dotDigital Group Regulatory News (DOTD)

11 JANUARY 2013

dotDigital Group Plc

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

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 six months period to 31 December 2012.

Overview

The Group continued to deliver revenue growth in line with plan, with revenues for the period to 31 December 2012 increasing by 22% compared to the same period in 2011.

Trading performance by division (unaudited initial management estimates)

\* The services division excludes turnover from group companies which is eliminated on consolidation.

** Calculated on unrounded numbers

Email Marketing - Software as a Service (SaaS)

Overall revenue performance was driven by very strong growth of 38% across the core high margin email marketing SaaS side of the business. This is ahead of plan.

This strong growth was helped by a combination of successful new client wins, particularly in the corporate sector, growth in recurring spending from existing clients and improved client retention. The total number of clients signed in the period was 680. This is lower than the 831 in the equivalent period last year but importantly reflects the focus on higher value clients under longer term contracts. Notable client wins in the past six months include BBC Worldwide, e-Consultancy, Harveys, England Hockey Board, Investec, Osprey London, BP International, ITV, Odeon Cinemas, Ryman, Delice de France, Surrey County Council, City & Guilds, Cartridge World, Balfour Beatty and Help for Heroes.

As previously announced over the last six months within dotMailer the focus has been on increasing the proportion of recurring monthly revenues that are under long term contract.

In the period July to December 2012 66% of new contracts signed have been on long term agreements ranging from 12-36 months. The remainder have been on pay as you go contracts.

Overall the ratio of monthly billing has lifted from 51% contract: 49% pay as you go in December 2011 to 65% contract: 35% pay as you go in December 2012 and the average monthly spend by active clients has risen by a further 6% compared to the corresponding period 12 months ago. (excluding those on prepay self service)

Our sales office in New York opened on 25th November and signed their first email marketing client just before the Christmas holiday. We are about to open a sales office in Melbourne Australia, and have already received our first order from initial prospecting work carried out from London.

Now that the user interface of dotMailer has been translated into eight languages we plan to trial selling into selected European countries using native speakers based from our London offices during 2013.

New SaaS Products

Steady progress has been made with the pilot testing of our newly launched online-survey product and we have continued to trial various marketing methods for client acquisition to establish reliable cost of acquisition and estimated lifetime values. We will review this pilot in Q1 2013, before committing to significantly increased marketing spend.

In October we test launched a credit card self-service version of dotMailer to cater cost effectively for the needs of the smaller SME clients with smaller customer lists and lower monthly budgets. Early results from this activity are promising and we are continuing to refine the website experience for new trialists and customers.

We expect to devote more development and marketing resources to building these two segments of our business during 2013 as resources become available from other projects.

In December we launched into beta testing a new social broadcast tool which will be available to a small group of clients in early 2013.

Services Division

Notwithstanding the strenuous efforts of the divisional management team, performance in dotAgency, the services side of the business, which includes our search marketing business, was disappointing. Although the six months saw a growth in revenues of 15% from sale of ecommerce sites to higher value, medium sized businesses, we have yet to see this translate into bottom line due to higher costs of project delivery. Despite our efforts to reposition the search marketing business to mitigate the impact of the changes made by Google™ to their search engine algorithms in 2012, it has become clear in recent months that the original strategy of cross-selling SEO to the SME clients of dotMailer is now less attractive and less profitable because of reduced operating margins and is increasingly seen as a distraction to the core strategy of growing email marketing revenues. Revenues from SEO declined faster than expected, down 33% in the period and now represent around 6% of total group revenue. The board is therefore looking closely at the strategic options for this division and the impact any changes would have on the level of goodwill being carried from the Netcallidus acquisition of 2009, and will report its conclusions with the half year results.

Cash Generation

The business continues to be cash generative with cash at the end of the period standing at £4.6m after capital expenditure of £0.25m fit out costs of the new head office, hardware upgrades of £0.1m and research and product development of £0.5m

Outlook

The core email marketing business continues to perform very strongly and the strategy to increase sales activity in the corporate sector is showing good results with a strong pitch to win ratio which is adding to recurring revenues and providing a cohort of clients whose expenditure should continue to increase over time. Our ability to offer multinational businesses a centrally managed parent account with locally accessible child accounts in local language and local currency billing is attracting interest from some very large businesses.

Whilst the initiatives to expand international revenues are at an early stage we have confidence from prospect feedback that the dotMailer product is well received in markets outside the UK and given management bandwidth and good hiring policies we should see overseas revenues increase steadily over the next 18 months.

Our new online self service offerings (dotSurvey and dotMailer Self Service) are starting to generate revenues and as a board we will be reviewing during Q1 2013 the level of marketing and technical resource to dedicate to building this revenue stream.

Overall we continue to see the results of our strategy to drive recurring revenues and the level of monthly recurring revenue in the six months now represents 76.5% of total billing up from 73% at the full year ended June 2012.

Awards

In November we were delighted to learn that the business was a Deloitte Fast 50 winner with 5 year growth of 612% putting us at position 38 in the fastest growing technology companies in the UK. This was followed by becoming a Deloitte Fast 500 winner at position 238 in EMEA. This week we learned that we have been selected as the only UK recipient of the "Ruban d'Honneur" in the Infosys Business of the Year Award [t/o €0-25m] in the 2012/13 European Business Awards and will be competing against nine businesses from across Europe for the first prize at a judging event in Düsseldorf in February.

The full results for six months ending 31 December 2012 will be announced in mid February.

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