Dotdigital Group (LSE:DOTD) — HY 25 Results

0:00 Good morning, and welcome to the DOTDIGITAL GROUP PLC Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. And then I'd like to hand you over to Milan Patel, CEO. Good morning,

0:30 sir. Good morning, Lou. Thank you for handing over, and good morning to everybody that's attending today's interim results presentation. I'll take you through some of the the detail as we go through the presentation, but we'll start with a quick disclaimer. I'm sure you can all read it, and I don't need to read that out. But just going on to the business, I've seen quite a lot of people have joined today. We thank you very much for that. And there's quite a lot of existing investors as well as new investors. So I'll take you through some of the highlights of the business. And for the new people attending today's, presentation, I'll tell you more around the platform, where we're focused, and take you through the strategy of what we've seen in the last six months, but also what we think, what we are doing into the future.

1:20 In terms of the business itself, very much a global business centered out of three main hubs, UK being our hub into EMEA, our New York office has been our hub into North America, and our Sydney office has been our hub into APAC. Now when we describe hubs, it's having every single department within region to really continue scaling, whether it's new markets around the continent or continuing to expand within the market that we operate. We've got about 500 employees across the globe, half of them within the product development, around about 50 employees within the back office, and the rest within sales and marketing. In terms of locations, we operate within the Benelux market, the Nordics market, certainly the North American market, and within Far East Asia and Australia, New Zealand.

2:07 And newer entry around about eighteen months, but within the Japanese market too. And I'll take you through some of the things we've been seeing over the last six months and where we see that going next. In terms of the platform itself, there are four main parts of the platform. You've got the customer data platform and where I use buzzwords or words that we would, from a terminology perspective, understand. I'll try and explain it. So within the customer data platform, it warehouses all the information or data points across business systems that our customers want to use. Within that, effectively, you can start doing things like segmentation, data visualization, and really understand who you're talking to, what their behaviors look like, some of the attributes of that recipient.

3:02 You've got the middle layer of the platform. That's the orchestration layer. That's where you can start creating the creatives. You can start automating your customer journeys, whether it's a customer acquisition, marketing strategy, or a retention marketing strategy. And then you've got all the different channels that you can communicate on, whether it's email, whether it's SMS and you wanna augment the experience of email, all the way through to if you have that mobile, if you've got a mobile application. But for us, it's about creating a platform that can deliver consistent mess or consistent experience across these different channels, but also use the data to become more relevant and targeted in your communications.

3:49 What wraps everything together is the reporting analytics layer, and that's really about driving and testing campaigns and making sure you're ultimately driving that return on investment and also suggesting what to do next to continue improving that ROI statistic. We carried out a, total economic impact study with Forrester or commissioned it. And what we typically find customers using DOTDIGITAL for their spend generate a 406% return over a three year period. Now quite a lot of the, whether it was in November when we did our full year results presentation or well, so now, we've been really talking about the depth of the platform attracting some higher value customers. And Alastair can go into that, in a little bit more detail as he goes through the financials.

4:41 But what we are not doing is moving away from that mid market segment. We have seen an increase in average order values. We've seen very nice enterprise clients, whether we go into a single brand, single territory, and then expand from there, land and expand strategy, or also global global brands that want to consolidate their tech stack. And we're seeing more of that around the enterprise clients that are looking for a more cost effective, platform, quicker to deploy, and the ability to have more of their point solutions consolidated by a more, an all in one platform. You can see some of the clients that we we help. But, effectively, since listing about nearly fifteen years ago, we've taken an approach of sustainable growth, driving profitability as well as top line growth and then really turning that into cash.

5:38 In terms of our organic growth strategy, it's centered around three main pillars, whether it be from geographic and continuing to expand from the hubs that we operate, whether it's around our partnerships, and I'll take you through that as we go through the presentation, or around the product and continue to innovate and differentiate from the competitive landscape. We spend, around about 12 to 13% of our revenues in r and d, and we have teams, that are not only scanning the market for table state functionality. We also take feedback from customers what would help the mid market really drive further in their marketing strategy and working with the likes of Forrester, Gartner, and our teams to really understand where the market is going next.

6:33 So some of the key messages for the last six months, solid business performance over the last six months and progress against all three of those, growth pillars. In terms of product development, over the last six months, we've really focused around the mobile channels, and you're starting to see the the era of social commerce. What I mean by that is effectively consumers have lots of different mediums now to really transact with the business or consume information if you don't have a shopping cart attached to the end of your customer journey. So we've been doing quite a lot of stuff around social media and some of the newer channels that are coming and continue to educate the marketeers on how to use that within their own marketing strategies.

7:22 And finally, from a key message from the visibility that we have on our revenues to date, we see, momentum continuing in h '2, so in line with market expectations. I'll pass you over to Alastair to take you through a bit more of the financials. Thank you, Milan. No problem at all. So, I appreciate many of the people on the call are familiar with the the stock and will have seen the profile of earnings over over a long period of time. So I won't dwell on that too long, but in summary, since the business was was floated, It has consistently delivered in excess of 10%, more like kinda CAGR of around 15% revenue growth.

8:10 Earnings growth has grown alongside that, albeit at a marginally slower rate, and it's remained cash generative throughout. I'll talk a little bit the structure of p and l, how we choose to manage it because I think that is as useful as talking about the specifics of any single year. It's more of a guide as to how a business may continue to operate in future. So we we quite deliberately set out for with a margin target in mind, and we we build the cost structure so that we can deliver at least a 20% operating margin, 30% plus EBITDA margin. We normally exceed those those numbers by a percentage point or two. And then within that, the constraints of that, we try and balance short term growth requirements by investing in sales and marketing and the longer term growth and sustainability of the business by investing in research and development.

9:09 You don't see operating leverage come through in the form of profit, but what we do do is reallocate costs internally when we can achieve savings and achieve leverage on certain departments, like finance or HR as obvious examples. Any savings that we make in those areas go back into either the product development or the go to market activities. And you can see that if you look at the amount we've invested in in products and development as a percentage of revenue that has gradually increased over the years.

9:41 Looking at the revenue stack, the quality of revenue we have, it's we we have a very predictable, very diversified revenue base. About 95% of our revenue is repeating or recurring, and around 80% of it is actually contracted recurring revenues. The the repeating piece is the high volume of SMS sending we have, which is from customers who technically pay as you go, but we have long established relationships with them and good visibility of the volumes and phasing of the sending that they'll do through the year. You can see that our ARR, this is the the contracted piece, has grown in line with with revenue, and that allows us to to have the same quality of revenues going forward into future periods and gives us good visibility of revenue in h two of this year and going into the following financial year as well.

10:33 Cash conversion remained strong. Our cash conversion was around a 100% of EBITDA going to operating cash. We try and manage the business to stay at that level. And because of the typical working capital cycle of our customers, that's possible. There's always a few lumps and bumps through the year, in particular, around the h one period end, which would suit the timing and volumes of SMS supply and consumption. But but that as a as a longer term average will remain at that level. There's been no structural change in the business that would that would tweak that. I mentioned the diversity of the customer base. Now around half of our revenue comes from commerce customers, which are what what we describe as commerce. This is typically where there's a shopping basket at the end of the end user's journey.

11:23 And then there's the other 50% comes from what we describe as engagement customers, which are it could be any number of use cases, incredibly diverse range of use cases that continue to surprise me when I find out about some of them, ranging from police forces or councils communicating with their constituents to businesses who want to do emergency communications to employees and have a a way of seeing who has read what message at what time to know that things have been communicated appropriately and have an order support record. All charities who are communicating with donors to let them know what projects have been done and and what what's on the the horizon upcoming. And then the likes of the ICAW, for example, the the accounting body use the platform to communicate to various faculty members who who specialize in tax or transactions or whatever. And that requires quite a high degree of personalization across a large customer base. So lots of different use cases.

12:23 And what what's good about that from our perspective is that we have very low concentration in any one part of the economy, which gives us a level of resilience when when any one part suffers. Now going on to the the p and l for the for the half year, I'd this the shape of it is largely in line with with prior periods. You can see slightly accelerated profit growth relative to revenue growth. That's in in part helped by the other income line, which I'll get on to. It's to do with the change in tax treatment.

12:59 But I think we're we're maintaining the the margin profile that I've described earlier in this period. We had good growth across all regions. Our growth in APAC continues to be around 20%. I think it was 19% in the half year, led in part by the the young Japanese business we have, which is runs just about two years old, I think, since we made our first hire there. That's now got over a million dollars of revenue, and it's growing at 78%. Now the the high percentage is achievable in part because of the small base. I think it shows that we are getting a return on the the investment we've put in there. And with that in mind, we're putting in an extra two to three heads over the remainder of this financial year to support that ongoing growth into next year. The North American business has recovered very nicely from a from a flat period around two and a half years ago.

13:52 We've taken that from flat to 3% to 10%, and now we're up to 20% in the period. Now I would flag that we don't believe that's the sustainable level of growth for the level of investment we're currently making, and the period has somewhat been flattered by the timing of two particularly large deals. One very big upgrade with an existing customer and one I say new logo. Really, it was a consolidation of brands. So we we had great good. Nice to go on a little digression and tell you about it. It's a a business where we had they they had nine global brands. We serviced them for one brand in one region, which was APAC. We then got another of their brands in the EMEA market and from there, got into a global global tender process and kicked out, I believe, it was Salesforce, but Interjects, if I've got that wrong, Milan, and and won their nine brands on a global basis. That that contract is now worth about $1,500,000 a year to us.

14:49 So really nice example of landing spans and leveraging the the global capabilities that we have against, like, really strong enterprise level competition. But, anyway, the timing of that deal really helps us grow significantly in h one in North America. So the 20% is probably not not the sustainable level. That's probably low to mid teens based on the current trajectory of pipeline and level of investment we have there. Although in the medium term, we do intend to bring that up to the sort of mid to high teens where it was prior to the the issues around COVID and and that that period of time. Average revenue per customer has increased. It's supported by the FreshRelevance acquisition, albeit FreshRelevance customers that we've had actually had a lower average value than that that 1916.

15:44 The the growth there is supported because where we sell fresh in conjunction with our core organic product, let's say, it tends to add around 60% or around £2,000 a month to the the ticket size. We we haven't done a significant amount on pricing this year. We did last year because there was a high inflationary environment. There was an opportunity. This year, we've been much more measured in our approach to pricing with small price increases in EMEA and APAC particularly focused where we had actually released new functionality to support and justify that change. I think that sets us apart from some of our competition who have been far more aggressive on pricing and seen a level of disruption if you look at sort of message board feedback that you see in Twitter and so on. I think it's it's not gone unnoticed that some companies have been more aggressive on price, and we intend to to try and capitalize on that with the goodwill we retain from our customers.

16:45 Now one slight blemish on the the p and l and the growth period over the last last year or so well, last year, in EMEA and our UK business, we have had a little bit more churn, which is driven by insolvency events. That was really noticeable in q four of last financial year, so that's April through June. And then q one of this financial year probably increased churn by a couple of percentage points. That seems to be stable again when I look at the q two results, and it's obviously too early to give you the the update on q three. But we're we believe that's trending in the right direction and will provide a more stable base from which to achieve better growth rates in the future. The the balance sheet is we've got a very simple balance sheet, and so far as we don't have any debts. We've got very we've got very consistent working capital position. We balance debtors and creditors to to make sure there's no significant detrimental impact to working capital in the period. We tend to have a slight outflow in h one, slight inflow back again in h two.

17:48 That's fairly normal for us. So I think that the general trend here is is we're comfortable with even those slight expanding balances of both the debtors and creditors. We've actually recently implementing a bunch of changes to our credit control process, not so much to reduce the the debtor position, albeit, I think that might be a good side effect to the changes we're making, but more to improve the customer experience further and and try and take a level of work away from our customer success and account management team so so they can be more focused on selling. Now the cash pile. Yes. Yes. There's a cash pile. We're aware. This gives us a lot of optionality with regards to m and a activity, and I think Milan will go into more detail on that and some of the potential areas in which we would like to deploy that money.

18:37 But if in in the event that we are not having a high degree of confidence that we'll be spending the money on m and a in the medium term, we would, of course, look to return that to shareholders in the most appropriate way. I won't spend a long time on the cash flow saves to talk a little bit about the tax. We had high cash tax in the periods. Part of that's due to phasing of the payments and just just as they were calculated. But I think more significantly, we've moved from the SME r and d scheme in The UK to the merged RDEC scheme. This isn't a choice, unfortunately. The government just merged the schemes, and it was relatively late in the process. After a long period of consultation, they actually confirmed the exact structure that would take. That does have an adverse impact on us in total, that the scheme is less generous than the this previous scheme we were in, but it also changes the shape of the p and l. Now you remember that other income you saw of around 400,000 to 390,000, actually.

19:35 That's now you get relief in the form of credit in your overheads, which is the other income, and then you have a larger tax bill at the bottom of the page. So you'll see that significant increase in effective tax rate partially offset by other income in the period. That increase in effective tax rate has been ongoing, over a number of years as corporation tax first went up and then the r and d tax scheme has been diluted and then now very significantly changed. And that change has been a drag on EPS growth relative to our PBT or revenue growth. And and you can see that if you look at the results for this period, that PBT grew ahead of revenue whilst obviously earnings is is not doing that. So we we're conscious of that. We try and manage the tax position as best as possible, but we are somewhat

20:30 subject to the whims of whichever government is in power. And on that note, I'll pass back to Milan to talk about the growth strategy going forward. Thanks, Alister. So going back to the growth pillars around geographic products and partnerships, growing up what we do, growing our customers globally, what we've seen in the last six months is very much on that land and expand, as brands continue to consolidate. We've won really nice logos in particular regions over the last, last six months that we will be working on in terms of getting them to not only adopt more platform or functionality, but also work with their other brands on how we can make a how we can make a difference.

21:21 In terms of focus on cross selling, one of the things over the last six months we've been we've been doing is really working, on the go to market for the international reason international regions on the FreshRelevance capabilities that we acquired around about eighteen months ago. So we've really packaged, some of the pricing models of the fresh relevance offering and being able to really scale that from an enablement perspective across the international regions. And what's nice to see, not only are we seeing a growing demand from our existing customers, it's attracting newer customers at a higher value, but also it's assisting with some of the attrition in region.

22:08 In terms of expanding our product, suite, we've done quite a lot of work around mobile and also enhancing some of our AI capabilities over the last six months and enriching further the customer data platform that we've continued to build.

22:25 For us, it's not just the technology. It's also our people from globalizing our talent. We've invested in more this six months in some of our international regions, places like Japan as well as into North America to support the customer success side of things.

22:48 Exploring strategic partnerships or deepening our strategic partnerships, we can see, as we go through the presentation, both our ecommerce as well as our CRM connectors or customers using those connectors continues to grow in the double digit. And we'll talk about some of the newer or areas that we are looking to go into as well as some vertical specific technologies that will really help us, drive value in the that industry time.

23:19 So one of the areas that Alistair mentioned was using, from a capital deployment perspective, using some of our cash for acquisitions. And we have early stage conversations as you would when you have a acquisition strategy, And there are some key verticals that really make sense to broaden out our platform into more all in one and how we describe that all in one experience or all in one platform. And some of the areas, whether we build it, whether we buy it, or whether we partner, around, I I believe, three main verticals that really complete what we describe as the all in one definition. And they as we play further into the web personalization space and we have a customer data platform, the next logical, evolution to that would be search and merchandising.

24:12 And that's about using data to really serve the right search results based on behavior, based on pattern, based, based on what they've purchased previously.

24:26 The other area, there is a focus from marketers on retention marketing. So loyalty platforms make total sense, and being able to incorporate that further into their journey, or automation journey makes total sense. Not only does it increase the number of contacts, which in turn increases the license fee, It expands the amount of data that's coming into the platform, which ex which also increases the license fee,

24:53 and it increases messaging and the use of other channels. So in theory, increasing the third recurring lever. Another area which is up and coming as more and more people use social media to either transact or consume information is around influencer management and being able to not only manage your creators or influencers, but being able to tally that up with brands and then match them both together.

25:27 So those are the three areas that we're looking at at some point. What we've been seeing with the valuations in terms of private company valuations, expectations are becoming a little bit more realistic in terms of completing a transaction.

25:44 If we go to the geographic pillar, Alistair's already talked about North America. It's, with the investment in customer success, we've seen early fruits in region. It had the lowest, lowest attrition rate in the last six months from and it's probably looking more like where we were before we really changed the management team, and we saw some of that issues through COVID. So we're back on our front foot in in region. We've got good visibility in pipeline as well as the teams now, being enabled to cross sell the web personalization capabilities. In terms of EMEA, when a customer buys both the organic platform, I believe Alistair's touched on this, as well as buys the fresh relevance capabilities, it adds an additional 2 k per month, but it's also helping attract newer customers that may start small with us and have the ability to continue growing as they, as their marketing strategies continue to mature.

26:53 The other area, the web personalization technology is also helping on, which is quite hard to really try have an inorganic value to the revenue that Fresh Relevance brings in, is assisting with attrition across the business. So we had I'll give you an example. We had a customer that was spending £13,000 per month with us, so fairly big customer for DOTDIGITAL.

27:21 They were looking around. They were looking at a competitor who was telling them more about the web personalization element. Our customer success team said, well, we do that as well, which helps save the customer. But not only that, it increased the, monthly value to £31,000 per month, and only 5,000 of that is attribute directly attributable to that Fresh Relevance platform. So

27:54 the capabilities have a lot more value than just the revenue it gets associated to the platform. We've seen stabling attrition levels. So Alastair also talked about q four and q one in terms of attrition and a more normalized, q two of our financial year. And we continue to see SMS and adoption of SMS within the EMEA market, but also into the international regions continues to enhance. One of the things we will talk about on the next slide is how the other channels are doing, and we see the rise of in app push and some of the newer channels that we'll be

28:35 deploying for public release shortly. In terms of APAC, very strong growth led by Far East Asia, which grew 45%. And within Japan, that's net that was a standout performer, albeit from a smaller base. That's now running at about a million dollars US of ARR in a relatively short period, a strong partnership network within the market, and we're looking in age two to add further headcount to really support our direct marketing activities in the region. So talking about product, just very much on the increased channel usage, we've seen 877% increase, predominantly led by in app push as more and more customers build their own mobile applications.

29:27 But we've done quite a lot of work around integrations into TikTok, integrations into LinkedIn for more of our b to b customers who wanna enrich the data profiles on who they're speaking to, as well as around the Winston AI, continuing to build further on our strategies. We have two main strategies around AI. So we use ChatGPT from an NLP perspective to really drive content creation using a knowledge base to then drive using the algorithms from the knowledge base to then drive further in enhancements to making marketing departments more efficient. We also have our data science teams that are building proprietary algorithms for predictive capabilities, and that could be things like predictive next purchase if you have a shopping basket attached to the end of the journey, predictive engagement, predictive churn, etcetera. So we'll continue on that path from a product road map perspective.

30:28 In terms of some of the things we've been doing around the customer data platform, things like being able to use custom identifiers to join all that data. What that effectively means is not just email address to join all the different business systems data together or telephone number. You can now have your own. It could be TikTok ID. It could be a variety of different ways of really joining profiles together. Lots of work has been done around cross account reporting, so quite a lot more enterprise features as we attract higher value customers as well as we're excited around WhatsApp and what that will mean well, what's coming down the line. In terms of WhatsApp, they have significant users around EMEA, around APAC.

31:22 And what we've seen from the beta program is our customers get a higher return on ad spend generally as well as strong open rates. And that's about really having those conversations, being able to take a transactional conversation into a marketing conversation, as well as the ability to have global templates approved by Meta to really drive marketing across the WhatsApp user base. So if we go to the partner network, if we showed you this or when we came out in November, there's about 650 partners. We now have 850 partners globally. We've really been focused in in our partner program in terms of partner enablement, being able to serve up academy for for partners to be really certified as well as them understanding more of the value proposition as the depth of the platform has continued to expand.

32:22 However, looking back at the strategic partners, one of the things we we did in early stages of our life is really build strong integrations into ecommerce or CRM that would allow us to, allow us to address at least 70% of the mid market ecommerce merchants or mid market CRM users, and that's really working well. Adobe Commerce, which used to be Magento, still very much the largest partner, but a fast growing, partner from an ecommerce is Shopify in the period. Along with that, CRM for noncommerce customers, that continues to grow. So it kind of shows that the customers 50% of our customers continue to be in that non commerce. 50% of our customers continue being commerce, and that continues to grow double digit.

33:20 Some of the newer partnerships that we're really excited about, one being Oracle NetSuite that could move over to left. We describe strategic partners as having 10% or we have 10% of our revenues with that particular strategic partner or have the opportunity to be 10% of our group revenues. So we're excited about Oracle NetSuite. That paves the way for ERP and integration into ERP. So that's all about making it very easy for customers to bring data into our platform. The other area, we've done integrations into places, and technology partners like Donify, Blackboard. Blackboard is a CRM product for not for profit. We have a strong vertical expertise within that, and we continue to see some of these progressing and expanding as we look forward.

34:12 So looking ahead, solid half year performance across all three of our growth pillars, whether it be around geographic, whether it be around product or whether it be around our strategic partnerships. In terms of market drivers, depends what research you look at. The TAM approximately is around, 8,000,000,000 And dependent on where which, analyst report you read, it's somewhere between 1015% growth in its own right. And what we've seen is displacement of some of the traditional marketing activities as well as customers doing more from a digital marketing strategy perspective. The other areas we're seeing is from that high recurring revenue, we have very good visibility in terms of the second half, which gives us comfort in terms of meeting, consensus numbers.

35:13 So some of the priorities are very focused on driving platform adoption within our existing customers. And as I mentioned earlier in the presentation, working on the customers that wanted to start small and continue to grow with us and making sure that, they are using the platform to really achieve their objectives. Driving more of the fresh relevance capabilities in our international regions, whether it be from a cross sell or new business perspective as well as launching. So our WhatsApp channel launches in April. So the beta program has been a success, both from our customers driving a higher return on investment, but also a channel demand perspective.

36:02 I'm very much working with our strategic partners from a brand awareness perspective across the their user base, but also the technology into technology, ecosystem that works around our strategic partners. And as mentioned earlier, some of the capital deployment around our acquisition strategies, we continue to actively explore acquisitions. Lily, over to you. Milan, Alastair, thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just following the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published q and a, can be accessed via investor dashboard.

36:51 As you can see, we have received a number of questions throughout today's presentation. Now please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Thank you, Lily. Alastair, do you wanna take the first one? I I will. I won't I'm not gonna read the whole of this because it's quite a long question with a level of hypothesis as opposed to question there. But I think it boils down to that why is earnings growth or or when when can we get earnings growth back into double digits as opposed to maybe revenue growth? And I and I think that the answer to that is twofold. One is I touched on while I was presenting, which is we need a stable tax environment to be able to get there, and that that will help as as we have successive adverse changes in tax that obviously makes it very difficult to maintain earnings growth in line with with revenue or PPT growth.

37:56 And I think the other the other thing which can help with that is as we start to see the commercial leverage we get from acquisitions coming through as well. I think while absorbing an acquisition, it is necessarily well, not necessarily. It isn't the case of most targets we're gonna look at in the short term going to be earnings dilutive, but in the longer term earnings accretive. And I think we're still at the short term phase post the acquisition of FreshRelevance. So a period of stability post acquisition and a period of stability in tax would allow that progression. Thanks, Alastair. As I say, given I'll I'll I'll just carry on. You you interject when you want, Milan.

38:42 Next question. Given cash on the balance sheet, what are your thoughts on buybacks? I think we touched on that. I think a buyback probably based based on the way the market is at the moment, our current thinking, if we were to return cash to shareholders, that's probably the route we would choose. But first priority is to identify good m and a options. So not not yet, but, yes, that is the route we would choose if we get to that point. On the this is one for you, Milan. On the last call regarding the WhatsApp inspiration, you said that this will differentiate you with only one of the competitor able to do this, which is Braze. Why is no one else doing this, or do you expect competitors to follow? Yep. So at some point, the competitors will follow.

39:30 We've obviously got USPs against Braze as well with global templates being approved by Meta. At this moment in time, Meta have made this a closed program or more closed program until they see what the effects are from their user base. Great. In recent years, you also pointed to further innovation investment in the innovations team. Are you expecting a meaningful uptick in r and d costs? No. Good answer. I think we'll continue to grow r and d in the next year or so broadly with inflation, maybe slightly ahead to get back around 12% of revenue in r and d. We're slightly ahead of that at the moment, having bought FreshRelevance, which had a high proportion.

40:22 Once that's absorbed, we're back at 12%, we'll then grow r and d in line with revenue assuming, and I think it's a pretty safe assumption, we continue to have visibility of a good range of options which we believe would give a positive return if we pursue them. I'll take the next question, Alastair. So it's a question from one of our investors. I can see from the Cavendish website that you all valued at about 2.7 times EV over sales compared with the Cavendish Tech 40 index at three times. That equates to 13.6 times EV over adjusted EBIT compared with the Cavendish index at 15.1 times. How do you think your valuation compares with private companies?

41:10 So whilst I mentioned at the start of the presentation, valuation expectations have come down from private companies. They are still a lot higher than public company valuations. You can buy corporate turnarounds or businesses that are subscale at probably one to three times revenue. None of these businesses that we've seen from a tech perspective, make the similar levels to operating profit that we do, most of them are at breakeven at this moment in time. However, there are good companies within that that are either growing fast, but are sub 5,000,000 revenues, sub 10,000,000.

41:57 And then you've got some companies which are reasonable growth and are good companies, but with with them, they are typically valued between three and five times ARR because they're all running at breakeven. I think for if you if anybody does want to actually look at some of our analyst notes, Cavendish, very kind. If you self certify as a sophisticated investor at cavendish.com, you'll be able to see the the notes and tech index valuations. Next one, I think, is for you, Alister.

42:46 When do you think your r and d investment will translate into higher product growth sorry, higher growth product revenue, and could you better spend more of the cash in the bank on r and d? I think I think at the level we spend at the moment, if we are selective and we are efficient, we are able to grow our product suite in a way which is competitive with, but not ahead of, some of our very well funded competitors. I think it enables us to hold our competitive position with that level of investment to create step changes through acquisition or through occasional new products work such as the work on the loyalty platform that we're doing at the moment.

43:42 We could spend more, definitely, and it would be beneficial in the longer term. However, it would also require a compromise on margin in the shorter term or a compromise on the amount we spend in in other customer facing or or go to market positions, which I think would also be detrimental. So we'll continue to try and balance that as things stand sort of with the with the ratios that I mentioned. But, yes, the there is a long list of things our our products and development team would love to work on if they were given the the budgetary freedom to do so. Let me add to that because it's not just the r and d spend that keeps you it gives you product differentiation to the competitors.

44:28 We would also need to spend on on marketing to really drive brand awareness across the regions as well as educate within our existing customer base and new customers on the expanded offering. So whilst you can spend in r and d, you need to support that with your marketing efforts to drive the value proposition as well as, brand awareness across the different regions. Milan, you can take the next one. When do you anticipate the three new products of loyalty, etcetera, to be live and revenue generating? I think we gotta look into the medium to long term to have all three because some of these will be acquisitions.

45:17 Some of it might be built. We've already got partners in these different categories. As as always, we will continue to talk to targets in these different categories. So it's it's difficult to give you a complete timing. However, we are testing with the innovations team where we put in about £500,000, which would be working on bit like Skunk Works, working on new products around our platform. We'll be testing some of the verticals and building some of the capabilities out ourselves. Okay. It is clear from the data you share with investors that ARPU is rising, which is clearly good.

46:06 But it's hard to see customer numbers growing. Can you share any KPIs with us to help us understand the change in customer numbers? So they are substantially flat. You're right. I think there is still a tale of a few 100 very low value customers, very low revenue customers, should I say, who we, for the most part, probably acquired when the platform was a much simpler email solution. And they tend to or they often churn at a or they churn to a higher rate, should I say, than our larger customers who take advantage of more inspiration, more functionality, more of the sort of multi region benefits to the product.

46:54 And although they they churn at a high rate by number, but, obviously, it has a relatively low impact on revenue. Meanwhile, we win a smaller number of larger contracts, which offsets So overall, we achieve revenue growth with a a flat customer number base. And I think if you if you sort of back solve the numbers that we provide, you'll see that trend fairly clearly for the last few years. Next question. Do you insure against bad debts? No. Simple answer. However, we do go to a lot of lengths to minimize our exposure to bad debt, And I would say there's very little we're well provided for those debts in our financial statements.

47:40 The the the other bit to add there, Alastair, is quite a lot of collection gets done on direct debit, ACH collection, and customers pay one month in advance, typically. Exactly. So we we invoice in advance. We have the ability to turn off the product. Remember, it's a SaaS platform. So customers can't keep benefiting from it if we don't allow it. So they have to remain within terms and so on. So we we we have pretty good control which stops us getting into any really tricky debt situations. Final question, how how is leaving the business affects the ability to execute acquisitions? I think it's it's probably a fairer question for you, Milan. I I can say I will add, although it's not been asked, I'll just ask to to try and give some comfort around the ongoing operational side of it.

48:32 I've got a very competent, very experienced finance director who's been working for me. He was covering the role before I joined the business and is more than capable of continuing to do that as I leave. From a day to day operational perspective, there's nothing around the running of the finance team or the treasury management, which absolutely requires me. With regards to high level exec oversight, obviously, Milan was previously the CFO and is a trusted accountant, and is is more than capable of providing the the oversight that that George would require to kind of finish the job if you like. So from an operating perspective, I don't see any any short term risk.

49:17 Milan, maybe you can In terms of He's covered. The ability to execute acquisitions, I don't think it would affect the the ability. We've got quite a lot of experience now around the leadership team to not only start sourcing all the way through to negotiation, but also doing the integration planning across our business. So, hopefully, we get a CFO in short order, but that wouldn't affect our acquisition strategy as we look forward. Milan, Alastair, thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform.

50:04 Just before redirecting investors to provide with their feedback, which I know is particularly important to the company, Milan, could I please just ask you for a few closing comments? No problems, Lily. So just if we kinda go back to our three organic growth pillars, we're really moving in the right direction from a geographic standpoint. We see the opportunity of driving, some of the cross sells within the international market through the newly enabled sales and customer success team. So a lot of work has been going on in there. We're seeing continued momentum in Far East Asia for our APAC market as well as higher value customers coming across three different continents. If we look at the product innovation part, we're continuing to be excited about some of the product, sorry, some of the functionality that we've launched to date, but also some of the newer functionality like WhatsApp, being able to connect, into social media channels, a focused approach around in app push, but also the channel usage across the platform.

51:08 In terms of strategic partnerships, growing very much in line with where we expect as well as some of the newer partnerships with NetSuite and Blackboard coming down the line. And we continue to look through look at capital deployment from, an acquisition standpoint, early stage conversations, but we're really building a pipeline behind that. So in terms of final remarks, the market continues to move in the right direction for us. We are seeing increases in consumption as well as customers becoming more sophisticated in their marketing strategies, which increases the platform adoption within our business. On that note, thank you so much for everyone that attended today, and look forward to speaking to you soon.

52:01 Milan, Alisa, thank you for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This may only take a few moments to complete and I'm sure be greatly valued by the company. On behalf of the management team of DOTDIGITAL GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.