dotDigital Group Regulatory News (DOTD)

15 AUGUST 2013

dotDigital Group Plc

("dotDigital or the "Company" or "Group")

PRE-CLOSE TRADING UPDATE

For Year Ended 30 June 2013

dotDigital Group Plc (AIM:DOTD), the leading provider of intuitive Software as a Service ("SaaS") and managed services to digital marketing professionals, provides a trading and strategy update for the year-ended 30 June 2013, ahead of its full year results which are expected to be announced mid-October. 

The Board is extremely pleased with the Company's performance and now anticipates that full year EDITDA will be slightly ahead of the current market forecast £3.8m. This performance is a result of continued strong organic growth in the high margin and long-term recurring revenues generated by our core email marketing product, dotMailer.

Financial Highlights

Within the core products division, revenues for the 12 month period grew by 28% compared to the same period in 2012.

A summary of revenues by division for the full year to 30 June 2013 is provided below:

** In March 2013 the Board announced its plans to wind down the Group's Services Division, dotAgency, whilst continuing to service its existing clients for the remaining duration of their agreements.

dotMailer : Email Marketing - Software as a Service (SaaS)

Revenue performance was driven by strong growth of 28% across the core high margin email marketing SaaS side of the business, which was ahead of plan.

This strong organic growth was underpinned by a combination of successful new client wins, particularly in the corporate sector, growth in recurring spending from existing clients and improved client retention. Notable client wins during the year included Investec, Addison Lee, Bourne Leisure, BP, Goodwood, Mungo & Maud, Adecco Group, the Labour Party and Santander.

Encouragingly, the proportion of recurring monthly revenues under long-term contracts also continues to increase. In the 12 month period to 30 June 2013, 65% of new contracts signed were long-term agreements ranging from 12-36 months, as opposed to our "pay as you go" alternative. This combined with successful marketing of longer-term contracts to existing clients has driven the percentage of clients on long-term contracts (or contract roll over) to 71% compared to 49% at the end of FY2012.

In addition, the average monthly spend by active clients has risen by a further 19% compared to the corresponding 12 month period (excluding those using the prepay self-service).

International Expansion

Our sales office in New York opened on 25th November 2012. We have been extremely encouraged by the development of a strong sales pipeline. The Group's Co-Founder & Chief Operating Officer, Tink Taylor, has relocated to the US to head up dotMailer's US expansion, and was invited to take part in an event showcasing British Innovation in New York, which was supported by Prince Harry and Prime Minister David Cameron.

Services Division Update

On 19 March 2013, following completion of a thorough review of the Group's Services Division, dotAgency, the Board announced its plans to gradually wind down activity within this division, which had become non-core. We have managed the exit of this division at a cost to the Group of less than £200K with remaining trailing revenues of around £30k per month being managed by a small team of support staff. As previously disclosed, the remaining goodwill on the acquisition of Netcallidus will be written-off as a one-off non-cash adjustment.

Cash Generation

The business continues to be highly cash generative with cash at the end of the period standing at £6.1m (2012: £4.0m) after capital expenditure and product development of £1.8m (2012: £1.5m).

Strategy Update - Investing for Growth

Over the last few statements we have commented on the Board's considerations with respect to the longer-term investment strategy of the Company, as a profitable cash generative business.

The UK market for email marketing is estimated to be worth c£400m - £500m this year and growing rapidly. Industry research firm Gartnerestimates that by 2015, consumer technology companies will have switched one-third of their traditional marketing budgets to digital, and chief marketing officers will outspend chief information officers on IT by 2017.

During the year we evaluated a number of potential acquisition opportunities. However in the opinion of the Board none of the businesses evaluated were judged to be likely to create long-term shareholder value when integration risks were factored in.

We now have compelling data which demonstrates the significant return on investment to the business from hiring additional sales personnel and effective targeted marketing.

Therefore our strategy for 2013/14 will focus on successful organic growth and as a business we will invest in cost effective marketing, adding additional sales and account management staff and continuing to invest in the dotMailer platform to ensure that the significant long-term growth opportunity is maximised.

The Board has agreed to allocate up to half of the Group's current cash to accelerate our organic growth. Full details of this investment will be agreed over the coming months and will be based on a number of carefully targeted initiatives which will give high levels of return and payback periods of around 24 months.

Further details of this accelerated investment strategy will be provided at the time of our Final Results.

Outlook

The core 'dotMailer' email marketing business continues to perform very strongly. The strategy to increase sales activity in the corporate sector is showing good results with a strong pitch to win ratio, higher lifetime client values and lower attrition, which is enhancing our recurring revenues and adding a number of higher value clients whose expenditure should continue to increase over time.

Commenting on the trading update, dotDigital's Chief Executive Officer, Peter Simmonds said: "This strong performance is again very encouraging. Demand for digital marketing continues to strengthen and for the first time in the last few years, confidence in the wider economic outlook for the UK is returning. To maintain our record of strong organic growth we will continue to focus on product development, hiring high quality people into revenue generating roles and selectively expanding our international activities. We look forward to providing a full update on the year's trading together with greater detail on our future growth plans when we announce our full year results in October. I would like to take the opportunity to thank our staff for their tremendous enthusiasm, commitment and performance over the past year."

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