our existing products which we believe will provide further revenue opportunities for the future. The companies admission to AIM in 2011 has been a success with a blue chip shareholder base established. The macro economic situation will undoubtedly present new challenges for 2012 but we look forward to the future with confidence in our people and our strategy. "

20 February 2012

Enquiries

Business summary

Founded in 1999, dotDigital Group has grown to become a leader in the provision of intuitive software as a service products for digital marketing professionals.

In addition, the company helps its clients with their online marketing through a variety of services such as search engine optimisation, digital strategy advice, e-commerce and managed services.

Key statistics

·; Business sector- SaaS

·; Offices-London, Croydon, Manchester, Edinburgh, Northampton, Minsk

·; Over 170 employees

·; Profitable since 2000

·; 2011/12 first half revenues £5.5m up 33%

Financial summary

We are pleased to announce continued strong profitable growth in the six months ending 31 December 2011. Revenues grew 33%; operating profit before tax and exceptional items grew 22% and profit after tax before exceptional items grew 37%.

The business has continued to be cash generative with net cash inflows from operations of £1.2m in the six months to December 2011 and the cash balance at the balance sheet date was £2.9m.

Exceptional item

Management has been focused on completing the integration of the business previously known as Netcallidus which was acquired in May 2010. The business has been rebranded as dotSearch, and all of the staff have now been fully integrated into the dotDigital Group. Work has been on going to harmonise operational processes and sales methodology across all of the teams involved in search marketing. In November 2011 the board announced the completion of the earn-out arrangements previously agreed with the vendors of Netcallidus.

This agreement resulted in a final payment of £170k, taking the total price paid for the acquisition to £1.3m

In June 2009, in accordance with IFRS3, the acquisition was accounted for based on actual consideration in May 2009 plus estimated future deferred consideration which was based on forecasts in the vendors information memorandum.

A review of expected deferred consideration was carried out in June 2010 resulting in a credit to finance income of £1.1m.

Finalisation of the earn out agreement, following the exit of the vendors in November 2010, has resulted in a further credit to finance income of £1.1m and an adjustment to goodwill of £0.9m in the period under review.

Whilst the adjustments appear in separate parts of the Income Statement, as required by IFRS, the net impact of the adjustment is broadly neutral for the period under review.

Review of operations

The results for the period under review continue to benefit from a growing market for digital marketing services despite the overall economic situation and from consistent implementation of the award winning growth strategy initiated in previous years.

Growth by sector

Email Marketing

Once again e-mail marketing was a very strong contributor to the overall growth of the business with recurring revenues continuing to grow strongly. Numbers of new clients for the e-mail marketing product dotMailer continued to rise with an increase of 831 new clients for the six months under review.

Managed Services

Provision of managed services to dotMailer clients also shows very strong growth in the period. Further large corporate clients have become dotMailer customers and the provision of campaign management, analytics and consultancy has become a key part of the offering to these clients.

Agency Services

The decline in revenue from bespoke websites is as a result of previous decisions to concentrate resources on software as a service products and provision of services with strong recurring revenues. The strategic focus away from bespoke projects has been complimented by a change to the method of delivery of bespoke projects and despite a decline in revenue this area of the business is now contributing more to the overall profit of the group.

Search Marketing

Revenues from search marketing (search engine optimisation and pay per click management) grew by 25%.

Following significant changes to the algorithms used by the search engines during 2011, management has been very actively reviewing all of the tactical approaches used in the search engine optimisation process to ensure that the methodologies used are the most effective and successful for our clients. This review has resulted in some significant changes to staffing, use of expert content creators, and far wider collaboration with clients to build coherent social media strategies that will assist with search engine rankings. Management expects that following this review there will be further changes to the profile of clients that form the nucleus of the search marketing business.

New Products

The online survey product, dotSurvey, was launched in free beta in late 2011. Customer feedback has been very positive and around 1000 clients have become active users.

It is planned to start charging for useage in April 2012 with a promotional offer to all existing dotMailer clients.

The marketing plan for full scale launch will be based upon early customer reactions to our pricing and feature set.

The simple Saas version of the ecommerce application is planned to go to alpha testing in March/April 2012. Again this will be tested initially with dotMailer clients before developing a plan for broader marketing.

Investment in 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 second half of 2011 with a key focus on adding experience and depth to the senior management of the business.

The board has been strengthened with the appointment of Frank Beechinor-Collins as Chairman and Richard Kellett-Clarke as non-executive director.

As part of the strategic plan to position the business for sustained growth there has been considerable focus in the period on the strengthening of the senior operational management group.

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 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 "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 our people with the aim of attracting and retaining the best people.

Outlook

Demand continues to be strong for the products and services provided by the business despite the macro-economic outlook for the UK. Digital marketing continues to provide businesses of all sizes with an effective and measurable way to promote their products and services.

Our markets however remain competitive and continued product innovation and high levels of client service remain vital to attract and retain customers.

With a client base that includes many SMEs we are also seeing an increased propensity for smaller businesses to look to cut costs in the current climate thus increasing the need for proactive account management activities.

Overall the board remains confident in the future growth although we remain conscious that many customers are facing difficult times and low business confidence will continue to impact customers' purchasing decisions throughout 2012.

As part of our strategy to widen the sources of new business we have strengthened the product integration team, built a number of new integrations with CRM systems and created a channel sales team to promote these tools both within the UK and abroad. The board expect this activity to start making a contribution to sales during 2012.

Product development has continued at a pace during 2011 and we launched our new 'drag and drop' visual editor for dotMailer which has been enthusiastically received by both existing and new clients. The board expects this to contribute to improved sales conversions over the coming year.

The development of the online survey tool known as dotSurvey has resulted in a product with around one thousand Beta users and some very positive customer feedback has been received. It is planned to move this product from Beta to live in April 2012.

The development of the SaaS version of dotCommerce has made significant progress and it is expected that this will be made available for Alpha testing by April 2012.

dotDigital Group Plc

Notes to Interim Financial Information

For the six months ended 31 December 2011

1. General information

dotDigital Group Plc is a company incorporated in England and Wales and quoted on the AIM market.

2. Basis of preparation

These consolidated interim financial accounts have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and on a historical basis, using the accounting policies which are consistent with those set out in the Group's annual report and accounts for the period ended 30 June 2011. The interim financial information for the six months to 31 December 2011, which complies with IAS 34 'Interim Financial Reporting' has been approved by the Board of Directors on 17 February 2012.

The unaudited interim financial information for the period ended 31 December 2011 does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The comparative figures for the year ended 30 June 2011 are extracted from the statutory financial statements which have been filed with the Registrar of Companies and contain an unqualified audit report and did not contain statements under Section 498 to 502 of the Companies Act 2006.

3. Significant accounting policies

The accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2011, as described in those financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total earnings.

4. Finance income

Finance income for the period includes the effect of the elimination of the financial instrument created in relation to the acquisition of Netcallidus Limited in 2010 as required by IFRS 3. The Directors of the Group have elected to apply this to the interim figures as a final settlement in regards to the consideration due to the previous owners of Netcallidus has been agreed and paid. The amount of the adjustment is £1,079,000.

5. Earnings per share

The profit per Ordinary share is based on the Group's profit for the period of Basic: £1,208,000, Adjusted: £1,060,000 (31 December 2010 £771,000, 30 June 2011: Basic: £3,037,820, Adjusted: £2,034,854) Adjusted earnings represents earnings normalised for unique charges and income in the period: