Annual Report and Accounts
2009/2010
dotDigital is an award-winning digital marketing specialist
with over 3500 clients generating strong recurring revenues
from the provision of digital marketing services such as:
Email Marketing
Search Engine Optimisation
E-Commerce
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• Website Design and Optimisation
The Group now employs 103 staff across offices in Croydon,
London Bridge, Manchester, Northampton and recently
Minsk, Belarus.
Corporate social responsibility report
Contents
01 Key highlights
02 Chairman’s and Chief Executive’s report
10
14 Our Board of Directors
16 Corporate governance report
18 Audit Committee report
20 Remuneration Committee report
22 Report of the Directors’
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30 Consolidated income statement
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31
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34
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35 Company statement of cash flows
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IBC Company information
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
Independent Auditor’s report
1
Key highlights
• Like for like profits growth of 48% on turnover up 43%
• Cash on account as at 30 June 2010 was approximately £1.3m
• National Business Awards winner - Best Growth Strategy
• Acquisition of Netcallidus to strengthen SEO services
• Considerable investment in hardware and R&D
• Continued strong client growth
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• Total staff headcount grown from 62 to 103
Strengthened competitive position in the Digital Marketing Sector
Post year end: opening of offices in Minsk, employing 15 staff
Turnover
Expenses
Profit before tax
Profit after tax
£6.0m
43%
increase
in turnover
42%
increase in
expenses
44%
profit before tax
48%
profit after tax
£4.7m
£4.7m
£4.2m
£3.6m
£3.3m
£1.3m
£1.08m
£0.9m
£1.14m
£0.9m
£0.77m
2010
2009
(14 month
period)
2009
(12 month
period)
2010
2009
(14 month
period)
2009
(12 month
period)
2010
2009
(14 month
period)
2009
(12 month
period)
2010
2009
(14 month
period)
2009
(12 month
period)
Last year’s results to June 2009 covered a 14 month period enabling
the accounts for dotMailer Limited to become coterminous with
those of dotDigital Group plc. As these accounts cover a twelve month
period and to provide a meaningful comparison of performance on a
like-for-like basis, the Directors have provided a summary above of the
previous year’s income statements restated for a 12 month period.
Accordingly, all of the comparisons in the commentary are based on
a comparison of results for the 12 months ended June 2010 with the
12 months ended June 2009.
The Group has enjoyed a strong year of profitable growth. On turnover
up 43% to £6.0m (12 months ended June 2009: £4.2m), post-tax profits
grew 48% to £1.14m (12 months ended June 2009: £0.77m).
dotDigital Group
Annual Report and Accounts 2009/2010
2
Chairman’s & Chief Executive’s report
This pleasing result is slightly ahead of our
target and reflects our continued focus on
new client acquisition and investment in new
products and services.
In addition to achieving significant growth in profitability, we have
continued to invest for the future. For example, to strengthen our
competitive position we have committed resources to the underlying
technical infrastructure which supports our products and more
particularly, significant sums have been invested in further product
development. Our total investment this year has amounted to £92k of
capital investment in hardware and £338k of research and development
activity in products and services.
Added to our internal investment, we committed funds to the
acquisition of Netcallidus Limited (“Netcallidus”) in May as part of the
strategy to increase our presence and profits from the provision of
search engine optimisation (SEO) services. As the acquisition took
place very late in our financial year the impact of consolidation of the
Netcallidus profits on the Group profit for the year has been minimal.
In line with IFRS3 the costs of acquisition have been expensed in the
current financial year.
Acquisition strategy
Since admission to the Plus market, as well as driving the business
forward with an aggressive organic growth strategy, the Board have
approved an acquisition strategy that it believes will deliver long-term
shareholder value.
The target sectors selected for potential acquisitions are:
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SEO;
Mobile;
Word of Mouth Marketing;
Surveys;
Analytics;
Usability testing;
Research.
The ‘ideal’ criteria agreed for acquisition targets are as follows:
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High proportion of recurring revenues ideally minimum 40% of total;
No more than 10% of revenue from one client;
Strong technology with ownership of IP;
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
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Not dependant on one (few) key person(s);
Client base closely matches the dotMailer/Group client profiles;
Turnover £1m plus or potential to be £1m plus inside two years;
Total consideration ideally 3-7 PE Ratio;
Deferred consideration to ensure goal alignment to dotDigital
shareholders;
Consideration ideally no more than 50% cash with the remainder
payable in shares.
Strict enforcement of the above criteria will inevitably restrict the
number of available targets and the Board approval process has
flexibility to vary these criteria when an opportunity arises with
considerable potential future earnings growth, or where the target can
provide a technology platform of value to the existing customer base.
Acquisition of Netcallidus
In 2009 the Board agreed that a strategic priority was to bring SEO
under our own roof where in the past we had provided this service
through a joint venture with a third party. During the course of 2009 we
formed dotSEO to commence provision of this service in house and we
engaged in negotiations with four potential acquisition targets during
2009 before finally acquiring Northamptonshire based Netcallidus.
Netcallidus is a highly successful and fast-growing search marketing
business (which met all of our acquisition criteria) in May 2010.
To overcome the challenge of valuing a young fast-growing profitable
business in a burgeoning market sector but during a global downturn
both we and Netcallidus agreed that the most appropriate deal
structure would be through an earn-out scheme linked to a multiple
of Netcallidus’s post-tax profit in 2009/10, 2010/11 and 2011/12, with
an initial cash consideration.
The Board believes that this arrangement will achieve goal alignment
between the Directors of Netcallidus, the Board and shareholders of
dotDigital. The final consideration paid to the original shareholders of
Netcallidus will be three times the profit after tax for the year ended
30 June 2012, and will be made up of both cash and dotDigital
Ordinary Shares. If the targets in the business plan are met, the profits
from Netcallidus will have significantly increased the profits of the
Group and in the opinion of the Board will be earnings accretive and
value enhancing.
3
dotDigital Group
Annual Report and Accounts 2009/2010
Our business is split into
five main brands and
business units, each with
high level expertise:
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.
dotSEO – dotSEO undertakes detailed
keyword analysis to identify the primary
keywords and phrases visitors are using to find
your products and services, develops a SEO
strategy to maximise traffic and conversion
and focuses on generating maximum ROI from
your online marketing.
dotAgency – An in-house creative
agency team specialising in website
design, build, digital marketing strategy
and search engine optimisation.
netcallidus – Netcallidus has been helping
all types of businesses harness the power of
Internet Marketing Services since its inception.
With over 100 clients across B2B and B2C
Netcallidus have the expertise to achieve great
results from search engine optimisation and
management of pay per click campaigns.
4
Chairman’s & Chief Executive’s report continued
43%
Increase
in revenue
in 2010
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
The Group has made excellent progress with the integration of
Netcallidus. All accounting and management information is now
handled by our central finance team and sales teams across all of the
dotDigital business have now been trained in the sale of SEO. Moreover,
the Directors of Netcallidus have agreed a business plan with the Board
and operational processes for sale and support of clients using SEO
services have been harmonised.
Netcallidus deferred consideration
IFRS3 (Revised ) requires the deferred consideration payable in October
2011 and October 2012 based on multiples of profit after tax for years
ended 30 June 2011 and 30 June 2012 to be estimated and included in
the accounts as part of the fair value of the acquisition.
The calculation of fair value has been based upon deferred consideration
that has been based upon a range of scenarios of possible future profits.
Taking in to account the uncertainties inherent in forecasting the
revenues and profits of a relatively newly established business that had
been part of the Group for only 6 weeks at the year end and which is
operating in a fast changing market place it should be noted there is a
very high likelihood that the actual profits for the year ended June 2012
could be at variance with these estimates.
In arriving at and negotiating the structure of the acquisition the
Board were mindful of the need to ensure the proposed deferred
consideration did not create liquidity risk for the Group. The structure of
the deferred consideration element is such that under all the scenarios
which could be envisaged the cash flows generated by the profit
stream of the Netcallidus business will be sufficient to fund the cash
element of the deferred consideration.
Minsk, Belarus
In October 2010 we announced the opening of a new facility in
Minsk employing 15 staff initially to provide strengthened operational
capability to Netcallidus and at the same time removing the
requirement for outsourcing to India. So far we have been pleased with
the outcome of this exercise and have plans to use further talented
Belorussian staff across other areas of the Group.
Organic growth strategy
Last November dotDigital won the National Business Awards Best
Growth Strategy award. This was in recognition of our organic growth
strategy of pursuing new client acquisition through a mixture of online
5
“ Thanks for creating such a
superb website. It’s a joy to
look at and use. I’m particularly
impressed by the amount of
work that’s been done in such
a short period of time.”
Jules Griffith,
Director of Communications,
Somerset House
“ Our website went live and
it was a much smoother
transition than I thought!
The dotAgency team have
been extremely helpful and
supportive.”
Tracy Wheeler
Throgmorton
Age of employees (by number of emplyees)
“ I’d tried 2 other ecommerce
solutions providers before
I found dotCommerce.
Use them.”
Paul Bennett
Fastfixdirect.co.uk
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25
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15
10
5
0
20-25
26-30
31-40
41-50
marketing and attendance at trade shows and through increasing
the level of cross-sell to existing clients through focused account
management and provision of complimentary and adjacent services.
By focusing on our own search engine optimisation and through
the implementation of a comprehensive CRM system we have high
levels of organic growth with client numbers increasing at the rate of
around 100 new clients per month. Continuous training of our sales
and account management teams has resulted in cross selling of other
adjacent digital marketing services to our client base. This is becoming
a significant source of new revenue which we expect will continue to
grow, particularly with the added expertise of Netcallidus.
The Directors believe that by focussing on four key areas, growth will
continue within the business:
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Highly focused marketing activity delivering high quality sales
leads to a fully motivated and goal aligned sales team;
Recruitment of the best available talent in all areas of business;
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Designing and building innovative products that are intuitive to use
and deliver high levels of functionality to assist our clients in beating
their business objectives;
Outstanding levels of support and client care.
By focusing on all aspects of our clients’ digital marketing needs,
we believe the business is uniquely positioned to provide companies
with solutions to fulfil their requirements and provide a positive return
on investment.
Staff
The Board would like to thank all of the management and staff for
their hard work, dedication and commitment to the business during
the past year. We have a very young team, whose average age is 26
(excluding Directors). Many of those young people have taken on extra
responsibilities, learned new skills and taken up leadership challenges
during the past year.
The quality and commitment of our team is one of the factors
which gives the Board great confidence that we can continue to
grow even in difficult economic times. We believe in giving employees
sufficient autonomy to make good decisions about everything from
product design to dealing with customer service issues. It is because of
the quality of our staff that we have continued to grow our customer
base and deliver great new products and services to our clients.
With this in mind we aim to share the success of the Group with the
staff through bonus payments and share options. The Directors are
open about the business objectives and senior managers actively
engage with their teams so that everyone understands how their
efforts contribute to the overall business success. All staff who have
completed their probation are eligible for a performance and profit
related bonus scheme and are eligible for share options managed
through an HMRC approved employee share option scheme.
dotDigital Group
Annual Report and Accounts 2009/2010
6
Chairman’s & Chief Executive’s report continued
Irwin and Jordan
“ You provided a fantastic platform to
allow us designers to do what we are
good at - making clothes look good!
dotCommerce’s systems allow us to
display our collection in an elegant
and sophisticated way!”
www.irwinandjordan.com
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
Despite becoming a much larger business, the Directors firmly believe
that maintaining the entrepreneurial culture that was fundamental to
the success of the business in its early days, is still critical to achieving
success today. The Group adopts a wide range of formal and informal
communication tools to ensure ideas are shared. The vision is shared
and that people have a sense of belonging to the business.
Our commitment to exceptional client service
The Board firmly believes that the key to a long-term sustainable
growing business emanates from delighting our customers. Everyone in
the business is customer driven and we are striving to develop a culture
that is passionate about customer service.
The business is structured to ensure that all customers receive client
service and support appropriate to their needs and we have introduced
a number of new initiatives to ensure we continue to evolve and
develop products and services which delight our clients.
During the year there have been considerable activity aimed at
continually improving the service we provide to our customers, including:
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The appointment of Skip Fidura as Group Client Services Director;
Expanding our friendly and effective telephone support teams;
Introducing video-based usability testing and tracking techniques
to improve user experience of our products;
In-depth client interviews to understand how our service can be
improved still further simple surveys to get quantitative data on
client needs;
User Groups to obtain first-hand feedback from customers about
new product features.
IT infrastructure
The Group has made significant investments in its IT infrastructure.
As part of the strategy to ensure the Company is well positioned to
exploit future growth opportunities, the Board has approved capital
expenditure on a number of projects including:
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Ensuring future scalability through the use of latest blade server
technology and SAN data storage systems;
Creating a full-scale test facility;
Reducing dependencies on single suppliers;
Reducing environmental impact by selecting low power
consumption hardware;
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We aim to share
the success of the
Company with
the staff...
dotDigital Group
Annual Report and Accounts 2009/2010
8
Chairman’s & Chief Executive’s report continued
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Fully documenting systems and security policies;
Increasing resilience by eliminating single points of failure and
implementing mirroring technology;
Extensive security audits, including external penetration testing.
The Group is focusing on developing significant new features and
enhanced usability for its email marketing product, dotMailer. Future
planned product development will include new versions of the
content management tool, a new survey tool and a SaaS version
of the successful E-Commerce platform known as dotCommerce.
Improving gross margin on bespoke projects
Following successful trials during the year the Group has modified
its approach to managing bespoke projects carried out on behalf
of clients. Whilst project management, project specification and client
management are still carried out by employees based in the UK,
much of the development activity will be carried out by partner
organisations operating with a lower cost and fixed prices to ensure
margins are managed.
The Directors are confident that this change in approach will improve
profitability, give greater flexibility of scheduling, and ensure a greater
capacity to scale to meet client demands.
Product development
The Board has a clear strategy to increase the proportion of Group
revenues that will be derived from recurring revenues based
on products sold on a Software as a Service (“SaaS”) basis. The
development team working on product development has been
significantly strengthened during the year and following changes made
to the delivery of client bespoke projects further development resource
will be focused on product development during 2010/2011.
Strategy for the coming year
The Board has agreed a business plan for the coming year that it
believes will continue to deliver growth in both profits and revenues
and position the business soundly for growth in future years.
Some key elements of the plan are as follows:
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To complete the integration of Netcallidus and focus all our sales
teams on identifying profitable SEO opportunities from within our
client base;
We recognise the dynamic growth in this market is occurring
worldwide and part of the Group’s short-term objective is to identify
the areas in which we could make the maximum impact;
To initiate a programme of international expansion of our core
services. This may involve overseas acquisitions and/or franchising
agreements to suitably qualified overseas partners;
Increase the resources focused on our own search engine
optimisation and business marketing, expanding the use of social
media marketing, PR and educational client events and reviewing
our branding;
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
9
‘ The market for our products and services continues
to remain buoyant despite the world economic
crisis. The growth of our customer base remains
unabated as they continue to embrace the power
of digital marketing.’
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To further expand the technical development resources focused
on the delivery of innovative new products and services which are
complimentary and adjacent to our existing offerings. Continuing to
add innovative new features to our existing products;
To extend the use of usability testing and user experience
techniques to ensure our products enjoy maximum take-up by new
trial users and by testing the concept of “freemium” versions of our
products to widen the user base;
We aim to start development of SaaS version of dotCommerce
aimed at providing a fully featured easy to use E-Commerce
application for the smaller end of the SME market;
We plan to launch a new version of dotMailer with a brand-new step
process and highly intuitive and innovative drag-and-drop editing tool.
Dividend policy
It is the Board’s intention to achieve capital growth on the strength
of continuing to grow the business, investment in new products
and identifying further earning enhancing acquisitions. Although
the business is cash flow positive the Directors believe that it is
inappropriate to propose a dividend during this phase of planned
high growth.
Outlook
The market for our products and services continues to remain buoyant
despite the world economic crisis. The growth of our customer base
remains unabated as they continue to embrace the power of digital
marketing.
After settling the initial acquisition consideration for Netcallidus, our
cash position remains strong and we believe we are well placed to
continue to invest in hardware, research and development and
further acquisitions.
Recognition of the dotDigital Group brands has continued to grow
during the past year and this strong brand awareness combined with
customer testimonials, increased marketing activity and continuously
improving products will position the business well to win new clients
into the future.
We look forward to the New Year with confidence.
David Pacy
Chairman
11 November 2010
Peter Simmonds
Chief Executive
11 November 2010
dotDigital Group
Annual Report and Accounts 2009/2010
10
Corporate social responsibility report
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.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
The Board believes in the importance of social responsibility and
sustainability within the 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.
Support for not for profit sector
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.
Sustainability and the environment
dotDigital has been quick to accentuate the environmentally friendly
role of digital marketing in its thought leadership and media outreach
and has worked with both the DMA and IAB to promote this message.
Email marketing is a viable paper-free alternative to direct mail and
leafleting.
dotDigital has made a significant investment in the virtualisation,
storage technology and modern blade hardware to continue to deliver
high levels of customer service to dotDigital Group customers whilst
dramatically reducing the environmental impact of running a large
data-centre. The key benefits include:
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Increased resilience of our key infrastructure;
Server consolidation from many independent computers
to far fewer;
Unified server management to ensure maximum efficiency
and performance;
Reduced power consumption through less processors and
better utilisation of those in use;
Reduced cooling need, resulting in lower use of air
conditioning plant;
More rapid deployment of new systems to meet client needs;
More processors per rack resulting in less space demands
in crowded city computer rooms.
11
Rodial – Renowned across the beauty world for
their revolutionary plumpers and fixes, Rodial
came to dotCommerce for help ‘plumping up’
their site. The result? A site who’s customers
now put twice as much into their basket!
www.rodial.co.uk
Throgmorton – We built Throgmorton’s site from the
ground up and implemented several different news
services and RSS feeds to ensure Throgmorton’s clients
and prospects can utilise their accounting and financial
news service. The result is a clean, easy to use site that
visitors love.
www.throgmorton.co.uk
HMV Curzon – We worked closely with Curzon
and Winkreative to deliver a stylish and easy to
use site which amalgamates data from various
different sources. The website has surpassed Curzon’s
expectations and they are delighted with the
marriage of Winkreative’s design and dotAgency’s
consultation and expertise in building a flexible site.
We continue to work with Curzon Cinemas on a
variety of projects, some of which utilise cutting edge
technological trends.
www.hmvcurzon.co.uk
dotDigital Group
Annual Report and Accounts 2009/2010
12
Corporate social responsibility report continued
dotDigital is also committed to talent
development through its work experience
and graduate recruitment schemes.
Our investment in the latest and most powerful virtualisation
technology is consistent with our offering clients leading digital
solutions whilst genuinely demanding fewer resources. Everyone at
dotDigital Group Plc is focused on recycling and conserving power, but
our new equipment really makes a significant positive contribution.
Over the next few years, data-centre power and cooling demands will
become a major issue and we are pleased to be at the forefront of
addressing the challenge.
Commitment to employees
The Board recognises that the Group’s employees are critical to the
overall delivery of its business strategy. All employees are kept informed
of progress against the Group’s strategic plan through regular meetings,
regular newsletters and informal Friday afternoon “Rah rah” sessions,
where teams from across the business keep colleagues from other parts
of the business up-to-date with issues and news.
The Directors firmly believe that relations with staff are based on respect
and trust. The Board is committed to creating a working environment
where there is mutual trust and where everyone is accountable for
their own actions and takes full responsibility for the performance and
reputation of the business.
The Board has a policy to ensure that at all times there are equal
opportunities for all employees with no discrimination on account of
race, age, gender, sexual orientation, disability and political or religious
beliefs. Our philosophy is to ensure that ability, contribution to the
business and potential to develop are the determining factors in the
selection, training, career development and promotion of all employees.
The Company operates in a highly competitive environment; therefore
recruitment and retention of first-class employees is critical to the
continued growth of the business. As a result of this need to recruit the
best, the Company strives to ensure it’s salary packages are competitive
and that there are opportunities for employees to earn bonuses linked
to their performance and the Company’s performance. Every employee
that has passed their probationary period is entitled to participate in
the Company’s employee share option scheme. Excluding Directors,
the total number of options available to employees at the end of the
financial year amounts to 24m shares or 2% percentage of the total
shares in issue.
dotDigital is also committed to talent development through its work
experience and graduate recruitment schemes.
Health and safety
dotDigital is committed to providing a safe and high-quality working
environment for its staff. The Group engages an external health and
safety consultancy firm to carry out periodic reviews of its offices and
is committed to adopting any recommendations arising. The Group
has complied with all applicable legislation and has not been subject
to sanctions or fines for environmental, health and safety or other
infringements.
Business ethics
The Board believes that operating ethically is vital to the long-term
success of the business and to the well-being of all employees and
stakeholders. All new employees are provided with formal codes of
ethical behaviour as part of their contract of employment. The code
provides guidelines covering personal conduct and gives advice on
recognising and dealing with conflict of interest, business gifts, bribery
and corruption.
All employees are encouraged to report any suspected unethical
behaviour to the Board. If necessary, there is an alternative channel
of communication to the senior independent Director, should this
be more appropriate.
The Directors strive to ensure that the Company has a fair and very
open culture where everyone’s views and contributions are actively
encouraged and respected.
Customers and business partners
The Board firmly believes that the prerequisite for achieving a successful
and sustainable business is integrity in dealing with customers and
business partners. This principle governs all aspects of the business. The
Company values its customers and at all times strives to safeguard the
trust they have provided in the business by complying with all relevant
laws and contractual commitments.
The Company is continually seeking customer feedback through a
variety of formal and informal channels such as user Groups, customer
service surveys, in-depth customer interviews and client events.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
13
Stonewall – Stonewall’s youth programme
offers an intensive mentoring programme and
they needed a site that young people would
engage with. Cue Young Stonewall, fresh, new
and vibrant, which lets mentors and volunteers
work together online.
www.youngstonewall.org.uk
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
Muscians Benevolent Fund – In 2010, this
venerable musicians charity appointed dotAgency
to design and build their brand new website, and
chose dotCommerce to provide a complete new
ecommerce solution for their online shop. The result
was music to their eyes.
www.helpmusicians.org.uk
dotDigital Group
Annual Report and Accounts 2009/2010
14
Our Board of Directors
Peter Simmonds FCCA, aged 52,
Chief Executive and Finance 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, IT 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 acquired businesses.
Simon Bird, aged 35,
Technical Director
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, aged 38,
Business Development Director
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
Annual Report and Accounts 2009/2010
15
“Skip” Gordon Fidura, aged 41,
Client Services Director
Gordon Fidura (Skip) brings to dotDigital extensive global experience
and expertise in digital and direct marketing. A Director with Warehouse
Marketing Limited since 2006, Skip is also Vice Chairman of the Email
Marketing Council, part of the Direct Marketing Association in the UK.
Prior to joining dotDigital in January 2009 as a senior manager, Skip
launched the Email Marketing & Digital Dialogue consultancy within
OgilvyOne Worldwide in London. Here he grew the consultancy team
whilst successfully developing the agency’s email and digital practice.
Skip has also held senior management roles within Digital Impact, a
leading US digital marketing solutions agency, becoming Director of
European Operations after helping establish the first overseas office
in the UK.
David Pacy, aged 67,
Non Executive Chairman
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.
Nicholas Nelson, aged 45,
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 twelve years continued his City career, working
in corporate communications during which time he has assisted on
many PLUS and AIM flotations. He is currently Managing Director
of Nexus Finance Limited, a City of London based financial public
relations consultancy.
dotDigital Group
Annual Report and Accounts 2009/2010
16
Corporate governance report
Throgmorton
“ Our website went live and it was
a much smoother transition than
I thought! The dotAgency team
have been extremely helpful and
supportive.”
www.throgmorton.co.uk
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
The Board provides 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 the
Company has applied the principles and the extent to which the
provisions in the Code have been complied with also 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 18 and 20 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 18 and 20 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 20 and 21, 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.
17
(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 judgment, 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.
(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.
The Board uses this and the Directors’ report on pages 22 to 27 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 26.
(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 2009/2010
18
Audit Committee report
Toys and Playthings
Toys ‘n’ Playthings is one of six websites
that publishing group Lema Publishing
commissioned with dotAgency. We
ensure that each site has prominent
sign ups to the newsflash which is
powered by dotMailer and allows the
magazines to keep in frequent touch
with their readers.
www.toysnplaythings.co.uk
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
Role 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 Group’s financial performance and
recommending them to the Board for approval;
Reviewing the Group’s systems for internal financial control and
risk management;
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.
Composition of the Audit Committee
The Audit Committee comprises the two independent Non Executive
Directors, Nicholas Nelson and David Pacy and an Executive Director,
Ian Taylor. The Chairman of the Audit Committee is Nicholas Nelson. The
Committee meets separately with the external auditors. The Company
Secretary is secretary to the Audit Committee.
Main Activities of the Audit Committee
At its meeting on the 9 November 2010 the Committee reviewed the
Group’s preliminary announcement of its results for the financial year 30
June 2010 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
judgment, 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
19
Want the Look
Want The Look use us for their
development, email marketing and
search engine optimisation. The fact
that everything is driven through
one specialised agency is a major
plus for owner Oliver.
www.wantthelook.com
dotDigital Group
Annual Report and Accounts 2009/2010
appropriateness of their reappointment and included assessment
of their independence, qualifications, expertise, resources and
effectiveness of their audit process.
The Audit Committee also reviewed the effectiveness of the Group’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. dotDigital’s 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 on auditors’ independence, our policy
is that the external auditors are not invited to tender for general
consulting work.
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 30th June 2011,
which appeared both prudent and realistic in the context of the
Group’s ambitions.
On behalf of the Committee:
Nicholas Nelson
Chairman of the Audit Committee
20
Remuneration Committee report
The Remuneration Committee
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 has endeavoured to comply 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.
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 calibre executives.
Service contracts
On 7 January 2009, the Executive Directors each entered into a service
contract with the Company, the terms of which commenced upon
Admission to PLUS on the 2 February 2009. After an initial appointment
of 12 months from admission each contract is terminable by the
Company or the Director by six months notice. The agreement contains
restrictive covenants. Upon termination, no benefits (other than those
accruing during the notice period) are due to the Director.
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 opposite.
Directors’ Interests in Share Options
Under the Group’s executive share option scheme the following
Directors have the right to acquire Ordinary Shares (shown opposite).
The options that were originally granted to Peter Simmonds 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.
The options for Gordon Fidura were granted as part of his performance
based remuneration under the employee EMI approved option scheme.
Employee Incentive Schemes
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 performance of 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
Nicholas Nelson
Chairman of Remuneration Committee
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
21
Directors’ emoluments
Executive Directors
P Simmonds
I Taylor
S Bird
G Fidura
D Ivy (resigned 10/9/09)
Executive Directors
P Simmonds
I Taylor
S Bird
G Fidura
D Ivy
Non Executive Directors’ emoluments
Non Executive Directors
N Nelson
D Pacy
Non Executive Directors
N Nelson
D Pacy
Directors’ interests
Executive Director
Frank Nominees Ltd*
I Taylor
S Bird
12 month period ended 30 June 2010
Salary/Fees
£
88,000
95,000
95,000
76,000
35,249
Benefits
£
7,103
6,757
6,757
4,200
-
Bonus
£
25,000
30,000
10,000
6,250
-
Pension
£
8,808
9,500
9,500
-
-
Payment in
Lieu of holiday
£
4,230
3,598
-
-
-
Total
£
133,141
144,855
121,257
86,450
35,249
354,000
24,817
71,250
27,808
7,828
520,952
14 month period ended 30 June 2009
Salary/Fees
£
102,667
98,380
98,380
13,367
98,380
Benefits
£
13,356
-
-
-
-
411,184
13,356
Bonus
£
25,000
20,000
20,000
-
20,000
85,000
Pension
£
3,667
7,269
7,269
-
7,269
25,474
Payment in
Lieu of holiday
£
-
-
-
-
-
0
Salary/Fees
£
20,000
20,000
40,000
Salary/Fees
£
23,333
23,333
46,666
12 month period ended 30 June 2010
Benefits
£
Bonus
£
Pension
£
Payment in
Lieu of holiday
£
-
-
-
-
-
-
-
-
-
-
-
-
14 month period ended 30 June 2009
Benefits
£
Bonus
£
Pension
£
Payment in
Lieu of holiday
£
-
-
-
-
-
-
-
-
-
-
-
-
Total
£
144,690
125,649
125,649
13,367
125,649
535,014
Total
£
20,000
20,000
40,000
Total
£
23,333
23,333
46,666
as at 30.06.10
No. of Shares held
% holding
65,300,000
304,300,000
264,300,000
5.05%
23.54%
20.45%
633,900,000
49.04%
* 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
G Fidura
Grant date
No. of
share options
granted
01/04/2008
41,666,667
01/04/2008
4,000,000
Option
price
(Pence)
0.24
1.0
Date first
exercisable
Expiry
date
01/06/2008
31/12/2012
01/07/2010
01/02/2019
dotDigital Group
Annual Report and Accounts 2009/2010
22
Report of the Directors’
The Directors present their report with the financial statements of the
Company and the Group for the year ended 30 June 2010.
Principal activity
The principal activity of the Group in the period under review was that
of digital marketing.
Business review and future developments
During the year the Group has shown significant growth in customer
numbers, sales, and profits. Revenues grew from £4.2m in the 12
months ended June 2009 to £6.0m for the year ended June 2010,
an increase of 43%. (See table on page 1).
Post-tax profits grew from £0.77m in 12m to June 2009 to £1.14m for
the year ended June 2010, an increase of 48%. (See table on page 1).
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;
Customer satisfaction;
Headcount;
Renewal and retention rates of customers;
Product features released;
Control of working capital.
Key risks and uncertainties
(i) Supplier, computer hardware and internet reliability related risks
The Group rents space for its servers located at hosting centres 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
centres and to date, there have been no significant failures, there is no
assurance of continuity of supply. 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.
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.
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 acts as the data processor in all instances
and neither owns lists nor provide third parties with 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 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 monitors 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.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
23
‘ Post-tax profits grew from £0.77m in 12m to
June 2009 to £1.14m for the year ended June
2010, an increase of 48%.’
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
measure 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
Although in the opinion of the Group’s Directors, the technical team at
the Group takes sensible precautions against intrusions and loss of data
and dotMailer employs a security manager to mitigate this risk, there 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 coverage of other
geographic markets globally. 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 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.
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 a leading edge
or competitive products being brought to market in time to maintain
a competitive advantage. The Group may be unsuccessful in its efforts
to develop products.
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.
Future outlook
The Group provides digital marketing services across a range of areas.
Each of these areas have shown market growth significantly above that
of the general UK economy. The Board believes that our widespread
brand recognition and strong product range will continue to present
opportunities to expand and diversify profitably in the coming year.
Dividends
It is the Directors strategy to achieve capital growth on the strength
of a consistently cash generative trading performance.
During the last financial year cash reserves grew as a result of strong
trading performance. However, the acquisition of Netcallidus means
that overall cash and cash equivalents at £1.28m are down by
approximately £400k compared to June 2009. It is the Board’s intention
to utilise this cash to invest in new revenue generating opportunities
for the business and to continue to seek further earnings enhancing
acquisitions.
Accordingly, the Directors believe that it is inappropriate to propose
a dividend based on this strategy to invest in further growth.
dotDigital Group
Annual Report and Accounts 2009/2010
24
Report of the Directors’ continued
The Directors during the period under review were:
S Bird
D Ivy
N Nelson
D Pacy
P Simmonds
I Taylor
G Fidura
-
Resigned 10.9.09
-
-
-
-
Appointed 1.7.09
Directors’ interests
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 30th June 2010 are as follows:
Directors
S Bird
I Taylor
P Simmonds
N Nelson
D Pacy
D Ivy (resigned 10/9/09)
G Fidura
30.6.10
Number of
shares held
264,300,000
304,300,000
65,300,000
27,625,000
37,500,000
152,300,000
-
Shareholding
%
20.45
23.36
5.01
2.12
2.88
11.8
-
30.6.09
Number of
shares held
304,300,000
304,300,000
65,300,000
27,625,000
37,500,000
304,300,000
-
Shareholding
%
23.36
23.36
5.01
2.12
2.88
23.36
-
Peter Simmonds is beneficially entitled to 65,300,000 Ordinary Shares which are owned by Alliance Trust Pensions Limited.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
25
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 2010 are as follows:
Executive Directors
P Simmonds
G Fidura
30.6.10
Number of
options held
41,666,667
4,000,000
Shareholding
%
3.10*
0.30
30.6.09
Number of
shares held
41,666,667
-
Shareholding
%
3.10
-
* Percentage shareholding represents the percentage of the shares issued and should no more than the existing shares and those exercisable
at the reporting period.
Substantial interests
On 30 October 2010, the following parties had notified the Group of a beneficial interest that represents 5% or more of the Company’s issued
share capital at that date:
Shareholders
S Bird
P Simmonds
D Ivy
Pershing Nominees Limited
I Taylor
Newedge Group SA
30.6.10
Number of
shares held
264,300,000
65,300,000
152,300,000
69,769,429
304,300,000
192,000,000
Shareholding
%
30.6.09
Number of
shares held
Shareholding
%
20.45
304,300,000
5.05
65,300,000
11.82
304,000,000
5.40
23.54
14.85
64,769,429
304,300,000
-
23.54
5.05
23.54
5.00
23.54
-
dotDigital Group
Annual Report and Accounts 2009/2010
26
Report of the Directors’ continued
Frank Nominees Limited act as nominee for Alliance Trust Pensions
Limited which is the trust of a SIPP established by Peter Anthony
Simmonds. Frank Nominees is a vehicle used by Kleinwort Benson
Limited to hold securities for clients, trusts, SIPP’s etc. The beneficiary
of the SIPP is Peter Anthony Simmonds.
Newedge Group are holding the shares on behalf of the Helium Special
Situations Fund, a single manager hedge fund focussing on UK long-
bias small and micro caps.
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 payment terms with its suppliers at the
time it enters into binding purchasing contracts for the supply of goods
and services. The Company seeks to abide by these payment terms
whenever it is satisfied that the supplier has provided the goods or
services in accordance with agreed terms and conditions. The average
credit days for the year is 34 (2009: 25 days).
Publication of accounts on company website
Financial statements are published on the Company’s website. The
maintenance in 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 purchases insurance to cover its Directors and Officers
against their costs in defending themselves in legal proceedings taken
against them in that capacity, and in respect of damages resulting
from the unsuccessful defence of any proceedings.
Financial Instrument
Details of the Group’s risk management objectives and policies
together with its exposure to financial risk are set out in note 22
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.
Research and development
In the markets in which the Group operates, effective research and
development is vital to maintaining competitive advantage and
securing future income streams.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
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 a going concern basis in the preparation
of financial statements.
Auditors
The auditors, Jeffreys Henry LLP, will be proposed for reappointment
at the forthcoming annual general meeting.
Statement of Director’s 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 Group and parent Company 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 judgments 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 Group and Parent Company will
continue in business;
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
27
dotDigital Group
Annual Report and Accounts 2009/2010
Act 2006. 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.
Events after the reporting period
On 17 May 2010 the Company acquired Netcallidus Limited and as part
of the purchase agreement an initial cash payment of £1,000,000 and a
share issue valuing £152,660 (see note 14). £1,000,000 was transferred
into an escrow account to be transferred to the previous owner on the
completion of three individual transfer stages.
As at 31 August 2010 two of the three stages had been fulfilled by the
previous owners with only the completion of the statutory financial
statements remaining £763,000 from the funds in escrow was transferred
to the previous owners with the balance of £234,000 remaining in escrow.
The final of the three stages was completed after the reporting date and
the balance remaining in escrow has been settled.
Given the nature of the transaction and the level of control the Group
were involved in the final stage, the Directors have elected to report the
entire £1,000,000 investment in goodwill in the report (see note 14). The
value of the shares to be issued have been classified as unpaid share
capital in the statements of financial position with the shares to be
issued mid November 2010.
On behalf of the Board:
Peter Simmonds
Director
11 November 2010
28
Independent Auditors’ report
We have audited the Group and Company financial statements of
dotDigital Group Plc for the year ended 30 June 2010 which comprise
of the consolidated income statement, consolidated statement of
comprehensive income, consolidated statement of financial position,
consolidated statement of changes in equity, consolidated statement
of cash flows, company statement of financial position, company
statement of changes in equity, company statement of cash flows and
related notes on pages 36 to inside back cover. 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 chapter 3 of part 16 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 26, 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.
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 2010 and of
the Group’s profit for the year 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 statement, Article 4 of the IAS regulation.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
Opinion on other matter prescribed by the Companies Act 2006
In our opinion 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.
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 our 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 on behalf of Jeffreys Henry LLP
Chartered Accountants and Registered Auditors
Finsgate 5-7 Cranwood Street, London, EC1V 9EE
11 November 2010
29
dotDigital Group
Annual Report and Accounts 2009/2010
30
Consolidated income statement
for the year ended 30 June 2010
Continuing operations
Revenue
Administrative expenses
Operating profit
Finance costs
Finance income
Profit before income tax
Income tax expense
Profit for the period
Profit attributable to:
Owners of the parent
Earnings per share expressed in pence per share:
Basic
Diluted
Consolidated statement of comprehensive income
for the year ended 30 june 2010
Profit for the period
Other comprehensive income
Total comprehensive income for the period
Total comprehensive income attributable to:
Owners of the parent
Year ended
30.6.10
£
Notes
Period
1.5.08
to
30.6.09
£
3
6
5
5
6
7
10
6,014,101
(4,638,328)
4,718,290
(3,652,199)
1,375,773
1,066,091
(1,607)
3,088
1,377,254
(233,104)
1,144,150
(864)
15,088
1,080,315
(184,808)
895,507
1,144,150
895,507
0.09
0.08
0.14
0.13
Year ended
30.6.10
£
1,144,150
-
1,144,150
Period
1.5.08
to
30.6.09
£
895,507
-
895,507
1,144,150
895,507
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
Consolidated statement of financial position
for the year ended 30 June 2010
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity attributable to the owners of the parent
Called up share capital
Share premium
Reverse acquisition reserve
Other reserves
Unissued share capital
Retained earnings
Total equity
Liabilities
Non-current liabilities
Trade and other payables
Financial instruments
Financial liabilities – borrowings
Interest bearing loands and borrowings
Current liabilities
Trade and other payables
Financial liabilities – borrowings
Interest bearing loans and borrowings
Tax payable
Total liabilities
Total equity and liabilities
31
Notes
30.6.10
£
30.6.09
£
11
12
13
15
16
17
18
18
18
18
18
22
20
19
20
4,120,561
559,082
173,120
4,852,763
1,234,645
1,277,617
2,512,262
608,503
259,675
119,052
987,230
655,304
1,677,902
2,333,206
7,365,025
3,320,436
1,292,500
4,533,754
(4,695,465)
29,493
152,660
2,696,522
1,292,500
4,533,754
(4,695,465`)
5,302
-
1,552,372
4,009,464
2,688,463
2,366,320
-
6,319
18,228
668,763
416,811
12,152
302,007
982,922
12,152
184,782
613,745
3,355,561
631,973
7,365,025
3,320,436
The financial statements were approved and authorised for issue by the Board of Directors on 11 November 2010 and were signed on its behalf by:
Peter Simmonds
Director
Company registration number: 06289659 (England &Wales)
dotDigital Group
Annual Report and Accounts 2009/2010
32
Company statement of financial position
for the year ended 30 June 2010
Assets
Non-current assets
Investments
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Equity attributable to the owners of the parent
Called up share capital
Share premium
Other reserves
Unissued share capital
Retained losses
Total equity
Liabilities
Non-current liabilities
Trade and other payables
Financial instruments
Current liabilities
Trade and other payables
Total liabilities
Total equity and liabilities
Notes
30.6.10
£
30.6.09
£
14
15
16
17
18
18
18
18
22
19
8,704,468
8,704,468
5,183,488
5,183,488
4,826
385,332
390,158
2,712
564,531
567,243
9,094,626
5,750,731
1,292,500
4,533,754
29,493
152,660
(329,205)
1,292,500
4,533,754
5,302
-
(148,728)
5,679,202
5,682,828
2,366,320
-
1,049,104
3,415,424
67,903
67,903
9,094,626
5,750,731
The financial statements were approved and authorised for issue by the Board of Directors on 11 November 2010 and were signed on its behalf by:
Peter Simmonds
Director
Company registration number: 06289659 (England &Wales)
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
Consolidated statement of changes in equity
for the year ended 30 June 2010
Balance at 1 May 2008
Changes in equity
Issue of share capital
Dividends
Total comprehensive income
Balance at 30 June 2009
Changes in equity
Total comprehensive income
Balance at 30 June 2010
Balance at 1 May 2008
Changes in equity
Issue of share capital
Dividends
Total comprehensive income
Reverse acquisition
Share option charge
Balance at 30 June 2009
Changes in equity
Total comprehensive income
Share option charge
Equity on acquisition (see note 14)
Balance at 30 June 2010
33
Called up
share
capital
£
292,500
1,000,000
-
-
Retained
earnings
£
775,665
-
(118,800)
895,507
Share
premium
£
533,754
4,000,000
-
-
1,292,500
1,552,372
4,533,754
-
1,144,150
-
1,292,500
2,696,522
4,533,754
Unissued
share
capital
£
-
-
-
-
-
-
-
Reverse
acquisition
reserve
£
(826,162)
-
-
-
(3,896,303)
-
Other
reserves
£
Totals
equity
£
-
775,757
-
-
-
-
5,302
-
(118,800)
895,507
(3,869,303)
5,302
(4,695,495)
5,302
2,688,463
-
-
152,660
-
-
-
-
24,191
-
1,144,150
24,191
152,660
152,660
(4,695,495)
29,493
4,009,464
•
•
•
•
•
•
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 net of share issue expenses.
Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.
Unissued share capital relate to the shares due to be issued in relation to the acquisition of Netcallidus (see note 14).
The reverse acquisition reserve relates to the adjustment required to account the reverse acquisition in accordance with International Financial
Reporting Standard.
Other reserves relate to the charge for share based payment in accordance with International Financial Reporting Standard 2.
dotDigital Group
Annual Report and Accounts 2009/2010
34
Company statement of changes in equity
for the year ended 30 June 2010
Balance at 1 May 2008
Changes in equity
Issue of share capital
Total comprehensive income
Balance at 30 June 2009
Changes in equity
Total comprehensive income
Balance at 30 June 2010
Balance at 1 May 2008
Changes in equity
Issue of share capital
Total comprehensive income
Share option charge
Balance at 30 June 2009
Changes in equity
Total comprehensive income
Share option charge
Equity on acquisition (see note 14)
Balance at 30 June 2010
Called up
share
capital
£
292,500
1,000,000
-
Retained
earnings
£
(85,372)
-
(63,356)
Share
premium
£
533,754
4,000,000
-
1,292,500
(148,728)
4,533,754
-
(180,477)
-
1,292,500
(329,205)
4,533,754
Unissued
share
capital
£
-
-
-
-
-
Other
reserves
£
Totals
equity
£
-
740,882
-
-
5,302
5,000,000
(63,356)
5,302
5,302
5,682,828
-
-
152,660
152,660
-
24,191
-
(180,477)
24,191
152,660
29,493
5,679,202
•
•
•
•
•
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 net of share issue expenses.
Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders.
Unissued share capital relate to the shares due to be issued in relation to the acquisition of Netcallidus (see note 14).
Other reserves relate to the charge for share based payment in accordance with International Financial Reporting Standard 2.
The notes form part of the financial statements.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
Consolidated statement of cash flows
for the year ended 30 June 2010
Cash flows from operating activities
Cash generated from operations
Interest paid
Tax paid
Net cash generated 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
35
Period
1.5.08
to
30.6.09
£
948,297
(864)
(180,435)
766,998
(39,183)
(295,670)
(62,371)
15,088
765,105
Notes
28
Year ended
30.6.10
£
1,275,938
(1,607)
(182,614)
1,091,717
(1,000,000)
(405,725)
(115,556)
3,088
41,407
Net cash (used)/generated from investing activities
(1,476,786)
382,969
Cash flows from financing activities
New loans in year
Loan repayments in period
Amount repaid to Directors
Equity dividends paid
Net cash used from financing activities
(Decrease)/Increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Company statement of cash flows
for the year ended 30 June 2010
Cash flows from operating activities
Cash generated from operations
Net cash used from operating activities
Cash flows from investing activities
Purchase of fixed asset investments
Interest received
Net cash used from investing activities
Cash flows from financing activities
Loan from Group
Net cash generated from financing activities
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The notes form part of the financial statements.
-
(11,912)
(3,304)
-
23,441
-
(61,199)
(118,800)
(15,216)
(156,558)
(400,285)
1,677,902
993,409
684,493
1,277,617
1,677,902
29
29
Notes
30.6.10
£
30.6.09
£
28
(139,637)
(112,523)
(139,637)
(112,523)
(1,000,000)
-
(183,488)
15,347
(1,000,000)
(168,141)
960,438
960,438
23,638
23,638
(179,199)
(257,026)
564,531
385,332
821,557
564,531
29
29
dotDigital Group
Annual Report and Accounts 2009/2010
36
Notes to the consolidated financial statements
for the year ended 30 June 2010
1. General information
dotDigital Group Plc (“dotDigital”) is a company incorporated England
and Wales and quoted on the PLUS Markets. The address of the
registered office is disclosed on inside back cover of the financial
statements. The principal of activity of the Group is described
on page 22.
2. 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) relevant to the Group’s operations.
The following interpretations to published standards is mandatory
for accounting periods beginning on or after 1 July 2009.
•
IAS 1 (Revised) ‘Presentation of financial statements’ (effective
from 1 January 2010). 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)
b)
c)
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).
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.
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.
•
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.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
The revised standard was applied to the acquisition of the entire
interest in Netcallidus Limited on 17 May 2010. This acquisition
will occur in stages. The revised standard requires goodwill to be
determined only at the acquisition date rather then at the relevant
stages consideration is calculated with any gain or loss recorded
in the income statement. Contingent consideration of £3,518,980
has been recognised at fair value on 17 May 2010 and acquisition
related costs of £66,163 have been recognised in the consolidated
income statement.
•
•
IFRS7 ‘Financial instruments: Disclosures’ and the
complementary amendment to IAS1 ‘Presentation of financial
statements - Capital disclosures’ (effective 1 January 2010).
IFRS 7 introduces new disclosure relating to financial instruments.
The standard does not have any impact on the classification and
valuation of the Company’s financial instruments (see note 22).
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.
Issued International Financial Reporting Standards (IFRS’s) and
interpretations (IFRICS) not relevant to Group operations.
The following interpretations to published standards is mandatory
for accounting periods beginning on or after 1 July 2009 but are not
relevant to the Group’s operations:
•
•
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. 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 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.
37
•
•
•
•
•
•
•
•
•
IAS 23 (Revised) ‘Borrowing costs’ (effective 1 May 2009).
main change from the version previous 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.
The
IAS 27 Consolidated and separate financial statements
(Amendment) (effective 1 July 2009). Amendment to the
valuations of the cost of investment in a subsidiary, joint venture
or associate.
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 instrument: Recognition and measurement’
and IAS 7 ‘Financial Instruments’ - Disclosures regarding
reclassifications of financial instruments - These permit an entity
to reclassify non-derivative financial assets and assets available for
sale under limited circumstances.
This clarify that
IFRIC 13 ‘Customer loyalty programmes’
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 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.
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.
This clarifies the
IFRIC 18 ‘Transfers of assets from customers’.
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 Group’s
accounting periods beginning on or after 1 July 2009 but not early
adopted:
•
•
•
IFRS9 ‘Financial instruments’ (effective from 1 January 2013
with early adoption from 2009) - Introduced to replace IAS
39 ‘Financial Instrument’ Recognition and Measurement. IFRS 9
introduces new requirements for classifying and measuring financial
assets. Under the new standard only two possible classifications
arise, rather then the four existing classifications currently available
under IAS39 and will result in all financial assets being valued at
amortised cost or fair value through the income statement. Financial
liabilities are excluded from the scope of the standard.
IFRIC 19 ‘Extinguishing financial liabilities’ (effective from 1
July 2010) addresses the accounting by an entity that issues equity
instruments in order to settle, in full or part a financial liability.
IASB’s 2009 annual improvement project.
considers minor amendments to IFRSs in an annual improvements
project. The amendments are proposed in an omnibus Exposure
Draft.
Each year the Board
Basis of consolidation & comparatives
In the prior period the Company acquired via a share for share
exchange the entire issued share capital of dotMailer Limited, whose
principal 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 for the beginning of the prior period reflect the
retained reserves of dotMailer Limited to 30 April 2008. However, in
accordance with IFRS3 ‘Business combinations’ the equity structure
appearing in the consolidated financial statements reflects the
equity structure of the legal parent dotDigital Plc, including the
equity instruments issued under the share exchange to effect the
business combination;
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;
Comparative numbers are based upon the consolidated financial
statements of the legal subsidiary, dotMailer Limited for the period
ended 30 June 2009 apart from the equity structure which reflects
that of the parent.
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.
dotDigital Group
Annual Report and Accounts 2009/2010
38
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
2. Accounting policies continued
•
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.
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. 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.
As a result of applying reverse acquisition accounting in the prior
period, the consolidated IFRS financial information of dotDigital Group
Plc is a continuation of the financial information of dotMailer Limited.
Revenue recognition
Revenue comprises the fair value of the consideration received or
receivable for the sale of goods and services in the ordinary course of
the Group’s activities. Revenue is shown net of value added tax, returns,
rebates and discounts after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can
reliably measured, it is probable that the future economic benefits will
flow to the entity. The Group bases it’s estimates on historical results,
taking into consideration the type of customer, the type of transaction
and the specifics of each arrangement.
The Group sells web based marketing services to other businesses and
services are either provided on a usage basis or fixed price bespoke
contract. Revenue from contracts are recognised under the percentage
of completion method based on the percentage of services performed
to date as a percentage of the total services to be performed.
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.
Intangible assets (other then 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 (4-5 years),
with the charge included in administrative expenses in the income
statement.
Intangible assets are reviewed for impairment annually. Impairment
is measured by determining the recoverable amount of an asset or
cash generating unit (CGU) which is the greater of its value in use and
its fair value less costs to sell. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset or CGU. For the purpose
of impairment testing, assets that cannot be tested individually are
Grouped together into the smallest Group of assets that generates cash
inflows from continuing use that are largely independent of the cash
inflows of other assets or CGU.
•
•
•
Domain names
Acquired domain names are shown at historical cost. Domain
names have a finite life and are carried at cost less accumulated
amortisation. Amortisation is calculated using straight line method
to allocate the cost of domain names over their useful lives of
four years.
Software
Acquired software and websites are shown at historical cost.
They have a finite life and are carried at cost less accumulated
amortisation. Amortisation is calculated using straight line method
to allocate the cost of software and websites over their useful lives
of four years.
Product development
Product development expenditure is capitalised when it is
considered that there is a commercially and viable technically
product, the related expenditure is separably identifiable and there
is a 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 a finite life of five years.
Amortisation is charged on assets with finite lives, this expense is
taken to the income statement and useful lives are reviewed on an
annual basis. Amortisation is provided commencing from the date
the asset is developed to a stage at which the Company can receive
economic benefits from the asset
Property, plant and equipment
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 are 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 rates in order to write off each asset over its
estimated useful life and are based on the cost of assets less residual
value. Significant of components individual assets are assessed and if a
component has a useful life that is different from the remainder of that
asset, that component is depreciated separately.
Short leasehold
Fixtures and fittings
Computer equipment
25% on cost
25% on cost
25% on cost
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
39
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 then 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.
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.
Research and development
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.
Operating leases
Leases in terms of which the Company assumes substantially all the
risks and rewards of ownership are classified as finance leases. Upon
initial recognition the leased asset is measured at an amount equal
to the lower of its fair value and present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted for
in accordance the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised in the
Company’s statement of financial position on a straight line basis over
the term of the lease. Lease incentives received are recognised as an
integral part of the total expense, over the term of the lease.
Use of estimates and judgments
The Group makes judgments, 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 judgments 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.
(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 judgment.
(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 judgment.
dotDigital Group
Annual Report and Accounts 2009/2010
40
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
2. Accounting policies continued
(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.
(g) Contingent Considerations
The future consideration payable to the vendors of Netcallidus in
respect to contingent consideration (earnouts) is based on the
Directors’ best estimates of future obligations which are dependent on
the future anticipated profits after tax. It is assumed that the operating
company improves profits in line with Directors’ estimates. When
earnouts are to be settled by both cash and equity consideration, the
fair value of the consideration is obtained by discounting the amounts
expected to be payable in the future to their present value. The
Directors’ best estimate the future mid-market price of the share to be
issued in Ordinary Shares. Reviews of the fair values are undertaken at
each period end with any resulting adjustments being made through
the Group’s Income Statement.
Contingent consideration
Contingent consideration is measured at fair value at the time of the
acquisition. If the amount of the contingent consideration changes as
a result of a post acquisition event (such as meeting profits target) the
accounting for the change in consideration depends on whether the
additional consideration is in cash or equity. If it is in equity the original
amount is not recalculated but if the change is in cash or other assets
the change is recorded in the income statement.
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. Terms on receivables
range from 30 to 90 days.
Equity
Share capital is the amount subscribed for shares at their nominal value.
Share premium represents the excess of the amount subscribed for
the share capital over the nominal value of the respective shares net
of share issue expenses.
Retained earnings represent the cumulative earnings of the Group
attributable to equity shareholders.
The reverse acquisition reserve relates to the adjustment required
by accounting for the reverse acquisition in accordance with IFRS3
‘Business combinations’.
Other reserves relate to the charge for share based payments in
accordance with IFRS2 ‘Share based payments’.
Share based payments
For equity settled share based payment transactions the Group, 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
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
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 year end (see note 28).
Trade payables
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
Terms on accounts payables range from 10 to 90 days.
Functional currency translation
•
Functional and presentation currency
Items included in the financial statements if the Company are
measured using the currency of the primary economic environment
in which the entity operates (functional currency), which is mainly
pounds sterling (£) and it is this currency the financial statements
are presented in.
•
Transaction and balances
Foreign currency transactions are translated in to the presentation
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 the year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the income statement.
Employee benefit costs
The Company operates a defined contribution pension scheme.
Contributions payable by the Company’s pension scheme are charged
to the income statement in the period in which they relate.
Segment reporting
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
environment.
Pension contributions
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.
3. Segmental reporting
The Group’s primary reporting format is business segments and it’s
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.
4. Employees and Directors
Wages and salaries
Social security costs
Other pension costs
The average monthly number of employees during the period was as follows:
Directors
Sales
Web designers and developers
Administration
Information regarding Directors’ emoluments is as follows:
Directors fees
Salaries
Other benefits
Pension costs
41
Year ended
30.6.10
£
2,639,741
270,902
23,111
Period
1.5.08
to
30.6.09
£
2,057,204
220,437
38,369
2,933,754
2,316,010
Year ended
30.6.10
6
21
31
16
74
Year ended
30.06.10
£
38,333
486,627
8,185
36,846
Period
1.5.08
to
30.6.09
6
12
12
25
55
Period
1.5.08
to
30.6.09
£
16,665
482,807
13,356
25,474
569,991
538,302
The number of Directors for whom retirement benefits are accruing under the money purchased pension schemes amounted to 3 (2009: 4).
Information regarding the highest paid Director for the year is as follows:
Salaries
Other benefits
Pension costs
Payment in lieu of holiday
Year ended
30.06.10
£
131,000
757
9,500
3,598
Period
1.5.08
to
30.6.09
£
127,666
3,667
13,356
-
144,855
144,689
dotDigital Group
Annual Report and Accounts 2009/2010
42
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
5. Net finance income
Finance income:
Deposit account interest
Finance costs:
Bank loan interest
Loan
Net finance income
6. Profit before income tax
Costs by nature
Profit from continuing operations has been arrived at after charging/(crediting):-
Staff related costs (inc Directors emoluments)
Operating leases: Land and buildings
Operating leases: Other
Audit remuneration
Amortisation of intangibles
Depreciation charge
Legal, professional and consultancy fees
Computer expenditure
Research costs
Marketing costs
Bad debts
Other costs
Total administration expenses
Audit remuneration
During the year period the Group obtained the following services from the Group’s auditor at costs detailed below:
Fees payable to the 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
Year ended
30.6.10
£
Period
1.5.08
to
30.6.09
£
3,088
15,088
-
1,607
1,607
1,481
192
672
864
14,224
Year ended
30.6.09
£
3,084,799
227,285
19,726
24,505
106,318
66,634
284,544
200,086
12,822
239,835
55,140
316,634
Period
1.5.08
to
30.6.09
£
2,450,858
169,242
12,862
20,000
48,276
69,180
154,381
136,657
20,842
275,932
64,801
229,168
4,638,328
3,652,199
Year ended
30.6.10
£
Period
1.5.09
to
30.6.09
£
13,506
5,000
11,000
24,506
15,000
20,000
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
43
6. Profit before income tax continued
Acquisitions
On 17 May 2010 the Company acquired the entire share capital of Netcallidus Limited therefore only 6 weeks of Netcallidus Limited has been
consolidated into the Group’s consolidated Income Statement.
The total consolidated in the Income Statement for the 6 weeks period was:
Revenue
Profit after tax
£
110,012
38,800
If the acquisition of Netcallidus had happened at the beginning of the Financial Year (1.7.09) the management estimate that their contribution to
the Consolidated Income Statement would have been:
Revenue
Profit after tax
£
671,594
230,532
In determining the above values the management have assumed that the fair value adjustments, determined provisionally, that arose on the date of
the acquisition would have been the same if the acquisition had occurred on 01 July 2009.
Income tax
7.
Analysis of the tax charge
Current tax:
Tax
Total tax charge in income statement
Year ended
30.6.10
£
233,104
233,104
Period
1.5.08
to
30.6.09
£
184,808
184,808
Factors affecting the tax charge
The tax assessed for the year 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% (2009 - 28%)
Effects of:
Expenses not deductible
Research and development enhanced claim
Effect of profits within marginal rate
Capital allowances in excess of depreciation
Total income tax
Year ended
30.6.10
£
Period
1.5.08
to
30.6.09
£
1,377,254
1,080,315
385,631
302,488
24,036
(165,365)
-
(11,198)
233,104
5,095
(118,947)
(3,546)
(282)
184,808
8. Loss of Parent Company
As permitted by Section 408 of the Companies Act 2006, the profit and loss account of the parent Company is not presented as part of these
financial statements. The parent Company’s loss for the financial year was £(180,477) (2009 - £(63,356)).
9. Dividends
Ordinary Shares of £0.01 each
Interim
Year ended
30.6.10
£
Period
1.5.08
to
30.6.09
£
-
118,800
dotDigital Group
Annual Report and Accounts 2009/2010
44
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
10. Earnings per share
Earnings per share data is based on the consolidated profit using 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 as follows:-
Year to 30.6.10
Weighted
average
number of
shares
Earnings
£
1,144,150
1,292,500,000
-
89,433,450
Per share
amount
pence
0.09
-
1,144,150 1,381,933,450
0.08
1.5.08 to 30.6.09
Weighted
average
number of
shares
Earnings
£
895,507
643,318,750
-
55,121,118
Per share
amount
pence
0.14
-
895,507
698,439,868
0.13
£
608,503
3,512,058
4,120,561
4,120,561
£
-
608,503
608,503
608,503
Basic EPS
Earnings attributable to owners of the Parent
Effect of dilutive shares
Options & Warrants
Diluted EPS
Adjusted earnings
Basic EPS
Earnings attributable to owners of the Parent
Effect of dilutive shares
Options & Warrants
Diluted EPS
Adjusted earnings
11. Goodwill
Group
Cost
At 1 July 2009
Additions (note 14)
At 30 June 2010
Net book value
At 30 June 2010
Group
Cost
At 1 July 2008
Additions
At 30 June 2009
Net book value
At 30 June 2009
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
45
11. Goodwill continued
Impairment test for goodwill
Goodwill is allocated to the Group’s single cash generating units identified, that being dotMailer Limited and Netcallidus Limited.
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 2015.
The key assumptions use to prepare the financial budgets are as follows:
Revenue growth rates:
Pre tax discount rate:
Income tax rate:
2011
2012
2013
2014
2015
All years
All years
26.00%
25.00%
20.00%
20.00%
20.00%
4.00%
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.
Netcallidus Limited
Revenue growth rates:
Pre tax discount rate:
Income tax rate:
2011
2012
2013
2014
2015
All years
All years
167%
84%
30.00%
30.00%
30.00%
4.00%
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. Based on the above the Directors are of the opinion that the carrying value of goodwill has not been impaired.
12. Intangible assets
Group
Cost
At 1 July 2009
Additions
At 30 June 2010
Amortisation
At 1 July 2009
Amortisation for year
At 30 June 2010
Net book value
At 30 June 2010
Computer
software
£
Development
costs
£
57,056
68,245
125,301
242,060
337,480
579,540
12,407
20,418
32,825
33,624
83,656
117,280
Domain
names
£
8,836
-
8,836
2,246
2,244
4,490
Totals
£
307,952
405,725
713,677
48,277
106,318
154,595
92,476
462,260
4,346
559,082
dotDigital Group
Annual Report and Accounts 2009/2010
46
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
12. Intangible assets continued
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
software
£
Development
costs
£
6,407
50,649
57,056
12,407
12,407
-
242,060
242,060
33,624
33,624
Domain
names
£
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
Development cost additions represents resources the Group have invested in the development of unique computer programming with the
intention of re sale once complete.
13. Property, plant and equipment
Group
Short
leasehold
£
11,875
-
11,875
6,160
2,940
9,100
Plant and
machinery
£
-
5,578
5,578
-
1,719
1,719
Fixtures
and
fittings
£
120,990
23,984
144,974
67,455
26,264
93,719
Computer
equipment
£
198,874
91,572
290,446
139,072
36,143
175,215
Totals
£
331,739
121,134
452,873
212,687
67,066
279,753
2,775
3,859
51,255
115,231
173,120
Short
leasehold
£
8,398
3,477
Fixtures
and
fittings
£
93,760
27,230
11,875
120,990
Computer
equipment
£
167,210
31,664
198,874
Totals
£
269,368
62,371
331,739
3,738
2,422
6,160
40,852
26,603
67,455
98,917
40,155
143,507
69,180
139,072
212,687
5,715
53,535
59,802
119,052
Cost
At 1 July 2009
Additions
At 30 June 2010
Depreciation
At 1 July 2009
Charge for year
At 30 June 2010
Net book value
At 30 June 2010
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
Annual Report and Accounts 2009/2010
14. Investments
Company
Cost
At 1 July 2009
Additions
At 30 June 2010
Net book value
At 30 June 2010
Cost
At 1 July 2008
Additions
At 30 June 2009
Net book value
At 30 June 2009
The Group or the Company’s investments at the balance sheet date in the share capital of companies include the following:
Subsidiaries
dotMailer Limited
Nature of business: Web and email based marketing
Class of shares:
Ordinary
Ordinary A
Aggregate capital and reserves
Profit for the year/period
dotAgency Limited
Nature of business: Dormant
Class of shares:
Ordinary
Aggregate capital and reserves
47
Shares in
Group
undertakings
£
5,183,488
3,520,980
8,704,468
8,704,468
Shares in
Group
undertakings
£
5,183,488
5,183,488
5,183,488
%
holding
100.00
100.00
30.6.10
£
3,645,246
1,285,966
30.6.09
£
2,166,978
921,663
%
holding
100.00
30.6.09
£
1,000
30.6.10
£
1,000
dotDigital Group
Annual Report and Accounts 2009/2010
48
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
14. Investments continued
dotCommerce Limited
Nature of business: Dormant
Class of shares:
Ordinary
Aggregate capital and reserves
Profit for the period/year
dotSEO
Nature of business: Dormant
Class of shares:
Ordinary
Aggregate capital and reserves
Profit for the period/year
The Company subscribed to 1,000 share of £1 each on 11 March 2010 with a paid up share capital of £1,000
Netcallidus Limited
Nature of business: Internet and website services
Class of shares:
Ordinary, B, C & D
Aggregate capital and reserves
Profit for the year/period
%
holding
100.00
30.6.09
£
1,000
-
%
holding
100.00
30.6.09
£
-
-
%
holding
100.00
30.6.09
£
49,654
57,112
30.6.10
£
1,000
-
30.6.10
£
1,000
-
30.6.10
£
236,135
230,532
Acquisition of dotMailer
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 in dotMailer Ltd
Costs directly attributable to the business combination
Consideration
Value
£
5,000,000
181,488
5,181,488
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
14. Investments continued
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
49
Book and Fair
Value
£
142,305
10,803
740,856
24,141
(214,424)
703,681
Acquisition of Netcallidus
On 17 May 2010 the Group acquired the entire share capital of Netcallidus Limited a company registered in England and Wales for an initial
consideration of £1,152,660 and an additional contingent consideration of £2,366,320 totalling £3,518,980. The Company’s principal activity is the
provision of internet and website services. Obtaining control of Netcallidus Limited allows the Group to market SEO services to its existing customer
base as well as exploiting opportunities with new customers. The knowledge and expertise within Netcallidus will enable it to further develop and
market its SEO products and services.
The following summarises the major classes of consideration transferred and the recognised amounts of assets and liabilities assumed at the
acquisition date:
Consideration transferred:
Cash
Equity instruments (14,200,930 shares)
Contingent consideration:
Cash
Equity instruments (160,456,559 shares)
Consideration
Value
Note
£
1,000,000
152,660
1,152,660
641,412
1,724,908
3,518,980
The number of shares to be issued in respect of the consideration transferred is based on the expected list price of 1.075p per share which is the
mid market price at the reporting period. The number of shares to be issued as contingent consideration is based on the expected present value of
the Group’s share price.
Identifiable assets acquired and liabilities assumed:
Goodwill
Property, plant and equipment
Trade and other receivables
Deposits, cash and cash equivalents
Taxation
Trade and other payables
Net assets
Goodwill:
Purchase consideration:
Fair value of net assets acquired
Goodwill acquired
Goodwill acquired from purchase of subsidiary
Book and Fair
Value
£
45,000
2,532
88,349
41,407
(84,598)
(40,768)
51,922
Note
£
3,518,980
(51,922)
3,467,058
45,000
3,512,058
The acquisition costs related to external legal fees and due diligence totalling £66,163, have been included in administrative expenses in the
consolidated statement of comprehensive income.
dotDigital Group
Annual Report and Accounts 2009/2010
50
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
14. Investments continued
The contingent consideration arrangement requires the Group to pay the former owners of Netcallidus Limited an estimated additional
consideration of £2,366,320 in a combination of cash and equity in the Group.
The final payment will be based on 3 times the Profit after Tax in the year ended 30 June 2012 less any amounts previously paid. The management’s
estimates are based on the business plan prepared by the Directors of Netcallidus and reviewed by the Board of dotDigital.
An interim payment will be made on finalising the PAT figures based on 4 times Profit After tax in the year ended 30 June 2011 less any amounts
that have previously been paid.
The Board have assessed a range of outcomes of future profit for the years 2011 and 2012. Based on this analysis we have arrived at an estimated
future deferred consideration as shown in the table below.
This consideration will be paid on 40% cash and 60% equity combination. The shares will be issued at the mid-market price quoted on the Plus
Markets on the date of the sign off by the Board of Netcallidus’ financial statements.
The Board estimate that the split of the payment to be as follows:
Less then one year
Between one to two years
Nominal value
Discounted fair value
Cash
£
266,827
746,264
Shares
£
400,241
1,119,397
Cash
£
256,565
689,963
Shares
£
Total
£
384,847
1,034,945
641,412
1,724,908
946,528
1,419,792
2,366,320
The fair value of the contingent consideration arrangement of £2,366,320 was estimated by applying the income approach utilising a discount rate
of 4%. See note 22 for further information on the acquisition of Netcallidus.
15. Trade and other receivables
Current:
Trade receivables
Other receivables
VAT
Prepayments and accrued income
16. Cash and cash equivalents
Cash in hand
Bank accounts
17. Called up share capital
Allotted, issued and fully paid
Number
1,292,500,000
30.6.10
£
1,108,231
10,986
-
115,428
Group
30.6.09
£
591,199
4,098
-
60,007
1,234,645
655,304
30.6.10
£
-
-
-
4,826
4,826
Group
30.6.10
£
124
1,277,493
30.6.09
£
-
1,677,902
1,277,617
1,677,902
Company
30.6.10
£
-
385,332
385,332
Company
30.6.09
£
-
-
650
2,062
2,712
30.6.09
£
-
564,531
564,531
Class
Ordinary
Nominal
value
£0.001
30.6.10
£
30.6.09
£
1,292,500
1,292,500
1,292,500
1,292,500
The holders of Ordinary Shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of
the Company.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
18. Reserves
Group
As at 1 July 2009
Total comprehensive income
Equity on acquisition
Balance at 30 June 2010
Balance at 1 July 2009
Total comprehensive income
Equity on acquisition
Share option fair value
Balance at 30 June 2010
Company
At 1 July 2009
Profit for the year
Share option fair value
Equity on acquisition
At 30 June 2010
19. 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
51
Retained
earnings
£
1,552,372
1,144,150
Share
premium
£
4,533,754
-
Unissued
Share
capital
£
-
-
152,660
2,696,522
4,533,754
152,660
Reverse
acquisition
reserve
£
(4,695,465)
-
-
-
Other
reserves
£
5,302
-
-
24,191
Total
equity
£
1,395,963
1,168,341
152,660
24,191
(4,695,465)
29,493
2,716,964
Unissued
share
capital
£
-
-
152,660
155,660
30.6.09
£
114,813
-
139,878
8,069
68,210
3,304
82,537
Other
reserves
£
5,302
24,191
-
Totals
£
1,395,963
1,144,150
24,191
152,660
29,493
2,716,964
Company
30.6.10
£
52,527
984,076
-
2,000
8,333
-
2,168
30.6.09
£
35,543
23,638
-
-
8,722
-
-
Retained
earnings
£
1,552,372
1,144,150
-
-
Share
premium
£
4,533,754
-
-
2,696,522
4,533,754
Group
30.6.10
£
133,764
-
172,089
18,483
112,444
-
231,983
668,763
416,811
1,049,104
67,903
dotDigital Group
Annual Report and Accounts 2009/2010
52
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
20. Financial liabilities – borrowings
Current:
Bank loans
Non-current:
Bank loans - 1-2 years
Terms and debt repayment schedule
Group
Bank loans
21. Leasing agreements
Minimum lease payments under non cancellable operating leases fall due as follows:-
Within one year
Between two to five years
Within one year
Between two to five years
Group
30.6.10
£
30.6.09
£
Company
30.6.10
£
30.6.09
£
12,152
12,152
-
-
Group
30.6.10
£
6,319
6,319
30.6.09
£
18,228
18,228
1 year or
less
£
12,152
12,152
Company
30.6.10
£
-
-
30.6.09
£
-
-
1-2 years
£
6,319
6,319
Totals
£
18,471
18,471
Land and Buildings
£
160,496
149,986
310,482
Land and Buildings
£
109,207
167,745
276,952
As at 30.6.10
Others
£
30,567
26,686
57,253
As at 30.6.09
Others
£
22,833
27,960
50,793
Total
£
191,063
176,672
367,735
Total
£
132,040
195,705
327,745
22. 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:
The Group hold no financial or non other financial instruments other then those utilised in the working operations of the Group and that listed
in this note.
Interest rate risk
The Group’s interest rate risk arises from interest baring 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. As at the end of the reporting period the Group were exposed not exposed to any movement in interest rates in regard to
loans and achieved less then 1% interest on cash holdings.
During the year the Group entered in to an agreement to purchase the entire share capital of Netcallidus Limited. The contingent consideration
arrangement requires the Group to pay the former owners of Netcallidus Limited an estimated additional consideration of £2,366,320 in a
combination of cash and equity in the Group.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
53
22. Financial instruments continued
The final payment will be based on 3 times the Profit after Tax in the year ended 30 June 2012 less any amounts previously paid. The management’s
estimates are based on the business plan prepared by the Directors of Netcallidus and reviewed by the Board of dotDigital. An interim payment
will be made on finalising the PAT figures based on 4 times Profit After tax in the year ended 30 June 2011 less any amounts that have previously
been paid.
The Board have assessed a range of outcomes of future profit for the years 2011 and 2012. Based on this analysis we have arrived at an estimated
future deferred consideration as shown in the table below.
This consideration will be paid on 40% cash and 60% equity combination. The shares will be issued at the mid-market price quoted on the Plus
Markets on the date of the sign off by the Board of Netcallidus’ financial statements. The notional and fair value of the expected payments to the
former owners are outline below in their composite elements. In all cases the post tax discount factor utilised is 4%.
Less then one year
Between one to two years
Year ended 30.6.10:
Nominal value
Discounted fair value
Cash
£
266,827
746,264
Shares
£
400,241
1,119,397
Cash
£
256,565
689,963
Shares
£
384,847
1,034,945
Total
£
641,412
1,724,908
946,528
1,419,792
2,366,320
The term “shares” indicates the value of ordinary share capital to be issued should targets be met and discount factors not change. Any changes
resulting in revaluations of the consideration due in following reporting period will be charged to the income statement. The Group had no such
agreement in the previous period.
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. Management forecasts indicate no new borrowing facilities will
be required in the upcoming financial period.
As described above Group entered in to an agreement to purchase the entire share capital of Netcallidus Limited. The contingent deferred
consideration arrangement requires the Group to pay the former owners of Netcallidus Limited further payments of cash and shares in October
2011 and October 2012.
The final payment in October 2012 will be based on 3 times the Profit after Tax in the year ended 30 June 2012 less any amounts previously paid.
The management’s estimates of deferred consideration are based on a range of scenarios prepared by the Directors of Netcallidus and reviewed
by the Board of dotDigital.
An interim payment will be made in October 2011.
The two tranches of deferred consideration will be paid in the ratio 40% cash and 60% equity. The shares will be issued at the mid-market price
quoted on the Plus Markets on the date of the sign off by the Board of Netcallidus’ financial statements.
In arriving at and negotiating the structure of the acquisition the Board were mindful of the need to ensure the proposed deferred consideration
did not create liquidity risk for the Group. The structure of the deferred consideration element is such that under all the scenarios which could be
envisaged the cash flows generated by the profit stream of the Netcallidus business will be sufficient to fund the cash element of the deferred
consideration.
Credit risk
Credit risk arises principally from the Group’s trade receivables which comprise amounts due from customers. Prior to accepting new customers a
credit check is obtained. As at 30 June 2010 there were no significant debts pass their due period which had not been provided for. The maturity
of the Groups trade receivables is as follows:
0 – 30 days
30-60 days
More the 60 days
As at
30.6.10
£
747,730
251,565
108,936
1,108,231
As at
30.6.09
£
500,514
77,439
13,246
591,199
dotDigital Group
Annual Report and Accounts 2009/2010
54
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
22. Financial instruments continued
The Group minimises its risk by credit profiling all new customers and monitoring existing clients of the Group for changes in their initial profile. The
level of trade receivables passed due the average collection period consisted of a value of £108,936 of which £53,000 was provided for. The Group
felt that the remainder would be collected post year end as they were with long standing relationships, the risk of default is considered to be low
and write-offs due to bad debts are extremely low. The Group has no significant concentration of credit risk, with the exposure spread over a large
number of customers.
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 31).
Capital Policy
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide optimal returns for
shareholders and to maintain an efficient capital structure to reduce the cost of capital.
In doing so the Group’s strategy is to maintain a capital structure commensurate with a strong credit rating and to retain appropriate levels of
liquidity headroom to ensure financial stability and flexibility. To achieve this, the Group monitors key credit metrics, risks and fixed charge cover to
maintain this position. In addition the Group ensures a combination of appropriate short-term and long-term liquidity headroom.
During the year the Group had a short-term loan balance of £12,152 and amounts payable greater than one year of £6,319. The Group had a strong
cash reserve to utilise for any short-term capital requirements that were needed by the Group.
The Group has continued to look for further long term investments or acquisitions and therefore to maintain or re-align the capital structure, the
Group may adjust when dividends are paid to shareholders, return capital to shareholders, issue new shares or borrow from lenders.
23. Capital commitments
The Group has no capital commitments as at the end of the reporting period.
24. 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
The above loans are provided to the Group on a interest free basis.
25. Related party disclosures
The following transactions were carried out with related parties during the year:
Year ended
30.6.10
£
3,304
-
(3,304)
-
Purchase of services
Financial public relations
Suppliers
Haggie Financial LLP
30.6.10
£
20,701
N Nelson, a Director, is a partner of Haggie Financial LLP. At the end of the year there was no outstanding fee owed to Haggie Financial LLP.
Supply of services
Website
Email marketing services
Customers
The Stockroom Limited
Chillibean Limited
30.6.10
£
4,795
4,395
Period
1.5.08
to
30.6.09
£
64,503
-
(61,199)
3,304
30.6.09
£
6,064
30.6.09
£
-
-
D Pacy, a Director, is a Director of the Stockroom Limited and Chillibean Limited. The above transactions were made with dotMailer Limited. At the
end of the reporting period, the amount outstanding to dotMailer due from The Stockroom Limited were £4,796 and £586 respectively.
www.dotdigitalgroup.com
Annual Report and Accounts 2009/2010
55
26. Ultimate controlling party
As at the end of the reporting period there was no ultimate controlling party.
27. 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 £24,191 (2009: £5,302)
Also on 20 October 2009 the Board of Directors also granted 21,250,000 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. Of the options issued in the year 4,000,000 option were issued to G Fidura a Director in the Group.
Movement in issued share options during the yea
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
No of options
74,226,667
21,250,000
1,550,000
-
93,926,667
-
30.06.10
WAEP
No of options
0.27p
1.00p
1.00p
-
0.42p
-
25,000,000
7,600,000
-
41,666,667
74,226,667
-
30.6.09
WAEP
0.10p
1.00p
-
0.24p
0.27p
-
Of the 93,926,667 options outstanding at the end of the year 25,000,000 (2009: 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
28. Reconciliation of profit before income tax to cash generated from operations
Consolidated
Profit before income tax
Depreciation charges
Share options
Finance costs
Finance income
Increase in trade and other receivables
Increase/(decrease) in trade and other payables
Cash generated from operations
20 October 2009
21,250,000
1.00p
1.00p
2.55%
8.67
12%
0%
0.7p
Year ended
30.6.10
£
1,377,254
170,338
24,191
1,607
(3,088)
Period
1.5.08
to
30.6.09
£
1,080,315
117,456
5,302
864
(15,088)
1,570,302
1,188,849
(490,992)
196,628
1,275,938
(199,833)
(40,719)
948,297
dotDigital Group
Annual Report and Accounts 2009/2010
56
Notes to the consolidated financial statements continued
for the year ended 30 June 2010
28. Reconciliation of profit before income tax to cash generated from operations continued
Company
Loss before income tax
Share option
Finance income
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
Cash (used) from operations
30.6.10
£
(180,477)
24,191
-
(156,286)
(2,114)
18,763
30.6.09
£
(63,356)
5,302
(15,347)
(73,401)
8,091
(47,213)
(139,637)
(112,523)
29. Cash and cash equivalents
Consolidated
The amounts disclosed on the cash flow statement in respect of cash and cash equivalents are in respect of these balance sheet amounts:
Year ended 30 June 2010
Cash and cash equivalents
Period ended 30 June 2009
Cash and cash equivalents
30.6.10
£
1.7.09
£
1,277,617
1,677,902
30.6.09
£
1.5.08
£
1,677,902
684,493
Company
The amounts disclosed on the cash flow in respect of cash and cash equivalents are in respect of these balance sheet amounts:
Year ended 30 June 2010
Cash and cash equivalents
Year ended 30 June 2009
Cash and cash equivalents
30.6.10
£
1.7.10
£
385,332
564,531
0.6.09
£
1.7.08
£
564,531
821,557
30. Research & development
During the period the Group incurred £12,822 (2009: £20,842) in research costs and £337,480 (2009: £242,060) 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
Annual Report and Accounts 2009/2010
Company information
Directors
S Bird
N C P Nelson
D J Pacy
P A Simmonds
I Taylor
G Fidura (Appointed 1 July 2009)
D Ivy (Resigned 10 September 2009)
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
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
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
Northampton
Units 10-11 Hall Farm
Sywell Aerodrome
Sywell
Northampton
NN6 0BN
T: 01604 781 044
Design and production by philosophy
www.philosophydesign.com
Photography by Layton Bennett
Print by Moore Print
www.mooreprint.co.uk
www.dotdigitalgroup.com