Annual Report 2016/2017 Empowering the serious marketer GROUP PLC Corporate statement dotmailer is the SaaS platform of the dotdigital Group Plc (LSE: DOTD). The platform empowers marketers in 150+ countries to use data to drive multi-channel automation campaigns that deliver superior results. Contents Strategic report Chairman’s report Investment case How dotmailer empowers customers Thoughts of the Chief Executive Officer Chief Executive Officer’s report and financial review Risks, mitigations and impact Corporate social responsibility report Goverance Board of Directors Corporate governance report Audit committee report Remuneration committee report Report of the Directors Report of the independent auditors Financial statements Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Company statement of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows Company statement of cash flows Notes to the consolidated financial statements Company information 2 4 6 8 10 16 18 20 22 23 24 26 28 34 34 35 36 37 38 39 39 40 IBC £32.0m h 19% £10.1m h 26% Revenue Up 19% from £26.9m EBITDA Up 26% from £8.0m 2.42p h 32% Earning per share Up 32% from 1.83p £20.4m h 18% Cash position As at 30 June 2017 1 STRATEGIC REPORT Chairman’s report Achieving substantial success in a dynamic year. Our software development team now This strong market and financial position is comprises of 9 groups working with Agile represented in the recent appointment of methodologies to deliver three substantial Phillip Blundell to the position of Interim Chief product releases per annum, in recognition Financial Officer. Phillip will assist in delivering of the market trend towards automation robust organic growth and explore pertinent and personalisation. Partnerships are key acquisitions to accelerate the realisation of to the Company’s data-driven future; the our key strategic goals. business has accelerated the development of rich functional integrations for e-commerce and CRM platforms, Outlook The first few months of the new financial developing strategic partnerships and year have started in line with our plan. Our expanding our addressable market. international growth has accelerated, and Operations On the operational side, a reorganisation has our ability to attract new clients continues. Investment in new connectors and product features is being well received in the market. taken place to support customers’ present The Board remains confident in our ability and future needs. This means prioritising ease to achieve the ambitious plan for the year of interaction, pricing models that maximise and our capacity to integrate potential customer ROI and greater support structures acquisitions. The Group’s transition to a to assist customer success. The business’ global leader in multi-channel marketing expansion has also allowed Milan to promote automation will continue, meeting the future several rising stars from within the business needs of marketers and riding the wave of into roles with added responsibility and market growth in customer engagement. influence over the Group’s future direction. These individuals will further support the Company’s customer focus. I would like to thank Milan and his team for their fantastic contribution in a year of transition; they have built a strong platform for continued above- trend growth. I also would like to warmly welcome the 50 new colleagues that have joined us over the past year. The SaaS industry is undergoing substantial growth and change, with the market expected to double in the next five years. A continued focus on our initiatives provides a solid foundation for growth. Data from Grand View suggests that the marketing automation market will grow to $8.6bn by 2025, giving us the confidence to continue to build out our multi-channel platform and invest in a world- Frank Beechinor-Collins Non-Executive Chairman 16 October 2017 Frank Beechinor-Collins Non-Executive Chairman Introduction In a year defined by transformation, the Group has again delivered an impressive financial result, achieving revenue growth of 19% to £32.0m, profit before income tax of £8.1m and cash generation from operations of £8.8m. This leaves the business in a very strong cash position with over £20m in the bank. The year began with the appointment of Milan Patel as our permanent Chief Executive Officer (“CEO”). Milan has orchestrated significant operational change during the years, leading to excellent financial results and positioning the business for substantial future growth. This reorganisation sees a focus on 3 key strategic initiatives to deliver exceptional operational performance: geographical expansion, product innovation and wider strategic partnerships with global businesses. The first has seen the scaling up of dedicated offices in Australia, focused on both the Australian and Asia Pacific regions. This expansion is built on a business model of selling through partners into the fast-growing e-commerce market. The US office has been strengthened with a sales support function to facilitate this e-commerce focus. Product innovation has been expanded and is integral to the business’ core culture. class business. 2 dotdigital Group PlcAnnual Report 2016/2017 dotmailer is the data-driven multi-channel platform that sets marketers free. 3 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Investment case Our versatile and comprehensive model provides a compelling opportunity for investment. 1 2 3 Strategy Scalable Growth Clear and compelling strategy • Focused only on two complementary markets – e-commerce and B2B Highly scalable platform and predictable financial model • Software sold as a service • Rapid product innovation supporting up and cross-sell opportunities • International growth based on a • Very diverse customer base with no customer accounting for more than 1% of revenue proven blueprint • Profitable with significant cash • Brand success has been extended through global strategic partners with more on the way balances • 81% recurring revenues Eleven-year graph showing dotdigital Group’s Plc email send volume. Attractive industry growth • Email marketing automation has proven superior ROI for marketers • Global market for marketing automation, according to Grand View, is growing by double digits and predicted to be $8.6bn by 2025 • Marketers are predicted to send more emails in the next five years • E-commerce remains the biggest sector for email, expected to double in next five years dotmailer is a Magento Premier Technology Partner Millions 1,200 1,000 800 600 400 200 0 6 0 ‘ n u J 7 0 ‘ n u J 8 0 ‘ n u J 9 0 ‘ n u J 0 1 ‘ n u J 1 1 ‘ n u J 2 1 ‘ n u J 3 1 ‘ n u J 4 1 ‘ n u J 5 1 ‘ n u J 6 1 ‘ n u J 7 1 ‘ n u J 4 dotdigital Group PlcAnnual Report 2016/2017 A continued focus on our initiatives provides a solid foundation for growth. 4 Culture 5 6 Leadership Outlook The successful dotmailer culture • Highly talented and motivated people focused on customer success Experienced management team • Non-Executive Board steeped in the marketing automation story • Creative marketing approach to • Executive team with proven track Opportunities for superior growth • Innovation to support marketing move to multi-channel and AI empower customers record of success • Ability to supplement with sensible • Flexible, extendable and effective product that drives retention and beats the competition • Wider management team with the motivation to continue the profitable growth story • Unique industry position with many competitors distracted • Completely aligned to the strategic priorities of geographic growth, product innovation and building strong strategic partnerships technology acquisitions • Attract further world-class partners to increase the addressable market • New geographical markets with greater potential than UK alone 5 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Empowering marketers with intelligent tools and people dotmailer and the platform itself is built around empowering customers to succeed and grow. What does the dotmailer platform do? dotmailer is a SaaS marketing platform that enables companies to create, test and send data-driven automated campaigns, including email. Our technology integrates with key business systems such as e-commerce platforms and CRMs, providing access to rich insights in real time; a powerful advantage in today’s customer-centric market. How do we empower marketers? There’s a good reason why email is still one of the most popular marketing channel: it delivers a return of investment of £39/$40 for every £1/$1 spent. The dotmailer platform has been built in a way that enables SMEs to maximize returns and scale quickly. We don’t tie people down with tools they will not use and that is why every customer has access to our directory of partner apps which can be plugged in and changed as their company evolves. Why do marketers choose dotmailer? dotmailer is designed to make light work of advanced marketing automation. Campaign creation – whether it’s a newsletter or an automated programme – is fast and uncomplicated thanks to slick ‘drag and drop’ functionality. Our customers love that they can measure and report on the success of their campaigns in real time, and have access to dedicated account management and support when they need it. We encourage our customers to keep developing and growing, and they trust us to keep developing too. We publish our product roadmap for everyone to see and our next exciting landmark is multi- channel functionality. 6 World-class integrations and technology make it easy for customers to put all of their data to work E-commerce CRM Data Online Offline Data Campaigns A.I. Analytics Automation Import Create Report Reporting Personalisation Import Create Lead Scoring Report ROI Extensibility Enhance Automate Admin Enhance Automate Admin Segment Send Support Our data-driven marketing automation platform empowers marketers with the multi-channel tools they need Segment Support Send Email SMS Social Push Systems dotmailer is an integral part of our marketing strategy and email is critical to our success. Stasha Johnston, Monin dotdigital Group PlcAnnual Report 2016/2017 The choice of leading brands: 7 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Thoughts of the Chief Executive Officer A year of transformation for dotmailer has culminated in exciting global expansion. It is with great pleasure that I share with you my thoughts on the past 12 months. In a time of change, we have welcomed innovation, implementing new ways of working across all our regions. A year ago, I took over as permanent CEO of dotdigital Group Plc (“dotdigital”) and proposed changes to our business that would aid globalisation and increase the addressable market. In the last 12 months, we have achieved both aims. We have also optimised our sales and Although there was a slowdown in growth customer success process, listening hard to while implementing these changes, in H2 our customers in the international markets growth has accelerated to bring substantial and investing in people to support their needs. and commendable growth across all regions, The platform has evolved with new product with benefits mounting from our positive functionality and integrations that continue behavioural shift. to empower our customers. We have made a lot of progress in simplifying more about our strategic progress in this the business to address global customer Annual Report. I do sincerely hope that you enjoy reading requirements, alongside strengthening our strategic partnerships and testing new international markets to penetrate. For me, these entrepreneurial changes are inextricable from the people who have brought them to fruition. With the leadership, training and development programmes set up to support our rising stars, I can only feel confident about the business’ future. We are empowering the serious marketer through our commitment to platform innovation and investment in international growth. 8 dotdigital Group Plc Annual Report 2016/2017 KPIs 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 which is set by the Board at the start of the year. Employee remuneration is specifically linked to these KPIs. Revenue Cash position EBITDA We aim to deliver double- We aim to have a strong We aim to have double-digit digit organic revenue growth cash position. from continuing operations. m 0 . 2 3 £ m 9 . 6 2 £ m 4 . 1 2 £ m 4 . 0 2 £ m 3 . 7 1 £ m 9 . 1 1 £ earnings before interest, tax, depreciation and amortisation (EBITDA) growth from normal business. m 1 . 0 1 £ m 0 . 8 £ m 8 . 6 £ 2015 2016 2017 2015 2016 2017 2015 2016 2017 ARPU Recurring reveue International We aim to continue to grow We aim to have recurring We aim to expand Average Revenue Per User revenues of over 70%. international revenue to over (ARPU). 33% from outside the UK. 5 1 7 £ 5 7 5 £ 5 4 4 £ % 1 8 % 8 7 % 6 7 % 3 2 % 8 1 % 4 1 2015 2016 2017 2015 2016 2017 2015 2016 2017 dotdigital Group Plc Annual Report 2016/2017 9 STRATEGIC REPORT Chief Executive Officer’s report and financial review We continue to make strong progress within the international markets, with revenues Market The marketing automation market is set to outside of the core UK market growing by expand from $3.8bn in 2016 to $8.6bn by 48% and now representing 23% of the Group 2025, which shows a global compound annual revenues. International expansion remains growth rate (CAGR) of approximately 9.8% a core pillar in our organic growth strategy. according to Inkwood Research. Currently The Group has added notable clients across email marketing automation represents 30% its markets both locally and internationally in of the global market, closely followed by other the B2B and e-commerce sectors, such as channels such as mobile application marketing ICAEW, CNBC, Superdry, Jack Wills, BetFred and social media marketing. According to the and The Premier League amongst others. research, email marketing is anticipated to govern the marketing automation market. This In addition, we have continued to see is due to the increased adoptions of digitalisation our professional services offerings adding and the channel’s status as a relatively low cost value to our customers, with the revenue but effective marketing method. now representing 10% of Group revenues at £3.3m. The retail segment is anticipated to lead the marketing automation space and this supports During the year, the Group’s Average Revenue dotdigital’s strategy to continue integrating Per User (ARPU) rose by 24% to spend levels with e-commerce platforms in order to increase of circa £715 per month. This was a result of the addressable market in this space. continued focus on mid-market, enterprise clients and the Magento connector clients who North America, Europe and Asia will lead with spend on average over £1,420 per month. the fastest growth in those markets. The Group Overall volumes of messages sent out by currently has 3 separate hubs that mirror these dotmailer increased by 38% to 11.9bn from markets, with a scalable infrastructure that has 8.6bn, reflecting the change in demographic in-region data processing and storage to mirror Milan Patel Chief Executive Officer Key Highlights 30.06.17 (£m) 30.06.16 (£m) % increase Revenue EBITDA Net Assets EPS (p) Cash 32.0 10.1 28.6 2.42 20.4 26.9 8.0 23.7 1.83 17.3 19% 26% 21% 32% 18% Operational review Revenue performance, which grew organically by 19%, was driven by strong growth from but also increasing the recurring revenue these growth areas. The Group is therefore well all three of our regional hubs. Our Europe, growth and adding to the increase in ARPU placed to capture market share in those areas. Middle East and Africa (EMEA) operation grew to £715 per month. by 15% from £23.8m to £27.3m through a combination of higher value new client wins, We continued to see strong growth in the UK an optimised sales process and the ability to market. During the year we simplified our sales continually monetise the advanced feature proposition by introducing value bundles that adoption to existing clients. New customers allow every customer to get the most out of are also buying more sophistication upfront. the platform. We optimised the sales incentives This is evidenced by revenues from enhanced to drive both monthly recurring revenues and functionality-related monthly recurring charges the number of customers we were bringing now achieving £6.3m, which is an increase onboard. The final change made was to of 53%. 10 refocus our Account Management strategy, which was previously completely focused on growing clients, to be more customer success- driven. This has resulted in improved customer satisfaction and retention. dotdigital Group PlcAnnual Report 2016/2017 Geographic progress North America The revenue for our North American region Europe, the Middle East and Africa With all the changes made in the EMEA region, grew by 16% to US$5m following successful H2 grew at 18% compared to 13% in H1, a changes in the period. H2 grew faster at 22% result of improved sales lead optimisation and compared to 11% in H1 (in constant currency), increased customer satisfaction. which shows early signs of positive results from the improvements made; these included Although still early days, the continued focus strengthening the management team and in the Nordics and Benelux region has resulted structure, enhancing the sales proposition, in strong partnerships and a growing number pushing for new partners in the region and of clients from that region. We also now have a building further e-commerce connectors to dedicated sales team that sells into the EMEA increase our addressable market. We continue region as the pipeline builds. Some recent to build a strong pipeline as we move further client wins include Sika Services AG, Essentiel into the year. Some of the clients currently and Le Creuset Group AG. signed up in the region include Betsy Boo, Fannie May and HouserShoes.com. We are also carrying out a self-service model Asia Pac (APAC) The growth from the APAC region of 112% trial in the South African region to test our propositions as we continue to penetrate further international markets. New markets we saw revenues increasing from AUS$0.6m to will test in the new financial year will be France AUS$1.2m, partly due to introducing a direct and Germany where we already have an sales team which assisted in reducing sales established client base. cycles of new customers coming onboard. For customers to receive the best experience in that region we also added support, customer success and marketing teams to increase satisfaction and raise brand awareness. We continue to build strong relationships with our partners in Australia and Asia. We also continue to push further into Singapore, Indonesia, Vietnam and Hong Kong through our partners. Some of the wins we have seen have already include Fairfax Media, Spend-Less Shoes and Ultracenticals. The percentage of revenue from International territories continues to grow. dotdigital Group Plc Annual Report 2016/2017 11 11 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Chief Executive Officer’s report and financial review continued Where have we come from and where we are going to... Mobile & SMS Surveys & forms Batch & blast Sophistication Integrations Multi-channel automation Marketing automation Email automation We have added three development teams as part of our continued commitment to accelerate functionality progress. These teams will allow us to build innovative functionality that gives us technology advantages over our competitors.The recurring revenue from our enhanced functionality increased by 53% compared to the previous year and now represents £6.3m of our Group revenues. Product innovation We continue to evolve our technology to be the world’s best data-driven marketing automation platform. In the year, we have continued to scale the platform with in-region data processing and storage through cloud infrastructure in Europe, North America and Asia Pac. This expansion has proved to be very successful and puts us in a unique position against our competitors. There were new connectors added in the year predominantly focused on e-commerce platforms, including Shopify and Shopify Plus, Big Commerce, Woo commerce and Shopware. These premium integrations increase our addressable market in the UK and overseas. 12 Strategic partnerships Magento: We continued to invest in the development of the Magento Connector and the Magento partner relationship. The connector is now used by over 460 clients generating annualised recurring revenues of more than £6.2m. Though the initial uptake for Magento 2.0 was slower than predicted by Magento, we saw an increase of new customer sign ups using the connector in H2 with a good sales pipeline after Magento released version 2.1. The average revenue per month from Magento customers increased by 6% to £1,420. Shopify: Our integrations with Shopify and ShopifyPlus has proved very popular with e-commerce companies with results outstripping initial predictions quite considerably. As a result we have optimistic predictions for growth from this strategic relationship this next financial year. Other e-commerce connectors: We have continued to develop relationships with other e-commerce integration partners and will maintain this development as we move into the next financial year. Salesforce and Microsoft Dynamics: As part of our commitment to our customers in the B2B marketing space we continued to add new functionality and build on our strategic relationships with the system integrators. These connectors are now used by over 440 clients generating annualised recurring revenues of more than £4.2m. The average revenue per month from these customers is approximately £1,000 per month. dotdigital Group PlcAnnual Report 2016/2017 People We have made numerous changes in the senior management team that look after the day-to-day running of the business, both by adding new members to the leadership team, and promoting from within through our learning and development programme. This has strengthened the foundations in place – from a management bandwidth and skills perspective – as we become larger and more international. We invested in sales, marketing and product development in the year to continue supporting our product innovation goals, but also allow us to further develop global brand awareness. With the continued success of international markets, we added another 34 people to allow us to provide our customers with a scalable business model and to support overall business growth. We believe our people are crucially important to our business and its future; further investment will be made in the training and development of all our employees. We also welcome Phillip Blundell as Interim Chief Financial Officer for the business, who is supporting me with the day-to-day responsibilities. Phillip brings with him a wealth of experience, both in growing international businesses and implementing an acquisition growth strategy. Our teams are spread around the globe. However they are all united by one goal: a commitment to customer success. 13 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Chief Executive Officer’s report and financial review continued Expand our product suite: providing organic growth Focus on cross-selling: deeper customer relationships Expand geographical coverage Grow our customer base: increasing our global market presence Organic growth Growth by acquisition Extend multi-channel capabilities Deepening our strategic partnerships: building new connectors Globalising our talent: organisational strength and capabilities Deeper functionalty with our core USP Acquisitions We have been investigating opportunities 1) Companies that can help us expand into beyond organic growth. We do have very strict new geographic markets or allow us to value enhancing criteria to finding strategic grow faster in a market that we currently acquisitions. The areas we would consider operate within; making an acquisition in are: 2) Companies that can allow us to build on our multi-channel capabilities, beginning initially in the mobile and social marketing space; and 3) Companies that can add new functionality (e.g. artifical intelligence) that will add value to our customer base within the mid- and small enterprise market. Our strong financial position and management team means we’re ideally placed to add growth by acquisition. 14 dotdigital Group PlcAnnual Report 2016/2017 Financial review Revenues The Group achieved revenue growth of Balance sheet There was strong cash management in the Dividend policy We are pleased to announce that the Board 19% (2016: 26%), which delivered record year with cash generated from operations of has conducted its review of its organic overall revenues of £32.0m. The quality of £8.8m (2016: £8.0m). The cash at the end business plan for the next three years. This the revenue growth is evidenced by recurring of the period was standing at £20.4m which included evaluating the cash needs required revenues increasing to 81%, up from 78% represents an increase of 18%. The Group for opportunities in organic growth to increase last year. The Group continued to grow continues to be debt free and maintains a shareholder value and capital expenditure. The internationally with revenues accounting healthy balance sheet. A combination of Board has decided that it will continue to keep for 23% of the Group’s total. highly efficient cash collection process and an a progressive dividend in line with EBITDA Business model The Group generates the majority of its revenues from annual message plans incentivisation push to move more customers growth. Therefore, subject to approval at the onto Direct Debit and ACH Collection helped AGM in December 2017, the Board proposes with the year-end position. that the Group will pay a final dividend of 0.55 pence per ordinary share; to be payable at the which are recognised equally over the life Trade receivables have only grown by 16% in end of January 2018. of the contract. In addition, we sell upgrade the year reflecting revenue growth and good packages to customers allowing them to cash management. Overall receivables have use additional modules and features of our grown 26% as a result of a large increase in Outlook The first few months of the new financial platform. For more sophisticated customers prepayments due to the move to the hybrid year have started very well and in line with we will build customised functionality and cloud infrastructure. integrations so that they can maximise the our plan. There has been an increase in the customer numbers across all regions use of their customer data. These professional The Group continues to invest heavily in the compared to the previous year. As we look services contracts are recognised as revenue software platform to increase functionality forwards we continue to invest in the product as the work is performed. For the legacy around marketing automation and in building to further strengthen our position as an customers who contract on a ‘pay as you connectors to e-commerce and CRM innovator as the platform continues to evolve go’, basis revenue is recognised in the month platforms to allow our customers to make to be a data-driven multi-channel marketing the sends are delivered. the most of their data and provide excellent automation platform with artificial intelligence Gross margins The gross margin for the period was 86%, slightly down on last year, due to the indirect model of selling in our international regions and continued investment in direct marketing customer engagement. This continued and machine learning, which empowers our investment is demonstrated by the increase in customers to get a return on investment from product development of £2.2m. their digital marketing. The market continues Tax The Group continues to grow its profitability its very strong growth which puts us in an advantageous position to capitalise on our organic growth strategy. to build long-term annuity revenues. and this feeds into the tax charge, which has increased by 12% to £0.9m. This is an effective The Group has a strong position in changing Operating expenses EBITDA grew by 26% from £8.0m to tax rate of 10.5%. markets and the Board remains confident about the future growth prospects, £10.1m, part of this growth was due to the improvement in margins from moving the EPS In the year the adjusted EPS increased by assuming that there is no adverse change in market conditions and delivery against infrastructure into the cloud which now allows 32% to 2.42p (2016: 1.83p) and adjusted the strategy plan. the platform to scale globally. Investments that diluted EPS has increased to 2.41p (2016: have been made in previous years in product 1.83p). The increase in EPS is driven by the development and sales and marketing are also increased profitability and the reduction in the paying off. effective tax rate to 10.5% from 14%. Operating expenses as a percentage of revenues dropped from 65% to 61%, reflecting better staff utilisation and a significant drop in bad debt charge which originally represented less than 3% of revenue. Milan Patel Chief Executive Officer 16 October 2017 Phillip Blundell Interim Chief Financial Officer 16 October 2017 15 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Risks, mitigations and impact Risk area Impact Mitigation of risk Certain laws and regulations require or may require the Group and its customers 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 proposed legislation could 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 an in-email link. Such laws and regulations could restrict customers’ ability to collect and use email addresses, web browsing data and personal information, which may reduce demand for its products. A crucial implementation migrated the dotmailer platform to a hybrid cloud infrastructure; cloud service providers now host the platform’s web application. An event resulting in multiple cloud data centre failing, for any significant period, or termination of services by a cloud provider, may negatively impact the Group’s business, operating results and financial condition. The nature of cloud computing means that the majority of the dotmailer platform is on shared infrastructure that is more of a target for cyber-attacks. An event resulting in a loss of functionality at, or a total loss of, a data centre that hosts send components for a prolonged period will result in sub-optimal service, potentially leading to a loss in revenues. In addition, events preventing or obstructing the platform’s communication abilities, such as the blacklisting of IP addresses at major internet service providers, incur revenue loss. The ever evolving, sophisticated nature of the cyber threat landscape poses an ongoing risk to the Group. Revenue depends on the availability of computer systems, an attack against which could significantly impact the Group’s ability to function. An attack impacting the confidentiality, integrity, or availability of systems and data would negatively impact the Group’s reputation and therefore its ability to retain and attract new customers. Failure to attract, hire, develop and retain high performing individuals will reduce the ability to achieve the Group’s goals. • Operation of an open-door policy, including the sharing of policies relating to security, compliance and data privacy. • Maintenance of a public-facing Trust Centre communicating important information. • Research into the impact of new or altered legislation to inform free resources. The Group actively contributes to the digital marketing space to advocate best practice and make sure its customers’ needs are represented. • Provisioning of global instances of the platform, allowing customers in these regions to overcome data sovereignty constraints. • Preparation for upcoming regulatory alterations, including the General Data Protection Regulation (GDPR), through process change, platform innovation and audits of both data and processes. • Informed choice of best-of-breed cloud computing providers (Microsoft Azure and Amazon AWS), the architecture of which facilitates quick recovery in the event of a single data region failure. • Development and implementation of three self-sufficient global instances of the platform to serve local customers and avoid global customer impact in the event of a regional outage. • Inheritance of economies of scale and pioneering technology from aforementioned providers, including computing power, bandwidth, and security. • Architecture of the platform is designed with baked-in resilience to cater for single points of failure. • Continual evaluation of suppliers and technologies with the prioritization of send volume, scalability and resiliency. • Continual investment in and maintenance of the Group’s currently owned IP addresses to ensure global reputability and use optimization. • Continual investment in cyber security under the guidance of the Group’s dedicated information security function. • Implementation of regular vulnerability scanning, third-party penetration testing, and security update schedules to proactively detect and remediate against the latest threats. • Engendering a business-wide vigilance against threats through education on security and privacy. • Commitment to the delivery of a comprehensive programme of formal and informal learning and development opportunities aligned to the needs and goals of the business. • Regular evaluation of the benefits to ensure market competitivity. Data privacy Implementation of cloud service providers Supplier, computer hardware and internet reliability- related risks Information security and cyber risks Maximise investment in growing high performance teams 16 dotdigital Group PlcAnnual Report 2016/2017 Risk area Impact Mitigation of risk Competitive environment International expansion Internet service providers (ISPs), reputation and internet browser related risks 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. Reliance on revenues relating to a single region increases the risk of revenue loss if that region was to experience an economic decline. Further, the Group’s geographic expansion increases the risk of certain successful UK policies and practices proving less successful and providing a poorer level of service and assurance in new territories. 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, abuse complaints from providers are not dealt with properly, bad customer data generates multiple complaints through ISPs or third-party spam are blacklisted, these impact the platform’s overall ability to effectively deliver email. • Continual revenue growth year-on year and reinvestment in new product features, best-in-class customer support and service offerings, enhanced brand recognition and service delivery. • A global marketing presence to attract new customers. • Further improvement of dotmailer’s renowned user experience. • Research and Development into big data solutions to underpin a new Artificial Intelligence/Machine Learning platform. • Continual increase in international revenues. • Successful exploration into options relating to geographic expansion above and beyond the UK and US, with recent launches in Asia, the Nordics, Benelux and South Africa; further plans to grow into Western Europe. • Constant review by the executive team for growth opportunities in additional territories. • Proactive hiring of senior individuals in new regions who are experienced in developing successful international business models alongside quality local hires to deliver impeccable region-specific services. • Provision of, and ongoing investment into many core platform services to filter known or bad data that may not comply with EU, Asia Pacific or US anti-spam regulations. • Development of the Group’s deliverability team and consultancy services for customers focused on email delivery, data quality and legislative compliance. • Demonstration of commitment to anti-abuse through admittance to various industry groups, such as the Messaging, Malware and Mobile Anti-Abuse Working Group (M3AAWG), the Email Sender and Provider Coalition (ESPC). • Continuation of the Group’s Board of Directors’ role at both M3AAWG and the ESPC who’s membership includes Google, Microsoft, Yahoo!, Comcast and AOL. • Proactive handling of abuse complaints generated by customer emails, including account suspension and agreement termination. Development and maintenance of products There is a possible risk that without continued investment into new products, maintenance and enhancement of old products and expansion into new sectors, the growth of the Group will be impaired. • Continued realisation of revenue growth from product investment. • Innovation and increased development of new core product offerings in the multi-channel marketing automations space, facilitating new revenue opportunities and increasing the average recurring revenue of the Group’s existing customers. Evolving technology and customer requirements Failure to anticipate or respond to evolving technological channels and customer requirements or to introduce competitive enhancements and new features may impact growth and customer retention. The introduction of new solutions by competitors potentially makes the Group’s solutions less competitive. • A constant focus on enabling unrestrained customer growth through the ease of dotmailer’s best-of-breed integrations. • Continued evaluation and optimization of product performance in the technology landscape to reduce maintenance overheads. • Remaining a credible provider of multi-channel marketing SaaS solutions through constant investment in and development of new solutions, partnerships and enhancements. • Development of a strategy that facilitates the implementation of rapidly changing technologies anticipating client requirements and frequent product enhancements. • Dedication to remaining relevant to both the B2B and B2C verticals, reducing risk through the breadth of the platform’s solutions; this differentiates dotmailer from its competitors. • Continued emphasis on recruiting and retaining leading experts. • Continued focus on combining email marketing and automation capabilities with the need for supporting more conversational channels and leveraging data to drive decisions. 17 dotdigital Group PlcAnnual Report 2016/2017 STRATEGIC REPORT Corporate social responsibility report dotdigital continues to invest time and resource into Corporate Social Responsibility (CSR), ensuring employees, partners and the broader communities are both considered and supported. Clients Ensuring our products and services reflect the needs of our current clients and prospects is of paramount importance. Encouraging and acting on client feedback and research is a key component of our product roadmap and development schedules. Clear and appropriate pricing structures supported by an efficient billing and invoicing system ensure our clients have full transparency with regards to the costs of using the dotdigital SaaS platform and services. Employees The Group is fully committed to encouraging the ‘employee voice’ and acting on the feedback we receive. Whether by informal discussion or by our annual employee satisfaction survey, the opinion and feedback provided by our employees is vital to shaping the business. Support for our employees’ Learning & Development (L&D) has been a primary focus for the business over the last year, with significant investment made to the provision of internal and external training. We The results and positive impact from this accreditation. The corner stones of the charter ensure: fair pay (paying the London Living Wage), employing local wherever possible, employee opportunity and equality and engaging local suppliers of services. We look forward to continuing this work, encouraging and supporting hundreds of local businesses have delivered training in over 30 different training have been significant; therefore, to adopt the charter, achieve accreditation and learning topics including; sales and account a similar level of investment is planned for support ‘good employment’ in the area. management, presentation skills and line the coming year. management, along with a full programme of general business and communication ‘soft skills’ training. This has resulted in over 5,000 Community and business partnership The Group has a strong connection with the Charitable support dotdigital and its employees remain keen supporters of local and national organisations employee training hours being delivered local Croydon community and its supporting and charities. last year. organisations. Working with Croydon Council and key local businesses, including IKEA, Through fundraising events such as bake With the continuing focus on international MIND & Kier Highways, we are proud to sales, sponsored endeavours and social events expansion, this L&D investment has be leaders of a new initiative to create the this year, our employees have raised money included delivery of training to our New ‘Croydon Good Employer Charter’. for Macmillan Cancer Support, Comic Relief, York operations teams. NSPCC and the Breck Foundation. Launched earlier this year, we have been pivotal in designing the charter and leading by Feedback received from our employees example to be the first employer to gain the suggested there was an even greater appetite to support charities. Therefore, as part of 18 dotdigital Group Plc Annual Report 2016/2017 a wider range of key enhancements to our employee benefits this year we have created a new programme which allows each employee to elect to take 2 days paid leave each year to participate in activities to support charities and good causes. Employees are free to propose how they will use their time and interest and uptake in this new programme is already allowing the business to further support good causes. Environmental partnership Our tried and tested adoption of Reduce, Reuse, Recycle runs through all our offices. As a digital business, we continue to strive to reduce printing and waste, and increase the levels of recycling wherever possible. Our office hot-desking arrangements and flexible approach to appropriate telecommuting ensure we avoid unnecessary travel whenever possible. Ensuring we work with data centre and cloud partners and hardware for our employees that set industry standards in energy efficiency ensures we minimize our energy footprint. Strategic report The strategic report was approved by a duly authorised committee of the Board of Directors on 16 October 2017 and signed on its behalf by: Milan Patel Chief Executive Officer 16 October 2017 dotdigital Group Plc Annual Report 2016/2017 19 Governance GOVERNANCE Board of Directors Board of Directors Milan Patel FCCA ACSI Chief Executive Officer Milan joined the Company in 2007 and was appointed Group Simon Bird Milan Patel, FCCA ACSI Company Secretary in 2009, CFO in 2015 and CEO in 2016. Co-Founder Chief Executive Officer, Milan is a fellow member of the Association of Chartered Chief Finance Officer, Company Secretary Certified Accountants and an associate member of the Phillip Blundell ACA Interim Chief Financial Officer Phillip was appointed to the Board in July 2017. He has significant AIM-quoted experience having held senior financial and operational Ian “Tink” Taylor Co-Founder roles with both Intelligent Environments Group plc and Eagle Eye solutions Group Plc, totalling 18 years. He qualified as a Chartered Frank Beechinor-Collins Non-Executive Chairman Peter Simmonds, FCCA Richard Kellett-Clarke, FCA Non-Executive Director Non-Executive Director Chartered Institute of Securities and Investments. He has Accountant in 1987 with Coopers & Lybrand, now part of PwC. been responsible for the admission to Plus and the introduction Milan joined the Company in 2007 and to AIM. was appointed Group Company Secretary in 2009, CFO in 2015 and CEO in 2016. Simon Bird has developed an in depth technical knowledge of the internet and its He also held senior finance roles at Thomson, Nortel and Ocean digital marketing in both the UK and now the applications. Prior to co-founding dotdigital Software, providing finance support to international expansion as US. Since 2006 he has been an influential Group he assisted in the development of a well as strategic acquisitions. member of the UK Direct Marketing co-founder of One Click HR, an AIM quoted of dotmailer and then dotdigital Group Plc Board over 25 years of management IT/Human Resources business which for eight years from 2007 to 2015. Following experience in the turnround and strategic operated in the UK and North America and his retirement in June 2015 he stepped repositioning and recovery of creative 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 major internet access provider. Association’s Email Marketing Council and had around 200 employees. Frank oversaw down into the role of Non-Executive Director. businesses in CMCG, media, electronics He has provided services to a number of well-known companies and organisations in also a member of the Internet Advertising Phillip has considerable strategic experience in growing software Bureau’s e-communications council. businesses both organically and inorganically and has been helping create websites, intranets, extranets, appointed to assist Milan in taking the Group to the next level. In 2014, Tink was elected as Advisory content management systems and other Committee Member of the Board of the US Direct Marketing Association’s Email the successful sale of the business to ADP, Peter commenced his career in 1976 as a and software industries. a $4bn NYSE listed company, for US $25m. trainee accountant with Unilever Plc and has Frank brings a great deal of corporate mostly at senior management and board now part of Thomson Reuters, and Sealed experience and a strong track record in level, principally in the areas of software, Media, now owned by Oracle. He was part M&A to the Board, gained over 25 years of banking, insurance and outsourcing. of the team as CFO which brought Pickwick nearly 40 years of commercial experience He was a founder of AFX NEWS Limited, Experience Council. He constantly strives to working for and running public and private Group PLC to the main market and Brady 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 as a whole, to develop and progress. Executive Chairman of Redstone Connect entrepreneurial experience having been Plc an AIM listed specialist software and 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. dotdigital Group Plc Annual Report 2015/2016 31 He was responsible for the Group’s functions in financial Milan is a fellow member of the Association management and reporting, regulatory compliance, legal and of Chartered Certified Accountants, an corporate governance for the business prior to being made associate member of the Chartered Institute permanent CEO of the Company. He also brings substantial of Securities and Investments. strategic financial and commercial experience to the Board. As well as financial acumen, he has developed a broad range of He has been responsible for the admission operational competencies, a grasp of strategic objectives, clear to Plus and the introduction to AIM. He is also responsible for the Group’s functions leadership, international business development, and strong in financial management and reporting, decisive management skills. regulatory compliance, legal and corporate online solutions. He is prominent on the tech entrepreneur scene and heavily involved in the selection, governance. He also brings substantial Milan is now responsible for leading the executive team, vision technical partners. strategic financial experience to the Board. and growth strategy for the business. More specifically Milan is recruitment and retention of dotmailer’s leading our international growth strategy, accelerated product As well as financial accumen he has innovation, developing strategic partnerships and investigation developed a broad range of operational of potential acquisitions. He has a strong track record of delivery competencies, a grasp of strategic of performance against plan. objectives, clear leadership and strong decisive management skills. 30 dotdigital Group Plc Annual Report 2015/2016 20 dotdigital Group PlcAnnual Report 2016/2017 Frank Beechinor-Collins Non-Executive Chairman Frank was for 11 years, CEO of One Click HR, an with him a quality network of contacts in the fields of AIM-quoted technology business which he was a managed services and Software as a Service. He is co-founder. Frank oversaw the successful sale of also currently Chairman of Redstone Connect plc, the business to ADP, a $4bn NYSE-listed company a leading provider of smart building infrastructure in 2011. Frank brings a great deal of corporate and agile workplace technology. Frank is CEO of experience to the Board, gained over 25 years of Cadence Performance Ltd, a chain of specialist working for and running public and private companies. cycling performance centres and is Chairman at Food Frank has a strong track record in M&A and brings Choice at Work ltd, a spin-out business from University College Cork. Simon Bird Co-Founder Ian “Tink” Taylor Co-Founder Richard Kellett-Clarke CA CMA Non-Executive Director Frank Beechinor-Collins Non-Executive Chairman Peter Simmonds, FCCA Richard has 40 plus years of experience in a variety of Non-Executive Director Richard Kellett-Clarke, FCA Non-Executive Director business (now Oracle), and more recently the CEO finance, IT, operational board and Plc board roles, all of Idox PLC where he grew the business 15 fold over involved in the turnaround and strategic repositioning nine years through organic and acquisitive growth and recovery of creative, businesses in FMCG, media, before moving to a NED role last year. He has also had 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 Milan Patel, FCCA ACSI Chief Executive Officer, Chief Finance Officer, Company Secretary Simon Bird Co-Founder Group he assisted in the development of a member of the UK Direct Marketing 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 associate member of the Chartered Institute He has provided services to a number of Bureau’s e-communications council. Ian “Tink” Taylor of Securities and Investments. Co-Founder well-known companies and organisations in Frank Beechinor-Collins Peter Simmonds, FCCA helping create websites, intranets, extranets, Non-Executive Chairman In 2014, Tink was elected as Advisory Non-Executive Director He has been responsible for the admission content management systems and other Committee Member of the Board of the to Plus and the introduction to AIM. He is online solutions. also responsible for the Group’s functions US Direct Marketing Association’s Email Experience Council. He constantly strives to Governance in financial management and reporting, Tink Taylor has 20 years’ experience in regulatory compliance, legal and corporate digital marketing in both the UK and now the He is prominent on the tech entrepreneur Frank Beechinor, was for 11 years, CEO and help individual organisations, and the industry Peter Simmonds was Chief Executive Officer scene and heavily involved in the selection, co-founder of One Click HR, an AIM quoted of dotmailer and then dotdigital Group Plc as a whole, to develop and progress. Governance Board of Directors Governance Board of Directors Milan Patel, FCCA ACSI Chief Executive Officer, Chief Finance Officer, Company Secretary Governance Board of Directors Milan joined the Company in 2007 and Simon Bird has developed an in depth Tink Taylor has 20 years’ experience in was appointed Group Company Secretary technical knowledge of the internet and its digital marketing in both the UK and now the Milan joined the Company in 2007 and Simon Bird has developed an in depth was appointed Group Company Secretary technical knowledge of the internet and its in 2009, CFO in 2015 and CEO in 2016. applications. Prior to co-founding dotdigital Group he assisted in the development of a Milan is a fellow member of the Association major internet access provider. of Chartered Certified Accountants, an governance. He also brings substantial US. Since 2006 he has been an influential strategic financial experience to the Board. member of the UK Direct Marketing Association’s Email Marketing Council and As well as financial accumen he has also a member of the Internet Advertising associate member of the Chartered Institute He has provided services to a number of developed a broad range of operational Bureau’s e-communications council. recruitment and retention of dotmailer’s IT/Human Resources business which technical partners. operated in the UK and North America and 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. 30 dotdigital Group Plc Annual Report 2015/2016 30 dotdigital Group Plc Annual Report 2015/2016 of Securities and Investments. He has been responsible for the admission to Plus and the introduction to AIM. He is also responsible for the Group’s functions in financial management and reporting, regulatory compliance, legal and corporate governance. He also brings substantial strategic financial experience to the Board. 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. well-known companies and organisations in Milan Patel, FCCA ACSI helping create websites, intranets, extranets, Chief Executive Officer, content management systems and other Chief Finance Officer, competencies, a grasp of strategic Simon Bird objectives, clear leadership and strong In 2014, Tink was elected as Advisory Co-Founder decisive management skills. Committee Member of the Board of the Ian “Tink” Taylor Co-Founder Frank brings a great deal of corporate nearly 40 years of commercial experience Frank Beechinor-Collins mostly at senior management and board Non-Executive Chairman experience and a strong track record in level, principally in the areas of software, US Direct Marketing Association’s Email M&A to the Board, gained over 25 years of banking, insurance and outsourcing. online solutions. Company Secretary the successful sale of the business to ADP, Peter commenced his career in 1976 as a a $4bn NYSE listed company, for US $25m. trainee accountant with Unilever Plc and has He is prominent on the tech entrepreneur Milan joined the Company in 2007 and scene and heavily involved in the selection, was appointed Group Company Secretary recruitment and retention of dotmailer’s in 2009, CFO in 2015 and CEO in 2016. technical partners. Experience Council. He constantly strives to help individual organisations, and the industry Simon Bird has developed an in depth as a whole, to develop and progress. technical knowledge of the internet and its applications. Prior to co-founding dotdigital Group he assisted in the development of a working for and running public and private Governance companies. Frank is also currently a Non- Tink Taylor has 20 years’ experience in Executive Chairman of Redstone Connect digital marketing in both the UK and now the Plc an AIM-listed business. US. Since 2006 he has been an influential member of the UK Direct Marketing Board of Directors 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 associate member of the Chartered Institute He has provided services to a number of Bureau’s e-communications council. of Securities and Investments. well-known companies and organisations in helping create websites, intranets, extranets, In 2014, Tink was elected as Advisory He has been responsible for the admission content management systems and other dotdigital Group Plc to Plus and the introduction to AIM. He is online solutions. Annual Report 2015/2016 30 Committee Member of the Board of the US Direct Marketing Association’s Email also responsible for the Group’s functions Experience Council. He constantly strives to in financial management and reporting, He is prominent on the tech entrepreneur help individual organisations, and the industry regulatory compliance, legal and corporate scene and heavily involved in the selection, as a whole, to develop and progress. governance. He also brings substantial recruitment and retention of dotmailer’s strategic financial experience to the Board. technical partners. He has considerable business Frank Beechinor, was for 11 years, CEO and entrepreneurial experience having been co-founder of One Click HR, an AIM quoted involved at start up or early stage of a IT/Human Resources business which number of companies in various industry operated in the UK and North America and sectors. Peter also has experience of had around 200 employees. Frank oversaw business acquisition and post-acquisition the successful sale of the business to ADP, integration. Peter currently also holds board a $4bn NYSE listed company, for US $25m. positions in the role of Chairman at Cloudcall Company Secretary Chief Finance Officer, Chief Executive Officer, Group plc and IS Solutions plc (both AIM- Frank brings a great deal of corporate quoted companies). In July 2016 he was experience and a strong track record in appointed as a Non-Executive Director M&A to the Board, gained over 25 years of of Eckoh plc and on 6 October 2016 working for and running public and private he was appointed as a board member companies. Frank is also currently a Non- Milan joined the Company in 2007 and Executive Chairman of Redstone Connect was appointed Group Company Secretary of The Quoted Companies Alliance. in 2009, CFO in 2015 and CEO in 2016. Plc an AIM-listed business. Milan Patel, FCCA ACSI Milan is a fellow member of the Association of Chartered Certified Accountants, an associate member of the Chartered Institute for eight years from 2007 to 2015. Following his retirement in June 2015 he stepped had around 200 employees. Frank oversaw down into the role of Non-Executive Director. businesses in CMCG, media, electronics Board of Directors repositioning and recovery of creative Frank Beechinor, was for 11 years, CEO and electronics, and software. Peter Simmonds was Chief Executive Officer co-founder of One Click HR, an AIM quoted operated in the UK and North America and had around 200 employees. Frank oversaw He was a founder and later CEO of AFX News, a of dotmailer and then dotdigital Group Plc for eight years from 2007 to 2015. Following global financial newswire (now Thomson Reuters) and his retirement in June 2015 he stepped Sealed Media Ltd, a digital rights software management down into the role of Non-Executive Director. the successful sale of the business to ADP, Peter Simmonds FCCA Non-Executive Director a $4bn NYSE listed company, for US $25m. Richard Kellett-Clarke, FCA Non-Executive Director Frank brings a great deal of corporate Peter commenced his career in 1976 as a trainee accountant with Unilever Plc and has nearly 40 years of commercial experience Peter was Chief Executive Officer of dotmailer and mostly at senior management and board experience and a strong track record in then dotdigital Group Plc for eight years from 2007 level, principally in the areas of software, M&A to the Board, gained over 25 years of to 2015. Following his retirement in June 2015 he banking, insurance and outsourcing. working for and running public and private companies. Frank is also currently a Non- Mr Richard Kellett-Clarke brings to the Executive Chairman of Redstone Connect Board over 25 years of management Plc an AIM-listed business. experience in the turnround and strategic stepped down into the role of Non-Executive Director. He has considerable business Peter is FCCA Qualified and currently also holds entrepreneurial experience having been board positions in the role of Chairman at Cloudcall involved at start up or early stage of a and software industries. Simon Bird Co-Founder Peter Simmonds, FCCA He was a founder of AFX NEWS Limited, now part of Thomson Reuters, and Sealed Non-Executive Director Media, now owned by Oracle. He was part of the team as CFO which brought Pickwick 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 Richard Kellett-Clarke, FCA Non-Executive Director Group plc and IS Solutions plc (both AIM- Simon has developed an in-depth technical quoted companies). In July 2016 he was knowledge of the internet and its applications. Prior appointed as a Non-Executive Director Group PLC to the main market and Brady to co-founding dotdigital Group he assisted in the of Eckoh plc and on 6 October 2016 Plc to AIM. He is currently the CEO of Idox Peter Simmonds was Chief Executive Officer Plc an AIM listed specialist software and of dotmailer and then dotdigital Group Plc services business. for eight years from 2007 to 2015. Following development of a major internet access provider. He he was appointed as a board member Mr Richard Kellett-Clarke brings to the has provided services to a number of well-known of The Quoted Companies Alliance. Board over 25 years of management companies and organisations in helping create experience in the turnround and strategic his retirement in June 2015 he stepped repositioning and recovery of creative down into the role of Non-Executive Director. businesses in CMCG, media, electronics and software industries. Peter commenced his career in 1976 as a trainee accountant with Unilever Plc and has ‘Tink’ Ian Taylor Co-Founder Simon Bird nearly 40 years of commercial experience mostly at senior management and board Co-Founder level, principally in the areas of software, banking, insurance and outsourcing. He has considerable business Simon Bird has developed an in depth entrepreneurial experience having been technical knowledge of the internet and its involved at start up or early stage of a applications. Prior to co-founding dotdigital number of companies in various industry Group he assisted in the development of a sectors. Peter also has experience of major internet access provider. business acquisition and post-acquisition integration. Peter currently also holds board He has provided services to a number of positions in the role of Chairman at Cloudcall well-known companies and organisations in Group plc and IS Solutions plc (both AIM- helping create websites, intranets, extranets, quoted companies). In July 2016 he was Annual Report 2015/2016 31 content management systems and other appointed as a Non-Executive Director online solutions. of Eckoh plc and on 6 October 2016 Tink has 20 years’ experience in the field of digital Ian “Tink” Taylor He was a founder of AFX NEWS Limited, now part of Thomson Reuters, and Sealed Co-Founder Media, now owned by Oracle. He was part communications and has introduced digital marketing of the team as CFO which brought Pickwick to companies large and small. Tink has been pivotal Group PLC to the main market and Brady in the development of digital marketing since its Plc to AIM. He is currently the CEO of Idox Tink Taylor has 20 years’ experience in outset in both the UK and the US. He served as a key Plc an AIM listed specialist software and digital marketing in both the UK and now the and influential member of the UK Direct Marketing services business. US. Since 2006 he has been an influential Association’s Email Marketing Council and also the member of the UK Direct Marketing Internet Advertising Bureau since 2006. Association’s Email Marketing Council and also a member of the Internet Advertising Bureau’s e-communications council. In 2014, Tink was elected as Advisory Frank Beechinor-Collins Non-Executive Chairman Committee Member of the Board of the US Direct Marketing Association’s Email experience in the flotation of businesses on the main Mr Richard Kellett-Clarke brings to the Board over 25 years of management and AIM market as the CFO of Pickwick Group Plc and experience in the turnround and strategic Brady Plc. Currently he holds two public NED roles and repositioning and recovery of creative a number of advisory roles. businesses in CMCG, media, electronics and software industries. He was a founder of AFX NEWS Limited, now part of Thomson Reuters, and Sealed Group plc and D4T4 Solutions plc (both AIM-quoted Media, now owned by Oracle. He was part companies) and in July 2016 he was appointed as of the team as CFO which brought Pickwick a Non-Executive Director of Eckoh plc and on 6th Group PLC to the main market and Brady October 2016 he was appointed as a board member Plc to AIM. He is currently the CEO of Idox of The Quoted Companies Alliance. Plc an AIM listed specialist software and services business. websites, intranets, extranets, content management systems and other online solutions. He is prominent on the tech entrepreneur scene and heavily involved in the selection, recruitment and retention of dotmailer’s technical partners. Frank Beechinor-Collins Non-Executive Chairman In 2014 Tink was elected as Advisory Committee dotdigital Group Plc Annual Report 2015/2016 31 Association’s Email Experience Council (EEC) and has Member of the Board of the US Direct Marketing judged the USA DMA email awards. Tink first launched Frank Beechinor, was for 11 years, CEO and dotmailer in the US at the back end of 2012 and later co-founder of One Click HR, an AIM quoted took dotmailer to APAC in 2015. He is currently a IT/Human Resources business which strategic advisor to dotmailer and the Plc Board. operated in the UK and North America and Peter Simmonds, FCCA Non-Executive Director Richard Kellett-Clarke, FCA Non-Executive Director Peter Simmonds was Chief Executive Officer Mr Richard Kellett-Clarke brings to the of dotmailer and then dotdigital Group Plc Board over 25 years of management for eight years from 2007 to 2015. Following experience in the turnround and strategic his retirement in June 2015 he stepped repositioning and recovery of creative 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. a $4bn NYSE listed company, for US $25m. trainee accountant with Unilever Plc and has dotdigital Group Plc Frank brings a great deal of corporate experience and a strong track record in mostly at senior management and board nearly 40 years of commercial experience Ian “Tink” Taylor Co-Founder Peter Simmonds, FCCA Non-Executive Director He was a founder of AFX NEWS Limited, now part of Thomson Reuters, and Sealed Richard Kellett-Clarke, FCA Non-Executive Director 21 M&A to the Board, gained over 25 years of level, principally in the areas of software, Media, now owned by Oracle. He was part banking, insurance and outsourcing. of the team as CFO which brought Pickwick Milan Patel, FCCA ACSI Simon Bird of Securities and Investments. Chief Executive Officer, Chief Finance Officer, Company Secretary Milan joined the Company in 2007 and was appointed Group Company Secretary in 2009, CFO in 2015 and CEO in 2016. Milan is a fellow member of the Association of Chartered Certified Accountants, an associate member of the Chartered Institute of Securities and Investments. Co-Founder He has been responsible for the admission to Plus and the introduction to AIM. He is also responsible for the Group’s functions in financial management and reporting, Simon Bird has developed an in depth regulatory compliance, legal and corporate technical knowledge of the internet and its governance. He also brings substantial applications. Prior to co-founding dotdigital strategic financial experience to the Board. Group he assisted in the development of a major internet access provider. As well as financial accumen he has developed a broad range of operational He has provided services to a number of competencies, a grasp of strategic well-known companies and organisations in objectives, clear leadership and strong helping create websites, intranets, extranets, decisive management skills. content management systems and other He has been responsible for the admission to Plus and the introduction to AIM. He is online solutions. 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. 30 dotdigital Group Plc Annual Report 2015/2016 he was appointed as a board member He is prominent on the tech entrepreneur of The Quoted Companies Alliance. Tink Taylor has 20 years’ experience in scene and heavily involved in the selection, digital marketing in both the UK and now the recruitment and retention of dotmailer’s US. Since 2006 he has been an influential technical partners. member of the UK Direct Marketing Association’s Email Marketing Council and also a member of the Internet Advertising Bureau’s e-communications council. In 2014, Tink was elected as Advisory Committee Member of the Board of the US Direct Marketing Association’s Email also responsible for the Group’s functions Experience Council. He constantly strives to working for and running public and private 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 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 Plc an AIM-listed business. involved at start up or early stage of a services business. 30 dotdigital Group Plc Annual Report 2015/2016 dotdigital Group Plc Annual Report 2015/2016 31 Experience Council. He constantly strives to working for and running public and private Group PLC to the main market and Brady 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 as a whole, to develop and progress. Frank Beechinor, was for 11 years, CEO and Peter Simmonds was Chief Executive Officer Executive Chairman of Redstone Connect Mr Richard Kellett-Clarke brings to the entrepreneurial experience having been Plc an AIM listed specialist software and co-founder of One Click HR, an AIM quoted of dotmailer and then dotdigital Group Plc Plc an AIM-listed business. Board over 25 years of management involved at start up or early stage of a services business. IT/Human Resources business which for eight years from 2007 to 2015. Following operated in the UK and North America and his retirement in June 2015 he stepped had around 200 employees. Frank oversaw down into the role of Non-Executive Director. the successful sale of the business to ADP, Peter commenced his career in 1976 as a a $4bn NYSE listed company, for US $25m. trainee accountant with Unilever Plc and has nearly 40 years of commercial experience Frank brings a great deal of corporate Annual Report 2015/2016 31 experience and a strong track record in dotdigital Group Plc mostly at senior management and board level, principally in the areas of software, M&A to the Board, gained over 25 years of banking, insurance and outsourcing. experience in the turnround and strategic number of companies in various industry repositioning and recovery of creative sectors. Peter also has experience of businesses in CMCG, media, electronics business acquisition and post-acquisition and software industries. integration. Peter currently also holds board positions in the role of Chairman at Cloudcall He was a founder of AFX NEWS Limited, Group plc and IS Solutions plc (both AIM- now part of Thomson Reuters, and Sealed quoted companies). In July 2016 he was Media, now owned by Oracle. He was part appointed as a Non-Executive Director of the team as CFO which brought Pickwick of Eckoh plc and on 6 October 2016 Group PLC to the main market and Brady he was appointed as a board member Plc to AIM. He is currently the CEO of Idox of The Quoted Companies Alliance. 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. dotdigital Group Plc Annual Report 2015/2016 31 dotdigital Group PlcAnnual Report 2016/2017 GOVERNANCE Corporate governance report The Board has sought to comply with the The service contracts of the Executive Directors considered at each Board meeting in the future. Quoted Companies Alliance (QCA) Corporate run for one year and are terminable by six The Board is continuing to take steps to embed Governance Code for Small and Mid-sized months’ notice by either party to expire at the internal control and risk management further Quoted Companies 2013, along with a number end of that year or any time thereafter. into the operations of the business and to deal of provisions of the 2014 UK Corporate Governance Code (“The Code”) in so far as it considers them to be appropriate for a (b) Directors’ remuneration As set out on pages 24 and 25 the remuneration with areas of improvement which come to management and the Board’s attention. company of their size and nature. of the Executive Directors is determined by the The Directors acknowledge their responsibilities Remuneration Committee, whilst that of the for the Group’s system of internal financial Compliance statement (a) Directors The details of the Group’s Board, together Non-Executives is determined by the whole control. Such a system can provide reasonable Board. The Directors are conscious of the but not absolute assurance against material importance of performance related incentives misstatement or loss. The Board confirms that with the Audit and Remuneration Committee, and bonuses are paid based on performance the procedures necessary to comply with the are set out on page 20 to 25. as deemed appropriate by the Remuneration provisions of the Code, including the guidance Committee. The Remuneration Committee uses of Turnbull, have been in place throughout the The Board met 11 times in the year and is both financial and non-financial benchmarks to year ended 30 June 2017 and up to the date responsible for strategy, performance, approval determine the Executive Director bonuses. of the Report of the Directors. It has considered of major capital projects and the framework of internal controls. The Board has a formal schedule of matters reserved for specific review (c) Relations with shareholders The Group encourages two-way communications environment. Important control procedures, in addition to the day-to-day supervision of the major business risks and the control and decision. To enable the Board to discharge with all its shareholders and responds quickly to all the business, include comparison of monthly its duties, all Directors receive appropriate requests or queries received. management accounts to the budget. and timely information. Briefing papers are distributed to all Directors in advance of Board All shareholders have at least 21 clear days’ (iii) Audit committee and auditors meetings. All Directors have access to the notice of the Annual General Meeting at which The Audit Committee comprises of Frank advice and services of the Company Secretary, all of the Directors and the Chairman are Beechinor-Collins and Peter Simmonds and is who is responsible for ensuring that Board normally available for questions. Comments chaired by Richard Kellett-Clarke (FCA). The procedures are followed and that applicable and questions are encouraged from the auditors of the Group may also attend part or rules and regulations are complied with. At the shareholders at the meeting. all of each meeting and they have direct access year end there were three Executive Directors, two independent Non-Executive Directors and an independent Non-Executive Chairman. (d) Accountability and audit (i) Financial reporting to the committee for independent discussions, without the presence of the Executive Directors if required. The audit committee may examine Detailed reviews of the performance and any matters relating to the financial affairs All Directors had a record of full attendance at all financial position of the Group are included in of the Group, and to the Group’s audit. This board and committee meetings. The Nomination the Chief Executive’s statement. The Board uses includes review of the annual accounts and Committee met twice and comprises of Frank this and the Report of the Directors on pages 26 announcements, accounting policies, compliance Beechinor-Collins, Richard Kellett-Clarke and to 27 to present a balanced and understandable with accounting standards, the appointment and Peter Simmonds. The Committee is responsible assessment of the Group’s position and fees of auditors and such other related functions for identifying and proposing prospective prospects. The Directors’ responsibility for the as the Board may require. candidates to the Directors for consideration financial statements is described on page 27. and appointment by the Board as a whole. (iv) Going concern basis The Risk Committee met four times in the (ii) Internal control After making enquiries, the Directors have year and consists of Frank Beechinor-Collins, The Board confirms that it has established formed a judgement, at the time of approving the Richard Kellett-Clarke, Milan Patel and Peter the procedures necessary to implement the financial statements, that there is a reasonable Simmonds, it is responsible for identifying and guidance set out in “Internal Control: Guidance expectation that the Group has adequate mitigating potential risks and weaknesses in for Directors on the Combined Code”. The resources to continue in operational existence control procedures. The current composition process of risk identification, evaluation and for the foreseeable future. For this reason the of the Remuneration Committee and the Audit management has been considered by the Directors continue to adopt the going concern Committee is shown on page 23 to 25. Board. It is the intention that this will continue basis in preparing the financial statements. to be kept under constant review and will be 22 dotdigital Group PlcAnnual Report 2016/2017 Audit Committee report The Audit Committee is a sub-committee of the Board. The responsibilities of the Composition of the Audit Committee The Audit Committee comprises of Frank Independence of external auditors Both the Board and the external auditors have committee include: Beechinor-Collins, Peter Simmonds and safeguards in place to avoid the possibility that Richard Kellett-Clarke. The Chairman of the the auditors’ objectivity and independence Audit Committee is Richard Kellett-Clarke. could be compromised. Our policy in respect The Committee meets separately with the of services provided by the external auditors external auditors without management being is as follows: • 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; present. The Secretary to the committee is Company Secretary George Kasparian. Main activities of the Audit Committee At its meeting on 10 October 2017 the Committee reviewed the Group’s preliminary announcement of its results for the financial year 30 June 2017 and the draft report and accounts for that year. The Committee received reports from the external auditors on the conduct of their audit, their review of the accounts, including accounting policies and areas of judgement, and their comments on risk management and control matters. The external auditors also presented their • Monitoring and reviewing the effectiveness proposed fees and scope for the forthcoming 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. • Audit related services – the external auditors are invited to provide services which, in their position as auditors, they must or are best placed to undertake. This includes formalities relating to borrowings, shareholders and other circulars, various other regulatory reports and work in respect of acquisitions and disposals; • Tax consulting – in cases where they are best suited, we use the external auditors. All other significant tax consulting work is put out to tender; • General consulting – in recognition of public concern over the effect of consulting services on auditors’ independence, our policy is that the external auditors are not invited to tender for general consulting work. Internal management accounting The Audit Committee reviewed the performance of the internal accounting function, the department’s resource requirements and also approved the internal budgets for the year ended 30 June 2018. The Committee concluded that these budgets were both prudent and realistic in the context of the Group’s ambitions. 23 dotdigital Group PlcAnnual Report 2016/2017 GOVERNANCE Remuneration Committee report The Remuneration Committee The Group discloses the following information on Directors’ remuneration mindful of Rule 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 19 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 to between reward for short-term success and and is terminable by six months’ notice by comply with the Main Market UK Listing Rules long-term growth. For Executive Directors, this either party to expire at the end of that year or or those aspects of the Companies Act to listed is summarised as follows: at any time thereafter. The agreement contains companies regarding the disclosure of Directors’ remuneration. The Committee comprises Richard Kellett- Clarke (Chairman) and Frank Beechinor-Collins. The Secretary to the committee is George Kasparian, Company Secretary. Remuneration policy The Group’s executive remuneration policy 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; 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 objectives are: • Role and responsibility of the individual the performance of staff in conjunction with (a) To ensure that individual rewards and Director. incentives are directly aligned with the performance of the Group and that of the Benefits interests of the shareholders; • Aligned to total reward structure for all (b) To maintain a competitive programme employees; which enables the Group to attract and • Provided on a market competitive basis. retain high calibre executives; and (c) To determine the terms of employment Annual Bonus Scheme and remuneration for Executive Directors. • Group PBT with an individual performance the Group during the, annual review process. Discretionary bonuses are awarded based on individual and Group performance. Approved by the Remuneration Committee Signed on its behalf by element linked to object delivery; • Driving profitability and strategic change across the Group; • Delivery of the overall business strategy. Richard Kellett-Clarke Chairman of Remuneration Committee 24 dotdigital Group PlcAnnual Report 2016/2017 Salary/Fees £’000 Benefits £’000 Bonus £’000 Ex-gratia payment £’000 Pension £’000 Share-based payment £’000 Total £‘000 Number of outstanding options 12-month period to 30.06.17 24 6 247 120 397 – 6 10 20 36 – – 125 – 125 – – – – – – 12 25 13 50 123 – – – 123 147 24 407 153 731 – – – – – Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 39 33 66 138 – – 3 3 – – – – 1 – – 1 – – – – Number of outstanding options – – – Total £‘000 40 33 69 142 Salary/Fees £’000 Benefits £’000 Bonus £’000 183 54 205 120 562 3 3 9 18 33 – – 125 – 125 12-month period to 30.06.16 Ex-gratia payment £’000 137 – – – 137 Pension £’000 Share-based payment £’000 Total £‘000 Number of outstanding options – 13 20 12 45 114 437 423,409 – – – 70 359 150 – – – 114 1,016 423,409 Salary/Fees £’000 Benefits £’000 Bonus £’000 Pension £’000 Share-based payment £’000 39 33 65 137 – – 1 1 – – – – 1 – – 1 – – – – Number of outstanding options – – – Total £‘000 40 33 66 139 Executive Directors S J Barratt S Bird M Patel I Taylor Non-Executive Directors F Beechinor-Collins R Kellett-Clarke P Simmonds Executive Directors S J Barratt S Bird M Patel I Taylor Non-Executive Directors F Beechinor-Collins R Kellett-Clarke P Simmonds 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: F Beechinor-Collins** S Bird R Kellett-Clarke M Patel P Simmonds* I Taylor No of shares held % Holding 199,194 17,558,996 390,000 1,575,927 2,491,470 29,776,667 51,992,254 0.07 5.93 0.13 0.53 0.84 10.05 17.55 * 1,477,972 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 Frank 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 None of the Directors had an interest in share options. 25 dotdigital Group PlcAnnual Report 2016/2017 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 financial statements of the Company and the Group as recorded in the Register of Directors’ interests at 30 June 2017 are as follows: Group for the year ended 30 June 2017. Information relating to principal activity, review of business, key performance indicators and future Directors 30.6.17 30.6.16 Number of shares held Percentage shareholding % Number of shares held Percentage shareholding % F Beechinor-Collins 199,194** 0.07 199,194** 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 growth from continuing operations in customer numbers, sales and profits. Revenues grew from £26.9m in the year ended June 2016 to £32.0m for the year ended June 2017, an increase of 19%. Operating profit grew from £6.2m in 12 months to June 2016 to £8.1m for the year ended June 2017, an increase of 31%. 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 ARPU 2017 % 2016 increase £32.0m £26.9m 19% £10.1m £8.0m 26% £715 £575 24% Dividends The Board proposes a dividend payment of £1,629,312 comprising an ordinary dividend of 0.55p (2016: £2,477,272 ordinary dividend of 0.43p and special dividend of 0.41p per ordinary share) to be distributed to shareholders S Bird R Kellett-Clarke M Patel P Simmonds I Taylor 17,558,996 5.93 17,558,996 390,000 1,575,927 2,491,470* 0.13 0.53 0.84 320,000 1,575,927 3,991,470* 29,776,667 10.05 36,776,667 12.48 0.07 5.96 0.11 0.53 1.35 *Frank Nominees Limited holds 1,477,972 shares in respect of Peter Simmonds holding/voting rights acting as nominee for Alliance Trust Pensions Limited. Frank Nominees is a 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 Frank Beechinor-Collins are owned by Curra Trust, a trust established for the benefit of his children and in which he has no beneficial interest. 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 2017 are as follows: Executive Directors S J Barratt 30.6.17 Number of options held 30.6.16 Number of options held – 423,409 Substantial interests On 4 October 2017, 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: Shareholder Liontrust Asset Management Ian ‘Tink’ Taylor, Co-Founder & President Simon Bird, Co-Founder & President Slater Investments Ltd Canaccord Genuity Group Inc Herald Investment Management Highclere International Investors Franklin Templeton Fund Management Number of shares held 59,730,575 29,776,667 17,558,996 17,417,123 13,550,714 10,490,804 10,187,214 9,500,000 9,200,000 Percentage shareholding % 20.16 10.05 5.93 5.88 4.57 3.54 3.44 3.21 3.11 in respect of the Group’s reported performance. J O Hambro Capital Management The Board’s dividend policy will be reviewed annually in line with the cash needs required for opportunities in organic growth to increase shareholder value and capital expenditure. 26 dotdigital Group PlcAnnual Report 2016/2017 Future outlook The Group provides email and cross-channel Events after the reporting period There are no events after the date of this report position of the Company and the Group and enable them to ensure that the financial marketing technology and services. Each or the date the financial statements were statements comply with the Companies of these areas has shown market growth approved by the Board of Directors which Act 2006. They are also responsible for significantly above that of the UK economy. impact on the figures as presented. safeguarding the assets of the Company and 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 the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. profitability in the coming year. on London Alternative Investment Market (AIM) since 29 March 2011. N+1 Singer are the The Directors are responsible for the Directors The Directors shown below have held office Group’s nominated adviser and together with maintenance and integrity of the corporate and Finncap are the joint brokers. The closing mid- financial information included on the Company’s during the whole of the period from 1 July 2016 market share price at 30 June 2017 was 67.5p website. Legislation in the United Kingdom to the date of this report. (2016: 40.5p). governing the preparation and dissemination of financial statements may differ from legislation in S J Barratt (resigned 20 July 2016) F Beechinor-Collins S Bird Statement of Directors’ responsibilities The Directors are responsible for preparing other jurisdictions. the Report of the Directors and the financial Statement as to disclosure of information P Blundell (appointed 26 September 2017) statements in accordance with applicable law R Kellett-Clarke M Patel P A Simmonds I Taylor Indemnity of officers The Group purchases directors and officers and regulations. to auditors So far as the Directors are aware, there is no relevant audit information (as defined by Section Company law requires the Directors to prepare 418 of the Companies Act 2006) of which financial statements for each financial year. the Group’s auditors are unaware, and each Under that law the Directors have elected to Director has taken all the steps that he ought prepare the financial statements in accordance to have taken as a Director in order to make with International Financial Reporting Standards himself aware of any relevant audit information insurance against their costs in defending as adopted by the European Union. Under and to establish that the Group’s auditors are themselves in legal proceedings taken company law the Directors must not approve aware of that information. against them in that capacity, and in respect the financial statements unless they are satisfied of damages resulting from the unsuccessful that they give a true and fair view of the state of defence of any proceedings. affairs of the Company and the Group and of Auditors The auditors, Jeffreys Henry LLP, will be Financial instruments Details of the Group’s risk management objectives and policies together with its exposure to financial risk are set out in note 21 to the financial statements. The purpose of the policies is to ensure that adequate cost-effective funding is available to the Group and exposure to financial risk - interest rate, liquidity and credit risk – is minimised. 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 the profit or loss of the Group for that period. proposed for reappointment at the forthcoming In preparing these financial statements, the Annual General Meeting. Directors are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and accounting estimates that are reasonable and prudent; • State whether the Group and Parent Company financial statements have been prepared in accordance with IFRSs as adopted by the European Union subject to any material departures disclosed and explained in the financial statements; • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping On behalf of the Board: Milan Patel Chief Executive Officer 16 October 2017 consider that the Company and the Group has adequate accounting records that are sufficient adequate resources to continue in operational to show and explain the Company’s and existence for the foreseeable future. For this the Group’s transactions and disclose with reason they continue to adopt the going concern reasonable accuracy at any time the financial basis in preparing the financial statements. 27 dotdigital Group PlcAnnual Report 2016/2017 GOVERNANCE Report of the independent auditor Opinion We have audited the financial statements of Basis for opinion We conducted our audit in accordance with These matters were addressed in the context of our audit of the financial statements as a dotdigital Group Plc (the ‘Parent Company’) International Standards on Auditing (UK) (ISAs whole, and in forming our opinion thereon, and its subsidiaries (the ‘Group’) for the (UK)) and applicable law. Our responsibilities and we do not provide a separate opinion year ended 30 June 2017 which comprise under those standards are further described on these matters. This is not a complete list the consolidated income statement, in the Auditor’s responsibilities for the audit of all risks identified by our audit. consolidated statement of comprehensive of the financial statements section of our income, consolidated statement of changes report. We are independent of the company in equity, company statement of changes in in accordance with the ethical requirements equity, consolidated statement of financial that are relevant to our audit of the financial position, company statement of financial statements in the UK, including the FRC’s position, consolidated statement of cash Ethical Standard as applied to listed entities, flows, company statement of cash flows and and we have fulfilled our other ethical notes to the financial statements, including a responsibilities in accordance with these summary of significant accounting policies. requirements. We believe that the audit • Capitalisation of Development costs • Valuation of investments and intangible assets. • Share-based payment charges These are explained in more detail below Materiality: Group financial statements: The financial reporting framework that has evidence we have obtained is sufficient and • £460,000 (30 June 2016: £400,000) been applied in the preparation of the Group appropriate to provide a basis for our opinion. • Based on the average of the following: financial statements is applicable law and Conclusions relating to going concern International Financial Reporting Standards We have nothing to report in respect of the (IFRSs) as adopted by the European following matters in relation to which the ISAs Union. The financial reporting framework (UK) require us to report to you where: that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 101 Reduced Disclosure Framework (United Kingdom Generally Accepted Accounting Practice). In our opinion: • the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 30 June 2017 and of the Group’s profit for the year then ended; • the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not • Based on the same parameters set appropriate; or out as the Group financial statements, • the Directors have not disclosed in the financial statements any identified material uncertainties that may cast above. Audit scope significant doubt about the Group’s or • We conducted audits of the complete the Parent Company’s ability to continue financial information of dotdigital Group to adopt the going concern basis of Plc, dotmailer Limited, dotmailer Inc., accounting for a period of at least 12 dotsearch Europe Limited, dotmailer Pty months from the date when the financial Limited, dotmailer SA Pty Limited and statements are authorised for issue. dotmailer Development Limited. a. b. c. 1% of Revenue 2.5% of Gross Assets 10% of Net Profit Company financial statements: • £71,000 (30 June 2016: £50,000) • the Group financial statements have been Our audit approach properly prepared in accordance with IFRSs as adopted by the European Union; Overview Key audit matters • the Parent Company financial statements have been properly prepared in accordance with IFRS’s as adopted by the European Union; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. 28 • We performed specified procedures over certain account balances and transaction classes at other Group companies. • Taken together, the Group companies over which we performed our audit procedures accounted for 100% of the absolute profit before tax (i.e. the sum of the numerical values without regard to whether they were profits or losses for the relevant reporting units) and 100% of revenue. dotdigital Group PlcAnnual Report 2016/2017 Key audit matters Key audit matter How our audit addressed the key audit matter Capitalisation of Development costs During the year the company capitalised costs of £2,378,253 (30 June We considered whether the nature of the costs met the criteria for 2016: £1,570,379) in relation to the platform and process improvements. the costs to be capitalised. These capitalised costs are being amortised over five years. We vouched a sample of the costs capitalised that relate to specific The Directors have assessed whether the costs meet the criteria for projects and created add on functions with the system. capitalisation and whether there are any indicators of impairment. We agreed a sample of the internal staff costs capitalised to supporting The adjusted consolidated profit before tax, which is considered calculations, time records and payroll calculations. by management to be a key metric and is discussed in their discussion of KPIs, is directly impacted by the amount of costs capitalised and the amounts included in the reconciliation of the adjusted income measures. We focused on whether the costs capitalised met the criteria for capitalisation and whether, those costs were classified as ongoing In both cases, we considered whether the nature of the costs met the criteria for the costs to be capitalised. We considered whether the Directors’ policy for the treatment of such costs was reasonable and, on a sample basis, assessed whether the costs included in the reconciliation were in line with the Directors’ policy. projects or process improvements costs. We found no material exceptions in our testing. Investments / Intangibles carrying value The Company had investments of £5,186,604 at the year ended The net assets of the main subsidiary exceeds that of the investment 30 June 2017 (30 June 2016: £5,186,497). carrying value, supported by robust performance with no going The Directors have confirmed all investments, including additions concern issues. were correctly calculated and being held at cost. The analysis work undertaken by Directors shows that the Group The Group had capitialised development costs of £4,341,785 at the year ended 30 June 2017. is expected to remain cash generative and profitable based on their technology. We have understood and assessed the methodology used by the Directors in this analysis and determined it to be The Directors have confirmed all intangibles, including additions reasonable. were correctly calculated. The Company had goodwill of £608,503 at the year ended 30 June 2017 (30 June 2016: £608,503). Intangibles are only assessed for impairment when indicators of impairment exist. We have considered the life cycle, public perception through the share price of the Company and the fair value of intangibles The Directors have confirmed goodwill is carried correctly. held by the Company. Share-based payment charge The charge for the year is made up as follows: Options granted £162,089 As all the capitalised intangibles relate to products that dotmailer is using to enhance its product we consider it reasonable that no impairment has been recognised in the period. We have understood and assessed the methodology utilised to estimate the Company’s share-based payment charge calculations and checked that the calculation of the provision was mathematically All share options and warrants that vest in the period have been accurate. reviewed for the purpose of calculating an appropriate share-based payment charge. The Black-Scholes model has been used to value We found no material exceptions in our testing. the options and warrants at the grant date. We have audited the share-based payment by reviewing the key inputs Options have estimated vesting periods based on management’s assumptions and the share-based payment is spread evenly over this period from the date of grant. Warrants vested on the grant date and the share-based payment was fully charged to the profit and loss during the year. There is therefore judgment in the valuation of share-based payments, owing to the estimation uncertainty that exists around future vesting periods. used in the model for reasonableness. The key input most subjective is that of expected future volatility. We have reviewed management’s calculation of the expected volatility of 30% based on similar tech companies and determined the estimation to be reasonable. 29 dotdigital Group PlcAnnual Report 2016/2017 GOVERNANCE Report of the independent auditor continued Our application of materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgment, we determined materiality for the financial statements as a whole as follows: Overall materiality £460,000 (30 June 2016: £400,000). £71,000 (30 June 2016: £50,000). Group financial statements Company financial statements How we determined it Based on the average of 10% of profit before tax, Based on the average of 10% of loss before tax 1.5% of gross assets and 1% of Revenue. and 1.5% of gross assets. Rationale for We believe that profit before tax is a primary measure We believe that profit before tax is a primary measure benchmark applied used by shareholders in assessing the performance used by shareholders in assessing the performance of the Group whilst gross asset values and revenue of the Company whilst gross asset values are a are a representation of the size of the Group; both are representation of the size of the Company; both are generally accepted auditing benchmarks. generally accepted auditing benchmarks. For each component in the scope of our whether there was evidence of bias by the to whether they were profits or losses for the Group audit, we allocated a materiality that directors that represented a risk of material relevant reporting units). We also performed is less than our overall Group materiality. misstatement due to fraud. specified audit procedures over goodwill and The range of materiality allocated across components was between £5,000 and £460,000. How we tailored the audit scope We tailored the scope of our audit to ensure other intangible assets, as well as certain account balances and transaction classes that we regarded as material to the Group at that we performed enough work to be able to the 7 reporting units, one based in the United We agreed with the Audit Committee that we give an opinion on the financial statements as States of America, one in Australia, one in would report to them misstatements identified a whole, taking into account the structure of Belarus and another in South Africa. during our audit above £23,000 (Group the Group and the Company, the accounting audit) (30 June 2016: £20,000) and £3,550 processes and controls, and the industry in (Company audit) (30 June 2016: £1,000) as which they operate. well as misstatements below those amounts Other information The Directors are responsible for the other information. The other information comprises that, in our view, warranted reporting for The Group financial statements are a the information included in the Annual Report, qualitative reasons. consolidation of 7 reporting units, comprising other than the financial statements and our the Group’s operating businesses and auditor’s report thereon. Our opinion on An overview of the scope of our audit As part of designing our audit, we determined holding companies. the financial statements does not cover the other information and, except to the extent materiality and assessed the risks of material We performed audits of the complete financial otherwise explicitly stated in our report, misstatement in the financial statements. In information of dotdigital Group Plc, dotmailer we do not express any form of assurance particular, we looked at where the Directors Limited, dotmailer Inc., dotsearch Europe conclusion thereon. made subjective judgments, for example in Limited, dotmailer Pty Limited, dotmailer respect of significant accounting estimates SA Pty Limited and dotmailer Development In connection with our audit of the financial that involved making assumptions and Limited reporting units, which were individually statements, our responsibility is to read the considering future events that are inherently financially significant and accounted for 100% other information and, in doing so, consider uncertain. As in all of our audits we also of the Group’s revenue and 100% of the whether the other information is materially addressed the risk of management override Group’s absolute profit before tax (i.e. the inconsistent with the financial statements of internal controls, including evaluating sum of the numerical values without regard or our knowledge obtained in the audit or 30 dotdigital Group PlcAnnual Report 2016/2017 otherwise appears to be materially misstated. • certain disclosures of Directors’ As part of an audit in accordance with ISAs If we identify such material inconsistencies remuneration specified by law are not (UK), we exercise professional judgment and or apparent material misstatements, we made; or maintain professional scepticism throughout are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • we have not received all the information the audit. We also: and explanations we require for our audit. • Identify and assess the risks of material Responsibilities of directors As explained more fully in the Directors’ misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to responsibilities statement set out on page those risks, and obtain audit evidence 30, the Directors are responsible for the that is sufficient and appropriate to preparation of the financial statements and provide a basis for our opinion. The risk for being satisfied that they give a true and of not detecting a material misstatement fair view, and for such internal control as the resulting from fraud is higher than for one Directors determine is necessary to enable resulting from error, as fraud may involve the preparation of financial statements that collusion, forgery, intentional omissions, are free from material misstatement, whether misrepresentations, or the override of • the information given in the strategic due to fraud or error. internal control. report and the Directors’ report for the financial year for which the financial In preparing the financial statements, the statements are prepared is consistent Directors are responsible for assessing the with the financial statements; and Group’s and Parent Company’s ability to • the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements. Matters on which we are required to report by exception In the light of the knowledge and understanding of the Group and Parent continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Company and its environment obtained in Auditor’s responsibilities for the audit of the course of the audit, we have not identified material misstatements in the strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or • the Parent Company financial statements are not in agreement with the accounting records and returns; or the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s or the Parent Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Parent Company to cease to continue as a going concern. 31 dotdigital Group PlcAnnual Report 2016/2017 GOVERNANCE Report of the independent auditor continued • Evaluate the overall presentation, structure and content of the financial Use of this report This report, including the opinions, has statements, including the disclosures, been prepared for and only for the Parent and whether the financial statements Company’s members as a body in represent the underlying transactions accordance with Chapter 3 of Part 16 of and events in a manner that achieves the Companies Act 2006 and for no other fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. direction, supervision and performance Other matters which we are required to of the group audit. We remain solely responsible for our audit opinion. address We were appointed as auditors by the Company at the Annual General Meeting on 20 December 2016. Our total uninterrupted period of engagement is 10 years, covering the periods ending 30 June 2009 to 30 June 2017. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting our audit. Our audit opinion is consistent with the additional report to the audit committee. Jonathan Isaacs Senior Statutory Auditor For and on behalf of Jeffreys Henry LLP, Statutory Auditor Finsgate 5-7 Cranwood Street London EC1V 9EE 16 October 2017 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 32 dotdigital Group PlcAnnual Report 2016/2017 FINANCIAL STATEMENTS Financial statements Contents Financial statements Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Company statement of financial position Consolidated statement of changes in equity Company statement of changes in equity Consolidated statement of cash flows Company statement of cash flows Notes to the consolidated financial statements Company information 34 34 35 36 37 38 39 39 40 IBC dotdigital Group Plc Annual Report 2016/2017 33 Consolidated income statement For the year ended 30 June 2017 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 30.6.17 £’000 30.6.16 £’000 31,966 (4,459) 27,507 (19,431) 8,076 15 8,091 (945) 7,146 7,146 26,926 (3,395) 23,531 (17,367) 6,164 51 6,215 (847) 5,368 5,368 2.42 2.41 1.83 1.83 6 5 6 7 10 10 Consolidated statement of comprehensive income For the year ended 30 June 2017 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 30.6.17 £’000 7,146 30.6.16 £’000 5,368 (54) 11 7,092 5,379 7,092 5,379 34 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS Consolidated statement of financial position For the year ended 30 June 2017 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 30.6.17 £’000 30.6.16 £’000 11 12 13 15 16 17 18 18 18 18 18 22 19 609 4,519 1,033 6,161 7,847 20,428 28,275 34,436 1,481 6,290 (4,695) 305 (46) 25,306 28,641 609 3,684 1,142 5,435 6,206 17,313 23,519 28,954 1,473 6,138 (4,695) 174 8 20,611 23,709 814 716 4,440 541 4,981 5,795 4,151 378 4,529 5,245 34,436 28,954 The financial statements were approved and authorised for issue by the Board of Directors on 16 October 2017 and were signed on its behalf by: Milan Patel Director Company registration number: 06289659 (England and Wales) 35 dotdigital Group PlcAnnual Report 2016/2017 Company statement of financial position For the year ended 30 June 2017 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 30.6.17 £’000 30.6.16 £’000 14 15 16 17 18 18 18 19 5,187 5,187 4,633 591 5,224 5,186 5,186 7,102 639 7,741 10,411 12,927 1,481 6,290 305 2,239 1,473 6,138 174 5,080 10,315 12,865 96 96 62 62 10,411 12,927 The financial statements were approved and authorised for issue by the Board of Directors on 16 October 2017 and were signed on its behalf by: Milan Patel Director Company registration number: 06289659 (England and Wales) 36 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS Consolidated statement of changes in equity For the year ended 30 June 2017 Balance as at 1 July 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 Issue of share capital Dividends Transfer in reserves Share-based payment Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Balance as at 30 June 2017 Balance as at 1 July 2015 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 2016 Issue of share capital Dividends Transfer in reserves Share-based payments Transactions with owners Profit for the year Other comprehensive income Total comprehensive income Balance as at 30 June 2017 Called up share capital £’000 1,435 38 – – 38 – – – 1,473 8 – – – 8 – – – 1,481 Reverse acquisition reserve £’000 (4,695) – – – – – – – – (4,695) – – – – – – – – Retained earnings £’000 16,297 – (1,054) – (1,054) 5,368 – 5,368 20,611 – (2,479) 28 – (2,451) 7,146 – 7,146 25,306 Other reserves £’000 (25) – – – 199 199 – – – 174 (3) – (28) 162 131 – – – (4,695) 305 Share premium £’000 5,382 756 – – 756 – – – 6,138 152 – – – 152 – – – 6,290 Total equity £’000 18,391 794 – (1,054) 199 (61) 5,368 11 5,379 23,709 157 (2,479) – 162 (2,160) 7,146 (54) 7,092 28,641 Retranslation reserve £’000 (3) – – – – – – 11 11 8 – – – – – – (54) (54) (46) 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. 37 dotdigital Group PlcAnnual Report 2016/2017 Company statement of changes in equity For the year ended 30 June 2017 Balance as at 1 July 2015 Issue of share capital Dividends Share repurchase Share-based payment Transactions with owners Profit for the year Total comprehensive income Balance as at 30 June 2016 Issue of share capital Dividends Transfer in reserves Share-based payment Transactions with owners Profit for the year Total comprehensive income Called up share capital £’000 1,435 38 – – – 38 – – 1,473 8 – – – 8 – – Balance as at 30 June 2017 1,481 Retained earnings £’000 1,534 – (1,054) – – (1,054) 4,600 4,600 5,080 – (2,479) 28 – (2,451) (390) (390) 2,239 Share premium £’000 5,382 756 – – – 756 – – 6,138 152 – – – 152 – – Other reserves £’000 (25) – – – 199 199 – – 174 (3) – (28) 162 131 – – Total equity £’000 8,326 794 (1,054) – 199 (61) 4,600 4,600 12,865 157 (2,479) – 162 (2,160) (390) (390) 6,290 305 10,315 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. Other reserves relate to the charge for the share-based payment in accordance with International Financial Reporting Standard 2 and shares repurchased in the year classified as treasury shares. 38 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS Consolidated statement of cash flows For the year ended 30 June 2017 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 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 2017 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 30.6.17 £’000 30.6.16 £’000 8,813 (685) 8,128 (2,379) (375) 48 15 7,997 (335) 7,662 (1,570) (502) – 51 (2,691) (2,021) (2,479) 157 (2,322) 3,115 17,313 20,428 (1,054) 794 (260) 5,381 11,932 17,313 30.6.17 £’000 30.6.16 £’000 2,274 2,274 733 733 (2,479) (1,054) 157 – (2,322) (48) 639 591 794 – (260) 473 166 639 39 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements For the year ended 30 June 2017 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 26. 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 Company There are no IFRSs or IFRIC interpretations that are effective for the first time in the financial year beginning on or after 1 July 2016 that would be expected to have a material impact on the Company. 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 2016 and have not been early adopted: Reference Title Summary IFRS 4 Insurance Contracts Amendments regarding the interaction of IFRS 4 and IFRS9 IFRS 15 Revenue from Contracts with Customers Original issue Amendments to defer the effective date Clarifications to IFRS IAS 7 Statement of Cash Flows Amendments as a result of the Disclosure initiative IAS 12 Income Taxes Amendments regarding the recognition of deferred tax for unrealised losses IAS 40 Investment Property Amendments to clarify transfers or property to, or from, investment property. Amendments resulting Annual improvements 2014-2016 Cycle IFRS 1, IFRS 2, IAS 28 IFRS 16 Leases Original issue IFRS 9 Financial Instruments Amendments regarding the interaction of IFRS 4 and IFRS9 Amendments to IFRS 12 Disclosure of interests in other entities Amendments to IFRIC 22 Foreign Currency transactions and advance consideration Amendments resulting from Annual Improvements 2014-2016 (Clarifying Scope) Amendments to clarify the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. IFRIC 23 Uncertainty over income tax treatment Address how to reflect uncertainty in accounting for income tax 40 Application date of standard Periods beginning on or after 1 January 2018 Periods beginning on or after 1 January 2018 Periods beginning on or after 1 January 2018 Periods beginning on or after 1 January 2018 Periods beginning on or before 1 January 2017 Periods beginning on or before 1 January 2017 Periods beginning on or after 1 January 2018 Annual periods beginning on and after 1 January 2018 Annual periods beginning on or after 1 January 2019 Periods beginning on or after 1 January 2018 Annual periods beginning on or after 1 January 2017 Annual periods beginning on or after 1 January 2019 Application date of Group 1 July 2018 1 July 2018 1 July 2018 1 July 2018 1 July 2017 1 July 2017 1 July 2018 1 July 2018 1 July 2019 1 July 2018 1 July 2017 1 July 2019 Annual periods beginning on or after 1 January 2019 1 July 2019 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 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 company. The Company does not intend to apply any of these pronouncements early. In regard to IFRS15, the Board has initiated a project to assess the likely impact ahead of its implementation. The Board does not expect this to have a material impact on the financial statements. 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. The financial statements are presented in sterling (£), rounded to the nearest thousand pound. Basis of consolidation In the period ended 2009, the Company acquired via a share for share exchange the entire issued share capital of dotmailer Limited, whose principal activity is that of web and email-based marketing. Under IFRS 3 ‘Business combinations’ the dotmailer Limited share exchange has been accounted for as a reverse acquisition. Although these consolidated financial statements have been issued in the name of the legal parent, the Company it represents in substance is a continuation of the financial information of the legal subsidiary, dotmailer Limited. The following accounting treatment has been applied in respect of the reverse acquisition: • The assets and liabilities of the legal subsidiary, dotmailer Limited, are recognised and measured in the consolidated financial statements at their pre- combination carrying amounts, without restatement to their fair value; • The retained reserves recognised in the consolidated financial statements for the beginning of the prior period reflect the retained reserves of dotmailer Limited to 30 April 2008. However, in accordance with IFRS3 ‘Business combinations’, the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent dotdigital 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 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. 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. 41 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 2. Accounting policies continued 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 of 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 42 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. dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 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. 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. 43 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 2. Accounting policies continued • Trade payables 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. 44 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 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS of those financial instruments at the date of grant. If the equity instruments granted vest immediately, the expense is recognised in full. • Internal work relating to the maintenance of existing products is expensed to the income statement and accounted for in payroll costs. Functional currency translation • Functional and presentation currency Estimates and assumptions (a) Estimated impairment of goodwill 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 estimates and judgements The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Judgements (a) Capitalisation of development costs Our business model is underpinned by our email and cross-channel marketing automation platform, dotmailer. Internal activities are continually undertaken to enhance and maintain the product in a bid to stay ahead of our competition. Management review the work of developers during the period and make the following judgements: • Internal work relating to product development is reviewed against IAS 38 criteria and will be capitalised if management feel the criteria have been met. 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 judgements and estimates that management apply in determination of the share-based compensation are summarised below: • Selection of a valuation model • Making assumptions used in determining the variables used in a valuation model i. expected life ii. expected volatility iii. expected dividend yield iv. interest rate Further detail on the estimates and assumptions we make in our share-based compensation are included in note 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. 45 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 2. Accounting policies continued (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 judgements as to potential prevailing economic conditions in the industry and their potential impact on the Group’s customers. 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 24,743 21,291 4,779 3,929 30.6.2017 US £’000 RoW £’000 Total £’000 3,907 3,293 1,062 867 3,316 2,923 2,250 2,250 31,966 27,507 8,091 7,146 32,578 21,961 1,556 1,120 302 213 34,436 23,294 Revenue from external customers is attributed to the geographical segments noted above based on the customers’ location. There were no customers who account for more than 10% revenue (2016: none). 30.6.2016 UK £’000 US £’000 RoW £’000 Total £’000 22,056 19,298 4,244 3,398 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 30.6.17 £’000 11,217 1,146 252 30.6.16 £’000 9,667 1,036 243 12,615 10,946 Income statement Revenue Gross profit Profit before income tax Total comprehensive income attributable to the owners of the parent Financial position Total assets Net current assets 4. Employees and Directors Wages and salaries Social security costs Other pension costs 46 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS The average monthly number of employees during the year is as follows Directors Sales and Marketing product Development and system engineers Administration 30.6.17 30.6.16 6 120 56 56 238 7 100 43 54 204 During the year the Group also capitalised staff-related costs of £2,072,417 (2016: £1,338,915) in relation to internally generated development costs. 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 30.6.17 £’000 30.6.16 £’000 15 15 51 51 30.6.17 £’000 2,073 186 2,200 4,459 30.6.17 £’000 12,615 954 43 40 1,544 494 424 1,809 8 (21) 425 158 938 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 19,431 17,367 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 30.6.17 £’000 8 30.6.16 £’000 8 28 4 40 25 4 37 47 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 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 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 19.75% (2016: 20.75%) 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 30.6.17 £’000 30.6.16 £’000 847 98 945 30.6.17 £’000 8,091 1,598 12 (1,004) (141) 64 318 847 514 333 847 30.6.16 £’000 6,215 1,243 164 (670) (465) (15) 257 514 Deferred tax was calculated using the rate 19.75% (2016: 19.75%). 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 £390,345 (2016: profit: £4,601,353). 9. Dividends Amounts recognised as distributions to equity holders in the period. Paid dividend for year end 30 June 2017 of 0.857p (2016: 0.357p) per share Proposed dividend for the year end 30 June 2017 of 0.55p (2016: 0.84p) per share 30.6.17 £’000 2,449 1,629 30.6.16 £’000 1,054 2,476 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 0.55p is a general dividend (2016: 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. 48 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 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 30.6.17 Weighted average number of shares Earnings £’000 Per share Amount Pence 7,146 295,457,101 – 1,061,738 2.42 – 7,146 296,518,839 2.41 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. 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 30.6.16 Weighted average number of shares Earnings £’000 5,368 293,095,257 – 977,555 5,368 294,072,812 30.6.17 Shares Per share Amount Pence 1.83 – 1.83 30.6.16 Shares 295,457,101 293,095,257 296,518,859 294,072,812 30.6.17 £’000 30.6.16 £’000 4,121 4,121 3,512 - 3,512 609 3,512 - 3,512 609 49 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 11. Goodwill continued 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% (2016: 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 2016 Additions At 30 June 2017 Amortisation At 1 July 2016 Amortisation for the year At 30 June 2017 Net book value At 30 June 2017 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 Computer software £’000 Internally generated development costs £’000 Domain names £’000 362 135 497 264 56 320 177 8,107 2,244 10,351 4,521 1,488 6,009 4,342 16 – 16 16 – 16 – 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 16 – 16 16 – 16 – Totals £’000 8,485 2,379 10,864 4,801 1,544 6,345 4,519 Totals £’000 6,915 1,570 8,485 3,471 1,330 4,801 3,684 Development cost additions represents resources the Group have invested in the development of new innovative and ground breaking technology products for marketing professionals. This platform allows them to create, send and automate marketing campaigns. Following development of the products the Group intends to licence the use of the platform. 50 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 13. Property, plant and equipment Group Cost At 1 July 2016 Additions Disposals At 30 June 2017 Depreciation At 1 July 2016 Depreciation for the year Eliminated on disposal At 30 June 2017 Net book value At 30 June 2017 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 14. Investments Company Cost At 1 July 2016 Additions At 30 June 2017 Amortisation At 1 July and 30 June Net book value At 30 June Short leasehold £’000 Fixtures & fittings £’000 Computer equipment £’000 Totals £’000 2,652 375 (601) 2,426 1,510 494 (611) 1,393 Totals £’000 2,150 502 2,652 1,053 457 1,510 1,760 234 (601) 1,393 1,070 341 (611) 800 1,354 406 1,760 755 315 1,070 444 55 – 499 147 67 – 214 285 448 86 – 534 293 86 – 379 155 395 49 444 95 52 147 297 401 47 448 203 90 293 155 593 1,033 Short leasehold £’000 Fixtures & fittings £’000 Computer equipment £’000 690 1,142 Shares in Group undertakings 30.6.17 £’000 Shares in Group undertakings 30.6.16 £’000 8,705 1 8,706 8,705 – 8,705 3,519 3,519 5,187 5,186 51 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 14. Investments continued The Group’s or the Company’s investments at the balance sheet date in the share capital of companies include the following: Subsidiaries dotmailer Limited Web and email-based marketing Nature of business Class of share held %: Proportion of voting power dotsurvey Limited Dormant dotsearch Europe Limited Branch company dotcommerce Limited doteditor Limited dotSEO Limited dotagency Limited dotmailer Inc Dormant Dormant Dormant Dormant Web- and email-based marketing dotmailer Pty Limited Web- and email-based marketing dotmailer Development Limited Holding company dotmailer SA Pty dotmailer LLC Development hub Development hub Ordinary Ordinary A Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100 100 100 100 100 100 100 100 100 100 100 100 100 All of the above subsidiaries have been included within the consolidated results. All the above companies with the exception of dotmailer Inc, dotmailer SA Pty, dotmailer LLC and dotmailer Pty Limited were incorporated in England and Wales. dotmailer Inc was incorporated in Delaware (US), dotmailer Pty Limited was incorporated in New South Wales (Australia), dotmailer SA Pty was incorporated in South Africa and dotmailer LLC was incorporated in the Republic of Belarus. 15. Trade and other receivables Current: Trade receivables Less: Provision for impairment of trade receivables Trade receivables – net Other receivables Amounts owed by Group undertakings VAT Prepayments and accrued income Group Company 30.6.17 £’000 30.6.16 £’000 30.6.17 £’000 30.6.16 £’000 6,425 (502) 5,923 111 – – 1,813 7,847 5,559 (824) 4,735 137 – – 1,334 6,206 – – – – – – - – 4,609 7,080 14 10 9 13 4,633 7,102 Further details on the above can be found in note 21. Included within prepayments is an amount of £621,065 (2016: £271,680) 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. Group Company 30.6.17 £’000 20,428 20,428 30.6.16 £’000 17,313 17,313 30.6.17 £’000 591 591 30.6.16 £’000 639 639 52 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 17. Called up share capital Allotted, issued, fully paid number 296,238,485 (2016: 294,784,789) Nominal value £0.005 30.6.17 £’000 1,481 1,481 30.6.16 £’000 1,473 1,473 During the reporting period the Company undertook the following transactions involving the issuing and reclassifying of issued share capital: On 16 November 2016 a number of employees exercised their share options increasing the issued share capital by 788,696 shares at a premium price of 0p. On 28 February 2017 a number of employees exercised their share options increasing the issued share capital by 525,000 shares at a premium price of 28.5p. On 28 June 2017 a number of employees exercised their share options increasing the issued share capital by 140,000 shares at a premium price of 50p. 18. Reserves Group As at 1 July 2016 Issue of share capital Dividends Profit for the year Transfer of reserves Other comprehensive income: Currency translation Share-based payment Balance as at 30 June 2017 As at 1 July 2016 Issue of share capital Dividends Profit for the year Transfer of reserves Other comprehensive income: Currency translation Share-based payment Balance as at 30 June 2017 Group As at 1 July 2015 Issue of share capital Share repurchase Dividends Profit for the year Currency translation Share-based payment Retained earnings £’000 20,611 – (2,479) 7,146 28 – – Share premium £’000 6,138 152 – – – – Reverse acquisition reserve £’000 (4,695) – – – – – 25,306 6,290 (4,695) Retranslation reserve £’000 Other reserves £’000 Totals £’000 8 – – – – (54) – (46) Retained earnings £’000 16,297 – – (1,054) 5,368 – – 174 22,236 (3) – – (28) – 162 305 Share premium £’000 5,382 756 – – – – – 149 (2,479) 7,146 – (54) 162 27,160 Reverse acquisition reserve £’000 (4,695) – – – – – – Balance as at 30 June 2016 20,611 6,138 (4,695) 53 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 18. Reserves continued As at 1 July 2015 Issue of share capital Share repurchase Dividends Profit for the year Other comprehensive income: Currency translation Share-based payment Balance as at 30 June 2016 Company As at 1 July 2016 Issue of share capital Dividends Profit for the year Transfer of reserves Share-based payment As at 30 June 2017 As at 1 July 2015 Issue of share capital Dividends Profit for the year Share-based payment As at 30 June 2016 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 Retranslation reserve £’000 Other reserves £’000 Totals £’000 (3) – – – – 11 – 8 Share premium £’000 6,138 152 – – – – Retained earnings £’000 5,080 – (2,479) (390) 28 – 2,239 6,290 Retained earnings £’000 1,534 – (1,054) 4,600 – 5,080 Share premium £’000 5,382 756 – – – 6,138 (25) 16,956 – – – – – 199 174 Share-based payments £’000 174 (3) – – (28) 162 305 Other reserves £’000 (25) – – – 199 174 756 – (1,054) 5,368 11 199 22,236 Totals £’000 11,392 149 (2,479) (390) – 162 8,834 Totals £’000 6,891 756 (1,054) 4,600 199 11,392 Group Company 30.6.17 £’000 30.6.16 £’000 30.6.17 £’000 30.6.16 £’000 1,194 1,351 – 415 32 830 1,969 4,440 – 571 222 710 1,297 4,151 52 – – – – 44 96 11 4 – 1 – 46 62 Further details on liquidity and interest rate risk can be found in note 21. 54 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 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 £’000 591 3,024 3,615 Land & buildings £’000 374 1,118 1,492 30.06.17 Others £’000 27 7 34 30.06.16 Others £’000 46 39 85 Totals £’000 618 3,031 3,649 Totals £’000 420 1,157 1,577 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. 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 30.6.17 £’000 30.6.16 £’000 30.6.17 £’000 30.6.16 £’000 7,847 20,428 28,275 1,194 3,246 4,440 6,206 17,313 23,519 1,351 2,800 4,151 24 591 615 52 44 96 22 639 661 11 47 58 55 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 21. Financial instruments and risk management continued 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 £2,056,000 (2016: £2,283,000) 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 2017 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 56 30.6.17 £’000 4,845 67 1,513 6,425 30.6.16 £’000 2,795 1,243 1,521 5,559 30.6.17 £’000 30.6.16 £’000 8 8 486 502 6 87 731 824 30.6.17 £’000 30.6.16 £’000 824 82 (65) (339) 502 343 789 (259) (49) 824 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 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 £1,581,391 (2016: £1,541,197) of which £460,837 (2016: £730,350) was provided for. The Group felt that the remainder would be collected post year end as they were with long-standing relationships, and 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 a 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 (2016: £nil) and amounts payable over one year are nil (2016: £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. 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 30.6.17 £’000 30.6.16 £’000 716 98 814 383 333 716 30.6.17 £’000 30.6.16 £’000 113 858 (157) 814 91 708 (83) 716 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. 57 dotdigital Group PlcAnnual Report 2016/2017 Notes to the consolidated financial statements continued For the year ended 30 June 2017 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: 30.6.17 £’000 30.6.16 £’000 Entity under common directorship Email marketing services Sale of services Cadence Performance 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 Company The following transactions were carried out with related parties: Year end balances arising from sales/purchase of services dotmailer Limited Subsidiary Payables 2 2 30.6.17 £’000 558 – 50 – 608 30.6.17 £’000 372 – 10 25 – 407 2 2 30.6.16 £’000 858 137 46 114 1,155 30.6.16 £’000 183 137 3 – 114 437 30.6.17 £’000 30.6.16 £’000 (5,338) (5,338) (5,338) (5,338) 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 Subsidiary dotmailer Limited As at 1 July Loans advanced Loans repaid 58 30.6.17 £’000 30.6.16 £’000 12,417 40 (2,507) 9,950 6,388 6,069 (40) 12,417 dotdigital Group PlcAnnual Report 2016/2017FINANCIAL STATEMENTS 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), doteditor Limited (Dormant) dotmailer Developments Limited, dotmailer SA Pty and dotmailer LLC. 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 £162,000 (2016: £199,600). 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 2017 had a WAEP of 33.35p (2016: 26.69p) and a weighted average contracted life of 2.67 years (2016: 3.2 years) and their exercise prices ranged from 13p to 68.50p. All share options are settled in the form of equity issued. Outstanding at the beginning of the period Granted during the year Forfeited/cancelled during the period Exchanged for shares Outstanding at the end of the period Exercisable at the end of the period 30.06.17 30.6.16 No of options WAEP No of options 4,104,029 230,985 706,460 26.69p 68.50p 35.30p 1,088,409 694.91p 2,540,145 500,000 33.35p 15.63p 10,938,790 1,439,029 491,066 7,782,724 4,104,029 1,063,409 WAEP 14.83p 29.02p 21.46p 10.22p 26.69p 8.00p The weighted average share price at the date of the exercise for share options exercised during the period was 694.91p (2016: 40.32p) 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 2017 25 November 2015 28 November 2014 18 October 2013 230,985 809,160 1,525,000 3,554,794 68.50p 68.50p 5 years 1.33% 30% 1% 12.04p 40.50p 40.25p 5 years 1.33% 30% 0% 6.46p 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. 59 dotdigital Group PlcAnnual Report 2016/2017 FINANCIAL STATEMENTS Notes to the consolidated financial statements continued For the year ended 30 June 2017 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 30.6.17 £’000 30.6.16 £’000 30.6.17 £’000 30.6.16 £’000 8,091 (54) 2,038 (58) 162 (15) 10,164 (1,641) 290 8,813 6,215 11 1,787 – 199 (51) 8,161 (878) 714 7,997 (390) 4,600 – – – 162 – (228) 2,469 33 2,274 – – – 199 – 4,799 (3,978) (88) 733 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 2015 As at 30 June 2016 As at 30 June 2017 Group £’000 11,932 17,313 20,428 Company £’000 166 639 591 29. Project development During the period the Group incurred £2,243,687 (2016: £1,428,558) 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. 60 dotdigital Group Plc Annual Report 2016/2017 Company information For the year ended 30 June 2017 Directors: M Patel F Beechinor-Collins I Taylor S Bird P Simmonds R Kellett-Clarke Company Secretary: G Kasparian 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 www.dotdigitalgroup.com London No.1 London Bridge London SE1 9BG New York 333 7th Avenue, Floor 18 New York, NY 10001 USA Sydney Suite 1404 167 Macquarie Street – Level 14 Sydney, 2000 Cape Town Floor number 6, Suite 602, No. 2 76 Regent Road The Point Centre Sea Point Cape Town 8060 South Africa