REG - dotDigital Group plc - Final Results <Origin Href="QuoteRef">DOTD.L</Origin> - Part 2
29/10/2014 11:40
- Part 2: For the preceding part double click ID:nRSN1832Ua
with IFRS3
'Business combinations' the equity structure appearing in the consolidated
financial statements reflects the equity structure of the legal parent
dotdigital, including the equity instruments issued under the share exchange
to effect the business combination;
- A reverse acquisition reserve has been created to enable the presentation of
a consolidated balance sheet which combines the equity structure of the legal
parent with the non statutory reserves of the legal subsidiary;
- Comparative numbers are prepared on the same basis.
The following accounting treatment has been applied in respect of the
acquisition of dotdigital:
- The assets and liabilities of dotdigital are recognised and measured in the
consolidated financial statements at their fair value at the date of
acquisition.
- The cost of an acquisition is measured as the fair value of the assets
given, equity instruments issued and liabilities incurred or assumed at the
date of exchange, plus costs directly attributable to the acquisition.
Identifiable assets acquired and liabilities assumed in a business combination
are measured initially at their fair values at the date of acquisition,
irrespective of the extent of any minority interest. The excess of the cost of
acquisition over the fair value of the Group's share of the identifiable net
assets acquired is recorded as goodwill. If the cost of acquisition is less
than the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement.
Subsidiaries
A subsidiary is an entity whose operating and financing policies are
controlled by the Group. Subsidiaries are consolidated from the date on which
control was transferred to the Group. Subsidiaries cease to be consolidated
from the date the Group no longer has control. Intercompany transactions,
balances and unrealised gains on transactions between Group companies have
been eliminated on consolidation.
As a result of applying reverse acquisition accounting since 30 January 2009,
the consolidated IFRS financial information of dotdigital Group Plc is a
continuation of the financial information of dotmailer Limited.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable
for the sale of goods and services in the ordinary course of the Group's
activities. Revenue is shown net of value added tax returns, rebates and
discounts after eliminating sales within the Group.
The Group recognises revenue when the amount of revenue can be reliably
measured and it is probable that the future economic benefits will flow to the
entity. The Group bases its estimates on historical results, taking in to
consideration the type of customer, the type of transaction and the specifics
of each arrangement.
The Group sells web based marketing services to other businesses and services
are either provided on a usage basis or fixed price bespoke contract. Revenue
from contracts are recognised under percentage of completion method based on a
percentage of services performed to date as a percentage of the total services
to be performed.
Going concern
The directors, at the time of approving the financial statements, a reasonable
expectation that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Thus they continue to
adopt the going concern basis of accounting in preparing the financial
statements. Further detail is contained in the Business review.
Operating profit
Operating profit is stated after charging operating expenses but before
finance costs.
Exceptional items
Exceptional items are non-recurring material items which are outside the
normal scope of the Group's ordinary activities such as costs arising from the
impairment of investments and closure of divisions. Such items are disclosed
separately within the financial statements.
Dividends
Final dividend distributions to the Company's shareholders are recognised as a
liability in the financial statements in the period in which the dividends are
approved by the Company's shareholders while interim dividends distributions
are recognised in the period in which the dividends are declared and paid.
Goodwill
Goodwill represents the excess of the fair value of the consideration over the
fair values of the identifiable net tangible and intangible assets acquired.
Under IFRS 3 "Business Combinations" goodwill arising on acquisitions is not
subject to amortisation but is subject to annual impairment testing. Any
impairment is recognised immediately in the income statement and not
subsequently reversed.
Investments in subsidiaries
Investments are held as non-current assets at cost less any provision for
impairment. Where the recoverable amount of the investment is less then the
carrying amount, impairment is recognised.
Intangible assets
Intangible assets are recorded as separately identifiable assets and
recognised at historical cost less any accumulated amortisation. These assets
are amortised over their useful economic lives 4-5 years, with the charge
included in administrative expenses in the income statement.
Intangible assets are reviewed for impairment annually. Impairment is measured
by determining the recoverable amount of an asset or cash generating unit
(CGU) which is the greater of its value in use and its fair value less costs
to sell. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific
to the asset or CGU. For the purpose of impairment testing, assets that cannot
be tested individually are grouped together into the smallest Group of assets
that generates cash inflows from continuing use that are largely independent
of the cash inflows of other assets or CGU.
- Domain names
Acquired domain names are shown at historical cost. Domain names have a finite
life and are carried at cost less accumulated amortisation. Amortisation is
calculated using straight line method to allocate the cost of domain names
over their useful lives of four years.
- Software
Acquired software and websites are shown at historical cost. They have a
finite life and are carried at cost less accumulated amortisation.
Amortisation is calculated using straight line method to allocate the cost of
software and websites over their useful lives of four years.
- Product development
Product development expenditure is capitalised when it is considered that
there is a commercially and viable technically product, the related
expenditure is separable identifiable and there is a reasonable expectation
that the related expenditure will be exceeded by future revenues. Following
initial recognition, product developments are carried at cost less any
accumulated amortisation and any accumulated impairment losses. The useful
lives of these intangible assets are assessed to have a finite life of five
years. Amortisation is charged on assets with finite lives and until economic
benefit can be received and recognised, this expense is taken to the income
statement and useful lives are reviewed on an annual basis. Amortisation is
charged from the point when the assets is available for use.
Other development expenditures that do not meet these criteria are recognised
as an expense as incurred. Development costs previously recognised as an
expense are not recognised as an asset in a subsequent period. Capitalised
development costs are recorded as intangible assets and amortised from the
point at which they are ready for use on a straight line basis over its useful
life.
Costs incurred on development projects (relating to the design and testing of
new or improved products) are recognised as intangible assets when the
following criteria are fulfilled:
- It is technically feasible to complete the intangible asset so that it will
be available of use or resale
- Management intends to complete the intangible asset and use or sell it
- There is an ability to use or sell the intangible
- It can be demonstrated how the intangible asset will generate possible
future economic benefits
- Adequate technical, financial and other resource to complete the development
and to use or sell the intangible asset are available and
- The expenditure attributable to the intangible asset during its development
can be reliably measured.
- Impairment of non financial assets (excluding goodwill)
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the asset does not generate
cash flows that are independent from other assets, the Group estimates the
recoverable amount of the cash-generating unit to which the asset belongs. An
intangible asset with an indefinite useful life is tested for impairment
annually and whenever there is an indication that the asset may be impaired.
Property, plant and equipment
Tangible non current assets are stated at historical cost less accumulated
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the assets carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic
benefits are associated with the item will flow to the company and the cost of
the item can be measured reliably. The carrying amount of the replaced part is
derecognised. All other repairs and maintenance are charged to the income
statement during the financial period in which they are incurred. Depreciation
is provided at the following rates in order to write off each asset over its
estimated useful life and are based on the cost of assets less residual value.
Significant components of individual assets are assessed and if a component
has a useful life that is different from the remainder of that asset, that
component is depreciated separately.
Short leasehold: over the term of the lease
Fixtures and fittings: 25% on cost
Computer equipment: 25% on cost
The asset's residual values and useful economic lives are reviewed and
adjusted, if appropriate, at each reporting date. An asset's carrying amount
is written down immediately to its recoverable amount if the asset's carrying
amount is greater then its estimated recoverable value.
Gains and losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised within other (losses) or gains in the
income statement.
Capital risk management
The Group manages it's capital to ensure it is able to continue as a going
concern while maximising the return to stakeholders through the optimisation
of the debt and equity balance. The capital structure of the Group consists of
cash equivalents and equity attributable to the owners of the parent as
disclosed in the Statement of Changes in Equity.
Taxation
The tax expense for the year comprises current and deferred tax. Tax is
recognised in the Income statement, extent to the extent that it relates to
items recognised in other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive income for directly in
equity, respectively.
Current tax
Current taxes are based on the results shown in the financial statements and
are calculated according to local tax rules, using tax rates enacted or
substantially enacted by the balance sheet date.
Deferred taxation
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the financial statements.
Deferred income tax assets are recognised to the extent that it is probable
that future taxable profit will be available against which the temporary
difference will be utilised.
Deferred income tax is determined using tax rates that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when
they related deferred income asset is realised or deferred income tax
liability is settled.
Operating leases
Rent payable under operating leases is not recognised in the Group's statement
of financial position. Such costs are expensed on a straight line basis over
the term of the lease. Lease incentives received are recognised as an integral
part of the total expense, over the term of the lease.
Financial instruments
Financial assets and financial liabilities are recognised on the statement of
financial position when an entity becomes a party to the contractual
provisions of the instruments. Financial assets and financial liabilities are
initially measured at fair value. Transaction costs that is directly
attributable to the acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities at fair value through profit or loss
are recognised immediately in the income statement.
Financial assets
The Group's accounting policies for financial assets are set out below.
Management determine the classification of its financial assets at initial
recognition depending on the purpose for which the financial assets were
acquired and where allowed and appropriate, revaluate this designation at
every reporting date.
All financial assets are recognised on a trade date when, and only when, the
Group becomes a party to the contractual provisions of an instrument. When
financial assets are recognised initially, they are measured at fair value
plus transaction costs, except for those finance assets classified as at fair
value through profit or loss ('FVTPL'), which are initially measured at fair
value.
Financial assets are classified into the following specified categories:
financial assets at FVTPL, 'held-to-maturity' investments, 'available for
sale' (AFS) financial assets and loans and receivables. The classification
depends on the nature and purpose of the financial assets and is determined at
the time of recognition.
De-recognition of financial assets occurs when the rights to receive cash
flows from the investments expire or are transferred and substantially all of
the risks and rewards of ownership have been transferred.
At each reporting date, financial assets are reviewed to assess whether there
is objective evidence of impairment. If any such evidence exists, impairment
loss is determined and recognised based on the classification of the financial
asset.
Loans and receivables (including trade receivables, prepayments, deposits and
other receivables, cash and bank balances) are non-derivative financial assets
with fixed or determinable payments that are not quoted on an active market.
At each reporting date subsequent to initial recognition, loans and
receivables are carried at amortised cost using the effective interest method,
less any identified impairment losses. An impairment loss is recognised in the
statement of comprehensive income when there is objective evidence that the
asset is impaired, and is measured as the difference between the asset's
carrying amount and the present value of estimated future cashflows discounted
at the original effective interest rate. Impairment losses are reversed in
subsequent periods when an increase in the asset's recoverable amount can be
related objectively to an event occurring after the impairment was recognised,
subject to a restriction that the carrying amount of the asset at the date the
impairment is reversed does not exceed what the amortised cost would have been
had the impairment not been recognised.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, demand deposits
with banks and other financial institutions, and short-term, highly liquid
investments that are readily convertible into known amounts of cash and which
are subject to an insignificant risk of changes in value, having been within
three months of maturity at acquisition. Bank overdrafts that are repayable on
demand and form an integral part of the Group's cash management are also
included as a component of cash and cash equivalents for the purpose of the
consolidated statement of cash flows.
Trade receivables
Trade receivables are recognised initially at the lower of their original
invoiced value and recoverable amount. A provision is made when it is likely
that the balance will not be recovered in full. Terms on receivables range
from 30 to 90 days.
Financial liabilities and equity
Financial liabilities and equity are recognised on the Group's statement of
financial position when the Group becomes a party to a contractual provision
of an instrument. Financial liabilities and equity instruments issued by the
Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an
equity instrument. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Group are recognised at the
proceeds received, net of transaction costs.
The Group's financial liabilities include trade payables and accrued
liabilities.
Trade payables
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method. Terms on
accounts payables range from 10 to 90 days.
Foreign currency risk
Currency risk is the risk that the holding of foreign currencies will affect
the Group's position as a result of a change in foreign currency exchange
rates. The Group has no significant foreign currency risk as most of the
Group's financial assets and liabilities are denominated in functional
currencies of relevant group entities. Accordingly, no quantitative market
risk disclosures or sensitivity analysis for currency risk have been
prepared.
The results and financial position of all the group entities (none of which has
the currency of a hyper-inflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
(a) assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet;
(b) income and expenses for each income statement are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the rate on the dates of the
transactions); and
(c) all resulting exchange differences are recognised in other comprehensive
income.
Equity
Share capital is the amount subscribed for shares at their nominal value.
Share premium represents the excess of the amount subscribed for the share
capital over the nominal value of the respective shares net of share issue
expenses.
Retained earnings represent the cumulative earnings of the Group attributable
to equity Shareholders.
The reverse acquisition reserve relates to the adjustment required by
accounting for the reverse acquisition in accordance with IFRS3 'Business
combinations'.
Other reserves relate to the charge for share based payments in accordance
with IFRS2 'Share based payments'.
Share based payments
For equity settled share based payment transactions the Group, in accordance
with IFRS 2 "Share Based Payments" measures their value, and the corresponding
increase in equity, indirectly, by reference to the fair value of the equity
instruments granted. The fair value of those equity instruments is measured at
the grant date using the trinomial method. The expense is apportioned over the
vesting period of the financial instrument and is based on the number which is
expected to vest and the fair value of those financial instruments at the date
of grant. If the equity instruments granted vested immediately, the expense is
recognised in full.
Functional currency translation
Functional and presentation currency
Items included in the financial statements of the company are measured using
the currency of the primary economic environment in which the entity operates
(functional currency), which is mainly pounds sterling (£) and it this
currency the financial statements are presented in.
Transaction and balances
Foreign currency transactions are translated in to the functional currency
using exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at the year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the income
statement.
Employee benefit costs
The Group operates a defined contribution pension scheme. Contributions
payable by the Group's pension scheme are charged to the income statement in
the period in which they relate.
Segment reporting
Operating segments are reported in a manner consistent with the internal
reporting provide to the chief operating decision-maker. The chief operating
decision maker who is responsible for allocating resources and assessing
performance of the operating segments as identified by the Board of
directors.
Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future.
Estimates and judgements are continually evaluated based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. In the future, actual
experience may differ from these estimates and assumptions. The estimates and
assumptions that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next financial year
are discussed below
Judgements
(a) Capitalisation of development costs
Our business model is underpinned by our email and cross-channel marketing
automation platform, dotmailer. Internal activities are continually undertaken
to enhance and maintain the product in a bid to stay ahead of our competition.
Management review the work of developers during the period and make the
following judgements:
Internal work relating to product development is reviewed against IAS 38
criteria and will be capitalised if management feel the criteria have been
met.
Internal work relating to the maintenance of existing products is expensed to
the income statement and accounted for in payroll costs.
Estimates and assumptions
(a) Impairment testing of goodwill
The Directors have carried out a detailed impairment review in respect of
goodwill. The Group assesses at each reporting date whether there is an
indication that an asset may be impaired, by considering the net present value
of discounted cash flows forecasts which have been discounted using a pre-tax
discount rate of 10%. The cash flow projections are based on the assumption
that the Group can realise projected sales. A prudent approach has been
applied with no residual value being factored.
Further detail on the estimates and assumptions we make in our annual
impairment testing of goodwill are included in Note 12 to the Financial
Statements. At the period end, based on these assumptions there was no
indication of impairment to carrying value of goodwill.
(b) Share-based compensation
Key management believe that there will not be only one acceptable choice for
estimating the fair value of share-based payment arrangements. The judgments
and estimates that management apply in determination of the share-based
compensation are summarise below:
• Selection of a valuation model
• Making assumptions used in determining the variables used in a valuation
model
i. expected life
ii. expected volatility
iii. expected dividend yield
iv. interest rate
Further detail on the estimates and assumptions we make in our share-based
compensation are included in Note 27 to the Financial Statements of the Report
& Accounts. The charge made to income statement for the period is also
disclosed here.
(c) Depreciation and amortisation
The Group depreciates short leasehold, fixture and fittings, computer
equipment and amortises computer software, internally generated development
costs and domain names on a straight-line method over the estimated useful
lives. The estimated useful lives reflect the directors' estimate of the
periods that the Group intends to derive future economic benefits from the use
of the Group's short leasehold, fixture and fittings, computer equipment,
computer software, internally generated development costs and domain names.
(d) Bad debt provision
We perform ongoing credit evaluations of our customers and grant credit based
upon past payment history, financial condition, and anticipated industry
conditions. Customer payments are regularly monitored and a provision for
doubtful accounts is established based upon specific situations and overall
industry conditions. Hence the provision is maintained for potential credit
losses based upon management's assessment of the expected collectability of
all accounts receivable. In making this assessment, management takes into
consideration (i) 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 Company's customers.
3. SEGMENTAL REPORTING
The Group's single line of business is the provision of web based marketing
services.
More than 90% of the Group's revenue arises in the UK and all of the Group's
non-current assets are held there.
There are no customers who account for more than 10% of revenue (2013: none)
4. EARNINGS PER SHARE
Earnings per share data is based on the consolidated profit using and the
weighted average number of shares in issue of the parent company. Basic
earnings per share are calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period.
Diluted earnings per share is calculated using the weighted average number of
shares adjusted to assume the conversion of all dilutive potential ordinary
shares. Reconciliations are as follows:
30.06.14
Weighted
average Per share
From continuing and discontinued operations Earnings number of Amount
£'000 shares Pence
Basic EPS
Profit for the year attributable to the owners of the parent 3,419 279,107,898 1.22
Options and Warrants - 11,272,536 -
Diluted EPS
Profit for the year attributable to the owners of the parent 3,419 290,380,434 1.18
30.06.14
Weighted
average Per share
From continuing operations Earnings number of Amount
£'000 shares Pence
Basic EPS
Profit for the year attributable to the owners of the parent 3,460 279,107,898 1.24
Options and Warrants - 11,272,536 -
Diluted EPS
Profit for the year attributable to the owners of the parent 3,460 290,380,434 1.19
From continuing operations 30.06.14 30.06.13
£'000 £'000
Profit for the year attributable to the owners of the parent 3,419 742
Adjustments to exclude loss from discontinued operations 41 3,023
Profit for the year from continuing operations for the purpose of basic earnings per share excluding discontinued operations
3,460 3,765
From discontinued operations
30.06.14 30.06.13
Per share (p) Per share (p)
Basic EPS (0.01) (1.10)
Diluted EPS (0.01) (1.10)
There was no difference in the weighted average number of shares used for the
calculation of basic and diluted earnings per share as the effect of all
dilutive share outstanding was ant-dilutive.
Weighted average number of shares Shares Shares
Basic EPS 279,107,898 275,839,565
Diluted EPS 290,380,434 285,687,852
The denominations and numerators used are the same to those detailed above for
both basic and diluted earnings per share from continuing and discontinued
operations.
30.06.13Weighted
average Per share
Earnings number of amount
£'000 shares pence
From continuing and discontinued operationsBasic EPS
Profit for the year attributable to the owners of the parent 742 275,839,565 0.27
Diluted EPS
Profit for the year attributable to the owners of the parent 742 285,687,852 0.26
30.06.13Weighted
average Per share
Earnings number of amount
£'000 shares pence
From continuing operationsBasic EPS
Profit for the year attributable to the owners of the parent 3,765 275,839,565 1.36
Diluted EPS
Profit for the year attributable to the owners of the parent 3,765 285,687,852 1.32
Adjusted EPS
Effect of exceptional items:
- Impairment of goodwill 2,326 - -
Adjusted earnings
Effect of dilutive shares 3,068 275,839,565 1.11
Options and Warrants - 9,848,287 -
Adjusted diluted EPS
Adjusted profit for the year 3,068 285,687,852 1.07
This information is provided by RNS
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