dotDigital Group Regulatory News (DOTD)

dotDigital Group plc

("dotDigital" or the "Company")

Trading Update

dotDigital Group Plc (AIM:DOTD), the leading provider of intuitive Software as a Service ("SaaS") and managed services to digital marketing professionals, announces its trading update for the year ended 30th June 2012, ahead of its full year results which will be announced in early October. 

The Board is extremely pleased with the Company's performance and now anticipates that full year revenues and pre-tax operating profits before IFRS 3 adjustments will be in line with market forecasts, which were significantly raised in January 2012. This performance is due to continued strong new business sales and growth in recurring monthly revenues from existing clients.

Overall revenues are expected to be approximately 32% higher than in the corresponding year ended June 2011, all of which has been through organic growth.

By business unit the growth has been as follows:

·; Saas Email Marketing Revenues & Email Managed Service +36%

·; Agency Services & Search +16%

Saas Products

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 34% growth year on year. Including recurring revenue from other products and services recurring revenue now accounts for 73% of total revenue at the year end.

New customer signups for dotMailer have continued to be a significant source of revenue growth in the year with 1,684 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. Based on historic experience the lifetime value of a corporate client should be in excess of £40,000 compared to an average lifetime value of c£4000 for a SME client.

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 assists our capacity to increase client wins and grow revenues.

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 got over 400 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.

Agency and Search

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 agency services and search division, which accounts for around 20% of total revenue, grew revenues in the year by 16%. Whilst 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.

The final deferred consideration for the purchase of the search marketing business, Netcallidus, was made in November 2011. We anticipate a further non-cash IFRS3 based accounting adjustment 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.

Cash position and Capital Investment

We continue to be strongly cash generative with cash from operations growing in the year and cash balances at the year-end reaching approximately £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.

Outlook

During 2012/13 we anticipate that changes to the dotMailer platform and the reorganisation within the sales and client services teams which will 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. However 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.

Commenting on the trading update, dotDigital's Chief Executive Officer, Peter Simmonds said: "Whilst this strong performance is again very encouraging the Directors are mindful that although the climate for digital marketing continues to impress, confidence in the wider economic outlook for the UK remains low and marketing budgets remain under pressure in many businesses. To maintain our record of strong organic growth we will continue to focus on product innovation, understanding our client's requirements and delivering return on investment for our clients. We will also continue to selectively expand our international activities. We look forward to providing a full update on the years 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 commitment and performance over the past year."

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