Annual Report 2014/2015 Contents 1 Key highlights 2 Chairman’s statement Strategic report 4 The dotmailer platform 6 How it works 8 Growth strategy 10 Global client list 12 Our culture 14 Key performance indicators 16 Risks, mitigations and impact 18 Chief Executive’s report 26 Corporate social responsibility report Governance 28 Board of Directors 30 Corporate governance report 31 Audit Committee report 32 Remuneration Committee report 34 Report of the Directors 36 Report of the independent auditor Financial statements 38 Consolidated income statement 38 Consolidated statement of comprehensive income 39 Consolidated statement of financial position 40 Company statement of financial position 41 Consolidated statement of changes in equity 42 Company statement of changes in equity 43 Consolidated statement of cash flows 43 Company statement of cash flows 44 Notes to the consolidated financial statements 68 Company information Key highlights Group revenues up 32% (from £16.2m to £21.4m) EBITDA increase by 45% to £6.8m Net cash generated from operating activities of £5.4m Strong cash position of £11.9m as at 30 June 2015 Corporate statement dotdigital Group’s flagship product is dotmailer, an email and multi-channel automation platform that enables marketers to plan, target, create, deploy, track and analyse their campaigns. We understand what marketers need from a technology platform and bring together features and usability in a way that no one else does. Supported by world-class strategic and creative services we make it easy for our clients to achieve dramatic results that grow their business. 1 dotdigital Group Plc Annual Report 2014/2015 Chairman’s statement Frank Beechinor-Collins Non-Executive Chairman dotdigital has delivered great results for During this past year we have focused on the 2014/15 financial year. The Group building our indirect sales through partners and continues to be cash generative with distributors and we have signed a number of no debt and we finished the year with high-profile partnership agreements in North cash reserves of £11.9m, an increase America and Asia Pacific. Our international revenues have grown by 97% – driven by the focus on geographic expansion of 28% on the prior year, after capital expenditure and product development We continue to make good progress in the costs of £2.3m. The Group returned US and our business there has grown by over a profit before tax of £5.2m for the 114%, signing a number of significant new Development in our dotmailer platform year, which was ahead marginally of clients in that market. We also established an continues to ensure it conforms to scalability, market expectations. office in Australia which will focus on driving localisation and compliance in our new markets sales across the Asia Pacific region, primarily and product updates and enhancements have Our change in emphasis of how we sell to through carefully selected partners. This been well received by our customers. clients outlined last year has been successful operation is now headed up by Rohan Lock, and our average monthly spend by customer who for the past five years, was head of sales As with previous years, our policy on has increased by 41%. In addition 94% of new in the UK. We’ve already seen a good level of acquisitions remains unchanged. Our clients signed in the past year have signed sign ups through our partners longer-term contracts giving the Group greater continued focus is on organic growth but we will consider acquisition opportunities, visibility on future revenue. We have also made Our professional services division has continued should they arise, and only if they allow us significant progress with Magento customers, to grow in the past year, achieving nearly £3m of to accelerate growth in a market or provide who tend to be higher volume senders, and sales, up 56% on the previous year ,with good us with a technolological advantage. these clients now spend considerably more profit margins. We have invested considerably with us on a monthly basis than other clients. in our infrastructure, ensuring that the business has the ability to offer the service expected by our customers as our business expands in both the volume of emails we send and the geographical markets in which we operate. 2 dotdigital Group Plc Annual Report 2014/2015 An evolving team Simone has an extensive knowledge of the On behalf of all our stakeholders, I would During the past year we have evolved the plc email marketing space and her previous like to thank the team at dotdigital for their and operational boards to ensure we have the experience as a Non-Executive Director of the fantastic contribution to another successful requisite skills to grow our business in line with Company before becoming CEO has meant she year. I would also like to say a special thank you market expectations. Peter Simmonds, who had an excellent understanding of the business. to the executive management team for their has been CEO for the past eight years, left at Simone has focused on building the executive continued commitment, hard work and passion the end of June 2015. We identified Simone management team to ensure the business has in developing the business. Barratt as Peter’s successor in 2014 and during the requisite skills as we progress through this the past year both Peter and Simone have stage of our evolution. Outlook worked on the transition in the months leading The outlook for dotdigital over the coming years up to Peter’s retirement and Simone taking on Milan Patel continues to do an excellent is very promising with interesting opportunities the role of CEO. job as CFO under Simone, with a focus on both in the UK and in overseas markets. We effective planning and good financial control, plan to continue to grow our business via a On behalf of the Board I would like to take this thus ensuring our ongoing profitability and direct sales model but, increasingly, we see opportunity to thank Peter for the considerable cash generation. effort he has put in to building the business indirect channel and partnerships as a very effective way to achieve significant growth and ensuring we have effective processes and Founders Simon Bird and Tink Taylor continue internationally. The rebranding and repositioning controls in place so that we can achieve growth as Board members and to play a strategic of the business has helped fulfil our ambition whilst remaining profitable and cash generative. role in the business. Both have provided great to be seen as a supplier of choice in the mid- We are delighted that Peter continues as a support to the executive management team. market. With this team and the strategy outlined significant shareholder of the business and he Tink has been instrumental in helping our here we look forward to another successful has also agreed to remain on the Board as a overseas expansion in not just North America year ahead. Non-Executive Director. but in Central America and Australia. Simon identified and recruited Steve Shaw who has taken over as IT Director and who, in turn, has made great strides in both the development of our main product suite and the infrastructure required for running our platform. Frank Beechinor-Collins Non-Executive Chairman 3 dotdigital Group Plc Annual Report 2014/2015 Strategic report The dotmailer platform I M A G I N AT I O N . . . D E L I V E R E D An email and multi-channel automation platform for digital marketers. Continuing growth Increased scalability World class integrations The flagship product, dotmailer, is a powerful dotmailer is a well-established product and The company also has specialist and email and multi-channel marketing automation over the past eight years we have seen strong deep pre-built integrations with best-in- platform with easy to use tools that enable evidence of the scalability of the Group’s class eCommmerce platforms and CRM marketers to efficiently create, manage, execute platform with monthly sends volumes growing products such as Magento, SalesForce and evaluate effective targeted campaigns. from under 5m sends per month to currently and Microsoft Dynamics. over 500m per month. In addition to its automation technologies, In addition the platform has been designed to the Group also provides expert multi-channel The Group has carried out significant integrate easily with clients’ existing marketing marketing consultancy and services for development work on the dotmailer platform technology and systems. businesses seeking to maximise customer over the years, providing continuous innovation acquisition, conversion and retention. The and functionality to its users. dotmailer has a broad customer base, with the Company is headquartered in London and employed 190 staff at the end of June 2015. Email continues to be the top-performing digital channel as confirmed in eConsultancy’s 2014 Email Marketing Industry Census, with 68% rating the channel as Excellent or Good. This finding was echoed in the UK Direct Marketing Association report which shows the average ROI for email campaigns has actually risen 53% to £38 for every £1 spent in 2014. five largest clients accounting for approximately 5% of total revenues (the top 20 clients account for less than 10% of total revenue). To some extent, this reflects some of the Group’s historical success in the SME space but, increasingly, the Group is gaining solid traction in the mid-to-small enterprise market in the UK, US and Asia Pacific. This includes a highly compelling visual drag and drop email template design, drag and drop segmentation and query builder, drag and drop campaign automation, translation of the user interface into eight languages and responsive template toolkits that optimise display content and layout on mobile devices (smartphones and tablets). Our platform’s ease of use, ease of integration and innovation combine to allow customers of all sizes and abilities to join us, and grow with us. 4 dotdigital Group Plc Annual Report 2014/2015 When we saw dotmailer, we were totally blown away. It was way ahead of anything else we saw. The decision was a no-brainer. Steve Smith eCRM Manager City & Guilds Ready. Set. Grow. dotmailer provides clients around the world with marketing tools that are easy to use yet provide all the functionality that a mid sized or small enterprise needs now and as they grow. Email marketing Email automation Multi-channel automation Platform Features Multi-channel Advanced personalisation Lead nurturing & scoring Behavioural analysis Landing pages Automated campaigns Insight & complex data Integrations Forms & surveys Campaign reporting Segment & triggers Email marketing 5 dotdigital Group Plc Annual Report 2014/2015 Strategic report How dotmailer works 6 dotdigital Group Plc Annual Report 2014/2015 Data inIntegrations make it fastand easy for customers topull their data into dotmailerEcommerce dataCRM dataSocial dataMessages outOur multi-channel marketingautomation platform empowersmarketers with the tools they needIntegrationsInsight & complex dataBehavioral analysisLead nurturing & scoringForms & surveysLanding pagesEmail marketingSegment & triggersAutomated campaignsAdvanced personalisationMulti-channelCampaign reporting includingContent & other assetsSystems & databasesWeb & emailTablets & dekstopsSales teamsCloud applicationsOnline channelsData warehousesincludingincludingCalls, SMS & messaging A client once described our platform as NASA technology with a Fisher Price interface. We liked that. It stuck. It’s now a mantra for our product development. Tink Taylor, Founder, dotmailer 7 dotdigital Group Plc Annual Report 2014/2015 Data inIntegrations make it fastand easy for customers topull their data into dotmailerEcommerce dataCRM dataSocial dataMessages outOur multi-channel marketingautomation platform empowersmarketers with the tools they needIntegrationsInsight & complex dataBehavioral analysisLead nurturing & scoringForms & surveysLanding pagesEmail marketingSegment & triggersAutomated campaignsAdvanced personalisationMulti-channelCampaign reporting includingContent & other assetsSystems & databasesWeb & emailTablets & dekstopsSales teamsCloud applicationsOnline channelsData warehousesincludingincludingCalls, SMS & messaging Strategic report Our growth strategy Enhancing shareholder value by focusing on profitable growth and product innovation. Our shareholder base expects a low-risk approach to investment. Over the past seven years as a public company we have a good track record of testing, learning and then investing in growth opportunities. As the Company has grown we have also taken care to protect our core customer base whilst looking to deliver strong top-line growth through: Geographic expansion Our revenues from outside the UK have grown from 3% in 2012/2013, to 10% in 2013/2014 and now to 15% in 2014/2015. We expect this % to increase through 2015/2016 with the bulk of these overseas revenues coming from the US and Asia Pacific. Our choice of strategic partners has been influenced by their geographic footprint to enable us to further penetrate other regions. Product innovation In 2014/2015 we delivered a number of significant new product features including Multi-channel extensions, insight data, advanced personalisation, lead scoring, fully personalised landing pages and substantial enhancements to our market leading integrations with Magento, MS Dynamics CRM and Salesforce. From a revenue perspective we saw an increase in recurring revenues from technology of 207% especially our marketing automation functionality. Going forward, in support of our international and partner growth strategy we will look to further globalize our product suite and our infrastructure. In addition, we have identified the following themes for our roadmap: platform extensibility, single customer view, real-time customer experience, predictive capabilities, eCommerce, email innovation, social. Strategic partnerships and channel In 2014/2015 we continued to build on our existing partner relationships in eCommerce and CRM by focusing on our specialist connectors for Magento, MS Dynamics CRM and Salesforce. 2015/2016, we plan to focus on developing a robust Global Reseller network, whilst our Direct Sales team continues to grow our organic direct business. Additionally, we are excited about early progress in developing Key Strategic Partnerships that will drive our presence globally. Identifying new niches Our historic focus on the eCommerce niche has delivered good revenues (261% increase 2014/2015) as well as positioning us to be strategic partners of key global players such as Magento. This, in turn, has also driven our geographic growth. For the coming year, we have identified an opportunity to exploit our localisation and multi-lingual capabilities and drive revenues through this niche. 8 dotdigital Group Plc Annual Report 2014/2015 y d u t s e s a C Barbour Case study Overcoming the obstacles Barbour have been on a rapid learning curve with the evolution of its ecommerce business. The sole business goal has been to deliver a seamless customer experience. The obstacles to overcome have been many: building a detailed customer database, segmenting the audience, creating engaging content, integration between systems, personalising the experience. In terms of bottom line a single direct campaign has generated a six-figure revenue amount, with a ROI of 37,581%. Elaine Taylor Manager Barbour International Smarter, scalable results Throughout this journey dotmailer have provided strong and consistent support to Barbour as they gradually adopt smarter and smarter email marketing automation tactics. This means tailored engagement programmes using past purchasing history are now sent as standard, automatically. The results are great but also scalable as the online business continues to grow. 9 dotdigital Group Plc Annual Report 2014/2015 Strategic report Global client list dotmailer is the trusted email marketing partner of huge success stories around the world. Major clients 10 dotdigital Group PlcAnnual Report 2014/2015 When I saw the EasyEditor in action I realised it is as easy as using Lego. Chris Hipson Customer Experience Econsultancy New clients New Magento clients 11 dotdigital Group PlcAnnual Report 2014/2015 Strategic report Our culture The dotmailer platform is built to be flexible and easy to work with. As a Company, we like to think we’re the same. The Group understands the critical role our people play in the success of the business. We continue to invest in their development and other initiatives that build upon the great culture that is at the heart of our business. It’s our business to know your business. We run a business. You run a business. Bottom lines are top of mind for us. That’s why everything we do for you – and ourselves – is considered, thought through and viable. Two peas. Same pod. We attract staff and clients that sing from the same hymn sheet as us. It’s an ethos that binds us together. Truth is, we’re more like family and friends than a company. 12 dotdigital Group Plc Annual Report 2014/2015 On your marks. Get set. Grow. Your success is our success. That’s why we grow our own people to be the best they can, so they can help your business to be the best it can. We don’t do the status quo. Now, off we grow. We’re an unlimited Company. We never sit still. Good enough isn’t good enough for us. We’re always thinking, always doing, always creating. Why? We love what we do. We care about how we do it. We think you will too. No nonsense. Straight. Honest. Open. Truthful (even if it hurts). We don’t do business speak. We prefer common sense. That’s what the best and most successful relationships are based on. 13 dotdigital Group Plc Annual Report 2014/2015 Strategic report Key performance indicators We use our key performance indicators (KPIs) to measure our business. These indicators provide us with the visibility of both our strategic and financial performance. Employee remuneration is specifically linked to these KPIs. Financial Revenue growth from continuing operation We aim to deliver double-digit organic revenue growth. 2014 2015 £16,213,000 33% Growth £21,366,000 32% Growth Earnings before interest, tax, depreciation and amortisation (EBITDA) We aim to have a positive EBITDA growth. £4,697,000 13% Growth £6,772,000 45% Growth £9,306,000 53% Growth £11,932,000 28% Growth 2014 2015 Cash position We aim to have a strong cash position. 2014 2015 14 dotdigital Group PlcAnnual Report 2014/2015 One of the first things that appealed to us was the creative freedom dotmailer provides. Edward Huang Financial Officer Alex Woo Strategic Volume of emails sent We aim to keep increasing the amount of emails sent through the system. 2014 2015 3,700,000,000 5,760,000,000 Recurring revenue as a % We aim to have recurring revenues of over 70%. 2014 2015 Percentage of revenue from customers outside of the UK We aim to expand internationally. 2014 2015 78% Recurring revenue 76% Recurring revenue 10% Outside of the UK 15% Outside of the UK 15 dotdigital Group PlcAnnual Report 2014/2015 Strategic report Risks, mitigations and impact Risk area Impact Mitigation of risk The design of the platform along with the system’s architecture has multiple levels of resilience built in to cater for single points of failure. The Group continuously evaluates its key suppliers as part of its risk management process and diversifies these where possible, to improve resiliency. There is continued investment into dotmailer’s currently owned IP addresses, maintaining these to be reputable for sending email globally, and utilising them to maximum effect. The Group continues to monitor its IPv4 capacity and seeks opportunities to expand its pool or utilise newer technologies to limit exposure to this risk. Dedicated teams have been formed to deliver the migration project; with consultation from experts and the cloud service providers, the team have a clearly defined architecture & design and where risks have been identified tests have been run to prove resolutions. The testing/migration process will be phased to identify and resolve any issues before impacting core business. By utilising cloud service providers, economies of scale are inherited from the provider in terms of computing power, bandwidth, and security technologies, mitigating other corporate risks. The Group’s technical team takes measured actions across multiple levels to secure the dotmailer platform and its customers’ data. Continued investment into the latest technology for threat detection, remediation and encryption, coupled with its security policies and penetration tests, greatly reduces the Group’s exposure to this risk. The introduction of a dedicated security function within the business to oversee existing and improvements in technology, processes, and policy was a strategic decision to further reduce the risk in this area. The Group has invested, and will continue to invest significantly in this area to protect ourselves from the latest threats. The Group operates an open door policy whereby it shares its policies relating to security & data privacy. dotmailer has a Trust Centre where customers can view this information online. Its features also assist customers to be compliant in current legislation and in most cases automates these compliance processes. The Group’s staff research the impact of new legislation to its customers (and in some cases are actively involved in the creation of the legislation & industry best practise) and publish related white papers and blogs. Its executive actively contributes to the digital marketing space to advocate best practice and make sure its customers’ needs are represented. Supplier, computer hardware and internet reliability-related risks Utilisation of cloud service providers An event resulting in a hosting centre going offline for any significant period of time or the termination of provision of services by one of the Group’s 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 IPv4 addresses, may restrict the capacity of the business. A key strategy for the Group is to migrate the dotmailer platform to a hybrid cloud infrastructure, utilising cloud service providers to host the web and application functions of the platform. Failure to implement correctly could result in an unstable, or less efficient platform resulting in lower number of email sends, and ultimately lowering the confidence in the product. The nature of cloud computing also means that a majority of the dotmailer platform will sit on shared infrastructure that is more of a target for cyber-attacks. Hacking & information security There is a possible risk that a direct or indirect hacking attempt could result in a denial of service and/or loss of data which would impact on the Group’s reputation. Data privacy 16 Such laws and regulations require or may require the Group and its clients to implement privacy and security policies, permit consumers to access, correct or delete personal information stored or maintained by such companies, inform individuals of security incidents that affect their personal information, and, in some cases, obtain consent to use personal information for certain purposes. Other possible legislation could, if enacted, impose additional requirements and prohibit the use of certain technologies, such as those that track individuals’ activities on web pages or record when individuals click on a link contained in an email message. Such laws and regulations could restrict the Group’s clients’ ability to collect and use email addresses, web browsing data and personal information, which may reduce demand for its products. dotdigital Group PlcAnnual Report 2014/2015 Risk area Impact Mitigation of risk Internet service providers (ISPs) reputation and internet browser, related risks As a large proportion of the Group’s revenue is derived by charging a price per email for sending marketing emails on behalf of customers, the impact of not being able to deliver these or deliver these without engagement tracking for any reason is significant. If internet browsers detect hyperlinks as a phishing threat, if abuse complaints from providers are not dealt with properly, if bad customer data generates multiple complaints through ISPs or third party spam blacklists, these impact the platform’s overall ability to effectively deliver email. Competitive environment International expansion Hire and retain key personnel The sector the Group operates in is competitive. The impact of competitors having more features, increased financial backing, better brand recognition and better global coverage increases the risk to the Group’s business model. As the business expands into new geographic territories there is a risk that policies and practices that have worked successfully in the UK market will not provide the high level of service and assurance that would have been delivered in the UK market. The loss of the services of 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, ecommerce and marketing companies. Development and maintenance of products There is a possible risk that without continued investment into new products, enhancement of old products and into new sectors the growth of the Group will be impaired. Evolving technology and customer requirements As new products are developed, and the technology landscape changes, the maintenance burden of existing products increases and without continued investment maintaining those products they may become unusable and could affect the Group’s revenue. Failure to respond to evolving technological channels and customer requirements or to introduce competitive enhancements and new features may make the dotmailer solution less competitive. The introduction of new solutions by competitors potentially makes the Group’s solutions less attractive or easy to sell. Failure to anticipate client requirements and successfully develop new solutions or features may impact growth and retention of existing clients. dotmailer provides a number of services as part of the core product to filter known or bad data that may not comply with EU, Asia Pacific or US anti-spam regulations. Continued investment in reputation & security- related product development with the addition of more third party data feeds to filter bad data continues to reduce the risk. Through its admittance to various industry groups, notably the Messaging Malware Mobile Anti-Abuse Working Group (M3AAWG), the Group has demonstrated its commitment to implementing industry best practice in anti-abuse. It also provides a number of consultancy services to its customers to better improve their data and compliance with legislation. Through its expansion of its deliverability team, the Group continues to work closely with ISPs, email receivers and third party spam lists by proactively dealing with abuse complaints generated by customer emails. Whilst dotmailer acts as the data processor on behalf of its customers, and is not directly liable for breach of the EU, Asia Pacific or US anti-spam regulations, it does take these breaches seriously, suspending or terminating customer service agreements if necessary. The Group continues to grow revenues year-on year and reinvests to deliver new product features, best-in-class customer support and service offerings, enhanced brand recognition, improved service delivery and markets globally to attract new customers. The Group will place an emphasis on hiring senior people with experience of developing successful international business models, whilst hiring quality local people in important International territories. The Group will also utilise the services of expert advisers as and when necessary. Management information, business intelligence, audits and risk appraisals will be updated and monitored to ensure they reflect the International nature of the business. Investment into talent acquisition hiring programmes and continuous learning and development has enabled the Group to hire and retain highly skilled individuals. Enhanced employee benefits, a competitive packageand a modern and flexible working environment utilising the latest technologies have continued to mitigate this risk. Investment into the Group’s product offerings continues to enable good growth. Innovation and increased development of new core product offerings in the marketing automations space has opened up more revenue opportunities and increased the average recurring revenue of the Group’s existing customers. Ease of use of the dotmailer offerings and the ability to offer flexibility to integrate and connect to best-of-breed products continue to enable the Group’s customers to grow at their pace without constraints. The Group constantly reviews individual product performance and the technology landscape and makes decisions to optimise its product portfolio if necessary to reduce maintenance overheads. Investment in development of new solutions, partnerships with best-of- breed third parties and enhancements to the platform means that the Group remains a credible provider of multi-channel marketing SaaS solutions. SaaS development requires implementation of rapidly changing technologies, adhering to standards and regulations, anticipating client requirements and frequent product enhancements. The Group has not aligned itself to a single vertical, neither B2B nor B2C, and this strategy is purposeful for risk reduction. Where competitors introduce new solutions generally targeted at verticals, the breadth of the dotmailer platform, providing solutions across sectors, still differentiates dotmailer from its competitors. It delights customers, enabling them to grow and adapt without the need to change their marketing platform. This in conjunction with, a continued emphasis in recruiting and retaining expert technical and marketing professionals, has enabled the Group to innovate within its sector. 17 dotdigital Group PlcAnnual Report 2014/2015 Strategic report Chief Executive’s report Simone Barratt Chief Executive Officer Introduction This strong organic growth was underpinned I am pleased to announce that the Group by a combination of successful new client delivered revenue growth in line with market wins in the mid-market and small enterprise guidance. Our EBITDA and profit before tax are sectors and, in particular, amongst Magento both marginally ahead of market guidance. eCommerce platform users. There has also been healthy growth in recurring revenue from This performance is a result of continued strong existing clients, and the Group has signed up organic growth in the high-margin and long- a higher proportion of clients under contracts term recurring revenues generated by our core than in the previous period. multichannel marketing product, dotmailer, both in the UK and, increasingly, overseas. The Group continues to win notable clients in the UK in both the B2B and B2C sectors. In Easy to use yet incredibly powerful, dotmailer is increasingly becoming the platform of choice for digital marketing professionals. Financial highlights the past year these include: Honeywell, Unison, International growth 30.06.15 30.06.14 % (£m) (£m) increase Revenue EBITDA Net assets EPS 21.4 6.8 18.4 1.63 16.2 4.7 14.2 1.24 32% 45% 30% 31% Review of 2014/2015 Revenue performance, which grew in line Ordnance Survey, The All England Lawn Tennis Revenues from the US performed strongly, and Croquet Club, Knight Frank, Sony Music, increasing from US$1.4m to US$3.0m, an Links of London, Sole Trader, Ladbrokes and increase of over 114% compared to the same Natural History Museum. period last year. The East Coast sales office, located in New York, continues to focus on We have also seen a strong performance from sector niches including Magento eCommerce our enabling professional services offerings platform users and higher value small enterprise with an increase in revenue from £1.8m to clients. As a result the Group has secured approximately £2.8m, an increase of 56% year a number of new clients, including Simple on year with margins in the region of 60%. Human, La Vie en Rose, Sail Plein Air Inc & Team Velocity Marketing. with expectations, was driven by strong During the year, the Group’s average monthly growth of 32% across the Group’s core high-margin email and multi-channel automation SaaS platform. spend per client rose by approximately 41% The Group has also made good early progress from £315 in the prior financial year to £445 in in the Asia Pacific region and the Group has 2014/15. This, combined with a focus on longer established strong partner relationships in term contracts (94% of clients that signed up Australia and solid revenue pipelines building in the year are on contracts between 12 and through these channels. 24 months), and client retention has resulted in higher client lifetime values. We are in the process of undertaking a pilot utilising the localisation and translation capabilities of our platform in LATAM with a partner. 18 dotdigital Group PlcAnnual Report 2014/2015 Magento Connector Also, within the year we have revised our The quality of dotdigital’s connector into the approach to our product development and Magento eCommerce platform and the Group’s release process. Our new approach has ability to build strong relationships with Magento delivered increasingly innovative software in an partners has resulted in significant increased agile manner, but in a more structured quarterly revenues during the year. release process. The key tenets of our product development strategy remain ‘ease of use’ The number of our clients now using dotmailer’s and ‘ease of integration’. Our highly skilled and Magento Connector has more than doubled creative team of developers continue to create during the financial year. The average monthly functionality that makes it easy for our clients to recurring revenue spend for a typical Magento deliver complex marketing processes, and easy customer has also grown to approximately for marketers to integrate with the best-of-breed £1,070 per month, a 53% increase on the platforms they already use. previous year. People Magento Connector UK clients now include After a two-year term as a Non-Executive The Royal Trust Collection, Fred Perry, Boodles, Director, I took over the CEO role on Calor Gas and Hornby. 24 February 2015. Peter Simmonds stepped down as Deputy CEO on 30 June 2015 and We have also signed a number of Magento I am delighted Peter remains on the Board Systems Integration partners as resellers for as a Non-Executive Director. the dotmailer platform, including Gorilla, a Gold Magento Solution Partner with offices across the US and Europe, and named as Magento’s Omni-channel Partner of the Year in April 2015. Technology, product development and support Within the year we have restructured our technology, product development and support teams. The teams are now clearly aligned with operational support for our clients and our infrastructure, or on our product roadmap. Peter’s leaving party Our first campaign generated over £6m worth of business and set the scene for everything we do today. It’s fair to say we’ve not looked back since! Phil O’Sullivan Marketing Director Newmarket Holidays 19 dotdigital Group Plc Annual Report 2014/2015 Strategic report Chief Executive’s report continued 2013/2014 was a year of important investment Cash generation in new hires and the appointment of new senior The business continues to be highly cash management. During 2014/2015 these new generative with cash at the end of the period hires have been successfully integrated into the standing at £11.9m, an increase of 28% on the business. The senior management team have prior year (2014: £9.3m) after capital expenditure implemented new structures and processes and product development of £2.3m. The Group to support our ambitious growth plans whilst continues to be debt free. Highly efficient cash driving operational efficiencies for the business. collection processes, combined with over As a result we have delivered a 32% increase 45% of clients paying retainers by direct debit, in revenue, a 45% increase in EBITDA for a contributed to the Group’s strong cash position nominal 8% increase in headcount. at the year end. Dividend policy I am pleased to announce that the Board has conducted a review of the business plans for the next three years including evaluating the cash Over the past seven years, revenues have grown 346% from £4.8m to £21.4m (year to June 2015). This equates to a seven-year CAGR of 24%, which is higher than the market growth in that time, reflecting market share gains. needs for increased investment in both organic We have established a strong brand presence in growth and capital expenditure and has decided the US, especially in the growing B2C and B2B that an increase in dividend can be proposed eCommerce sectors, and we anticipate further this year. penetration and growth. Growth to date has been as a result of the quality of our connector Therefore, subject to approval at the AGM in to the Magento platform and our Gold Standard December 2015, the Board propose that the Partnership. Going forward, we will continue to Group will pay a dividend of 0.36 pence per focus on growing our network and relationships share, payable at the end of January 2016. with the system Integrators who service and James Koons Chief Privacy Officer Another key hire in April 2015 was Chief Privacy Officer, James Koons, a high-profile industry Growth strategy influence the Magento community and on continuing to broaden and deepen our product expert who is based in the US. As outlined in During the year we evaluated a number of offering to this sector. the Risks and Mitigation section of this Report, potential acquisition opportunities in the email our reputation with ISPs around the world and marketing space. However, as in prior years We are pleased with the early results of a pilot in our knowledge of and approach to global data none of the businesses evaluated were judged LATAM (Latin America), commencing in October privacy legislation are critical to providing our to be likely to create long-term shareholder clients with the highest level of protection and value when execution and integration risks 2014 and conducted with a partner utilising our localisation technologies to translate our security and to ensuring we continue to deliver were factored in. We will, of course, continue to interface to the local market. their emails around the world. consider acquisition opportunities if they arise. We anticipate further organic growth in the through further expansion; into the Americas UK market and will continue to offer our and Asia Pacific, and via strategic and channel products directly to a wide range of industry partners and resellers. In addition, we expect to augment this growth sectors. Growth will come from winning business from competitors as well as from developing and promoting additional and increasingly sophisticated personalisation and automation product functionality to our existing customer base. 20 dotdigital Group PlcAnnual Report 2014/2015 y d u t s e s a C Naylors Case study Rapid growth Since going digital, Naylors has transformed from a local equestrian and country wear retailer into a highly a successful ecommerce business on the national stage. Since 2012 they’ve been working with ecommerce agency Space 48 to develop their offering on the Magento Enterprise platform. dotmailer’s people are very informative and a source of inspiration. The results we’ve seen of working with Magento and dotmailer have been extremely powerful. James Atkinson Partner at Naylors Impressive results For the email solution, they initially used Mailchimp, but they rapidly bumped up against the limits of a free solution. That was when their ecommerce agency suggested they look at dotmailer. One of the first attractions they could see from migrating to the dotmailer was the ability to integrate their Magento customer purchasing data. This has been used to implement a fully integrated multichannel strategy that makes best use of automation to provide seamless transactions and the best possible customer service. They are looking forward to introducing even more automation in the future. Since making the shift to dotmailer the results have been impressive. Naylors have seen massive returns, A 219% increase in revenue, 186% increase in transactions, average order value increase of 11%, and a 21% increase in conversion from email to purchase. 21 dotdigital Group Plc Annual Report 2014/2015 y d u t s e s a C TUI Case study A global operation TUI AG is the largest leisure, travel and tourism company in the world. It owns travel agencies, hotels, airlines, cruise ships and retail stores. Its major subsidiaries include TUI Airlines, the largest holiday fleet in Europe, as well as UK-based tour operator Thomson. In total the brand covers nearly 80 tour operators operating from 18 countries. dotmailer hit the sweet spot between advanced features and simple operation. It gives us a platform that will improve customer service, reduce duplication, and drive much higher levels of customer insight and intimacy. An integrated success Matt Royal Using dotmailer they’ve implemented a successful three-year CRM Manager at TUI Travel PLC programme to integrate email, CRM, web and sales reporting. UK Education Division The dotmailer platform has increased their ability to send out effective communications, whilst allowing TUI staff a deeper understanding of their market and customers. 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Call Us 01273 244570 22 SKIBOUND HELPS YOU EVERY STEP OF THE WAY 1 FIND A QUOTE Find your tour and get a quote, then we can discuss and tailor your options 2 PROMOTE Promote your tour with our tailor made videos, images and presentations 3 PREPARE TO GO A dedicated tour operator organises the trip. You get your own site for your detais and resources dotdigital Group Plc Annual Report 2014/2015 UNSUBSCRIBE VIEW ONLINE © COPYRIGHT SKIBOUND 2014 Chief Executive’s report continued Email delivery remains a high priority and we will retain a small physical infrastructure presence in key regions to act as delivery nodes. This ensures we have full control over our IP address ranges and their reputation, which are crucial for email delivery. These additional dotmailer instances will allow us to scale and spread risk, putting us in stronger position to continue to deliver on our customers expectations and to handle continued growth. The model of growing internationally by focusing Technology and infrastructure on key partners has proven to be successful We continue to invest in technology and and profitable in the US. The Group aims infrastructure to cater for a growing international to take the same focused approach to growing customer base. dotdigital has recently our new office in Australia, identifying a number commenced a three-year hybrid-cloud of key partners and resellers who have an infrastructure project – Project Cirrus – with existing footprint in Australia and the broader the key aim of deploying our platform into Asia Pacific region. new territories: North America (to support growth in the Americas), and Australia (to Going forward, we will deepen existing support growth in Asia Pacific). This will provide relationships, and identify new local and global our clients with increased performance and strategic partners to fast track our penetration resilience and the ability to keep their data into specific sectors, niches or geographies. within their economic region. The Group will also exploit what we believe to be an opportunity in the market – particularly in the US – to provide an alternative email and multi-channel automation platform to a network of mid-sized resellers and we are currently hiring to exploit this opportunity. This growth will be supported by a technology programme that delivers scale internationally. We are encouraged by the response we have had from partners and see this as a key tenet for our growth strategy in future. 23 dotdigital Group PlcAnnual Report 2014/2015 Strategic report Chief Executive’s report continued Looking forward In addition to channel partners, resellers are The dotmailer email marketing and multi- important for the Group’s growth ambitions channel automation platform continues including further penetration into the US as to perform strongly both in the UK and, well as for entering new markets. To this end increasingly, internationally. the Group plans to appoint a Global Reseller Director who will be based in the US. There In readiness for the next phase of our growth have been a number of acquisitions in the I have created a Senior Executive Team that email marketing sector and the Directors sits between the Plc Board and the cross- believe this has created an opportunity for departmental Operations Board. In addition dotmailer to replace their current platform. to myself and Milan Patel, CFO, the Senior Executive Team comprises Sharon Head – The ongoing investment in technology and previously Director of Operations, now Chief product development, and the resulting Operating Officer, and Steve Shaw – previously new multi-channel automation functionality Director of Technology, now Chief Technology launched in early 2015, has helped the Officer. This structure will allow us to allocate Group build new revenues. The Directors believe senior executive sponsorship to key global this will increase both the quality and quantum strategic partnerships. For clarification, these are of recurring revenues from our technology, not Plc Board appointments. and also from a recently introduced range of new productised multi-channel automation Together with the recent appointment of Anup services offerings. Khera to the role of Senior Vice President (SVP) of Global Sales, and Phil Draper as Marketing In summary, the demand for email marketing Director, the Group is well placed with a and multi-channel automation continues to be strong team of senior executives to deliver strong both in the UK and internationally. The future results. Board believes that the dotmailer platform, with its ‘ease of use’ proposition, its specialist Further growth in the US will be supported by connectors, its specialist professional services, new sales offices in the MidWest and West and now its growing list of global strategic Coast. These offices will be located to mirror the partnerships, is well placed to continue to concentrations of Magento systems integrators, generate strong organic growth in revenue, not allowing us to forge stronger relationships and to just in the UK, but increasingly overseas as well. provide those Integrators with local support. Rohan Lock, who has headed the UK sales team for five years, is now responsible for the Asia Pacific region, based in Australia. He has considerable experience of building an effective sales organisation in the UK and is expected to help the Group accelerate sales growth in this region. Hiring a sales team has already begun and early indications from the Asia Pacific region show strong interest from high-value strategic channel partners and a growing pipeline. Sharon Head Chief Operating Officer Steve Shaw Chief Technology Officer Anup Khera SVP Global Sales Phil Draper Marketing Director The initiatives to grow our international presence are now delivering a strong pipeline of new clients particularly in the mid-size online retail space which continues to be a core focus for 2015. 24 dotdigital Group Plc Annual Report 2014/2015 y d u t s e s a C FairFX Case study Easy automation FairFX switched to using dotmailer a year ago. They have implemented a number of dotmailer’s automation tools, all of which are generating additional turnover for the business. dotmailer is all about delivering service that goes beyond the norm. They are very effective and professional team who know what they’re talking about, and help me to get the best out of my digital marketing. Lisa Stone Marketing Manager FairFX All the results. No more effort With no ongoing input once the original content and parameters for the automation campaign have been set up it’s a win win for the client. The results of the campaign are increases year on year, 17% more visits to the website this year, 73% increase in conversion rates, 103% increase in transactions and 121% increase in revenue. Within just two days of launching the first programme FairFX generated additional turnover running into five figures. Over a year this adds up to over a million pounds of additional revenue from a totally automated service. 25 dotdigital Group Plc Annual Report 2014/2015 Strategic report Corporate social responsibility report During the past year the Group continued Employees It is the policy of the Group to ensure that at with its ongoing commitment to social The Group has continued to invest in the all times there are equal opportunities for all responsibility in the market in which it development of our people across the Group employees, with no discrimination on account operates, to its employees, suppliers and thus underpinning the critical role that our of race, age, gender, sexual orientation, to the broader environment. employees play in the success of the business. disability and political or religious beliefs. Our philosophy is to ensure that ability, As a company listed on AIM, dotdigital is The Board has significantly enhanced the contribution to the business and potential to not required to produce a corporate social training and development programme available, develop are the determining factors in the responsibility report. However, the Directors to provide all employees with access to selection, training, career development and believe that in the interest of transparency a bespoke key skills training, as well as continuing promotion of all employees. brief commentary should be included. specific skills development in areas relating to the industry we operate in and, in addition, Investment in our offices continues, ensuring Clients professional skills development. The Group a pleasant and safe working environment for The Group prides itself on ensuring that our now has a greater percentage of employees all employees. Above all, the Board continually products and services are designed to meet the than ever before studying towards and achieving monitor that our workplaces are safe expectations of our clients and their customers. professional qualifications, equipping themselves and comply with all relevant legislation; the Feature forums are offered to allow clients to and the business with specialist expertise. Group has not been subject to sanctions or request features and vote on feature priority, fines for environmental, health and safety or which feeds directly into the development The Board’s commitment to an open and other infringements. schedules for our SaaS product offerings. honest working environment continues with clear communication of business progress Business partnership The Group is committed to complete through monthly ‘All Hands’ Company dotdigital believes that strong and effective transparency with our clients, providing meetings; including an anonymous ‘Ask partnerships, within our business community, pricing structures that are clear, and offering the Board’ Directors questions slot, regular is an important factor that promotes mutual packages that allow clients to deliver successful newsletters, and lunches for new and existing success for our partners and suppliers. As campaigns. A pricing calculator is provided for employees with the Board. dotdigital continues to act on its strategy dotmailer licenses and packages to allow clients of global growth, we will build upon our UK and potential clients to cost their campaigns, The Board strives to continue to offer a experience in the US, Australia and beyond. and our experienced sales team are able competitive benefits package in order to attract assist clients in pricing guidance across all our and retain the best talent, including share option Our constantly evolving and expanding partner products and services. schemes and bonuses based on Company and network is key to developing close business individual performance. Total reward statements relationships through informal and formal dotdigital products and services are supported are available to all employees to provide events, meet-ups and seminars. We share the by an expert team; giving access to support via complete visibility into the total value of salaries, advantage of our cutting-edge office space to email, telephone and live chat. We also provide benefits and rewards earned through the year. support and host an increasing number of such additional managed services for our products, enabling our clients to deliver successful campaigns and projects. 26 events. The business benefits that these close relationships provide are immediate and obvious to all involved. Our commitment to using local businesses wherever possible is consistent even as we launch in Australia, making use of local providers of products and services where we can. dotdigital Group PlcAnnual Report 2014/2015 Environmental partnership Risks Our tried and tested adoption of Reduce, The Board is cognisant of the need to Reuse, Recycle runs through all our offices. monitor potential threats to the business and As a digital business we continue to strive to our workforce. To this end the Board has reduce printing and waste and increase the established a Risk Committee consisting of levels of recycling wherever possible. both Non-Executive Directors and management. Our office hot-desking arrangements and ongoing risks to the business and this includes flexible approach to appropriate telecommuting risks posed both to our employees and any ensure we avoid unnecessary travel whenever potential risks to the business from suppliers This committee meets regularly to evaluate possible. and partners. Any recommendations by this committee are put directly to the Board for Ensuring we work with datacentre partners further discussion and implementation. that set industry standards in energy efficiency ensures we minimise our energy footprint. Strategic report Suppliers The strategic report was approved by a duly authorised committee of the Board of As a part of the Group’s strong commitment Directors on 12 October 2015 and signed to our local community we aim to source local on its behalf by: suppliers wherever possible. This is underlined by the fact that a number of our suppliers have been with the Group for many years and we consider our key suppliers as partners. dotdigital aims to work with partners and suppliers with similar ethical standards and values. At dotdigital we understand the importance of Milan Patel fair and equal treatment, and particularly drive Company Secretary towards transparent and fair payment terms 12 October 2015 and processes. Community partnership The dotdigital Group employees need little encouragement to show their support for local and national charities. This year we have invested in relaunching and rebranding our employee social group. Volunteers representing all departments and offices across the globe ensure global representation and engagement. Rebranded as dotcommunity, the Group has two focuses: inwards (employee social engagement) and outwards (philanthropic activities). With so many of our employees involved in charity fundraising, our Co-Founder Tink Taylor set us the task of raising $1,000,000 for charity. This project is called dotfoundation and utilising online and social channels we now have a single focus for our fundraising. dotfoundation acts as the ‘totaliser’ for all our charity fundraising, which currently includes Royal Brompton & Harefield Hospitals Charity and British Heart Foundation. As part of our Client Satisfaction Survey, we committed to making a £5 donation for each response. This enabled us to donate £5,000 across the following charities: St Christopher’s Hospice, Brick by Brick: Homes for the Homeless, Deafblind Scotland, Ronald McDonald House Manchester, DEC (Disasters Emergency Committee) and Marie Curie. 27 dotdigital Group PlcAnnual Report 2014/2015 Governance Board of Directors Simone Barratt Milan Patel, FCCA ACSI Chief Executive Officer Chief Finance Officer, Simon Bird Co-Founder Ian “Tink” Taylor Co-Founder Company Secretary Simone Barratt has over 15 Milan Patel joined the Company in Simon Bird has developed an Tink Taylor has 20 years’ years’ experience of ecommerce, 2007 and was appointed Group in-depth technical knowledge of experience in digital marketing technology and online marketing. Company Secretary in 2009, and the internet and its applications. in both the UK and now the She has grown businesses to CFO in 2015. Milan is a Fellow Prior to co-founding dotdigital US. Since 2006 he has been multi $m from incorporation. She member of the Association of Group he assisted in the an influential member of the UK was appointed Non-Executive Chartered Certified Accountants, development of a major internet Direct Marketing Association’s Director of dotdigital in October and associate member of the access provider. He has provided Email Marketing Council and also 2013 and stepped into the CEO Chartered Institute of Securities services to a number of well-known the Internet Advertising Bureau. role in February 2015. In 2000 she and Investments. He has been companies and organisations in In 2014, Tink was elected as launched and grew e-Dialog in responsible for the admission helping create websites, intranets, Advisory Committee Member of the Europe and subsequently in Asia to Plus and the introduction to extranets, content management Board of the US Direct Marketing Pacific. e-Dialog, a leading email AIM. He is also responsible for systems and other online Association’s Email Experience marketing technology company, the Group’s functions in financial solutions. He is prominent on the Council. He constantly strives to was acquired by GSI Commerce in management and reporting, the tech entrepreneur scene and help individual organisations, and 2008, which in turn was acquired regulatory compliance, legal and heavily involved in the selection, the industry as a whole, to develop by eBay Inc. in 2010. In 2011 corporate governance. He also recruitment and retention of and progress. Simone was appointed Global brings substantial strategic financial dotmailer’s technical partners. President of e-Dialog Inc with experience to the Board. income statement responsibility for just under $100m and with 450 employees across USA, EMEA and Asia Pacific. 28 dotdigital Group PlcAnnual Report 2014/2015 Frank Beechinor-Collins Peter Simmonds, FCCA Richard Kellett-Clarke, FCA Non-Executive Chairman Non-Executive Director Non-Executive Director Frank Beechinor-Collins was, for Peter Simmonds has over Richard Kellett-Clarke brings 11 years, CEO and co-founder of 30 years of experience at senior to the Board over 25 years of One Click HR, an AIM-listed IT/ management and board level, management experience in Human Resources business which principally in the areas of banking, the turnround and strategic operated in the UK and North insurance, finance, IT, outsourcing repositioning and recovery of America and had around 200 and software. As well as being an creative businesses in CMCG, employees. Frank oversaw the experienced finance professional media, electronics and software successful sale of the business to Peter has considerable experience industries. He was a founder of ADP, a $4bn NYSE-listed company, of acquisitions, disposals, post- AFX NEWS Limited, now part of for $25m. Frank brings a great acquisition integration, change Thomson Reuters, and Sealed deal of corporate experience and management and creating Media, now owned by Oracle. He a strong track record in M&A to the Board, gained over 25 years of working for and running public cultures and structures to facilitate entrepreneurship and growth. Peter is currently Non-Executive was part of the team as CFO which brought Pickwick Group Plc to the main market and Brady Plc to AIM. and private companies. Frank is Chairman of IS Solutions Plc and a He is currently the CEO of Idox Plc, also currently a Non-Executive Non-Executive Director of Synety an AIM-listed specialist software Chairman of Coms Plc an AIM- Plc both AIM-listed businesses. and services business. listed business. 29 dotdigital Group PlcAnnual Report 2014/2015 Governance Corporate governance report The Board has sought to comply with a (b) Directors’ remuneration internal control and risk management further number of provisions of the 2014 UK Corporate As set out on pages 32 and 33, the into the operations of the business and to Governance Code (‘the Code’) in so far as remuneration of the Executive Directors is deal with areas of improvement which come it considers them to be appropriate for a determined by the Remuneration Committee to management and the Board’s attention. company of this size and nature. They make whilst that of the Non-Executives is determined no statement of compliance with the Code by the whole Board. The Directors are The Directors acknowledge their responsibilities overall and do not ‘explain’ in detail any aspect conscious of the importance of performance- for the Group’s system of internal financial of the Code with which the Group does related incentives and bonuses are paid based control. Such a system can provide reasonable not comply. on performance as deemed appropriate by the but not absolute assurance against material Remuneration Committee. The Remuneration misstatement or loss. The Board confirms that Compliance statement Committee uses both financial and non-financial the procedures necessary to comply with the (a) Directors benchmarks to determine the Executive provisions of the Code, including the guidance The details of the Group’s Board, together with Director bonuses. the Audit and Remuneration Committees, are of Turnbull, have been in place throughout the year ended 30 June 2015 and up to the date set out on pages 31 and 32. (c) Relations with shareholders of the Report of Directors. It has considered The Group encourages two-way the major business risks and the control The Board meets monthly and is responsible for communications with all its shareholders environment. Important control procedures, strategy, performance, approval of major capital and responds quickly to all requests or in addition to the day to day supervision of projects and the framework of internal controls. queries received. The Board has a formal schedule of matters the business, include comparison of monthly management accounts to the budget. reserved for specific review and decision. All shareholders have at least twenty-one To enable the Board to discharge its duties, working days’ notice of the Annual General (iii) Audit Committee and auditors all Directors receive appropriate and timely Meeting at which all of the Directors and the The Audit Committee comprises Frank information. Briefing papers are distributed to Chairman are normally available for questions. Beechinor-Collins, Peter Simmonds and is all Directors in advance of Board meetings. Comments and questions are encouraged chaired by Richard Kellett-Clarke (FCA). The All Directors have access to the advice and from the shareholders at the meeting. auditors of the Group may also attend part or services of the Company Secretary, who is all of each meeting and they have direct access responsible for ensuring that Board procedures (d) Accountability and Audit to the committee for independent discussions, are followed and that applicable rules and (i) Financial reporting without the presence of the Executive regulations are complied with. At the year Detailed reviews of the performance and Directors if required. The Audit Committee may end there were five Executive Directors, one financial position of the Group are included in examine any matters relating to the financial independent Non-Executive Director and the Chief Executive’s statement. The Board uses affairs of the Group, and to the Group’s audit. an independent Non-Executive Chairman. this and the Report of the Directors on pages 34 This includes review of the annual accounts The current constitution of the Remuneration assessment of the Group’s position and compliance with accounting standards, Committee and the Audit Committee is shown prospects. The Directors’ responsibility for the the appointment and fees of auditors and on pages 31 and 32. financial statements is described on page 35. such other related functions as the Board to 35 to present a balanced and understandable and announcements, accounting policies, may require. Appointments to the Board are nominated (ii) Internal control by an Executive Director and then considered The Board confirms that it has established (iv) Going concern basis by the full Board. the procedures necessary to implement the After making enquiries, the Directors have The service contracts of the Executive Directors for Directors on the Combined Code”. The financial statements, that there is a reasonable are less than one year and determinable by six process of risk identification, evaluation and expectation that the Group has adequate months’ notice. management has been considered by the resources to continue in operational existence guidance set out in “Internal Control: Guidance formed a judgement, at the time of approving the 30 Board. It is the intention that this will continue for the foreseeable future. For this reason the to be kept under constant review and will be Directors continue to adopt the going concern considered at each Board meeting in the future. basis in preparing the financial statements. The Board is continuing to take steps to embed dotdigital Group PlcAnnual Report 2014/2015 Audit Committee report The Audit Committee is a sub-committee Composition of the Audit Committee Independence of External Auditors of the Board. The responsibilities of the The Audit Committee comprises Frank Both the Board and the external auditors have committee include: Beechinor-Collins, Peter Simmonds and safeguards in place to avoid the possibility that • Reviewing the half-yearly and full year accounts and results announcements of the Group and any other formal announcements relating to the Group’s financial performance and recommending them to the Board for approval; Richard Kellett-Clarke. The Chairman of the the auditors’ objectivity and independence Audit Committee is Richard Kellett-Clarke. could be compromised. The Committee meets separately with the external auditors without management being Our policy in respect of services provided by present. The Secretary to the committee is the external auditors is as follows: Milan Patel, a fellow Director. • Reviewing the Group’s systems for internal financial control and risk management; Main activities of the Audit Committee At its meeting on 6 October 2015 the • 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. Committee reviewed the Group’s preliminary announcement of its results for the financial year to 30 June 2015 and the draft report and accounts for that year. The Committee received reports from the external auditors on the conduct of their audit, their review of the accounts, including accounting policies and areas of judgement, and their comments on • 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. risk management and control matters. All other significant tax consulting work The external auditors also presented their proposed fees and scope for the forthcoming year’s audit. The Committee also reviewed the performance of both the internal accounting function and external auditors. The review of the external auditors was used to confirm the appropriateness of their reappointment and included assessment of their independence, qualification, expertise and resources, and effectiveness of their audit process. The Audit Committee also reviewed the effectiveness of the Company’s systems for internal financial control and risk management. The Committee reviewed the Group’s credit control procedures and risks concerning IT controls. 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 ended 30 June 2016. The Committee concluded that these budgets were both prudent and realistic in the context of the Group’s ambitions. 31 dotdigital Group PlcAnnual Report 2014/2015 Governance Remuneration Committee report The Remuneration Committee Key elements of remuneration for Service contracts The Group discloses the following information Executive Directors The Executive Directors each entered into on Directors’ remuneration mindful of Rule 19 The Committee considers the key elements a service contract with the Group. Each of the AIM rules and the fact that as the in total to ensure there is the right balance appointment runs for one year from that date Company is quoted on AIM, it is not required between reward for short-term success and and is terminable by six months’ notice by to comply with the Main Market UK Listing long-term growth. For Executive Directors, either party to expire at the end of that year or Rules or those aspects of the Companies Act this is summarised as follows: at any time thereafter. The agreement contains which appliy to listed companies regarding the disclosure of Directors’ remuneration. Base pay The Committee comprised Richard Kellett- Clarke (Chairman) and Frank Beechinor-Collins. The Secretary to the committee is Milan Patel, Reviewed against: • Salary levels in comparably sized companies listed on AIM; restrictive covenants. Upon termination, no benefits (other than those accruing during the notice period) are due to the Director. Employee incentive schemes The Group has awarded share options under Chief Financial Officer and Company Secretary. • Market conditions and company Enterprise Management Incentive (EMI), Remuneration policy The Group’s executive remuneration policy objectives are: (a) To ensure that individual rewards and incentives are directly aligned with the performance; • Level of pay awards in rest of the business; approved share option schemes to key employees who had completed their probation period at the date of grant. The Board considers the performance of staff in conjunction with • Role and responsibility of the individual the Group during the annual review process. Director. Discretionary bonuses are awarded based on individual and Group performance. Approved by the Remuneration Committee Signed on its behalf by performance of the Group and that of the interests of the shareholders; Benefits (b) To maintain a competitive package which enables the Group to attract and retain • Aligned to total reward structure for all employees; high-calibre executives; and • Provided on a market competitive basis. (c) To determine the terms of employment and remuneration for Executive Directors. Annual Bonus Scheme • Group PBT with an individual performance element linked to object delivery; • Drive profitability and strategic change across the Group; • Delivery of the overall business strategy. Richard Kellett-Clarke Chairman of Remuneration Committee Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 12-month period to 30.06.15 175 125 120 159 77 656 8 8 10 11 – 37 75 25 25 75 – 200 18 12 14 15 – 59 – – – 20 – 20 Number of outstanding options – – – 1,427,397 – Total £‘000 276 170 169 280 77 972 Executive Directors P Simmonds I Taylor S Bird M Patel S J Barrett 32 dotdigital Group PlcAnnual Report 2014/2015 Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 12-month period to 30.06.15 35 30 44 109 – – – – – – – – 1 – – 1 – – – – Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 12-month period to 30.06.14 140 120 120 53 36 469 7 7 7 4 3 90 65 65 – 65 28 285 14 12 12 2 2 42 – – – – 5 5 Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 35 30 30 95 – – – – – – – – – – – – – – – – Total £‘000 36 30 44 110 Total £‘000 251 204 204 Number of outstanding options – – – Number of outstanding options – – – 59 2,137,932 2,087,397 Number of outstanding options 111 829 Total £‘000 35 30 30 95 Non-Executive Directors F Beechinor-Collins R Kellett-Clarke S J Barrett Executive Directors P Simmonds I Taylor S Bird G Fidura M Patel Non-Executive Directors F Beechinor-Collins R Kellett-Clarke S J Barrett Director 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 are stated below: I Taylor S Bird P Simmonds* M Patel S J Barratt R Kellett-Clarke F Beechinor-Collins** No of shares held % Holding 39,276,667 31,276,667 7,073,841 1,048,530 377,500 320,000 299,194 13.69 10.90 2.46 0.37 0.13 0.11 0.10 79,672,399 27.76 * 2.11% of Peter Simmonds’ holdings/voting rights has been held by Frank Nominees Limited who acts as the 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, SIPPs etc. The beneficiary of the SIPP is Peter Anthony Simmonds. ** The 299,194 shares shown as being held by Mr Beechinor-Collins are owned by Curra Trust, a trust established for the benefit of his children and which he has no beneficial interest. Directors’ interest in share options Under the Group’s executive share option scheme the following Directors have the right to acquire ordinary shares. Executive Director M Patel Grant date No. share options granted Option price (pence) Date first exercisable Expiry date 13/10/2011 400,000 7.25 01/05/2013 01/02/2016 15/10/2013 1,027,397 18.25 01/11/2015 31/10/2018 33 dotdigital Group PlcAnnual Report 2014/2015 Governance Report of the Directors The Directors present their report with the The Directors who served during the period and their beneficial interests in the shares of the Group financial statements of the Company and as recorded in the Register of Directors’ interests at 30 June 2015 are as follows: the Group for the year ended 30 June 2015. Information relating to principal activity, review of business key performance indicators, research and development activities and future outlook is included within the strategic report. Principal activity The principal activity of the Group in the year under review was that of providing intuitive software as a service (“SaaS”) and managed services to digital marketing professionals. Review of business Directors I Taylor S Bird P Simmonds M Patel S J Barratt R Kellett-Clarke 30.6.15 30.6.14 Number of shares held Percentage shareholding % Number of shares held Percentage shareholding % 39,276,667 13.69 40,267,667 31,276,667 10.90 32,267,667 7,073,841* 2.46 9,573,841* 1,048,530 377,500 320,000 0.37 0.13 0.11 382,078 215,000 – 14.24 11.41 3.39 0.14 0.08 – 0.11 F Beechinor-Collins 299,194** 0.10 229,194** During the year the Group has shown significant *Frank Nominees Limited holds 2.11% in respect of Peter Simmonds holding/voting rights act growth from continuing operations in customer as nominee for Trust Alliance Pensions Limited. Frank Nominees is a vehicle used by Kleinwort numbers, sales, and profits. Revenues grew from Benson Limited to hold securities for clients, trusts, SIPPs etc. The beneficiary of the SIPP is £16.2m in the year ended June 2014 to £21.4m Peter Anthony Simmonds. for the year ended June 2015, an increase of 32%. Pre-tax profits grew from £3.6m in 12 months ** The 299,194 shares shown as being held by Mr Beechinor-Collins are owned by Curra Trust, to June 2014 to £5.2m for the year ended June a trust established for the benefit of his children and in which he has no beneficial interest. 2015, an increase of 44%. Key performance indicators in the Group, as recorded in the register of Directors’ interests as at 30 June 2015 are The Directors who served during the period and their beneficial interests in share options The operations as a whole and the individual as follows:- business units are managed and controlled using a variety of key performance indicators Executive Directors appropriate to the goals they have been set. M Patel Examples of key performance indicators from 30.6.15 Number of options held 30.6.14 Number of options held 1,427,397 2,087,397 Substantial interests On 06 October 2015, the following parties had notified the Group of a beneficial interest that represents 3% or more of the Group’s issued share capital at that date: the Group are: Revenue EBITDA 2015 (£m) % 2014 (£m) Increase 21.4 16.2 32% 6.8 4.7 45% Shareholder Volume of sends 5.760 3.700 56% I Taylor S Bird Dividends The Board propose a dividend payment of £1.041,000 which equates to 0.36p per ordinary share (2014: £566,000 0.2p per ordinary share) to be distributed to shareholders in respect to Lion Trust Asset Management JO Hambro Capital Management Slater Investments Ltd Investec Asset Management the Group’s reported performance. The Board’s Franklin Templeton dividend policy will be reviewed annually in line with ensuring there is adequate cash within the business to maintain high growth strategy. 34 Number of shares held 39,276,667 31,276,667 26,969,801 14,500,050 14,226,970 12,559,388 9,200,000 Percentage Shareholding % 13.56 10.80 9.31 5.00 4.91 4.34 3.18 dotdigital Group PlcAnnual Report 2014/2015 Future outlook Going concern The Group provides email and cross-channel After making appropriate enquiries, the • Prepare the financial statements on the going concern basis unless it is marketing technology and services. Each Directors consider that the Company and inappropriate to presume that the of these areas has shown market growth the Group have adequate resources to Company will continue in business. significantly above that of the UK economy. continue in operational existence for the The Board believes that our widespread brand foreseeable future. For this reason they The Directors are responsible for keeping recognition and strong product will continue to continue to adopt the going concern basis adequate accounting records that are sufficient present opportunities to expand and diversify preparing the financial statements. to show and explain the Company’s and profitability in the coming year. the Group’s transactions and disclose with Events after the reporting period reasonable accuracy at any time the financial Directors There are no events after the date of this position of the Company and the Group The Directors shown below have held office report or the date the financial statements and enable them to ensure that the financial during the whole of the period from 1 July 2014 were approved by the Board of Directors statements comply with the Companies to the date of this report: which impact on the figures as presented. Act 2006. They are also responsible for S Bird P A Simmonds I Taylor R Kellett-Clarke F Beechinor-Collins S J Barratt M Patel Listing safeguarding the assets of the Company and the Group and hence for taking reasonable The Group’s ordinary shares have been traded steps for the prevention and detection of fraud on London Alternative Investment Market (AIM) and other irregularities. since 29 March 2011. N+1 Singer are the Group’s nominated advisors and together with The Directors are responsible for the Finncap are the joint brokers. The closing mid maintenance and integrity of the corporate and market share price at 30 June 2015 was 34.25p financial information included on the Company’s Acquisition of the Company’s own shares (2014: 33.12p). Further to the shareholder resolution of website. Legislation in the United Kingdom governing the preparation and dissemination of 16 December 2014, the Company purchased Statement of Directors’ responsibilities financial statements may differ from legislation in 660,000 ordinary shares with a nominal value The Directors are responsible for preparing other jurisdictions. of 0.5 pence, and representing 0.23% of the the Report of the Directors and the financial Company’s called up ordinary shares capital, for statements in accordance with applicable Statement as to disclosure of information a consideration of £212,984. The reason for the law and regulations. to auditors purchase was to reduce surplus cash balances So far as the Directors are aware, there is and enhance earnings per share. Company law requires the Directors to prepare no relevant audit information (as defined by financial statements for each financial year. Section 418 of the Companies Act 2006) of Indemnity of officers Under that law the Directors have elected to which the Group’s auditors are unaware, and The Group purchases Directors and officers prepare the financial statements in accordance each Director has taken all the steps that he or insurance against their costs in defending with International Financial Reporting Standards she ought to have taken as a Director in order themselves in legal proceedings taken as adopted by the European Union. Under to make himself aware of any relevant audit against them in that capacity, and in respect company law the Directors must not approve information and to establish that the Group’s of damages resulting from the unsuccessful the financial statements unless they are satisfied auditors are aware of that information. defence of any proceedings. that they give a true and fair view of the state of affairs of the Company and the Group and of Auditors Financial instruments the profit or loss of the Group for that period. The auditors, Jeffreys Henry LLP, will be Details of the Group’s risk management In preparing these financial statements, the proposed for re-appointment at the forthcoming objectives and policies together with its Directors are required to: Annual General Meeting. exposure to financial risk are set out in Note 22 to the financial statements. • Select suitable accounting policies and then apply them consistently; On behalf of the Board The purpose of the policies is to ensure that adequate cost-effective funding is available • Make judgements and accounting estimates that are reasonable and to the Group and exposure to financial prudent; risk – interest rate, liquidity and credit risk – is minimised. Product development In the markets in which the Group operates, effective development is vital to maintaining competitive advantage and securing future income streams. • 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. Milan Patel Company Secretary 12 October 2015 35 dotdigital Group PlcAnnual Report 2014/2015 Governance Report of the independent auditor We have audited the financial statements of Scope of the audit of the financial dotdigital Group Plc for the year ended 30 statements • The financial statements have been prepared in accordance with the June 2015, which comprise the consolidated An audit involves obtaining evidence about requirements of the Companies income statement, consolidated statement of the amounts and disclosures in the financial Act 2006. comprehensive income, consolidated statement statements sufficient to give reasonable of changes of equity, company statement of assurance that the financial statements are Opinion on other matter prescribed changes in equity, consolidated statement free from material misstatement, whether by the Companies Act 2006 of financial position, company statement of caused by fraud or error. This includes an In our opinion the information given in the financial position, consolidated statement of assessment of: whether the accounting policies Report of the Directors and Strategic report cash flows, company statement of cash flows are appropriate to the Group’s and the Parent for the financial year for which the financial and the related notes. The financial reporting company’s circumstances and have been statements are prepared is consistent with framework that has been applied in their consistently applied and adequately disclosed; the financial statements. preparation is applicable law and International the reasonableness of significant accounting Financial Reporting Standards (IFRSs) as estimates made by the Directors; and the Matters on which we are required adopted by the European Union, and as regards presentation of the financial statements. In to report by exception the parent company financial statements, as addition, we read all the financial and non- We have nothing to report in respect of applied in accordance with the provisions of financial information in the Chairman’s and the following matters where the Companies the Companies Act 2006. Chief Executive’s report, Corporate Social Act 2006 requires us to report to you if, Responsibility report, Corporate Governance in our opinion: This report is made solely to the company’s report, Audit Committee report, Remuneration members, as a body, in accordance with Committee report and Directors’ report to Chapter 3 of Part 16 of the Companies Act identify material inconsistencies with the 2006. Our audit work has been undertaken so audited financial statements and to identify that we might state to the company’s members any information that is apparently materially those matters we are required to state to them incorrect based on, or materially inconsistent in an auditor’s report and for no other purpose. with, the knowledge acquired by us in the To the fullest extent permitted by law, we do not course of performing the audit. If we become • 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 accept or assume responsibility to anyone other aware of any apparent material misstatements records and returns; or than the company and the company’s members or inconsistencies we consider the implications as a body, for our audit work, for this report, or for our report. for the opinions we have formed. Respective responsibilities of Directors In our opinion the financial statements: Opinion on financial statements and auditors As explained more fully in the Statement of Directors’ Responsibilities, 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 • Give a true and fair view of the state of the Group’s and the Parent company’s affairs as at 30 June 2015 and of the Group’s profit and Group’s and Parent company’s cash flow for the year then ended; • 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. audit the financial statements in accordance • Have been properly prepared in Jonathan Isaacs with applicable law and International Standards accordance with IFRSs as adopted by Senior Statutory Auditor on Auditing (UK and Ireland). Those standards the European Union; require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. 36 dotdigital Group Plc Annual Report 2014/2015 • The parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applies in accordance with the provisions of the Companies Act 2006; and For and on behalf of Jeffreys Henry LLP (Statutory Auditors) Finsgate 5-7 Cranwood Street London EC1V 9EE 12 October 2015 s t n e m e t a t s l i a c n a n F i Financial statements Contents 38 Consolidated income statement 38 Consolidated statement of comprehensive income 39 Consolidated statement of financial position 40 Company statement of financial position 41 Consolidated statement of changes in equity 42 Company statement of changes in equity 43 Consolidated statement of cash flows 43 Company statement of cash flows 44 Notes to the consolidated financial statements 68 Company information 37 dotdigital Group Plc Annual Report 2014/2015 Consolidated income statement For the year ended 30 June 2015 Continuing operations Revenue Cost of sales Gross profit Administrative expenses Operating profit Finance income Profit before income tax Income tax expense Profit for the year from continuing operations Discontinued operations Loss for the year from discontinued operations Profit for the year Attributable to the owners of the parent: Profit for the year from continuing operations Loss for the year from discontinued operations Profit for the year attributable to the owners of the parent Earnings per share from continuing operations (pence per share) Basic Diluted Earnings per share from continuing and discontinued operations (pence per share) Basic Diluted Notes 30.6.15 £’000 30.6.14 £’000 3 7 6 7 8 4 4 11 11 11 11 21,366 (2,292) 19,074 (13,858) 5,216 27 5,243 (587) 4,656 – 4,656 4,656 – 4,656 1.63 1.61 1.63 1.61 16,213 (1,533) 14,680 (11,059) 3,621 20 3,641 (181) 3,460 (41) 3,419 3,460 (41) 3,419 1.24 1.19 1.22 1.18 Consolidated statement of comprehensive income For the year ended 30 June 2015 Profit for the year Other comprehensive income Items that may be subsequently reclassified to profit and loss: Exchange differences on translating foreign operations Total comprehensive income attributable to: Owners of the parent Total comprehensive income for the year Comprehensive income from continuing operations Comprehensive income from discontinued operations Notes 30.6.15 £’000 4,656 30.6.14 £’000 3,419 3 (4) 4,659 3,415 4,659 – 3,456 (41) 38 dotdigital Group PlcAnnual Report 2014/2015 Consolidated statement of financial position For the year ended 30 June 2014 Assets Non-current assists Goodwill Intangible assets Property, plant and machinery 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 Retranslation reserve Retained earnings Total equity Liabilities Non-current liabilities Deferred tax Current liabilities Trade and other payables Current tax payable Total liabilities Total equity & liabilities Notes 30.6.15 £’000 30.6.14 £’000 12 13 14 16 17 18 19 19 19 19 19 23 20 609 3,444 1,097 5,150 5,328 11,932 17,260 22,410 1,435 5,382 (4,695) (25) (3) 16,297 18,391 609 2,991 827 4,427 3,662 9,306 12,968 17,395 1,414 5,147 (4,695) 82 (6) 12,211 14,153 383 58 3,437 199 3,636 4,019 22,410 2,984 200 3,184 3,242 17,395 The financial statements were approved and authorised for issue by the Board of Directors on 12 October 2015 and were signed on its behalf by Milan Patel Director Company registration number: 06289659 (England and Wales) 39 dotdigital Group PlcAnnual Report 2014/2015Financial statements Company statement of financial position For the year ended 30 June 2015 Assets Non-current assists 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 Retained earnings Total equity Liabilities Current liabilities Trade and other payables Total liabilities Total equity & liabilities Notes 30.6.15 £’000 30.6.14 £’000 15 16 17 18 19 19 19 20 5,186 5,186 3,124 166 3,290 8,476 1,435 5,382 (25) 1,534 8,326 150 150 150 8,476 5,186 5,186 3,845 109 3,954 9,140 1,414 5,147 82 2,423 9,066 74 74 74 9,140 The financial statements were approved and authorised for issue by the Board of Directors on 12 October 2015 and were signed on its behalf by Milan Patel Director Company registration number: 06289659 (England and Wales) 40 dotdigital Group PlcAnnual Report 2014/2015 Consolidated statement of changes in equity For the year ended 30 June 2015 Balance as at 1 July 2013 Issue of share capital Dividends Share based payment Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Balance as at 30 June 2014 Issue of share capital Share repurchase Dividends Share based payment Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Balance as at 30 June 2015 Balance as at 1 July 2013 Issue of share capital Dividends Share based payments Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Balance as at 30 June 2014 Issue of share capital Share repurchase Dividends Share based payments Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Balance as at 30 June 2015 Called up share capital £’000 1,387 27 – – 27 – – – 1,414 21 – – – 21 – – – 1,435 Reverse acquisition reserve £’000 (4,695) – – – – – – – (4,695) – – – – – – – – (4,695) Retained earnings £’000 9,071 – (279) – (279) 3,419 – 3,419 12,211 – – (570) – (570) 4,656 – 4,656 16,297 Other reserves £’000 13 – – 69 69 – – – 82 – (213) – 106 (107) – – – (25) Share premium £’000 4,863 284 – – 284 – – – 5,147 235 – – – 235 – – – 5,382 Total equity £’000 10,637 311 (279) 69 101 3,419 (4) 3,415 14,153 256 (213) (570) 106 (421) 4,656 3 4,659 18,391 Retranslation reserve £’000 (2) – – – – – (4) (4) (6) – – – – – – 3 3 (3) • Share capital is the amount subscribed for shares at nominal value. • Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders. • Share premium represents the excess of the amount subscribed for share capital over the nominal value of the net share issue expenses. • Retranslation reserve relates to the retranslation of a foreign subsidiary into the functional currency of the Group. • The reverse acquisition reserve relates to the adjustment required to account the reverse acquisition in accordance with International Financial Reporting Standards. • Other reserves relate to the charge for the share based payment in accordance with International Financial Reporting Standard 2 and shares repurchased in the year classified as treasury shares. 41 dotdigital Group PlcAnnual Report 2014/2015Financial statements Company statement of changes in equity For the year ended 30 June 2015 Balance as at 1 July 2013 Issue of share capital Dividends Share based payment Transactions with owners Loss for the year Total comprehensive income Balance as at 30 June 2014 Issue of share capital Share repurchase Dividends Share based payment Transactions with owners Loss for the year Total comprehensive income Balance as at 30 June 2015 Balance as at 1 July 2013 Issue of share capital Dividends Share based payments Transactions with owners Loss for the year Total comprehensive income Balance as at 30 June 2014 Issue of share capital Share repurchase Dividends Share based payments Transactions with owners Loss for the year Total comprehensive income Balance as at 30 June 2015 Called up share capital £’000 1,387 27 – – 27 – – 1,414 21 – – – 21 – – 1,435 Retained earnings £’000 3,065 – (279) – (279) (363) (363) 2,423 – – (570) – (570) (319) (319) 1,534 Other reserves £’000 13 – – 69 69 – – 82 – (213) – 106 (107) – – (25) Share premium £’000 4,863 284 – – 284 – – 5,147 235 – – – 235 – – 5,382 Total equity £’000 9,328 311 (279) 69 101 (363) (363) 9,066 256 (213) (570) 106 (421) (319) (319) 8,326 • Share capital is the amount subscribed for shares at nominal value. • Retained earnings represents the cumulative earnings of the Group attributable to equity shareholders. • Share premium represents the excess of the amount subscribed for share capital over the nominal value of the net share issue expenses. • Retranslation reserve relates to the retranslation of a foreign subsidiary into the functional currency of the Group. • Other reserves relate to the charge for the share based payment in accordance with International Financial Reporting Standard 2 and shares repurchased in the year classified as treasury shares. 42 dotdigital Group Plc Annual Report 2014/2015 Consolidated statement of cash flows For the year ended 30 June 2015 Cash flows from operating activities Cash generated from operations Tax paid Net cash generated from operating activities Cash flows from investing activities Purchase of intangible fixed assets Purchase of tangible fixed assets Sale of tangible fixed assets Interest received Net cash flows used in investing activities Cash flows from financing activities Equity dividends paid Share issue Share repurchase Net cash flows (used)/from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Increase in cash and cash equivalents from continuing operations Increase in cash and cash equivalents from discontinuing operations Increase in cash and cash equivalents Notes 28 29 29 30.6.15 £’000 30.6.14 £’000 5,667 (263) 5,404 (1,612) (667) 1 27 (2,251) (570) 256 (213) (527) 2,626 9,306 11,932 2,626 – 2,626 5,297 (100) 5,197 (1,408) (607) – 20 (1,995) (279) 311 – 32 3,234 6,072 9,306 3,268 (34) 3,234 The above does not include the effect of foreign exchange rate changes on cash and cash equivalents due to its immaterial nature. Company statement of cash flows For the year ended 30 June 2015 Cash flows from operating activities Cash generated from operations Net cash generated from operating activities Cash flows from financing activities Equity dividends paid Share issue Share repurchase Net cash flows (used)/from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Notes 28 29 29 30.6.15 £’000 30.6.14 £’000 584 584 (570) 256 (213) (527) 57 109 166 7 7 (279) 311 – 32 39 70 109 s t n e m e t a t s l i a c n a n F i 43 dotdigital Group Plc Annual Report 2014/2015 Notes to the consolidated financial statements For the year ended 30 June 2015 1. General information dotdigital Group Plc (“dotdigital”) is a company incorporated in England and Wales and quoted on the AIM Market. The address of the registered office is disclosed on the inside back cover of the financial statements. The principal activity of the Group is described on page 34. 2. Accounting policies Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS’s as adopted by the EU) and those parts of 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. New and amended standards adopted by the Group There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on or after 1 July 2014 that would be expected to have a material impact on the Group. Standards, interpretations and amendments to published standards that are not yet effective The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year beginning 1 July 2014 and have not been early adopted: Reference IFRS 14 IFRS 15 Title Summary Regulatory deferral accounts Revenue from contracts with customers Amendments to IFRS 11 Amendments to IAS 16 and IAS 41 Amendments to IAS 16 and IAS 38 Amendments to IAS 27 Amendments to IFRS 10 and IAS 28 Amendments to IFRS 10 and IAS 28 Amendments to IAS 1 Improvements to IFRS 5 Joint arrangements IAS 16: Property plant and equipment and IAS 41: Agriculture Intangible Assets Separate financial statements IFRS 10:Consolidated financial and IAS 28: Investments in Associates IFRS 10:Consolidated financial and IAS 28: Investments in Associates Presentation of Financial statements Non current assets held for sale and discontinued operations Improvements to IFRS 7 Financial instruments Improvements to IAS 19 Employee benefits Improvements to IAS 34 Interim financial reporting IFRS 9 Financial instruments Application date of standard (Periods commencing on or after) 1 January 2016 1 January 2017 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2018 Aims to enhance the comparability of financial reporting by entities subject to rate-regulations Specifies how and when to recognise revenue from contracts as well as requiring more information and relevant disclosures. On acquisitions of interest in joint operations On Bearer plants Clarification of acceptable methods of depreciation and amortisation Equity method in separate financial statements Investment entities: Applying the consolidation exception Sale or contribution of assets between an investor and its associate or joint venture Disclosure initiative Methods of disposal Disclosures on servicing contracts and interim financial statements Determining the discount rates for post-employment obligations Information disclosed elsewhere in the interim financial report Requirements on the classification and measurement of financial assets and liabilities and includes an expected credit losses model which replaces the current incurred loss impairment model. Also includes the hedging amendment that was issued in 2013 The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early. 44 dotdigital Group PlcAnnual Report 2014/2015 The financial statements are presented in sterling (£), rounded to the nearest thousand pound. Basis of consolidation In the period ended 2009 the Company acquired via a share for share exchange the entire issued share capital of dotmailer Limited, whose principle activity is that of web and email based marketing. Under IFRS 3 ‘Business combinations’ the dotmailer Limited share exchange has been accounted for as a reverse acquisition. Although these consolidated financial statements have been issued in the name of the legal parent, the company it represents in substance is a continuation of the financial information of the legal subsidiary, dotmailer Limited. The following accounting treatment has been applied in respect of the reverse acquisition: • The assets and liabilities of the legal subsidiary, dotmailer Limited are recognised and measured in the consolidated financial statements at their pre combination carrying amounts, without restatement to their fair value; • The retained reserves recognised in the consolidated financial statements 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 Group 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 prepared on the same basis. The following accounting treatment has been applied in respect of the acquisition of dotdigital Group Plc: • The assets and liabilities of dotdigital are recognised and measured in the consolidated financial statements at their fair value at the date of acquisition. • The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than 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 since 30 January 2009, 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 be reliably measured and it is probable that the future economic benefits will flow to the entity. The Group bases it’s estimates on historical results, taking in to 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 percentage of completion method based on a percentage of services performed to date as a percentage of the total services to be performed. Going concern The Directors, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is contained in the Strategic report. 45 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 Operating profit Operating profit is stated after charging operating expenses but before finance costs. Amortisation is calculated using straight line method to allocate the cost of domain names over their useful lives of four years. Dividends • Software Final dividend distributions to the Company’s shareholders are recognised as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders while interim dividends distributions are recognised in the period in which the dividends are declared and paid. 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. Goodwill • Product development 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. Investments in subsidiaries Investments are held as non-current assets at cost less any provision for impairment. Where the recoverable amount of the investment is less then the carrying amount, impairment is recognised. Intangible assets 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 of 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. Product development expenditure is capitalised when it is considered that there is a commercially and viable technically product, the related expenditure is separable 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 and until economic benefit can be received and recognised, this expense is taken to the income statement and useful lives are reviewed on an annual basis. Amortisation is charged from the point when the assets is available for use. 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. 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. 46 dotdigital Group PlcAnnual Report 2014/2015 • Impairment of non financial assets (excluding goodwill) At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired. Property, plant and equipment Tangible non current assets are stated at historical cost less accumulated 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 components of 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: over the term of the lease Fixtures and fittings: 25% on cost Computer equipment: 25% on cost The asset’s residual values and useful economic lives are reviewed and adjusted, if appropriate, at each reporting 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. Capital risk management The Group manages its capital to ensure it is able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of cash equivalents and equity attributable to the owners of the parent as disclosed in the Statement of Changes in Equity. Taxation The tax expense for the year comprises current and deferred tax. Tax is recognised in the Income Statement, extent to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income for directly in equity, respectively. Current tax 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 taxation 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. Operating leases Rent payable under operating leases is not recognised in the Group’s statement of financial position. Such costs are expensed 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. Financial instruments Financial assets and financial liabilities are recognised on the statement of financial position when an entity becomes a party to the contractual provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that is directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the income statement. 47 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 • Financial assets • Cash and cash equivalents The Group’s accounting policies for financial assets are set out below. Management determine the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate, revaluate this designation at every reporting date. All financial assets are recognised on a trade date when, and only when, the Group becomes a party to the contractual provisions of an instrument. When financial assets are recognised initially, they are measured at fair value plus transaction costs, except for those finance assets classified as at fair value through profit or loss (‘FVTPL’), which are initially measured at fair value. Financial assets are classified into the following specified categories: financial assets at FVTPL, ’held-to-maturity’ investments, ‘available for sale’ (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition. Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. At each reporting date, financial assets are reviewed to assess whether there is objective evidence of impairment. If any such evidence exists, impairment loss is determined and recognised based on the classification of the financial asset. Loans and receivables (including trade receivables, prepayments, deposits and other receivables, cash and bank balances) are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. At each reporting date subsequent to initial recognition, loans and receivables are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in the statement of comprehensive income when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of estimated future cashflows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows. • 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. • Financial liabilities and equity Financial liabilities and equity are recognised on the Group’s statement of financial position when the Group becomes a party to a contractual provision of an instrument. Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of transaction costs. The Group’s financial liabilities include trade payables and accrued liabilities. • 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. Foreign currency risk Currency risk is the risk that the holding of foreign currencies will affect the Group’s position as a result of a change in foreign currency exchange rates. The Group has no significant foreign currency risk as most of the Group’s financial assets and liabilities are denominated in functional currencies of relevant group entities. Accordingly, no quantitative market risk disclosures or sensitivity analysis for currency risk have been prepared. 48 dotdigital Group PlcAnnual Report 2014/2015 The results and financial position of all the group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (a) Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; (b) Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and (c) All resulting exchange differences are recognised in other comprehensive income. 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” measures their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. The fair value of those equity instruments is measured at the grant date using the trinomial method. The expense is apportioned over the vesting period of the financial instrument and is based on the number which is 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. Functional currency translation • Functional and presentation currency Items included in the financial statements of 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 this currency the financial statements are presented in. • Transaction and balances Foreign currency transactions are translated in to the functional 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 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. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provide to the chief operating decision-maker. The chief operating decision maker who is responsible for allocating resources and assessing performance of the operating segments as identified by the Board of Directors. Critical accounting adjustments The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Judgements (a) Capitalisation of development costs Our business model is underpinned by our email and cross-channel marketing automation platform, dotmailer. Internal activities are continually undertaken to enhance and maintain the product in a bid to stay ahead of our competition. Management review the work of developers during the period and make the following judgements: 49 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 (c) Depreciation and amortisation The Group depreciates short leasehold, fixtures and fittings, computer equipment and amortises computer software, internally generated development costs and domain names on a straight line method over the estimated useful lives. The estimated useful lives reflect the directors’ estimate of the periods that the Group intends to derive future economic benefits from the use of the Group’s short leasehold fixtures and fittings, computer equipment, computer software, internally generated development costs and domain names. (d) Bad debt provision We perform ongoing credit evaluations of our customers and grant credit based upon past payment history, financial condition and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based upon specific situations and overall industry conditions. Hence the provision is maintained for potential credit losses based upon management’s assessment of the expected collectability of all accounts receivable. In making this assessment, management takes into consideration (i) an circumstances of which we are aware regarding a customer’s inability to meet its financial obligations and (ii) our judgements as to potential prevailing economic conditions in the industry and their potential impact on the Group’s customers. • • Internal work relating to product development is reviewed against IAS 38 criteria and will be capitalised if management feel the criteria have been met. Internal work relating to the maintenance of existing products is expensed to the income statement and accounted for in payroll costs. Estimates and assumptions (a) Impairment testing of goodwill The Directors have carried out a detailed impairment review in respect of goodwill. The Group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flows forecasts which have been discounted using a pre-tax discount rate of 10%. The cash flow projections are based on the assumption that the Group can realise projected sales. A prudent approach has been applied with no residual value being factored. Further details on the estimates and assumptions we make in our annual impairment testing of goodwill are included in Note 12 to the Financial Statements. At the period end, based on these assumptions there was no indication of impairing to carrying value of goodwill. (b) Share-based compensation Key management believe that there will not be only one acceptable choice for estimating the fair value of share-based payment arrangements. The judgements and estimates that management apply in determination of the share-based compensation are summarised below: • • Selection of a valuation model Making assumptions used in determining the variables used in a valuation model i. expected life, ii. expected volatility, iii. expected dividend yield, iv. interest rate Further detail on the estimates and assumptions we make in our share-based compensation are included in Note 27 to the Financial Statements. The charge made to income statement for period is also disclosed here. 50 dotdigital Group PlcAnnual Report 2014/2015 3. Segmental reporting The Group’s single line of business is the provision of web based marketing services. Last year more than 90% of the Group’s revenue arose in the UK and all of the Group’s non-current assets were held there. This year the chief operating decision maker considers the Group’s only reportable segment to be by geographical location this being UK and rest of the world (“RoW”) operations as shown below: UK Operations £’000 30.6.2015 RoW Operations £’000 Income statement Revenue Gross profit Profit before income tax Total comprehensive income attributable to the owners of the parent Financial position Total assets Net current assets 18,274 16,676 3,476 2,895 21,591 12,964 Revenue from external customers are attributed to the geographical segments noted above based on the customers location. There was no customers who account for more than 10% of revenue (2014: None) UK Operations £’000 30.6.2014 RoW Operations £’000 819 660 22,410 13,624 Total £’000 21,366 19,074 5,243 4,659 Total £’000 16,213 14,680 3,641 3,415 3,092 2,398 1,767 1,764 1,566 1,413 1,211 1,210 14,647 13,267 2,430 2,205 17,002 10,030 Income statement Revenue Gross profit Profit before income tax Total comprehensive income attributable to the owners of the parent Financial position Total assets Net current assets 4. Discontinued operations Discontinued operations refers to the closure of the service division. Analysis of continuing and discontinued operations is as follows: Year ended 30 June 2015 Revenue Cost of sales Gross profit Administrative expenses Operating profit before exceptional items Finance income Income tax Profit for the year attributable to owners of the parent 393 (246) 17,395 9,784 Continuing operations 30.6.15 £’000 21,366 (2,292) 19,074 (13,858) 5,216 27 (587) 4,656 Discontinued operations 30.6.15 £’000 – – – – – – – – 51 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 Year ended 30 June 2014 Revenue Cost of sales Gross profit Administrative expenses Operating profit/(loss) before exceptional items Finance income including exceptional items Income tax Profit/(loss) for the year attributable to owners of the parent 5. Employees and directors Wages and salaries Social security costs Other pension costs The average monthly number of employees during the year are as follows Directors Sales and Marketing SEO and Product Developers Administration Continuing operations 30.6.14 £’000 16,213 (1,533) 14,680 (11,059) 3,621 20 (181) 3,460 Discontinued Operations 30.6.14 £’000 199 (122) 77 (118) (41) – – (41) 30.6.15 £’000 7,711 871 221 8,803 30.6.15 7 84 48 47 186 30.6.14 £’000 6,024 679 147 6,850 30.6.14 7 80 41 44 172 Remuneration of key management personal is included in Note 25 During the year the Group also capitalised staff related costs of £1,549,066 (2014 – £1,232,341) in relation to internally generated development costs. 30.6.15 £’000 30.6.14 £’000 27 27 20 20 30.6.15 £’000 1,516 415 361 2,292 30.6.14 £’000 1,033 471 29 1,533 6. Net finance income Finance income: Deposit account interest 7. Operating profit before exceptional items Costs by nature Profit from continuing operations has been arrived after charging/(crediting):- Direct marketing Outsourcing Other costs Total cost of sales 52 dotdigital Group Plc Annual Report 2014/2015 Staff related costs (inc Directors emoluments) –note 5 Operating leases: Land and buildings Operating lease: Other Audit remuneration Amortisation of intangibles Depreciation charge Legal, professional and consultancy fees Computer expenditure Bad debts Foreign exchange losses Travelling Office running Other costs Total administration costs 30.6.15 £’000 8,803 834 44 38 1,159 397 417 828 103 61 351 217 606 13,858 During the year 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 for other services – The audit of Company subsidiaries – Non audit fees: Tax and review of interim accounts 8. Income tax expense Analysis of the tax charge from continuing operations: Current tax on profits for the year Deferred tax on origination and reversal of timing differences Overprovision in previous periods Tax charge from continuing operations Factors affecting the tax charge: Profit on ordinary activities before tax Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 20.75% (2014: 22.50%) Effects of: Expenses not deductible Research and development enhanced claim Expenditure permitted on exercising options Overseas tax (profits)/losses Capital allowances in excess of depreciation Total income tax 30.6.14 £’000 6,850 586 68 36 866 251 480 584 302 67 250 160 559 11,059 30.6.14 £’000 7 26 3 36 30.6.15 £’000 7 27 4 38 30.6.15 30.6.14 £’000 262 325 587 – 587 587 587 30.6.15 £’000 5,243 1,088 (250) (747) (238) (43) (48) 262 £’000 166 44 210 (29) 181 181 181 30.6.14 £’000 3,600 810 281 (661) (247) 25 (42) 166 Deferred tax was calculated using the rate 20% (2014: 20.75%). For further details on deferred tax please see Note 23. 53 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 9. Profit/(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 £318,852 (2014: £363,022). 10. Dividends Amounts recognised as distributions to equity holders in the period. Final dividend for year end 30 June 2015 of 0.2p per share Proposed dividend for the year end 30 June 2015 of 0.36p (2014: 0.2p) per share 30.6.15 £’000 570 1,041 30.6.14 £’000 279 566 The proposed final dividend is subject to approval by the shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. 11. 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:- From continuing operations Basic EPS Profit for the year attributable to the owners of the parent Options and Warrants Diluted EPS Profit for the year attributable to the owners of the parent From continuing operations Profit for the year attributable to the owners of the parent Adjustments to exclude profit/(loss) from discontinued operations Profit for the year from continuing operations for the purpose of basic of basic earnings per share excluding discontinued operations From discontinued operations Basic EPS Diluted EPS 30.6.15 Weighted average number of shares Earnings £’000 4,656 284,804,914 5,001,766 – 4,656 289,806,680 30.6.15 £’000 4,656 – 4,656 Per share Amount Pence 1.63 – 1.61 30.6.14 £’000 3,419 41 3,460 30.6.15 Per share (p) – – 30.6.14 Per share (p) (0.02) (0.01) There was no difference in the weighted average number of shares used in the calculation of basic and diluted earnings per share as the effect of all notionally dilutive shares outstanding were anti-dilutive. Weighted average number of shares Basic EPS Diluted EPS 2015 Shares 2014 Shares 284,804,914 279,107,898 289,806,680 290,380,434 The denominators and numerators used are the same those detailed above for both basic and diluted earnings per share from continuing and discontinued operations. 54 dotdigital Group PlcAnnual Report 2014/2015 From continuing and discontinued operations Basic EPS Profit for the year attributable to the owners of the parent Options and Warrants Diluted EPS Profit for the year attributable to the owners of the parent From continuing operations Basic EPS Profit for the year attributable to the owners of the parent Options and Warrants Diluted EPS Profit for the year attributable to the owners of the parent 30.6.14 Weighted average number of shares Earnings £’000 3,419 279,107,898 11,272,536 – 3,419 290,380,434 30.6.14 Weighted average number of shares Earnings £’000 3,460 279,107,898 11,272,536 – 3,460 290,380,434 Per share Amount Pence 1.22 – 1.18 Per share Amount Pence 1.24 – 1.19 Adjusted earnings per share represents the performance of the company had the exceptional item listed above not occurred in the year and is only presented for guidance purposes. 12. Goodwill Group Cost At 1 July And 30 June Accumulated impairment loss At 1 July and at 30 June Net book value 30.6.15 £’000 30.6.14 £’000 4,121 4,121 3,512 609 3,512 609 Goodwill arising on business combinations is not amortised but is reviewed for impairment on an annual basis, or more frequently if there are indications that goodwill may be impaired. Goodwill acquired in a business combination is allocated, at acquisition, to cash generating units (CGU’s) that are expected to benefit from that business combination. The carrying amount of goodwill relates wholly to the Group’s single trading activity and business segment. This has been tested for impairment during the current financial year by comparison with the recoverable amounts of the CGU. Recoverable amounts for CGU’s are based on the higher of value in use and fair value less costs to sell. The recoverable amounts of the CGU have been determined from value in use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five year period. The key assumptions for the value in use calculations are those regarding discount rates, growth rates, and expected changes in margins. Management estimate discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the CGU’s. Changes in income and expenditure are based on past experience and expectations of the future changes in the market. The pre-tax discount rate used to calculate the value in use are 10% (2014 – 10%). The valuations indicate sufficient headroom such that a reasonably possible change in key assumptions would not result in impairment of goodwill. 55 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 13. Intangible assets Group Cost At 1 July 2014 Additions At 30 June 2015 Amortisation At 1 July 2014 Amortisation for the year At 30 June 2015 Net book value At 30 June 2015 Cost At 1 July 2013 Additions At 30 June 2014 Amortisation At 1 July 2013 Amortisation for the year At 30 June 2014 Net book value At 30 June 2014 Computer softwares £’000 Internally generated development costs £’000 Domain names £’000 274 – 274 195 33 228 46 5,013 1,612 6,625 2,102 1,125 3,227 3,398 16 – 16 15 1 16 – Computer softwares £’000 Internally generated development costs £’000 Domain names £’000 211 63 274 155 40 195 79 3,668 1,345 5,013 1,278 824 2,102 2,911 16 – 16 13 2 15 1 Development cost additions represents resources the Group have invested in the development of new innovative and ground breaking technology products for marketing professionals. This platform allows them to create, send and automate marketing campaigns. Following development of the products the group intends to licence the use of the platform. 14. Property, plant and equipment Group Cost At 1 July 2014 Additions Disposals At 30 June 2015 Depreciation At 1 July 2014 Depreciation for the year Eliminated on disposal At 30 June 2015 Net book value At 30 June 2015 56 Short Leasehold £’000 Fixtures & fittings £’000 Computer equipment £’000 288 107 – 395 47 48 – 95 300 308 93 – 401 112 91 – 203 198 888 467 (1) 1,354 498 258 (1) 755 599 Totals £’000 5,303 1,612 6,915 2,312 1,159 3,471 3,444 Totals £’000 3,895 1,408 5,303 1,446 866 2,312 2,991 Totals £’000 1,484 667 (1) 2,150 657 397 (1) 1,053 1,097 dotdigital Group PlcAnnual Report 2014/2015 Cost At 1 July 2013 Additions Disposals At 30 June 2014 Depreciation At 1 July 2013 Depreciation for the year Eliminated on disposal At 30 June 2014 Net book value At 30 June 2014 15. Investments Company Cost At 1 July and 30 June Amortisation At 1 July and 30 June Net book value At 30 June Short Leasehold £’000 Fixtures & fittings £’000 Computer equipment £’000 107 181 – 288 25 22 – 47 241 155 154 (1) 308 64 49 (1) 112 196 620 272 (4) 888 321 180 (3) 498 390 Totals £’000 882 607 (5) 1,484 410 251 (4) 657 827 Shares in Group undertakings 30.6.15 £’000 Shares in Group undertakings 30.6.14 £’000 8,705 8,705 3,519 3,519 5,186 5,186 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 dotsurvey Limited dotsearch Europe Limited dotcommerce Limited doteditor Limited dotSEO Limited dotagency Limited Dormant Branch company Dormant Dormant Dormant Non-trading dotmailer Inc Web and email based marketing All of the above subsidiaries have been included within the consolidated results. Proportion of voting power held %: 100 100 100 100 100 100 100 100 100 Class of share Ordinary Ordinay A Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary B, C and D Ordinary All the above companies with the exception of dotmailer Inc were incorporated in England and Wales. dotmailer Inc was incorporated in Delaware (US). 57 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 16. Trade and other receivables Current: Trade receivables Less: Provision for impairment of trade receivables Trade receivables – net Other receivables Amounts owed by Group undertakings VAT Prepayments Group 30.6.15 £’000 4,589 (343) 4,246 39 – – 1,043 5,328 Company 30.6.14 £’000 30.6.15 £’000 30.6.14 £’000 3,119 (336) 2,783 35 – – 844 3,662 – – – – 3,108 7 9 3,124 – – – – 3,821 12 12 3,845 Further details on the above can be found in Note 22. Included within prepayments is an amount of £121,998 (2014: £104,429) in relation to deferred commission which is considered to be long term. 17. Cash and cash equivalents Bank accounts Further details on the above can be found in Note 22. 18. Called up share capital Allotted, issued, fully paid number 287,002,065 (2014: 282,782,065) Group 30.6.15 £’000 11,932 11,932 30.6.14 £’000 9,306 9,306 Company 30.6.15 £’000 166 166 30.6.14 £’000 109 109 Nominal value £0.005 30.6.15 £’000 1,435 1,435 30.6.14 £’000 1,414 1,414 During the reporting period the Company undertook the following transactions involving the issuing and reclassifying issued share capital: On 07 August 2014 a number of employees exercised their share options increasing the issued share capital by 790,000 shares at a premium price of between 5p and 7.5p. On 20 October 2014 a number of employees exercised their share options increasing the issued share capital by 730,000 shares at a premium price of between 5p and 7.5p. On 18 December 2014 a number of employees exercised their share options increasing the issued share capital by 910,000 shares at a premium price of between 5p and 7.5p. On 27 April 2015 a number of employees exercised their share options increasing the issued share capital by 1,790,000 shares at a premium price of between 5p and 7.5p. 58 dotdigital Group PlcAnnual Report 2014/2015 19. Reserves Group As at 1 July 2014 Issue of share capital Share repurchase Dividends Profit for the year Other comprehensive income: Currency translation Share based payment Balance as at 30 June 2015 As at 1 July 2014 Issue of share capital Share repurchase Dividends Profit for the year Other comprehensive income: Currency translation Share based payment Balance as at 30 June 2015 Group As at 1 July 2013 Issue of share capital Dividends Profit for the year Currency translations Share based payments Balance as at 30 June 2014 As at 1 July 2013 Issue of share capital Dividends Profit for the year Currency translation Share based payment Balance as at 30 June 2014 Retained earnings £’000 12,211 – – (570) 4,656 – – 16,297 Retranslation Reserve £’000 (6) – – – – 3 – (3) Retained earnings £’000 9,071 – (279) 3,419 – – 12,211 Retranslation reserve £’000 (2) – – – (4) – (6) Share premium £’000 5,147 235 – – – – – 5,382 Other reserves £’000 82 – (213) – – – 106 (25) Share premium £’000 4,863 284 – – – – 5,147 Other reserves £’000 13 – – – – 69 82 Reverse acquisition reserve £’000 (4,695) – – – – – – (4,695) Totals £’000 12,739 235 (213) (570) 4,656 3 106 16,956 Reverse acquisition reserve £’000 (4,695) – – – – – (4,695) Totals £’000 9,250 284 (279) 3,419 (4) 69 12,739 59 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 Company At 1 July 2014 Issue of share capital Share repurchase Dividends Loss for the year Share based payment At 30 June 2015 At 1 July 2013 Issue of share capital Reclassification of reserves Loss for the year Share based payment At 30 June 2014 20. Trade and other payables Current: Trade payables Amounts owed to Group undertkings Social security and other taxes Other payables VAT Accruals and deferred income Retained earnings £’000 2,423 – – (570) (319) – 1,534 Retained earnings £’000 3,065 – (279) (363) – 2,423 Group 30.6.15 £’000 853 – 498 349 574 1,163 3,437 Further details on liquidity and interest rate risk can be found in Note 22. 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 60 Land & Buildings £’000 232 1,490 1,722 Land & Buildings £’000 311 2,147 2,458 Share Premium £’000 5,147 235 – – – – 5,382 Share premium £’000 4,863 284 – – – 5,147 Other reserves £’000 82 – (213) – – 106 (25) Share based payments £’000 13 – – – 69 82 Totals £’000 7,652 235 (213) (570) (319) 106 6,891 Totals £’000 7,941 284 (279) (363) 69 7,652 Company 30.6.14 £’000 30.6.15 £’000 30.6.14 £’000 819 – 549 391 559 666 2,984 16 4 – 91 – 39 150 30.06.15 Others £’000 19 12 31 30.06.14 Others £’000 34 19 53 2 – – 12 – 60 74 Totals £’000 251 1,502 1,753 Totals £’000 345 2,166 2,511 dotdigital Group PlcAnnual Report 2014/2015 Operating leases represent rents payable by the Group for its office properties. Leases are negotiated for an average term if five years and rentals are fixed on average for two years with the option to extend for a further five years at the prevailing market rate at the time. 22. Financial instruments and risk management The Groups activities expose it to a number of financial risks that include credit risk, liquidity risk, currency risk and interest rate risk. These risks and the Group’s policies for managing them have been applied consistently during the year and are set out below. The Group hold no financial or non other financial instruments other than those utilised in the working operations of the Group and that listed in this note. It is the Group’s policy not to trade in derivative contracts. Principle financial instruments The principle financial instruments used by the Group, from which financial instrument rate risk arises, are as follows: • Trade receivables • Cash and cash equivalents • Trade and other payables Financial instruments by category The following table sets out the financial instruments as at the reporting date: Group Company Financial assets Trade and other receivables Bank balances Financial liabilities Trade payables Accrued liabilities and other payables 30.6.15 £’000 30.6.14 £’000 30.6.15 £’000 30.6.14 £’000 5,328 11,932 17,260 853 2,584 3,437 3,662 9,306 12,968 819 2,165 2,984 16 166 182 16 130 146 24 109 133 2 72 74 The fair value of the Financial assets and Financial liabilities equal to their carrying values. All financial assets are categorised as loans and receivables and all financial liabilities are categorised as financial liabilities at amortised costs. General objectives, policies and processes The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group’s risk committee. The Board receives monthly reports from the Risk Committee through which reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below: 61 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 Interest rate risk The Group’s interest rate risk arises from interest bearing assets and liabilities. The Group has in place a policy of maximising finance income by ensuring that cash balances earn a market rate of interest; offsetting where possible, cash balances and by forecasting and financing its working capital requirements. As at the reporting date the Group was not exposed to any movement in interest rates as it has not external borrowings and therefore not exposed to interest rate risk. No sensitivity analysis has been prepared. 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. Liquidity risk The Group’s working capital requirements are managed through regular monitoring of the overall position and regularly updated cash flow forecasts to ensure there are funds available for its operations. Management forecasts indicate no new borrowing facilities will be required in the upcoming financial period. Trade and other payables of £2,365,000 (2014: £1,876,000) are expected to mature in less than a year Credit risk Credit risk arises principally from the Group’s trade receivables, as there are no trade receivables within the company, which comprise amounts due from customers. Prior to accepting new customers a credit check is obtained. As at 30 June 2015 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 than 60 days The maturity of the Group’s provision for impairment is as follows: 0-30 days 30-60 days More than 60 days The movement in the provision for the impairment is as follows: As at 1 July 2014 Provision for impairment Receivable written off in the year Unused amount reversed As at 30 June 2015 30.6.15 £’000 2,311 813 1,465 4,589 30.6.15 £’000 2 2 339 343 30.6.15 £’000 336 103 (47) (49) 343 30.6.14 £’000 1,817 702 600 3,119 30.6.14 £’000 – 83 253 336 30.6.14 £’000 249 302 (165) (50) 336 62 dotdigital Group PlcAnnual Report 2014/2015 The Group minimises its credit risk by profiling all new customers and monitoring existing client of the Group for changes in their initial profile. The level of trade receivables older than the average collection period consisted of a value of £1,486,597 (2014: £678,260) of which £339,962 (2014: £327,242) 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 counterparts are banks with high credit ratings assigned by international credit ratings. The majority of the company’s cash holdings are held at NatWest Bank who has an A credit rating. The carrying value of both financial assets and liabilities approximates to fair value. Capital Policy The Groups 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, risk 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 £nil (2014: £nil) and amounts payable over one year are nil. 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 a 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. Deferred tax As at 1 July Current year provision The deferred tax liability above comprises the following temporary differences: Capital allowances in excess of depreciation R & D relief in excess of amortisation Share option relief 30.6.15 £’000 58 325 383 30.6.15 £’000 103 679 (399) 383 30.6.14 £’000 14 44 58 30.6.14 £’000 58 600 (600) 58 The deferred tax provision relates to taxes to be levied by the same authority on the same entity expected to be settled at the same time. As such deferred tax assets and liabilities have been offset. 24. Capital commitments The Company and Group have no capital commitments as at the year end. Last year the Company and Group had capital committed to £191,000 towards the fit out of the new London Bridge office. 63 dotdigital Group PlcAnnual Report 2014/2015Financial statements 30.6.15 £’000 3 30.6.14 £’000 2 4 7 8 10 30.6.14 £’000 41 Notes to the consolidated financial statements continued For the year ended 30 June 2015 25. Related party disclosures Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Group The following transactions were carried out with related parties Sale of services Codence performance Coms.com Entity under common directorship Entity under common directorship Email marketing services Email marketing services Sales of services are based on the price lists in force and at terms that would be available to third parties 30.6.15 £’000 8 Purchase of services Barratts of Old Ltd Consultancy services Entity under common directorship Key management compensation Key management include Directors and the Company Secretary. The compensation paid for key management for employee services are shown below 8 41 Remuneration and other short term employee benefits Share based payments Pension cost Directors Aggregate emoluments Company contributions to money purchase pension scheme Share based payments Information in relation to the highest paid Director is as follows: Salaries Other benefits Pension costs Share based payments The highest paid Director excercised 660,000 share options in the year (2014: none). 30.6.15 £’000 1,002 20 60 1,082 30.6.15 £’000 1,002 60 20 1,082 30.6.15 £’000 234 11 15 20 280 30.6.14 £’000 966 15 42 1,023 30.6.14 £’000 877 42 5 924 30.6.14 £’000 230 7 14 – 251 64 dotdigital Group PlcAnnual Report 2014/2015 Company The following transactions were carried out with related parties Year end balances arising from sales/purchase of services dotmailer Limited dotagency Limited Subsidiary Subsidiary Payables Receivables 30.6.15 £’000 (3,280) – (3,280) 30.6.14 £’000 (1,864) 9 (1,855) The receivables and payables are unrestricted in nature and bear no interest. No provisions are held against receivables from related parties. Loans to related parties dotmailer Limited As at 1 July Loans advanced Loans repaid Subsidiary 30.6.15 £’000 30.6.14 £’000 5,681 751 (44) 6,388 5,400 324 (43) 5,681 Key management compensation Key management are Non-Executive Directors. The compensation paid for key management for employee services are shown below Remuneration and other short term employee benefits Directors Aggregate emoluments 26. Ultimate controlling party 30.6.15 £’000 – – 30.6.15 £’000 – – 30.6.14 £’000 95 95 30.6.14 £’000 95 95 There is no ultimate controlling party of the Group. dotdigital Group Plc acts as the parent company to dotmailer Limited, dotagency Limited, dotsearch Europe Limited, dotmailer Inc, dotsurvey Limited (Dormant), DotSEO Limited (Dormant), dotcommerce Limited (Dormant) and doteditor Limited (Dormant). 65 dotdigital Group PlcAnnual Report 2014/2015Financial statements Notes to the consolidated financial statements continued For the year ended 30 June 2015 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 recognised for share based payment made during the year is £106,000 (2014: £69,000) Vesting conditions of the options dictate that employees must remain in the employment of the Group for the whole period to qualify. Movement in issued share options during the year The table illustrates the number and weighted average exercise price (WAEP) of, and movements in share options during the period. The options outstanding at 30 June 2015 had a WAEP of 14.43p (2014: 8.82p) and a weighted average contracted life of 2.1 (2014: 2.8) years and their exercise prices ranged from 1p to 31.50p. All share options are settled in form of equity issued. Outstanding at the beginning of the period Granted during the year Forfeited/cancelled during the period Exchanged for shares Outstanding at the end of the period Exercisable at the end of the period 30.06.15 No of options 13,923,790 2,275,000 1,040,000 4,220,000 10,938,790 8,462,724 WAEP 8.82p 29.53p 16.56p 6.06p 14.43p 10.44p 30.6.14 No of options 16,117,930 3,655,860 540,000 5,310,000 13,923,790 9,517,930 WAEP 7.54p 18.25p 12.57p 5.80p 8.82p 4.09p The weighted average share price at the date of the exercise for share options exercised during the period was 30.52p (2014: 30.58p) The inputs into the black-scholes model are as follows: Number of options granted Share price at grant date Exercise price Option life in years Risk free rate Expected volatility Expected dividend yield Fair value of options/warrants 10 April 2015 750,000 31.50p 31.50p 5 1.33% 30% 0% 5.64p 28 November 2014 1,525,000 29.00p 28.50p 5 1.35% 30% 0% 5.33p 18 October 2013 3,554,794 17.82p 18.25p 5 1.40% 30% 0.4% 3.31p Expected volatility was determined by calculating the historical volatility of the Group’s share price from the date it listed to the grant date of the share option. The expected life used in the model is based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. 66 dotdigital Group PlcAnnual Report 2014/2015 28. Group reconciliation of profit before corporation tax to cash generated from operations Current: Profit before tax from all operations Currency revaluation Depreciation (Profit)/Loss on disposal of fixed assets Share based payments Finance income (Increase)/decrease in trade receivables Increase/(decrease) in trade payables Cash generated from operations 29. Group cash and cash equivalents Group 30.6.15 £’000 30.6.14 £’000 Company 30.6.15 £’000 30.6.14 £’000 5,243 3 1,556 (1) 106 (27) 6,880 (1,666) 453 5,667 3,600 (4) 1,117 1 69 (20) 4,763 (769) 1,303 5,297 (319) – – – 106 – (213) 721 76 584 (363) – – – 69 – (294) 1,578 (1,277) 7 The amounts disclosed on the statement of cash flow in respect of cash and cash equivalents are in respect of these statements of financial position amounts: As at 1 July 2013 As at 31 July 2014 As at 30 June 2015 Net cash flow from discontinued operations Net cash generated from operating activities Net cash generated from investing activities Net cash used in financing activities 30. Project development Group £’000 6,072 9,306 11,932 Company £’000 70 109 166 30.06.15 30.06.14 £’000 – – – – £’000 – (95) – – During the period the Group incurred £1,611,929 (2014: £1,344,414) in development investments. All resources utilised in development has been capitalised as outlined in the accounting policy governing this area. 31. Events after the end of the reporting period There are no post balance sheet events which impact the Group’s financial statement. 67 dotdigital Group PlcAnnual Report 2014/2015Financial statements Company information For the year ended 30 June 2015 Auditors: Jeffreys Henry LLP Statutory Auditor Finsgate 5-7 Cranwood Street London EC1V 9EE Registered office: No. 1 London Bridge London SE1 9BG Registered number: 06289659 (England and Wales) Nomad/broker: N+1 Singer 1 Bartholomew Lane London EC2N 2AX Joint broker: Finncap 60 New Broad Street London EC2M 1JJ Solicitors: BPE Solicitors LLP St James House St James Square Cheltenham GL50 3PR Directors: S Bird P A Simmonds I Taylor R Kellett-Clarke F Beechinor-Collins S J Barratt M Patel Company Secretary: M Patel 68 dotdigital Group PlcAnnual Report 2014/2015 www.dotdigitalgroup.com