25174.02 9 May 2017 11:25 AM Proof 5Dillistone Group Plc Annual Report and Accounts for the year ended 31 December 2016Annual Report for the year ended 31 December 2016Stock code: DSGEmpowering recruitment globally through technologyDillistone Group AR2017.indd 309/05/2017 16:36:57 Welcome to the
Dillistone Annual Report 2016
Dillistone Group Plc is a global
leader in the supply of technology
solutions and services to the
recruitment industry worldwide.
We provide software and services to recruitment firms and recruiting teams within major
corporations. Across our subsidiaries, we work with over 2,000 firms in over 60 countries.
Our two divisions are Dillistone Systems and Voyager Software. Dillistone Systems specialises in
the supply of software and services into executive level recruitment teams. Voyager Software’s
clientele are primarily involved in contingent recruitment, including permanent placement, contract
placement and the provision of temporary staff.
Commenting on the results and prospects,
Mike Love, Non-Executive Chairman, said:
“Product development continues to be a priority with
a number of upgrades and new product launches
successfully achieved in 2016. The year delivered
a record level of revenues, and equally importantly,
recurring revenues.
Look out for the following
definitions throughout this report:
1. Adjusted operating profit is statutory operating
profit before acquisition costs, related intangible
amortisation, movements in contingent consideration
and other one–off costs. See note 2.
2. Adjusted EBITDA is adjusted operating profit with
depreciation and amortisation added back.
3. Net cash funds are cash and cash equivalents held
“Overall, despite what we consider to be short term
less bank borrowings.
economic turbulence, the Group believes that
it is in a strong position in its core markets and
is confident of future progress. As a result, we
are delighted to propose an increase in our final
dividend of 1.8% to 2.8p.”
Dr Mike Love
Non-Executive Chairman
4. Adjusted basic EPS is computed from statutory profits
after tax adjusted to exclude the post-tax effect of
acquisition costs, related intangible amortisation,
movements in contingent consideration and other
one–off costs.
Look out for the following
icons throughout this report:
Read further within the report...
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Strategic Report
Governance
Financial Statements
Highlights
Adjusted profit before tax
Recurring revenues
Contents
3%
2016
2015
2014
2013
2012
6%
2016
2015
£7.03m
£6.61m
£1.46m
£1.42m
£1.82m
2014
£5.93m
£1.80m
2013
£5.27m
£1.68m
2012
£4.53m
❯ Revenues up 6% from 2015 to £9.963m.
❯ Record level of recurring revenues of £7.027m, up 6% from 2015.
❯ Recurring revenues, representing 71% of Group revenue, cover approximately
all of administrative expenses before acquisition related and one–off costs.
❯ Adjusted operating profit for the year up 3% to £1.463m.
❯ Profit after tax for the year is £0.526m after a pre-tax one–off amortisation adjustment
of £0.720m.
❯ Adjusted basic EPS fell slightly to 7.10p (2015: 7.26p).
❯ Basic EPS fell to 2.68p (2015: 6.20p) reflecting the amortisation adjustment.
❯ Final dividend of 2.8p per share recommended (2015: 2.75p).
❯ Net cash funds of £1.379m (2015: £1.270m).
❯ Dillistone Systems division reports strong turnaround in new business wins with over
100 new client firms signing up in period with a total contract value of over £1.000m.
Revenue up 5% to £4.858m.
❯ Voyager Software division saw an 18% increase in new business wins in 2016; launched
ISV Online, and the first of a suite of mobile apps. Revenues grew 6% to £5.105m.
Read more on Group Performance
on pages 8 to 14
www.dillistonegroup.com
Overview
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Highlights
Timeline
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2
Strategic Report
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Dillistone Group at a Glance
Chairman’s Statement
CEO’s Review
Financial Review
4
6
8
13
Governance
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Board of Directors
Corporate Governance Report
Report to the Shareholders
on Directors’ Remuneration
Directors’ Report
16
18
20
22
Financial Statements
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Independent Auditor’s Report to the
members of Dillistone Group Plc
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Changes in Equity
Company Statement
of Changes in Equity
Consolidated and Company Statements
of Financial Position
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
Directors and Advisers
Investor relations website
Visit our investor relations website at
www.dillistonegroup.com for further
information about Dillistone Group Plc.
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27
28
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Dillistone Group Plc | Annual Report & Accounts 2016
Timeline
1983
1990
2003
The original FileFinder software was
developed by David Dillistone, himself a
retained search consultant. While it was
initially created for in-house use, David soon
realised that there was a market for it beyond
his own firm, and so he created David
Dillistone Systems.
By the late 1990s, David had retired and
the business – now renamed as Dillistone
Systems – was owned by Custom Business
Systems (CBS). CBS invested heavily in the
firm and, by the end of the decade, offices
had been established on three continents.
In 2003, the current management team
took part in a management buyout of
the business. The dawn of the internet
meant that it became far easier to sell
the FileFinder system internationally,
and, as a result, Dillistone Systems
grew rapidly.
2011
2008
2006
In March 2011, FileFinder 10 was
released after over two years of
development. In September 2011,
the Group made its first acquisition:
Voyager Software.
In 2008, a decision was taken to significantly
increase R&D expenditure, and the
development of the next generation of
FileFinder began.
In 2006, the Group floated on the AIM
market of the London Stock Exchange
(DSG. L).
2012
2013
2014
In September 2012, Voyager Infinity
was launched after three years of
development.
In July 2013, the Group made its second
acquisition: FCP Internet.
In October 2014, the Group acquired
ISV Software. 2014 saw the release of
FileFinder Anywhere, a market leading
product suited to mobile working.
2016
2015
Voyager software division launched ISV
Online and the first of a suite of mobile apps.
Voyager Software division – launch of
cloud hosted version of Infinity; launch of
integration of ISV FastPath and Infinity; and
launch of version 6 of Evolve.
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25174.02 9 May 2017 11:25 AM Proof 4Strategic ReportDillistone Group at a Glance4Chairman’s Statement6CEO’s Review8Financial Review13Dillistone Group AR2017.indd 309/05/2017 16:36:59 Dillistone Group Plc | Annual Report & Accounts 2016
Dillistone Group at a Glance
For the year ended 31 December 2016
Dillistone Group Plc is a
global leader in the supply
of technology solutions and
services to the recruitment
industry. Operating across
60 countries, working with
over 2,000 firms, we are
made up of two divisions.
Dillistone Systems division
Dillistone Systems is a leading global supplier
of technology and services to executive search
firms and to in-house search teams at major
corporations and not-for-profit organisations.
The Division’s principal product is the FileFinder
Anywhere suite, which is typically delivered from
the cloud via a range of Apps. The Division is
headquartered in the UK, but has offices in the
United States, Australia and Germany and serves
clients in more than 60 countries, generating
more revenue from outside the UK than from its
home market. It employs around 60 people.
Dillistone Systems is widely acknowledged to
work with more executive search firms than any
comparable supplier, and is also considered
to be a thought leader in this space. As a
result, the Division has also moved beyond
the supply of software, and provides additional
services including training in executive search
techniques, marketing and advertising services,
and also runs regular events which are open to
both client and non-client firms.
Dillistone Systems
division Products
FileFinder is designed specifically for the
executive recruiting market with FileFinder
Anywhere being the latest generation of the
suite. FileFinder Anywhere is available in two
forms: Essentials and Premium.
FileFinder is an executive search database,
CRM system, research tool, report writer and
project management solution all rolled into one.
It is designed to support every element of the
search process.
The product is unique in its market, in that it
is available to purchase or to rent, and can be
accessed via a Desktop App, a full Browser
App, a Mobile App or through Microsoft Outlook
(desktop or web versions).
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Strategic Report
Governance
Financial Statements
Voyager Software division
Voyager Software itself became a part of the
Dillistone Group in September 2011. It has
always provided end-to-end recruitment
solutions to the recruitment sector, typically those
working on a contingency basis, and continues
to do so to this day. In September 2012, Voyager
Software launched its latest generation of
recruitment solutions with its Infinity product.
Infinity is designed to improve the performance
and efficiency of recruitment businesses
specialising in permanent, contract and
temporary roles. With automation at its heart, it
meets the demands of flexibility and functionality
required by these recruitment firms. Alongside
Voyager Software’s VDQ product, for pure fast
paced temporary agencies, and Mid-Office,
the pay-and-bill solution for the back office,
the business covers the whole contingency
recruitment space. In 2013, the Group acquired
FCP Internet, suppliers of the evolve™ SaaS
product, and this has subsequently been
integrated into the Voyager Software Division.
In October 2014, a further acquisition, ISV
Software – a supplier of skills testing and training
services, was also incorporated into the Division.
Today, the Voyager Software Division’s products
are used in over 20 different countries by many
thousands of users in different-sized recruitment
businesses. The Division has offices in the UK
and Australia and employs around 60 people.
www.dillistonegroup.com
Voyager Software
division Products
Voyager front office:
Voyager Infinity
manages the work
of recruiters working
to fill permanent and longer-term contract/
temporary vacancies delivering measurable
performance efficiencies and audit trails.
Voyager Infinity SaaS has all
of the great features of Infinity
available as a managed service
on the Azure Cloud with
affordable set-up and affordable monthly cost.
Voyager Infinity Connect Mobile App
is the new super easy-to-use mobile
app for Recruiters on the go. The
app, available in both iOS (Apple)
and Android (Google) stores, allows
the user to quickly and easily look up contacts
from their Voyager Infinity SaaS database and all
communication is logged against the database
in real time.
Voyager VDQ! is designed for
fast-paced blue and white
collar temporary placement
agencies that have to quickly
assemble transient or ad hoc teams to serve
highly volatile and urgent labour requirements.
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Voyager mid
and back office:
Voyager Mid-Office Voyager’s flexible
Pay & Bill solution, automates the
processing of large volumes of
timesheets and payments to numerous clients
and candidates.
Voyager Bureau enables bureaus to subcontract
back-office operations for multiple client
recruitment companies on a single platform.
Evolve
Through FCP Internet, the
division also provides its
evolveTM Solution. evolve™ has been designed to
deliver an effective workflow solution for all sizes
and types of recruitment business. It is delivered
only as a SaaS product.
ISV
ISV delivers pre-employment
skills testing and training tools
to recruitment businesses
and corporates. In late 2016, ISV launched ISV
Online, incorporating all the best elements from
its original testing platform, FastPath.
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Dillistone Group Plc | Annual Report & Accounts 2016
Chairman’s Statement
For the year ended 31 December 2016
“ The business
is committed to
maintaining its policy
of investing in its
products and services
whilst rewarding its
shareholders.”
Dr Mike Love
Non-Executive Chairman
Revenue analysis
2016
Recurring
Non recurring
3rd Party
71%
24%
5%
Product development
continues to be a priority
with a number of upgrades
and new product launches
successfully achieved
in 2016. The Group delivered
its best ever revenue
performance with revenue
up 6% to £9.963m.
This performance was impacted by the Brexit
vote in the UK, which reduced demand in
our home markets while weakening Sterling
and, therefore, increasing the value of our
overseas sales.
Underlying profit before tax, acquisition costs
and one–off adjustments rose 3% to £1.458m.
As mentioned in our pre close statement, the
Group has undertaken a review of its accounting
judgements in respect of the amortisation of
platform development costs and subsequently
decided to write these costs off over a period
of five years, rather than a period of five to
ten years, resulting in a one–off adjustment of
£0.720m. Accordingly, operating profit fell to
£0.412m with reported profit after tax falling
to £0.526m. This is a non-cash accounting
adjustment and brings our accounting treatment
into line with industry practice. The resulting
basic EPS for the period was 2.68p.
Dividends
The Board was pleased to increase the interim
dividend payment in September 2016 to 1.375p
per share (2015: 1.35p) and has recommended
an increased final dividend of 2.8p per share
(2015: 2.75p), subject to shareholder approval,
payable on 27 June 2017 to holders on the
register on 2 June 2017. Shares will trade ex
dividend from 1 June 2017. This takes the total
dividend based on the 2016 results to 4.175p
(2015: 4.10p), and gives a yield of 4.9% on a
share price of 84.5p.
This represents our fifth successive year on year
increase in the dividend, in line with our policy
of progressing dividend payments, subject to
the cash needs of the business. The business is
committed to maintaining its policy of investing
in its products and services whilst rewarding its
shareholders.
Staff
Our staff are fundamental to our success.
It is through their efforts, commitment and
determination that we continue to be a leading
technology provider in the sectors we serve.
On behalf of the Board I would like to take this
opportunity to thank all of our staff.
Outlook
We are pleased to note that total revenue in
Q1 2017 is ahead of the same period in 2016
despite turbulent markets for many of our
recruitment clients.
Although the Group derives revenue from clients
around the Globe, 72% of our revenues in 2016
were derived from the UK recruitment market
and the decision of the UK to “Brexit”, taken in
June 2016, has had an impact on this sector. In
turn, this has impacted our new business sales:
while incoming orders in the first quarter of 2016
benefited from a confident UK economy, this has
not been the case in the second half of 2016 and
the first quarter of 2017.
While new business orders may have been
impacted by economic turbulence, our recurring
revenue base has reached record levels. This is
true for both of our divisions and these long term
recurring revenues are expected to cover the
majority of our administrative costs and thereby
giving us confidence in the future of the Group.
Furthermore, we are anticipating an
improvement in orders in the latter months of
2017 and the early part of 2018 as the incoming
General Data Protection Regulation (“GDPR”)
rules, which come into effect on 25 May 2018
and which will require recruitment firms to
take steps in the run up, are likely to have a
significant impact on the recruitment technology
space. We believe that this impact will be positive
for the Group.
Technological innovation is key to our long term
success. In addition to the ongoing development
of our existing product range, the Group is
investing in the creation of an exciting new
product. While development of this product has
begun, it will not generate significant revenue
prior to 2018, and although the majority of
development costs are expected to be capitalised
other costs will be expensed in 2017. Despite
the increased expenditure, we believe that this
product will have a significant positive impact
in the future. We are currently appraising debt
funding arrangements for the completion and
launch of this new product.
Overall, despite what we consider to be short
term economic turbulence, the Group believes
that it is in a strong position in its core markets
and is confident of future progress. As a result,
we are delighted to propose an increase in our
final dividend of 1.8% to 2.8p (2015: 2.75p).
Dr Mike Love
Non-Executive Chairman
25 April 2017
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25174.02 9 May 2017 11:25 AM Proof 5Case StudyIn each annual report we highlight how one of our solutions is helping a client to generate real business efficiencies. Last year our case study looked at how White Knight Recruitment is taking advantage of two of our products – Infinity and FastPath. This year we are looking at Damhurst & Co. Damhurst & Co is a retained executive search company established in 2016, focusing on mid-senior appointments in the insurance and reinsurance sector.After using a competitive product for years at his previous firm, company director James Cooper reviewed other executive search software options, and decided that FileFinder Anywhere was the solution best meeting his requirements. Six months after going live, James shares what affected his decision and his initial impressions as a FileFinder user. Dillistone Systems: Why did you decide to invest in specialised executive search software?James Cooper: I believe that executive search and recruitment are very different, therefore they have different requirements when it comes to technology. As a research-driven business, data is paramount for us – so we needed to find the best system, tools and people to help us collect and use data for our search assignments. After reviewing the market, FileFinder Anywhere and the Dillistone team seemed to tick all the boxes!Dillistone Systems: How was the implementation process?James Cooper: Implementing FileFinder Anywhere was a very easy and enjoyable process, mostly because of the people we have had to deal with at Dillistone Systems – in particular, I want to thank your projects and training teams for their efforts, and for being very helpful during the whole transition period. Dillistone Systems: Six months in, what are your impressions of FileFinder Anywhere?James Cooper: FileFinder Anywhere is a sophisticated piece of software. Previously, I used a well-known competitive product, and enjoyed using it very much – however, now that I am using FileFinder Anywhere, I would not swap back for love or money! You have to invest some time in learning how to use the product but it is all worthwhile in the end – and again, the training team is there to help and they are doing a superb job. Dillistone Systems: How do you rate our support service?James Cooper: The technical support service is anything but formulaic. The support team really does listen to you, they take time to understand what the issue is, and after a couple of conversations, we have been able to match our processes to FileFinder. I can now run reports showing the entire scope of my projects, which is very helpful. Dillistone Systems: Was your decision to invest in FileFinder Anywhere the right one for your business?James Cooper: 100% yes! It has definitely impacted our productivity and our ability to serve our clients better. Dillistone Systems: Would you recommend FileFinder Anywhere to other executive search firms?James Cooper: Yes, I would… but only if they are not operating in our sector!07Q&A with James CooperDillistone Group AR2017.indd 709/05/2017 16:37:03 Dillistone Group Plc | Annual Report & Accounts 2016
Chief Executive Officer’s Review
For the year ended 31 December 2016
The Group’s objectives are principally to:
• ensure our products meet the needs of
the recruitment sector through continual
investment and development;
• be a leading player in all of the markets we
serve;
• develop our staff delivering progressive career
development;
•
increase our profitability and deliver increased
shareholder value year on year in conjunction
with a progressive dividend policy.
Dillistone Group Plc is a
global leader in the supply
of technology solutions and
services to the recruitment
sector worldwide.
Strategy and objectives
The Group’s strategy is to grow the business both
organically and through acquisition. This strategy
is made possible through our commitment to
product development, which ensures that the
business continues to command a leading role in
all of the markets in which it operates.
Our acquisition strategy typically entails
consideration of businesses offering:
• products that would further increase market
share in the Group’s core markets;
•
legacy applications, where clients could be
transferred to our modern suite of products; or
• complementary applications, which may be
cross-sold to clients of the Group.
Key Performance Indicators (KPIs)
The Board and management use absolute figures to monitor the performance of the business in the
following financial KPIs:
Total revenues
Recurring revenues
Non recurring revenues
Adjusted profit before tax
Cash less borrowings
FY 2015
£’000
9,437
6,606
2,333
1,416
1,270
FY 2016
£’000
9,963
7,027
2,370
1,458
1,379
measure used by management
year on year growth
year on year growth
year on year growth
year on year growth
sufficient cash resources maintained
Met/Not
met
met
met
met
met
met
Adjusted profit before tax is statutory profit before acquisition costs, related intangible amortisation, movements in
contingent consideration and other one–off costs. See note 2 and note 5.
In addition, the Board monitors order levels and employee numbers as well as performance
against budget.
“ This strategy
is made possible
through our
commitment
to product
development.”
Jason Starr
Chief Executive
Divisional revenue analysis
2016
Dillistone
Voyager
49%
51%
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Strategic Report
Governance
Financial Statements
Our business model
The business is split into two divisions, Dillistone
Systems and Voyager Software. Dillistone Systems
specialises in the supply of software and services
into executive-level recruitment teams. Voyager
Software’s clientele are primarily involved in
contingent recruitment, including permanent
placement, contract placement and the provision
of temporary staff. Across our subsidiaries, we
work with over 2,000 firms in approximately 60
countries. Further details of the products we
supply are given in the ‘At a Glance’ section.
The majority of our products are delivered
through one or more of the following:
There is a continuing move towards our Cloud
delivery services.
1. an upfront licence fee plus a recurring
support fee;
2. Software as a Service (SaaS) subscription
basis; or
3. a hybrid model incorporating an upfront
payment and recurring support and Cloud
hosting fees.
The business operates out of four countries: the
UK, Germany, the US and Australia. As well as
supplying and supporting our software we also
host the software for a proportion of our clients.
This is done through data centres in Europe, the
Americas, Singapore and Australia.
WE UTILISE
TO DELIVER
Our IP, human and physical capabilities
Products and services
Global thought leaders
Our suite of innovative recruitment software is packaged with
Offices in UK, Germany, USA, and Australia
Data centres in Europe, USA, Brazil, Singapore, and Australia
Around 120 staff
an end-to-end service
Additional services include training, data translation, support
services and running conferences
Our data centres enable us to offer optional hosting
THAT PROVIDE
Short and long term value
for our clients
Short and long term value for
our shareholders
In 2000+ firms across 60 countries, our clients are situated
across the entire recruitment landscape.
Our large client base means that we do not depend on a
small number of clients.
They say that we provide them with:
We generate revenue typically through three pricing mechanisms:
Stability, flexibility and functionality
Upfront licence fee plus recurring support fee
Easy access to their data
Rapid deployment
Ongoing development ensures upgrade path for clients
Software as a Service (SaaS) subscription basis
Hybrid model incorporating upfront payment and recurring support
and hosting fees
Further details of the products we supply are given
in the ‘At a Glance’ section on pages 4 and 5
www.dillistonegroup.com
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Dillistone Group Plc | Annual Report & Accounts 2016
Chief Executive Officer’s Review continued
For the year ended 31 December 2016
Group review
of the business
2016 saw recurring revenues grow 6%
to £7.027m (2015: £6.606m) reflecting,
in part, a foreign currency impact from
Sterling weakening in 2016 (impact 3%).
Non-recurring revenues increased 2% to
£2.370m (2015: £2.333m). As a result,
overall revenues increased by 6% to £9.963m
(2015: £9.437m) with recurring revenues
representing 71% of Group revenues
(2015: 70%). Overheads have increased across
the business mainly as a result of the one–off
adjustment in respect of the amortisation of
platform development costs, referred to below,
with an adverse impact on results of £0.720m.
Clearly, this adjustment is an accounting change
in an estimate and is cash neutral. Adjusted
EBITDA saw a 6% increase to £2.433m
(2015: £2.285m). Operating profit before
acquisition related items and one–off adjustments
increased by 3% to £1.463m (2015: £1.424m)
and pre-tax profits before acquisition related
items and one–off adjustments also increased
by 3% to £1.458m (2015: £1.416m).
Operating profit for the year was £0.412m
(2015: £1.108m) and profit for the year was
£0.526m (2015: £1.212m).
Divisional Reviews
Dillistone Systems
The Dillistone Systems division is primarily
focused on providing technology solutions to
the executive search market via our range of
“FileFinder” applications. This client group is
made up of both executive search firms and
executive search teams in major organisations.
Dillistone Systems’ head office is in London and
it has offices in the US, Germany and Australia.
The Division accounts for 49% (2015: 49%) of
the Group’s revenue and it saw revenue grow 5%
to £4.858m (2015: £4.620m).
The Division had a difficult time in 2015 and
we are delighted to see it return to growth in
2016. Our investment in product development
led to a number of key new contract wins. We
are delighted to report that – to the best of our
knowledge – the largest single implementation
on an Executive Search technology platform in
the US in 2016 was our FileFinder Anywhere
product. This implementation was by an existing
client who chose to upgrade to our latest
suite. Furthermore, we believe that the largest
single implementation of an Executive Search
technology platform in Europe in 2016 was also
our FileFinder Anywhere product which was
implemented by a firm which replaced a legacy
tool with our technology, choosing to become a
client for the first time.
The business signed up over 100 new clients
in the period, with clients switching from direct
competitors including Bullhorn, Cluen and
Invenias, and we believe that our product has
now returned to a position of market leadership.
Unfortunately, while our new business
performance was good, the economy impacted
on licence revenues from our existing client base,
a large proportion of which are UK based. We
typically enjoy additional sales from these firms
as they grow, but in 2016 a larger proportion of
those firms reduced licences rather than taking
on additional seats.
Earnings before interest, tax, depreciation and
amortisation (EBITDA) increased by 1% to
£1.434m (2015: £1.425m). As discussed above,
the Group reviewed its amortisation policy for
capitalised development costs to bring it more
into line with industry practice by writing off all
such costs over five years rather than a range
of five to ten years. The impact of this on the
Dillistone division was £0.600m, increasing
the total depreciation and amortisation charge
to £1.229m (2015: £0.534m). Accordingly,
operating profit fell 77% to £0.205m
(2015: £0.891m).
2016 saw some major developments in the
Division including:
• Development of Infinity Connect – A new
mobile companion app for the popular Infinity
SaaS solution, available for both iOS and
Android devices.
• Additional functionality release in Infinity (inc.
Infinity SaaS) for the temporary recruitment
sector.
• Further enhanced scalability of Evolve through
deployment on Amazon Web Services and
implementation of Elastic Searching.
• Launch of ISV.Online - our new candidate
skills testing platform.
The Board is confident that both Divisions have
strong futures.
Financial risk management
The Group’s operations expose it to a number of
risks that include the effect of changes in interest
rates, credit, foreign currency exchange rates and
liquidity. The Group does not trade in financial
instruments. Further details in relation to these
risks are shown in note 25.
We continue to invest in the FileFinder Anywhere
product suite, which has included the release of
a client portal, improved reporting functionality,
improvements in our mobile offering and
architectural enhancements to improve both
performance and scalability.
Interest rate risk
The Group is exposed to interest rate risk
through its floating rate borrowings and through
its management of retained cash. The Group
monitors its exposure to interest rate risk when
borrowing and investing its cash resources.
Voyager Software
Voyager Software is a provider of technology
products targeted at the entire recruitment
landscape, from front office to back office
and bureaus, and includes both recruitment
management systems and pre-employment skills
testing technology.
Credit risk
The Group has a large customer base in excess
of 2,000 customers and is not dependent on a
small number of customers. Accordingly, the
Group does not believe it is exposed to significant
credit risk. In addition, it only places money with
banks with strong credit ratings.
In 2016, the Voyager Software division accounted
for 51% (2015: 51%) of Group revenues. The
Division’s revenues increased by 6% to £5.105m
(2015: £4.831m). Segmental operating profit
before amortisation and depreciation increased
by 14% to £1.093m (2015: £0.956m). The
impact of the change in amortisation policy
for capitalised development was £0.120m,
increasing the total depreciation and amortisation
charge to £0.461m (2015: £0.327m). Divisional
operating profit remained broadly unchanged at
£0.632m (2015: £0.629m).
Exchange risk
The Group is exposed to translation and
transaction foreign exchange risk. The Group’s
foreign operations primarily trade in their own
currencies, reducing the transaction risk. As a
result the main foreign exchange transactional
exposure arises when repatriating profits. The
Group only seeks to remit cash when required
in the UK and it usually has some flexibility on
timing of such appropriations to minimise any
exchange losses. The Group is, however, exposed
to translation risks on net assets held.
Liquidity risk
Although the Group has some borrowings, it
maintains positive cash resources and has
sufficient available funds for its operations and
planned expansion of its existing activities.
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Principal risks and uncertainties
There are a number of risks and uncertainties which could have an impact on the Group’s long term performance and cause actual results to differ
materially from expected and historical results. The Directors seek to identify material risks and put in place policies and procedures to mitigate any
exposure. The table of risks that follows gives details of the principal risks and the approach being taken to manage them.
Risk
Potential adverse impact
Mitigation
Economic risk
The recruitment industry has a reputation for being
vulnerable to the cyclical nature of the economy. This can
impact significantly on non-recurring revenue and to a
lesser extent recurring revenue.
The Company operates globally and so is not reliant on
one economy. It enjoys a high % of recurring revenues.
Acquisitions have increased the exposure to the UK
economy. Future acquisitions may be overseas.
In a downturn there may be a reduction in new permanent
hires which may be replaced by temporary hires. The
temporary recruitment market is potentially anti-cyclical.
The Group’s products support both permanent and
temporary hires.
Products are tested pre-launch, and launch and
implementation strategies developed to minimise risks.
The Development plan is regularly reviewed by
management and the Board.
New product risk
All technology suppliers need to develop new products and
applications and there is always a risk that new products
may lead to issues. This could damage the Group’s
reputation and result in loss of new orders and therefore
reduce revenue growth. It could also result in claims
against the company.
The cost and time frame for developing and releasing new
products could be a bigger drain on resource than built into
budgets and forecasts.
Attrition of
customer base
Failure to attract new customers, or the loss of existing
customers, may have a detrimental effect on the Group’s
ability to generate revenues.
Actively manage existing customer relationships through
account management structures and promptly dealing with
issues.
Competitor activity
The market for recruitment software is extremely
fragmented with a large number of small suppliers
operating in all of the Group’s geographical markets.
Very few of these suppliers have the necessary financial,
technical and marketing resources to be able to develop
their competitive position. However, the competition may
intensify through consolidation or new entrants to the
market.
Some competitors offer a broader product range enabling
them to compete across the whole of the sector.
The businesses can easily lose market share if its products
are not well regarded either from being “out of date” or
“buggy”.
Some firms may try to compete on price, particularly if the
market deteriorates.
The Group continues to invest in new products with new
features being added.
The Group has strong customer relationships and uses
account management to keep in touch with clients.
The Group continues to invest in its product development
and 2016 saw the addition of temp functionality to Infinity
and the launch of a stand-alone browser version of FF.
ISV Online was also launched. The Group continues to
innovate and provide solutions to client needs.
There is a focus on fixing bugs and issues as they arise to
ensure the user experience is good.
Pricing strategies are reviewed on a regular basis.
The Group continues to look into developing new products
and additional features to more readily compete.
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Chief Executive Officer’s Review continued
For the year ended 31 December 2016
Risk
Potential adverse impact
Mitigation
Business continuity
risks associated
with information
systems,
operational failure,
data security and
cyber security risks
A failure of systems or failure of hosting facilities leading
to loss of customer confidence in the Group being able to
deliver their requirements.
Each division is reliant on data centres. Work ongoing
to move data centres to the cloud through Amazon
and Azure.
Loss or corruption of data held on behalf of customers
which could have a detrimental effect on their confidence
in data security processes and could cause financial loss.
External attacks on servers could result in lost or corrupted
data and loss of reputation.
Plans are regularly reviewed on how to improve data centre
management as the business grows worldwide.
Data backups occur daily and the necessary test carried
out on a regular basis to ensure data can be restored.
Penetration testing helps minimise the risk of attacks.
Employee
engagement and
retention
Capability to meet the demands of the markets in which
the Group operates and competes effectively with other IT
suppliers is largely dependent on the skills, experience and
performance of staff.
Failure to attract or retain high calibre employees could
seriously impede future growth and present performance.
Reliability on small group of people especially in parts of
the business.
The Group wants to grow either by acquisition or through
development of its own products. This requires that it will
have the ability to fund such expansion either via borrowing
or placement, or through the availability of its own
cash resources.
To retain staff the Group operates competitive remuneration
packages.
Appraisals are carried out which also consider individual’s
personal development.
Cross training being carried out where possible.
Ongoing discussions with investors and potential investors
to build a following in Dillistone.
Size of business means that management tends to be
stretched and under resourced. As the business grows
there may be insufficient support to ensure that the growth
is effectively managed and integrated.
Investment in additional management in 2016 at Voyager
and additional finance resource. In 2017 we anticipate a
further strengthening of product development management
capability.
The Group has substantial operations in both the UK and
overseas. Profits are exposed to variations in exchange
rates thereby impacting on reported profits.
There is usually some element of natural hedge in the
currencies, although if Sterling strengthens against all
currencies it can have a negative impact on results.
Clients usually choose best in class and already buy from
global firms. The Group continues to monitor implications
and is continually reviewing its products and pricing to
ensure it stays competitive.
We deal with visa requirements for some staff already.
Potential economic uncertainty could lead to a reduction in
orders in the short to medium term, impacting adversely on
the Group’s results.
Clearly, any changes brought about by Brexit are likely to
be implemented over the next 2 years now that Article 50
has been invoked, which might introduce changes to the
UK-EU trading arrangements.
This may impact where recruiting individuals with
European languages requirement. It may increase the time
and difficulty in recruiting skilled employees.
‘Brexit’ has had an impact on exchange rates, which are
already a significant risk.
Ability to finance
acquisitions and
new development
Management
capacity
FX
Brexit
Data Protection
legislation
Ensure that all group products comply with international
Data protection legislation and demonstrate to clients that
they do.
Work being carried out to ensure data is secure and
protected at appropriate levels.
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Financial Statements
Financial Review
For the year ended 31 December 2016
There is a tax credit in 2016 of £0.134m
(2015: credit £0.140m). The 2016 credit reflects
the significant R&D tax credits available to
both Dillistone Systems and Voyager Software
divisions, the change in deferred tax rate from
18% to 17%, as well as the impact of the
one–off adjustment in respect of amortisation of
development costs and adjustments to prior year
computations. These benefits are partially offset
by the higher rates of corporation tax that are
payable overseas. The acquisition related items
tax credit reflects the reduction in deferred tax
that arises as amortisation is charged in the profit
and loss account.
Profits for the year before acquisition related
and other one–off items fell 2% to £1.395m
(2015: £1.419m) as 2015 adjusted profits
benefitted from a tax credit of £0.003m
(2016: tax charge of £0.063m). Profits for the
year after acquisition related and other one–off
items fell 57% to £0.526m (2015: £1.212m).
Basic earnings per share (EPS) fell to 2.68p
(2015: 6.20p). Fully diluted EPS fell to 2.62p
(2015: 6.00p). Adjusted basic EPS fell 2% to
7.10p (2015: 7.26p).
Capital expenditure
The Group invested £1.126m in property, plant
and equipment and product development during
the year (2015: £1.045m). This expenditure
included £1.056m (2015: £0.961m) spent on
intangible related costs.
Total revenues increased
by 6% to £9.963m (2015:
£9.437m) with recurring
revenues increasing by 6%
to £7.027m (2015: £6.606m)
while non-recurring
revenues saw a 2% increase
to £2.370m (2015: £2.333m).
Third party revenue amounted to £0.566m in the
period (2015: £0.498m). Revenue has benefitted
from the weakening value of Sterling. Using 2015
exchange rates, revenues in 2016 would have
been £9.651m.
Cost of sales increased by 13% to £1.478m
(2015: £1.313m), mainly due to investment in
cloud based hosting facilities through Azure
and Amazon.
Administrative costs, excluding acquisition
related items, depreciation and amortisation,
rose 4% to £6.052m (2015: £5.839m). The
Group has reviewed its amortisation policy for
capitalised development costs to bring it more
into line with industry practice by writing off all
such costs over five years rather than a range of
five to ten years. This has resulted in a one–off
adjustment of £0.720m in the year, where the
main impact was in the Dillistone division. Total
depreciation and amortisation, including the
one–off adjustment, increased to £1.690m
(2015: £0.861m).
Acquisition related administrative costs totalled
£0.331m (2015: £0.316m), and were in respect
of the amortisation of intangibles arising on
the Voyager, FCP and ISV acquisitions and
movement in the estimation of contingent
consideration. Finance cost includes £0.015m
(2015: £0.028m) relating to the unwinding
of the discount in respect of the contingent
consideration.
Recurring revenues covered 100% of
administrative expenses before acquisition
related and one–off costs (2015: 99%).
Excluding depreciation and amortisation of our
own internal development, the administrative
costs are covered 116% (2015: 113%) by
recurring revenues.
“ The Group finished
the year with cash
funds of £1.537m
(2015: £1.595m)
and bank borrowings
of £0.158m
(2015: £0.325m).”
Julie Pomeroy
Finance Director
Profit after tax
2016
2016
£0.52m
2015
2014
2013
2012
£1.21m
£1.15m
£1.23m
£1.24m
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25174.02 9 May 2017 11:25 AM Proof 5Trade and other payablesAs with previous years, the trade and other payables include income which has been billed in advance but is not recognised as income at that time. This principally relates to support, SaaS and cloud hosting renewals, which are billed in 2016 but that are in respect of services to be delivered in 2017. Contractual income of this type is recognised monthly over the period to which it relates. It also includes deposits taken for work which has not yet been completed, as such income is only recognised when the work is substantially complete or the client software goes ‘live’. Also included in trade and other payables is £0.375m (2015: £0.620m) in respect of contingent consideration. At the end of 2016, there are two tranches of contingent consideration payable in respect of ISV and these are dependent on the level of revenue achieved in 2016 and the nine month period to 30 September 2017. CashThe Group finished the year with cash funds of £1.537m (2015: £1.595m) and bank borrowings of £0.158m (2015: £0.325m). This is after capital expenditure of £1.126m, the payment to the vendors of ISV of £0.212m and dividend payments of £0.811m. On behalf of the BoardJulie PomeroyFinance Director25 April 2017The Strategic Report is signed on behalf of the Board byJason StarrChief Executive25 April 2017£2.43m£2.29m£2.40m£2.24m£2.00m20142015201620132012Adjusted EBITDA 20167.10p7.26p8.56p7.99p7.20p20142015201620132012Adjusted basic EPS 20162.68p6.20p6.18p6.76p6.79p20142015201620132012Basic EPS 2016Dillistone Group Plc | Annual Report & Accounts 2016stock code: DSG14Financial Review continuedFor the year ended 31 December 2016Dillistone Group AR2017.indd 1409/05/2017 16:37:05 25174.02 9 May 2017 11:25 AM Proof 5GovernanceBoard of Directors16Corporate Governance Report18Report to the Shareholders on Directors’ Remuneration 20Directors’ Report22Dillistone Group AR2017.indd 1509/05/2017 16:37:06 Dillistone Group Plc | Annual Report & Accounts 2016
Board of Directors
For the year ended 31 December 2016
Mike Love, aged 68,
Non-Executive Chairman
Mike Love has a PhD in theoretical physics and over 40 years’ experience
in the software industry. He is currently non-executive chairman of SciSys
plc, also an AIM quoted company, and director and chairman at Redcliffe
Precision Ltd. He was group managing director of SciSys from 1986 to
2003 during which time he led a management buy-out of the business and
floated it on AIM in 1997. He is a previous member of the AIM Advisory
Group of the London Stock Exchange.
Jason Starr, aged 45,
Chief Executive
Jason Starr joined Dillistone Systems in 1994. He became Marketing
Manager in 1996 before becoming Managing Director of the UK business
in 1998. Following the MBO, Jason became Managing Director of Dillistone
Systems Ltd and subsequently became Group Chief Executive Officer.
Jason is well known in the industry and has spoken at events in Asia, the
US and Europe. Jason was appointed a non-executive director of AIM listed
PCI-PAL PLC from 1 January 2016.
Jason has a BA (Honours) business studies degree from the London
Guildhall University.
Jason is the Group Chief Executive of Dillistone Group Plc and Managing
Director of Dillistone Systems.
Rory Howard, aged 49,
Operations Director
Rory Howard has a BA (Honours) in Business Administration and is a
PRINCE2 practitioner. Rory started his career with the Dixons Stores
Group and from 1991 to 1994 he worked in the systems and control
department as a technical support analyst working on their EPOS systems,
data reporting and security. He then joined JATO Dynamics Ltd, a software
company specialising in the automotive research market, as a database
analyst, developing databases for pricing models for the large automotive
manufacturers. In 1998 he joined Dillistone Systems Limited as a project
manager, and the following year became the Global Projects Manager,
tasked with restructuring all implementations and data migrations
procedures and operations. In 2003 Rory became Operations Director of
Dillistone Systems Limited and a member of the Board.
Alex James, aged 44,
Product Development Director
Alex graduated from Swansea University in 1995 with a degree in
Psychology. In 1995 Alex joined Mallinckrodt Veterinary, working in quality
control. In 1997 he moved to Responseability, a company that manages
aspects of the recruitment process for clients, starting in administration
before progressing into an account management role. Alex started at
Dillistone in 1999 in a training/consultancy position prior to becoming the
UK and then Global Projects Manager, being ultimately responsible for
the implementation of all products and services to both new and existing
clients. Alex joined the Board of Dillistone Systems Limited in January 2005
and the Group Board in February 2006.
Alex is the Product Development Director for Dillistone Systems;
departments under his responsibility are software development and
technical integration.
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Financial Statements
Julie Pomeroy, aged 61,
Finance Director
Julie is an experienced finance director of quoted and private companies.
She graduated with an honours degree in Physics from Birmingham
University and is a Chartered Accountant and Chartered Director. She also
holds tax and treasury qualifications. Julie was group finance director of
Carter & Carter Group plc until October 2005, having joined in 2002 to
help grow and float the business. She had previously been chief financial
officer of Weston Medical Group plc and prior to this Julie worked at East
Midlands Electricity plc as director of corporate finance. She was finance
director of AIM quoted Biofutures International plc until July 2010. Julie is
also a non-executive director of Nottingham University Hospitals NHS Trust.
Alistair Milne, aged 41,
Director of Support Services
Alistair started his career at Richmond Theatre in 1994, working in both
the marketing department and box office. In 1997 he joined The Football
Association, initially in a ticketing administration role, before progressing
to a management role. Alistair then began working at the Shaw Theatre
as Box Office Manager. He joined Dillistone Systems in 2003. He was
initially appointed to the UK and then Global Support Manager role with
responsibility for all aspects of support services. He was promoted to the
Dillistone Systems Limited Board in 2006 and joined the Group Board in
January 2011.
Alistair is the Director of Support Services; he oversees all Dillistone IT
infrastructure and support services globally.
Committee icons
Remuneration Committee
Audit Committee
Giles Fearnley, aged 62,
Non-Executive Director
A career in the passenger transport industry saw Giles lead an MBO in
1991, forming Blazefield Holdings Limited, a business operating bus
networks principally across Yorkshire and Lancashire. This company was
sold to Transdev in 2006.
In 1997 he was appointed chief executive of Prism Rail PLC, having been
one of that company’s founders, and held that position until its sale to
National Express in 2000. Prism Rail operated four of the UK’s passenger
rail franchises with a turnover of £500 million per annum.
Giles is currently managing director of Bus, UK and Ireland for First
Group Plc. Giles served as chairman of the Association of Train Operating
Companies in 1999/2000 and as chairman of The Confederation of
Passenger Transport UK.
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Dillistone Group Plc | Annual Report & Accounts 2016
Corporate Governance Report
For the year ended 31 December 2016
Corporate governance
Dillistone Group Plc (the “Company”) is
committed to maintaining high standards of
corporate governance. The Company does not
comply with the provisions of the UK Corporate
Governance Code (the “Code”) in its entirety
and it is not required to do so. However, the
Board recognises the importance of sound
corporate governance and will take appropriate
measures to ensure that the Company complies
with the main provision of the Code as far as
practicable and to the extent appropriate given
the Company’s size, assets, liabilities and other
relevant information. The summary below
further describes the company’s approach
to corporate governance.
Leadership
The Board comprises a Non-Executive
Chairman, one Independent Non-Executive
Director and five Executive Directors. All
Directors are obliged to submit themselves
for re-election at least every three years. The
Chairman and Non-Executive Director are
considered to be independent of management
and free from any business or other relationship
which could materially interfere with the exercise
of their independent judgement. Giles Fearnley
is the current Senior Independent Director
and his shareholding of approximately 2.3%
is not considered by the Board to change
his independence.
Effectiveness
To enable the Board to discharge its duties,
all Directors have full and timely access to all
relevant information. They are also able to take
independent professional advice as appropriate.
The Board has two committees:
Audit Committee
The Audit Committee comprises the Chairman
and the Non-Executive Director and usually
meets twice during the year.
The Finance Director, Group Chief Executive
Officer (CEO) and external Auditor attend
by invitation. The Audit Committee makes
recommendations to the Board on issues
surrounding the appointment, resignation or
removal of auditors and their remuneration. It
discusses and agrees the scope of the audit with
the external Auditor before the audit.
The Audit Committee reviews external audit
activities, monitors compliance with statutory
requirements for financial reporting and reviews
the half-year and annual accounts before they
are presented to the Board for approval. It is
also required to review the effectiveness of the
Group’s internal control systems, to review the
Group’s statement on internal control systems
prior to endorsement by the Board and to
consider, from time to time, the need for
a risk assessment of the Group’s internal
control systems.
Remuneration Committee
The Remuneration Committee comprises the
Chairman, the Non-Executive Director and, by
invitation, the Group CEO and the Company
Secretary. It is responsible for recommending to
the Board the contract terms, remuneration and
other benefits for Executive Directors, including
the performance-related bonus scheme and
participation in the Group’s long term share
option schemes.
The Board has not delegated a Nomination
Committee; the whole Board is involved in the
appointment of any new director.
The Board does not currently undertake an
evaluation of its own performance or that
of its committees.
Accountability
The Board meets at least four times each
year and has adopted a formal schedule of
matters specifically reserved for decision by
it, thus ensuring that it exercises control over
appropriate strategic, financial, operational and
compliance issues. At these meetings the Board
reviews trading performance, ensures adequate
financing, sets and monitors strategy, examines
investment and acquisition opportunities and
discusses reports to shareholders.
Internal controls
The Board has overall responsibility for the
Group’s system of internal controls. However,
such a system is designed to manage rather
than eliminate the risk of failure to achieve
business objectives, and can only provide
reasonable and not absolute assurance against
material misstatement. In order to discharge
that responsibility in a manner which ensures
compliance with laws and regulations and
promotes effective and efficient operations,
the Directors have established an organisation
structure with clear operating procedures, lines
of responsibility and delegated authority. There is
an established framework of internal controls set
out and approved by the executive management.
The more important elements of this framework
are as follows:
• Management structure
The Board has overall responsibility for the
Group and each Executive Director has been
given responsibility for specific aspects of the
Group’s affairs.
• Corporate accounting and procedures
Responsibility levels are communicated
throughout the Group as part of the corporate
communication procedure. Accounting,
delegation of authority and authorisation
levels, segregation of duties and other
control procedures, together with the
general ethos of the Group are included in
these communications, and standardised
accounting policies are in place reflecting
this policy.
• Quality and integrity of personnel
The integrity and competence of personnel is
ensured through high recruitment standards
and subsequent training courses. Quality
personnel are seen as an essential part of
the control environment and the ethical
standards expected are communicated
through senior members of staff.
• Budgetary process
Each year the Board approves the annual
budget, which includes an assessment of
key assumptions underlying it. Performance
is monitored and relevant action taken
throughout the year by monthly reporting to
the Board of updated forecasts together with
information on key risk areas.
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Relations with shareholders
The Group seeks to maintain good
communications with shareholders. The
Executive Directors make presentations to
institutional shareholders covering the interim
and full year results. The Group despatches
the notice of Annual General Meetings (AGM),
with an explanatory circular describing items
of special business, at least 21 working days
before the meeting. All shareholders have the
opportunity formally or informally to ask questions
at the Company’s AGM and the Chairman
typically makes a statement on current trading
conditions at that meeting. The Chairman of the
Audit and Remuneration Committees attends
the AGM and will answer questions that may be
relevant to the remit of those committees. At each
AGM the Chairman advises shareholders of the
proxy voting details on each of the resolutions,
which are dealt with on a show of hands. In
addition, webinars are made following certain
announcements as well as ad hoc meetings,
giving shareholders and other interested parties
the opportunity to interact with members of
the Board.
Auditor
A resolution authorising the Directors to set
the remuneration of the Auditor will be put to
shareholders at the forthcoming AGM.
• Internal monitoring
The Audit Committee considers and
determines relevant action in respect of any
control issues raised by the Auditor. Given the
size of the Group and the close day-to-day
control exercised by the Executive Directors
and senior management, no formal financial
internal audit department is considered
necessary. The Operations Director is
responsible for maintaining registrations and
quality related certifications and defining
and agreeing the procedures, standards and
practices to be followed in all non-financial
aspects of the Group’s business.
• Risk management
The Board formally reviews the risk register at
least annually and the consideration of risks
and in particular the identification of new risks
are an agenda item at each Board meeting.
• Relationship with Company Auditor
The Auditor has ready access to the chairman
of the Audit Committee and the Audit
Committee meets at least annually with the
Auditor without any member of the executive
being present.
Remuneration
The objective of the Group’s remuneration policy
is to attract, motivate, and retain high quality
individuals who will contribute significantly to
shareholder value. The Remuneration Committee
decides on the remuneration of the Directors
and other senior management, which comprises
a basic salary, benefits, bonus scheme, share
options and longer term incentive plan.
No Director is involved in deciding his or
her own remuneration.
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Report to the Shareholders
on Directors’ Remuneration
For the year ended 31 December 2016
Remuneration report
Service contracts
The Board’s policy is that service contracts of
Executive Directors should provide for termination
by the Group on one year’s notice. The service
contracts of each of the current Executive
Directors provide for such a period of notice.
The independent Non-Executive Directors have
letters of appointment providing fixed three-year
service periods, which may be terminated by
giving six months’ notice.
Non-Executive
Directors’ remuneration
The fees for the Chairman and independent Non-
Executive Director are determined by the Board.
The Chairman and the Non-Executive Director
are not involved in any discussions or decisions
about their own remuneration.
The Chairman and independent Non-Executive
Director do not receive bonuses or pension
contributions and are not entitled to participate
in any of the Group’s share schemes. They
are entitled to be reimbursed the reasonable
expenses incurred by them in carrying out their
duties as Directors of the Company.
Executive Directors’
remuneration
The remuneration package of the Executive
Directors includes the following elements:
Basic salary
Salaries are normally reviewed annually taking
into account inflation and salaries paid to
directors of comparable companies. Pay reviews
also take into account Group and personal
performance. The Board as a whole decides the
remuneration of the Chairman and the Non-
Executive Director.
Directors’ remuneration
Details of the remuneration of the Directors for the financial year are set out below:
Performance related pay scheme
There are two performance related pay schemes
for Executive Directors. The first is an annual
bonus scheme which is based upon the
achievement of certain profit and commercial
targets for the Group, as appropriate. The
Executive Directors’ bonus charged in the 2016
financial year is £35,000 (2015: £nil).
The second scheme is a long term incentive
plan linked to growth in earnings per share
over a three year period. At the discretion of the
Remuneration committee, Executive Directors are
either granted share options at the ruling mid-
market price at the time of the grant or a pure
cash bonus fixed as a percentage of salary. The
awards are subject to meeting challenging EPS
growth targets. Annual awards are made under
this scheme. Where options are awarded, the
value of the award is calculated using a Black-
Scholes model (see note 23 for further details).
The awards made in the period are included in
the LTIP tables below.
Executive Directors
J S Starr
R Howard
A D James
J P Pomeroy
A Milne
Non-Executive Directors
M D Love
G R Fearnley
Salary*
and fees
£’000
Annual Bonus
£’000
Pension
payments**
£’000
Benefits
£’000
2016
£’000
2015
£’000
99
44
91
87
92
34
13
460
9
5
7
7
7
–
–
35
29
31
7
11
5
–
–
83
–
–
1
–
1
–
–
2
137
80
106
105
105
34
13
580
124
73
96
95
87
33
12
520
* Salary is calculated are deducting Salary sacrifice payments.
** Includes salary sacrifice payments.
Long Term incentive payments made in the period are not included in the above figures but are detailed below.
LTIP award – % of salary arrangement
Maximum payout awarded in
period
£’000
54
31
85
Paid in the Year including
Employer’s NI
£’000
5
–
5
Total value of salary based
LTIP awards carried at
31 December 2016*
£’000
10
5
15
Total value of all salary based
LTIP awards carried at
31 December 2015*
£’000
14
5
19
J S Starr
R Howard
* Awards accrued over the period that they relate to and the valuation takes into account the likelihood of performance conditions being met.
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Strategic Report
Governance
Financial Statements
LTIP Award – share options
A D James
J P Pomeroy
A Milne
Number of options granted
under LTIP scheme in year
94,471
94,063
94,471
283,005
Total number of options
granted under LTIP scheme
at 31 December 2016
160,830
160,134
157,659
478,623
Total number of options
granted under LTIP scheme at
31 December 2015
66,359
66,071
63,188
195,618
The Options granted in the year were at a price of 78.5p and carry the same performance conditions as the LTIP cash bonus awards. No options were
exercised in the year. In 2015, 73,975 options were exercised at a grant price of 73p.
Directors’ interests
The interests of the Directors (including family interests) in the share capital of the Company at the year end are set out below:
J S Starr
R Howard
A D James
M D Love
G R Fearnley
A Milne
J P Pomeroy
Ordinary shares of 5 pence each
At 31 December 2016
3,577,591
3,300,000
112,744
989,754
453,435
59,109
63,733
At 31 December 2015
3,577,591
3,300,000
112,744
929,754
453,435
59,109
63,733
In addition, the following Directors had total share options including the options granted under the LTIP scheme above and options granted under the
sharesave scheme:
A D James
J P Pomeroy
A Milne
Options over ordinary shares of 5 pence each
At 31 December 2016
160,830
164,761
162,286
487,877
At 31 December 2015
66,359
66,071
63,188
195,618
In 2015, Julie Pomeroy and Alex James exercised 37,263 and 36,712 options respectively at an exercise price of 73p. The mid-market share price at the
date of exercise was 108.5p. Accordingly gains made by Julie Pomeroy and Alex James were £13,000 each.
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Dillistone Group Plc | Annual Report & Accounts 2016
Directors’ Report
For the year ended 31 December 2016
The Directors present their report and financial
statements for the year ended 31 December
2016.
Results and dividends
The consolidated statement of comprehensive
income for the year is set out on page 25.
An interim dividend of 1.375p per share was
paid in June 2016. A final dividend of 2.8p
per share will be paid, subject to shareholder
approval, on 27 June 2016.
Directors
The following Directors have held office since
1 January 2016:
M D Love - Non-Executive Chairman
J S Starr
R Howard
A D James
J P Pomeroy
G R Fearnley - Non-Executive Director
A Milne
The interests of the Directors (including family
interests) in the share capital of the Company are
listed on page 21.
Rory Howard and Alistair Milne are proposed for
re-election at the forthcoming AGM. Both have
a service contract with a one year notice period.
Mike Love has been a Non-Executive Director for
over nine years and therefore will offer himself for
re-election annually.
Financial risk management
Details of the Group’s financial risk management
are set out in the Strategic Report section.
Directors’ and
officers’ insurance
The Group maintains insurance cover for all
Directors and officers of Group companies
against liabilities which may be incurred by them
while acting as Directors and officers.
Future Developments
The Directors consider that the continued
investment in product and market development
will allow the business to grow organically in its
core markets. The combination of organic growth
along with strategic acquisitions will support the
expected growth as outlined in the Chairman’s
Statement and the Strategic Report.
Research and
Development Activities
The Group continues its development
programme of software for the recruitment
market including the research and development
of new products and enhancement to existing
products. The Directors consider the investment
in research and development to be fundamental
to the success of the business in the future.
Post balance sheet events
There are no post balance sheet events to report.
Overseas branch operations
The Group has a branch operating in Germany.
Details of all subsidiaries and their locations are
detailed in note 15.
Annual General Meeting
The Company’s Annual General Meeting will
be held at 50 Leman St, London, E1 8HQ
on 7 June 2017 at 10:30 am. The Notice
convening the Annual General Meeting and
an explanation of the business to be put to the
meeting is contained in the separate document
to shareholders which accompanies this report.
Auditor
Grant Thornton LLP resigned as Group and
Company Auditor during the year and BDO LLP
was appointed as Auditor for the year ended 31
December 2016. A resolution proposing their
reappointment as Auditor to the Group and
Company will be put to the forthcoming Annual
General Meeting.
Directors’ responsibilities
The Directors are responsible for preparing the
Directors’ Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare
financial statements for each financial year. The
Directors are also required to prepare financial
statements in accordance with the rules of the
London Stock Exchange for companies trading
on the Alternative Investment Market. The
Directors have elected under Company law to
prepare the Group and Company’s financial
statements in accordance with International
Financial Reporting Standards as adopted by
the European Union (IFRSs). Under company
law the Directors must not approve the financial
statements unless they are satisfied that they
give a true and fair view of the state of affairs
and profit or loss of the Group and Company
for that period.
In preparing the Group and Company financial
statements, the Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and accounting estimates
that are reasonable and prudent;
• state whether they have been prepared in
accordance with IFRSs adopted by the EU;
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Group and the Company
will continue in business.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Company’s transactions
and disclose with reasonable accuracy at any
time the financial position of the Company
and enable them to ensure that the financial
statements comply with the Companies Act
2006. They are also responsible for safeguarding
the assets of the Company and hence for
taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Website publication
The directors are responsible for ensuring the
annual report and the financial statements
are made available on a website. Financial
statements are published on the company’s
website in accordance with legislation in the
United Kingdom governing the preparation and
dissemination of financial statements, which
may vary from legislation in other jurisdictions.
The maintenance and integrity of the company’s
website is the responsibility of the directors.
The directors’ responsibility also extends to the
ongoing integrity of the financial statements
contained therein.
The Directors confirm that so far as each
Director is aware:
•
•
there is no relevant audit information of which
the Company’s Auditor is unaware; and
the Directors have taken all steps that they
ought to have taken as directors to make
themselves aware of any relevant audit
information and to establish that the Auditor
is aware of that information.
On behalf of the Board
J P Pomeroy
Company Secretary
25 April 2017
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Independent Auditor’s Report
to the members of Dillistone Group Plc
For the year ended 31 December 2016
We have audited the financial statements of Dillistone Group Plc for the year ended 31 December 2016 which comprise the consolidated statement of
comprehensive income, the consolidated statement of changes in equity, the company statement of changes in equity, the consolidated and company
statements of financial position, the consolidated cash flow statement, the company cash flow statement and the related notes. The financial reporting
framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members
as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council’s
(FRC’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2016 and of the
group’s profit for the year then ended;
•
the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
•
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
•
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and directors’ report for the financial year for which the financial statements are prepared is consistent with
the financial statements; and
•
the strategic report and directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have
not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not
visited by us; or
•
the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
David Butcher (Senior Statutory Auditor)
For and on behalf of BDO LLP, statutory auditor
London
25 April 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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Strategic Report
Strategic Report
Governance
Governance
Financial Statements
Financial Statements
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2016
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Adjusted operating profit before acquisition related and one–off items
Acquisition related and one–off items
Operating profit
Financial income
Financial cost
Profit before tax
Tax income
Profit for the year
Other comprehensive income
Items that will be reclassified subsequently to profit and loss:
Currency translation differences
Total comprehensive income for the year
Earnings per share
Basic
Diluted
The notes on pages 31 to 56 are an integral part of these consolidated financial statements.
Note
3
6
2
5
8
8
9
2016
£’000
9,963
(1,478)
8,485
(8,073)
412
1,463
(1,051)
412
3
(23)
392
134
526
16
542
2015
£’000
9,437
(1,313)
8,124
(7,016)
1,108
1,424
(316)
1,108
5
(41)
1,072
140
1,212
(27)
1,185
10
10
2.68p
2.62p
6.20p
6.00p
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Dillistone Group Plc | Annual Report & Accounts 2016
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Balance at 31 December 2014
Comprehensive income
Profit for the year ended 31 Dec 2015
Other comprehensive income
Exchange differences on translation of
overseas operations
Total comprehensive income
Transactions with owners
Issue of share capital
Share option charge
Dividends paid
Total transactions with owners
Balance at 31 December 2015
Comprehensive income
Profit for the year ended 31 Dec 2016
Other comprehensive income
Exchange differences on translation of
overseas operations
Total comprehensive income
Transactions with owners
Share option charges
Dividends paid
Total transactions with owners
Balance at 31 December 2016
Share
capital
£’000
969
Share
premium
£’000
1,432
Merger
reserve
£’000
365
–
–
–
14
–
–
14
983
–
–
–
–
–
–
983
–
–
–
199
–
–
199
1,631
–
–
–
–
–
–
1,631
–
–
–
–
–
–
–
365
–
–
–
–
–
–
365
Retained
earnings
£’000
3,514
1,212
–
1,212
–
75
(793)
(718)
4,008
526
–
526
2
(811)
(809)
3,725
Share
option
£’000
118
Foreign
exchange
£’000
128
Total
£’000
6,526
–
–
–
–
(47)
–
(47)
71
–
–
–
14
–
14
85
–
1,212
(27)
(27)
–
–
–
–
101
(27)
1,185
213
28
(793)
(552)
7,159
–
526
16
16
–
–
–
117
16
542
16
(811)
(795)
6,906
The notes on pages 31 to 56 are an integral part of these consolidated financial statements.
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Strategic Report
Strategic Report
Governance
Governance
Financial Statements
Financial Statements
Company Statement of Changes in Equity
For the year ended 31 December 2016
Balance at 31 December 2014
Comprehensive income
Total comprehensive income for the year ended
31 December 2015
Transactions with owners
Issue of share capital
Share option charge
Dividends paid
Total transactions with owners
Balance at 31 December 2015
Comprehensive income
Total comprehensive income for the year ended
31 December 2016
Transactions with owners
Share option charge
Dividends paid
Total transactions with owners
Balance at 31 December 2016
Share
capital
£’000
969
Share
premium
£’000
1,432
Merger
reserve
£’000
365
Retained
earnings
£’000
1,363
Share
option
£’000
118
Total
£’000
4,247
-
14
–
–
14
983
–
–
–
–
983
–
–
932
–
932
199
–
–
199
1,631
–
–
–
–
365
–
75
(793)
(718)
1,577
–
–
1,057
–
–
–
1,631
–
–
–
365
2
(811)
(809)
1,825
–
(47)
–
(47)
71
–
14
–
14
85
213
28
(793)
(552)
4,627
1,057
16
(811)
(795)
4,889
The notes on pages 31 to 56 are an integral part of these consolidated financial statements.
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Dillistone Group Plc | Annual Report & Accounts 2016
Consolidated and Company Statements of
Financial Position
As at 31 December 2016
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investments
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity attributable to owners of the parent
Share capital
Share premium
Merger reserve
Retained earnings
Share option reserve
Translation reserve
Total equity
Liabilities
Non–current liabilities
Trade and other payables
Borrowings
Deferred tax liability
Current liabilities
Trade and other payables
Borrowings
Current tax payable
Total liabilities
Total liabilities and equity
Group
2016
£’000
2015
£’000
Company
2016
£’000
2015
£’000
Note
12
13
14
15
16
17
19
21
23
18
20
9
18
20
3,415
5,263
215
–
8,893
5
2,196
1,537
3,738
12,631
983
1,631
365
3,725
85
117
6,906
15
–
784
4,599
158
169
5,725
12,631
3,415
6,163
257
–
9,835
16
1,736
1,595
3,347
13,182
983
1,631
365
4,008
71
101
7,159
428
158
1,006
4,193
167
71
6,023
13,182
–
–
–
7,601
7,601
–
349
43
392
7,993
983
1,631
365
1,825
85
–
4,889
15
–
–
2,931
158
–
3,104
7,993
–
–
–
7,599
7,599
–
345
59
404
8,003
983
1,631
365
1,577
71
–
4,627
428
158
–
2,623
167
–
3,376
8,003
The profit for the financial year for the parent company was £1,057,000 (2015: £932,000).
The notes on pages 31 to 56 are an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors and authorised for issue on 25 April 2017. They were signed on its behalf by
J P Pomeroy
Director
Company Registration No. 4578125
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Strategic Report
Strategic Report
Governance
Governance
Financial Statements
Financial Statements
Consolidated Cash Flow Statement
As at 31 December 2016
2016
£’000
2016
£’000
Operating activities
Profit before tax
Adjustment for:
Financial income
Financial cost
Depreciation and amortisation
Share option expense
Foreign exchange adjustments arising from operations
Operating cash flows before movement in working capital
(Increase)/decrease in receivables
Decrease in inventories
Increase/(decrease) in payables
Taxation refunded/(paid)
Net cash generated from operating activities
Investing activities
Interest received
Financial cost
Purchases of property, plant and
equipment
Investment in development costs
Contingent consideration paid
Net cash used in investing activities
Financing activities
Net proceeds from issue of share capital
Bank loan repayments made
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at
beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
The notes on pages 31 to 56 are an integral part of these consolidated financial statements.
392
(3)
23
2,069
16
31
2,528
(487)
11
62
24
3
(8)
(70)
(1,056)
(212)
–
(167)
(811)
2015
£’000
2015
£’000
1,072
(5)
41
1,240
28
(16)
2,360
278
25
(307)
(219)
2,138
2,137
5
(13)
(84)
(961)
(666)
213
(162)
(793)
(1,719)
(742)
(324)
1,929
(10)
1,595
(1,343)
(978)
(183)
1,595
125
1,537
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Dillistone Group Plc | Annual Report & Accounts 2016
Company Cash Flow Statement
As at 31 December 2016
2016
£’000
2016
£’000
Operating activities
Profit before tax
Adjustment for:
Financial cost
Share option expense
Operating cash flows before
movements in working capital
Increase in receivables
Increase in payables
Net cash generated from operating activities
Investing activities
Financial cost
Contingent consideration paid
Net cash used in investing activities
Financing activities
Net proceeds from issue of share capital
Bank loan repayments made
Dividends paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The notes on pages 31 to 56 are an integral part of these consolidated financial statements.
1,057
23
16
1,096
(4)
90
(8)
(212)
–
(167)
(811)
2015
£’000
2015
£’000
932
41
28
1,001
(14)
106
1,182
1,093
(13)
(666)
213
(162)
(793)
(220)
(978)
(16)
59
43
(679)
(742)
(328)
387
59
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Strategic Report
Strategic Report
Governance
Governance
Financial Statements
Financial Statements
Notes to the Financial Statements
For the year ended 31 December 2016
Dillistone Group Plc (the ‘Company’) is a company incorporated in England and Wales. The financial statements are presented in thousand Pounds
Sterling.
The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’). The parent company financial
statements present information about the Company as a separate entity and not about its Group.
Both the Group financial statements and the Company financial statements have been prepared and approved by the Directors in accordance with
International Financial Reporting Standards (’IFRS’) as adopted by the European Union (’EU’), IFRIC Interpretations and the Companies Act 2006
applicable to companies reporting under IFRS. In publishing the Company financial statements here together with the Group financial statements, the
Company has taken advantage of the exemption in s408 of the Companies Act 2006 not to present its individual income statement and related notes in
these financial statements.
1. Accounting policies
1.1 Basis of accounting
The consolidated financial statements have been prepared using the significant accounting policies and measurement bases summarised below:
Significant estimates
In the application of the Group’s accounting policies the Directors are required to make estimates and assumptions about the carrying amounts of assets
and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future
periods. The key areas are summarised below:
Capitalisation of internal development expenditure
Management exercises judgement in establishing both the technical feasibility of completing an intangible asset which can be used internally or sold
and the degree of certainty that a market exists for the asset, or its output, for the generation of future economic benefits. In addition, amortisation rates
are based on estimates of the useful economic lives and residual values of the assets involved. The assessment of these useful economic lives is made
by projecting the economic lifecycle of the asset which is subject to alteration as a result of product development and innovation. Amortisation rates are
changed where economic lives are re-assessed and technically obsolete items written off where necessary. The carrying value of capitalised development
is reviewed for impairment at each accounting period end. See Note 13. In addition management use a best estimate to determine the amount of
directors’ costs that are capitalised.
Impairment of goodwill and other intangible assets
There are a number of assumptions management have considered in performing impairment reviews of goodwill and intangible assets which include an
estimate of the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the recoverable amount.
See notes 12 and 13.
Contingent consideration
Where contingent consideration is payable in cash and discounting would have a material effect, management uses an appropriate discount rate. As the
contingent consideration is dependent upon future trading performance, an estimate of the present value of the likely consideration payable is made at
each reporting date based on forecasts for that business. See note 24.
Judgements in applying the Group’s accounting policies
In the process of applying the Group’s accounting policies, management make various judgements that can significantly affect the amounts recognised in
the financial statements. The critical judgements are considered to be the following:
Customers’ practical acceptance of licence software
As detailed in note 1.4, perpetual licence fee revenues are recognised on practical acceptance of the software. The Group uses the ‘live’” date as the
basis of determining the timing of customer practical acceptance, thereby reducing the judgement required to ascertain the timing of licence revenue
recognition.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
1. Accounting policies (continued)
Valuation of assets and liabilities
Management has made a number of assumptions with regards to the models used to value assets and liabilities at the statement of financial position
date. Valuation techniques commonly used by market practitioners are applied. In respect of the provision for bad and doubtful receivables and credit
note provisions, management has made relevant judgements based on discussions with the account managers as regards the recoverability of trade
receivables. See note 17.
Valuation of separately identifiable intangible assets
As detailed in note 1.8, separately identifiable intangible assets are identified and amortised over a defined period. The Directors use acknowledged
approaches e.g.: relief from royalty method, capital asset pricing model, excess earnings valuation method but these are reliant upon certain judgements
and assumptions which they determine are reasonable by reference to companies in similar industries.
Valuation of share-based payments
The estimation of share-based payment costs requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the
valuation model chosen. The Group has made estimates as to the volatility of its own shares, the probable life of options granted, leaver rates and the time
of exercise of those options. The model used by the Group is a Black-Scholes valuation model. Further details are shown in note 23.
The accounting policies set out below have, unless otherwise stated, been applied consistently by the Group to all periods presented in these financial
statements.
1.2 Going concern
The Group’s business activities and financial position, together with the factors likely to affect its future development, performance and position, are set out
in the CEO’s Review and Financial Review on pages 8 to 14. In addition, note 25 to the financial statements includes the Company’s objectives, policies
and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit risk and
liquidity risk. The Group prepare budgets and cashflow forecasts to ensure that the Group can meet its liabilities as they fall due.
The Group has considerable financial resources together with well established relationships with a number of customers and suppliers across different
geographic areas. In addition a substantial proportion of its revenue is recurring.
As a consequence, the Directors believe that the Company is well placed to manage its business risks successfully despite the current uncertain
economic outlook.
The Directors have a reasonable expectation that the Company has 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 annual financial statements.
1.3 Basis of consolidation
The Group financial statements consolidate those of the parent company and all of its subsidiaries as of 31 December 2016. The parent controls a
subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its
power over the subsidiary. All subsidiaries have a reporting date of 31 December.
All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between
Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment
from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with
the accounting policies adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition,
or up to the effective date of disposal, as applicable.
1.4 Revenue
General
Revenue to be recognised is the fair value of the total amount receivable by the Group for supplies of licenses and services. VAT or similar local taxes and
trade discounts are excluded.
Licensing (excluding software as a service “SaaS”)
The Group licenses software under licence agreements. Perpetual licence fee revenues are recognised on practical acceptance of the software, when all
obligations have been substantially completed. This is when the customer has accepted the product i.e. the “live” date, the risks and rewards of ownership
have been transferred, it is probable that the economic benefits of the transaction will flow to the Group, all costs and revenue in relation to the transaction
can reliably be measured and the Group has no further managerial involvement over the goods to the degree usually associated with ownership. To the
extent that payments have been received in advance for licences, where practical acceptance has not yet been reached, these amounts are recognised as
deferred income.
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1. Accounting policies (continued)
Professional services
The Group provides professional services which include installation, consulting, data translation and training. Such revenues are recognised as the
services are completed or, where they are part of the sale and installation of software, they are typically recognised when the obligations under the contract
are complete. To the extent that payments have been received in advance for such services these amounts are recognised as deferred income.
Product support, hosting and SaaS
Revenues from support, hosting or SaaS agreements are recognised over the period to which they relate but only after practical acceptance of the
software, as defined above, has been received. The contractual arrangements normally separate out and apportion a value to each deliverable and this
value is an approximation of the fair value of the deliverable. Where revenue is invoiced in advance for such services, the amount in advance is included in
deferred revenue and released over the period to which the service relates.
Third party revenues
The Group sells, predominantly as principal, software developed by other organisations together with services that are bought in from third parties. Sales of
third party software are recognised in the period in which the sale occurs. Services are recognised in the period in which they are provided.
Tokens
The Group sells tokens to access certain services within the business. Tokens are normally bought in bundles and can be used over time. Tokens have a
fixed expiry period after which the customer has no legally enforceable right to claim on the tokens, and hence all risks & rewards have been transferred
and performance obligations have been fulfilled. Revenue is recognised on use or on expiry of the tokens.
1.5 Share based payments
The Company operates a share based payment scheme.
It is an equity settled share-based compensation plan (share options) for remuneration of its employees.
All employee services received in exchange for the grant of any share-based compensation are measured at their fair values. These are determined by
reference to the share option awarded. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions
(e.g. profitability or sales growth targets).
All equity-settled share-based compensation is ultimately recognised as an expense in the profit or loss with a corresponding credit to share based
payment reserve, net of deferred tax where applicable. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period,
based on the best available estimate of the number of shares options expected to vest. Non market vesting conditions are included in assumptions about
the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share
options expected to vest differs from previous estimates. No adjustment to expenses recognised in prior periods is made if fewer share options ultimately
are exercised than originally estimated.
Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, up to the nominal value of the shares issued are
reallocated to share capital with any excess being recorded as additional share premium.
1.6 Long term incentive plan (“LTIP”) – capped cash bonus
The LTIP awards can be share based or cash based. The cash awards are based on a capped cash bonus with performance conditions related to the
growth in earnings per share of the Group. These awards automatically mature following the publication of the Annual Report of the Company, three years
after the period to which the grant relates. The liability is accrued and recognised through the income statement.
1.7 Long term incentive plan (“LTIP”) – share option based award
The LTIP awards can be share based or cash based. The number of share option granted under these awards are based on a percentage of salary with
performance conditions related to the growth in earnings per share of the Group. These awards can be exercised between three and ten years after the
date of the grant. The liability is accrued and recognised through the income statement.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
1. Accounting policies (continued)
1.8 Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a
subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group,
which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred.
The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously
recognised in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their
acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of:
a)
fair value of consideration transferred,
b)
the recognised amount of any non-controlling interest in the acquiree and
c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair
values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss
immediately.
Where contingent consideration relates to the results spread over different accounting periods, the fair value of such consideration is recalculated at each
year end and any adjustment is recognised in profit or loss immediately.
1.9 Adjusted operating profit
Adjusted operating profit excludes acquisition costs and related intangible amortisation and movements in contingent consideration and other one–off
costs which can include, as an example, the additional amortisation charge required in estimating the useful economic life of an intangible asset.
1.10 Impairment testing of goodwill, other intangible assets and property, plant and equipment
For impairment assessment purposes, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units).
As a result, some assets are tested individually for impairment and some are tested at cash generating unit level. Goodwill is allocated to those
cash generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group
at which management monitors goodwill. Cash generating units to which goodwill has been allocated are tested for impairment at least annually. All
other individual assets or cash generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable.
An impairment loss is recognised for the amount by which the asset’s or cash generating unit’s carrying amount exceeds its recoverable amount, which
is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each
cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment
testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of future reorganisations and
asset enhancements. Discount factors are determined individually for each cash generating unit and reflect management’s assessment of respective
risk profiles, such as market and asset-specific risks factors. Impairment losses for cash generating units reduce first the carrying amount of any
goodwill allocated to that cash generating unit. Any remaining impairment loss is charged pro–rata to the other assets in the cash generating unit. With
the exception of goodwill, all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An
impairment charge is reversed if the cash generating unit’s recoverable amount exceeds its carrying amount.
1.11 Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief
operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as
the Board of Directors.
1.12 Intangible assets
Internal development costs
Costs incurred on product development relating to the design and development of new or enhanced products are capitalised as intangible assets when
it is reasonably certain that the development will provide economic benefits, considering its commercial and technological feasibility and the resources
available for the completion and marketing of the development, and where the costs can be measured reliably. The expenditures capitalised are the direct
labour costs and subcontracted costs, which are managed and controlled centrally. Product development costs previously recognised as an expense are
not recognised as an asset in a subsequent period.
Capitalised product development expenditure for non-platform technology is amortised over its useful life of five years, with amortisation commencing in
the month of costs being incurred. Maintenance costs are expensed.
Capitalised product development expenditure for the Group’s FileFinder version 10, the Browser version of FileFinder and Infinity up to their launch are
considered to be platform technology and had previously been amortised over their useful life of 10 years or to 30 June 2021, whichever is the shorter
period. The Group has reviewed its amortisation policy for such capitalised development costs to bring it more into line with industry practice and reflect a
revised useful economic life by amortising all such costs over five years. See note 13.
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1. Accounting policies (continued)
Capitalised product development expenditure is subject to regular impairment reviews and is stated at cost less any accumulated impairment losses. Any
impairment taken during the year is shown under administrative expenses on the statement of comprehensive income. Development costs that do not
meet the requirements for capitalisation are written off to profit and loss as incurred. In accordance with IAS 38, no research costs are capitalised to the
balance sheet, but are expensed as incurred.
Purchased Software
Software acquired externally is capitalised when it is expected to have ongoing use within the business. Capitalised expenditure includes both the
purchase price and any costs directly associated with bringing the software into use. Amortisation is charged over the useful economic life of the software,
typically 3 to 5 years, beginning when it is capable of being used by the business.
Acquired as part of a business combination
In accordance with IFRS 3 Business Combinations, an intangible asset acquired in a business combination is deemed to have a cost to the Group of its
fair value at the acquisition date. The fair value of the intangible asset reflects market expectations about the probability that the future economic benefits
embodied in the asset will flow to the Group. Where an intangible asset might be separable, but only together with a related tangible or intangible asset,
the Group of assets is recognised as a single asset separately from goodwill where the individual fair values of the assets in the Group are not reliably
measurable. Where the individual fair values of the complementary assets are reliably measurable, the Group recognises them as a single asset provided
the individual assets have similar useful lives.
Subsequent to initial recognition, intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is
provided to write off the cost of each intangible asset over its useful economic life as follows:
Intangible assets:
Brand and IP
Developed technology
Contractual customer relationships
Non-contractual customer relationships
Estimated life
15 years
6–11.25 years
1.25 years
10–10.25 years
1.13 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation on these assets is provided at rates estimated to write off the
cost, less estimated residual value, of each asset over its expected useful life as follows:
Leasehold land and buildings
Office and computer equipment
Fixtures, fittings and equipment
the lower of 5 years or the remaining lease period
3–5 years straight line
4 years straight line
1.14 Financial assets
The Group classifies its financial assets under the definitions provided in International Accounting Standard 39 (IAS 39) Financial Instruments:
Recognition and measurement, depending on the purpose for which the financial assets were acquired. Management determines the classification of its
financial assets at initial recognition. Management considers that the Group’s financial assets fall under the ‘loans and receivables’ category.
Loans and receivables are non-derivative financial assets with fixed or determined payments that are not quoted in an active market. They are included
in current assets, except for maturities greater than 12 months after the statement of financial position date, which are classified as non-current assets.
The Group’s loans and receivables comprise trade receivables, intercompany trading balances (in relation to Company accounts), and cash and
cash equivalents.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less any
provision for impairment. Receivables are considered for impairment when they are past due or when other objective evidence is received that a specific
counterparty may default. Receivables that are not considered to be individually impaired are reviewed for impairment in groups. The impairment loss
estimate is then based on recent historical counterparty default rates and current economic conditions.
Derecognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the
risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least at each statement of financial position date
whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
1. Accounting policies (continued)
1.15 Financial liabilities
The Group classifies its financial liabilities under the definitions provided in IAS 39, either as financial liabilities at fair value through profit or loss, or
financial liabilities measured at amortised cost. Management considers that the Group’s financial liabilities fall under the ‘financial liabilities measured
at amortised cost’ category other than contingent consideration which is measured at fair value and movements in fair value are recognised in the profit
or loss. The Group’s ‘financial liabilities measured at amortised cost’ comprise trade payables, intercompany trading balances (in relation to Company
accounts), bank loans and accruals.
Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
1.16 Investments
Investments in subsidiary companies are included at cost in the accounts of the Company less any amount written off in respect of any impairment
in value.
1.17 Leases
Leases taken by the Group are assessed individually as to whether they are finance leases or operating leases. Leases are classified as finance
leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as
operating leases.
Operating lease rental payments are recognised as an expense in the income statement on a straight-line basis over the lease term. The benefit of lease
incentives is spread over the term of the lease.
1.18 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all directly attributable expenses. Costs of ordinarily interchangeable
items are assigned using the first in, first out cost formula. Net realisable value is the estimated selling price in the ordinary course of business less any
applicable selling expenses.
1.19 Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of
three months or less and which are subject to an insignificant risk of changes in value.
1.20 Equity
Equity comprises the following:
•
•
•
•
•
•
‘Share capital’ represents the nominal value of equity shares.
‘Share premium’ represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share
issue.
‘Merger reserve’ is used where more than 90% of the shares in a subsidiary are acquired and the consideration includes the issue of new shares by the
Company, thereby attracting merger relief under the Companies Act 2006.
‘Share option reserve’ represents equity-settled share-based employee and non-employee remuneration until such share options are exercised.
‘Retained earnings’ represents retained profits and losses.
‘Translation reserve’ represents translation differences arising on the consolidation of investments in overseas subsidiaries.
1.21 Foreign currency translation
The consolidated financial statements are presented in Sterling, which is also the functional currency of the parent company.
Monetary assets and liabilities denominated in foreign currencies are translated into functional currency at the rates of exchange ruling at the statement
of financial position date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All differences are taken to profit
and loss.
On consolidation, the assets and liabilities of the Group’s overseas subsidiaries are translated from their functional currency to Sterling at exchange rates
prevailing on the statement of financial position date. Income and expenses have been translated from their functional currency into Sterling at the average
rate for each month over the reporting period. Exchange differences are charged/credited to other comprehensive income and recognised in the currency
translation reserve in equity.
On disposal of a foreign entity, the deferred cumulative amount is recognised in equity relating to that particular foreign operation is recognised in the
income statement.
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1. Accounting policies (continued)
1.22 Income taxes
Current income tax assets and liabilities comprise those obligations to fiscal authorities in the countries in which the Group carries out its operations. They
are calculated according to the tax rates and tax laws applicable to the fiscal period and the country to which they relate. Tax expense recognised in profit
or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amount of assets
and liabilities in the consolidated financial statements with their respective tax bases. However, deferred tax is not provided on the initial recognition of
goodwill, or on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with investments in subsidiaries is not provided if reversal of these temporary differences can be
controlled by the Group and it is probable that reversal will not occur in the foreseeable future.
Deferred tax liabilities are always provided for in full. Deferred tax assets are recognised to the extent that it is probable that future taxable profits will be
available against which the temporary differences can be utilised. Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to
their respective period of realisation, provided they are enacted or substantively enacted at the statement of financial position date. Tax expense recognised
in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity.
1.23 Defined contribution pension scheme
The pension costs charged in profit or loss represent the contributions payable by the Group during the year.
1.24 New accounting standards to update
No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2016 have had a
material impact on the Group or Parent Company.
The following standards have been issued by the IASB and have been adopted by the EU:
Standard
IFRS 9
IFRS 15
Key requirements
Financial Instruments
Revenue from contracts with customers
Effective date as adopted by the EU
1 January 2018
1 January 2018
IFRS 15 is based on the principle that revenue is recognised when control of a good or service transfers to a customer, so the notion of control replaces
the existing notion of risk and reward. Dillistone is currently reviewing the revenue in relation to its contracts with customers to determine which, if any, will
be impacted by IFRS 15. It is not yet in a position to conclude whether the implementation will have a material impact on its revenues. The introduction of
IFRS 15 is likely to result in some internal process changes across the Group.
The Directors anticipate that the adoption of IFRS 9 in future periods will not have material impact on the financial statements of the Group or
Parent Company.
The following standards have been issued by the IASB and have not yet been adopted by the EU:
Standard
IFRS 16
Key requirements
Leases
The adoption of IFRS 16 is likely to result in an increase in both assets and liabilities in the balance sheet, and an increase in operating profit and finance
expenses in the income statement.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
2. Reconciliation of adjusted operating profits to consolidated statement of comprehensive
income
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Financial income
Financial cost
Profit before tax
Tax income/(expense)
Profit for the year
Other comprehensive income net of tax:
Currency translation differences
Total comprehensive income for the year net
of tax
Earnings per share
Basic
Diluted
* See accounts note 5.
Note
Adjusted
operating
profits
2016
£’000
9,963
(1,478)
8,485
(7,022)
1,463
3
Acquisition
related
items
2016*
£’000
–
–
–
(1,051)
(1,051)
–
(8)
1,458
(63)
1,395
(15)
(1,066)
197
(869)
Adjusted
operating
profits
2015
£’000
9,437
(1,313)
8,124
(6,700)
1,424
5
(13)
1,416
3
1,419
Acquisition
related
items
2015*
£’000
–
–
–
(316)
(316)
–
(28)
(344)
137
(207)
2016
£’000
9,963
(1,478)
8,485
(8,073)
412
3
(23)
392
134
526
2015
£’000
9,437
(1,313)
8,124
(7,016)
1,108
5
(41)
1,072
140
1,212
16
–
16
(27)
–
(27)
1,411
(869)
542
1,392
(207)
1,185
10
10
7.10p
6.95p
2.68p
2.62p
7.26p
7.02p
6.20p
6.00p
3. Segment reporting
The Board principally monitors the Group’s operations in terms of results of the two divisions, Dillistone Systems and Voyager Software. Segment results
reflect management charges made or received.
Divisional segments
For the year ended 31 December 2016
Segment revenue
Segment EBITDA
Depreciation and amortisation expense
Segment result
Acquisition related amortisation
Acquisition related income
Operating profit/(loss)
Financial income
Loan interest
Acquisition related interest expenses
Profit before tax
Income tax income
Profit after tax
Dillistone
£’000
4,858
1,434
(1,229)
205
–
–
205
3
–
–
Voyager
£’000
5,105
1,093
(461)
632
–
–
632
–
–
–
Central
£’000
–
(94)
–
(94)
(379)
48
(425)
–
(8)
(15)
Total
£’000
9,963
2,433
(1,690)
743
(379)
48
412
3
(8)
(15)
392
134
526
Additions of non-current assets
600
527
–
1,127
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3. Segment reporting (continued)
For the year ended 31 December 2015
Segment revenue
Segment EBITDA
Depreciation and amortisation expense
Segment result
Acquisition related amortisation
Acquisition related income
Operating profit/(loss)
Financial income
Loan interest
Acquisition related interest expenses
Profit before tax
Income tax income
Profit after tax
Inter-divisional
revenue
£’000
(14)
Dillistone
£’000
4,620
1,425
(534)
891
–
–
891
4
–
–
Voyager
£’000
4,831
956
(327)
629
–
–
629
1
–
–
Central
£’000
–
(96)
–
(96)
(379)
63
(412)
–
(13)
(28)
Total
£’000
9,437
2,285
(861)
1,424
(379)
63
1,108
5
(13)
(28)
1,072
140
1,212
Additions of non-current assets
556
489
–
1,045
Products and services
The following table provides an analysis of the Group’s revenue by products and services:
Revenue
Recurring income
Non-recurring income
Third party revenues
2016
£’000
7,027
2,370
566
9,963
2015
£’000
6,606
2,333
498
9,437
Recurring income includes all support services, SaaS and hosting income. Non-recurring income includes sales of new licenses, and income derived from
installing those licenses including training, installation, and data translation. Third party revenues arise from the sale of third party software.
It is not possible to allocate assets and additions between recurring, non-recurring income and third party revenue.
No customer represented more than 10% of revenue of the Group.
4. Geographical analysis
The following table provides an analysis of the Group’s revenue by geographic market.
The Board does not review the business from a geographical performance viewpoint and this analysis is provided for information only.
Revenue
UK
Europe
US
Australia
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2016
£’000
7,142
1,047
1,388
386
9,963
2015
£’000
6,778
864
1,381
414
9,437
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Dillistone Group Plc | Annual Report & Accounts 2016
Notes to the Financial Statements continued
For the year ended 31 December 2016
4. Geographical analysis (continued)
Non-current assets by geographical location
UK
US
Australia
5. Acquisition related and other one–off items
Included within administrative expenses:
Estimated change in fair value of contingent consideration (note 24)
Amortisation of acquisition intangibles
Additional amortisation on change of estimated useful life of platform technology (note 13)
Included within finance cost:
Unwinding of discount on contingent consideration (note 8)
6. Operating profit
Operating profit is stated after charging:
Depreciation
Amortisation
Realised net (gain)/loss on foreign exchange transactions
Operating lease rentals – land and buildings
Money purchase pension contributions
Fees receivable by the Group auditors:
Audit of financial statements
Other services:
Audit of accounts of subsidiary of the Company
Taxation compliance services
All other services
2016
£’000
8,886
6
1
8,893
2016
£’000
(48)
379
720
1,051
15
1,066
2016
£’000
113
1,956
(10)
288
301
18
56
18
–
2015
£’000
9,829
4
2
9,835
2015
£’000
(63)
379
–
316
28
344
2015
£’000
126
1,115
5
293
265
43
50
30
25
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7. Employees
The average number of employees was:
Operations
Management
Employee numbers
Their aggregate remuneration including Directors’ remuneration comprised:
Wages and salaries
Social security costs
Pension costs
Share based payments
LTIP share based
LTIP non share based
2016
112
13
125
2016
£’000
5,004
527
301
16
–
(1)
5,847
The aggregate remuneration includes salary cost totalling £1,045,000 (2015: £924,000) that have been capitalised in intangible assets.
Key management of the Group are the Directors and the divisional directors of Dillistone Systems and Voyager Software. Remuneration of key
management was as follows:
Wages and salaries
Social security costs
Pension costs
Share based payments charged
LTIP share based
LTIP non share based
2016
£’000
898
101
108
2
–
(1)
1,108
2015
111
9
120
2015
£’000
4,656
496
265
15
44
15
5,491
2015
£’000
681
88
89
1
44
15
918
The Company’s only employees are the Directors. Details of Directors’ emoluments, share options and pension entitlements are given in the Report to the
Shareholders on Directors’ Remuneration on pages 20 and 21.
8. Financial income and cost
Interest receivable
Finance cost on bank loan
Unwinding of discount on contingent consideration
2016
£’000
3
(8)
(15)
(20)
2015
£’000
5
(13)
(28)
(36)
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Notes to the Financial Statements continued
For the year ended 31 December 2016
9. Tax (income)/expense
Current tax
Prior year adjustment – current tax
Deferred tax
Prior year adjustment – deferred tax
Deferred tax re acquisition intangibles
Prior year adjustment – deferred tax re acquisition intangibles
Tax (income)/expense for the year
Factors affecting the tax charge for the year
Profit before tax
UK rate of taxation
Profit before tax multiplied by the UK rate of taxation
Effects of:
Overseas tax rates
Impact of deferred tax not provided
Enhanced R&D relief
Disallowed expenses
Rate differences re current tax and deferred tax
Prior year adjustments
Tax (income)/expense
Deferred tax provided in the financial statements is as follows:
Internally generated intangible and fixed assets
Provisions
Acquisition intangibles
Internally generated intangible and fixed assets
Provisions
Acquisition intangibles
2016
£’000
178
(91)
(100)
(50)
(68)
(3)
(134)
392
20%
78
31
13
(169)
31
26
(144)
(134)
Company
2016
£’000
–
–
–
–
Company
2015
£’000
–
–
–
–
2015
£’000
191
(185)
22
(31)
(68)
(69)
(140)
1,072
20.25%
217
46
(7)
(131)
14
6
(285)
(140)
2015
£’000
–
–
–
–
2014
£’000
–
–
–
–
2016
£’000
315
(9)
478
784
2015
£’000
467
(10)
549
1,006
Group
Movement
£’000
(152)
1
(71)
(222)
Group
Movement
£’000
(6)
3
(137)
(146)
2015
£’000
467
(10)
549
1,006
2014
£’000
473
(7)
686
1,152
The UK corporation tax rate throughout the year was 20%. Deferred tax is provided in relation to the UK at rates of between 17% to 19% depending on
when reversals are expected to occur. The tax credit is impacted by the higher rates of corporation tax payable in the US and Australia offset by the R&D
tax credits available to both Dillistone Systems division and Voyager Software division and the reduction in the long term rate of corporation tax to 17%
which has been used in the calculation of deferred tax. The release of prior year provisions relate in part to the agreement of the prior years’ tax positions
of UK companies and the utilisation of tax losses not previously recognised. The Group has gross tax losses and temporary timing differences of £369,000
(2015: £492,000) for which no deferred tax asset has been recognised as the timing of their utilisation is uncertain.
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Financial Statements
10. Earnings per share
Profit attributable to ordinary shareholders
Weighted average number of shares
Basic earnings per share
Weighted average number of shares after dilution
Fully diluted earnings per share
2016
Using adjusted
operating
profit
£1,395,000
19,668,021
7.10 pence
20,082,096
6.95 pence
2015
Using adjusted
operating
profit
£1,419,000
19,547,754
7.26 pence
20,209,339
7.02 pence
2016
£526,0000
19,668,021
2.68 pence
20,082,096
2.62 pence
2015
£1,212,000
19,547,754
6.20 pence
20,209,339
6.00 pence
Reconciliation of basic to diluted average number of shares
Weighted average number of shares (basic)
Effect of dilutive potential ordinary shares – employee share plans
Weighted average number of shares after dilution
There are 638,257 (2015: 353,257) share options not included in the above calculations
2016
19,668,021
414,075
20,082,096
2015
19,547,754
661,585
20,209,339
11. Profit for the financial year
As permitted by section 408 of the Companies Act 2006, the parent company’s profit and loss account has not been included in these financial
statements. The profit for the financial year for the parent company was £1,057,000 (2015: £932,000) and has been approved by the Directors. This is
stated after charging:
Fees paid to the company’s auditors
Audit of financial statements
Other services relating to taxation
Other services
12. Goodwill
Group
Cost
At 1 January 2015
Additions
At 31 December 2015
Additions
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015
2016
£’000
2015
£’000
18
3
–
43
5
20
Goodwill
£’000
3,415
–
3,415
–
3,415
3,415
3,415
At the year end date an impairment test has been undertaken by comparing the carrying values of goodwill with the recoverable amount of the cash
generating unit (CGU) to which the goodwill has been allocated. The recoverable amount of the cash generating unit is based on value-in-use calculations.
These calculations use cash flow projections covering a three year period based on financial budgets and a calculation of the terminal value, for the period
following these formal projections.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
12. Goodwill (continued)
The key assumptions used for value-in-use calculations are those regarding growth rates, increases in costs and discount rates. The discount rate is
reviewed annually to take into account the current market assessment of the time value of money and the risks specific to the cash generating units and
rates used by comparable companies. The pre-tax discount rate used to calculate value-in-use is in a range of 12% to 19.4% (2015: 12% to 19.4%).
Growth rates for forecasts take into account historic experience and current market trends. Costs are reviewed and increased for inflation and other cost
pressures. The long term growth rate used for the terminal value calculation was 1.75% (2015: 2%) for all CGUs. The allocation of goodwill across the
CGUs is as follows:
Dillistone Division
Voyager and FCP consolidated
ISV
Opening
£’000
494
2,251
670
3,415
Addition
£’000
–
–
–
–
Impairment
£’000
–
–
–
–
Closing
£’000
494
2,251
670
3,415
Sensitivities
To reduce the headroom in the impairment calculation of goodwill to £nil for the Voyager and FCP consolidated and also for ISV would require a reduction
of terminal growth rate to 0% and an increase in the discount rate to over 50%. Alternatively, cash flows would need to fall by over 60%. Cashflows in
respect of Dillistone goodwill would need to reduce by over 95% to reduce the headroom to £nil.
13. Other intangible assets
Group
Cost
At 1 January 2015
Additions
At 31 December 2015
Additions
At 31 December 2016
Amortisation
At 1 January 2015
Charge for the year
At 31 December 2015
Charge for the year
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015
Development
costs
£’000
Purchased
software
£’000
Acquisition
intangibles
£’000
4,629
936
5,565
1,047
6,612
1,742
736
2,478
1,576
4,054
2,558
3,087
–
25
25
9
34
–
–
–
1
1
33
25
4,172
–
4,172
–
4,172
742
379
1,121
379
1,500
2,672
3,051
Total
£’000
8,801
961
9,762
1,056
10,818
2,484
1,115
3,599
1,956
5,555
5,263
6,163
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13. Other intangible assets (continued)
Acquisition intangibles can be summarised as follows
NBV
At 1 January 2016
Amortisation
At 31 December 2016
Brand
£’000
Developed
technology
£’000
139
(13)
126
282
(53)
229
Contractual
and non-
contractual
relationship
£’000
2,067
(272)
1,795
Brand
and IP
£’000
563
(41)
522
Total
£’000
3,051
(379)
2,672
Following the change in the estimate of the useful economic life of platform technology detailed in note 1, the amortisation charge for the year includes a
one–off increase of £720,000. In accordance with IAS 8 the charge has not been applied retrospectively as it relates to a change in estimate.
Intangible assets under development are reviewed each reporting period for impairment prior to amortisation. Forecasts of future revenue are prepared
and these are discounted and compared to the carrying value. Sensitivities are carried out including applying differing growth and attrition rates as well as
alternative discounts rates.
Purchased software is reviewed for impairment based on its continued use within the business.
The Company has no intangible assets.
14. Property, plant and equipment
Group
Cost
At 1 January 2015
Currency impact
Additions
Disposals
At 31 December 2015
Currency impact
Additions
Disposals
At 31 December 2016
Depreciation
At 1 January 2015
Currency impact
Charge for the year
Eliminated on disposal
At 31 December 2015
Currency impact
Charge for year
Eliminated on disposal
At 31 December 2016
Carrying amount
At 31 December 2016
At 31 December 2015
Land and
buildings
£’000
Office and
computer
equipment
£’000
Fixtures
and fittings
£’000
Motor
vehicles
£’000
185
–
1
–
186
–
–
–
186
6
–
38
–
44
–
38
–
82
104
142
675
1
82
–
758
16
57
(1)
830
569
1
82
–
652
15
71
(1)
737
93
106
150
1
1
–
152
3
13
–
168
137
1
5
–
143
3
4
–
150
18
9
2
–
–
(2)
–
–
–
–
–
1
–
1
(2)
–
–
–
–
–
–
–
Total
£’000
1,012
2
84
(2)
1,096
19
70
(1)
1,184
713
2
126
(2)
839
18
113
(1)
969
215
257
The Company has no property, plant and equipment.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
15. Non-current asset investments
Company
Cost
At 1 January 2015
Additions
At 31 December 2015
Additions
At 31 December 2016
Investments
in subsidiaries
£’000
7,599
–
7,599
2
7,601
The addition in the year related to the transfer of FCP internet Limited from FCP Internet Holdings Limited to Dillistone Group Plc.
The Company has the following subsidiary undertakings:
Name
Dillistone Systems Limited
Dillistone Systems (Australia) Pty Limited
Dillistone Systems (US) Inc
FCP Internet Limited
FCP Internet Holdings Limited
ISV Software Limited
Woodcote Software Limited
Voyager Software Limited
Voyager Software (Australia) Pty Limited
Principal activity
Sale of computer software and
related support services
Sale of computer software and
related support services
Sale of computer software and
related support services
Provision of software services and
related consultancy services
Dormant holding company
Provision of software services and
related consultancy services
Dormant company
Sale of computer software and
related support services
Sale of computer software and
related support services
Holding of
ordinary shares
100%
Registered
England & Wales
100%
(indirect)
100%
Australia
USA
100%
England & Wales
100%
100%
100%
100%
England & Wales
England & Wales
England & Wales
England & Wales
100%
(indirect)
Australia
The registered addresses of related undertakings are as follows:
Company
Dillistone Group Plc
Dillistone Systems Limited
Dillistone Systems (Australia) Pty Limited
Dillistone Systems (US) Inc
FCP Internet Limited
FCP InternetHoldings Limited
ISV Software Limited
Woodcote Software Limited
Voyager Software Limited
Voyager Software (Australia) Pty Limited
Registered Address
50 Leman St, London E1 8HQ
50 Leman St, London E1 8HQ
56 Berry Street, North Sydney NSW, 2060, Australia
50 Harrison Street, Suite 201A, Hoboken, NJ 07030, USA
50 Leman St, London E1 8HQ
50 Leman St, London E1 8HQ
50 Leman St, London E1 8HQ
50 Leman St, London E1 8HQ
12 Cedarwood, Crockford Lane, Chineham Business Park, Basingstoke, RG24 8WD
56 Berry Street, North Sydney NSW, 2060, Australia
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16. Inventories
Licences for resale
17. Trade and other receivables
Trade receivables – net
Group receivables
Other current assets
Prepayments and accrued income
Group
2016
£’000
5
Group
2016
£’000
1,787
–
37
372
2,196
2015
£’000
16
2015
£’000
1,512
–
37
187
1,736
Company
2016
£’000
–
2015
£’000
–
Company
2016
£’000
–
329
–
20
349
2015
£’000
–
333
–
13
345
The carrying value of trade receivables is considered a reasonable approximation of fair value. All of the receivables have been reviewed for indicators of
impairment. The movement in the provision for bad debt is shown below:
At start of year
Movement in the year
At the year end
The ageing profile of trade receivables as at the year end is as follows:
Current
Past due date:
31–60 days overdue
More than 60 days overdue
Total
The bad debt provision is in respect of debt more than over 60 days overdue.
The Company has no bad debt provision against intercompany receivables.
2016
£’000
88
9
97
2016
£’000
1,491
121
175
1,787
2015
£’000
63
25
88
2015
£’000
1,284
82
146
1,512
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Notes to the Financial Statements continued
For the year ended 31 December 2016
18. Trade and other payables
Current liabilities
Trade payables
Group payables
Deferred income
Accruals
Contingent consideration
Non-current liabilities
Contingent consideration
Cash settled LTIP
Contingent consideration is valued at fair value. The total amounts included are as follows:
In current liabilities
In non-current liabilities
Further details of the contingent consideration are given in note 24.
19. Cash and cash equivalents
Cash balances available on demand
20. Borrowings
Borrowings at amortised cost
Current bank borrowings
Non current bank borrowings
Total bank borrowings
Group
2016
£’000
685
–
2,850
689
375
4,599
–
15
15
Group
2016
£’000
375
–
375
2015
£’000
665
–
2,670
651
207
4,193
413
15
428
2015
£’000
207
413
620
Company
2016
£’000
56
2,376
–
124
375
2,931
–
15
15
Company
2016
£’000
375
–
375
2015
£’000
64
2,231
–
121
207
2,623
413
15
428
2015
£’000
207
413
620
Group
2016
£’000
1,537
2015
£’000
1,595
Company
2016
£’000
43
2015
£’000
59
Group
2016
£’000
158
–
158
2015
£’000
167
158
325
Company
2016
£’000
158
–
158
2015
£’000
167
158
325
The Directors consider that the fair value of borrowings approximates to the carrying value.
The borrowings consist of a bank loan repayable over 3 years from HSBC Bank plc secured by a fixed and floating charge over the assets of the Group and
is supported by a cross guarantee between the Company and the Group’s principal subsidiaries. The loan was to provide part funding for the acquisition of
ISV. The loan carries interest at 2.75% over UK base rate.
The loan includes an option for early repayment at any time during the 3 year period. An early repayment fee of 1% of the amount prepaid must be
made if the option is exercised. Management have reviewed the term of the prepayment option and deemed it to be closely related to the underlying debt
instrument and hence it has not been separated from the host instrument.
The carrying amount of the bank borrowings is considered to be a reasonable approximation of the fair value of the debt.
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21. Share capital
Allotted, called up and fully paid
Ordinary shares of 5 pence each
No share options were exercised in the period (2015: 280,475).
Shares issued and fully paid
Beginning of the year
Shares issued on exercise of options
Shares issued and fully paid
22. Operating lease arrangements
The Group leases offices under non-cancellable operating lease agreements.
At 31 December 2016, the Group had future total commitments under non-cancellable operating leases as follows:
Commitments payable:
Within one year
Between two and five years
2016
£’000
2015
£’000
983
983
2016
19,668,021
–
19,668,021
2015
19,387,546
280,475
19,668,021
2016
£’000
559
262
296
2015
£’000
731
233
498
23. Share options
Share based payments
There are three share option schemes in operation: an Enterprise Management Incentive Scheme (the ‘EMI Scheme’) which complies with the
requirements of HMRC, a scheme which has not been approved by HMRC (the ‘Unapproved Scheme’) and a Share Save Scheme (“SAYE Scheme”). The
terms and conditions of the EMI and Unapproved schemes are the same. If the options remain unexercised after a period of 10 years from the date of
grant, the options expire. Options are normally forfeited if the employee leaves the Company before the options become available to exercise, which would
normally be three years after grant. Performance conditions are associated with the options granted on 14 July 2015 and 29 June 2016. The company
launched its first SAYE scheme in 2016. Under this scheme discounts of up to 20% can be offered. The scheme has a linked savings contract of 3 years.
There were two grants of options in 2016. The weighted average share price of all grants in 2016 was 78.34p. The fair values of the services received in
exchange for share based payments were calculated using a Black-Scholes pricing model. The inputs into the model were as follows:
Date of grant
29 June 2016
14 Oct 2016
Number
granted
441,500
127,094
Share
price on
issue date
78.50p
86.50p
Exercise
price
78.50p
77.80p
Expected
volatility
30%
30%
Vesting
period
3.3 years
3.3 years
Leaver rate
over vesting
period
0%
10%
Risk-free
rate
1.00%
1.00%
Expected
dividend
yield
5.0%
5.0%
Expected volatility takes into account historic volatility of the share price and its current trend.
There were two grants of options in 2015. The weighted average share price of all grants in 2015 was 105.61p. The fair values of the services received in
exchange for share based payments were calculated using a Black-Scholes pricing model. The inputs into the model were as follows:
Date of grant
3 Feb 2015
14 July 2015
Number
granted
58,500
306,257
Share
price on
issue date
90.50p
108.50p
Exercise
price
90.50p
108.50p
Expected
volatility
30%
30%
Vesting
period
3.3 years
3.3 years
Leaver rate
over vesting
period
10%
0%
Risk-free
rate
1.00%
1.00%
Expected
dividend
yield
4.0%
4.0%
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Notes to the Financial Statements continued
For the year ended 31 December 2016
23. Share options (continued)
Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows:
Outstanding at beginning of year
Granted during year
Exercised during year
Forfeited during year
Outstanding at the end of the year
Exercisable at the year end
* Adjusted for the 2 for 1 bonus issue where appropriate
2016
2015
No of
options*
832,496
568,594
–
(36,739)
1,364,351
204,500
WAEP*
93.86
78.34
–
28.69
89.15
81.11
No of
options*
930,561
364,757
(280,475)
(182,347)
832,496
197,239
WAEP*
80.41
105.61
75.95
76.33
93.86
67.49
The Company’s mid-market share price on 31 December 2016 was 96.0p. The average mid- market share price in 2016 was 83.82p
The fair value of all options granted is shown as an employee expense with a corresponding increase in equity. The employee expense is recognised
equally over the time from grant until vesting of the option. The expense charged takes into account the likelihood of performance targets being met. The
employee expense for the year was £16,000 (2015: £28,000).
Share options remaining in the schemes are as follows:
Scheme type
EMI
Unapproved
EMI
Unapproved
EMI
EMI
Unapproved
EMI
EMI
EMI
EMI
Sharesave
Date of
grant
14/09/2007
14/01/2011
21/09/2011
21/09/2011
08/07/2013
25/11/2013
08/12/2014
08/12/2014
03/02/2015
14/07/2015
29/06/2016
14/10/2016
Exercise
from
14/09/2010
14/01/2014
21/09/2014
21/09/2014
08/07/2016
25/11/2016
08/12/2017
08/12/2017
03/02/2018
14/07/2018
29/06/2019
1/11/2019
Lapse
date
13/09/2017
13/01/2021
20/09/2021
20/09/2021
07/07/2023
24/11/2023
07/12/2024
07/12/2024
02/02/2025
13/07/2025
28/06/2026
30/04/2020
Options
remaining
27,000
30,000
94,500
16,000
17,000
20,000
10,000
216,500
58,500
306,257
441,500
127,094
1,364,351
Exercise
price (p)
99.17
58.33
77.00
77.00
79.50
115.00
97.00
97.00
90.50
108.5
78.50
77.80
The weighted average remaining contractual life of options at 31 December 2016 was 7.6 years (2015: 8.0 years).
LTIP
LTIP awards under the long term incentive plan take the form of a cash bonus of up to one-third annual salary or the grant of share options, with
appropriate performance conditions in place.
In 2016, there is no charge in respect of the LTIP schemes which are share based and require separate disclosure under IFRS 2.
24. Contingent consideration payable in respect of acquisitions
In September 2014 the Group acquired the entire share capital of ISV. As part of the acquisition, the vendors are entitled to contingent consideration
based on revenue over the period to 30 September 2017. A payment of £212,000 was made in 2016. In the 2016 financial statements, the amount
payable under the contingent consideration was decreased by £48,000 and this has been credited to the profit and loss. This contingent consideration has
been discounted at 3.48% and the discount charged to profit and loss in 2016 totalled £15,000 (2015: £28,000).
At the year end the Group had a liability for contingent consideration made up as follows:
• 30% of net revenues in the year to 31 December 2016 less £15,000 (calculated at £220,000 undiscounted)
• 30% of net revenues in the nine month period to 30 September 2017 less £25,000 (estimated at £161,000 undiscounted). A 10% increase in profits
would result in an increased liability of £19,000 undiscounted.
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Governance
Financial Statements
Financial Statements
25. Financial instruments
The Group uses various financial instruments; these include cash, bank deposits, bank loans and various items such as trade receivables and trade
payables that arise directly from its operations. The main purpose of these financial instruments is to provide finance for the Group’s operations.
The Group’s finance department maintains liquidity, manages relations with the Group’s bankers, identifies and manages foreign exchange risk and
controls Group treasury operations. Treasury dealings such as investments and foreign exchange are conducted only to support underlying business
transactions. Consequently, the Group does not undertake speculative foreign exchange dealings for which there is no underlying exposure.
The Group’s policies for management of the financial risks to which it is exposed are outlined below.
(i) Interest rate risk
The Group is exposed to interest rate risk on its floating rate borrowings and its financial assets. The interest rate profile of the Group’s financial assets
at 31 December 2016 was:
At 31 December 2016
Trade and other receivables (current assets)
Cash and cash equivalents
Total
The interest rate profile of the Group’s financial assets at 31 December 2015 was:
At 31 December 2015
Trade and other receivables (current assets)
Cash and cash equivalents
Total
Group
Company
Non interest
bearing
financial
assets
£’000
1,824
–
1,824
Floating
rate
financial
assets
£’000
–
1,537
1,537
Non interest
bearing
financial
assets
£’000
329
–
329
Floating
rate
financial
assets
£’000
–
42
42
Group
Company
Non interest
bearing
financial
assets
£’000
1,549
–
1,549
Floating
rate
financial
assets
£’000
–
1,595
1,595
Non interest
bearing
financial
assets
£’000
333
–
333
Floating
rate
financial
assets
£’000
–
59
59
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Notes to the Financial Statements continued
For the year ended 31 December 2016
25. Financial instruments (continued)
The table below shows the Group’s financial liabilities split by those bearing interest at floating rates and those that are non interest bearing.
At 31 December 2016
Trade and other payables (current liabilities)
Trade and other payables (non-current liabilities)
Bank borrowings
Contingent consideration (current liabilities)
At 31 December 2015
Trade and other payables (current liabilities)
Trade and other payables (non-current liabilities)
Bank borrowings
Contingent consideration (current liabilities)
Contingent consideration (non-current liabilities)
Group
Company
Non interest
bearing
financial
assets
£’000
4,224
15
–
375
4,614
Floating
rate
financial
assets
£’000
–
–
158
–
158
Non interest
bearing
financial
assets
£’000
2,556
15
–
375
2,944
Group
Company
Non interest
bearing
financial
assets
£’000
3,986
15
–
207
413
4,621
Floating
rate
financial
assets
£’000
–
–
325
–
–
325
Non interest
bearing
financial
assets
£’000
2,416
15
–
207
413
3,051
Floating
rate
financial
assets
£’000
–
–
158
–
158
Floating
rate
financial
assets
£’000
–
–
325
–
–
325
The bench marks for interest rates on floating rate financial assets and financial liabilities are bank base rates for the currencies in which the assets
are held. Sensitivities of movements in interest rates have been considered by Directors and reasonably possible movements in interest rates are not
considered to have a material impact on future Group profits or equity.
(ii) Credit risk
The Group’s principal financial assets are cash and cash equivalents and trade and other receivables.
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises
principally from the Group’s receivables from customers and monies on deposit with financial institutions.
Historically, the cash collection profile has been very good. Debt aging and collections are monitored on a regular basis and for new customers deposits
are usually required. Some of the unimpaired trade receivables are past due as at the reporting date. Information on financial assets past due but not
impaired are included in note 17.
The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit rating agencies.
The Group has no significant concentration of credit risk.
The Group’s maximum exposure to credit risk at the reporting date is represented by the carrying value of financial assets, as follows:
Trade and other receivables (current assets)
Cash and cash equivalents
Total
Group
2016
£’000
1,824
1,537
3,361
2015
£’000
1,549
1,595
3,144
Company
2016
£’000
329
42
371
2015
£’000
333
59
392
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Financial Statements
25. Financial instruments (continued)
(iii) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to
ensure it has sufficient liquidity to meet its liabilities when due.
As at 31 December 2016, the Group and Company’s financial liabilities (being trade and other payables and deferred income, payroll taxes, VAT or similar
taxes and bank borrowings) have contractual cashflows as summarised below:
Group
31 December 2016
Trade and other payables (current liabilities)
Contingent consideration (current liabilities
Trade and other payables (non-current liabilities)
Bank borrowings
31 December 2015
Trade and other payables (current liabilities)
Contingent consideration (current liabilities
Trade and other payables (non-current liabilities)
Contingent consideration (non-current liabilities)
Bank borrowings
Company
31 December 2016
Trade and other payables (current liabilities)
Contingent consideration (current liabilities)
Trade and other payables (non-current liabilities)
Bank borrowings
31 December 2015
Trade and other payables (current liabilities)
Contingent consideration (current liabilities
Trade and other payables (non-current liabilities)
Contingent consideration (non-current liabilities)
Bank borrowings
Carrying
amount
£’000
4,224
375
15
158
4,772
Carrying
amount
£’000
3,986
207
15
413
325
4,946
Carrying
amount
£’000
2,556
375
15
158
3,104
Carrying
amount
£’000
2,416
207
15
413
325
3,376
< 1 year
£’000
4,224
375
–
158
4,757
< 1 year
£’000
3,986
207
–
–
167
4,360
< 1 year
£’000
2,556
375
–
158
3,089
< 1 year
£’000
2,416
207
–
–
167
2,790
1–2 years
£’000
–
–
–
–
–
1–2 years
£’000
–
–
–
413
158
571
1–2 years
£’000
–
–
–
–
–
1–2 years
£’000
–
–
–
413
158
571
2–5 years
£’000
–
–
15
–
15
2–5 years
£’000
–
–
15
–
–
15
2–5 years
£’000
–
–
15
–
15
2–5 years
£’000
–
–
15
–
–
15
The Group would normally expect that sufficient cash is generated in the operating cycle to meet contractual cash flows as disclosed above. In addition the
Group has significant cash balances as at the year end to minimise any liquidity risk.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
25. Financial instruments (continued)
(iv) Foreign currency risk
The Group is exposed to foreign currency risk on sales and purchases which are denominated in a currency other than Sterling. Exposures to currency
exchange rates are primarily denominated in US Dollars ($), Australian Dollars (AUD) and Euros (€). The Group does not use derivatives to hedge
translation exposures arising on the consolidation of its overseas operations.
At the year end, the Group had assets totalling £1,307,000 and liabilities totalling £547,000 denominated in Euros (2015: assets totalling £1,004,000 and
liabilities totalling £640,000), assets totalling £1,729,000 and liabilities totalling £1,119,000 denominated in US Dollars (2015: assets totalling £1, 501,000
and liabilities totalling £992,000) and assets totalling £445,000 and liabilities totalling £403,000 denominated in Australian Dollars (2015: assets totalling
£376,000 and liabilities totalling £324,000).
If each of the exchange rates strengthened by 5%, the impact on the income statement would as follows:
Euros
US Dollars
Australian Dollars
Group
2016
£’000
20
7
(1)
26
2015
£’000
7
7
1
15
At the year end, the Company had liabilities totalling £115,000 denominated in Euros (2015: liabilities totalling £156,000), assets totalling £281,000
denominated in US Dollars (2015: assets totalling £234,000) and assets totalling £27,000 denominated in Australian Dollars (2015: assets totalling
£78,000).
For the company a 5% increase in the value of each of the above currencies would have result in an impact on the income statement as follows:
Euros
US Dollars
Australian Dollars
Company
2016
£’000
(6)
15
1
10
2015
£’000
(8)
12
4
8
Capital risk management
The Group’s objectives when managing capital are to safeguard the entity’s ability to continue as a going concern, so that it can continue to provide returns
for shareholders and benefits for other stakeholders.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in the light of changes
in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the
amount of dividends paid to shareholders, return capital to shareholders, issue new shares, sell assets or take on bank debt. The decision to take on some
element of debt gives the Group additional flexibility in its capital structure and enables it to lower its cost of capital.
The Group considers its capital to include share capital, share premium, merger reserve, translation reserve, share option reserve and retained earnings.
Net cash comprises borrowings less cash and cash equivalents.
Total borrowings
Less cash or cash equivalents
Net cash
Total equity
Total capital gearing ratio
Note
20
2016
£’000
158
(1,537)
(1,379)
6,906
0%
2015
£’000
325
(1,595)
(1,270)
7,159
0%
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25. Financial instruments (continued)
Summary of financial assets and liabilities by category
The carrying amounts of the financial assets and liabilities as recognised at the statement of financial position date of the years under review may also be
categorised as follows:
Loans and receivables
Cash and cash equivalents
Trade and other receivables
Financial liabilities held at amortised cost
Trade and other payables
Borrowings
Financial liabilities held at fair value
Contingent consideration
Group
2016
£’000
1,537
1,824
3,361
4,239
158
375
4,772
2015
£’000
1,595
1,549
3,144
4,001
325
620
4,946
Company
2016
£’000
42
329
371
2,600
158
375
3,133
2015
£’000
59
333
392
2,431
325
620
3,376
26. Fair value measurement of financial instruments
Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three Levels of a fair value hierarchy.
The three Levels are defined based on the observability of significant inputs to the measurement, as follows:
• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
• Level 3: unobservable inputs for the asset or liability.
The following table shows the Levels within the hierarchy of financial assets and liabilities measured at fair value on a recurring basis at 31 December 2016
and 31 December 2015:
Contingent consideration
2016
£’000
Level 3
375
2015
£’000
Level 3
620
The Group’s finance team performs valuations of financial items for financial reporting purposes, including Level 3 fair values, in consultation with third
party valuation specialists for complex valuations. Valuation techniques are selected based on the characteristics of each instrument, with the overall
objective of maximising the use of market-based information. The finance team reports directly to the Group Finance Director and to the audit committee.
The valuation techniques used for instruments categorised in Level 3 are described below:
Contingent consideration (Level 3)
The fair value of contingent consideration relates to the acquisition of ISV Software and is estimated using a present value technique. The contingent
consideration of £375,000 is included at fair value which is mainly based on actual, budget or forecast revenues prepared by the finance team. The
contingent consideration is discounted.
The discount rate used to discount the contingent consideration at 31 December 2016 is 3.48% and is based on an after tax estimated of the Group’s
current borrowing rate.
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Notes to the Financial Statements continued
For the year ended 31 December 2016
26. Fair value measurement of financial instruments (continued)
The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows:
At start of year
Paid in year
Movement in fair value recognised in profit or loss under finance costs
Movement in fair value recognised in profit or loss under administrative expenses
At the year end
2016
£’000
(620)
212
(15)
48
(375)
2015
£’000
(1,173)
516
(26)
63
(620)
27. Control
No individual shareholder, or shareholders acting in concert, hold more than 50% of voting shares, and accordingly there is not considered to be an
‘ultimate controlling party’.
28. Related party transactions
Group
The Directors received dividends paid by the Company of £353,000 (2015: £335,000).
During the year, Mike Love bought 60,000 shares at 69.5p per share.
Details of earnings of key management is included in Note 7. Such remuneration includes a divisional director’s spouse who is employed as a software
engineer and no amounts were outstanding at year end. The amounts outstanding at the year end due to key management was £40,000 and related to
estimated bonus payments payable in relation to 2016. In addition Dr Love’s fees of £33,000 are paid to Pond Associates LLP a business owned by him.
The balance outstanding payable to Dr Love at the year end was £9,000.
Company
The Company has a related party relationship with its subsidiaries, its Directors, and other employees of the Company with management responsibility.
During the year the Company received a management charge of £56,000 (2015: £102,000) and a dividend of £81,000 from its subsidiary company
Dillistone Systems (US) Inc (2015: £nil). At the year end, Dillistone Systems (US) Inc owed £281,000 (2015: owed £234,000) to the Company.
During the current year Dillistone Systems Limited paid a dividend of £1,000,000 (2015: £1,000,000) to Dillistone Group Plc and a management charge
of £296,000 (2015: £204,000). At the year end Dillistone Systems Limited was owed £458,000 (2015: £836,000).
The Company received a management charge during the year from Dillistone Systems (Australia) Pty Limited of £17,000 (2015: £34,000) and at the year
end was owed £27,000 (2015: £78,000).
Voyager Software paid a management charge of £144,000 (2015: £144,000) and owed the Company £201,000 at the year end (2015: £201,000).
Woodcote Software owed the Company £13,000 at the year end (2015: £13,000).
FCP Internet Limited paid a management charge of £84,000 (2015: £84,000) and was owed by the Company £1,293,000 at the year end (2015: owed by
the Company £724,000).
A management charge of £60,000 (2015: £60,000) was received from ISV Software and at the year end owed the Company owed ISV £414,000
(2015: £314,000).
FCP Internet Holdings Limited was owed by the Company £2,000 at the year end (2015: owed by the Company £nil).
Management charges payable by Group members to Dillistone Group Plc relate to management support provided directly to them.
29. Dividends
The dividends paid in 2016 and 2015 were £811,000 (4.125p per share) and £793,000 (4.05p per share). A final dividend in respect of the year ended
31 December 2016 of 2.8p per share will be paid on 27 June 2017. These financial statements do not reflect this dividend.
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Directors and Advisers
Directors
Secretary
Company number
Registered office
Independent auditors
Principal bankers
Solicitors
Nominated adviser
Broker
Registrars
M D Love – Non-Executive Chairman
G R Fearnley – Non-Executive Director
J S Starr – Chief Executive
R Howard – Operations Director
A D James – Product Development Director
J P Pomeroy – Group Finance Director
A F Milne – Director of Support Services
J P Pomeroy
4578125
50 Leman St
London
E1 8HQ
BDO LLP
55 Baker Street
London
W1U 7EU
HSBC Bank Plc
Basingstoke Commercial Centre
8 London Street
Basingstoke
RG21 7NU
Ashfords LLP
Tower Wharf
Cheese Lane
Bristol BS2 0JJ
WH Ireland Limited
24 Martin Lane
London
EC4R 0DR
WH Ireland Limited
24 Martin Lane
London
EC4R 0DR
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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25174.02 9 May 2017 11:25 AM Proof 450 Leman Street London E1 8HQ T: +44 (0)20 7749 6100www.dillistonegroup.comDillistone Group Plc Annual Report and Accounts for the year ended 31 December 2016Dillistone Group AR2017.indd 109/05/2017 16:37:13