dotdigital Group plc
Annual Report 2009

Plain-text annual report

Annual Report and Accounts 2008/2009 Our mission To provide fantastic digital tools and services that deliver results keeping our clients ahead of their competition. Contents 01 Key highlights 02 Chairman’s and 10 Chief Executive’s report Corporate social responsibility report 12 Our board of Directors 14 Corporate governance report 16 Audit committee report 18 Remuneration committee report 20 Report of the Directors’ 26 28 Consolidated income statement 28 Independent Auditor’s report Consolidated statement of comprehensive income Consolidated statement of financial position Company statement of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements 29 30 31 32 33 34 56 Company information 01 Key highlights • Revenue increased by 91% to £4.7m* (2008: £2.5m) • Profit after tax increased by 58% to £0.9m* (2008: £0.6m) • Strong balance sheet position, cash at year end increased by 145% to £1.7m (2008: £0.7m) • Strong growth in customer numbers from 1,072 in 2008 to 2,282 in 2009. An increase of 113%* * For a 14 month period in comparison to a 12 month period Revenue Profit after tax £4,718,290 91%increase revenue growth 58%increase in profit after tax £895,507 £2,474,365 £567,000 2009 2008 2009 2008 Cash position Customer numbers 145% Increase in cash £1,677,902 2,282 113% increase in customers £684,493 1,072 2009 2008 2009 2008 dotDigital Group Annual Report and Accounts 2008/2009 02 Chairman’s & Chief Executive’s report The Group enjoyed a period of strong growth driven by the success of its leading edge internet technology for digital marketing. Revenue grew by 91% substantially driven by growth in client numbers from 1,072 as at the end of April 2008 to 2,282 by the end of June 2009. The business has shown itself to be resilient in the face of a difficult economic climate and has benefited from the shift in marketing spend from traditional offline media to online digital marketing. The year under review saw the delivery of many of the goals set out in a three year plan which was initiated in 2006. We have seen the Group transform from a niche website design agency and email service provider, into: one of the UKs leading full service digital marketing agencies, a PLC on the PLUS market, an employer of 55 staff with offices in London, Croydon and Manchester and an email marketing product that is highly regarded in the marketing industry. As well as achieving high levels of organic growth in our email marketing business during 2008/09 we have been making a significant investment in product innovation and development. April 2009 saw the launch of our new package based e-commerce platform (known as dotCommerce) which has been extremely well received by prospective clients and is starting to deliver a new and important revenue stream for the business. Financial overview Delivery of three year plan On 30 January 2009 dotDigital Group Plc (formerly known as West End Ventures Plc) acquired the entire issued share capital of dotMailer Limited via a share for share exchange. Since 2006 dotDigital has achieved year on year growth levels of 54%, 97% and 91%, within a fiercely competitive and close to saturated market place and in the face of a recessionary environment over the past 18 months. To comply with international financial reporting standards, this report is presented as if dotMailer Limited had acquired dotDigital Group Plc which is the substance of the transaction even though the legal form of the transaction was that dotDigital Group Plc acquired dotMailer Limited. Staff levels have increased fourfold, from 15 in 2006 to 55 by summer 2009 and the average monthly new business acquisition rate has more than doubled from 40 new client wins in per month in 2007 to 85 new client wins per month in 2009. During the 14 month period ended 30th June 2009 revenue grew to £4.7m up from £2.47m in the previous 12 months. Pre tax profit in the period grew to £1.1m up from £0.7m in the previous 12 months. By setting and pursuing aggressive and stretching financial goals, and focussing single-mindedly on developing innovative products and delivering them alongside exceptional client support, we have: www.dotdigitalgroup.com This growth in profit was in line with target and although the apparent profit percentage has declined the headline numbers do not take account of a change in the basis of remunerating Directors from mainly dividend based in 2007/08 to salary based in 2008/09. • Seen outstanding organic growth • Opened up important revenue channels through cross-sell and up-sell • Built the brand and a team capable of growing, supporting and developing our ever expanding customer base We have achieved this by pursuing a highly focussed, four-prong growth strategy which in the Directors’ opinion, sets the Group apart from any known competition: 1. Outstanding client care and, we feel, over delivery on clients’ expectations. 2. Product diversification having built a one-stop shop of products and services to cater for every digital need. 3. No compromise recruitment resulting in our attracting and retaining the very best talent needed to support our growing client base. 4. Insatiable sales and marketing leaving no stone unturned in our quest for a better more diverse service, strengthened thought-leadership profile, sales pipeline and no opportunity unconverted. A ‘full service’ offering Although a handful of other email service providers are able to offer some add-on digital marketing services, and other digital agencies offer various forms of email service, the Directors believe that dotDigital is uniquely placed to offer the full range of digital marketing services with high levels of specialism and expertise backed by over ten years operational experience. Our business is split into four main brands and business units, each with high level expertise in four key areas: dotMailer – In the Directors’ opinion, a market leading email marketing platform with exceptional features and ease of use. It is delivered and supported by a team of dedicated and passionate professionals. dotCommerce – The Group’s latest ecommerce solution considered by the Directors to provide a unique and compelling proposition to online sellers; a flexible bespoke build experience, for the cost of an off-the-shelf package. dotEditor – The content management system which drives clients’ websites, enabling them to edit and manage their own, rich content. dotAgency – An in-house creative agency team specialising in website design, build, digital marketing strategy and search engine optimisation. 03 dotDigital Group Annual Report and Accounts 2008/2009 04 Chairman’s & Chief Executive’s report continued 91% Increase in revenue in 2009 The Group has a clear vision to continue to develop a range of complementary digital marketing tools and consultancy services which can be fully integrated with existing services. Moreover, we continually work to build deeper relationships with our clients and help them realise the full potential of digital marketing to achieve their own business objectives. Our clients benefit from this holistic approach which offers a trusted source and single point of contact for a full range of marketing needs. dotDigital’s clients dotDigital has a range of high profile clients including a number of blue-chip companies and high profile organisations. However, at a time when many of the other email marketing agencies focus principally on large company business, we have resolutely maintained a principal focus on small and mid sized companies given the huge pool and diversity of potential clients and our ability to bring services to them quickly and efficiently. Moreover we take the view that our customer mix is ideal to provide the stability that is crucial to allow dotDigital to grow. The argument for dotDigital rests on the ability to provide custom made products for the same price as the existing commoditised products being marketed by other digital agencies which the directors believe are inferior in terms of features and usability. These also fail to offer the high quality support often needed by less experienced marketers. With this in mind, we develop every product and offering with the needs and requirements of the SME in mind. By understanding the important business drivers and challenges which these companies experience, dotDigital is able to create affordable packages and solutions that work for companies of all sizes and that are scalable so that the product or service can grow with the customer. Because of this scalability, it means ultimately we can service any client from SME through to large multi-nationals. Our customers choose to use our organisation because of these key factors, and because of our propositions of outstanding client support, a one-stop digital marketing shop and extremely easy to use yet very powerful products. These products include, for example, highly innovative online survey builder and microsite builder tools that genuinely enable marketers and business managers with absolutely no experience or skills in website design, developing or coding, to create in minutes their own web pages, online surveys, competitions and data capture forms that look exactly like they are part of their business website. Tools like this offer genuine cost and resource savings of many thousands of pounds to businesses. www.dotdigitalgroup.com 05 ” dotCommerce have helped us build, launch and manage our new e-commerce business...The technology is straightforward to use, and the team has been amazing.” Somerset House ” Working with the dotAgency team has been a very rewarding experience... they are both knowledgeable and imaginative.” Fairtrade Foundation ” dotMailer design service excels, always giving us a clear and professional newsletter! Their self service send and reporting facility is simple and easy-to-use and the reporting results provide great feedback for analysing the success of our mail-outs.” Storm Models 85New client wins per month 2009 Strategy for 2009/10 The Group has implemented plans to build on the existing successful strategies to sustain existing levels of growth. We plan to: • Continue to build brand awareness and brand reputation within the marketplace using multi channel marketing, including social networking sites; • Further develop a sales culture of referrals and word of mouth, based on delighted clients; • Develop new products and services with strong recurring revenues, such as ecommerce solutions and SEO services; • Expand the reach of our thought leadership message through social networking and web 2.0 including prolific blogging and twitter posts; • Seeking earnings enhancing acquisitions in complimentary sectors such as: – SEO – Mobile/SMS – Word of Mouth Marketing – Survey tools – Analytics – Usability testing – Research – Social media marketing The Directors also plan to reorganise the management of the business around smaller business units thus presenting a scalable business model with clear management focus whilst maintaining the entrepreneurial spirit and culture which has served the business well for the past ten yeas. Outlook The marketplace for our services remains robust as we move into the current financial year. The Group’s customer base has continued to grow and the response to our broadened offering, introduced last year, encouraging. We maintain a strong cash position and have an eye towards an expansion of our services through acquisition with a number of targets already under review. Recognition of our brand is now widespread within the marketing sector and we believe that the coming year will present opportunities to expand and diversify profitably with only incremental increase in overhead cost. Accordingly, we look forward to the year with confidence. Staff The Board thanks all of the management and staff who have reacted to the challenge of rapid growth in a difficult economic climate with enthusiasm and enormous energy. dotDigital Group Annual Report and Accounts 2008/2009 06 Chairman’s & Chief Executive’s report continued 112% Increase in clients in 2009 Staff continued dotDigital places much emphasis on the quality and cohesiveness of its staff. Building a team that supports the work of the key management team has been central to the successful growth achieved to date and is paramount in continuing this success in the future. The Group has an innovative approach to staff development. The management team aims to give each employee the space in which to grow and the leadership ethos is very much about giving employees the opportunities to develop and become leaders themselves. With this is mind, we aim to share the success of the Group with the staff and by being open and transparent, ensuring that every employee understands the overall growth strategy and is kept appraised as to our vision, objectives, targets, progress, successes and potential issues. The Directors are open about business objectives and senior managers actively engage their teams in understanding how their efforts contribute to these numbers. All staff are eligible for a performance and profit related bonus scheme. Following the Group’s recent admission as a public quoted company to PLUS Markets, all employees are included in an employee share issue scheme, enabling them to benefit from and share in the continued growth and success of the business. The Directors strive to maintain the ‘entrepreneurial spirit’ that was fundamental in the early days of the Company. This is particularly important in the ‘product development’ aspect of the Company’s growth strategy. Allowing developers to explore and execute their own ideas allows an organic approach to software development. Outside the technical teams this is encouraged as well, with brainstorming and development of ‘ideas’ being a crucial stage in planning any product, service or activity we undertake. Board changes In January this year, following the reverse acquisition of West End Ventures Plc by dotMailer Limited a number of Board changes took place to ensure the Company was well positioned to move forward strategically and operationally, and also to ensure the Group meets both the legal and practical requirements of good Corporate Governance. The Executive Directors of dotMailer Limited (Peter Simmonds, Ian (“Tink”) Taylor, Simon Bird and David Ivy) joined the Board of dotDigital Group Plc as Executive Directors. David Pacy was appointed Non Executive Chairman of the Group and Nicholas Nelson became a Non Executive Director. Shane Moloney resigned from the Board of West End Ventures at the date of the reverse acquisition. www.dotdigitalgroup.com We aim to share the success of the Company with the staff... 07 dotDigital Group Annual Report and Accounts 2008/2009 08 Chairman’s & Chief Executive’s report continued It was with regret that we had to announce the resignation of Dave Ivy as a Director of the Company in September 2009. Dave, who was one of the co-founders of the Company and played an important role in its development, decided that his passion remains with early stage development of a business and with this in mind, wishes to pursue new early stage technology based projects outside the scope of digital marketing. Dave’s current role in developing the agency business will be taken on by Gordon (“Skip”) Fidura. Skip was appointed to the Board earlier this year and has a wealth of digital marketing expertise and senior industry experience, most recently from OgilvyOne Worldwide in London. Skip has been in marketing for over fourteen years, having worked in contact centres, direct marketing, customer analysis and digital marketing. Most recently Skip was Email Partner at OgilvyOne London and prior to that he was the Director of European Operations for Acxiom Digital. A frequent speaker at industry events in the UK, Europe and the US, Skip is also Vice-Chairman of the UK DMA Email Marketing Council, was listed by Revolution Magazine as one of the 50 most influential people in new media and has judged numerous industry awards including the 2009 DMAs. Business description and philosophy With our full range of platforms and services, dotDigital has the unquestioned ability to supply any business with a suite of integrated, scalable marketing tools that will enable them to use digital marketing to help meet their business objectives: from lead generation and relationship management through to website conversion, SEO, online merchandising, and post-sale follow-up. Our deep and strong relationships with existing clients, built around outstanding client support, put us in a position of great strength to mine the potential of the existing client base. We have a unique opportunity widely to cross sell and up-sell our suite of products and services along with our strategic consultancy services (which in turn help to generate further product and service sales). The unique, overarching characteristic of the Group’s range of products is the fact that they are sophisticated and feature rich, but also extremely intuitive and easy to use. We pride ourselves on offering the equivalent of ‘NASA technology, with a ‘fisher-price®’ interface’. A commitment to exceptional client support Certain competitors within the email service provision sector, provide either basic client support, i.e. online FAQs, email support, webinars; or they provide a premium priced ‘managed service’ level of support reserved only for very high spending corporate clients. Skip Fidura 40, Digital Director www.dotdigitalgroup.com 09 ‘ Our deep and strong relationships with existing clients, built around outstanding client support, put us in a position of great strength...’ Accordingly, the Directors believe that it is inappropriate to propose a dividend based on this commitment to investing in growth. However, as soon as it becomes commercially prudent to join the dividend list and subject to the future availability of sufficient distributable reserves, then the Board will announce a sustainable dividend policy. David Pacy Chairman Peter Simmonds Chief Executive To help us differentiate we maintain a five tier client support structure for our email marketing clients that is dedicated to providing outstanding support, care and consultancy: • A dedicated account management team to ensure that clients have a named, dedicated account support contact who understands their needs and their challenges and can help them on a consultative level with both every day queries and tactical and best practice guidance; • Our account management team is incentivised to be proactive in their approach to clients, ensuring they contact their account contacts regularly to make sure they are happy with the service and to find out if there are further ways we can advise or help them. • This enables us to very effectively cross-sell and up-sell clients across our full range of products and services, whilst providing a very positive experience for the client; • A frontline technical support team working alongside the account management team, made up of our Technical Support Manager and Technical Support Executives. This team handles any technical queries clients may have, such as editing their email campaigns, dealing with spam filters and briefing bespoke email template designs; • A backline development support team made up of highly experienced developers able to respond to client feedback and build enhancements, fixes and new features into the dotMailer email marketing system in response to this; • A strategic consultancy team was created to provide higher level consultancy including guidance on overall email marketing strategy, overall digital marketing strategy, and successful integration of these into our clients’ business models and marketing mix. This team is made up of Tink Taylor and Skip Fidura. Both are elected members of the Direct Marketing Association Email Marketing Council. Dividend policy It is the Directors’ strategy to achieve capital growth on the strength of a consistently cash generative trading performance. During the last financial year our cash reserves grew significantly as a result of a strong cash flow and the amalgamation of the funds within West End Ventures Plc at the date of the reverse acquisition. It is the intention of the Board to utilise this cash to invest in new revenue generating opportunities for the business and to seek earnings enhancing acquisitions. dotDigital Group Annual Report and Accounts 2008/2009 10 Corporate social responsibility The Group is committed to achieving a long-term successful and sustainable business as a leading provider of digital marketing solutions. dotDigital’s products are used by hundreds of charities worldwide who have enjoyed our special charity rates. Community dotDigital was conceived, founded and continues to operate in the Borough of Croydon. The Company continues to work closely with local communities and sees its role as a leading business in the area to encourage and promote corporate growth. In terms of recruitment, local talent is always a focus. Workplace dotDigital is also committed to talent development through its work experience and graduate recruitment schemes. The Company has complied with all applicable legislation and has not been subject to sanctions or fines for environmental, health and safety or other infringements. Equal opportunities dotDigital is committed to an equal opportunities policy as part of its ethical and social responsibility. We believe in the importance of corporate social responsibility and sustainability within our business. A responsible approach to the environment, health and safety and fair treatment of our people, our customers, our suppliers, our local communities and other key stakeholders is embedded in our Group culture and values. In a nutshell, dotDigital recognises its obligations to all those with whom it has dealings and our good reputation is vital to instil confidence in all who do business with us. The UK charity sector has always been a key focus for the business. dotDigital has a pre-determined pricing model for registered charities and has worked with some of the country’s leading charities including Fairtrade, Wateraid and WRC. dotDigital is committed to providing the very highest possible services and quality products to charities at an affordable rate. Environment dotDigital has been quick to accentuate the environmentally friendly role of digital marketing in its thought leadership and media outreach. As the online answer to direct mail, email is quickly being seen as an environmentally-friendly alternative. dotDigital has worked with both the DMA and IAB to promote this message. www.dotdigitalgroup.com WaterAid – “Thank you so much. The new website is a truly outstanding piece of work that we are very happy with. Well done all of you”. www.wateraid.org/uk 11 Fairtrade Foundation – Launched to coincide with Fairtrade Fortnight the Foundation’s site has powerful functionality, intuitive navigation and brand-enhancing design. www.fairtrade.org.uk women’s resource centre – We set out to give WRC not only a very strong and distinctive online brand. We also created a highly effective information portal for all their users who need to find information quickly and easily. www.wrc.org.uk dotDigital Group Annual Report and Accounts 2008/2009 12 Our board of Directors Peter Simmonds FCCA, aged 51, Chief Executive and Finance Director Simon Bird, aged 34, Technical Director Tink Taylor, aged 37, Business Development Director Peter Simmonds commenced his career in 1976 as a trainee accountant with Unilever Plc and has over 20 years of experience at senior management and board level, principally in the areas of banking, insurance, finance, I.T. and outsourcing. He has considerable business entrepreneurial experience having been involved in the start up or early stage of a number of companies in various industry sectors including consultancy services, vehicle leasing, computer software and internet solutions sectors. Peter also has experience of business acquisition and post acquisition integration and management of businesses. Simon is a founding Director of dotDigital with a strong technical bias. His technical expertise stretches back to the beginning of his career when he was integral to the formation of a major internet access provider. Passionate about web software engineering, he strives to ensure the Group is always ahead of the technology game enabling dotDigital to build world class products for its customers. Tink Taylor a founding Director has many years experience in the field of interactive electronic communications. Tink has wide ranging experience in introducing the concept of digital marketing to companies large and small. He is an elected member of the Direct Marketing Association’s Email Marketing Council and also a member of the Internet Advertising Bureaus E-communications Council. Tink is a judge for the Emails and Virals category at the DMA awards. www.dotdigitalgroup.com 13 David Pacy aged 66, Non Executive Chairman Nicholas Nelson aged 44, Non Executive Director Nicholas Nelson commenced his career in 1985 as a trainee dealer on the floor of the London Stock Exchange accumulating approximately thirteen years experience as both dealer and investment manager. He has for the past ten years continued his City career, working in corporate communications during which time he has assisted on many PLUS and AIM floatations. He is currently Managing Partner of Haggie Nelson LLP, a City of London based financial public relations consultancy. David Pacy founded MetroVideo Group in 1979, which was sold to WPP Group Plc in 1986 in addition to subsequently setting up Stockroom Archive Management Limited which specialises in the storage and retrieval of film and video material. David was also a Founder of DigiReels, one of the UK’s earliest commercially available video on demand services, a joint venture between WPP Group Plc and Cable and Wireless Plc. He subsequently became a founder Director of ChillBean Limited, the digital asset management company hosting SohoSoho.tv, created specifically for the media world. David is a Director of Clockwork Capital a joint venture with WPP involved in equipment finance for the television industry. dotDigital Group Annual Report and Accounts 2008/2009 14 Corporate governance report The Board have decided to provide corporate governance disclosures in accordance with the principles and provisions of “The Combined Code: Principles of Good Governance and the Code of Best Practice” (“the Code”). As part of this process Turnbull guidelines set out in “Guidance for Directors on the Combined Code” have also been reviewed and are covered under “Internal control” below. An explanation of how dotDigital Group Plc (the “Group”) has applied the principles and the extent to which the provisions in the Code have been complied with appears below. Compliance statement (a) Directors The details of the Group’s Board, together with the Audit and Remuneration Committees, are set out on pages 16 and 18 respectively. The Board meets monthly and is responsible for strategy, performance, approval of major capital projects and the framework of internal controls. The Board has a formal schedule of matters reserved for specific review and decision. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed to all Directors in advance of Board meetings. All Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. At the period end there were four Executive Directors, one independent Non Executive Director and an independent Non Executive Chairman. The current constitution of the Audit and Remuneration Committees are shown on pages 16 and 18 respectively. Appointments to the Board are nominated by an Executive Director and then considered by the full Board. (b) Director’s remuneration As set out on pages 18 and 19, the remuneration of the Executive Directors is determined by the Remuneration Committee whilst that of the Non Executives is determined by the whole Board. The Directors are conscious of the importance of the performance related incentives and bonuses are paid based on performance as deemed appropriate by the Remuneration Committee. (c) Relations with shareholders The Group encourages two-way communications with all its shareholders and responds quickly to all requests or queries received. All Shareholders have at least twenty one working days’ notice of the Annual General Meeting at which all of the Directors and the Chairman are normally available for questions. Comments and questions are encouraged from the Shareholders at the meeting. (d) Accountability and audit (i) Financial reporting Detailed reviews of the performance and financial position of the Group are included in the Chairman’s and Chief Executive’s statement. ” We selected dotMailer’s email marketing software as it combined an easy email design user interface with excellent data capture and reporting capabilities.” EDF Energy www.dotdigitalgroup.com 15 (iii) Audit Committee and Auditors The Audit Committee comprises Tink Taylor and David Pacy and is chaired by Nicholas Nelson. The Auditors of the Group may also attend part or all of each meeting and they have direct access to the committee for independent discussions, without the presence of the Executive Director if required. The Audit Committee may examine any matters relating to the financial affairs of the Group, and to the Group’s audit. This includes reviews of the annual accounts and announcements, accounting policies, compliance with accounting standards, the appointment and fees of auditors and such other related functions as the Board may require. (iv) Going concern basis After making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concern basis in preparing the financial statements. The Board uses this and the Directors’ report on pages 20 to 24 to present a balanced and understandable assessment of the Group’s position and prospects. The Directors’ responsibility for the financial statements is described on page 24. (ii) Internal control The Board confirms that it has established the procedures necessary to implement the guidance set out in “Internal Control: Guidance for Directors on the Combined Code”. The process of risk identification, evaluation and management has been considered by the Board. It is the intention that this will continue to be kept under constant review and will be considered at each Board meeting in the future. The Board is continuing to take steps to embed internal control and risk management further into the operations of the business and to deal with areas of improvement which come to management and the Board’s attention. The Directors acknowledge their responsibilities for the Group’s system of internal financial control. Such a system can provide reasonable but not absolute assurance against material misstatement or loss. The Board confirms that the procedures necessary to comply with the provisions of the code, including the guidance of Turnbull, have been in place throughout the period ended 30 June 2009 and up to the date of the Directors’ report. It has considered the major business risks and the control environment. Important control procedures, in addition to the day to day supervision of the business, include comparison of monthly management accounts to the budget. dotDigital Group Annual Report and Accounts 2008/2009 16 Audit Committee report ” I’d tried two other providers before I found dotCommerce. The flexible ecommerce site they delivered has helped Fastfix to become the UK’s leading online supplier in our sector. Use them.” Fastfixdirect.co.uk The role of the Audit Committee Composition of the Audit Committee The Audit Committee is a sub-committee of the Board whose responsibilities include: • Reviewing the half-yearly and full year accounts and results announcements of the Company and any other formal announcements relating to the Company’s financial performance and recommending them to the Board for approval; The Audit Committee comprises the two independent Non Executive Directors, Nicholas Nelson and David Pacy and an Executive Director, Ian (“Tink”) Taylor. The Chairman of the Audit Committee is Nicholas Nelson. The Committee meets separately with the external Auditors without management being present. The Company Secretary is secretary to the Audit Committee. • Reviewing the Group’s systems for internal financial control and risk management; Main activities of the Audit Committee • Monitoring and reviewing the effectiveness of the Group’s internal accounting function and considering regular reports which arise; • Considering the appointment of the external Auditors, overseeing the process for their selection and making recommendations to the Board in relation to their appointment to be put to Shareholders for approval at a general meeting; • Monitoring and reviewing the effectiveness and independence of the external Auditors, agreeing the nature and scope of their audit, agreeing their remuneration, and considering their reports on the Group’s accounts, reports to Shareholders and their evaluation of the systems of internal financial control and risk management. At its meeting on the 15 October 2009 the Committee reviewed the Group’s preliminary announcement of its results for the financial year 30 June 2009 and the draft report and accounts for that year. The Committee received reports from the external Auditors on the conduct of their audit, their review of the accounts, including accounting policies and areas of judgement, and their comments on risk management and control matters. The Group’s corporate social responsibility reporting arrangements and procedures were also reviewed. The external Auditors also presented their proposed fees and scope for the forthcoming year’s audit. The Committee also reviewed the performance of both the internal accounting function and external Auditors. The review of the external Auditors was used to confirm the appropriateness of their reappointment and included assessment of their independence, qualification, expertise and resources, and effectiveness of their audit process. www.dotdigitalgroup.com 17 Internal management accounting The Audit Committee reviewed the performance of the internal accounting function, the department’s resource requirements and also approved the internal budgets for the year ending 30 June 2010 which appeared both prudent and realistic in the context of the Group’s ambitions. Approved by the Audit Committee Signed on its behalf by: Nicholas Nelson Chairman of the Audit Committee ” dotMailer’s customer orientation is key to our partnership: it is a two way communication that is constantly developing. We look for new solutions for DHL’s requirements, that can also benefit other dotMailer customers.” DHL European Headquarters The Audit Committee also reviewed the effectiveness of the Company’s systems for internal financial control and risk management. The Committee reviewed the Group’s credit control procedures and risks concerning IT controls. Independence of external Auditors Both the Board and the external Auditors have safeguards in place to avoid the possibility that the Auditors’ objectivity and independence could be compromised. Our policy in respect of services provided by the external Auditors is as follows: • Audit related services – the external Auditors are invited to provide services which, in their position as Auditors, they must or are best placed to undertake. This includes formalities relating to borrowings Shareholders’ and other circulars, various other regulatory reports and work in respect of acquisitions and disposals; • Tax consulting – in cases where they are best suited, we use the external Auditors. All other significant tax consulting work is put out to tender; • General consulting – in recognition of public concern over the effect of consulting services in Auditors’ independence, our policy is that the external Auditors are not invited to tender for general consulting work. dotDigital Group Annual Report and Accounts 2008/2009 18 Remuneration Committee report The Remuneration Committee Directors’ emoluments The Remuneration Committee was established to keep under review the remuneration and terms of employment of Executive Directors and to recommend such remuneration and terms and changes thereof to the Board. The Committee’s composition, responsibilities and operation comply with the Combined Code. In forming its remuneration policy, the Committee confirms that it has complied with the Combined Code. The Committee comprised of Nicholas Nelson (Chairman), David Pacy and Peter Simmonds. Peter Simmonds being an Executive Director cannot comment upon his own remuneration. Executive Director’s P. Simmonds I. Taylor S. Bird D. Ivy Executive Director’s P. Simmonds I. Taylor S. Bird D. Ivy Directors’ interests Executive Director Frank Nominees Ltd * I. Taylor S. Bird D. Ivy Remuneration policy The Group’s executive remuneration policy objectives are: (a) To ensure that individual rewards and incentives are directly aligned with the performance of the Group and that of the interests of the Shareholders; and (b) To maintain a competitive program which enables the Group to attract and retain high caliber Executives. www.dotdigitalgroup.com 14 month period ended 30 June 2009 Salary/Fees 102,667 98,380 98,380 98,380 397,807 Benefits 13,356 – – – 13,356 Bonus 25,000 20,000 20,000 20,000 85,000 Pension 3,667 7,269 7,269 7,269 Total 144,690 125,649 125,649 125,649 25,474 521,637 12 month period ended 30 April 2008 Salary/Fees 7,333 18,000 18,000 18,000 61,333 Benefits 1,156 – – – 1,156 Bonus – – – – – Pension – 4,035 4,035 4,035 12,105 Total 8,489 22,035 22,035 22,035 74,594 Number of Shares held as at 30.6.09 65,300,000 304,300,000 304,300,000 304,300,000 978,200,000 % holding 5.05 23.36 23.36 23.36 75.13 * Frank Nominees Limited acts as nominee for Alliance Trust Pensions Limited, which is the trustee of a SIPP established by Peter Anthony Simmonds. Frank Nominees is the vehicle used by Kleinwort Benson Limited to hold securities for clients, trusts, SIPP’s etc. The beneficiary of the SIPP is Peter Anthony Simmonds. Directors’ interests in Share Options Executive Director P. Simmonds Number of Share Option Grant date granted 1.4.2008 41,667,667 Option price (pence) 0.24 Date first exercisable Expiry date 1.6.08 31.12.2012 19 Service contracts Employee Incentive Schemes On 7 January 2009, the Executive Directors each entered into a service contract with the Group, the terms of which commenced upon Admission to PLUS Markets on the 2 February 2009. Each appointment runs for one year from that date and is terminable by six months’ notice by either party to expire at the end of that year or at any time thereafter. The agreement contains restrictive covenants. Upon termination, no benefits (other than those accruing during the notice period) are due to the Director. The Group has awarded share options under EMI, approved share option schemes to key employees who had completed their probation period at the date of the reverse acquisition. The Board considers the performance of staff in conjunction with the Group during the, bi-annual review process. Discretionary bonuses are awarded based on individual and Group performance. Approved by the Remuneration Committee. Signed on its behalf by: ” I first started using dotMailer seven years ago. I was tasked with identifying the most cost-effective, creative and efficient solution to our email marketing and chose dotMailer.” B Commercial Limited Directors’ interests The respective interests, all of which are beneficial, in the shares of the Company for the members of the Board at the year end and subsequent to that date are stated in the table opposite: Directors’ interests in Share Options Under the Group’s executive share option scheme the following Directors have the right to acquire Ordinary Shares. The options that were originally granted on 1 April 2008 which were for Ordinary Shares in dotMailer Limited have been converted on 1 February 2009 upon the reverse acquisition of dotDigital Group PLC (formerly known as West End Ventures PLC) and are exercisable on or before 31 December 2012. See table opposite. Nicholas Nelson Chairman of Remuneration Committee ” I’m so impressed with your commitment in helping to get us started, and with all the things dotMailer can do.” Strutt & Parker LLP dotDigital Group Annual Report and Accounts 2008/2009 20 Report of the Directors’ The Directors present their report with the financial statements of the Company and the Group for the period 1 May 2008 to 30 June 2009. Change of name The Group passed a special resolution on 30 January 2009 changing its name from West End Ventures Plc to dotDigital Group Plc. Principal activity The principal activity of the Group in the period under review was that of digital marketing. Business review and future developments On 30 January 2009 the dotDigital Group Plc completed a reverse takeover of dotMailer Limited. dotMailer’s core business was that of digital marketing consisting of a numerous brands that dealt with email marketing, web design, development, consultancy and content management systems. Prior to the reverse takeover the dotDigital Group Plc was known as West End Ventures Plc who’s principle activity was that of being an investment vehicle in the media industry. During 2008/09 the business has shown itself being resilient in the face of the current economic climate and has benefited from traditional marketing spend being on offline media to online digital marketing. During the period, the Group has shown significant growth with the success of its leading edge internet technology achieving an increase in revenue of 91% from £2.47m in 2008 to £4.72m in 2009 and a pre tax profit of £1.08m showing an increase of 45% to prior year. An event resulting in a hosting centre going off-line for any significant period of time or the termination of provision of services by one of those hosting centres for any reason may result in significant loss of revenues and therefore materially harm the Group’s business, operating results and financial condition. Key performance indicators The operations as a whole and the individual business units are managed and controlled using a variety of key performance indicators appropriate to the goals they have been set. Examples of key performance indicators include: • New client wins; • Sales targets by individual and business unit; • Management of costs against budget; • Customer satisfaction; • Growth in headcount; • Renewal and retention rate of customers; • Product features released; • Control of working capital. Similarly, events preventing or obstructing the servers from communicating over the internet, such as the future availability of a finite number of IP addresses, may restrict the capacity of the business. (ii) ISP reputation related risks A significant proportion of the Group’s revenue is currently derived by charging a price per email for sending marketing emails on behalf of commercial marketing departments. The largest volume senders of emails tend to be companies sending to consumers. Consequently some of dotMailer’s largest customers send large numbers of emails to consumers. Key risks and uncertainties (i) Supplier, computer hardware and internet reliability related risks The Group rents space for its servers located at hosting centers and purchases bandwidth from service providers in the UK to run the software and services it supplies. Although, it spreads the risk of computer hardware failure across multiple servers in multiple hosting centers and, to date, there have been no significant failures, there is no assurance of continuity of supply. The EU anti-spam regulations and US CAN_SPAM laws place restrictions on what and when companies are allowed to send marketing emails to consumers. dotMailer rents the use of its software and servers for clients to upload their own email lists and send their email marketing campaigns. dotMailer does not own lists or provide third people’s data and is therefore not directly liable for any breaches of the EU or US anti- spam regulations. However, where clients are considered by email recipients to be sending unwanted emails, there is an inherent www.dotdigitalgroup.com 21 ‘ During the period, the Group has shown significant growth with the success of its leading edge internet technology achieving a pre tax profit of £1.08m showing an increase of 45% to prior year.’ mechanism within most email clients to make a complaint against the sender. The level or number of complaints is recorded by the larger ISP’s (Hotmail, Yahoo, AOL etc) against the IP address of the server sending the email; this complaint rate record establishes the reputation of each IP address. An IP address with a poor reputation may not get a high level of delivery of emails. dotMailer closely audits the complaint rates for each of its clients and reacts quickly and accordingly to stop rogue campaigns. However, if too many new clients create and send campaigns which attracted high complaint rates, the reputation of dotMailer’s sending IP addresses could be diminished. This diminished reputation could affect dotMailer’s ability to win or retain new clients and therefore could significantly affect its planned growth in revenues. dotMailer also faces risks from commercial and non-commercial anti spam services. There are a number of organisations who provide a service to individuals and companies to help them reduce spam in their inbox examples include Spamhaus and Spamcop. These organisations allow individuals to report an email as spam. This reporting can rapidly propagate the blacklisting of an IP address or domain used to send the reported email. This could impact on dotMailer’s ability to deliver emails on behalf of other clients which could in turn impact on revenues. It is also to be noted that as the ISP communities adopt ever tougher measures to deal with the problem of spam, there is a risk that genuine marketing emails could be falsely labelled as spam and do not get delivered to the intended recipients. (iii) Hacking & information security In the opinion of the Group’s Directors, the technical team take sensible precautions against intrusions and loss of data. dotMailer employs a security manager to mitigate this risk. However, there always is a possible risk that a hacking attack could result in a denial of service or loss of data. (iv) Competitive environment Although, the Group’s revenues have consistently grown year on year, it competes in a competitive sector. Some of its competitors and potential competitors may have advantages over it in terms of financial backing, business size, broader brand recognition and globally in terms of coverage of geographic markets. Their capacity to leverage their marketing expenditures across a broader range of potential customers, form relationships with brand owners or make acquisitions of complimentary products inherently increases the risk to the Group‘s business model. (v) Hire and retain key personnel The Group depends on the continued contributions of the Group’s senior management and other key personnel. The loss of the services of any of these Executive Officers or other key employees could harm the Group’s business. The future success of the Group also depends on its ability to identify, attract and retain highly skilled technical, managerial and sales personnel. The Group faces intense competition for qualified individuals from numerous technology and marketing companies (vi) Development of products The digital marketing industry is a fast paced and rapidly adopts developing technologies. In order to stay competitive the Group needs to deploy resources to research and development activity and to constantly innovate. Whilst the Group will continue to strive to ensure it is able to deliver products and services that meet the needs of its target clients there is a risk that competitors may be first to the market with products that entice clients away from dotMailer. The Group’s growth will depend upon the development, commercialisation and marketing of new products. If this is not done successfully, then the growth of the Group may be impaired. There is also a risk that this activity may not result in leading edge or competitive products being brought to market in time to maintain a competitive advantage. dotDigital Group Annual Report and Accounts 2008/2009 22 Report of the Directors’ continued Future outlook Directors’ interests The marketplace for our services has remained robust as we move into the current financial year. The Group’s customer base has continued to grow and the response to our broadened offering, introduced last year, encouraging. The Directors who served during the period and their beneficial interests in the shares of the Group as recorded in the register of Directors’ interests at 30 June 2009 are as presented in Table A opposite. The Directors who served during the period and their beneficial interests in share options in the Group, as recorded in the register of Directors’ interests as at 30 June 2009 are presented in Table B opposite. Substantial interests On 10 October 2009, the following parties outlined in Table C, had notified the Group of a beneficial interest that represents 5% or more of the Group’s issued share capital at that date. Group’s policy on payment of creditors The Group does not have a formal code that it follows with regard to payments to suppliers. It agrees payments terms with its suppliers at the time it enters in to binding purchasing contracts for the supply of goods and services. The Company seeks to abide by these payment terms whenever if is satisfied that the supplier has provided the goods or services in accordance with agreed terms and conditions. The average days credit for the year is 25 (2008: 18 days). We maintain a strong cash position and have an eye towards an expansion of our services through acquisition with a number of targets already under review. Recognition of our brand is now widespread within the marketing sector and we believe that the coming year will present opportunities to expand and diversify profitably with only incremental increase in overhead cost. Accordingly, we look forward to the year with confidence. Dividends The total distribution of dividends for the period ended 30 June 2009 was £118,800. These dividends were distributed prior to the reverse acquisition. Directors The Directors during the period under review were: S. Bird D. Ivy N. Nelson D. Pacy P. Simmonds I. Taylor S. Moloney G. Fidura appointed 30.1.09 appointed 30.1.09 (and resigned 10.9.09) – – appointed 30.1.09 appointed 30.1.09 resigned 9.2.09 appointed 1.7.09 ” I am so pleased. It does everything I need it to and the results I am getting are brilliant. It’s just fantastic.” Sophos Plc www.dotdigitalgroup.com 23 Table A Directors S. Bird D. Ivy I. Taylor P. Simmonds* N. Nelson** D. Pacy S. Moloney*** As at 30.6.09 Shareholding As at 30.6.08 Shareholding Number % % – – 23.36 – – 23.36 – – 23.36 – 5.01 – 9.13 2.12 27,625,000 12.40 2.88 37,500,000 4.13 0.43 12.500,000 Number 304,300,000 304,300,000 304,300,000 65,300,000 27,625,000 37,500,000 5,500,000 * ** Peter Simmonds is beneficially entitled to 65,300,000 Ordinary Shares which are owned by Alliance Trust Pension Limited. Nicholas Nelson is beneficially entitled to 2,625,000 Ordinary Shares which are owned by The Thames Investment Club. Table B Executive Director P. Simmonds As at 30.6.09 Shareholding As at 30.6.08 Shareholding % % – 3.10* Number 41,666,667 Number – * Percentage shareholding represents the percentage of the shares issued should be no more than the existing shares and those exercisable at the balance sheet date. Table C Shareholders Frank Nominees Ltd* I. Taylor S. Bird D. Ivy Pershings Nominees Limited Number of Shares 65,300,000 304,300,000 304,300,000 304,300,000 64,796,429 % holding 5.01 23.36 23.36 23.36 5.00 * Frank Nominees Limited acts as nominee for Alliance Trust Pensions Limited, which is the trustee of a SIPP established by Peter Anthony Simmonds. Frank Nominees is the vehicle used by Kleinwort Benson Limited to hold securities for clients, trusts, SIPP’s etc. The beneficially of the SIPP is Peter Anthony Simmonds. dotDigital Group Annual Report and Accounts 2008/2009 24 Report of the Directors’ continued Publication of accounts on Company website Auditors The Auditors, Jeffreys Henry LLP, will be proposed for re-appointment at the forthcoming Annual General Meeting. Statement of Directors’ responsibilities The Directors are responsible for preparing the Report of the Directors’ and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards as adopted for use in the European Union. Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and accounting estimates that are reasonable and prudent; • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business; Financial statements are published on the Company’s website. The maintenance and integrity of the website is the responsibility of the Directors. The Directors’ responsibility also extends to the financial statements contained therein. Indemnity of Officers The Group may purchase and maintain, for any Director or Officer, insurance against any liability and the Group does maintain appropriate insurance cover against legal action bought against its Directors and Officers. Financial instruments Details of the Group’s risk management objectives and policies together with its exposure to financial risk are set out in note 21 to the financial statements. The purpose of the policies is to ensure that adequate cost effective funding is available to the Group and exposure to financial risk – interest rate, liquidity and credit risk – is minimised. Going concern After making appropriate enquiries, the Directors consider that the Company and the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. www.dotdigitalgroup.com • State whether the Group and parent Company financial statements have been prepared in accordance with IFRSs as adopted by the European Union subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s and the Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and as regards to the Group financial statements, Article 4 of the IAS regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Statement as to disclosure of information to Auditors So far as the Directors are aware, there is no relevant audit information (as defined by Section 418 of the Companies Act 2006) of which the Group’s Auditors are unaware, and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Group’s Auditors are aware of that information. On behalf of the Board: Peter Simmonds Director 15 October 2009 25 dotDigital Group Annual Report and Accounts 2008/2009 26 Independent Auditors’ Report We have audited the Group and Company financial statements of dotDigital Group Plc for the period ended 30 June 2009 which comprise of the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, statement of changes in equity, consolidated cash flows and the related notes on pages 28 to 55. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted for use in the European Union, and as regards the parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Sections 495 and 496 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in a Report of the Auditors and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditors As explained more fully in the Statement of Directors’ Responsibilities set out on page 24, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. www.dotdigitalgroup.com 27 Opinion on financial statements In our opinion: • The financial statements give a true and fair view of the state of the Group’s and the parent Company’s affairs as at 30 June 2009 and of the Group’s profit for the period then ended; • The Group financial statements have been properly prepared in accordance with IFRSs as adopted for use in the European Union; • The parent Company financial statements have been properly prepared in accordance with IFRSs as adopted for use in the European Union and as applied in accordance with the provisions of the Companies Act 2006; and • The financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and as regards the Group financial statements, Article 4 of the IAS regulation. Opinion on other matter prescribed by the Companies Act 2006 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • Adequate accounting records have not been kept by the parent Company, or returns adequate for audit have not been received from branches not visited by us; or • The parent Company financial statements are not in agreement with the accounting records and returns; or • Certain disclosures of Directors’ remuneration specified by law are not made; or • We have not received all the information and explanations we require for our audit. Sanjay Parmar Senior Statutory Auditor For and behalf of Jeffreys Henry LLP • The information given in the Report of the Directors’ for the financial year for which the financial statements are prepared is consistent with the financial statements. Finsgate, 5-7 Cranwood Street London EC1V 9EE 15 October 2009 dotDigital Group Annual Report and Accounts 2008/2009 28 Consolidated income statement Consolidated income statement for the period 1 May 2008 to 30 June 2009 for the period 1 May 2008 to 30 June 2009 Continuing operations Revenue Administrative expenses Operating profit Finance costs Finance income Profit from continuing operations before income tax Income tax Profit after income tax Profit attributable to: Owners of the parent Earnings per share expressed in pence per share: Basic Diluted Consolidated statement of comprehensive income for the period 1 May 2008 to 30 June 2009 Profit for the period Other comprehensive income Total comprehensive income for the period Total comprehensive income attributable to: Owners of the parent Non-controlling interests www.dotdigitalgroup.com Period 1.5.08 to 30.6.09 £ Year ended 30.4.08 £ Note 2 5 4 4 5 6 9 4,718,290 (3,652,199) 2,474,365 (1,748,228) 1,066,091 726,137 (864) 15,088 (3,332) 24,578 1,080,315 (184,808) 747,383 (180,383) 895,507 567,000 895,507 567,000 0.14 0.13 0.19 0.19 Note Period 1.5.08 to 30.6.09 £ 895,507 – 895,507 Year ended 30.4.08 £ 567,000 – 567,000 895,507 – 567,000 – Consolidated statement of financial position Consolidated statement of financial position 30 June 2009 30 June 2009 Assets Non-current assets Goodwill Intangible assets Property, plant and equipment Current assets Trade and other receivables Cash and cash equivalents Total assets Equity Shareholders’ equity Called up share capital Share premium Reverse acquisition reserve Other reserves Retained earnings Total equity Liabilities Non-current liabilities Financial liabilities – borrowings Interest bearing loans and borrowings Current liabilities Trade and other payables Financial liabilities – borrowings Interest bearing loans and borrowings Tax payable Total liabilities Total equity and liabilities 29 Period 1.5.08 to 30.6.09 £ Year ended 30.4.08 £ Note 10 11 12 14 15 16 17 17 17 17 19 18 19 608,503 259,675 119,052 – 12,282 125,861 987,230 138,143 655,304 1,677,902 444,668 684,493 2,333,206 1,129,161 3,320,436 1,267,304 1,292,500 4,533,754 (4,695,465) 5,302 1,552,372 292,500 533,754 (826,162) – 775,665 2,688,463 775,757 18,228 – 416,811 304,225 12,152 184,782 613,745 6,939 180,383 491,547 631,973 491,547 3,320,436 1,267,304 The financial statements were approved by the Board of Directors on 15 October 2009 and were signed on its behalf by: Peter Simmonds Director Company registration number – 06289659 (England and Wales) dotDigital Group Annual Report and Accounts 2008/2009 30 Company statement of financial position continued 30 June 2009 Assets Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Equity Shareholders’ equity Called up share capital Share premium Other reserves Retained losses Total equity Liabilities Current liabilities Trade and other payables Total liabilities Total equity and liabilities Note 30.6.09 £ 30.6.08 £ 13 5,183,488 5,183,488 – – 14 15 16 17 17 17 18 2,712 564,531 567,243 10,803 821,557 832,360 5,750,731 832,360 1,292,500 4,533,754 5,302 (148,728) 292,500 533,754 – (85,372) 5,682,828 740,882 67,903 67,903 91,478 91,478 5,750,731 832,360 The financial statements were approved by the Board of Directors on 15 October 2009 and were signed on its behalf by: Peter Simmonds Director Company registration number – 06289659 (England and Wales) www.dotdigitalgroup.com Consolidated statement of changes in equity for the period 1 May 2008 to 30 June 2009 Balance at 1 May 2007 Changes in equity Issue of share capital Dividends Total comprehensive income Reverse acquisition Balance at 30 April 2008 Changes in equity Issue of share capital Dividends Total comprehensive income Balance at 30 June 2009 Balance at 1 May 2007 Changes in equity Issue of share capital Dividends Total comprehensive income Reverse acquisition Balance at 30 April 2008 Changes in equity Issue of share capital Dividends Total comprehensive income Reverse acquisition Share option adjustment Balance at 30 June 2009 31 Share capital £ – 292,500 – – – 292,500 1,000,000 – – Called up retained earnings £ 546,465 – (337,800) 567,000 – 775,665 – (118,800) 895,507 Share premium £ – 533,754 – – – 533,754 4,000,000 – – 1,292,500 1,552,372 4,533,754 Reverse acquisition reserve £ – – – – (826,162) (826,162) – – – (3,869,303) – Other reserves £ – – – – – – Total equity £ 546,465 826,254 (337,800) 567,000 (826,162) 775,757 – – – – 5,302 5,000,000 (118,800) 895,507 (3,869,303) 5,302 (4,695,465) 5,302 2,688,463 Share capital is the amount subscribed for shares at nominal value. Share premium represents the excess of the amount subscribed for share capital over the nominal value of the respective shares net of share issue expenses. Retained earnings represents the cumulative earnings of the Group attributable to equity Shareholders. The reverse acquisition reserve relate to the adjustment required by accounting for the reverse acquisition in accordance with International Financial Reporting Standard 3. Other reserves relate to the charge for share-based payment in accordance with the International Financial Reporting Standard 2. dotDigital Group Annual Report and Accounts 2008/2009 32 Company statement of changes in equity for the period 1 May 2008 to 30 June 2009 Balance at 1 July 2007 Changes in equity Issue of share capital Total comprehensive income Balance at 30 June 2008 Changes in equity Issue of share capital Total comprehensive income Share option adjustment Balance at 30 June 2009 Called up share capital £ – 292,500 – 292,500 1,000,000 – – Retained losses £ – – (85,372) (85,372) – (63,356) – Share premium £ – 533,754 – 533,754 Other reserves £ – – – – Total equity £ – 826,254 (85,372) 740,882 4,000,000 – – – – 5,302 5,000,000 (63,356) 5,302 1,292,500 (148,728) 4,533,754 5,302 5,682,828 Share capital is the amount subscribed for shares at nominal value. Share premium represents the excess of the amount subscribed for share capital over the nominal value of the respective shares net of share issue expenses. Retained losses represents the cumulative losses of the Company attributable to equity Shareholders. Other reserves relate to the charge for share-based payment in accordance with the International Financial Reporting Standard. www.dotdigitalgroup.com Consolidated statement of cash flows for the period 1 May 2008 to 30 June 2009 Cash flows from operating activities Cash generated from operations Interest paid Tax paid Net cash from operating activities Cash flows from investing activities Purchase of goodwill Purchase of intangible fixed assets Purchase of tangible fixed assets Interest received Funds acquired from acquisition Net cash from investing activities Cash flows from financing activities New loans in year Amount introduced by directors Amount repaid to directors Equity dividends paid Net cash from financing activities 33 Note 26 Period 1.5.08 to 30.6.09 £ 948,297 (864) (180,435) Year ended 30.4.08 £ 729,605 (3,332) (67,598) 766,998 658,675 (39,183) (295,670) (62,371) 15,088 765,105 – – (76,182) 24,578 – 382,969 (51,604) 23,441 – (61,199) (118,800) 1,253 64,167 – (337,800) (156,558) (272,380) Increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 993,409 684,493 1,677,902 27 27 334,691 349,802 684,493 dotDigital Group Annual Report and Accounts 2008/2009 34 Notes to the consolidated financial statements for the period 1 May 2008 to 30 June 2009 General information dotDigital Group Plc (“dotDigital”) is a Company incorporated in England and Wales and quoted on the PLUS Markets. The address of the registered office is disclosed on page 56 of the financial statements. The principal activity of the Group is described on page 20. The Company changed to its present name on 30 January 2009 upon the successful reverse acquisition of dotMailer Limited. 1. Accounting policies Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention. The Group has applied all accounting standards and interpretations issued by the International Accountancy Standards Board and International Accounting Interpretations Committee effective at the time of preparing the financial statements. The financial statements are presented in Sterling (£), rounded to the nearest pound. Issued International Financial Reporting Standards (IFRS’s) and interpretations (IFRICS) not relevant to Company operations. The following interpretations to published standards is mandatory for accounting periods beginning on or after 1 May 2008 but are not relevant to the Group’s operations: • IFRS 1, IAS 27 (Amendment)– Consolidated and separate financial statements (effective from 1 July 2009). The amendment allows first time adopters of IFRS to use a deemed cost of either fair value or the carrying amount under previous accounting practice to measure the initial cost of investments in, jointly controlled subsidiaries entities and associates in the separate financial statements of the investor. This is not relevant for the Group as it has already adopted IFRS. • IFRS 7 ‘Financial instruments: Disclosures’ and the complementary amendment to IAS 1 ‘Presentation of financial statements – Capital disclosures’. IFRS 7 introduces new disclosure relating to financial instruments. The standard does not have any impact on the classification and valuation of the Group’s financial instruments. • IAS 32 ‘Financial instruments: Presentation’ and IAS 1 ‘Presentation of financial statements. Puttable financial instruments and obligations arising on liquidation’. Amendments to the standards improve the accounting for particular types of financial instruments that have characteristics similar to ordinary shares but are at present classified as financial liabilities for accounting periods on or after 1 January 2009. • IAS 39 ‘Financial instruments: Recognition and measurement’ provide additional guidance on what can be designated as a hedge item for accounting periods beginning on or after 1 July 2009. • IFRIC 9 ‘Reassement of embedded derivatives’ and IAS 39 ‘Financial instruments: Recognition and measurement’. Amendments clarify the accounting treatment of embedded derivatives for entities that make use of the reclassification amendment issued by the IASB in October 2008 for accounting periods beginning on or after 30 June 2009. • IFRIC 11 ‘Group and treasury share transactions’ (effective from annual periods beginning on or after March 2007). The interpretation provides guidance on whether share based transactions involving treasury shares or involving Group entities (for example, options over parent’s shares) should be accounted for as equity-settled or cash-settled share based payment transactions in the parent and Group accounts. • IFRIC 16 ‘Hedges of a net investment in a foreign operation’. This clarifies the following: a) whether risk arises from foreign currency exposure to the functional currencies of a foreign operation, or from foreign currency exposure to functional currency of a foreign operation. b) how an entity should determine the amounts to be reclassified from equity to profit and loss for both the hedging instrument and the hedged item when an entity disposes the investment. • IFRIC 17 ‘Distributions of non cash assets to owners’. Standardises practice in the measurement of distributions of non cash assets to owners for accounting periods beginning on or after 1 July 2009. • IFRIC 18 ‘Transfers of assets from customers’. This clarifies the requirements of IFRS’s for the agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to network or to provide the customer with on going access to a supply of goods or services. This applies to transfers of assets from customers received on or after 1 July 2009. Issued International Financial Reporting Standards (IFRS’s) and interpretations (IFRICS) that are not yet effective. At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue, mandatory for the Company’s accounting periods beginning on or after 1 May 2009 but not early adopted: • IFRS 2 (Amendment) ‘Share based payments’ (effective from 1 May 2009). The amendment considers vesting conditions and cancellations. It clarifies that vesting conditions are service conditions and performance conditions only. www.dotdigitalgroup.com 35 Other features of a share based payment are not vesting conditions. As such these features would need to be included in the grant date fair value for transactions with employees and others providing similar services, that is, these features would not impact the number of awards expected to vest or valuation thereof subsequent to grant date. It also specifies that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. • IFRS 3 (Revised), ‘Business combinations’ (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The Group will apply IFRS 3 (Revised) prospectively to all business combinations from 1 January 2010. • IFRS 5 (Amendment), ‘Non-current assets held-for-sale and discontinued operations’ (and consequential amendment to IFRS 1, ‘First-time adoption’) (effective from 1 July 2009). The amendment is part of the IASB’s annual improvements project published in May 2008. The amendment clarifies that all of a subsidiary’s assets and liabilities are classified as held for sale if a partial disposal sale plan results in loss of control. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. A consequential amendment to IFRS 1 states that these amendments are applied prospectively from the date of transition to IFRSs. The Group will apply the IFRS 5 (Amendment) prospectively to all partial disposals of subsidiaries from 1 January 2010. • IFRIC 12 ‘Service concession arrangements’. IFRS12 applies to contractual agreements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services for example under PFI contracts. • IFRIC 13 ‘Customer loyalty programmes’ . This clarify that where goods are sold together with a customer loyalty incentive the arrangement is a multiple element arrangement and the consideration receivable from the customer should be allocated between the components of the arrangement in proportion to their fair values. • IFRIC 14, IAS 19 ‘the limit on defined asset, minimum funding requirements and their integration’ . This provides guidance on assessing the limit in IAS 19 ‘Employee benefits’ on the amount of the defined benefit plan surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. • IFRIC 15 ‘Agreements for the construction of real estates’ . The interpretation clarifies which standard should be applied to particular transactions pertaining to construction of real estates. • IFRS 8 (Revised) ‘Operating segments’ (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, “Disclosures about segments of an enterprise and related information”. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting purposes. The expected impact is still being assessed in detail by management, but it appears likely that the number of reportable segments, as well as the manner in which segments are reported, will change in a manner that is consistent with the internal reporting provided to the chief operating decision-maker. • IAS 23 (Revised) ‘Borrowing costs’ (effective 1 May 2009). The main change from the previous version is the removal of the option of immediately recognising as an expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. Issued International Financial Reporting Standards (IFRS’s) and interpretations (IFRICS) relevant to Company operations. The following interpretations to published standards is mandatory for accounting periods beginning on or after 1 May 2008 but have been adopted early. • IAS 1 (Revised) ‘Presentation of financial statements’. Key changes include, the requirement to aggregate information in the financial statements on the basis of shared characteristics, the introduction of a Statement of Comprehensive Income and changes in titles of some of the financial statements. a) Preparers of financial statements will have the option of presenting income and expense and components of other comprehensive income either in a single statement or in two separate statements (a separate income statement followed by a statement of comprehensive income). b) The new titles for the financial statements (for example ‘statement of financial position’ instead of balance sheet) will be used in the accounting standards but are not mandatory for use in financial statements. dotDigital Group Annual Report and Accounts 2008/2009 36 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 c) The expected impact is still being assessed in detail by management as the IASB is involved in discussions to examine more fundamental questions about the presentation of information in financial statements. • A reverse acquisition reserve has been created to enable the presentation of a consolidated balance sheet which combines the equity structure of the legal parent with the non statutory reserves of the legal subsidiary; Subsidiaries A subsidiary is an entity whose operating and financing policies are controlled by the Group. Subsidiaries are consolidated from the date on which control was transferred to the Group. Basis of consolidation On 30 January 2009 the Company acquired via a share for share exchange the entire issued share capital of dotMailer Limited, whose principle activity is that of web and email based marketing. Under IFRS 3 ‘Business combinations’ the dotMailer Limited share exchange has been accounted for as a reverse acquisition. Although these consolidated financial statements have been issued in the name of the legal parent, the Company it represents in substance is a continuation of the financial information of the legal subsidiary, dotMailer Limited. The following accounting treatment has been applied in respect of the reverse acquisition: • The assets and liabilities of the legal subsidiary, dotMailer Limited are recognised and measured in the consolidated financial statements at their pre combination carrying amounts, without restatement to their fair value; • The retained reserves recognised in the consolidated financial statements reflect the retained reserves of dotMailer Limited to 30 April 2008. However, in accordance with IFRS 3 ‘Business combinations’ the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent dotDigital Group Plc, including the equity instruments issued under the share exchange to effect the business combination; • Comparative numbers are based upon the consolidated financial statements of the legal subsidiary, dotMailer Limited for the year ended 30 April 2008 apart from the equity structure which reflects that of the parent; and Subsidiaries cease to be consolidated from the date the Group no longer has control. Intercompany transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation. • dotMailer Limited reported under IFRS for the year ended 30 April 2008 and such no reconciliation is provided between UK GAAP and IFRS; • The following accounting treatment has been applied in respect of the acquisition of dotDigital Group Plc; • The assets and liabilities of dotDigital Group Plc are recognised and measured in the consolidated financial statements at their fair value at the date of acquisition; • The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less then the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. As a result of applying reverse acquisition accounting, the consolidated IFRS financial information of dotDigital Group Plc is a continuation of the financial information of dotMailer Limited. The retained earnings shown on the consolidated balance sheet are those for dotMailer Limited and a reverse acquisition reserve of £4,695,465 has been created. Revenue recognition In making their judgement, the Board of Directors have considered the detailed criteria for the recognition of revenue from the sale of products and services outlined in IAS 18 Revenue, and in particular where the Company has transferred to the customer the significant risk and rewards of the ownership of the products or service. The Board of Directors are satisfied that recognition of all such revenue in the current year is appropriate, and that the significant risks and rewards attached to such services have been transferred to the buyer. Goodwill Goodwill represents the excess of the fair value of the consideration over the fair values of the identifiable net tangible and intangible assets acquired. Under IFRS 3 “Business Combinations” goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment testing. Any impairment is recognised immediately in the income statement and not subsequently reversed. www.dotdigitalgroup.com 37 Intangible assets (other than goodwill) Intangible assets are recorded as separately identifiable assets and recognised at historical cost less any accumulated amortisation. These assets are amortised over their useful economic lives (five years), with the charge included in administrative expenses in the income statement. Intangible assets are reviewed for impairment annually. a) Domain names Acquired domain names are shown at historical cost. Domain names have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of domain names over their estimated useful lives. Domain names 25% on cost (b) Software Acquired software and websites are shown at historical cost. They have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of software and website over their estimated useful lives. Computer software 25% on cost (c) Product development Product development expenditure is capitalised when it is considered that there is a commercially and technically viable product, the related expenditure is separately identifiable and there is reasonable expectation that the related expenditure will be exceeded by future revenues. Following initial recognition, product developments are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of these intangible assets are assessed to have finite life. Amortisation is charged on assets with finite lives, this expense is taken to the income statement. Useful lives are also reviewed on an annual basis. Amortisation is provided at the following annual rates commencing from the date the asset are developed to a stage at which the Company can receive economic benefits from the asset. Trade receivables Trade receivables are recognised initially at the lower of their original invoiced value and recoverable amount. A provision is made when it is likely that the balance will not be recovered in full. Development costs 20% on cost Property, plant and equipment Trade payables Tangible non-current assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life. Short leasehold Fixtures and fittings Computer equipment - 25% on cost - 25% on cost - 25% on cost The asset’s residual values and useful economic lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable value. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other (losses) or gains in the income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Borrowings Borrowings are recognised at their fair value net of transaction costs incurred. They are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability of at least 12 months after the balance sheet date. Borrowing costs are recognised in the income statement in the period in which they are incurred. Taxation Current taxes are based on the results shown in the financial statements and are calculated according to local tax rules, using tax rates enacted or substantially enacted by the balance sheet date. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary difference will be utilised. Deferred income tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when they related deferred income asset is realised or deferred income tax liability is settled. dotDigital Group Annual Report and Accounts 2008/2009 38 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 Research and development Operating leases Pension contributions Rentals paid under operating leases are charged to the income statement on a straight line basis over the period of the lease. Functional currency translation The Group operates a defined contribution pension scheme. Contributions payable to the Group’s pension scheme are charged to the income statement in the period to which they relate. i) Functional and presentation currency Use of estimates and judgements Research expenditure is recognised as an expense when incurred. Costs incurred on development projects (relating to the design and testing of new or improved products) are recognised as intangible assets when the following criteria are fulfilled: • It is technically feasible to complete the intangible asset so that it will be available of use or resale; • Management intends to complete the intangible asset and use or sell it; • There is an ability to use or sell the intangible; • It can be demonstrated how the intangible asset will generate possible future economic benefits; • Adequate technical, financial and other resource to complete the development and to use or sell the intangible asset are available and; • The expenditure attributable to the intangible asset during its development can be reliably measured. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as intangible assets and amortised from the point at which they are ready for use on a straight line basis over its useful life. Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (the functional currency), which is mainly Pounds Sterling (£). The financial statements are presented in Pounds Sterling (£), which is the Company’s presentation currency. ii) Transactions and balances Foreign currency transactions are translated into the presentational currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year- end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Employee benefit costs The Group operates a defined contribution pension scheme. Contributions payable by the Group’s pension scheme are charged to the income statement in the period in which they relate. Share capital Segment reporting Ordinary Shares are classified as equity in the balance sheet and are recorded at the proceeds received net of the direct issue costs. A business segment is a Group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments. www.dotdigitalgroup.com The Group makes judgements, estimates and assumptions that effect the application of policies and reported amounts of assets and liabilities, income and expenses. The resulting accounting estimates calculated using these judgements and assumptions will, by definition, seldom equal the related actual results but are based on historical experience and expectations of future events. The estimates and underlying assumptions are reviewed on a ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision effects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below: (a) Impairment of goodwill The Group is required to test, at least annually, whether goodwill has suffered any impairment. The recoverable amount is determined based on value in use calculations. The use of this method requires the estimation of future cash flows and the choice of a suitable discount rate in order to calculate the present value of these cash flows. Actual outcomes could vary. 39 (b) Impairment of intangibles (other than goodwill) Intangible assets are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined based on value in use calculations prepared on the basis of management’s assumptions and estimates. (c) Impairment of property, plant and equipment Property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined based on value in use calculations prepared on the basis of management’s assumptions and estimates. (d) Amortisation of intangibles Amortisation is provided so as to write down the assets to their residual values over their estimated useful lives as set out above. The selection of these residual values and estimated lives requires the exercise of management judgement. (e) Depreciation of property, plant and equipment Depreciation is provided so as to write down the assets to their residual values over their estimated useful lives as set out above. The selection of these residual values and estimated lives requires the exercise of management judgement. (f) Share-based compensation The fair value of options and warrants are determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. Share based payments For equity settled share based payment transactions the Company in accordance with IFRS 2 “Share Based Payments” measuring their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The fair value of those equity instruments is measured at the grant date using the trinomial method. The expense is apportioned over the vesting period of the financial instrument and is based on the number which are expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vested immediately, the expense is recognised in full. The assumptions on the expected life of share options, volatility of shares and risk free yield to maturity and expected dividend yield on shares are used in the fair value calculation of the share options outstanding at the balance sheet date (see note 25). dotDigital Group Annual Report and Accounts 2008/2009 40 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 2. Segmental reporting The Group’s primary reporting format is business segments and its secondary format is geographical segments. The Group only operates in a single business and geographical segment. The Group’s single line of business is the provision of web based marketing services, whilst the geographical segment in which it operates is currently restricted to the UK. Accordingly no segmental information for business segment or geographical segment is required. 3. Employees and Directors Directors’ fees Wages and salaries Social security costs Other pension costs Information regarding directors’ emoluments are as follows: Directors’ fees Salaries Other benefits Pension costs Period 1.5.08 to 30.6.09 £ 16,665 2,028,398 220,437 63,843 Year ended 30.4.08 £ – 919,758 94,891 13,773 2,329,343 1,028,422 Period 1.5.08 to 30.6.09 £ 16,665 482,807 13,356 25,474 Year ended 30.4.08 £ – 61,333 1,156 12,105 538,302 74,594 The number of Directors for whom retirement benefits are accruing under the money purchased pension schemes amounted to 4 (2008 – 3). The average monthly number of employees during the period was as follows: Period 1.5.08 to 30.6.09 £ 6 12 12 25 55 Year ended 30.4.08 £ 4 10 15 9 38 Directors (Executive & Non Executive) Sales Web designers and developers Administration A subsidiary Company operates a defined contribution pension scheme. www.dotdigitalgroup.com 41 Period 1.5.08 to 30.6.09 £ 127,667 3,667 13,356 144,690 Year ended 30.4.08 £ 7,333 – 1,156 8,489 Period 1.5.08 to 30.6.09 £ Year ended 30.4.08 £ 15,088 24,578 192 672 864 – 3,332 3,332 14,224 21,246 Period 1.5.08 to 30.6.09 £ 2,452,525 169,242 12,183 16,000 48,276 69,180 138,381 136,657 20,842 275,932 312,981 Year ended 30.4.08 £ 948,077 73,263 – 5,100 – 43,463 113,665 63,600 178,900 161,825 160,335 3,652,199 1,748,228 Information regarding the highest paid Director for the period ended 30 June 2009 is as follows: Remuneration Pension contributions Other benefits Emoluments 4. Net finance income Finance income: Deposit account interest Finance costs: Bank loan interest Loan Net finance income 5. Profit before income tax Costs by nature Profit from continuing operations has been arrived at after charging/(crediting):- Staff related costs (including Directors emoluments) Operating leases: Land and buildings Operating leases: Other Audit remuneration Amortisation of intangibles Depreciation charge Legal and professional fees Computer expenditure Research costs Marketing costs Other costs Total administration expenses dotDigital Group Annual Report and Accounts 2008/2009 42 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 5. Profit before income tax continued Audit remuneration During the year period the Group obtained the following services from the Group’s Auditor at costs detailed below: Fees payable to Company’s Auditor for the audit of parent Company and consolidated financial statements Fees payable to the Company’s Auditor and its associates for other services – The audit of Company’s subsidiaries pursuant to legislation – Other services 6. Income tax Analysis of the tax charge Current tax: Tax Total tax charge in income statement Period 1.5.08 to 30.6.09 £ 5,000 11,000 – 16,000 Year ended 30.4.08 £ – 5,100 1,200 6,300 Period 1.5.08 to 30.6.09 £ 184,808 184,808 Year ended 30.4.08 £ 180,383 180,383 Factors affecting the tax charge The tax assessed for the period is lower than the standard rate of corporation tax in the UK. The difference is explained below: Profit on ordinary activities before tax Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 28% (2008: 30%) Effects of: Expenses not deductible Research and development enhanced claim Effect of profits within marginal rate of tax Capital allowances in excess of depreciation Total income tax www.dotdigitalgroup.com Period 1.5.08 to 30.6.09 £ 1,080,315 Year ended 30.4.08 £ 747,383 302,488 224,215 5,095 (118,947) (3,546) (282) (117,681) 7,608 (26,850) (21,312) (3,278) (43,832) 184,808 180,383 43 7. Loss of parent Company As permitted by Section 408 of the Companies Act 2006, the income statement of the parent Company is not presented as part of these financial statements. The parent Company’s loss for the financial year was £(63,356) (2008: £(85,372)). 8. Dividends Ordinary Shares of £0.01 each Interim Period 1.5.08 to 30.6.09 £ Year ended 30.4.08 £ 118,800 337,800 Reserves distributed during the period were paid before the reverse acquisition was undertaken, specific payment dates are outlined in the Directors’ report. 9. Earnings per share Earnings per share data is based on the consolidated profit using reverse accounting principals and the weighted average number of shares in issue of the parent Company. Basic earnings per share are calculated by dividing the earnings attributable to Ordinary Shareholders by the weighted average number of Ordinary Shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential Ordinary Shares. Reconciliations are set out below. Basic EPS Earnings attributable to Ordinary Shareholders Effect of dilutive securities Options & Warrants Diluted EPS Adjusted earnings Basic EPS Earnings attributable to Ordinary Shareholders Effect of dilutive securities Options Diluted EPS Adjusted earnings 30.6.09 Weighted average number of shares Earnings £ 895,507 643,318,750 – 55,121,118 895,507 698,439,868 30.4.08 Weighted average number of shares Earnings £ Per share amount pence 0.14 – 0.13 Per share amount pence 567,000 292,500,000 0.19 – 3,424,658 567,000 295,924,658 0.19 dotDigital Group Annual Report and Accounts 2008/2009 44 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 10. Goodwill Group Cost Additions At 30 June 2009 Net book value At 30 June 2009 Group £ 608,503 608,503 608,503 On 30 January 2009, the controlling interest in the parent Company was exchanged for the entire share capital of dotMailer Limited, a company registered in England and Wales, under the rules of a reverse acquisition as prescribed by IFRS 3 “Business Combinations”. Under this standard and for accounting purposes the subsidiary dotMailer Limited (the legal parent), has been deemed to have acquired the parent, dotDigital Group Plc (the legal subsidiary). The net assets of dotDigital Plc have been recognised at their pre combination carrying amounts and the goodwill arising has been recognised. The net assets of the acquired and the goodwill are as follows: Purchased consideration: Fair value of the shares issued Costs attributable to business combination Total consideration Fair value of net assets acquired Goodwill acquired The fair value of assets and liabilities as of 30 January 2009 arising from the acquisition are as follows: Fixed asset investment Trade and other receivables Deposits, cash and cash equivalents VAT repayable Trade and other payables Net assets www.dotdigitalgroup.com £ 1,130,696 181,488 1,312,184 703,681 608,503 Book and fair value £ 142,305 10,803 740,856 24,141 (214,424) 703,681 45 Goodwill is allocated to the Group’s single cash generating unit identified, that being dotMailer Limited. The recoverable amount of a cash generating unit is determined based on value in use calculations. These calculations use pre tax cash flow projections based on financial budgets approved by management covering the five year period to 30 June 2014. Group The key assumptions use to prepare the financial budgets are as follows: dotMailer Limited Revenue growth rates: Pre tax discount rate: Income tax rate: 2010 2011 2012 2013 2014 All years All years 45.00% 37.00% 25.00% 25.00% 25.00% 8.33% 28.00% The key assumptions used to prepare the financial budgets are based on a combination of historical experience and current industry knowledge and trends. The cash flow forecasts used in the value in use calculations have not been extended beyond the five year period covered by management’s financial budgets. 11. Intangible assets Group Cost At 1 May 2008 Additions At 30 June 2009 Amortisation Amortisation for period At 30 June 2009 Net book value At 30 June 2009 Computer softwares £ Development costs £ 6,407 50,649 57,056 12,407 12,407 – 242,060 242,060 33,624 33,624 Domain name £ 5,875 2,961 8,836 2,246 2,246 Totals £ 12,282 295,670 307,952 48,277 48,277 44,649 208,436 6,590 259,675 dotDigital Group Annual Report and Accounts 2008/2009 46 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 11. Intangible assets continued Cost Reclassification from property, plant and equipment At 30 April 2008 Net book value At 30 April 2008 Group Computer software £ 6,407 6,407 Domain name £ 5,875 5,875 Total £ 12,282 12,282 6,407 5,875 12,282 Development cost additions represents resources the Group have invested in the development of unique computer programming with the intention of re sale once complete. During the 14 month period ended 30 June 2009, certain software which had previously been classified as property, plant and equipment was transferred to intangible assets in compliance with IAS 38 ‘Intangible assets’. The reclassification of software as intangible assets have been accounted for retrospectively. Accordingly, certain comparative figures have been reclassified as disclosed in note 29. Short leasehold £ 8,398 3,477 Fixtures and fittings £ 93,760 27,230 Computer equipment £ Total £ 167,210 31,664 269,368 62,371 11,875 120,990 198,874 331,739 3,738 2,422 6,160 40,852 26,603 67,455 98,917 40,155 139,072 143,507 69,180 212,687 5,715 53,535 59,802 119,052 12. Property, plant and equipment Group Cost At 1 May 2008 Additions At 30 June 2009 Depreciation At 1 May 2008 Charge for period At 30 June 2009 Net book value At 30 June 2009 www.dotdigitalgroup.com 47 Short leasehold £ 8,398 – – 8,398 1,662 2,076 3,738 Fixtures and fittings £ 78,125 15,635 – 93,760 22,373 18,479 40,852 Computer equipment £ 118,945 60,547 (12,282) 167,210 76,009 22,908 98,917 Total £ 205,468 76,182 (12,282) 269,368 100,044 43,463 143,507 4,660 52,908 68,293 125,861 Company Shares in Group undertakings £ 5,183,488 5,183,488 5,183,488 Cost At 1 May 2007 Additions Reclassification to intangibles At 30 April 2008 Depreciation At 1 May 2007 Charge for year At 30 April 2008 Net book value At 30 April 2008 13. Investments Cost Additions At 30 June 2009 Net book value At 30 June 2009 Included in the above is the following investment undertaken: On 30 January 2009 the Company acquired via a share for share exchange the entire issued share capital of dotMailer Limited, a company registered in England and Wales. Details of the purchase consideration and fair values of the assets acquired are outlined below and been calculated using the Group’s accounting policies. Value of equity released in exchange for the entire equity of dotMailer Limited Costs directly attributable to the business combination The fair value of assets and liabilities as of 30 January 2009 arising from the acquisition are set out in note 10. Consideration value £ 5,000,000 181,488 5,181,488 dotDigital Group Annual Report and Accounts 2008/2009 48 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 The Group or the Company’s investments at the balance sheet date in the share capital of companies include the following: 13. Investments continued Subsidiary dotMailer Limited Nature of business: Web and email based marketing Class of shares: Ordinary Ordinary Aggregate capital and reserves Profit for the period/year dotAgency Limited Nature of business: Dormant Class of shares: Ordinary Ordinary Aggregate capital and reserves Profit for the period/year The Company subscribed to 1,000 shares of £1 each on 25 September 2008 with a paid up share capital of £1,000 dotCommerce Limited Nature of business: Dormant Class of shares: Ordinary Ordinary Aggregate capital and reserves Profit for the period/year The Company subscribed to 1,000 shares of £1 each on 19 June 2009 with a paid up share capital of £1,000. www.dotdigitalgroup.com % holding 100.00 100.00 30.4.08 £ 775,757 567,000 % holding 100.00 100.00 30.4.08 £ – – % holding 100.00 100.00 30.4.08 £ – – 30.6.09 £ 1,594,418 937,461 30.6.09 £ 1,000 – 30.6.09 £ 1,000 – 49 Group Company 30.6.09 £ 30.4.08 £ 591,199 4,098 – 60,007 424,471 168 – 20,029 655,304 444,668 30.6.09 £ – – 650 2,062 2,712 30.6.08 £ – – – 10,803 10,803 Group Company 30.6.09 £ 30.4.08 £ 30.6.09 £ 30.6.08 £ 1,677,902 684,493 564,531 821,557 Class: Ordinary Nominal value: £0.001 30.6.09 £ 1,292,500 1,292,500 30.6.08 £ 292,500 292,500 14.Trade and other receivables Current: Trade receivables Other receivables VAT Prepayments and accrued income 15. Cash and cash equivalents Bank accounts 16. Called up share capital Allotted, issued and fully paid: Number: 1,292,500,000 1,000,000,000 Ordinary Shares of £0.001 each were allotted as fully paid at a premium of £0.005 per share during the period. As part of the reverse acquisition undertaken in the period, the 92 Ordinary Shares, with a nominal value of £1 each, in existence in dotMailer Limited at the beginning of the period were exchanged for 1,000,000,000 newly issued Ordinary Shares in the parent, dotDigital Group Plc, which hold a nominal value of £0.001 per share. The deemed premium paid on the exchange was £4,000,000 which equates to £0.004 per share. dotDigital Group Annual Report and Accounts 2008/2009 50 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 Retained earnings £ 775,665 895,507 (118,800) – – Share premium £ Reverse acquisition reserve £ 533,754 (826,162) 4,000,000 – (3,869,303) – Other reserves £ – – 5,302 Total £ 483,257 895,507 (118,800) 130,697 5,302 1,552,372 4,533,754 (4,695,465) 5,302 1,395,963 Retained losses £ (85,372) (63,356) – – Share premium £ 533,754 4,000,000 – Other reserves £ – – 5,302 Total £ 448,382 (63,356) 4,000,000 5,302 (148,728) 4,533,754 5,302 4,390,328 Group Company 30.6.09 £ 30.4.08 £ 114,813 – 139,878 8,069 68,210 3,304 82,537 35,126 – 39,381 1,042 59,232 64,503 104,941 30.6.09 £ 35,543 23,638 – – 8,722 – – 30.6.08 £ 79,698 – – – 11,780 – – 416,811 304,225 67,903 91,478 17. Reserves Group At 1 May 2008 Profit for the period Dividends Reverse acquisition Share option fair value adjustment At 30 June 2009 Company At 1 July 2008 Deficit for the period Reverse acquisition Share option fair value adjustment At 30 June 2009 18. Trade and other payables Current: Trade payables Amounts owed to group undertakings Social security and other taxes Other payables Accruals and deferred income Directors’ current accounts VAT www.dotdigitalgroup.com 19. Financial liabilities – borrowings Current: Bank loans Non-current: Bank loans – 1-5 years Terms and debt repayment schedule. Group Bank loans The above loans are unsecured. 20. Leasing agreements The non-cancellable operating leases are as follows: Group Within one year Between one and five years Within one year Between one and five years 51 Group 30.6.09 £ 30.4.08 £ 12,152 6,939 Group 30.6.09 £ 30.4.08 £ 18,228 – 1 year or less £ 12,152 1-2 years £ 12,152 2-5 years £ 6,076 Total £ 30,380 Land and buildings £ 109,207 167,745 276,952 Land and buildings £ 109,207 276,608 30.6.09 Others £ 22,833 27,960 50,793 30.4.08 Others £ 3,862 965 385,815 4,827 Total £ 132,040 195,705 327,745 Total £ 113,069 277,573 390,642 dotDigital Group Annual Report and Accounts 2008/2009 52 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 21. Financial instruments The Group’s activities exposes it to a number of financial risks that include credit risk, liquidity risk and cash flow interest rate risk. These risks, and the Group’s policies for managing them have been applied consistently throughout the year, are set out below: Interest rate risk The Group’s interest rate risk arises from interest bearing assets and liabilities. The Group has in place a policy of maximising finance income by ensuring that cash balances earn a market rate of interest; offsetting where possible, cash balances and by forecasting and financing its working capital requirements. Liquidity risk The Group’s working capital requirements are managed through regular monitoring of the overall cash position and regularly updated cash flow forecasts to ensure there are sufficient funds available for its operations. Credit risk Credit risk arises principally from the Group’s trade receivables which comprise of amounts due from customers. Prior to accepting new customers a credit check is obtained. As at 30 June 2009 there were no significant debts pass their due period which had not been provided for. The credit risk on liquid funds is low as the counterparties are banks with high credit ratings assigned by international credit rating agencies. Details as to maximum fair values the Groups financial assets and liabilities can be found in the consolidated statement of financial position (see page 29). 22. Capital commitments The Company has no capital commitments as at the period end. 23. Transactions with Directors The following transactions were carried out with the Directors of the Company:- Loans from Directors:- Beginning of the period Loans advanced in the year Loans repaid in the year End of period 30.06.09 £ 30.04.08 £ 64,503 – 61,199 3,304 336 64,167 – 64,503 The above loans are provided to the Company on a interest free basis and repayable within 12 months of the balance sheet date. www.dotdigitalgroup.com 53 24. Ultimate controlling party As at the year end there was no ultimate controlling party. 25. Share-based payment transactions The measurement requirements of IFRS 2 have been implemented in respect of share options that were granted after 7 November 2002. The expense is recognised for share based payments made during the year is £5,302 (2008: £Nil) As at 1 February 2009 unexercised share options in dotMailer Limited were exchanged for the equivalent share options in the Group at the prevailing share exchange coefficient at the time of the Group’s formation. The ultimate beneficiary of the options is Mr Peter Simmonds. Also on 1 February 2009 the Board of Directors also granted 7,600,000 options to employees of the Group exercisable on or after 1 July 2010 until 1 February 2019. Vesting conditions of the options dictate that employees must remain in the employment of the Group for the whole period to qualify. Movement in issued share options during the year The table illustrates the number and weighted average exercise price (WAEP) of, and movements in share options during the period Outstanding at the beginning of the period Granted during the year Forfeited/cancelled during the period Exchanged for options in subsidiary Outstanding at the end of the period Exercisable at the end of the period 2009 No of options 25,000,000 7,600,000 Nil 41,666,667 74,266,667 Nil WAEP 0.10p 1.00p 0.24p 0.27p 2008 No of options 25,000,000 Nil Nil Nil 25,000,000 Nil WAEP 0.10p 0.10p Of the 74,266,667 options outstanding at the end of the year 25,000,000 (2008: 25,000,000) represent share warrants exercisable on or before 27 June 2012. The fair value of the options granted in the year have been calculated using the Black Scholes model assuming the inputs shown below: – Grant date – Number of options granted – Share price at grant date – Exercise price at grant date – Risk free rate – Option life – Expected volatility – Expected dividend yield – Fair value of option 01 February 2009 7,600,000 1.00p 1.00p 2.55% 10 years 51% 0% 0.34p In accordance with IFRS 2 ‘Share based payments’ the Group incurred a £5,302 charge representing the fair value of share options granted and therefore not expected to be repeated in coming financial periods. dotDigital Group Annual Report and Accounts 2008/2009 54 Notes to the consolidated financial statements continued for the period 1 May 2008 to 30 June 2009 26. Reconciliation of profit before income tax to cash generated from operations Profit before income tax Depreciation and amortisation charges Share options Finance costs Finance income Increase in trade and other receivables (Decrease)/Increase in trade and other payables Cash generated from operations 27. Cash and cash equivalents Period 1.5.08 to 30.6.09 £ 1,080,315 117,456 5,302 864 (15,088) 1,188,849 (199,833) (40,719) Year ended 30.4.08 £ 747,383 43,463 – 3,332 (24,578) 769,600 (193,774) 153,779 948,297 729,605 The amounts disclosed on the cash flow statement in respect of cash and cash equivalents are in respect of these statement of financial position amounts: Period ended 30 June 2009 Cash and cash equivalents Year ended 30 April 2008 Cash and cash equivalents Bank overdrafts 28. Research & development 30.6.09 £ 1.5.08 £ 1,677,902 684,493 30.4.08 £ 684,493 – 1.5.07 £ 362,147 (12,345) During the period the Group have incurred £20,842 (2008: £179,000) in research costs and £242,060 (2008: £Nil) in development investments. All resources utilised in research and development has been categorised as outline in the accounting policy governing this area. www.dotdigitalgroup.com 55 29. Comparative restatement Certain comparative figures have been reclassified in accordance with IAS 38 ‘Intangible assets’, as mentioned in note 11. The reclassification is summarised as follows: As previously stated from IAS 38 30.04.2008 £ Reclassification arising as restated 30.04.2008 £ 30.04.2008 £ – 138,143 12,282 (12,282) 12,282 125,861 Statement of financial position: Intangible assets Property, plant & equipment There were no effects on the Income Statement for the 14 month period ended 30 June 2009. 30. Related party transactions The following transactions were carried out with related parties during the period: Purchase of services Accountancy and tax support Financial public relations Supplier Shipleys LLP Haggie Financial LLP 30.6.09 £ 25,000 6,064 30.4.08 £ 23,000 10,000 S Moloney, a former Director, is also a Principal of Shipleys LLP. At the period end, there was no outstanding fee owed to Shipleys LLP. N Nelson, a Director, is a partner of Haggie Financial LLP. At the period end, £2,278 of fees was owed by the Company to Haggie Financial LLP. dotDigital Group Annual Report and Accounts 2008/2009 56 Company information for the period 1 May 2008 to 30 June 2009 Solicitors Lawrence Stephens Morley House 26 Holborn Viaduct London EC1A 2AT Principal bankers National Westminster Bank plc Charing Cross, London Branch PO Box 113 Cavell House 2a Charing Cross Road London WC2H 0PD Registrars Share Registrars Limited Craven House West Street Farnham Surrey GU9 7EN Website www.dotdigitalgroup.com Directors S Bird N C P Nelson D J Pacy P A Simmonds I Taylor G Fidura Secretary M Patel Registered office Finsgate 5-7 Cranwood Street London EC1V 9EE Registered number 06289659 (England and Wales) Corporate adviser Alfred Henry Corporate Finance Limited Finsgate 5-7 Cranwood Street London EC1V 9EE Auditors Jeffreys Henry LLP Finsgate 5-7 Cranwood Street London EC1V 9EE www.dotdigitalgroup.com dotDigital Group plc Croydon No. 1 Croydon 12-16 Addiscombe Road CR0 0XT T: 020 8662 2762 Manchester Pall Mall Court 61-67 King Street Manchester M2 4PD T: 0161 618 1070 London Bridge 6-8 Emerson Street London SE1 9DU T: 020 7654 8686 Design and production by Philosophy www.philosophydesign.com Photography by Layton Bennett Print by Moore print www.mooreprint.co.uk www.dotdigitalgroup.com 

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