Final Results

Dotdigital Group plc (AIM: DOTD), the leading SaaS provider of an all-in-one customer experience and data platform (CXDP), announces its final audited results for the year ended 30 June 2023 ("FY23").

Financial Highlights

• Group revenue growth of 10% to £69.2m (FY22: £62.8m)
• Recurring and repeating revenue was maintained at 94% of total revenue (FY22: 94%). Contracted recurring revenue continues to represent 79% of total revenue
• ARPC 1 increased 11% to £1,622 per month (FY22: £1,461 per month)
• ARR 2 growth of 10% to £54.4m (FY22: 10%)
• Adjusted EBITDA 3 of £22.0m (FY22: £21.7m) and adjusted operating profit of £14.5m (FY22: £14.5m)
• Adjusted profit before tax 4 of £15.4m (FY22: £14.5m)
• Adjusted diluted earnings per share increased 6% to 4.43p (FY22: 4.18p)
• Strong net cash balance on 30 June 2023 of £52.7m (30 June 2022: £43.9m)
• Proposed final dividend of 1p per ordinary share (FY22: 0.98p) in line with progressive dividend policy

Operating Highlights

• Growth in all global regions has underpinned the double-digit revenue growth performance at Group level
• Customers continue to expand usage of platform and ongoing product innovation resulting in functionality recurring revenue 5 increasing 11% to £24.9m (FY22: £22.3m)
• Launch of next-generation Customer Experience Data Platform (CXDP) and significantly enhanced AI-powered functionality supporting growth in higher value customers
• New technology integrations with partners extending market coverage, with revenue from strategic partners increasing 8% to £31.2m (FY22: £28.9m)
• Investment in people to strengthen international footprint, with headcount up by 15%
• On track to achieve target of Net Zero emissions by 2030
• Integration of Fresh Relevance on track, acquired in September 2023 post period end, driving step-change in CXDP roadmap. First new joint customer wins already completed

Milan Patel, Chief Executive Officer of Dotdigital, commented:

"We are pleased to have delivered a year of strong growth and cash generation, slightly ahead of initial expectations, whilst continuing to invest in our growth opportunity and maintaining high profit levels. The Group's product offering has advanced materially in the year with the launch of our CXDP platform and enhanced AI functionality. We have also bolstered our global teams which is translating into positive momentum.

"The post period acquisition of Fresh Relevance's personalisation technology and talented team marks a leap forward in our strategy, accelerating our product roadmap and opening up new, high value market opportunities. We start the new financial year with solid global foundations, a substantially enhanced product offering and a robust financial position. We have had an encouraging start to FY24 and look forward to our continued profitable growth."

Analyst Briefing and Investor Presentation

Management will be hosting a live online presentation and Q&A for analysts today at 9.30am GMT. To register to attend the analyst presentation, please contact dotdigital@almastrategic.com.

The Company will also host a live presentation and Q&A covering the results via the Investor Meet Company platform on Monday 13 November at 11.00am GMT. The presentation is open to all existing and potential shareholders. Investors can sign up to Investor Meet Company for free and add to meet Dotdigital via this link.

Investor Deck: A copy of the slides relating to the FY23 results is available here: https://www.dotdigitalgroup.com/events-presentations/

Annual Report: A copy of the Annual Report for FY23 will be available on our website shortly: https://www.dotdigitalgroup.com/reports/

CHAIR'S STATEMENT

Since we announced our FY22 results, Dotdigital Group Plc (Dotdigital) has made important steps forward and I am pleased to be able to report on a year characterised by solid commercial out-turn and, crucially, material advances in development and delivery of our growth strategy. We have entered the new financial year in a strong position and are optimistic about the future.

Optimal allocation of cash to accelerate growth and build long-term value

I would first like to welcome our new colleagues that joined the business with the post-period acquisition of Fresh Relevance Ltd (Fresh Relevance), a leading cross-channel personalisation technology firm. (For further details see note 33 of the consolidated financial statements).

Behind the scenes, much of the financial year was spent refining our Customer Experience and Data Platform (CXDP) growth strategy and ensuring we have a crystal-clear picture of where we want to get to as a business and the deliverables required to achieve this.

We operate in an incredibly dynamic industry that is in a perpetual state of evolution, so it is important that we build out our offering at pace to cement our competitive advantage. The Fresh Relevance deal enables us to meet several deliverables that would have taken considerable time and resource to achieve organically, enabling us to leapfrog several of our competitors and bringing us closer to providing the most complete platform on the market.

Dotdigital is a highly cash generative business and had built up significant cash reserves for a company of its size. The Board firmly believes that using Dotdigital's balance sheet to fortify its strategic position and unlock higher growth potential will deliver the best long-term returns to shareholders. The acquisition of Fresh Relevance is aligned to this and, supported by a financial position that remains strong, we are continuing to explore M&A opportunities where we are confident it will further accelerate progress towards our goals.

Established teams and steadily improving performance

Since joining Dotdigital in July 2022, I have observed a steady continued improvement as the Group moved past the challenges of H1 FY22. In some ways the year prior was a period of transition with important personnel changes against an uncertain macroeconomic backdrop. We now have the right talented leadership in place and teams well-embedded across all regions, with activity ramping up as expected.

A return to growth in the US reflects the management's drive and the work they have done to enhance sales discipline. Our North American operations are now stable and there is a sense that momentum is building. Our venture into Japan, while still in its infancy, looks promising. For the team there to have achieved the level of sales traction they have at this stage is remarkable and bolsters the performance of an already strong Asia-Pacific region. (See note 3)

Geographic expansion remains a key pillar of our growth strategy and our overseas operations are now in excellent condition. The progress we are making overseas demonstrates the truly global appeal of our platform and we are confident of making further inroads as we elevate our offering and strengthen the channels and partners that underpin our growth ambitions.

Fostering a culture of responsibility

FY23 was a year of material progress across our ESG strategy. The establishment of Dotvoice, our colleague-led programme comprising Dotwellbeing, Dotgreen, Dotcommunity and DotDEI, has helped bring clear direction and purpose to our efforts. Together these groups have been instrumental in building a culture of learning and engagement across our communities and making responsibility an inextricable part of how we do business.

Dotwellbeing continues to be a beacon for our employees, supporting their well-being. Dotgreen has championed sustainability, achieving ISO14001 certification and actively contributing to our ambitious Net Zero 2030 target. DotDEI has made significant strides, ensuring diversity, equity, and inclusion remain at the heart of our organisational ethos. Dotcommunity, through impactful partnerships and initiatives, has reinforced our commitment to social responsibility.

Dividend

The Board will be maintaining its progressive dividend policy in line with Group EBITDA growth. Therefore, subject to approval at the AGM in December 2023, the Board proposes that the Group pay a final dividend of 1p per ordinary share (2022: 0.98p), payable at the end of January 2024.

Well-positioned to take advantage of the wealth of available opportunities

On behalf of the Board I would like to extend our gratitude to everyone at Dotdigital. Through their collective buy-in and dedication we have achieved important milestones in the year and are well set to make further progress.

The broader economic environment remains uncertain but with a meticulously mapped out set of organic and inorganic deliverables, an increased focus and exceptionally capable teams, we will navigate it with confidence.

CHIEF EXECUTIVE OFFICER'S REPORT

Overview

The Group delivered a robust performance in FY23, with double-digit revenue growth and strong cash generation. This follows healthy demand across the Group's diverse customer base as marketing professionals focus their budgets towards data-led marketing initiatives, together with a growing contribution from prior year investments which drove accelerating momentum in the second half.

The Group's roadmap of expanding Customer Experience Data Platform ("CXDP") capabilities and regular functionality enhancements continue to unlock new, higher value growth opportunities. This is reflected in the continued progression of Average Revenue Per Customer (ARPC) and functionality recurring revenue, both increasing 11% in the year, as customers expand their usage of the platform and the Group converts a larger pipeline of higher value enterprise deals.

Positive trading continues to translate into financial strength for the Group, which is governed by a resilient, profitable and cash generative business model with high levels of recurring revenues. For FY23, Group revenue grew 10% to £69.2m (FY22: £62.8m), with recurring and repeat revenue representing 94% (FY22: 94%). Adjusted profit before tax was ahead of expectations at £15.4m (FY22: £14.5m) and adjusted EBITDA was in line with expectations at £22.0m (FY22: £21.7m), reflecting planned investment in headcount and operations. Strong cash generation continued through the period contributing to a cash balance of £52.7m at year end (FY22: £43.9m).

This provides the resource and flexibility for ongoing investment in the organic and inorganic growth opportunity, which is centred on building out the Group's CXDP offering. These efforts were accelerated post year end with the acquisition of personalisation technology business, Fresh Relevance, adding highly complementary capabilities to the Group along with more than 300 customers and the ability to address a larger, higher value market opportunity.

The Group exited the year with positive trading momentum across all regions, a strong financial position and a clear product strategy. Investments into the Group's infrastructure, people and product has delivered results as expected, and worked to create a strong platform to layer on the capabilities and talent from Fresh Relevance. The Group is now in a stronger position to pursue its growth ambitions, supported by a healthy pipeline and robust financial position.

Business Review

Dotdigital provides omnichannel marketing automation technology and customer data insights to digital marketing professionals. The Group's technology works to unify datapoints from across marketing stacks to create a single, trusted source from which marketing professionals can launch highly targeted, personalised and relevant campaigns to customers and prospects. The result is better customer experience and improved conversions, helping to drive revenue and business growth.

Dotdigital's solutions address a common marketing requirement across regions and sectors, with the Group's customer base comprising a spread of industry verticals. During the year, the Group saw particularly strong momentum in charity and not for profit, events and entertainment, health and fitness and travel sectors , with new customers including Shell Energy UK, CBRE, Lloyds Pharmacy, Britvic PLC, National Farmers' Union of England and Wales, RSA Conference LLC and Hawksmoor Group . The Group's global presence, able to serve customers in multiple territories, its comprehensive offering and focus on customer support remain key differentiators.

Market opportunity

The overarching shift toward digital marketing continues its progression, occupying a steadily increasing proportion of marketing budget and forecast to be double digit growth in the coming years according to Statista. Underneath this, the uncertain global economic backdrop through the year prompted more acute focus on retention marketing backed by clear demonstrable Return on Investment.

The Group's technology platform, built from the ground-up with analytics and data at its core, represents a compelling proposition in line with long-term trends and in different market conditions. Customers of Dotdigital on average see a 409% ROI, $21k of cost savings and $1m increase in profit over a three year period according to Forrester's Total Economic Impact study that was commissioned by Dotdigital.

Through this, Email marketing maintains its place as one of the most cost-effective marketing channels, with email volumes growing 7% in the period, alongside the ongoing adoption of an omnichannel approach, including continued adoption of SMS with a pipeline increasing for WhatsApp and In-app Push messaging capabilities.

Growth strategy

The Group's underlying growth is the result of continued execution against a consistent organic growth strategy, centred on three pillars: geographic expansion, product innovation and strategic partnerships.

In addition, the Board looks to complement the Group's organic growth through select acquisitions focused on the following key categories: adjacent CXDP-related technologies that will drive ARPC expansion and open up new markets; consolidation in the market for talent and brand to expand geographical coverage; and specialist functionality for target verticals.

Geographic expansion

Regional breakdown reported in local currency

The Group delivered growth in all of its regions. Organic international revenue increased 18% to £22.8m (FY22: £19.2m), with international sales contributing 33% to total revenue (FY22: 31%).

The Group's largest region, EMEA, continued its upward trajectory, delivering growth of 9% to £52.3m (FY22: £48.2m). Contributing to this growth was new customer acquisitions, particularly in non-commerce related customers complemented by continued expansion within the existing base. Revenue growth in EMEA was somewhat offset by a lower level of professional service fees due to slower decision making from organisations due to an uncertain macroeconomic backdrop.

As anticipated at the half year, North America saw a return to growth in the second half, delivering an overall performance for the year of US$13.1m, an increase of 2% (FY22: US$12.9m). This is the result of previous investments into the region now bearing fruit, including the establishment of a strong management team in-region, increased emphasis on enablement for our Sales and Customer Success teams, and early success in converting a reestablished and growing pipeline.

In APAC, the Group reported strong growth in revenues, up 19% to AUS$10.8m (FY22: AUS$9.1m). The standout performer was Japan, an area where the Group has made measured investments in increasing brand awareness across the region, establishing a solid partner network and making several appointments in the go to market team. This has led to numerous customer wins in Q4 along with a stronger pipeline.

Product innovation

The core priority of the Group's R&D efforts is building out and enhancing its CXDP offering. This is designed to address the growing demand for more sophisticated marketing tools with a greater depth of analytics and personalised user experiences delivered via an all-in-one solution. In line with this vision, the focus areas of product development in the year were on: Connectivity and Data, culminating in the launch of a new data platform; Insights and Analytics, to support deeper actionable insights to drive a higher ROI and increasing efficiencies in the Marketing department; and Experiences, to facilitate more personalised customer journeys across any channel.

The first half of the year saw the launch of the Group's CXDP platform, an evolution of the Dotdigital Engagement platform, incorporating cloud first data architecture to support unification across channels and support next generation Application Programming Interface (API). Alongside the platform launch, the Group unveiled a number of new packages and plans for existing customers to support their transition and platform adoption of the new CXDP functionality, with all Dotdigital customers now benefiting from a new and improved user interface and navigation. The result of this effort can be seen in the increased functionality recurring revenue and reduction in churn of clients. Programme enhancements have continued post period end including new features to enable easy conversion of email campaigns to SMS, and improved unified contacts capability.

In May, the Group launched its WinstonAI intelligence engine within the Dotdigital CXDP platform, incorporating artificial intelligence and machine-learning capabilities to help marketers discover deeper insights and analytics, curate captivating content, and optimise communication for higher customer engagement. The platform's single customer view now includes WinstonAI's features such as predictive Customer Lifetime Value, predictive churn and predictive next order. The newly released capabilities have been one of the fastest adopted functionality features in the platform driving efficiencies within Marketing teams.

The Group's acquisition of Fresh Relevance post period end marked a leap forward in the Group's CXDP growth journey, bringing together customer insights, cross-channel engagement, and on-site personalisation capabilities to provide marketers with the tools to exert greater influence across the customer journey. The result is a much-expanded addressable market opportunity, particularly within larger enterprises, as businesses consolidate their marketing tools and focus spend (see note 33)

Strategic partnerships

The Group's strategic partnerships refer to a partner where a customer using that technology integration has the potential to represent or accounts for 10% of Group revenue. This network is complemented by a broader general partner referral network which includes over 200 active global partners.

The main efforts of the Group's partnership expansion are on forming connectors into both ecommerce and CRM platforms, with the Group's core functionality able to serve a range of industry verticals. During the year, the Group has made significant additions to its technology integrations, enabling "out of the box" connectivity to customers' existing technology stacks including Zendesk, TrustPilot, Shopify Hydrogen, Facebook Lead Ads and Google Analytics 4.

Revenue from strategic partners increased 8% to £31.2m (FY22: £28.9m), with new partnerships secured in the year including NetSuite and Shopware. Of the two market segments, the main growth driver was CRM connectors, which increased 22% to £9.8m following targeted investment. Relationships in the ecommerce segment remain solid with partners including Magento, BigCommerce and Shopify contributing to overall ecommerce partner channel revenue growth of 2% to £21.4m where the pipeline remains strong but with a slightly lengthened sales cycle.

Investing in people

A key aspect of Dotdigital's differentiation is the Group's reputation for high levels of customer support and handling, alongside its innovative technology offering, a position rewarded to the Group as a result of the work of its dedicated and talented team. The Group's workforce of over 400 employees across 8 countries is fundamental to the Group's continued success, and we were delighted to see the result of the team's hard work culminate in the Dotdigital Summit post period end in October, showcasing Dotdigital's leadership position by bringing together over 900 professionals from across the industry sharing insight on the ever changing landscape of digital marketing.

We have continued to invest in our people and regional teams during the year, seizing the opportunity to add talent and expertise at a time when other businesses took stock of their prior expansion plans. Headcount grew 15% in the year, with a focus on bolstering the Group's international footprint.

Update on Fresh Relevance acquisition

Post year end we were delighted to welcome our new colleagues from Fresh Relevance to the team following its acquisition. With the two organisations having worked together as partners for five years, with circa. 60 joint customers and strong cultural alignment, the team integration has progressed well.

The existing integration between the Dotdigital and Fresh Relevance platforms facilitates the smooth transfer of web personalisation data from the Fresh Relevance platform into Dotdigital to deliver even more targeted campaigns.

Looking ahead, the integration roadmap focuses on enabling new and joint customers to seamlessly log into and move between the platforms, making it easier for customers to access all capabilities across both. Work will also begin on enhancing the data flow between both platforms to leverage the combined data sets to enable personalisation, segmentation, orchestration and content creation.

From the cost synergies that have been identified and the interest from higher value prospects and existing customers, we expect the acquisition to support the growth of higher margin recurring revenue and have a similar profitable profile to the Group in the medium term.

Current trading and outlook

The Board is pleased to confirm that positive trading has continued through the start of the new financial year, in line with expectations, alongside the continuation of increasing average order value and building momentum in new industry verticals.

The Group's product positioning, enhanced through the acquisition of Fresh Relevance is resonating in the market with increased pipeline, particularly for larger value deals. The Board is pleased to confirm that the integration of the two teams is on track to complete, and the combined Group has secured its first brand-new customer taking both capabilities. We have also seen an increase in interest from our existing customers from the additional capabilities Fresh Relevance brings to the Dotdigital platform.

The robustness of the Group's financial model and a healthy pipeline gives the Board comfort in the ongoing investment plans as the Group seizes the market opportunity. The Group continues to demonstrate its resilience and capacity to execute strategic progress, and the Board remains confident in the Group's continued growth prospects.

FINANCIAL REVIEW

Business model

The Group generates circa 80% of its revenues from software and annual message plans which are recognised evenly over the life of the contract. New customers are typically sold one of three packages of modules which are designed to address the most common customer personas, with pricing driven by the functionality adopted, the number of contacts, and the volume of messages a customer intends to send. These contracted volumes are committed; however, we of course allow customers to upgrade through their contract period as they recognise value in the platform and require more capacity.

The best value is available to those customers who take advantage of additional functionality and integrations which help them leverage their customer data - this is evidenced by the very low churn we see amongst those customers who have invested in the full power of the product. We have a small amount of professional service revenue (less than 5% of total group revenues) which is recognised as work is delivered. These services relate to both the initial deployment of software, design services, training and support to customers who want to get the maximise value from the product.

FY23 saw the business change from a period of consolidation, as a rebuilt North American sales team ramped up and a new CFO was appointed, into a period of growth with many new hires to drive both sales and development productivity.

In this context, and against the backdrop of challenging macro-economic in which many businesses reported slowing growth, we are proud to deliver revenue, profit before tax, Earnings per share and Cash slightly ahead of market expectations.

Revenue and gross margin

Our recurring and diversified revenue base proved to be resilient and thus we exit the year in a strong position to continue delivering in FY24. We saw a reduction in customer churn particularly in North America and over 94% of our revenues continue to be predictably repeating or contractually recurring.

Revenue increased by 10% FY23 to £69.2m (FY22: £62.8m), driven by SaaS and contracted marketing SMS revenue uplift of £4.8m (10%) and transactional SMS revenue uplift of £1.9m (20%). EMEA remains our largest region with revenue of £52.3m (FY22: £48.2m), however our growth rate in APAC of 19% continues to show the strength of our proposition in that market. Although the weakening pound through H1 had supported our interim revenues, these benefits largely reversed through H2.

Gross margin on our core software product continues to be close to 90% but is diluted by SMS which is typically under 50%. Gross margin of 79.3% in the year reported was marginally lower than FY22 (81.6%) due to a small increase in transactional SMS volume.

Operating expenses

Despite high inflationary environment in all regions and significant investment in sales and development capacity to strengthen all the regions, we maintained a good adjusted operating margin at 21% (FY22: 23%). FY23 operating expenses of £40.4m (FY22: £36.7m) grew primarily because we increased net headcount by 54 and offered inflationary pay increases earlier in the year. This investment has resulted in declining staff attrition through the year, reducing to 12% on a 12 month rolling basis by June 2023.

Balance sheet

The business continues to generate cash in line with profitability and maintain a healthy working capital profile such that we end the year with £52.7m cash (FY22: £43.9m). We have implemented new cash treasury management processes through the year and have benefited from the higher interest rates that have been available for fixed term cash deposits than in recent history. Whilst after the balance sheet date, we completed the acquisition of Fresh Relevance and so reduced our cash balance by circa £20m, we continue to hold over £30m.

Tax

Our effective tax rate is 12.4% (FY22: 13%). This continues to be significantly lower than the mainstream UK corporation tax rate because of our Research & Development tax claim.

EPS

Adjusted Diluted EPS has grown by 6% to 4.43p (FY22: 4.18p). There has been only marginal movement in the number of shares in issue and share options granted in the year, so this reflects underlying profitability growth.

Dividend policy

Consistent with our progressive dividend policy we have increased our proposed final dividend in line with EBITDA growth to 1p in FY23 from 0.98p in FY22.

DOTDIGITAL GROUP PLC

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 30 JUNE 2023

OTHER COMPREHENSIVE INCOME

Items that may be subsequently reclassified to profit or loss:

As permitted by section 408 of the Companies Act 2006, the parent company's income statement has not been included in these financial statements. The profit for the Company was £4,459,042 (2022: £4,163,416).

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

• Share capital is the amount subscribed for shares at nominal value.
• The reverse acquisition reserve relates to the adjustment required to account for the reverse acquisition in accordance with UK Adopted International Accounting Standards.
• Other reserves relate to the charge for the share-based payment in accordance with IFRS 2 and the transfer on the exercise or lapsing of share options.

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2023

• Share capital is the amount subscribed for shares at nominal value.
• Retained earnings represents the cumulative earnings of the Company attributable to equity shareholders.
• Other reserves relate to the charge for the share-based payment in accordance with IFRS 2 and the transfer on the exercise or lapsing of share options.

DOTDIGITAL GROUP PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2023

.

DOTDIGITAL GROUP PLC

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2023

DOTDIGITAL GROUP PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2023

GENERAL INFORMATION

Dotdigital Group Plc ("Dotdigital") is a public limited 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 43.

ACCOUNTING POLICIES

Basis of preparation

The financial statements have been prepared in accordance with International Accounting Standards as adopted by the UK (IASs as adopted by the UK) and International Financial Reporting Interpretations Committee (IFRIC) Interpretations as endorsed for use in the UK. The financial statements have also been prepared under the historical cost convention, with the exception of the valuation of the valuation of investments, financial liabilities and initial valuation of assets and liabilities acquired in business combinations which are included on a fair value basis, and in accordance with those parts of Companies Act 2006 applicable to companies reporting under UK adopted International Accounting Standards.

The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and the IFRS Interpretations Committee effective at the time of preparing the consolidated financial statements.

New and amended standards adopted by the Group

The Group adopted the following new and amended relevant IFRS in the year:

Annual Improvements to IFRS Standards 2018-2020

The adoption of these accounting standards did not have any effect on the Group's Statement of Comprehensive Income, Statement of Financial Position or equity.

Accounting standards issued but not yet effective

The International Accounting Standards Board ("IASB") has issued/revised a number of relevant standards with an effective date after the date of these financial statements. Any standards that are not deemed relevant to the operations of the Group have been excluded. The Directors have chosen not to early adopt these standards and interpretations and they do not anticipate that they would have a material impact on the Group's financial statements in the period of initial application.

Effective date

The financial statements are presented in sterling (£), rounded to the nearest thousand pounds.

Significant accounting policies

The Group has consistently applied the following accounting policies to all periods presented in these consolidated financial statements, except if mentioned otherwise.

Basis of consolidation

In the period ended 2009, the Company acquired via a share for share exchange the entire issued share capital of Dotdigital EMEA Limited, whose principal activity is that of providing intuitive software as a service (SaaS) via an all-in-one customer experience and data platform (CXDP).

Under IFRS 3 'Business combinations', the Dotdigital EMEA 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, Dotdigital EMEA Limited. The following accounting treatment has been applied in respect of the reverse acquisition:

• the assets and liabilities of the legal subsidiary, Dotdigital EMEA 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 Dotdigital EMEA Limited to 30 April 2008. However, in accordance with IFRS 3 'Business combinations', the equity structure appearing in the consolidated financial statements reflects the equity structure of the legal parent Dotdigital Group Plc, including the equity instruments issued under the share exchange to effect the business combination;
• a reverse acquisition reserve has been created to enable the presentation of a consolidated balance sheet which combines the equity structure of the legal parent with the non-statutory reserves of the legal subsidiary and;
• 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 and;
• the cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Subsidiaries

A subsidiary is an entity whose operating and financing policies are controlled by the Group. Subsidiaries are consolidated from the date on which control was transferred to the Group. Subsidiaries cease to be consolidated from

the date the Group no longer has control. Intercompany transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation.

The Group applies the acquisition method to account for business combinations. In the statement of financial position, the acquiree's identifiable assets and liabilities are initially recognised at their fair values at the acquisition date.

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 Dotdigital EMEA Limited.

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of 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 omnichannel marketing services to other businesses, and services are either provided on a usage basis or fixed price bespoke contract. All revenue is from contracts signed with new customers and upgrades and additional functional recurring revenue sold to existing contracted clients. Revenue from professional services contracts is 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.

Professional services at no charge: The Group sells professional services to its customers and there are occasions when these services are provided at no cost as part of the contract sold. The services provided for no charge are recognised at the price stated within the latest price list and accounted for as separate performance obligations when the service occurs. The amount allocated to the services is deducted from the contract value and the remainder of the contract value is spread evenly over the term of the contract.

Prepaid contracts: The Group sells 12-, 24- and 36-month contracts to its customers. This revenue is recognised monthly over the period of the contract. Where a customer prepays their contract, this is recognised over the period of the contract irrespective of materiality.

Term contract billing: The Group raises the first invoice to its new customers when the service agreement is signed. Occasionally, the service does not start in the same month as when the service agreement is signed but is invoiced in the month where the service agreement is signed. The revenue is then recognised over the period of the contract irrespective of materiality.

Going concern

The Group's business activities together with factors that are likely to affect its future development and position are set out in the Chairman's report, the Chief Executive Officer's report and financial review and the Directors' report. Budgets and detailed profit and loss forecasts that look beyond 12 months from the date of these consolidated financial statements have been approved and used to ensure that the Group can meet its liabilities as they fall due.

The Directors have made various assumptions in preparing these forecasts, using their view of both the current and future economic conditions that may impact on the Group during the forecast period.

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.

Operating profit

Operating profit is stated after charging operating expenses but before finance costs and finance income.

Dividends

Final dividend distributions to the Company's shareholders are recognised as a liability in the financial statements in the period in which the dividends are approved by the Company's shareholders while interim dividends distributions are recognised in the period in which the dividends are declared and paid.

Goodwill

Goodwill represents the excess of the fair value of the consideration over the fair values of the identifiable net tangible and intangible assets acquired and is allocated to cash generating units.

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 CGUs.

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 to five years.

Product development

Product development expenditure is capitalised when it is considered that there is a commercially and technically viable product, the related expenditure is separately identifiable and there is a reasonable expectation that the related expenditure will be exceeded by future revenues. Following initial recognition, product developments are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of these intangible assets are assessed to have a finite life of five years. Amortisation is charged on assets with finite lives, and until economic benefit can be received and recognised, this expense is taken to the income statement and useful lives are reviewed on an annual basis. Amortisation is charged from the point when the asset is available for use.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred. 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 as detailed in IAS 38 'Intangible Assets' are fulfilled:

• Management intends to complete the intangible asset and use or sell it;
• There is an ability to use or sell the intangible asset;
• It can be demonstrated how the intangible asset will generate possible future economic benefits;

-Technology

Technology represents the cost that would be incurred to build the entire Comapi platform had the acquisition not occurred. The useful life of this intangible asset is assessed to have a finite life of 10 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.

-Customer relationships

This represents the value of high-value customer contracts within Comapi. The useful life of this intangible asset is assessed to have a finite life of three 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 over the lifetime of the customer contract.

Impairment of non-financial assets (excluding goodwill)

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Property, plant and equipment

Tangible non-current assets are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the assets' carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits are associated with the item will flow to the company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation is provided at the following rates in order to write off each asset over its estimated useful life and is based on the cost of assets less residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Right of use assets: over the term of the lease

Short leaseholds: 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.

Capital 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.

Leases

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;
• variable lease payment that are based on an index or a rate;
• amounts expected to be payable by the lessee under residual value guarantees;

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;
• any lease payments made at or before the commencement date less any lease incentives received;
• any initial direct costs; and
• restoration costs.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in the income statement. Short-term leases are leases with a lease term of 12 months or less. Low-value assets, being less than £5,000, comprise IT equipment and small items of office furniture.

Extension and termination options

Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. The majority of extension and termination options held are exercisable only by the Group and not by the respective lessor. None of the total lease payments made in the period to 30 June 2023 were optional.

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Potential future cash outflows have not been included in the lease liability because it is not reasonably certain that the leases will be extended (or not terminated), the amount of these cash flows is uncertain as several rounds of rent reviews are due before this extension date.

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 FVPL, 'amortised cost' or 'fair value through other comprehensive income' ('FVOCI'). The classification depends on the nature and purpose of the financial assets and is determined at the time of recognition.

Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually, the Group recognises lifetime expected credit losses ('ECL') when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

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 a maturity period of 95 days or less at the date of 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. This accounting policy has been changed for the year ended 30 June 2023 to classify short term highly liquid investments that have a maturity of up to 95 days as cash equivalents, the policy in the previous year having referred to 3 months. Management believe that both the financial position and liquidity of the Group are made clearer for the reader when all cash and cash equivalent items are analysed together and that the change therefore results in the presentation of more relevant and reliable information in the financial statements. The change in accounting policy has not resulted in a prior period adjustment.

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, accrued liabilities and lease liabilities.

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Terms on accounts payable range from 10 to 90 days.

Foreign currency risk

Currency risk is the risk that the holding of foreign currencies will affect the Group's position as a result of a change in foreign currency exchange rates. The Group has no significant foreign currency risk as most of the Group's financial assets and liabilities are denominated in functional currencies of relevant Group entities. Accordingly, no quantitative market risk disclosures or sensitivity analysis for currency risks have been prepared.

The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• 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'.

The retranslation reserve represents the cumulative exchange differences on the retranslation of foreign subsidiaries into the functional currency.

Other reserves relate to the charge for share-based payments in accordance with IFRS 2 'Share-based Payments' plus the movement on the exercise or lapsing of share options.

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. For options granted after 2019, a Monte Carlo model is used to measure the fair use of options granted that are subject to a TSR performance condition. A Black Scholes model is used to measure the fair use of all other options granted. The expense is apportioned over the vesting period of the financial instrument and is based on the number which is expected to vest and the fair value of those financial instruments at the date of grant. If the equity instruments granted vest immediately, the expense is recognised in full.

Functional currency translation

Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (functional currency), which is mainly pounds sterling (£) and it is this currency the financial statements are presented in.

Transaction and balances

Foreign currency transactions are translated into the functional currency using exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at the year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Employee benefit costs

The Group operates a defined contribution pension scheme. Contributions payable by the Group's pension scheme are charged to the income statement in the period in which they relate.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments as identified by the Board of Directors.

Foreign currency exchange rate risk

The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. As well as naturally mitigating this risk by offsetting its cost base in the same currencies where possible, currency exposure arising from the net assets of the Group's foreign operations is managed through cash balances denominated in the relevant foreign currencies.

The Group is mainly exposed to the US Dollar, Australian Dollar, Singaporean Dollar, Euro, Belarusian Ruble, South African Rand, Polish Zloty and Canadian Dollar currencies.

The table below details the Group's sensitivity to a 10% increase or decrease in Sterling against the relevant foreign currencies. 10% is the sensitivity rate which represents management's assessment of the reasonable possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end of a 10% change in foreign currency rates. A positive number below indicates an increase in profit where Sterling strengthens 10% against the relevant currency. For a 10% weakening of Sterling against the relevant currency, there would be an equal and opposite impact on the profit and other equity, and the balances below would be negative or positive.

Critical accounting estimates and judgements

Judgements

Capitalisation of development costs - refer to note 13

Our business model is underpinned by our email and data-driven omnichannel marketing automation platform. 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 consider that the criteria have been met;

-Internal work relating to the maintenance of existing products is expensed to the income statement and accounted for in payroll costs.

Valuation of goodwill - refer to note 12

The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of assets acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements and estimates in relation to the fair value allocation of the purchase price. If any unallocated portion is positive it is recognised as goodwill and if negative, it is recognised in the consolidated income statement.

Judgement is required in determining the fair value of identifiable assets, liabilities and contingent assets and liabilities assumed in a business combination and the fair value of the consideration payable. Calculating the fair values involves the use of significant estimates and assumptions, including expectations about future cash flows, discount rates and the lives of assets following purchase.

• Going concern of Australian entity - refer to note 2: Going concern

Management review each of the trading entities operations, particularly when it is loss making to ascertain if it is a going concern and if its assets should be impaired.

Judgement is therefore required to review future looking forecasts and review existing and future sales pipeline within the region. Thereby leading to a decision as to whether the region remains viable.

Estimates and assumptions

Impairment of goodwill

The Directors have carried out a detailed impairment review in respect of goodwill. The Group assesses at each reporting date whether there is an indication that an asset may be impaired, by considering the net present value of discounted cash flow forecasts which have been discounted at 4.28% (2022: 19.75%). This has decreased as a result of the decrease in the cost equity which was impacted by the increase in the share price at the year end compared to last year and the decrease in dividend growth rate. The cash flow projections are based on the assumption that the Group can realise projected sales. A prudent approach has been applied with no residual value being factored.

Further details on the estimates and assumptions we make in our annual impairment testing of goodwill are included in note 12 to the financial statements. At the period end, based on the assumptions, there was no indication of impairment to the carrying value of goodwill.

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 as follows:

-Selection of a valuation model

-Making assumptions used in determining the variables used in a valuation model:

• expected life
• expected volatility
• expected dividend yield
• interest rate

Further detail on the estimates and assumptions we make in our share-based compensation are included in note 29 to the financial statements. The charge made to income statement for period is also disclosed there.

Depreciation and amortisation

The Group depreciates right of use assets, short leasehold, fixtures and fittings, computer equipment and amortises customer relationships, technology, 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 right of use assets, short leasehold, fixtures and fittings, computer equipment, customer relationships, technology, computer software, internally generated development costs and domain names.

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.

Where a general provision is set then specific rationale will be set against this which will be a combination of looking at historical data to ascertain the percentage of debt which goes bad. Plus set against debts within a specific business sector which might be facing financial difficulty, thereby leading to a deemed higher risk of defaulting on their debts.

Lease accounting - incremental borrowing rate

IFRS 16 'Leases' requires lease payments to be discounted using the lessee's incremental borrowing rate. The Group's incremental borrowing rate, as at the date of adoption of IFRS 16, has been based on local commercial bank loans. Management have taken the view that specific costs of borrowing should be applied to each lease as this reflects the different economic conditions within each geography and hence is more representative of the funding facilities available in those countries.

Exceptional items

Where items of income and expense are of such size, nature or incidence that their disclosure is relevant to explain the performance of the company for the period, the nature and amount of such items should be disclosed separately.

SEGMENTAL REPORTING

Dotdigital's single line of business remains the provision intuitive software as a service (SaaS) via an all-in-one customer experience and data platform (CXDP). In the previous years Dotdigital had two lines of business; the additional line being communication platform as a service (CPaaS). The chief operating decision maker considers the Group's segments to be by geographical location, this being EMEA, US and APAC operations and by business activity, this being core Engagement Cloud and CPaaS as shown in the tables that follow:

Geographical revenue and results (from all operations)

30.06.2023

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% of revenue (2022: none).

All revenue is from contracts signed with new customers and upgrades and additional functional recurring revenue sold to existing contracted clients. Revenue from contracts is 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.

30.06.2022

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% of revenue (2022: none).

All revenue is from contracts signed with new customers and upgrades and additional functional recurring revenue sold to existing contracted clients. Revenue from contracts is 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.

Business activity revenue and results

30.06.2023

The average monthly number of employees during the year is as follows

Included in the total employees cost above, £6,581,768 (2022: £6,194,834) was capitalised in relation to internally generated development costs.

EXCEPTIONAL COSTS

Exceptional costs incurred in the year relate to the amortisation of acquired intangibles of £120,000 (2022: £120,000), professional acquisition costs £100,000 (2022: £nil) please see note 33, professional fees related to the valuation of share options £14,000 (2022: £nil) and senior management settlement costs of £nil (2022: £355,053).

FINANCE INCOME AND COSTS

OPERATING PROFIT

Costs by nature

Profit from continuing operations has been arrived at after charge and crediting:-

During the year the Group obtained the following services from the Group's auditor at costs detailed below:

*Both amortisation of intangibles and depreciation charge will not agree to the relevant notes as these numbers exclude amounts capitalised as development expenditure, amounts included in exceptional costs and amounts in cost of sales.

INCOME TAX EXPENSE

Analysis of the tax charge from continuing operations:

Deferred tax was calculated using the rate 25% (2022: 25%). For further details on deferred tax see note 24.

Taxation for each region is calculated at the rates prevailing in the respective jurisdiction.

The main rate of UK corporation tax increased on 1 April 2023 from 19% to 25%. The effective tax rate in the period was 12.44% (2022: 13.03%). UK deferred balances have been recognised at 25% in the period (2022: 25%).

PROFIT OF PARENT COMPANY

The profit and loss account of the Parent Company is not presented as part of these financial statements. The Parent Company's profit for the financial year was £4,459,042 (2022: £4,163,416)

DIVIDENDS

Amounts recognised as distributions to equity holders in the period

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 number of shares considered for the proposed dividend includes 6,862,683 shares issued post year end as part of the consideration for the acquisition of Fresh Relevance.

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.

A number of non-IFRS adjusted profit measures are used in this annual report and financial statements. Adjusting items are excluded from our headline performance measures by virtue of their size and nature, in order to reflect management's view of the performance of the Group. Summarised below is a reconciliation between statutory results to adjusted results. The Group believes that alternative performance measures such as adjusted EBITDA are commonly reported by companies in the markets in which it competes and are widely used by investors in comparing performance on a consistent basis without regard to factors such as depreciation and amortisation, which can vary significantly depending upon accounting methods (particularly when acquisitions have occurred), or based on factors which do not reflect the underlying performance of the business. The adjusted profit after tax earnings measure is also used for the purpose of calculating adjusted earnings per share.

Reconciliations to earnings figures used in arriving at adjusted earnings per share are as follows:

Management does not consider the above adjustments to reflect the underlying business performance. The other exceptional costs relate to acquisition costs and professional fees. In 2022 the other exceptional costs related to senior management settlement costs.

30.6.23

Weighted

Goodwill is allocated to the Groups cash generating unit (CGUs) identified, being Dotdigital.

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 CGUs that are expected to benefit from that business combination.

The carrying amount of goodwill relates to the Groups trading activity and business segment. This has been tested for impairment during the current period 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. Cash flows beyond the five-year period are extrapolated using the estimated growth rate for the continuing operations of the Group. These long-term growth rates are management's estimates. The discount rates used are pre-tax and reflect specific risks relating to the continuing operations of the Group.

The key assumptions for the value in use calculations are those regarding discount rates, growth rates, and expected changes in margins.

Discount rate

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. The pre-tax discount rate used to calculate the value in use is 4.28% (2022: 19.75%). This has decreased as a result of the decrease in the cost equity which was impacted by the increase in the share price at the year end compared to last year and the decrease in dividend growth rate.

Growth rates

The growth rate is stated as the compound annual growth rates in the initial five years for the continuing operations of the Group which are then used for impairment testing. These are performed using the projected cash flows based on budgets approved by management over a five-year period. Cash flow projections from the sixth year onwards are based on an estimated constant growth rate. The growth rate used to calculate the value in use is 11% (2022: 15%).

Gross profit margin

Changes in income and expenditure are based on experience and expectations of the future changes in the market. The impairment review is based on these estimated gross profit margins which were included with the budgets approved by management over a five-year period. From the sixth year onwards, an assumed constant margin is used. The gross profit margin used to calculate the value in use in 73% (2022: 75%).

The valuations indicate sufficient headroom such that a reasonably possible change in key assumptions would not result in impairment of goodwill.

Sensitivity analysis

The principal variables used, being both the discount rate and growth rates, these would need to change before an impairment is required, this being 145% (2022: 161%) discount rate and growth rate of -5% (2022: -5%).

INTANGIBLE ASSETS

Group

Customer

Development cost additions represents resources the Group has 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.

Technology represents the cost that would be incurred to build the entire Comapi platform had the acquisition not occurred. Customer relationships represent the value of high-value customer contracts within Comapi.

PROPERTY, PLANT AND EQUIPMENT

Group

Included in the net carrying amount of property, plant and equipment are the right-of-use assets as follows:

Motor

The Group's or the Company's investments at the balance sheet date in the share capital of companies include the following:

All of the above subsidiaries have been included within the consolidated results, however Dynmark International Ltd was exempt from audit by virtue of s479A of Companies Act 2006 plus Dotmailer LLC was also dissolved on 29 June 2023. Dotdigital EMEA Limited, Dotmailer Development Limited and Dynmark International Ltd were incorporated in England and Wales. Dotdigital Inc was incorporated in Delaware (US), Dotdigital APAC Pty Limited was incorporated in New South Wales (Australia), Dotdigital B.V. was incorporated in Netherlands, Dotdigital SG Pte Ltd was incorporated in Singapore, Dotdigital Development SA Pty was incorporated in South Africa, and Dotdigital Poland S.p. z.o.o was incorporated in Poland.

Subsidiary Registered office

Dotdigital EMEA Ltd No.1 London Bridge

Dynmark International Ltd London

Dotmailer Development Ltd SE1 9BG

Dotdigital Inc 16192 Coastal Highway

Lewes

Delaware 19958-9776

County of Sussex

USA

Dotdigital APAC Pty Ltd 60/2 O'Connell Street

Parramatta

New South Wales 2150

Australia

Dotdigital SG Pte Ltd 6001 Beach Road

11-06 Golden Mile Tower

199589 Singapore

Dotdigital Development SA Pty Ltd BDO Building

Wanderers Office Park

52 Corlett Drive

Illovo

Johannesburg 2196

South Africa

Dotdigital B.V. Spaces Amstel

Treublaan 7

Amsterdam

1097DP

Netherlands

Dotdigital Poland S.p. z.o.o Al. Jana Pawla II 22

00-133 Warsaw

Poland

TRADE AND OTHER RECEIVABLES

Further details on the above can be found in note 22.

Included within Group prepayments is an amount of £255,846 (2022: £246,057) in relation to deferred commission which is considered to be long term. The Group has applied IFRS 9 simplified approach to measuring expected credit losses, the balances have been assessed based on each entitiy's ability to repay amounts owed and no expected credit loss has been recognised.

CASH AND CASH EQUIVALENTS

Further details on the above can be found in note 22.

CALLED UP SHARE CAPITAL

Further details on liquidity and interest rate risk can be found in note 2.

Included within revenue is £1,322,000 relating to contract liabilities that had been recognised at 30 June 2022 (£636,000 related to contract liabilities recognised at 30 June 2021 that had been included within revenue in 2022)

LEASE LIABILITIES

Group

The properties are office leases located in various location where the term ranges from one to ten years. The motor vehicles are company cars offered to senior staff where the term is always three years.

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 are listed in this note. It is 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

Lease Liabilities

Financial instruments by category

The following table sets out the financial instruments as at the reporting date:

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 quarterly 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.

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 £8,377,583 (2022: £8,220,247) 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 2023 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:

The maturity of the Group's provision for impairment is as follows:

The movement in the provision for the impairment is as follows:

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 £2,203,244 (2022: £1,614,266) of which £1,219,374 (2022: £1,476,586) 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 Group's cash holdings are held at NatWest Bank and Investec Bank Plc, which have A+ and BBB+ credit ratings respectively.

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 (2022: £nil) and amounts payable over one year are £nil (2022: £nil). The Group had a strong cash reserve to utilise for any short-term capital requirements that were needed.

The Group has continued to look for further long-term investments or acquisitions and therefore, to maintain or re-align the capital structure, the Group may adjust when dividends are paid to shareholders, return capital to shareholders, issue new shares or borrow from lenders.

Foreign currency exchange rate risk

Refer to foreign currency exchange rate risk under note 2 on page 63.

Maturities of financial liabilities

The tables below analyse the Group's financial liabilities into relevant maturity groupings based on their contractual maturities for all non-derivative financial liabilities (the Group does not hold any derivative financial instruments in the current or prior financial year).

The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of the discounting is not significant.

The following is the analysis of the deferred tax balances after any offset:

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.

CAPITAL COMMITMENTS

The Company and Group have no capital commitments as at the year end.

CONTINGENT LIABILITIES

The company and Group have no Contingent liabilities as at the year end.

RELATED PARTY DISCLOSURES

Group

The following transactions were carried out with related parties and were made on terms equivalent to those that prevail in arm's length transactions.

The Board of Directors are deemed to be key management personnel. Details of directors' emoluments are provided in the Remuneration Committee report on page 41. Ex-gratia payment related to a settlement payment made to a former CFO.

Information in relation to the highest paid Director is as follows:

The number of directors for whom retirement benefits are accruing under defined contribution pension schemes amounted to 2 (2022: 2).

Company

The following transactions were carried out with related parties

The receivables and payables are unrestricted in nature and bear no interest. No provisions are held against receivables from related parties.

Loans to/from related parties

IAS 24 Related Party Disclosure (Revised) allows disclosure exemption of transactions between wholly-owned subsidiaries that are eliminated on consolidation.

ULTIMATE CONTROLLING PARTY

There is no ultimate controlling party of the Group. Dotdigital Group Plc acts as the Parent Company to Dotdigital EMEA Limited, Dotdigital Inc, Dotdigital APAC Pty Limited, Dotdigital B.V., Dotmailer Development Limited, Dotdigital Development SA Pty Ltd, Dotdigital SG Pte. Limited, Dynmark International Ltd, and Dotdigital Poland S.p. z.o.o.

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 £721,070 and £15,003 movement in the provision of NI (2022: £455,549).

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 below illustrates the number and weighted average exercise price (WAEP) of, and movements in, share options during the period. The options outstanding at 30 June 2023 had a WAEP of 36.91p (2022: 49.04p) and a weighted average contracted life of 7.27 years (2022: 5.82 years) and their exercise prices ranged from 0.5p to 181.2p. All share options are settled in form of equity issued.

30.06.23 30.06.22 No of options WAEP No of options WAEP Outstanding at the beginning of the period 6,059,337 49.04p 4,292,735 26.05p Granted during the year 1,654,722 2.30p 2,463,663 89.85p Forfeited/cancelled during the period (201,636) 117.51p (259,562) 137.88p Exchanged for shares - - (437,500) 0.50p Outstanding at the end of the period 7,512,423 36.91p 6,059,337 49.04p Exercisable at the end of the period - - - - The weighted average share price at the date of the exercise for share options exercised during the period was n/a (2022: 0.84p). For options granted after 2019, a Monte Carlo model was used in measuring the fair use of options granted that were subject to a TSR performance condition. A Black Scholes model was used in measuring the fair use of all other options granted. 22 December 2020 23 September 2021 24 December 2021 Relative Relative Relative EPS (50%) TSR (50%) EPS (50%) TSR (50%) EPS (50%) TSR (50%) Number of options granted 153,364 153,364 100,729 100,729 193,894 193,894 Share price at grant date 152.0p 152.0p 264.0p 264.0p 196.0p 196.0p Exercise price 0.50p 0.50p 0.50p 0.50p 0.50p 0.50p Option life in years 10 years 10 years 10 years 10 years 10 years 10 years Risk-free rate (0.08)% (0.08)% 0.38% 0.38% 0.57% 0.57% Expected volatility 40.40% 40.40% 39.00% 39.00% 43.00% 43.00% Expected dividend yield 0% 0% 0% 0% 0% 0% Fair value of options 152.0p 99.0p 264.0p 181.0p 196.0p 115.0p 08 December 2022 24 December 2022 Relative Relative EPS (50%) TSR (50%) EPS (50%) TSR (50%) Number of options granted 438,435 438,434 283,157 283,156 Share price at grant date 93.0p 93.0p 83.9p 83.9p Exercise price 0.50p 0.50p 0.50p 0.50p Option life in years 10 years 10 years 10 years 10 years Risk-free rate 3.10% 3.10% 3.50% 3.50% Expected volatility 52.60% 52.60% 52.70% 52.70% Expected dividend yield 0% 0% 0% 0% Fair value of options 92.54p 71.0p 83.45p 60.0p 19 December 24 October 14 December 15 December 12 April 2017 2018 2020 2021 2022 Number of options granted 1,375,000 2,305,000 535,920 567,300 91,127 Share price at grant date 85.95p 77.5p 148.0p 181.0p 86.4p Exercise price 0.50p 0.50p 147.5p 181.2p 0.50p Option life in years 5 years 5 years 10 years 10 years 5 years Risk-free rate 1.33% 1.23% (0.01)% 0.54% 1.65% Expected volatility 30.0% 30.0% 34.3% 35.5% 53.2% Expected dividend yield 1% 1% 0.56% 0.46% 1% Fair value of options 65.3p 52.7p 47.0p 62.0p 80.5p 14 April 22 December 12 April 2022 2022 2023 Number of options granted 1,367,547 35,149 85,264 Share price at grant date 90.0p 83.9p 91.8p Exercise price 86.5p 85.35p 0.50p Option life in years 10 years 5 years 5 years Risk-free rate 1.68% 3.55% 3.40% Expected volatility 50.3% 60.7% 58.3% Expected dividend yield 0.96% 1.03% 1.07% Fair value of options 42.0p 46.56p 85.25p

Expected volatility was determined by calculating the historical volatility of the Group's share price over a 3-year/6.5-year period prior to the date of grant. The expected life used in the model is based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The share options granted on 24 October 2018, 22 December 2020, 23 September 2021, 24 December 2021, 8 December 2022 and 24 December 2022 were following the approval of the LTIP scheme at the AGM on 19 December 2017 and the end-to-end awards that were granted to key personnel.

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:

PROJECT DEVELOPMENT

During the year the Group incurred £8,729,106 (2022: £7,599,073) in development investments. All resources utilised in development have been capitalised as outlined in the accounting policy governing this area.

EVENTS AFTER THE END OF THE REPORTING PERIOD

On 11 September 2023 Dotdigital Group Plc acquired 100% of the voting equity instruments in Fresh Relevance Limited, a vendor of cross-channel personalisation technology.

The principal reason for the acquisition was to bring complementary personalisation technology and website expertise to the Group which accelerates Dotdigital's CXDP roadmap, together with technical expertise. The increased functionality the acquisition will both increase our total addressable market and help drive net revenue expansion.

The financial effects of this transaction have not been recognised at 30 June 2023. The operating results and assets and liabilities of the acquired company will be consolidated from 11 September 2023.

As the acquisition was completed a short time before the authorisation date of these financial statements, it was not practical to disclose an accurate book value of the net assets acquired as at 11 September 2023. The following figures presented represent Fresh Relevance Limited unaudited management accounts for 31 August 2023:

Provisional

31-Aug-23

£'000

At the date of authorisation of these financial statements a thorough and extensive detailed assessment of the fair value of the identifiable net assets has not been completed.

Fair value of consideration paid

Dotdigital paid a total consideration of £25.0 million, 100% payable on completion, with circa £18.9 million being satisfied in cash and circa £6.1 million by the issue of 6,862,683 new ordinary shares in Dotdigital at 88.698p, which are subject to a 12 month lock-in.

It is expected that post fair value adjustments this will result in recognised goodwill especially after pre acquisition adjustments such as the repayment of interesting bearing loans. The goodwill represents items, such as the know how of the workforce, which do not qualify as assets.