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2023 ReportAnnual Report 2015/2016 1 dotdigital Group PlcAnnual Report 2015/2016 Contents 1 Key highlights 2 Chairman’s statement Strategic report 4 The dotmailer platform 5 A growing global business 6 Positive customer journeys 8 Growth strategy 10 Sector experience: Travel and leisure 12 Our culture 14 Key performance indicators 16 Risks, mitigations and impact 18 Sector experience: Ecommerce 20 Chief Executive Officer’s report 26 Sector experience: Finance and insurance 28 Corporate social responsibility report Governance 30 Board of Directors 32 Corporate governance report 33 Audit Committee report 34 Remuneration Committee report 36 Report of the Directors 38 Report of the independent auditor Financial statements 40 Consolidated income statement 40 Consolidated statement of comprehensive income 41 Consolidated statement of financial position 42 Company statement of financial position 43 Consolidated statement of changes in equity 44 Company statement of changes in equity 45 Consolidated statement of cash flows 45 Company statement of cash flows 46 Notes to the consolidated financial statements 68 Company information Key highlights Group revenues up 26% (from £21.4m to £26.9m) EBITDA increase by 17% to £8.0m Net cash generated from operating activities of £7.7m Strong cash position of £17.3m as at 30 June 2016 Corporate statement dotmailer is the email marketing platform of the dotdigital Group Plc (LSE: DOTD). The software enables more than 80,000 marketers in 150 countries to use advanced contact data to design, test and send powerful automated campaigns. We understand what marketers need from a technology platform by providing easy-to-use tools that enable them to start small, act fast and scale quickly. Supported by world-class strategic, creative and managed services, we make it easy for our customers to achieve dramatic results that grow their business. 2 1 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Chairman’s statement Frank Beechinor-Collins Non-Executive Chairman Activity on our platform continues to increase and customers sent 8.6 billion emails in 2015/16, up 50% since the previous year. dotdigital Group Plc has had a successful In Autumn 2015, Rohan Lock, previously Head Our policy on acquisitions continues as Milan Patel will continue as CFO until we I would like to take opportunity thank the team 2015/16 financial year. The Group returned of Sales in the UK, moved back to his native previously: our main focus is on organic growth appoint a new candidate for that role. A search at dotdigital for their fantastic contribution to a profit before tax of £6.2m and EBITDA Australia to head up our operations there. but we will consider acquisition opportunities, process is currently underway and in the interim yet another successful year. I would like to say was slightly ahead of market expectations. Progress has been rather slower than we had should they arise, and only if they allow us to Milan is supported by George Kasparian (Non a special thank you to Milan for ‘stepping up We continue to be cash generative and planned as some of the major partners we accelerate growth in a market or provide us Board Finance Director), Tink Taylor and Peter to the plate’ during Simone’s illness and for ended up with cash reserves of £17.3m, signed have taken slightly longer to deliver their with a technical advantage. Simmonds, who has committed extra days in his continued hard work as he settles into the up from £11.9m at the end of the last first business. Some of these partners operate the business until the new appointment is made. role of CEO. financial year. across the Asia Pacific market and will be of In December 2015 we received devastating great assistance as we build our customer news that Simone Barratt required surgery. Following the announcement of Brexit on Notwithstanding any unforeseen economic We continue to make good progress with how base across the region. we engage with customers and this past year She stepped away from the business to focus on her treatment and Milan Patel was appointed has seen another rise in customer average dotdigital Group Plc already has customers interim CEO. monthly spend, an increase of 29% on the in the Middle East and we plan to continue to 24 June we have assessed the impact of the impact of Brexit and the forthcoming US vote to leave the EU. Our initial view is that the elections, the outlook for the dotdigital Group outcome, thus far, has not had any immediate Plc business over the coming years continues effect on our business. to be very promising. We will continue to look prior year. Activity on our platform continues to build this market. During the second half of this Thankfully Simone’s treatment went well but for business with interesting opportunities increase and customers sent 8.6 billion emails financial year we have also started to market on 20 July 2016 we announced that she was Email marketing continues to offer the best both in the UK and in overseas markets. We in 2015/16, up 50% since the previous year. to potential clients in the Nordic and Benelux not returning to the business in her role as value and marketing return on investment. In plan to continue to grow our business in new By evolving our range of enhanced product regions and we have had some good success. CEO and she was also stepping down from addition, the fact we are continuing to grow our geographies both through direct sales and features, which are sold on a recurring model, the Board. We also announced at that time business outside the UK will also help mitigate using our strategic partners. Under Milan’s we grew this part of our business by 106% and Our services business has continued to grow that Milan was appointed as the new permanent against any slowdown in UK economy resulting stewardship and a strong operating Board this past year it accounted for £4m of sales. in the past year, achieving 11% growth on CEO. I would like to take this opportunity to from leaving the EU. The Board will keep the I have every confidence we will continue to the previous year with healthy margins. We thank Simone for her time in the business, impact of Brexit under review. grow our business and look forward to another Our overseas business has continued to grow have continued to invest considerably in our initially as a Non-Executive Director and laterally and revenue outside the UK has increased by infrastructure ensuring that the business has as CEO, and wish her well as she returns 58%. In January 2016 we appointed Dan Morris the ability to offer the service expected by our to full health. successful year ahead. The support from dotmailer is exceptional and the team shows a genuine interest in understanding us as a business. If you’re looking for powerful yet easily accessible email software, with gold medal account support, then look no further. Marcus Forsey, Alexandra to head up our US operation and in June we customers as our business expands in both the moved out of a shared office into a permanent volume of emails we send and the geographical location in New York. Our US region revenues markets in which we operate. To this end we grew by 43% from US$3.0m to US$4.3m in moved our platform to the cloud in America this past year with particular focus on channel and Europe with Australia going live early 2017. partner and Magento sales. Frank Beechinor-Collins Non-Executive Chairman 2 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 3 Strategic report The dotmailer platform A growing global business As the benefits of dotmailer come to the fore around the world, the demand for our product is growing in new territories. In 2016/17, we’re expanding our reach into additional regions such as Benelux, the Middle East, The Nordics and South Africa. In July 2015 we opened a new base in Australia, enabling us to grow our presence in the Asia Pacific region. We now have offices in key time zones around the world, with more than 200 employees spread across the UK, the US, Belarus and Australia. Not only do we have a total of six offices in North America, the UK and Australia, we also have a growing partner network servicing customers in every corner of the world. Our platform works perfectly in these languages: French German Italian Dutch Spanish Portuguese Russian English The software also supports the alphabetic characters of: Arabic Thai I M A G I N AT I O N . . . D E L I V E R E D An email marketing automation platform for digital marketers. Continuing growth The flagship product, dotmailer, is a powerful Increased scalability World-class integrations 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 CRM. over 800m 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 Group is headquartered in London and five largest clients accounting for approximately employed 220 staff at the end of June 2016. This includes a highly compelling visual drag 3% of total revenues (the top 20 clients account and drop email template design, drag and drop for less than 8% of total revenue). Email continues to be the top-performing digital segmentation and query builder, drag and drop channel as confirmed in eConsultancy’s 2015 campaign automation, translation of the user Email Marketing Industry Census, with 68% interface into eight languages and responsive rating the channel as Excellent or Good. template toolkits that optimise display content This finding was echoed in the UK Direct and layout on mobile devices (smartphones Marketing Association report which shows the and tablets). Our platform’s ease of use, ease average ROI for email campaigns has actually of integration and innovation combine to allow risen 53% to £38 for every £1 spent in 2015. customers of all sizes and abilities to join us, and grow with us. We now have in-region data processing and To some extent, this reflects some of the storage for the North America and Europe Group’s historical success in the SME space regions with Australia to go live early next year. but, increasingly, the Group is gaining solid traction in the SME market in the UK, US and Asia Pacific. 4 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 5 Strategic report Positive customer journeys Consumer expectations are continually rising and so are the number of available marketing channels. It’s never been more essential for companies to communicate intelligently with consumers throughout their journey with the brand, and email is the channel that enables them to keep up with customers’ demands. From an initial welcome message right through to the loyalty campaign which keeps customers coming back for more, email is the glue that binds together the customer experience of today. It’s cost-effective, scalable and delivers ROI like no other marketing channel can. And with our easy-to-use personalisation tools, our customers can make all of their contacts feel like the email was meant for them. Awareness Welcome emails are an invaluable opportunity for brands to introduce prospects to their key USPs and differentiate themselves from the competition. Purchase Here, marketers can use email to deliver automated thank you messages, as well as transactional emails such as confirmation and delivery notification. Email marketing is an important part of our ecommerce strategy, because as we begin to look at customer experience, it gives us the opportunity to talk to our customers on a one-to-one basis. Jonny Stewart, ELEMIS Advocacy Companies who’ve done a good job of satisfying the customer can use email to gain the testimonials and social proof that are so important in people’s purchasing decisions. These creative examples are indicative of emails our customers send to build positive customer journeys. Research During this stage, prospects are learning about their problem and the variety of solutions available. Automated abandoned browse and cart follow-up emails act as helpful reminders, driving prospects back to the site to convert. Retention Keeping customers engaged is an important factor for any company. So whether it’s promoting a competition, introducing a loyalty programme or sending newsletters, retention emails can do just that. Replenishment and renewals Companies that sell a replenishable product or renewable service can encourage repeat purchases with well-timed reminder emails. 6 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 7 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 eight 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: 1 Geographic expansion 2 Product innovation 3 Strategic partnerships As an international brand, dotmailer allows us to handle multiple languages. We’re operating in seven countries currently and this is going to expand over the coming years. Doug Taylor, Slendertone Our revenues from outside the UK have grown from 3% in In 2015/2016 we delivered a number of significant new product In 2015/2016 we continued to build on our existing partner 2012/2013, to 10% in 2013/2014, to 14% in 2014/2015 and features including, advanced personalisation, lead scoring, fully relationships in ecommerce and CRM by focusing on our specialist now to 18% in 2015/16. We expect this % to increase through personalised landing pages and substantial enhancements to our connectors for Magento, MS Dynamics CRM and Salesforce. 2016/2017 with the bulk of these overseas revenues coming from market-leading integrations with Magento, Microsoft Dynamics In the year Magento also named dotmailer as their only global the US, Nordics, Benelux, Middle East, South Africa and Asia CRM and Salesforce. From a revenue perspective we saw an Premier partner for marketing automation. Pacific as we start to focus our sales and marketing in increase in recurring revenues from technology of 106% especially these regions. our marketing automation functionality. 2016/2017 we plan to focus on developing a robust global reseller network, whilst our direct sales team continues to grow Our choice of strategic partners has been influenced by Going forward, in support of our international and partner growth our organic direct business. Additionally, we are excited about their geographic footprint to enable us to further penetrate strategy we will continue to globalise our product suite and our early progress in developing key strategic partnerships that will other regions. infrastructure. In addition, we have identified the following themes drive our presence globally. for our roadmap: platform extensibility, single customer view, real- time customer experience, predictive capabilities, ecommerce, email innovation, social and mobile. In 2016/17 we will also add more connectors into both the ecommerce and CRM space. 8 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 9 Sector experience Travel and leisure As the travel and leisure industry continues to flex around shifting consumer shopping habits and emerging technologies, companies are using email as an essential component to deliver exceptional customer experiences. I use email to cement customer relationships and loyalty. Ian Jennings, Managing Director, Explorer Travel Insurance TUI is the largest leisure, travel and tourism company in the world, Explorer Travel Insurance is an online specialist, with 80% of covering nearly 80 tour operators and operating from 18 countries. its new sales coming through digital channels. The insurance marketplace is particularly competitive – so the company’s challenge The TUI Group went through a successful three-year programme is to keep prices and costs down, while also developing customer to integrate email, CRM, web and sales reporting. This project has relationships to foster repeat business. not only given the company a common platform and a massively increased ability to send out effective communications, it has also One aspect of providing memorable customer service is maintaining helped TUI to understand its market better. high-quality communications. “I wanted to use email to cement Manual tasks like data imports were extremely labour-intensive effort than just banging out reminders that a policy is due to expire” for the team at the TUI Group, as Matt Royal, the company’s CRM said Ian Jennings, Managing Director. customer relationships and loyalty, which meant putting in a lot more Manager, explains, “Before we implemented dotmailer, it could take as long as two days to extract addresses for segmenting For the team at Explorer, email isn’t just a tool to push its products; campaigns, import the data, create a pretty basic email and send it’s a way to keep the brand front of mind by providing useful, it out. This was a major pain point, so when we were showed that interesting content throughout the year. “We use email creatively dotmailer could complete the same task in a few minutes, the – so we provide a mix of background content, like competitions, decision to migrate became a no-brainer.” and special offers that will just remind them we’re here and maybe trigger a response when they need cover.” Our travel and leisure sector client base is growing with a wide spectrum of companies, including airlines, specialist travel insurers, holiday extras providers and package holiday firms. dotmailer cut data imports down from two days to a few minutes. Matt Royal, CRM Manager, TUI Group 10 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 11 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. We continue to invest in the development of our people and other initiatives that build upon the great culture that is at the heart of our business. Everyone at dotmailer is knowledgeable and helpful, making it a great place to work. Louisa Smith, HR Assistant 12 13 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Revenue performance which grew organically by 26% was driven by strong growth from both the UK and the international markets. Milan Patel, Chief Executive Officer, dotdigitial Group Plc 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 We aim to deliver double-digit organic revenue growth from continuing operation. 0 0 0 , 6 6 3 , 1 2 £ 0 0 0 , 3 1 2 , 6 1 £ 0 0 0 , 6 2 9 , 6 2 £ Cash position We aim to have a strong cash position. 0 0 0 , 2 3 9 , 1 1 £ 0 0 0 , 6 0 3 , 9 £ 0 0 0 , 3 1 3 , 7 1 £ EBITDA We aim to have a positive earnings before interest, tax, depreciation and amortisation (EBITDA) growth. 0 0 0 , 1 5 9 , 7 £ 0 0 0 , 2 7 7 , 6 £ 0 0 0 , 7 9 6 , 4 £ 2014 2015 2016 2014 2015 2016 2014 2015 2016 Strategic Emails sent We aim to keep increasing the volume of emails sent through the system. 0 0 0 , 0 0 0 , 0 0 2 , 6 0 0 0 , 0 0 0 , 0 0 7 , 3 0 0 0 , 0 0 0 , 0 0 0 6 , 8 Recurring revenue International growth We aim to have recurring revenues of over 70%. We aim to expand revenue from outside of the UK. 78% 76% 78% 18% 14% 10% 2014 2015 2016 2014 2015 2016 2014 2015 2016 14 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 15 Strategic report Risks, mitigations and impact Risk area Impact Mitigation of risk Risk area Impact Mitigation of risk Utilisation of cloud service providers Supplier, computer hardware and internet reliability-related risks Information Security & Cyber Risks Data privacy Internet service providers (ISPs) reputation and internet browser, related risks A key strategy implemented by the Group was to migrate the dotmailer platform to a hybrid cloud infrastructure, utilising cloud service providers to host the web application functions of the platform. An event resulting in multiple cloud data centre failing, for any significant period of time or the termination of services by one of these cloud providers for any reason may result in a significant loss of revenues and therefore materially harm the Group’s business, operating results and financial condition. 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. An event resulting in a loss of a data centre that hosts the send components of the platform for a prolonged period of time will result in sub-optimal service for customers that may lead to a loss in revenues. Also events preventing or obstructing the platform from communicating over the internet, such as the blacklisting of IP addresses at major internet service providers, may result in a loss of revenues. The ever evolving, sophisticated nature of the cyber threat landscape poses an ongoing risk to the group. Revenue is dependent on the availability of computer systems, and as such, an attack against the groups networks could have a significant impact on its ability to function properly. A successful attack impacting the Confidentiality, Integrity, or Availability of systems and data would have a negative impact on the Group’s reputation and therefore its ability to retain and attract new clients. 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. 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. Best of breed Cloud computing providers were chosen by the Group to deliver the services (Microsoft Azure and Amazon AWS) and the dotmailer platform has been architected to be able to recover in the event of a single data region failure within an acceptable recovery time. 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 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. A dedicated Information Security function exists to manage the security program across the business. Regular vulnerability scanning, penetration testing, and security update schedules are in place to proactively detect and remediate against the latest threats, and policies and procedures are in place to detect and respond to incidents. The recent migration of the core dotmailer platform to Microsoft Azure has enabled the Group to take advantage of additional security features to help further protect against attacks, and the Group continues to invest further in people, processes, and technology to further reduce exposure in this area. The Group operates an open door policy whereby it shares its policies relating to security, compliance and data privacy. dotmailer has a public-facing Trust Centre where customers and prospects can view this information online. Its features also assist customers to be compliant with 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 communications including 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. 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, such as the Email Sender and Provider Coalition (ESPC), the Group has demonstrated its commitment to implementing industry best practice in anti-abuse. dotmailer holds a board of directors’ role at the Email Sender and Provider Coalition, who’s membership includes Google, Microsoft, Yahoo!, Comcast and AOL among other global email inbox providers. It also provides a number of consultancy services to its customers to better improve their email delivery, data quality and compliance with privacy and anti-spam legislation. Through its expansion of its deliverability team, the Group continues to work closely with ISPs, email receivers and third party anti-abuse vendors 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. Competitive environment 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. 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. Several established Enterprise ESPs now form the foundation of various “Marketing Clouds” – IBM Marketing Cloud (Silverpop), Oracle Marketing Cloud (Responsys, Eloqua), Salesforce Marketing Cloud (ExactTarget, Pardot), and Adobe Marketing Cloud (Neolane). These platforms have the broadest product offerings, including tools to coordinate marketing campaigns across digital channels, although tend to innovate through acquisition and do not react quickly to market changes. Another competitor, Campaign Monitor, has stated in September that they shall create 100 new positions in the UK over the next two years, with a new London office to support its European activities, stating that they have 25, based within the UK. We therefore expect to see increasing competition from this vendor, which have a business model historically based on both agency partnerships and direct sales. We increasingly see a mix of competition and opportunity with Mailchimp at the smaller business end, with some prospective customers looking for their next step in email platform by choosing dotmailer and others with adopting Mailchimp due to the simplicity of their needs and the lower price points. International expansion Investment in growing high performance teams As the business expands into new geographic territories there is a risk that policies, processes 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 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. Failure to attract, hire, develop & retain individuals who positively contribute to our high performing teams is critical to the support of achieving our corporate goals. In addition to the continual investment made in acquiring additional talent, both in the UK and Internationally, we are focussed on the delivery of a comprehensive programme of formal and informal learning and development opportunities that are aligned to the needs and goals of the business. 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. 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. Evolving technology and customer requirements 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. A focus for the coming year is to continue to develop new features and connectors that allow our customers to more easily interact with their customer data and to further enhance our proposition to the ecommerce and CRM sector, which will allow the dotmailer platform to compete even more favourably in this growing market. 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. We are continuing to see email marketing and marketing automation as key drivers in the buying decision and combining these capabilities with the market driven need for leveraging data to drive decisions and personalisation remains a key focus for the Group. 16 17 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Sector experience Ecommerce We have a huge client portfolio of ecommerce brands, particularly because of our Premier Technology Partnership with leading ecommerce platform Magento. From fashion and lifestyle retailers to beauty and B2B ecommerce, we work with the likes of Barbour, Fred Perry, ELEMIS, Science in Sport, Slendertone and Dormify. Slendertone is a world leader in providing products that improve Dormify breaks the rules of traditional dorm decor with a fashion- muscle tone and body shape. It was the first company to produce forward approach to styling small spaces. It creates and curates an Electro-Muscle Stimulation toning belt cleared for market by the exclusive products specifically designed for fashion-minded US Food and Drug Administration (FDA), and has gone on to sell college girls, merchandising them into easy-to-shop looks to over 6.1m products worldwide. make decorating stress-free and fun. With the explosion in the popularity of wearable devices, The dotmailer for Magento connector has empowered Dormify’s Slendertone wanted to develop a clever way to keep customers small yet savvy team to find clever ways to engage its customers engaged after the purchase. This led to the creation of the brand’s and deliver the personalised, relevant experience they expect. app-driven Connect Abs product. Each user takes a unique path with the product and, as such, the brand has developed a number Automated campaigns and triggered programmes, which leverage of re-engagement programmes to help those who’ve gone everything from behavioural to transactional data, have been a off track. winner for Dormify. Triggered emails now account for 27% of Dormify’s total email revenue. “The automated emails we’re sending as part of our Connect Abs app, which is a component of the toning belt, are a success story for us. We’ve considered the different journeys our customers take once they’ve purchased a product. For example, what happens when they start a toning programme? And what happens when they finish a toning programme? So far, we’ve seen a 21% success rate in encouraging people to pick their belt back up and start toning again,” said Doug Taylor, CRM Manager. We’re able to automate aspects of the process, like generating dynamic coupon codes and shopping cart abandonment behaviour within Magento and into dotmailer. Nicole Gardner, Dormify, COO Other ecommerce brands we work with include: 18 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 19 Strategic report Chief Executive’s Officer’s report Milan Patel Chief Executive Officer Our performance is a result of continued strong organic growth, high margins and long-term recurring revenues generated from the dotmailer marketing automation product. Introduction Review of 2015/16 In addition, we have seen a strong performance I am pleased to announce that the Group Revenue performance, which grew organically from our professional services offerings, delivered strong organic revenue growth of by 26%, was driven by strong growth from with an increase in revenue from £2.8m to 26% which was in line with market expectations. both the UK and the international markets. approximately £3.1m, which delivers gross Our earnings before interest, tax, depreciation The UK operation grew by 21% from £18.3m margins in the region of 60%. and amortisation (EBITDA) and profit before to £22.0m through a combination of higher tax were both £0.3m ahead of the consensus value new client wins and continually being able During the year, the Group’s average monthly Through the partnership with Magento and the joint marketing efforts, we are increasingly seeing partnership referrals from both system integrators and technology partners in the Nordics and Benelux regions. Encouragingly there has been an increase in the number of market forecasts. to monetise the advanced feature adoption by spend per client rose by 29% to spend levels clients coming on board from the Netherlands. our existing clients through the ability to bolt of circa £575 per month. This is as a result of Although it is too early to tell, the dotmailer This performance is a result of continued strong on extensions and build their own marketing continued focus on mid-market, enterprise organic growth, high margins and long-term cloud. This is evidenced by revenues from clients and the Magento connector clients who recurring revenues generated from the dotmailer functionality related monthly recurring charges spend on average of over £1,300 per month. marketing automation product. now achieving over £4m, which is an increase of 106%. We continue to make progress within EMEA (Europe, Middle East & Africa) proposition has also been well received within United Arab Emirates and South Africa, where we have seen numerous client sign-ups in this financial year. Our aim is to continue to market into both these regions and assess our sales Financial highlights the international markets with revenues outside of the UK increasing by 58% to £4.9m. This 30.06.16 (£m) 30.06.15 (£m) % increase remains a focus for the coming year. Revenue EBITDA Net assets EPS 26.9 21.4 8.0 23.7 1.83 6.8 18.4 1.63 26 17 29 12 The Group has added notable clients across its markets both locally and internationally in the B2B and B2C sectors. Some of these include: Vogue UK, Handelsbanken, Saville Group, Dune, Hawes and Curtis, Paul Smith, Eurostar International, Osprey Europe, Edcon, Mr Price and Sol Lingerie. EMEA has performed strongly, with growth in the UK of 21% driven by the upselling of advanced functionality to our existing client base and a reasonable number of new client sign-ups with a high spend level. We have also seen good traction within South Africa and Middle East, with high-value clients being signed. In building the dotmailer brand within EMEA, we have seen an increased number of leads and traffic to the site in Western Europe. Senior management, with the support of the Board of Directors, are investigating both the potential and benefit of implementing a self-serve model. This model would take advantage of website traffic we’re seeing from outside of the UK, and in the markets where we do not currently operate. The end goal will be to test the market proposition in new territories with a relatively low investment. strategy in the coming period. Additionally the pricing and bundles strategy We were in search of a Channel Director to build has been adapted through the learnings we our channel strategy and take advantage of new North America took operating within the US to be more partners and indirect relationships. However, Our US region has continued to perform well competitive. The move away from monthly due to the competitive environment, we decided with revenues growing by 43% from US $3.0m pricing based on volume of messages to the to engage a consultancy to assist us in building to $4.3m although this was slightly slower number of contacts stored is showing good a channel partner programme. The partner than originally anticipated because of delayed signs of acceptance from prospects. progress in recruiting good talent in the US program has now been implemented and is being controlled by the new EVP for the North market. During the year we also hired new talent A key decision made in the year was to American region. who are focused on business development, postpone the opening of the West Coast and and have also invested in new hires within mid-US office and this will be reassessed once services; the latter is to support future growth the pricing and leadership have seen demand in this region and we expect this to start to drive build. Therefore the plan going forward is to growth late in the 2016/17 financial year. continue to sell and service these regions from our East Coast office. 20 21 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Strategic report Chief Executive’s Officer’s report continued Asia Pacific CRM At the same time there has been a rise in other We initially entered the Asia Pacific market There has been an increased uptake of our ecommerce platforms such as Woo Commerce, through creating a hub from Australia and using CRM connectors with new prospects starting and Shopify+ within the mid-market segment, an indirect channel model focused on sales on with some form of integration to make the data so we are evaluating the opportunity of building our Magento connector. When we entered into synchronisation process painless. We have connectors into these platforms. the Asia Pacific market, we chose to work with recently partnered with OroCRM which targets partners that already had a solid client base midsize B2B ecommerce. The development Technology, product development in the region. This strategy was slow to gain of the connector has started and is scheduled and support traction in the beginning, however relationships to be complete in early January 2017. It is Throughout this year we have rearchitected are now very strong. In June we took the expected that we will continue to devote further the dotmailer system with the use of Hybrid decision, through the feedback we received to resources to CRM integrations in 2017. cloud infrastructure, which is a very innovative build a team which is selling directly into both Australia and the broader Asia Pacific region. Ecommerce way of building scale. The data processing and storage is now done through using Microsoft Early signs have been promising. We have seen In the year, dotmailer was named the exclusive Azure cloud technology. We currently have revenues of AU$0.6m in the first 12 months global premier partner for its Magento connector both North America and Europe covered, with of establishing our Sydney office. in the marketing automation space. We are the plan of deploying Asia Pacific early 2017. proud to have our connector endorsed by This will give dotmailer a unique selling point Connectors Magento who are the market leaders for by having the ability to process data, in three Further recruitment was made into the midmarket ecommerce solutions. However, separate continents, from a data privacy, latency platform engineering team combined with an uptake to their Magento Version 2 platform has and redundancy perspectives. With the move increased emphasis on enhancing our Microsoft been slower than anticipated due to ecommerce to the cloud another added advantage is that Dynamics, Salesforce and Magento connectors. clients being risk averse and waiting for Version it provides burst for processing and storage As part of our continued commitment to 2.1. This has now been released by Magento, during seasonal demands such as Christmas, scalability, we have put these connectors into which has started to see strong pipeline of Black Friday and Cyber Monday as opposed our cloud hosting environment and plan to this version in all regions across the world. to having to invest further in hardware. add additional functionality to further penetrate this opportunity. Going forward, our aim is to continue to build The tenets of our product development strategy and develop strong relationships with Magento remain ‘Ease of Use’ and ‘Ease of Intergration’. and its system integrators. In the period, Our highly skilled developers continue to create monthly recurring revenues from this connector functionality that makes it easy for marketers have continued to show strong growth of to understand, deliver complex marketing 25% year-on-year spend, with the average processes and integrate with best-of-breed monthly client spend being considerably higher platforms they already use. The product at £1,300 per month compared to £575 per steering team are now looking to build further month for the entire client base. functionality that matches our tenets and fits the sweet spot characteristics of our customers. We have continued to invest in our support team as we have started to build more of an international presence, with highly skilled in-region teams, which help and support our connectors, solve complex support issues and provide round-the-clock assistance to all our customers. The dotties is one of our new initiatives, which is exclusively for dotmailer customers and partners, and is designed to celebrate email marketing excellence. Milan Patel, Chief Executive Officer, dotmailer Photographs from the dotties email marketing award evening. People We believe our people are so important for After a six month term as Interim Chief our business and its future and therefore further Executive Officer following Simone’s departure investment will be made in the training and from the business, I have taken over this development of all our employees. We are also position permanently as of July 2016. looking to appoint a CFO who will be able to Throughout the interim period we continued mentor the Finance Director and support me to deliver on the original organic strategy set with the day-to-day responsibilities. by Simone at the beginning of the year. Cash generation We have also made some changes in the The business continues to be highly cash senior management team which looks after generative, with cash at the end of the period the day-to-day management of the business. standing at £17.3m, which represents an The main area of change is within sales increase of 45% on the prior year (2015: and operations. £11.9m) after capital expenditure and product development of £2.1m. The Group continues The Global EVP of sales has been replaced to be debt free and maintains a healthy by the Chief Marketing Officer, who is now balance sheet. Highly efficient cash collection responsible for both sales and marketing teams processes, along with over 40% of the monthly in the UK, to allow closer alignment and to give UK recurring revenue being collected by Direct more transparency on the end-to-end sales Debit, have contributed to the Group’s strong funnel management. This has allowed us to cash position at the year end. This is combined create local sales leaders in every region. with the implementation of enhanced global strategies through ACH collection and a global Following the year end the COO departed and card payment processor. the Board has taken the decision to split the responsibilities amongst the senior team with customer success being a core CEO focus. This will also allow the direct reports to ensure prioritisation of customer experience in the short-term. 22 23 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Strategic report Chief Executive’s Officer’s report continued Dividend policy Growth strategy 2 Product innovation I am pleased to announce that the Board has During the year we evaluated a number of We will continue to diversify our revenues by conducted its review of its business plan for potential acquisition opportunities in the email integrating with new technologies within the the next three years. This included evaluating the marketing space. However, as in prior years, ecommerce and CRM space. We’ll also look cash needs required for opportunities in organic none of the businesses evaluated would create for any other technology platforms that make it growth to increase shareholder value, capital long-term shareholder value when integration easier for our midmarket customers to achieve expenditure and any possible future acquisitions risks and migration of clients was factored an increased return on investment from their that could be earnings enhancing. It has in. We will continue to consider acquisition marketing campaigns. To date we have been decided that it will keep a progressive dividend opportunities of bolt-on technologies, able to monetise the functionality that we build in line with EBITDA growth, supplemented by whitelabels of our product and other email through incremental recurring functionality special dividends from time to time. service providers. We anticipate further organic charges which are sold onto our new and Therefore, subject to approval at the AGM in key areas: them. This will continue to remain a very high growth by focussing on the following three existing customers as and when they need December 2016, the Board proposes that the priority for me. Group will pay a regular dividend of 0.43 pence 1 Geographic expansion Looking forward The Magento Version 2.1 pipeline is accelerating In summary, our approach for 2017 will be per ordinary share; and in addition, for this International expansion investment will be higher 3 Strategic partnerships With the combination of both a self-serve globally, which is encouraging for us as we further refinement of the partner programme reporting period and also proposes a special to gain wider brand awareness and market We will continue to work closely with Magento model and the direct sales team approach, try to take advantage of both an existing client and developing strategic partnerships. There dividend of 0.41 pence per ordinary share, presence within EMEA, North America and on joint marketing efforts for more sign-ups we will be able to penetrate further into the migration from Version 1 to 2, and a new will also be global expansion into the EMEA, both to be payable at the end of January 2017. Asia Pacific. We will continue to test the market to the Magento Version 2.1 and subsequently EMEA, North American and Asia Pacific ecommerce installation within the midmarket North America and Asia Pacific regions through appetite and proposition in these regions to increasing the use within that community of regions. Early indications are encouraging and small enterprise space. We will continue a self-serve model and introduction of direct understand which will generate the highest the dotmailer platform. We have also started although as expected it will take some time to build and develop our relationship to take sales teams. We will continue to build new returns for our modest spend in sales and to develop further partnerships with PayPal to increase the brand presence in those advantage of this, and continue to build new integrations into more ecommerce and CRM marketing. As we start to gain traction and see to bring a one click purchase offering for our markets. We have seen increased numbers strategic relationships with the technology platforms which focus on the mid-market and opportunities in any specific territory, we will ecommerce clients. of customers from Netherlands, South Africa, partners we integrate with. small enterprise space. adapt our model for these markets. Following this we could offer initially a self-serve product followed by or combined with a direct sales team. The infrastructure for this will be the three main hubs in the UK, US and Australia. dotmailer is in complete alignment with Magento’s strategy of making ecommerce as easy as possible. Mark Lavelle, CEO, Magento Commerce UAE and parts of Western Europe combined with the core UK market seeing growth in With the increased focus last year on building The Board believes that the dotmailer platform, digital marketing budgets. the partner programme by the use of an outside with its ease-of-use proposition, deep consultancy firm, we have seen good growth integrations, professional services, growing In readiness for an increased focus on in the international partner network and the list of global partners and its scalability, is well international revenue growth, we now have existing relationships will strengthen as we go placed to continue to generate strong organic a platform that is globally scalable both from into the new financial year. growth; not only from the markets it currently an infrastructure and global payments solution operates in today, but wider into the global perspective. The self-serve model will start to be The ongoing investment in CRM connectors markets it is looking to enter. deployed during the second quarter of the new and other advanced functionality development financial year. By the third quarter we expect to has helped the Group continue to increase have data processing and storage within the functionality based recurring charges which three central hub regions, which will be a unique should lower attrition levels in our customer selling point for prospects and clients especially base. We will continue to add new integrations in the Australian region. with best-of-breed technology platforms that target the mid-market and small enterprise After the initial venture into the Australian region, space as a high priority for the platform we have now put in a direct sales team and engineering team. support network for them following the learnings Milan Patel Chief Executive Officer from being there for 12 months. As a direct The Board will continue to assess the impact 18 October 2016 consequence, early signs indicate an increased of Brexit and macro-economic uncertainty over number of sign-ups from customers and early the coming year. pipeline build-up from the Asian markets. 24 25 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Sector experience Finance and insurance From retail banking and insurance to currency card providers, we offer a secure, stable platform to businesses operating in regulated industries. In fact, in 2016 we were the first email service provider (ESP) to become EU-US Privacy Shield certified and we’re proud to be the only ESP that’s truly encrypted. Aston Scott is a specialist insurance broker with an enviable track FAIRFX provides prepaid foreign currency cards which can be record of producing innovative and unusual risk transfer solutions topped up at any time, offer low exchange rate and transaction fees, for niche markets. and come with the added security of Chip & PIN. However, a major problem faced by FAIRFX is that customers can sometimes get The insurance industry gets just one chance a year to do business confused about how they work. with clients, so keeping them aware of their broker, as well as ensuring that the renewal proposal is timely, relevant and accurate FAIRFX found that that the FAQs section of its website was can be a major challenge. generating a lot of traffic. Utilising the dotmailer WebInsight tool, FAIRFX created a series of emails that answered these questions Aston Scott’s RoadRunner product was launched in 2005, and before people asked them, reducing helpdesk calls and improving it has built up detailed data on everyone they’ve had contact with the customer experience. Now, customers automatically receive an since then. email with tailored content relevant to their browsing habits. The team at Aston Scott uses a set of automation rules and Another automated program FAIRFX has used dotmailer to triggers to send out renewal reminders in the weeks before implement is the birthday program. Turnover generated from this customers’ policies are about to expire. “We know the renewal campaign rose by more than 300% in just eight months, all from dates for a high percentage [of customers], and a lot of detail a simple ‘Happy birthday’ message. about their insurance requirements and preferences. The key to using this data successfully in marketing is to personalise and segment campaigns,” said Ben Read, Aston Scott’s Group Marketing Manager. Email marketing automation has done more than just allow the team to deliver personalized renewal content at scale - it’s given them back the most precious commodity of all: time. As Ben puts it “I can now focus on outcomes rather than inputs, which is a much better way to operate.” Other finance and insurance brands we work with include: As a result of introducing email automation, we’ve saved around 20% of our time just from not having to move information between multiple systems. Ben Read, Group Marketing Manager, Aston Scott 26 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 27 Strategic report Corporate social responsibility report During the past year the Group continued dotdigital products and services are supported Employee engagement and Our constantly evolving and expanding partner Environmental partnership Risks with its on-going commitment to social by an expert team; giving access to support equal opportunity network is key to developing close business Our tried and tested adoption of reduce, The Board is aware of the need to monitor responsibility in the market in which it via email, telephone and live chat. We also The Group’s policy and commitment is relationships through informal and formal reuse, recycle runs through all our offices. potential threats to the business and our operates, to its employees, suppliers and provide additional managed services for to ensure, fairness, equal opportunity and events, meet-ups and seminars. We share the As a digital business we continue to strive to workforce. To this end the Board has to the broader environment. our products, enabling our clients to deliver elimination of all forms of discrimination advantage of our cutting edge office space to reduce printing and waste and increase the established a Risk Committee consisting of both successful campaigns and projects. for all employees across the group. support and host an increasing number of such levels of recycling wherever possible. Non-Executive Directors and management. As a company admitted to trading on events. The business benefits that these close This committee meets regularly to evaluate AIM, dotdigital is not required to produce Employees This extends to ensuring that all recruitment relationships provide are immediate and obvious Our office hot-desking arrangements and on-going risks to the business and this includes a corporate social responsibility report. The Group’s ongoing commitment to ensuring and selection is completed on the basis of the to all involved. flexible approach to appropriate telecommuting risks posed both to our employees and any However, the Directors believe that in the our employees continue to experience ample job-related criteria and appointments made ensure we avoid unnecessary travel whenever potential risks to the business from suppliers interest of transparency a brief commentary opportunity for learning and development. This on the merits of the individual’s abilities. Community partnership possible. should be included. is a blended approach of internal and external The charity support and fundraising activities and partners. Any recommendations by this committee are put directly to the Board for courses as well ensuring Managers create an As a positive example of our commitment we driven by our employees continues to grow Ensuring we work with datacentre partners further discussion and implementation. Clients environment and opportunity that encourages are delighted to be working with our employees and develop. Either as individuals or as part of that set industry standards in energy efficiency The Company prides itself on ensuring that all employees to further their careers through; to create and support the dotmailer LGBT the dotCommunity & dotFoundation networks, ensures we minimize our energy footprint. Strategic report our products and services are designed to promotion, special projects, overseas Network. The LGBT Network will be open to our employees have supported a number of meet the expectations of our clients and their secondments and ongoing learning. anyone interested in the work of the network, charities raising £4,300 for Macmillan Cancer Suppliers The strategic report was approved by a duly authorised committee of the Board of customers. Feature forums are offered to independently from their sexual or gender Research UK, NSPCC, Breck Foundation, Mind, As a part of the Group’s strong commitment Directors on 18 October 2016 and signed allow clients to request features and vote The focus for the current delivery of formal identities. Creating an environment in which Surviving Antidepressants, The Eve Appeal & to our local community we aim to source local on its behalf by: on feature priority, which feeds directly into external training includes; sales training, all staff can be comfortable about their sexual Breast Cancer. the development schedules for our SaaS leadership and management, presentation orientation or gender identity is therefore suppliers wherever possible. This is underlined by the fact that a number of our suppliers have product offerings. and communication, client management, important to maximising the effectiveness In addition, dotmailer has continued to develop been with the Group for many years and we The Group is committed to complete team working and negotiation. of staff. its community links with Croydon. A current consider our key suppliers as partners. The focus for this work is to directly support Croydon Group aims to work with partners and suppliers transparency with our clients, providing The further expansion and maturity of our Business partnership Council’s ‘Croydon Good Employer’ Charter with similar ethical standards and values. At pricing structures that are clear, and offering international operations presents additional dotdigital believe that strong and effective by co-chairing a steering group and adding the dotdigital we understand the importance of packages that allow clients to deliver successful challenges and opportunities when considering partnerships within our business community, weight of, dotmailer, a well-respected Croydon fair and equal treatment, and particularly drive Milan Patel campaigns. A pricing calculator is provided for the attraction and retention of employees. is an important factor that promotes mutual business to the charter initiative. towards transparent and fair payment terms Chief Executive Officer dotmailer licenses and packages to allow clients As such, we have invested in ensuring our US success for our partners and suppliers. and potential clients to cost their campaigns. benefits and working environments are attractive As dotdigital continues to act on its strategy to current employees and fit-for-purpose to of global growth, we will build upon our UK support our continued strategic growth plans. experience in; the USA, Australia and beyond. and processes. 18 October 2016 28 29 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Governance Board of Directors Milan Patel, FCCA ACSI Chief Executive Officer, Chief Finance Officer, Company Secretary Simon Bird Co-Founder Ian “Tink” Taylor Co-Founder Frank Beechinor-Collins Non-Executive Chairman Peter Simmonds, FCCA Non-Executive Director Richard Kellett-Clarke, FCA Non-Executive Director Milan joined the Company in 2007 and Simon Bird has developed an in depth Tink Taylor has 20 years’ experience in Frank Beechinor, was for 11 years, CEO and Peter Simmonds was Chief Executive Officer Mr Richard Kellett-Clarke brings to the was appointed Group Company Secretary technical knowledge of the internet and its digital marketing in both the UK and now the co-founder of One Click HR, an AIM quoted of dotmailer and then dotdigital Group Plc Board over 25 years of management in 2009, CFO in 2015 and CEO in 2016. applications. Prior to co-founding dotdigital US. Since 2006 he has been an influential IT/Human Resources business which for eight years from 2007 to 2015. Following experience in the turnround and strategic Group he assisted in the development of a member of the UK Direct Marketing operated in the UK and North America and his retirement in June 2015 he stepped repositioning and recovery of creative Milan is a fellow member of the Association major internet access provider. of Chartered Certified Accountants, an Association’s Email Marketing Council and also a member of the Internet Advertising had around 200 employees. Frank oversaw down into the role of Non-Executive Director. businesses in CMCG, media, electronics the successful sale of the business to ADP, Peter commenced his career in 1976 as a and software industries. associate member of the Chartered Institute He has provided services to a number of Bureau’s e-communications council. a $4bn NYSE listed company, for US $25m. trainee accountant with Unilever Plc and has of Securities and Investments. well-known companies and organisations in nearly 40 years of commercial experience He was a founder of AFX NEWS Limited, helping create websites, intranets, extranets, In 2014, Tink was elected as Advisory Frank brings a great deal of corporate mostly at senior management and board now part of Thomson Reuters, and Sealed He has been responsible for the admission content management systems and other Committee Member of the Board of the experience and a strong track record in level, principally in the areas of software, Media, now owned by Oracle. He was part to Plus and the introduction to AIM. He is online solutions. US Direct Marketing Association’s Email M&A to the Board, gained over 25 years of banking, insurance and outsourcing. of the team as CFO which brought Pickwick also responsible for the Group’s functions Experience Council. He constantly strives to working for and running public and private Group PLC to the main market and Brady in financial management and reporting, He is prominent on the tech entrepreneur help individual organisations, and the industry companies. Frank is also currently a Non- He has considerable business Plc to AIM. He is currently the CEO of Idox regulatory compliance, legal and corporate scene and heavily involved in the selection, as a whole, to develop and progress. Executive Chairman of Redstone Connect entrepreneurial experience having been Plc an AIM listed specialist software and governance. He also brings substantial recruitment and retention of dotmailer’s strategic financial experience to the Board. technical partners. As well as financial accumen he has developed a broad range of operational competencies, a grasp of strategic objectives, clear leadership and strong decisive management skills. Plc an AIM-listed business. involved at start up or early stage of a services business. number of companies in various industry sectors. Peter also has experience of business acquisition and post-acquisition integration. Peter currently also holds board positions in the role of Chairman at Cloudcall Group plc and IS Solutions plc (both AIM- quoted companies). In July 2016 he was appointed as a Non-Executive Director of Eckoh plc and on 6 October 2016 he was appointed as a board member of The Quoted Companies Alliance. 30 31 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Governance Corporate governance report Audit Committee report The Board has sought to comply with a number of provisions of the 2014 UK Corporate (b) Directors’ remuneration As set out on pages 34 and 35 the remuneration internal control and risk management further into the operations of the business and to deal The Audit Committee is a sub-committee of the Board. The responsibilities of the Composition of the Audit Committee The Audit Committee comprises Frank Independence of external auditors Both the Board and the external auditors Governance Code (“the Code”) in so far as of the Executive Directors is determined by the with areas of improvement which come to committee include: Beechinor-Collins, Peter Simmonds and have safeguards in place to avoid the possibility Richard Kellett-Clarke. The Chairman of the that 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: George Kasparian. • Audit related services – the external it considers them to be appropriate for a Remuneration Committee, whilst that of the management and the Board’s attention. company of their size and nature. They make no Non-Executives is determined by the whole statement of compliance with the Code overall Board. The Directors are conscious of the The Directors acknowledge their responsibilities and do not ‘explain’ in detail any aspect of the importance of performance-related incentives for the Group’s system of internal financial Code with which the Group does not comply. and bonuses are paid based on performance control. Such a system can provide reasonable Compliance statement (a) Directors The details of the Group’s Board, together with the Audit and Remuneration Committee, are set out on pages 33 and 34. as deemed appropriate by the Remuneration but not absolute assurance against material Committee. The Remuneration Committee use misstatement or loss. The Board confirms that both financial and non-financial benchmarks to the procedures necessary to comply with the determine the Executive Director bonuses. provisions of the Code, including the guidance (c) Relations with shareholders The Group encourages two-way of Turnbull, have been in place throughout the year ended 30 June 2016 and up to the date of the Report of the Directors. It has considered The Board meets monthly and is responsible for communications with all its shareholders the major business risks and the control strategy, performance, approval of major capital and responds quickly to all requests or environment. Important control procedures, projects and the framework of internal controls. queries received. The Board has a formal schedule of matters in addition to the day-to-day supervision of the business, include comparison of monthly reserved for specific review and decision. All shareholders have at least twenty-one clear management accounts to the budget. To enable the Board to discharge its duties, days’ notice of the Annual General Meeting all Directors receive appropriate and timely at which all of the Directors and the Chairman (iii) Audit committee and auditors information. Briefing papers are distributed to are normally available for questions. Comments The Audit Committee comprises Frank • 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; • Reviewing the Group’s systems for internal financial control and risk management; • Monitoring and reviewing the effectiveness of the Group’s internal accounting function and considering regular reports which arise; • Considering the appointment of the external auditors, overseeing the process for their selection and making recommendations to the Board in relation to their appointment to be put to shareholders for approval at a general meeting; Main activities of the Audit Committee At its meeting on 11 October 2016 the Committee reviewed the Group’s preliminary announcement of its results for the financial year 30 June 2016 and the draft report and accounts for that year. The Committee received reports from the external auditors on the conduct of their audit, their review of the accounts, including accounting policies and areas of judgment, and their comments on risk management and control matters. The external auditors also presented their all Directors in advance of Board meetings. and questions are encouraged from the Beechinor-Collins, Peter Simmonds and is • Monitoring and reviewing the effectiveness proposed fees and scope for the forthcoming All Directors have access to the advice and shareholders at the meeting. chaired by Richard Kellett-Clarke (FCA). The services of the Company Secretary, who is responsible for ensuring that Board procedures are followed and that applicable rules and (d) Accountability and audit (i) Financial reporting auditors of the Group may also attend part or all of each meeting and they have direct access to the committee for independent discussions, regulations are complied with. At the year Detailed reviews of the performance and without the presence of the Executive Directors end there were three Executive Directors, financial position of the Group are included if required. The Audit Committee may examine two independent Non-Executive Directors in the Chief Executive’s statement. The Board any matters relating to the financial affairs and an independent Non-Executive Chairman. uses this and the Report of the Directors of the Group, and to the Group’s audit. The current composition of the Remuneration and understandable assessment of the and announcements, accounting policies, Committee and the Audit Committee is shown Group’s position and prospects. The Directors’ compliance with accounting standards, the on pages 33 and 34. responsibility for the financial statements is appointment and fees of auditors and such on pages 36 to 37 to present a balanced This includes review of the annual accounts described on page 37. other related functions as the Board may Appointments to the Board are nominated require. by an Executive Director and then considered (ii) Internal control by the full Board. The Board confirms that it has established (iv) Going concern basis the procedures necessary to implement the After making enquiries, the Directors have The service contracts of the Executive Directors guidance set out in “Internal Control: Guidance formed a judgment, at the time of approving the runs for one year and terminable by six months’ for Directors on the Combined Code”. The financial statements, that there is a reasonable notice, by either party to expire at the end of that process of risk identification, evaluation and expectation that the Group has adequate year or any time thereafter. management has been considered by the resources to continue in operational existence 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 and independence of the external year’s audit. The Committee also reviewed the auditors, agreeing the nature and scope performance of both the internal accounting of their audit, agreeing their remuneration, function and external auditors. The review of and considering their reports on the the external auditors was used to confirm the Group’s accounts, reports to shareholders appropriateness of their reappointment and and their evaluation of the systems of internal financial control and risk management. 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. auditors are invited to provide services which, in their position as auditors, they must or are best placed to undertake. This includes formalities relating to borrowings, shareholders’ and other circulars, various other regulatory reports and work in respect of acquisitions and disposals; • Tax consulting – in cases where they are best suited, we use the external auditors. All other significant tax consulting work is put out to tender; • General consulting – in recognition of public concern over the effect of consulting services on auditors’ independence, our policy is that the external auditors are not invited to tender for general consulting work. Internal management accounting The Audit Committee reviewed the performance of the internal accounting function, the department’s resource requirements and also approved the internal budgets for the year ended 30 June 2017. The Committee concluded that these budgets were both prudent and realistic in the context of the Group’s ambitions. 32 33 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Governance Remuneration Committee report The Remuneration Committee The Group discloses the following information on Directors’ remuneration mindful of Rule 19 Key elements of remuneration for Executive Directors The Committee considers the key elements Service contracts The Executive Directors each entered into 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, this either party to expire at the end of that year or Rules or those aspects of the Companies Act is summarised as follows: at any time thereafter. The agreement contains to listed companies regarding the disclosure of Directors’ remuneration. The Committee comprises Richard Kellett- Clarke (Chairman) and Frank Beechinor-Collins. The Secretary to the committee is Milan Patel, Chief Executive Officer, Chief Financial Officer and Company Secretary. Remuneration policy The Group’s executive remuneration policy objectives are: (a) To ensure that individual rewards and incentives are directly aligned with the performance of the Group and that of the interests of the shareholders; (b) To maintain a competitive programme which enables the Group to attract and retain high-calibre executives; and Base pay Reviewed against: • Salary levels in comparable-sized companies listed on AIM; • Market Conditions and Company performance; • Level of pay awards in rest of the business; • Role and responsibility of the individual Director. Benefits 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 Enterprise Management Incentive (EMI), an approved share option scheme to key employees who had completed their probation period at the date of grant. The Board considers the performance of staff in conjunction with the Group during the annual review process. Discretionary bonuses are awarded based on individual and Group performance. • Aligned to total reward structure for all employees; Approved by the Remuneration Committee • Provided on a market-competitive basis. Signed on its behalf by Annual Bonus Scheme • Group PBT with an individual performance (c) To determine the terms of employment and element linked to object delivery; remuneration for Executive Directors. • Drive profitability and strategic change across the Group; • Delivery of the overall business strategy. Richard Kellett-Clarke Chairman of Remuneration Committee Non-Executive Directors F Beechinor-Collins R Kellett-Clarke P Simmonds Executive Directors P Simmonds I Taylor S Bird M Patel S J Barratt Non-Executive Directors F Beechinor-Collins R Kellett-Clarke S J Barratt Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 12-month period to 30.06.16 39 33 65 137 – – 1 1 – – – – 1 – – 1 – – – – 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 Total £‘000 40 33 66 139 Total £‘000 276 170 169 280 77 Number of outstanding options – – – Number of outstanding options – – – 1,427,397 – 972 1,427,397 Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 35 30 44 109 – – – – – – – – 1 – – 1 – – – – Total £‘000 36 30 44 110 Number of outstanding options Directors’ interests The respective interests, all of which are beneficial, in the shares of the Company for the members of the Board at the year end are stated below: I Taylor S Bird P Simmonds* M Patel S J Barratt F Beechinor-Collins** R Kellett-Clarke No of shares held % Holding 36,776,667 12.48 17,558,996 3,991,470 1,575,927 463,000 320,000 199,194 5.96 1.35 0.53 0.16 0.11 0.07 60,885,254 20.65 Salary/Fees £’000 Benefits £’000 Bonus £’000 12-month period to 30.06.16 Ex-gratia payment £’000 Pension £’000 Share-based payment £’000 120 54 205 183 562 18 3 9 3 33 – – 125 – 125 – – – 137 137 12 13 20 – 45 – – – 114 114 Total £‘000 150 70 359 Number of outstanding options – – – 437 423,409 1,016 423,409 * 2,977,972 of Peter Simmonds holdings/voting rights have been held by Frank Nominees Limited which 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 199,194 shares shown as being held by Mr Beechinor-Collins are owned by Curra Trust, a trust established for the benefit of his children and in 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 Directors S J Barratt No. share Grant date options granted Option price (pence) Date first exercisable Expiry date 20/06/16 423,409 £Nil 20/06/16 20/12/16 35 Executive Directors I Taylor S Bird M Patel S J Barratt 34 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 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 the as recorded in the Register of Directors’ interests at 30 June 2016 are as follows: Group for the year ended 30 June 2016. Information relating to principal activity, review of business, key performance indicators 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 During the year the Group has shown significant Directors I Taylor S Bird P Simmonds M Patel S J Barratt 30.6.16 30.6.15 Number of shares held Percentage shareholding % Number of shares held Percentage shareholding % 36,776,667 12.48 39,276,667 17,558,996 3,991,470* 1,575,927 463,000 5.96 31,276,667 1.35 0.53 0.16 7,073,841 1,048,530 377,500 13.69 10.90 2.46 0.37 0.13 0.11 0.10 R Kellett-Clarke 320,000 0.11 320,000 F Beechinor-Collins 199,194** 0.07 299,194 growth from continuing operations in customer *Frank Nominees Limited holds 2,977,972 shares in respect of Peter Simmonds holding/voting numbers, sales and profits. Revenues grew rights acting as nominee for Alliance Trust Pensions Limited. Frank Nominees is a vehicle used by from £21.4m in the year ended June 2015 Kleinwort Benson Limited to hold securities for clients, trusts, SIPPs etc. The beneficiary of the to £26.9m for the year ended June 2016, SIPP is Peter Anthony Simmonds. an increase of 26%. Pre-tax profit grew from £5.2m in 12 months a trust established for the benefit of his children and in which he has no beneficial interest. ** The 199,194 shares shown as being held by Mr Beechinor-Collins are owned by Curra Trust, to June 2015 to £6.2m for the year ended June 2016, an increase of 19%. The Directors who served during the period and their beneficial interests in share options in the Group, as recorded in the Register of Directors’ interests as at 30 June 2016 are as follows: Executive Directors M Patel S J Barratt 30.6.16 Number of options held 30.6.15 Number of options held – 1,427,397 423,409 – Substantial interests On 10 October 2016, 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: Key performance indicators The operations as a whole and the individual business units are managed and controlled using a variety of key performance indicators appropriate to the goals they have been set. Examples of key performance indicators from the Group are: Revenue EBITDA 2016 (£m) 2015 % (£m) increase 26.9 21.4 26% 8.0 6.8 17% Volume of sends (m) 8,640 5,760 50% Dividends The Board proposes a dividend payment of £2,476,000 comprising an ordinary dividend of 0.43p and a special dividend of 0.41p per ordinary share (2015: £1,041,000 0.36p per Shareholder I Taylor Lion Trust Asset Management S Bird Slater Investments Ltd JO Hambro Capital Management Herald Investment Management ordinary share) to be distributed to shareholders Franklin Templeton Fund Management in respect of the Group’s reported performance. Alliance Global Investors GmbH The Board’s dividend policy will be reviewed annually in line with ensuring that there is adequate cash within the business to maintain a high-growth strategy. NFU Mutual Polar Capital LLP Hargreave Hale Ltd 36 Number of shares held 36,776,667 36,093,503 17,558,996 16,770,000 14,895,000 13,490,804 13,000,000 9,608,100 9,473,000 9,470,067 9,250,000 Percentage shareholding % 12.48 12.24 5.96 5.69 5.05 4.58 4.41 3.26 3.21 3.21 3.14 Future outlook The Group provides email and cross-channel Events after the reporting period There are no events after the date of this reasonable accuracy at any time the financial position of the Company and the Group marketing technology and services. Each report or the date the financial statements and enable them to ensure that the financial of these areas has shown market growth were approved by the Board of Directors statements comply with the Companies significantly above that of the UK economy. which impact on the figures as presented. Act 2006. They are also responsible for The Board believes that our widespread brand recognition and strong product will continue to present opportunities to expand and diversify Listing The Group’s ordinary shares have been traded safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud profitability in the coming year. on London Alternative Investment Market (AIM) and other irregularities. since 29 March 2011. N+1 Singer are the Directors The Directors shown below have held office Group’s nominated adviser and together with The Directors are responsible for the Finncap are the joint brokers. The closing mid- maintenance and integrity of the corporate and during the whole of the period from 1 July 2015 market share price at 30 June 2016 was 40.50p financial information included on the Company’s to the date of this report. (2015: 34.25p). S Bird P A Simmonds I Taylor R Kellett-Clarke F Beechinor-Collins M Patel Statement of Directors’ responsibilities The Directors are responsible for preparing the Report of the Directors and the financial website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. statements in accordance with applicable law Statement as to disclosure of information and regulations. to auditors So far as the Directors are aware, there is no S J Barratt (resigned 20/07/16) Company law requires the Directors to prepare relevant audit information (as defined by Section financial statements for each financial year. 418 of the Companies Act 2006) of which Indemnity of officers The Group purchases directors and officers Under that law the Directors have elected to the Group’s auditors are unaware, and each prepare the financial statements in accordance Director has taken all the steps that he ought insurance against their costs in defending with International Financial Reporting Standards to have taken as a Director in order to make themselves in legal proceedings taken as adopted by the European Union. Under himself aware of any relevant audit information against them in that capacity, and in respect company law the Directors must not approve and to establish that the Group’s auditors are of damages resulting from the unsuccessful the financial statements unless they are satisfied aware of that information. defence of any proceedings. that they give a true and fair view of the state of Financial instruments Details of the Group’s risk management affairs of the Company and the Group and of the profit or loss of the Group for that period. Auditors The auditors, Jeffreys Henry LLP, will be In preparing these financial statements, the proposed for reappointment 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 21 • select suitable accounting policies and to the financial statements. then apply them consistently; On behalf of the Board The purpose of the policies is to ensure that adequate cost-effective funding is available to the Group and exposure to financial risk – interest rate, liquidity and credit risk – is minimised. • make judgments and accounting estimates that are reasonable and prudent; • state whether the Group and Parent Product development In the markets in which the Group operates, effective development is vital to maintaining competitive advantage and securing future income streams. Going concern After making appropriate enquiries, the Directors consider that the Company and the 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 Chief Executive Officer 18 October 2016 • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. Group has adequate resources to continue in The Directors are responsible for keeping operational existence for the foreseeable future. adequate accounting records that are sufficient For this reason they continue to adopt the to show and explain the Company’s and going concern basis in preparing the financial the Group’s transactions and disclose with statements. 37 dotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 s t n e m e t a t s l i a c n a n F i 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 June 2016, which comprise the consolidated statements An audit involves obtaining evidence about • The financial statements have been prepared in accordance with the 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 in equity, company statement of assurance that the financial statements are changes in equity, consolidated statement free from material misstatement, whether of financial position, company statement of caused by fraud or error. This includes an Opinion on other matter prescribed by the Companies Act 2006 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 adopted by the European Union, and as regards presentation of the financial statements. In the Parent Company financial statements, as addition, we read all the financial and non- Matters on which we are required to report by exception We have nothing to report in respect of applied in accordance with the provisions of financial information in the Chairman’s and Chief the following matters where the Companies the Companies Act 2006. Executive Officer’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 • 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 that we might state to the Company’s members any information that is apparently materially by us; or 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 course of performing the audit. If we become not accept or assume responsibility to anyone aware of any apparent material misstatements other than the Company and the Company’s or inconsistencies we consider the implications members as a body, for our audit work, for this for our report. report, or for the opinions we have formed. • The Parent Company financial statements are not in agreement with the accounting records and returns; or • Certain disclosures of Directors’ remuneration specified by law are not made; or Financial statements Respective responsibilities of Directors 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 audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Opinion on financial statements In our opinion the financial statements: • We have not received all the information and explanations we require for our audit. Contents • Give a true and fair view of the state of the Group’s and the Parent Company’s affairs as at 30 June 2016 and of the Group’s profit and Group’s and Parent Company’s cash flow for the year then ended; • Have been properly prepared in accordance with IFRSs as adopted by the European Union; • 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 Jonathan Isaacs Senior Statutory Auditor For and on behalf of Jeffreys Henry LLP (Statutory Auditors) Finsgate 5-7 Cranwood Street London EC1V 9EE 18 October 2016 40 Consolidated income statement 40 Consolidated statement of comprehensive income 41 Consolidated statement of financial position 42 Company statement of financial position 43 Consolidated statement of changes in equity 44 Company statement of changes in equity 45 Consolidated statement of cash flows 45 Company statement of cash flows 46 Notes to the consolidated financial statements 68 Company information 38 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 39 Consolidated income statement For the year ended 30 June 2016 Consolidated statement of financial position For the year ended 30 June 2016 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 Profit for the year attributable to the owners of the parent Earnings per share from continuing operations (pence per share) Basic Diluted Notes 30.6.16 £’000 30.6.15 £’000 26,926 (3,395) 23,531 (17,367) 6,164 51 6,215 (847) 5,368 5,368 21,366 (2,292) 19,074 (13,858) 5,216 27 5,243 (587) 4,656 4,656 1.83 1.83 1.63 1.61 6 5 6 7 10 10 Consolidated statement of comprehensive income For the year ended 30 June 2016 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 Notes 30.6.16 £’000 5,368 30.6.15 £’000 4,656 11 3 5,379 4,659 5,379 4,659 Assets Non-current assets Goodwill Intangible assets Property, plant and equipment Current assets Trade and other receivables Cash and cash equivalents Total assets Equity attributable to the owners of the parent Called up share capital Share premium Reverse acquisition reserve Other reserves 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 30.6.16 £’000 30.6.15 £’000 11 12 13 15 16 17 18 18 18 18 18 22 19 609 3,684 1,142 5,435 6,206 17,313 23,519 28,954 1,473 6,138 (4,695) 174 8 20,611 23,709 609 3,444 1,097 5,150 5,328 11,932 17,260 22,410 1,435 5,382 (4,695) (25) (3) 16,297 18,391 716 383 4,151 378 4,529 5,245 3,437 199 3,636 4,019 28,954 22,410 The financial statements were approved and authorised for issue by the Board of Directors on 18 October 2016 and were signed on its behalf by Milan Patel Director Company registration number: 06289659 (England and Wales) 40 41 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Company statement of financial position For the year ended 30 June 2016 Consolidated statement of changes in equity For the year ended 30 June 2016 Assets Non-current assets Investments Current assets Trade and other receivables Cash and cash equivalents Total assets Equity attributable to the owners of the parent Called up share capital Share premium Other reserves Retained earnings Total equity Liabilities Current liabilities Trade and other payables Total liabilities Total equity & liabilities Notes 30.6.16 £’000 30.6.15 £’000 14 15 16 17 18 18 18 19 5,186 5,186 7,102 639 7,741 12,927 1,473 6,138 174 5,080 12,865 62 62 12,927 5,186 5,186 3,124 166 3,290 8,476 1,435 5,382 (25) 1,534 8,326 150 150 8,476 The financial statements were approved and authorised for issue by the Board of Directors on 18 October 2016 and were signed on its behalf by Milan Patel Director Company registration number: 06289659 (England and Wales) 42 Balance as at 1 July 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 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 2016 Balance as at 1 July 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 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 2016 Called up share capital £’000 1,414 21 – – – 21 – – – 1,435 38 – – 38 – – – 1,473 Reverse acquisition reserve £’000 (4,695) – – – – – – – – (4,695) – – – – – – – Retained earnings £’000 12,211 – – (570) – (570) 4,656 – 4,656 16,297 – (1,054) – (1,054) 5,368 – 5,368 20,611 Other reserves £’000 82 – (213) – 106 (107) – – – (25) – – 199 199 – – – Share premium £’000 5,147 235 – – – 235 – – – 5,382 756 – – 756 – – – 6,138 Total equity £’000 14,153 256 (213) (570) 106 (421) 4,659 3 4,659 18,391 794 (1,054) 199 (61) 5,368 11 5,379 (4,695) 174 23,709 Retranslation reserve £’000 (6) – – – – – – 3 3 (3) – – – – – 11 11 8 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 foreign subsidiaries into the functional currency of the Group. The reverse acquisition reserve relates to the adjustment required to account for the reverse acquisition in accordance with International Financial Reporting Standards. Other reserves relates 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. 43 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Company statement of changes in equity For the year ended 30 June 2016 Consolidated statement of cash flows For the year ended 30 June 2016 Balance as at 1 July 2014 Issue of share capital Dividends Share repurchase Share-based payment Transactions with owners Loss for the year Total comprehensive income Balance as at 30 June 2015 Issue of share capital Dividends Share-based payment Transactions with owners Profit for the year Total comprehensive income Called up share capital £’000 1,414 21 – – – 21 – – 1,435 38 – – 38 – – Balance as at 30 June 2016 1,473 Retained earnings £’000 2,423 – (570) – – (570) (319) (319) 1,534 – (1,054) – (1,054) 4,600 4,600 5,080 Share premium £’000 5,147 235 – – – 235 – – 5,382 756 – – 756 – – Other reserves £’000 82 – – (213) 106 (107) – – (25) – – 199 199 – – Total equity £’000 9,066 256 (570) (213) 106 (421) (319) (319) 8,326 794 (1,054) 199 (61) 4,600 4,600 6,138 174 12,865 • Share capital is the amount subscribed for shares at nominal value. • Retained earnings represents the cumulative earnings of the Company 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. • Other reserves relates 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. 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 Company statement of cash flows For the year ended 30 June 2016 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 27 28 28 Notes 27 28 28 30.6.16 £’000 30.6.15 £’000 7,997 (335) 7,662 (1,570) (502) – 51 5,667 (263) 5,404 (1,612) (667) 1 27 (2,021) (2,251) (1,054) 794 – (260) 5,381 11,932 17,313 (570) 256 (213) (527) 2,626 9,306 11,932 30.6.16 £’000 30.6.15 £’000 733 733 (1,054) 794 – (260) 473 166 639 584 584 (570) 256 (213) (527) 57 109 166 44 45 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements For the year ended 30 June 2016 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 36. 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 (IFRSs 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 2015 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 2015 and have not been early adopted: Reference Title Summary IFRS 2 Share-based payment Classification and measurement of share-based payment transactions IFRS 7 Financial instruments: disclosures IFRS 9 Financial instruments Deferral of mandatory effective date of IFRS 9 and amendments to transition disclosures Finalised version, incorporating requirements for classification and measurement, impairment, general hedge accounting and derecognition IFRS 10 IFRS 12 IFRS 14 IFRS 15 Consolidated financial statements Amendments regarding the application of the consolidation exceptions Disclosure of interest in other entities Amendments regarding the application of the consolidation exceptions Regulatory deferral accounts Original issue of standard Revenue from contracts with customers Original issue of standard IFRS 16 Leases Original issue of standard IAS 1 IAS 7 Presentation of financial statements Amendments resulting from the disclosure initiative Statement of cash flows Disclosure initiatives IAS 12 Income taxes Amendments regarding the recognition of deferred tax assets for unrealised losses Application date of standard Periods beginning on or after 1 January 2018 Periods beginning on or after 1 January 2015 Periods beginning on or after 1 January 2018 Periods beginning on or after 1 January 2016 Periods beginning on or after 1 January 2016 Periods beginning on or after 1 January 2016 Periods beginning on or after 1 January 2018 Periods beginning on or after 1 January 2019 Periods beginning on or after 1 January 2016 Periods beginning on or after 1 January 2017 Periods beginning on or after 1 January 2017 Application date of Group 1 July 2018 1 July 2015 1 July 2018 1 July 2016 1 July 2016 1 July 2016 1 July 2018 1 July 2016 1 July 2017 1 July 2017 IAS 16 Property, plant and equipment Amendments regarding the clarification of acceptable methods of depreciation and amortisation Periods beginning on or after 1 January 2016 1 July 2016 IAS 19 Employee benefits Amendments resulting from September 2014 Annual Improvements to IFRSs IAS 27 Separate financial statements IAS 38 Intangible assets Amendments reinstating the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements Periods beginning on or after 1 January 2016 Periods beginning on or after 1 January 2016 1 July 2016 1 July 2016 Amendments regarding the clarification of acceptable methods of depreciation and amortisation Periods beginning on or after 1 January 2016 1 July 2016 The Directors anticipate that the adoption of these standards and the interpretations in future periods will have no material impact on the financial statements of the Group. The financial statements are presented in sterling (£), rounded to the nearest thousand pounds. 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 principal activity is that of web- and email-based marketing. Under IFRS 3 ‘Business combinations’ the dotmailer Limited share exchange has been accounted for as a reverse acquisition. Although these consolidated financial statements have been issued in the name of the legal parent, the company it represents in substance is a continuation of the financial information of the legal subsidiary, dotmailer Limited. The following accounting treatment has been applied in respect of the reverse acquisition: • The assets and liabilities of the legal subsidiary, dotmailer Limited, are recognised and measured in the consolidated financial statements at their pre- combination carrying amounts, without restatement to their fair value; • The retained reserves recognised in the consolidated financial statements for the beginning of the prior period reflect the retained reserves of dotmailer Limited to 30 April 2008. However, in accordance with IFRS 3 ‘Business combinations’ the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent dotdigital Group Plc, including the equity instruments issued under the share exchange to effect the business combination; • 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 Group Plc are recognised and measured in the consolidated financial statements at their fair value at the date of acquisition. • The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less 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 its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. 46 47 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 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, have 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 Directors’ report. Operating profit Operating profit is stated after charging operating expenses but before finance costs. Dividends 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. Goodwill Goodwill represents the excess of the fair value of the consideration over the fair values of the identifiable net tangible and intangible assets acquired. Under IFRS 3 “Business Combinations”, goodwill arising on acquisitions is not subject to amortisation but is subject to annual impairment testing. Any impairment is recognised immediately in the income statement and not subsequently reversed. 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 than 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 four to five years, with the charge included in administrative expenses in the income statement. Intangible assets are reviewed for impairment annually. Impairment is measured by determining the recoverable amount of an asset or cash generating unit (CGU) which is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. • Domain names Acquired domain names are shown at historical cost. Domain names have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using straight-line method to allocate the cost of domain names over their useful lives of four years. • Software Acquired software and websites are shown at historical cost. They have a finite life and are carried at cost less accumulated amortisation. Amortisation is calculated using straight-line method to allocate the cost of software and websites over their useful lives of four years. • Product development Product development expenditure is capitalised when it is considered that there is a commercially and technically viable product, the related expenditure is separately 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 asset 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 their 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 for 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 assets; • 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. • 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 is 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 assets’ 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 than its estimated recoverable value. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other (losses) or gains in the income statement. 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, 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 or 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 the 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. 48 49 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 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 are 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. • Financial assets 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 cash flows 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 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 payable 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 risks have been prepared. 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 IFRS 3 “Business combinations”. Other reserves relate to the charge for share-based payments in accordance with IFRS 2 “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 vest 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 is this currency the financial statements are presented in. • Transaction and balances Foreign currency transactions are translated into 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 provided to 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 judgments 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 overleaf. 50 51 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 Further detail on the estimates and assumptions we make in our share-based compensation are included in note 26 to the financial statements. The charge made to income statement for period is also disclosed here. (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 take into consideration (i) any circumstances of which we are aware regarding a customer’s inability to meet its financial obligations and (ii) our judgments as to potential prevailing economic conditions in the industry and their potential impact on the Group’s customers. Judgments (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 judgments: • • 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 flow forecasts which have been discounted at 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 11 to the financial statements. At the period end, based on the assumptions, there was no indication of impairment to the 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 judgments 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. 3. Segmental reporting The Group’s single line of business is the provision of web-based marketing services. The chief operating decision-maker considers the Group’s only reportable segment to be by geographical location, this being UK, US and rest of the world (“RoW”) operations as shown below: 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 UK £’000 22,056 19,298 4,244 3,398 30.6.2016 US £’000 RoW £’000 Total £’000 3,022 2,565 504 539 1,848 1,668 1,467 1,442 26,926 23,531 6,215 5,379 27,410 17,791 1,014 756 530 443 28,954 18,990 Revenue from external customers is attributed to the geographical segments noted above based on the customers’ location. There were no customers who accounted for more than 10% of revenue (2015: None). 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 30.6.2015 UK £’000 US £’000 RoW £’000 Total £’000 18,274 16,676 3,476 2,895 21,591 12,964 1,860 1,602 971 968 819 660 1,232 796 796 796 21,366 19,074 5,243 4,659 – – 22,410 13,624 In the year ending 30 June 2016, revenue from the US has been disclosed separately as it has exceeded 10% of the Group’s revenue. The comparatives have thus been re-stated. 4. Employees and Directors Wages and salaries Social security costs Other pension costs The average monthly number of employees during the year is as follows Directors Sales and Marketing SEO and Product Developers Administration 30.6.16 £’000 9,667 1,036 243 30.6.15 £’000 7,711 871 221 10,946 8,803 30.6.16 30.6.15 7 100 43 54 204 7 84 48 47 186 During the year the Group also capitalised staff-related costs of £1,338,915 (2015: £1,549,066) in relation to internally generated development costs. 52 53 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 5. Net finance income Finance income: Deposit account interest 6. 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 Staff-related costs (inc Directors emoluments) – note 4 Operating leases: Land and buildings Operating leases: 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 30.6.16 £’000 30.6.15 £’000 51 51 27 27 30.6.16 £’000 1,984 172 1,239 3,395 30.6.16 £’000 10,946 865 48 37 1,330 450 289 1,236 801 (246) 471 174 966 30.6.15 £’000 1,516 415 361 2,292 30.6.15 £’000 8,803 834 44 38 1,159 397 417 828 103 61 351 217 606 17,367 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 – audit of Company subsidiaries – non-audit fees: Tax and review of interim accounts 7. 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 30.6.16 £’000 8 30.6.15 £’000 7 25 4 37 27 4 38 30.6.16 £’000 30.6.15 £’000 514 333 847 262 325 587 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 30.6.16 £’000 6,215 1,243 164 (670) (465) (15) 257 514 30.6.15 £’000 5,243 1,088 20 (747) (238) (46) 185 262 Deferred tax was calculated using the rate 19.75% (2015: 20%). For further details on deferred tax see note 22. 8. 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 before exceptional items for the financial year was £4,601,353 (2015: £318,852). 9. Dividends Amounts recognised as distributions to equity holders in the period. Final dividend for year end 30 June 2016 of 0.357p (2015: 0.2p) per share Proposed dividend for the year end 30 June 2016 of 0.84p (2015: 0.36p) per share 30.6.16 £’000 1,054 2,476 30.6.15 £’000 570 1,041 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. The 0.84p is broken down between a general dividend of 0.43p and a special dividend of 0.41p. 10. Earnings per share Earnings per share data is based on the consolidated profit using and the weighted average number of shares in issue of the Parent Company. Basic earnings per share are calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. Reconciliations are as follows: 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 30.6.16 Weighted average number of shares Earnings £’000 Per share Amount Pence 5,368 293,095,257 – 977,555 1.83 – 5,368 294,072,812 1.83 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 notionally dilutive shares were anti-dilutive. 54 55 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 10. Earnings per share continued 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 Weighted average number of shares Basic EPS Diluted EPS 11. Goodwill Group Cost At 1 July At 30 June Amortisation At 1 July Impairment At 30 June Net book value 30.6.15 Weighted average number of shares Earnings £’000 4,656 284,804,914 – 5,001,766 4,656 289,806,680 30.6.16 Shares Per share Amount Pence 1.63 – 1.61 30.6.15 Shares 293,095,257 284,804,914 294,072,812 289,806,680 30.6.16 £’000 30.6.15 £’000 4,121 4,121 3,512 - 3,512 609 3,512 - 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 (CGUs) 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 CGUs 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 estimates discount rates using pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the CGUs. 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 is 10% (2015 – 10%). The valuations indicate sufficient headroom such that a reasonably possible change in key assumptions would not result in impairment of goodwill. 12. Intangible assets Group Cost At 1 July 2015 Additions At 30 June 2016 Amortisation At 1 July 2015 Amortisation for the year At 30 June 2016 Net book value At 30 June 2016 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 Computer software £’000 Internally generated development costs £’000 Domain names £’000 274 88 362 228 36 264 6,625 1,482 8,107 3,227 1,294 4,521 98 3,586 Computer software £’000 Internally generated development costs £’000 274 – 274 195 33 228 5,013 1,612 6,625 2,102 1,125 3,227 46 3,398 16 – 16 16 – 16 – Domain names £’000 16 – 16 15 1 16 – Totals £’000 6,915 1,570 8,485 3,471 1,330 4,801 3,684 Totals £’000 5,303 1,612 6,915 2,312 1,159 3,471 3,444 Development cost additions represents resources the Group have invested in the development of new innovative and groundbreaking 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 license the use of the platform. 13. Property, plant and equipment Group Cost At 1 July 2015 Additions At 30 June 2016 Depreciation At 1 July 2015 Depreciation for the year At 30 June 2016 Net book value At 30 June 2016 Short leasehold £’000 Fixtures & fittings £’000 Computer equipment £’000 395 49 444 95 52 147 297 401 47 448 203 90 293 155 1,354 406 1,760 755 315 1,070 Totals £’000 2,150 502 2,652 1,053 457 1,510 690 1,142 56 57 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 13. Property, plant and equipment continued 15. Trade and other receivables 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 14. 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 £’000 288 107 – 395 47 48 – 95 300 308 93 – 401 112 91 – 203 198 Totals £’000 1,484 667 (1) 888 467 (1) 1,354 2,150 498 258 (1) 755 657 397 (1) 1,053 599 1,097 Shares in Group undertakings 30.6.16 £’000 Shares in Group undertakings 30.6.15 £’000 8,705 8,705 3,519 3,519 5,186 5,186 The Group’s or the Company’s investments at the balance sheet date in the share capital of companies include the following: Subsidiaries Nature of business Class of share held %: Proportion of voting power dotmailer Limited Web- and email-based dotsurvey Limited marketing Dormant dotsearch Europe Limited Branch company dotcommerce Limited doteditor Limited dotSEO Limited dotagency Limited Dormant Dormant Dormant Dormant dotmailer Inc Web- and email-based marketing dotmailer Pty Limited Web- and email-based marketing Ordinary Ordinary A Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 All of the above subsidiaries have been included within the consolidated results. All the above companies with the exception of dotmailer Inc and dotmailer Pty Limited were incorporated in England and Wales. dotmailer Inc was incorporated in Delaware (US) and dotmailer Pty Limited was incorporated in New South Wales (Australia). Current: Trade receivables Less: Provision for impairment of trade receivables Trade receivables – net Other receivables Amounts owed by Group undertakings VAT Prepayments and accrued income Group Company 30.6.16 £’000 30.6.15 £’000 30.6.16 £’000 30.6.15 £’000 5,559 (824) 4,735 137 – – 1,334 6,206 4,589 (343) 4,246 39 – – 1,043 5,328 – – – – – – - – 7,080 3,108 9 13 7 9 7,102 3,124 Further details on the above can be found in note 21. Included within prepayments is an amount of £271,680 (2015: £121,998) in relation to deferred commission which is considered to be long-term. 16. Cash and cash equivalents Bank accounts Further details on the above can be found in note 21. 17. Called up share capital Allotted, issued, fully paid number 294,784,789 (2015: 287,002,065) Group Company 30.6.16 £’000 17,313 17,313 30.6.15 £’000 11,932 11,932 Nominal value £0.005 30.6.16 £’000 639 639 30.6.16 £’000 1,473 1,473 30.6.15 £’000 166 166 30.6.15 £’000 1,435 1,435 During the reporting period the Company undertook the following transactions involving the issuing and reclassifying of issued share capital: On 17 July 2015 a number of employees exercised their share options increasing the issued share capital by 1,510,000 shares at a premium price of between 5p and 7.5p. On 7 August 2015 a number of employees exercised their share options increasing the issued share capital by 1,200,000 shares at a premium price of between 5p and 7.5p. On 6 November 2015 a number of employees exercised their share options increasing the issued share capital by 1,887,397 shares at a premium price of between 5p and 18.15p. On 20 November 2015 a number of employees exercised their share options increasing the issued share capital by 1,027,397 shares at a premium price of 18.15p. On 9 December 2015 a number of employees exercised their share options increasing the issued share capital by 1,557,930 shares at a premium price of between 5p and 7.5p. On 6 June 2016 a number of employees exercised their share options increasing the issued share capital by 600,000 shares at a premium price of between 5p and 18.15p. 58 59 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 18. Reserves Group As at 1 July 2015 Issue of share capital Dividends Profit for the year Other comprehensive income: Currency translation Share-based payment Balance as at 30 June 2016 As at 1 July 2015 Issue of share capital Dividends Profit for the year Other comprehensive income: Currency translation Share-based payment Balance as at 30 June 2016 Group As at 1 July 2014 Issue of share capital Share repurchase Dividends Profit for the year Currency translation Share-based payment Retained earnings £’000 16,297 – (1,054) 5,368 – – Share premium £’000 5,382 756 – – – – Reverse acquisition reserve £’000 (4,695) – – – – – 20,611 6,138 (4,695) Retranslation reserve £’000 Other reserves £’000 Totals £’000 (3) – – – 11 – 8 Retained earnings £’000 12,211 – – (570) 4,656 – – (25) 16,956 – – – – 199 174 Share premium £’000 5,147 235 – – – – – 756 (1,054) 5,368 11 199 22,236 Reverse acquisition reserve £’000 (4,695) – – – – – – Balance as at 30 June 2015 16,297 5,382 (4,695) 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 Retranslation reserve £’000 (6) – – – – 3 – (3) Other reserves £’000 82 – (213) – – – 106 (25) Totals £’000 12,739 235 (213) (570) 4,656 3 106 16,956 Company As at 1 July 2015 Issue of share capital Dividends Profit for the year Share-based payment As at 30 June 2016 As at 1 July 2014 Issue of share capital Share repurchase Dividends Loss for the year Share-based payment As at 30 June 2015 19. Trade and other payables Current: Trade payables Amounts owed to Group undertakings Social security and other taxes Other payables VAT Accruals and deferred income Retained earnings £’000 1,534 – (1,054) 4,600 – 5,080 Retained earnings £’000 2,423 – – (570) (319) – Share premium £’000 5,382 756 – – – 6,138 Share premium £’000 5,147 235 – – – – 1,534 5,382 Share-based payments £’000 (25) – – – 199 174 Other reserves £’000 82 – (213) – – 106 (25) Totals £’000 6,891 756 (1,054) 4,600 199 11,392 Totals £’000 7,652 235 (213) (570) (319) 106 6,891 Group Company 30.6.16 £’000 30.6.15 £’000 30.6.16 £’000 30.6.15 £’000 1,351 – 571 222 710 1,297 4,151 853 – 498 349 574 1,163 3,437 11 4 – 1 – 46 62 30.06.16 Others £’000 46 39 85 30.06.15 Others £’000 19 12 31 16 4 – 91 – 39 150 Totals £’000 420 1,157 1,577 Totals £’000 251 1,502 1,753 Further details on liquidity and interest rate risk can be found in note 21. 20. 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 Land & buildings £’000 374 1,118 1,492 Land & buildings £’000 232 1,490 1,722 60 Operating leases represent rents payable by the Group for its office properties. Leases are negotiated for an average term of five years and rentals are fixed on an average of two years with the option to extend for a further five years at the prevailing market rate at the time. 61 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 21. Financial instruments and risk management The Group’s 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 holds no financial or other non-financial instruments other than those utilised in the working operations of the Group and that listed in this note. It’s the Group’s policy not to trade in derivative contracts. Principal financial instruments The principal 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: Financial assets Trade and other receivables Bank balances Financial liabilities Trade payables Accrued liabilities and other payables Group Company 30.6.16 £’000 30.6.15 £’000 30.6.16 £’000 30.6.15 £’000 6,206 17,313 23,519 1,351 2,800 4,151 5,328 11,932 17,260 853 2,584 3,437 22 639 661 11 47 58 16 166 182 16 130 146 The fair value of the financial assets and financial liabilities is 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 it 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: 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 no external borrowings and therefore is 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 £2,283,000 (2015: £2,365,000) 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 2016 there were no significant debts past their due period which had not been provided for. The maturity of the Group’s 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 Provision for impairment Receivable written off in the year Unused amount reversed As at 30 June 30.6.16 £’000 2,795 1,243 1,521 5,559 30.6.15 £’000 2,311 813 1,465 4,589 30.6.16 £’000 30.6.15 £’000 6 87 731 824 2 2 339 343 30.6.16 £’000 30.6.15 £’000 343 789 (259) (49) 824 336 103 (47) (49) 343 The Group minimises its credit risk by profiling all new customers and monitoring existing customers 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 £1,541,197 (2015: £1,486,597) of which £730,350 (2015: £339,962) was provided for. The Group felt that the remainder would be collected post year end as they were with longstanding 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 rating bodies. The majority of the Company’s cash holdings are held at NatWest Bank which has an BBB+ credit rating. The carrying value of both financial assets and liabilities approximates to fair value. Capital policy The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide optimal returns for shareholders and to maintain an efficient capital structure to reduce the cost of capital. In doing so the Group’s strategy is to maintain a capital structure commensurate with a strong credit rating and to retain appropriate levels of liquidity headroom to ensure financial stability and flexibility. To achieve this, the Group monitors key credit metrics, 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 (2015: £nil) and amounts payable over one year are nil (2015: £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. 62 63 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 22. 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 30.6.16 £’000 30.6.15 £’000 383 333 716 58 325 383 30.6.16 £’000 30.6.15 £’000 91 708 (83) 716 103 679 (399) 383 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. 23. Capital commitments The Company and Group have no capital commitments as at the year end. 24. 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 Redstone Connect Plc Entity under common directorship Cadence Performance Entity under common directorship Email marketing services Email marketing services 30.6.16 £’000 30.6.15 £’000 – 2 2 4 3 7 Sales of services are based on the price lists in force and at terms that would be available to third parties: Purchase of services Barratts of Old Ltd Entity under common directorship Consultancy services* 30.6.16 £’000 30.6.15 £’000 – – 8 8 * Consultancy services to assist with the international expansion and development of channel sales strategy. Directors Aggregate emoluments Ex-gratia payment Company contributions to money purchase pension scheme Share-based payments Information in relation to the highest paid Director is as follows: Salaries Ex-gratia payment Other benefits Pension costs Share-based payments The highest paid Director did not exercise any share options in the year (2015: 660,000). Company The following transactions were carried out with related parties: Year end balances arising from sales/purchase of services dotmailer Limited Subsidiary Payables 30.6.16 £’000 858 137 46 114 30.6.15 £’000 1,002 – 60 20 1,155 1,082 30.6.16 £’000 183 137 3 – 114 437 30.6.15 £’000 234 – 11 15 20 280 30.6.16 £’000 30.6.15 £’000 (5,338) (5,338) (3,280) (3,280) 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 Year end balances arising from sales/purchase of services dotmailer Limited Subsidiary Loans advanced Loans repaid 30.6.16 £’000 30.6.15 £’000 6,388 6,069 (40) 5,681 751 (44) 12,417 6,388 64 65 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Notes to the consolidated financial statements continued For the year ended 30 June 2016 25. Ultimate controlling party There is no ultimate controlling party of the Group. dotdigital Group PLC acts as the Parent Company to dotmailer Limited, dotsearch Europe Limited, dotmailer Inc, dotmailer Pty Limited, dotagency Limited (Dormant), dotsurvey Limited (Dormant), dotSEO Limited (Dormant), dotcommerce Limited (Dormant) and doteditor Limited (Dormant). 26. 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 £199,600 (2015: £106,000). 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 2016 had a WAEP of 29.69p (2015: 14.43p) and a weighted average contracted life of 3.2 years (2015: 2.1 years) and their exercise prices ranged from 0p to 44.50p. All share options are settled in form of equity issued. 30.06.16 30.6.15 No of options WAEP No of options Outstanding at the beginning of the period 10,938,790 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 1,439,029 491,066 7,782,724 4,104,029 1,063,409 14.83p 29.02p 21.46p 10.22p 26.69p 8.00p 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 The weighted average share price at the date of the exercise for share options exercised during the period was 40.32p (2015: 30.52p). 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 20 June 2016 26 April 2016 25 November 2015 10 April 2015 28 November 2014 18 October 2013 423,409* 206,460 809,160 750,000 1,525,000 3,554,794 44.25p £nil 5 years 1.33% 30% 1.7% 29.26p 45.00p 44.50p 5 years 1.33% 30% 1% 7.23p 40.50p 40.25p 5 years 1.33% 30% 1% 6.46p 31.50p 31.50p 5 years 1.33% 30% 0% 5.64p 29.00p 28.50p 5 years 1.35% 30% 0.% 5.33p 17.82p 18.25p 5 years 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. * The share options issued on the 20 June 2016 were to Simone Barratt as part of her remuneration package during her time as CEO of the Group and were based on her achieving certain performance criteria. These share options were granted as an unapproved share option scheme at a £Nil exercise price and were released immediately, upon her being a good leaver as per the share option scheme agreed at the AGM on 15 December 2015. 27. Group reconciliation of profit before corporation tax to cash generated from operations Current Profit before tax from all operations Currency revaluation Depreciation 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 Group Company 30.6.16 £’000 30.6.15 £’000 30.6.16 £’000 30.6.15 £’000 6,215 11 1,787 – 199 (51) 8,161 (878) 714 7,997 5,243 3 1,556 (1) 106 (27) 6,880 (1,666) 453 5,667 4,600 (319) – – – 199 – 4,799 (3,978) (88) 733 – – – 106 – (213) 721 76 584 28. Group cash and cash equivalents The amounts disclosed in 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 2014 As at 30 June 2015 As at 30 June 2016 Group £’000 9,306 11,932 17,313 Company £’000 109 166 639 29. Project development During the period the Group incurred £1,482,558 (2015: £1,611,929) in development investments. All resources utilised in development have been capitalised as outlined in the accounting policy governing this area. 30. Post balance sheet events There are no post balance sheet events which impact the Group’s financial statements. 66 67 Financial statementsdotdigital Group PlcAnnual Report 2015/2016dotdigital Group PlcAnnual Report 2015/2016 Company information For the year ended 30 June 2016 Directors: S Bird I Taylor R Kellett-Clarke F Beechinor-Collins M Patel P Simmonds Company Secretary: M Patel 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 68 dotdigital Group Plc Annual Report 2015/2016 69 dotdigital Group PlcAnnual Report 2015/2016 www.dotdigitalgroup.com 70 dotdigital Group PlcAnnual Report 2015/2016
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