The Descartes Systems Group
Annual Report 2017

Plain-text annual report

D i l l i s t o n e G r o u p P l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7 Empowering recruitment globally through technology Annual Report for the year ended 31 December 2017 Stock code: DSG WELCOME TO THE DILLISTONE ANNUAL REPORT 2017 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 three divisions are Dillistone Systems, Voyager Software and GatedTalent. 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. GatedTalent was established in 2017 to provide a network allowing executives to share information with selected executive recruiters in a GDPR compliant manner. Contents Overview ································································ Highlights Timeline Strategic Report ································································ Dillistone Group at a glance Chairman’s Statement CEO’s Review Financial Review Governance ································································ Board of Directors Corporate Governance Report Report to the Shareholders on Directors’ Remuneration Directors’ Report Financial Statements ································································ 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 01 02 04 06 08 13 16 18 20 22 24 29 30 31 32 33 34 35 Directors and Advisers IBC Definitions: 1 The component elements of recurring revenues are detailed in note 3. 2 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. 3. 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. See note 10. Look out for the following icon throughout this report: Read further within the report... DILLISTONE GROUP PLC - Annual Report and Accounts 201701 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Revenue analysis 2017 Recurring revenues 6% £7.47 £7.03 £6.61 £5.93 £5.27 Recurring Non recurring 3rd Party 78% 18% 4% 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 Millions ❯ Record level of recurring revenues1, of £7.474m, up 6% from 2016 with total revenue down 4% to £9.582m ❯ Recurring revenues, representing 78% of Group revenue, covering 97% of Group administration expenses before acquisition related and one-off costs ❯ GatedTalent launched in October 2017 and which made an operating loss of £0.439m ❯ Adjusted operating profit2 fell to £0.309m (2016: £1.463m) before acquisition intangible write offs and an adjustment for the loss of a contract in our Voyager division which totalled £0.823m pre-tax ❯ Loss for the year of £0.071m (2016: profit £0.526m) ❯ Adjusted basic EPS3 of 3.08p (2016: 7.10p) ❯ A final dividend of 0.5p per share recommended (2016: 2.8p) ❯ Cash funds at 31 December 2017 of £1.390m (2016: £1.537m) with borrowings of £0.391m (2016: £0.158m) ❯ New GatedTalent platform grows rapidly, with more than 160 contracted search firm clients by 26 April 2018 and first revenues in 2018 ❯ Executive membership on the GatedTalent platform is both senior and diverse with CEO, Managing Director and General Manager being most frequently referenced current position and members registered from 75 countries. Read more on Group Performance on pages 08 to 14 HIGHLIGHTS Commenting on the results and prospects, Mike Love, Non-Executive Chairman, said: “The current trading performance of the Group is positive with orders for both Dillistone Systems and Voyager Software ahead of the same period in 2017 – with the former more than 25% up on the same period in 2017 and the latter having one of the best quarters for new business orders in its history. Our GatedTalent product, launched in October 2017, has been very well received with a growth trajectory that, we believe, will lead to it becoming the dominant product in its market space within a year. Recurring revenues for 2017 were at record levels and, despite the ongoing investment in product development, cash reserves have held up well. Overall, despite the evident pressure on new licence sales in 2017 and the loss for the year of £0.071m, going into 2018 the Group believes that it is now in a stronger position in its core markets than in recent years. This confidence in the future allows us to recommend a final dividend of 0.5p and we anticipate reporting further positive progress as the year progresses.” Investor relations website Visit our investor relations website at www.dillistonegroup.com for further information about Dillistone Group Plc. www.dillistonegroup.com 02 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. 2017 2016 2015 GatedTalent was established in 2017 to provide a network allowing executives to share information with selected executive recruiters in a GDPR compliant manner. 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. DILLISTONE GROUP PLC - Annual Report and Accounts 2017www.dillistonegroup.com 03 STRATEGIC Dillistone Group at a Glance Chairman’s Statement CEO’s Review Financial Review 4 6 8 13 REPORT04 DILLISTONE GROUP PLC - Annual Report and Accounts 2017 DILLISTONE GROUP AT A GLANCE 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 3 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. GatedTalent division GatedTalent was established in 2017 to provide a network allowing executives to share information with executive recruiters in a GDPR compliant manner. Our launch partners include a number of globally recognised search firms and the expectation is that these firms will invite around 3 million of the world’s most senior executives to join the platform. PRODUCTS GatedTalent is a private network allowing executives to share confidential data with executive recruiters. The product benefits from exclusive integration with the FileFinder Anywhere CRM, developed by the Dillistone Systems division. 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). It features exclusive integration with the GatedTalent platform, allowing users to search the GatedTalent database and send GDPR related privacy notices without leaving the product. www.dillistonegroup.com 05 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 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. 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. Through FCP Internet, the Division also provides its evolve™ 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. Voyager mid and back office: Voyager Mid-Office is a flexible Pay & Bill solution, which 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. Skills testing and training: 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. 06 CHAIRMAN’S STATEMENT For the year ended 31 December 2017 Long term revenue growth from the GatedTalent platform will be derived from interactions with executives who register with the service and create a profile. Executives join to be “On the radar” of our executive recruiter clients. They may register directly at www.GatedTalent.com or via an invitation from a Search firm – these invitations are typically sent as part of an executive recruiter’s GDPR compliancy process. The platform is working well and as expected and the throughput on the GatedTalent platform is growing month on month and is expected to accelerate rapidly over the period to the end of July. The number of profiles is also growing and is also expected to increase quickly over the coming months. Having originally anticipated that our clients would send around 1 million invitations, our current belief is that the number of invitations will be around 3 million. The majority of our clients are expected to leave mailing of compliancy messages as late as legally possible and, despite the thousands of messages already sent, we believe that the vast majority of our clients will not send messages before May, with a number of firms likely to complete the process in June or even July. We are seeing significant variances in invitation conversion rates between clients. Some firms are seeing in excess of 8% of invitations leading to Profiles; others are seeing a fraction of 1% converting. What is apparent from the Profiles that have been created so far, however, is that our executive talent pool will be both senior and diverse. Currently, the three most common Job Titles for our Executives are “CEO”, “Managing Director” and “General Manager”. We have onboarded profiles from executives in 75 countries. A heatmap with further information on profile data is available at www.gatedtalent.com/metrics/. The Group has paid dividends throughout its time as a public company and, having ended the year with cash of £1.390m, the Board is pleased to be in a position to pay a dividend of 0.5p per share. Dr Mike Love Non-Executive Chairman 26 April 2018 the Group has accelerated its acquisition intangibles amortisation by £0.459m taking total amortisation to £0.838m (2016: £0.379m). The Board has raised £0.400m from the Directors and PDMRs (person discharging managerial responsibilities) in the form of a convertible loan note to provide continued funding for GatedTalent.The loan notes carry an interest rate of 8.15% and a conversion price of 71.6p. The loan note has a 3-year duration but with various rights for early conversion or repayment. Dividends In view of the fund raising carried out to develop GatedTalent, we did not pay an interim dividend. However we propose paying a final dividend of 0.5p (2016: 2.8p) subject to Shareholder approval. The dividend will be payable on 13 July 2018 to Shareholders on the register on 15 June 2018. Shares will trade ex dividend from 14 June 2018. Future dividends will depend on Group performance. 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 for their individual and collective contributions during 2017 and for the huge effort demonstrated during the early months of 2018, supporting our GDPR related projects. Outlook Both our Dillistone Systems and Voyager Software divisions have enjoyed strong demand for our products and services during the first quarter of 2018. The Board is delighted to note that, while Voyager revenues will clearly be impacted by the previously announced loss of a legacy contract, Q1 2018 saw one of its best ever quarters in terms of new contract wins. After a slow January, orders for Dillistone Systems’ FileFinder product improved significantly in February and March and ended the quarter more than 25% up on the same period in 2017. Many of these orders were driven by demand for our GatedTalent product which features exclusive integration with FileFinder Anywhere. In our 27 February announcement, we revealed that we had achieved the milestone of 100 clients for our GatedTalent service. We continue to see strong demand for the platform, with more than 160 firms having now signed contracts. The division has now generated its first subscription revenue. Dr Mike Love Non-Executive Chairman 2017 was an exciting year for the Dillistone Group with the launch of GatedTalent (www.GatedTalent.com) on 9 October 2017 at the World Executive Search Congress. Our business has traditionally been involved in the supply of technology to the recruiting and associated sectors. GatedTalent is a private network – a tool which allows executives to share information with trusted recruiters. It is a first for our Group and has the potential to transform the nature of the Group’s underlying business model from software to data. More generally, trading across the Group was challenging in 2017, although we did see some improvement in operational performance in the second half of the year – despite the increasing costs associated with GatedTalent. Overall, Group revenue fell 4% to £9.582m, of which recurring revenue grew 6% to £7.474m. Adjusted operating profit dropped significantly to £0.309m in part due to the investment made in GatedTalent and in part due to a decline in new licence sales. Excluding our GatedTalent investment, the Group remained cash generative across this year. As anticipated in our Interim statement, a SaaS contract with a major client expired in early 2018. This contract, with a client using a legacy product acquired as a result of an acquisition made several years ago, was worth in the region of £600,000 per annum in contribution terms to the Group. Consequently, DILLISTONE GROUP PLC - Annual Report and Accounts 2017www.dillistonegroup.com www.dillistonegroup.com 07 07 WHAT IT DOES AND HOW IT WORKS What is GatedTalent? Imagine a private database of the world’s global executives. Imagine if this database included detailed, private information on those executives – including biographical, aspirational and often compensation data. Imagine if the database was curated by the executives themselves in a manner that made it entirely GDPR friendly. Imagine if the information provided by the executive was enhanced by detailed company data. And imagine that database offered seamless two-way integration with the leading executive search CRM. And... one more thing. Imagine this database was huge. And global. That’s what GatedTalent is. How does it work? Virtually any executive recruiter storing information covered by the GDPR will need to go through a process of confirming and proving that their data is legal. As part of this process, they will typically make contact with huge numbers of executives they store in their databases. GatedTalent will manage this process and then, optionally, will invite the executive to create a detailed – but private – profile which will be shared only with recruiters that the executive has chosen to trust. Recruiters using the platform will earn credits for any executives who they introduce and who go on to create a profile – those credits may be used to search the anonymised database of “unconnected executives” and make connection requests to executives who are currently not known to the firm. How is this different to LinkedIn or Xing? LinkedIn and Xing are both social networks. Any information uploaded to these platforms is essentially publicly available. That means that many of the most senior executives do not use these networks – and they wouldn’t dream of sharing private data such as compensation on an open platform. With GatedTalent, search firms make connection requests and executives say YES or NO. It’s as simple as that. Executives control who sees some, all or none of their data. How is it different to other online services that are designed to allow executives to network with recruiters? Over the course of 2018, our executive search firm clients will invite around 3 million executives to join the platform. The largest comparable product – the AESC’s Bluesteps – has about 115,000 profiles within it, despite having been in existence for around a decade. We are confident that, within a year, our data pool will be close to or larger and more up to date than Bluesteps. It will then continue to grow, because – for the thousands of FileFinder users worldwide – the database will be fully integrated with everything they do. Our users will find executives in the platform and so executives will want to be in the platform. Furthermore – unlike most products in this space – we’ll never charge the executives. We don’t believe that the world’s most senior executives need to pay to interact with search firms. 08 CHIEF EXECUTIVE OFFICER’S REVIEW For the year ended 31 December 2017 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 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 using the following financial KPIs: Total revenues Recurring revenues Non recurring revenues Adjusted profit before tax Cash FY2017 £000 9,582 7,474 1,644 303 1,390 FY2016 £000 9,963 7,027 2,370 1 ,458 1 ,537 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 not met met not met not 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. Where KPIs are not being met, the Board considers ways in which performance could be improved. In addition, the Board monitors order levels and employee numbers as well as performance against budget. “ Dillistone Systems division is expected to benefit particularly from the launch of GatedTalent, which targets the same market as FileFinder and is tightly integrated.” Jason Starr Chief Executive Divisional revenue 2017 Recurring Non recurring 47% 53% DILLISTONE GROUP PLC - Annual Report and Accounts 2017CHIEF EXECUTIVE OFFICER’S REVIEW For the year ended 31 December 2017 09 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Our business model The business is split into three Divisions. Dillistone Systems and Voyager Software are our established businesses, with GatedTalent launched in the second half of 2017. 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. GatedTalent is a private network of executives, accessed by executive recruiters. This Division generates revenue based on a combination of recruiter subscription and transaction fees for connecting with executives. There is a close relationship between GatedTalent and Dillistone Systems. The majority of our products are commercialised through one or more of the following: 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. There is a continuing move away from the upfront license model towards our cloud delivery services. 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 www.dillistonegroup.com 10 CHIEF EXECUTIVE OFFICER’S REVIEW For the year ended 31 December 2017 continued Group review of the business 2017 saw recurring revenues grow 6% to £7.474m (2016: £7.027m) reflecting the increasing adoption of our SaaS offering. Non-recurring revenues decreased to £1.644m (2016: £2.370m). As a result, overall revenues decreased by 4% to £9.582m (2016: £9.963m) with recurring revenues representing 78% of Group revenues (2016: 71%). Costs have increased in part due to GatedTalent which made an operating loss of £0.439m and which was in development for all of 2017. We saw our first revenue from GatedTalent in Q1 of 2018 although, as anticipated, revenue in the first half will not be significant and the Division will be loss making in 2018. Adjusted EBITDA1 fell to £1.409m (2016: £2.433m). Adjusted operating profit fell to £0.309m (2016: £1.463m) and pre-tax profits before acquisition related items and one-off adjustments reduced to £0.303m (2016: £1.458m). There was an operating loss for the year of £0.514m (2016: profit £0.412m) and loss for the year of £0.071m (2016:profit £0.526m). Cash at the year end was £1.390m (2016: 1.537m). 1 Adjusted EBITDA is adjusted operating profit with depreciation and amortisation added back. See note 3. 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 47% (2016: 49%) of the Group’s revenue and it saw revenue fall 6% to £4.548m (2016: £4.858m). The Division is expected to benefit particularly from the launch of GatedTalent, which targets the same market as FileFinder and is tightly integrated. Earnings before interest, tax, depreciation and amortisation (‘EBITDA’) fell to £0.778m (2016: £1.434m) as sales fell and costs increased. Total amortisation and depreciation charge was £0.589m (2016: £1.229m). (In 2016 we reviewed our 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 and the impact of this on the Dillistone division was an increase to the 2016 charge by £0.600m). Operating profit for 2017 was £0.189m (2016: £0.205m). 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. In 2017, the Voyager Software division accounted for 53% (2016: 51%) of Group revenues. The Division’s revenues decreased by 1% to £5.034m (2016: £5.105m). EBITDA increased by 10% to £1.200m (2016: £1.093m). Amortisation and depreciation increased to £0.511m (2016: £0.461m). Divisional operating profit increased 9% to £0.689m (2016: £0.632m). 2017 saw some major developments in the Division including: • Development of TempNinja – A new mobile companion app allowing candidates to view and accept temporary jobs, update their availability and chat directly with recruiters using Voyager’s popular VDQ! and Infinity SaaS solution. • Additional functionality released in Infinity (including Infinity SaaS) including enhanced support for the temporary recruitment sector & Power BI reporting. • A well-received industry wide education programme around the forthcoming GDPR legislation being recognised as an industry leader. • Enhancements and new content for ISV. Online including tests around the GDPR. GatedTalent GatedTalent was established in 2017 to provide a network allowing executives to share information with selected executive recruiters in a GDPR compliant manner. The GatedTalent product was under development throughout 2017 and therefore did not generate revenue. GatedTalent is the most exciting product we have developed in recent years. The platform is free to executives. Revenue will be generated from executive recruiters through subscriptions to the platform and through charges for ”connection requests” made through the platform. The platform is now live, with clients using it; compliance messages being sent and profiles being created. Subscription revenue is now being generated. We expect that GatedTalent will manage the process of sending around 3 million such messages during the course of 2018. We believe that the vast majority of our clients will not send messages before May 2018, with a number of firms likely to complete the process in June or even July. The Division is effectively a start-up business within the Group and is expected to be loss making in 2018, although we do anticipate that it will have a direct and positive impact on the performance of our Dillistone Systems business starting in 2018. During 2017, GatedTalent incurred an operating loss of £0.439m and development expenditure of £0.391m was capitalised. The Board is confident that all three 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. Interest rate risk The Group is exposed to interest rate risk through its floating rate overdraft, and through its management of retained cash. The Group monitors its exposure to interest rate risk when borrowing and investing its cash resources. 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. 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. DILLISTONE GROUP PLC - Annual Report and Accounts 2017CHIEF EXECUTIVE OFFICER’S REVIEW For the year ended 31 December 2017 continued 11 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 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 percentage of recurring revenues. Acquisitions have increased the exposure to the UK economy. Future acquisitions may be overseas. 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 Group. The cost and time frame for developing and releasing new products could be a bigger drain on resource than built into budgets and forecasts. 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. Innovation and new products help maintain opportunities for the business world-wide. 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. Agile project methodology so stakeholders have regular visibility and influence on what is being developed. Product Manager added in 2018 for Dillistone Systems to help ensure product is fit for purpose. Additional UX (User Experience) Resource to be added to help deliver software that meets the needs of clients in 2018. 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 2017 saw the continued development of temp functionality to Infinity, TempNinja and the continued development of ISV Online. 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. If successful, GatedTalent will provide a competitive advantage to FileFinder. Close integration with FileFinder is likely to lead to a sustained competitive advantage for our executive search CRM platform. The Group continues to look into developing new products and additional features to more readily compete. www.dillistonegroup.com 12 CHIEF EXECUTIVE OFFICER’S REVIEW For the year ended 31 December 2017 continued 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. 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. Employee engagement and retention Ability to finance acquisitions and new development Management capacity 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. Each division is reliant on data centres. Work ongoing to move data centres to the cloud through Amazon and Azure. Plans are regularly reviewed on how to improve data centre management as the business grows worldwide. Data backups occur at least 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. Regular review of Group wide infrastructure to improve cyber defences locally and at data centres. 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. In 2018 we anticipate a further strengthening of product development management capability and review of divisional structures. Foreign exchange volatility 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. Brexit 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 in the lead up to the exit date, 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. Data protection legislation Ensure that all Group products comply with international data protection legislation and demonstrate to clients that they do. Ability to source new talent The Group is reliant on specialist skills, especially in Development and Dev Ops and it may not be possible to recruit resources locally. 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. Work being carried out to ensure data is secure and protected at appropriate levels. Senior member of executive team has GDPR practitioner certificate. Appropriate internal committee established. Numerous webinars held for clients and prospects on the impact of GDPR. Look more broadly at where staff are based or use of outsourcing. DILLISTONE GROUP PLC - Annual Report and Accounts 2017CHIEF EXECUTIVE OFFICER’S REVIEW For the year ended 31 December 2017 continued FINANCIAL REVIEW For the year ended 31 December 2017 Total revenues decreased by 4% to £9.582m (2016: £9.963m) with recurring revenues increasing by 6% to £7.474m (2016: £7.027m) while non-recurring revenues decreased to £1.644m (2016: £2.370m). Third party resell revenue amounted to £0.464m in the period (2016: £0.566m). Cost of sales increased by 4% to £1.536m (2016: £1.478m), mainly due to continued investment in cloud based hosting facilities through Azure and Amazon. Administrative costs, excluding acquisition related items, depreciation and amortisation, rose 10% to £6.637m (2016: £6.052m). In part this was due to the investment in GatedTalent which made an operating loss £0.439m. Total depreciation and amortisation, decreased to £1.100m (2016: £1.690m) following the one-off adjustment of £0.720m in 2016 relating to the review of its amortisation policy for capitalised development costs. Acquisition related administrative costs totalled £0.823m (2016: £0.331m) 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. The current year figure also includes an acceleration of the acquisition intangibles amortisation as a result of the loss of a major contract in that business as disclosed in note 13. Finance cost includes £0.005m (2016: £0.015m) relating to the unwinding of the discount in respect of the contingent consideration. Recurring revenues covered 97% of administrative expenses before acquisition related and one-off costs (2016: 100%). Excluding depreciation and amortisation of our own internal development, the administrative costs are covered 113% (2016: 116%) by recurring revenues. “ The Group finished the year with cash funds of £1.390m (2016: £1.537m); bank borrowings of £nil (2016: £0.158m) and a convertible loan of £0.391m (after taking into account the equity adjustment).” Julie Pomeroy Finance Director Profit/(loss) after tax 2017 2017 (£0.07) 2016 £0.52 M i l l i o n s 2015 2014 2013 £1.21 £1.15 £1.23 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 13 The Group benefitted from a tax credit in 2017 of £0.454m (2016: credit £0.134m). The 2017 credit reflects the significant R&D tax credits available to all three divisions and the assumption that any tax losses will be surrendered for the R&D tax credit payment. It has also been impacted by the reduction in tax rate to 19.25% (2016: 20%) 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. Profit for the year before acquisition related and other one-off items amounted to £0.606m (2016: £1.395m). The 2017 adjusted profits benefitted from a tax credit of £0.303m (2016: tax credit of £0.063m). The loss for the year after acquisition related items and other one-off items was £0.071m (2016: profit £0.526m). Basic earnings per share (EPS) fell to (0.36)p (2016: 2.68p). Fully diluted EPS fell to (0.36)p (2016: 2.62p). Adjusted basic EPS fell to 3.08p (2016: 7.10p). Capital expenditure The Group invested £1.506m in property, plant and equipment and product development during the year (2016: £1.126m). This expenditure included £1.358m (2016: £1.056m) spent on capitalised development related costs. www.dillistonegroup.com £1.40 14 FINANCIAL REVIEW For the year ended 31 December 2017 continued Trade and other payables As with previous years, the trade and other payables includes deferred income, ie 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 2017 but are in respect of services to be delivered in 2018. 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 £0.146m (2016: £0.375m) in respect of contingent consideration. At the end of 2017, there was one tranche of contingent consideration payable in respect of ISV relating to the revenue in the nine month period to 30 September 2017 and this was paid in February 2018. Cash The Group finished the year with cash funds of £1.390m (2016: £1.537m); bank borrowings of £nil (2016: £0.158m) and a convertible loan of £0.391m (after taking into account the equity adjustment). This is after capital expenditure of £1.506m, the final payment to the vendors of ISV of £0.219m and dividend payments of £0.551m. On behalf of the Board Julie Pomeroy Finance Director 26 April 2018 The Strategic Report is signed on behalf of the Board by Jason Starr Chief Executive 26 April 2018 Adjusted EBITDA 2017 M i l l i o n s 2017 2016 2015 2014 2013 Adjusted basic EPS 2017 P e n c e 2017 2016 2015 2014 2013 Basic EPS 2017 2017 (0.36) P e n c e 2016 2015 2014 2013 3.08 2.68 £2.43 £2.29 £2.40 £2.24 7.10 7.26 8.56 7.99 6.20 6.18 6.76 DILLISTONE GROUP PLC - Annual Report and Accounts 2017www.dillistonegroup.com 15 GOVERNANCE Board of Directors Corporate Governance Report Report to the Shareholders on Directors’ Remuneration Directors’ Report 16 18 20 22 16 BOARD OF DIRECTORS For the year ended 31 December 2017 MIKE LOVE 69 NON-EXECUTIVE CHAIRMAN JASON STARR 46 CHIEF EXECUTIVE 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 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 a Director of all three Divisions and has an executive role with both Dillistone Systems and GatedTalent. Jason was appointed a non-executive director of AIM listed PCIPAL PLC from 1 January 2017. Jason has a BA (Honours) Business Studies degree from the London Guildhall University. RORY HOWARD 50 OPERATIONS DIRECTOR ALEX JAMES 45 PRODUCT DEVELOPMENT 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 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 a Director of both Dillistone Systems and GatedTalent and sits on the Group Board with an overall responsibility for Product Development. DILLISTONE GROUP PLC - Annual Report and Accounts 201717 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S ALISTAIR MILNE 42 MD – DILLISTONE SYSTEMS JULIE POMEROY 62 FINANCE DIRECTOR 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 became Managing Director of Dillistone Systems in October 2017, previously being the Director of Support Services. 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. GILES FEARNLEY 63 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 – 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. COMMITTEE ICONS Remuneration Committee Audit Committee www.dillistonegroup.com 18 CORPORATE GOVERNANCE REPORT For the year ended 31 December 2017 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. 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. DILLISTONE GROUP PLC - Annual Report and Accounts 201719 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 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. • 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. 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. www.dillistonegroup.com 20 REPORT TO THE SHAREHOLDERS ON DIRECTORS’ REMUNERATION For the year ended 31 December 2017 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. 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 2017 financial year is £17,000 (2016: £35,000) including Employer’s National Insurance. 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. Directors’ remuneration Details of the remuneration of the Directors for the financial year are set out 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 2017 £’000 2016 £’000 115 45 93 89 94 35 13 484 3 3 3 3 3 15 15 32 8 12 7 – – 74 – 1 – 1 – – – 2 133 81 104 105 104 35 13 575 137 80 106 105 105 34 13 580 * Salary is calculated after deducting salary sacrifice payments which totalled £40,000. † Includes salary sacrifice payments which totalled £40,000. DILLISTONE GROUP PLC - Annual Report and Accounts 201721 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Long term incentive payments made in the period are not included in the above figures but are detailed below. LTIP award – % of salary arrangement J S Starr R Howard Maximum payout awarded in period £’000 74 40 114 Paid in the year including Employer’s NI £’000 – – – Total value of salary based LTIP awards carried at 31 December 2017* £’000 8 4 12 Total value of all salary based LTIP awards carried at 31 December 2016* £’000 10 5 15 * Awards accrued over the period that they relate to and the valuation takes into account the likelihood of performance conditions being met. LTIP award – share options A D James J P Pomeroy A Milne Number of options granted under LTIP scheme in year 170,000 170,000 170,000 510,000 Total Number of options granted under LTIP scheme at 31 December 2017 330,830 330,134 327,659 988,623 Total Number of options granted under LTIP scheme at 31 December 2016 160,830 160,134 157,659 478,623 The Options granted in the year were at a price of 58p and carry the same performance conditions as the LTIP cash bonus awards. No options were exercised in the year. 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 5p each At 31 December 2017 3,577,591 3,300,000 112,744 989,754 453,435 59,109 63,733 At 31 December 2016 3,577,591 3,300,000 112,744 989,754 453,435 59,109 63,733 The Dillistone Group Plc also issued an 8.15% convertible loan note in which the Directors participated. Their holdings are as follows: J S Starr R Howard A D James M D Love G R Fearnley J P Pomeroy 8.15% convertible loan notes At 31 December 2017 £24,250 £24,250 £1,000 £250,000 £75,000 £10,000 The Loan Notes carry an interest coupon of 8.15% pa over their maximum term of 36 months, with a conversion price of 71.6p per new Dillistone ordinary share. The interest payments are payable quarterly in arrears and will be satisfied through the issue of further new ordinary shares or in cash at the individual Director’s election. 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 5p each At 31 December 2017 330,830 341,657 332,286 1,004,773 At 31 December 2016 160,830 164,761 162,286 487,877 www.dillistonegroup.com 22 DIRECTORS’ REPORT For the year ended 31 December 2017 The Directors present their report and financial statements for the year ended 31 December 2017. Results and dividends The consolidated statement of comprehensive income for the year is set out on page 29. A final dividend of 0.5p (2016 2.8p) will be paid, subject to Shareholder approval, on 13 July. Directors The following Directors have held office since 1 January 2017: 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. 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 26 June 2018 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. Jason Starr and Alex James 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. Auditor A resolution proposing the reappointment of BDO LLP as Auditor to the Group and Company will be put to the forthcoming Annual General Meeting. 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. 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 26 April 2018 DILLISTONE GROUP PLC - Annual Report and Accounts 2017www.dillistonegroup.com 23 FINANCIAL 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 24 29 30 31 32 33 34 35 IBC STATEMENTS24 Independent Auditor’s Report to the members of Dillistone Group Plc For the year ended 31 December 2017 Opinion We have audited the financial statements of Dillistone Group Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December 2017 which comprise the consolidated statement of comprehensive income, the consolidated and company statement of changes in equity, the consolidated and company statement of financial position, the consolidated and company cash flow statement; and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the financial statements 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. In our opinion: • • • the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2017 and of the group’s loss 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. • Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: • • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Overview Group materiality was £143,000 (2016: £150,000), which represents 1.50% (2016: 1.50%) of total revenue. Component materiality and other considerations are detailed in the materiality section below. Materiality We identified five centrally controlled components (either those operations required to have individual audit opinions issued under the Companies Act 2006, or those that contributed greater than 15% of group revenue), which, in our view, required an audit of their complete financial information. Audit scope Areas of focus Further review procedures were performed on both centrally and foreign controlled operations in the US by the group audit team at the group's head office. BDO network component auditors were engaged to perform specific audit procedures on the operations located in Australia. We have identified and reported on two key audit matters, including Capitalised Development and Revenue Recognition (as detailed below). DILLISTONE GROUP PLC - Annual Report and Accounts 201725 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Key audit matter Description of key audit matter Our response Capitalised development costs Recognition of internally developed intangible assets was considered to be a key audit matter, given the involvement of significant judgement, including: • Determining the distinction between research and development costs; and Our audit procedures involved: • Making enquiries of “Heads of Development” within the group to understand procedures performed to capitalise internally generated intangible assets. • Reviewing all project summary reports for all ongoing and • Determining the value of salary costs relating to members not in the development team to be capitalised. completed projects during the year for which costs were capitalised. Management have also utilised significant judgement in assessing the technological and commercial feasibility of the projects. As described in note 1.12, the group capitalises costs incurred on product development relating to the design and development of new or enhanced products. Details of the products concerned are given in the “Dillistone Group at a Glance” section of the annual report on pages 04 and 05. • Consideration of management’s assessment of technical feasibility. • Where appropriate, confirmation of the existence of an active market through consideration of sales activity. • For a sample of capitalised payroll costs, obtained and reviewed employment contracts and timecards. Recognition of revenue The group’s revenue recognition policy can be found in note 1.4 to the financial statements. We consider a significant risk of material misstatement to arise from the recognition of revenue around the year end. Further, the offering of bonus schemes and incentive plans increases the risk that sales may be overstated due to fraud. We tested that consistent revenue recognition procedures have been adopted during the year by reviewing a selection of contracts, tracing the satisfaction of performance obligations, cash receipts and revenue postings into the income statement. We performed testing over all material revenue streams, including: Therefore the key audit matter is the existence of revenue around the year end, including the recognition of the correct apportionment of revenue in the year and the related amount deferred at the year end. • Applying predictive analytical testing procedures for contract revenue earned during the year and investigated all movements that were not consistent with independent expectations set. All inputs used to set those expectations were tested substantively. • Verifying a sample of bespoke and non-recurring orders received in the year, reconciling to underlying agreements, cash receipt and appropriate trigger events for revenue recognition. • Selecting a sample of entries deferred at year end, tracing these back to the cash receipt and expected delivery of performance obligations. • Reviewing a sample of revenue items posted either side of year end to confirm revenue cut-off procedures have been correctly applied. www.dillistonegroup.com 26 Independent Auditor’s Report continued to the members of Dillistone Group Plc For the year ended 31 December 2017 Our application of materiality We apply the concept of materiality in performing our audit and evaluating the effect of misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a lower materiality, performance materiality, to determine the extent of testing needed. Importantly, misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. We agreed with the audit committee that we would report to the committee all individual audit differences identified during the course of our audit in excess of £7,150 (2016: £7,500). We also agreed to report differences below these thresholds that, in our view, warranted reporting on qualitative grounds. Overall group materiality £143,000 (2016: £150,000) Basis for determining 1.50% of total group revenue (2016: 1.50%) Rationale for benchmark applied The ability of the group to generate continued and new sources of revenue is imperative for management to conclude on the market feasibility of software projects and the ability to capitalised costs in accordance with IAS 38. Furthermore, as a significant driver of profit, revenue growth impacts the achievement of key performance indicators resulting in bonus schemes and incentive plans offered by the group. Parent company materiality £108,000 (2016: £120,000) Dillistone Group Plc (Consolidated Revenue) Dillistone Group Plc (Group Materiality) Highest Component Materiality Audit Committee Reporting Threshold Component materiality Component materiality is established when performing audits on complete financial information of subsidiaries within the group where the subsidiary is considered significant to the group. We determined component materiality as follows: Range of component materiality 3% to 93% (2016: 2% to 80%) of group materiality DILLISTONE GROUP PLC - Annual Report and Accounts 201727 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S An overview of the scope of our audit Our group audit was scoped by obtaining an understanding of the group and its environment, including the group’s system of internal control, and assessing the risks of material misstatement in the financial statements at the group level. In determining the scope of our audit we considered the level of work to be performed at each component in order to ensure sufficient assurance was gained to allow us to express an opinion on the financial statements of the Group as a whole. We tailored the extent of the work to be performed at each component, either by us, as the group audit team or component auditors within the BDO International network, based on our assessment of the risk of material misstatement at each component. We identified five centrally controlled components as significant, and have audited these for group reporting purposes. The group audit team centrally performed the audit of 82% (2016: 85%) of group revenue and 95% (2016: 89%) of total assets using the materiality levels set out above. For two of the components not considered significant, the component auditors performed specific scope procedures based on their relative size, risks in the business and our knowledge of those entities appropriate to respond to the risk of material misstatement. Review and specific scope procedures were performed by the group audit team on the remaining three reporting components not considered significant to the group. Revenue 4% 14% 18% Profit after tax -7% Total assets 4% 1% 82% 83% ■ UK ■ USA ■ AUS ■ UK ■ USA ■ AUS 95% ■ UK ■ USA ■ AUS Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information; we are required to report that fact. We have nothing to report in this regard. Opinions on other matters prescribed by the Companies Act 2006 In our opinion, based on the work undertaken in the course of the audit: • the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and • the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. www.dillistonegroup.com 28 Independent Auditor’s Report continued to the members of Dillistone Group Plc For the year ended 31 December 2017 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 in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • 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. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 22, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements 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. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. David Butcher (Senior Statutory Auditor) For and on behalf of BDO LLP, statutory auditor London 26 April 2018 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). DILLISTONE GROUP PLC - Annual Report and Accounts 2017Consolidated Statement of Comprehensive Income For the year ended 31 December 2017 Revenue Cost of sales Gross profit Administrative expenses Operating (loss)/profit Adjusted operating profit before acquisition related and one-off items Acquisition related and one-off items Operating (loss)/profit Financial income Financial cost (Loss)/profit before tax Tax income (Loss)/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 35 to 60 are an integral part of these consolidated financial statements. O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 29 2016 £’000 9,963 (1,478) 8,485 (8,073) 412 1,463 (1,051) 412 3 (23) 392 134 526 16 542 Note 3 6 2 5 8 8 9 2017 £’000 9,582 (1,536) 8,046 (8,560) (514) 309 (823) (514) 1 (12) (525) 454 (71) (24) (95) 10 10 (0.36)p (0.36)p 2.68p 2.62p www.dillistonegroup.com 30 Consolidated Statement of Changes in Equity For the year ended 31 December 2017 Balance at 31 December 2015 Comprehensive income Profit for the year ended 31 December 2016 Other comprehensive income Exchange differences on translation of overseas operations Total comprehensive income Transactions with owners Share option charge Dividends paid Total transactions with owners Balance at 31 December 2016 Comprehensive income (Loss) for the year ended 31 December 2017 Other comprehensive income Exchange differences on translation of overseas operations Total comprehensive income Transactions with owners Share option charges Issue of convertible loan note Dividends paid Total transactions with owners Balance at 31 December 2017 Share capital £’000 983 Share premium £’000 1,631 Merger reserve £’000 365 Retained earnings £’000 4,008 Convertible loan reserve £’000 – Share option £’000 71 Foreign exchange £’000 101 Total £’000 7,159 – – – – – – 983 – – – – – – – 983 – – – – – – 1,631 – – – – – – – 1,631 – – – – – – 365 – – – – – – – 365 526 – 526 2 (811) (809) 3,725 (71) – (71) 4 – (551) (547) 3,107 – – – – – – – – – – – 14 – 14 14 – – – 14 – 14 85 – – – 16 – – 16 101 – 526 16 16 – – – 117 16 542 16 (811) (795) 6,906 – (71) (24) (24) – – – – 93 (24) (95) 20 14 (551) (517) 6,294 The notes on pages 35 to 60 are an integral part of these consolidated financial statements. DILLISTONE GROUP PLC - Annual Report and Accounts 201731 Total £’000 4,627 1,057 16 (811) (795) 4,889 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Share option £’000 71 – 14 – 14 85 Company Statement of Changes in Equity For the year ended 31 December 2017 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 Comprehensive income Total comprehensive income for the year ended 31 December 2017 Transactions with owners Share option charge Issue of convertible loan Dividends paid Total transactions with owners Balance at 31 December 2017 Share capital £’000 983 Share premium £’000 1,631 Merger reserve £’000 365 Convertible loan reserve £’000 – Retained earnings £’000 1,577 1,057 2 (811) (809) 1,825 – – – – 983 – – – – – 983 – – – – 1,631 – – – – – 1,631 – – – – 365 – – – – – 365 – – – – – – – 14 – 14 14 The notes on pages 35 to 60 are an integral part of these consolidated financial statements. 1,311 – 1,311 4 – (551) (547) 2,589 16 – – 16 101 20 14 (551) (517) 5,683 www.dillistonegroup.com 32 Consolidated and Company Statements of Financial Position As at 31 December 2017 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 Convertible loan 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 2017 £’000 2016 £’000 Company 2017 £’000 2016 £’000 Note 12 13 14 15 16 17 19 21 23 18 20 9 18 20 3,415 4,881 164 – 8,460 3 1,677 1,390 3,070 11,530 983 1,631 365 14 3,107 101 93 6,294 12 386 668 4,335 5 (170) 5,236 11,530 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 – – – 7,602 7,602 – 934 99 1,033 8,635 983 1,631 365 14 2,589 101 – 5,683 12 386 – 2,549 5 – 2,952 8,635 – – – 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 The profit for the financial year for the parent Company was £1,311,000 (2016: £1,057,000). The notes on pages 35 to 60 are an integral part of these consolidated financial statements. The financial statements were approved by the Board of Directors and authorised for issue on 26 April 2018. They were signed on its behalf by: J P Pomeroy Director Company Registration No. 4578125 DILLISTONE GROUP PLC - Annual Report and Accounts 2017 Consolidated Cash Flow Statement As at 31 December 2017 Operating activities (Loss)/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 and deferred consideration paid Net cash used in investing activities Financing activities Net proceeds from convertible loan note 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 35 to 60 are an integral part of these consolidated financial statements. 33 2016 £’000 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 2017 £’000 2016 £’000 392 (3) 23 2,069 16 31 2,528 (487) 11 62 24 1,872 2,138 3 (8) (70) (1,056) (212) (1,719) (1,343) – (167) (811) (978) (324) 1,595 125 1,537 (309) (156) 1,537 9 1,390 2017 £’000 (525) (1) 12 1,938 20 (12) 1,432 573 2 (123) (12) 1 (7) (55) (1,439) (219) 400 (158) (551) www.dillistonegroup.com 34 Company Cash Flow Statement For the year ended 31 December 2017 Operating activities Profit before tax Adjustment for: Financial cost Share option expense Operating cash flows before movements in working capital Increase in receivables (Decrease)/increase in payables Net cash generated from operating activities Investing activities Financial cost Acquisition of subsidiaries Contingent consideration paid Net cash used in investing activities Financing activities Net proceeds from convertible loan note Bank loan repayments made Dividends paid Net cash used in financing activities Net increase/(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 35 to 60 are an integral part of these consolidated financial statements. 2017 £’000 1,311 12 20 1,343 (583) (168) (7) (1) (219) 400 (158) (551) 2016 £’000 2017 £’000 2016 £’000 1,057 23 16 1,096 (4) 90 592 1,182 (8) – (212) – (167) (811) (220) (978) (16) 59 43 (227) (309) 56 43 99 DILLISTONE GROUP PLC - Annual Report and Accounts 201735 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Notes to the Financial Statements For the year ended 31 December 2017 Dillistone Group Plc (the ‘Company’) is a company incorporated in England and Wales. The financial statements are presented in thousand Pounds Sterling. The principal activities have been detailed in the Strategic Report and the registered office is 50 Leman St, London, E1 8HQ. 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 and amortisation 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 indicators 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, other intangible assets and investments There are a number of assumptions management has considered in performing impairment reviews of goodwill, other intangible assets and investments 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, 13 and 15. 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 eg: 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. Judgements in applying the Group’s accounting policies In the process of applying the Group’s accounting policies, management makes various judgements that can significantly affect the amounts recognised in the financial statements. The critical judgements are considered to be the following: www.dillistonegroup.com 36 Notes to the Financial Statements continued For the year ended 31 December 2017 1. Accounting policies (continued) 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. 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. See ‘Capitalisation and amortisation of internal development expenditure’ in Significant estimates above for further details. 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 at least 12 months from the date of approval of these financial statements. 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 2017. 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 licences and services. VAT or similar local taxes and trade discounts are excluded. Licencing (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 ie 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. Professional services (including installation and training) 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. DILLISTONE GROUP PLC - Annual Report and Accounts 201737 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 1. Accounting policies (continued) 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 in the statement of comprehensive income. 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. This element is accrued and recognised in the statement of comprehensive income. 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 (ie 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. www.dillistonegroup.com 38 Notes to the Financial Statements continued For the year ended 31 December 2017 1. Accounting policies (continued) 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 re-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 subcontractor 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 is amortised over its useful life of five years, with amortisation commencing in the month of costs being incurred. Maintenance costs are expensed. Amortisation of new products commences once a product is available for use. 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. DILLISTONE GROUP PLC - Annual Report and Accounts 201739 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 1. Accounting policies (continued) 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 Acquired developed technology Contractual customer relationships Non-contractual customer relationships Estimated life 15 years 6–11.25 years 1.25 years 6–10.25 years The useful economic life of intangible assets are reviewed annually. The Group has reviewed its useful economic life in respect of non contractual relationships following the loss of a major contract in one part of the business. See note 13. 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 4–5 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. 1.15 Financial liabilities Other financial liabilities are classified 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 other 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 other ‘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 Convertible loan notes The proceeds received on issue of the Group’s convertible loan note are allocated into their liability and equity components. The amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity of the loan note. The remainder of the proceeds is allocated to the conversion option and is recognised in the ‘Convertible loan note reserve’ within Shareholders’ equity, net of income tax effects. www.dillistonegroup.com 40 Notes to the Financial Statements continued For the year ended 31 December 2017 1. Accounting policies (continued) 1.17 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. 1.18 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. 1.19 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. 1.20 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. 1.21 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. ‘Convertible loan note reserve’ represents the equity element arising on the issue of a loan note with rights to an equity conversion. ‘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. 1.22 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 recognised in equity relating to that particular foreign operation is recognised in the income statement. DILLISTONE GROUP PLC - Annual Report and Accounts 201741 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 1. Accounting policies (continued) 1.23 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. 1.24 Defined contribution pension scheme The pension costs charged in profit or loss represent the contributions payable by the Group during the year. 1.25 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 2017 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 but not adopted early by the Group: Standard IFRS 9 IFRS 15 IFRS 16 Key requirements Financial Instruments Revenue from contracts with customers Leases Effective date as adopted by the EU  1 January 2018 1 January 2018 1 January 2019 IFRS 9 – Financial instruments This standard comes into effect for accounting periods beginning on or after 1 January 2018. Given the nature of the financial assets and liabilities of the Group and the parent Company, the key areas for consideration are trade receivables and intercompany receivables with the introduction of ‘expected credit loss’ calculations. Given the work performed thus far, no material valuation impact is anticipated. IFRS 15 – Revenue from customer contracts This standard comes into effect for accounting periods beginning on or after 1 January 2018. The standard applies a single, five-step model based on the principle of transfer of promised goods and services (performance obligations) to the customer. Revenue is recognised upon satisfaction of these performance obligations. Having carried out a detailed assessment of the types of contracts the Group has with its customers, it is expected that the new standard will have a material impact on reported revenue due to the change in the timing of revenue recognition. The Group expects to use the retrospective approach when adopting the standard. With respect to IFRS 15 implementation, the most significant ways that Dillistone generates income from its customers are as follows: • Software as a Service (‘SaaS’) subscriptions – the customer pays a regular fixed amount for the right to access both software and related support service. Revenue is currently recognised over the life of the subscription, which is unchanged under IFRS 15; • Outright licences – the customer pays a one-off amount to purchase a licence conferring a perpetual right to use a version of the software. Currently, revenue is recognised at the point control passes to the customer (i.e. ‘live’ date). Under IFRS 15, licences sold with elective support contracts are separate performance obligations and continue to be recognised at a point in time. However, licences sold with mandatory support contracts consist of one performance obligation, with revenue recognition matching the support contract; • Product support – the customer pays a regular fixed amount for the right to access technical support services and the right to future software upgrades. Support subscriptions can be mandatory or elective depending on the software version purchased. Performance obligations under support contracts are satisfied over the subscription life, thus revenue is recognised over time under IFRS 15, as it is currently; www.dillistonegroup.com 42 Notes to the Financial Statements continued For the year ended 31 December 2017 1. Accounting policies (continued) • Installation services – the customer pays a fee for the software to be installed, with revenue currently recognised when the installation is complete. This will continue to be the case under IFRS 15 for most installations, which are not complex and could be completed by a third party. For complex installations, these combine with the licence to form one performance obligation, and revenue recognition consequently matches the licence; • Training – the customer pays a fee to be trained in using the software. Training revenue is recognised under the existing standard when delivered. Under IFRS 15 this will continue to be the case for most training, as it is not essential to using the software. However, for training that is essential, training combines with the licence as one performance obligation with revenue recognition following the licence. On the basis of the work performed thus far, the Group considers there to be no material adjustments to revenue arising from complex installations and essential training. The material impact on reported revenue arises from the combination of outright licence sales and mandatory support contracts into one performance obligation. This revenue will move from being recognised at a point in time to over time being the expected life of the support contract. We have taken the portfolio approach with respect to these contracts and have estimated an expected life of 5 years for them, which we intend to review on a periodic basis. Our work to date estimates an increase to 2017 revenue in the range of £0.1 - £0.3 million, and the change to retained earnings at 1 January 2017 to be a reduction in the range of £1.0 - £1.5 million. These calculations imply deferred income to be recognised in future periods in the range of £0.9 - £1.2 million. There will also be a corresponding tax deduction in respect of this adjustment in 2018. IFRS 15 is not expected to have an impact on the parent Company. IFRS 16 – Leases This standard comes into effect for accounting periods beginning on or after 1 January 2019. The standard requires almost all leases to be recorded in the statement of financial position. This requires recognition of a right-of-use asset and lease liability. The lease liability is measured as the present value of the future lease payments, discounted at the interest rate implicit in the lease if determinable, or otherwise at the lessee’s incremental borrowing rate. The asset is measured as equivalent to the lease liability, adjusted for other costs including initial direct costs or obligations under the lease such as restoration costs. The asset is subsequently depreciated on a straight line basis to the expected maturity date of the lease. The liability is increased by interest and reduced by the lease payments made. The impact of this standard is currently being assessed. See note 22 for detail on operating lease payment commitments. 2. Reconciliation of adjusted operating profits to consolidated statement of comprehensive income Note Adjusted operating profits 2017 £’000 9,582 (1,536) 8,046 (7,737) 309 1 Acquisition related and one-off items 2017* £’000 – – – (823) (823) – (7) 303 303 606 (24) 582 (5) (828) 151 (677) – (677) Adjusted operating profits 2016 £’000 9,963 (1,478) 8,485 (7,022) 1,463 3 (8) 1,458 (63) 1,395 16 1,411 Acquisition related items 2016* £’000 – – – (1,051) (1,051) – (15) (1,066) 197 (869) – (869) 2017 £’000 9,582 (1,536) 8,046 (8,560) (514) 1 (12) (525) 454 (71) (24) (95) 10 10 3.08p 3.08p (0.36)p (0.36)p 7.10p 6.95p 2016 £’000 9,963 (1,478) 8,485 (8,073) 412 3 (23) 392 134 526 16 542 2.68p 2.62p Revenue Cost of sales Gross profit Administrative expenses Operating profit/(loss) Financial income Financial cost Profit/(loss) before tax Tax income/(expense) Profit/(loss) 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 DILLISTONE GROUP PLC - Annual Report and Accounts 201743 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 3. Segment reporting The Board principally monitors the Group’s operations in terms of results of the three divisions, Dillistone Systems, Voyager Software and GatedTalent. Segment results reflect management charges made or received. Divisional segments For the year ended 31 December 2017 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 Loss before tax Income tax income Loss for the year Additions of non-current assets 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 4,548 778 (589) 189 – – 189 1 – – GatedTalent £’000 – (439) – (439) – – (439) Voyager £’000 5,034 1,200 (511) 689 – – 689 – – – Central £’000 – (130) – (130) (838) 15 (953) – (7) (5) Total £’000 9,582 1,409 (1,100) 309 (838) 15 (514) 1 (7) (5) (525) 454 (71) 608 502 396 – 1,506 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 www.dillistonegroup.com 44 Notes to the Financial Statements continued For the year ended 31 December 2017 3. Segment reporting (continued) 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 2017 £’000 7,474 1,644 464 9,582 2016 £’000 7,027 2,370 566 9,963 Recurring income includes all support services, SaaS and hosting income. Non-recurring income includes sales of new licences, and income derived from installing those licences 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 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 Acceleration of amortisation of acquisition intangibles Additional amortisation on change of estimated useful life of platform technology (note 13) Included within financial cost: Unwinding of discount on contingent consideration (note 8) 2017 £’000 6,782 1,041 1,341 418 9,582 2017 £’000 8,453 5 2 8,460 2017 £’000 (15) 379 459 – 823 5 828 2016 £’000 7,142 1,047 1,388 386 9,963 2016 £’000 8,886 6 1 8,893 2016 £’000 (48) 379 – 720 1,051 15 1,066 DILLISTONE GROUP PLC - Annual Report and Accounts 20176. Operating profit Operating profit is stated after charging: Depreciation Amortisation Realised net (gain)/loss on foreign exchange transactions Research costs expensed 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 Tax advisory services 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 2017 £’000 105 1,833 7 13 234 319 22 78 18 6 2017 Number 111 13 124 2017 £’000 5,255 528 319 20 1 (3) 6,120 The aggregate remuneration includes salary cost totalling £1,168,000 (2016: £1,045,000) that has 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 2017 £’000 936 116 107 2 1 (3) 1,159 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 45 2016 £’000 113 1,956 (10) – 288 301 18 56 18 – 2016 Number 112 13 125 2016 £’000 5,004 527 301 16 – (1) 5,847 2016 £’000 898 101 108 2 – (1) 1,108 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 to 21. www.dillistonegroup.com 46 Notes to the Financial Statements continued For the year ended 31 December 2017 8. Financial income and cost Interest receivable Finance cost on bank loan Finance cost on convertible loan Unwinding of discount on contingent consideration 9. Tax (income) / expense Current tax Prior year adjustment – current tax Total current tax Deferred tax Prior year adjustment – deferred tax Deferred tax re acquisition intangibles Prior year adjustment - deferred tax re acquisition intangibles Total deferred tax Tax (income) / expense for the year Factors affecting the tax charge for the year (Loss)/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 Rate difference between CT rate and rate of R&D repayment rate Prior year adjustments Tax (income) / expense Deferred tax liability provided in the financial statements is as follows: Internally generated intangible and fixed assets Provisions Acquisition intangibles 2017 £’000 1 (2) (5) (5) (11) 2017 £’000 (100) (238) (338) 36 (1) (151) (–) (116) (454) (525) 19.25% (101) 1 18 (209) 32 6 38 (239) (454) 2017 £’000 – – – – Company 2016 £’000 3 (8) – (15) (20) 2016 £’000 178 (91) 87 (100) (50) (68) (3) (221) (134) 392 20% 78 31 13 (169) 31 26 – (144) (134) 2016 £’000 – – – – 2017 £’000 341 – 327 668 Group Movement £’000 26 9 (151) (116) 2016 £’000 315 (9) 478 784 DILLISTONE GROUP PLC - Annual Report and Accounts 2017 47 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 9. Tax (income)/expense (continued) Internally generated intangible and fixed assets Provisions Acquisition intangibles 2017 £’000 315 (9) 478 784 Group Movement £’000 (152) 1 (71) (222) Company 2016 £’000 467 (10) 549 1,006 2017 £’000 – – – – 2016 £’000 – – – – The UK corporation tax rate fell in April 2017 to 19% from 20% and accordingly the rate for the year is 19.25%. 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, offset by the R&D tax credits available to Dillistone Systems division, Voyager Software division and GatedTalent division. It has also been assumed that where there are tax losses arising as a result of R&D tax credits they will be surrendered for a tax repayment at the HMRC stated rate of 14.5%. The release of prior year provisions relates, in part, to the agreement of the prior years’ tax positions of UK and US companies together with the formation of a tax group in Australia allowing surrender of losses between companies in the same jurisdiction and the utilisation of tax losses not previously recognised. The Group has gross tax losses and temporary timing differences of £205,000 (2016: £369,000) for which no deferred tax asset has been recognised as the timing of their utilisation is uncertain. 10. Earnings per share Profit/(loss) attributable to ordinary shareholders (note 2) Weighted average number of shares Basic earnings per share Weighted average number of shares after dilution Fully diluted earnings per share Reconciliation of basic to diluted average number of shares: 2017 Using adjusted operating profit £606,000 19,668,021 3.08 pence 19,676,018 3.08 pence 2016 Using adjusted operating profit £1,395,000 19,668,021 7.10 pence 20,082,096 6.95 pence 2017 £(71,000) 19,668,021 (0.36) pence 19,668,021 (0.36) pence 2016 £526,000 19,668,021 2.68 pence 20,082,096 2.62 pence Weighted average number of shares (basic) Effect of dilutive potential ordinary shares – employee share plans Weighted average number of shares after dilution There are 1,270,732 (2016: 638,257) share options not included in the above calculations. 2017 19,668,021 7,997 19,676,018 2016 19,668,021 414,075 20,082,096 The impact of the convertible loan notes in the period is not dilutive and therefore does not impact the calculation of the fully diluted earnings per share. 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 £1,311,000 (2016: £1,057,000) and has been approved by the Directors. This is stated after charging: Fees paid to the Company’s auditors Audit of financial statements Taxation compliance services Tax advisory services 2017 £’000 22 3 6 2016 £’000 18 3 – www.dillistonegroup.com 48 Notes to the Financial Statements continued For the year ended 31 December 2017 12. Goodwill Group Cost At 1 January 2016 Additions At 31 December 2016 Additions At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 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 recoverable amount of the cash generating units listed below (CGU) to which the goodwill has been allocated, against the carrying value of those CGUs. 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. 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 15.5% (2016: 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 2.5% (2016: 1.75%) 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 A decrease in the cashflow by 10% would result in an impairment of £365,000 for the Voyager and FCP consolidated and an increase in the discount rate to 16.5% would require an impairment of £249,000. For ISV the discount rate would need to increase to over 23% or cash flows would need to fall by over 35% to reduce the headroom to £nil. Cashflows in respect of Dillistone goodwill would need to reduce by over 80% or the discount rate to increase to over 87% to reduce the headroom to £nil. 13. Other intangible assets Group Cost At 1 January 2016 Additions At 31 December 2016 Additions At 31 December 2017 Amortisation At 1 January 2016 Charge for the year At 31 December 2016 Charge for the year At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 Development costs £’000 Purchased software £’000 Acquisition intangibles £’000 5,565 1,047 6,612 1,358 7,970 2,478 1,576 4,054 991 5,045 2,925 2,558 25 9 34 93 127 – 1 1 4 5 122 33 4,172 – 4,172 – 4,172 1,121 379 1,500 838 2,338 1,834 2,672 Total £’000 9,762 1,056 10,818 1,451 12,269 3,599 1,956 5,555 1,833 7,388 4,881 5,263 DILLISTONE GROUP PLC - Annual Report and Accounts 201749 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 13. Other intangible assets (continued) Acquisition intangibles can be summarised as follows: NBV At 1 January 2017 Amortisation At 31 December 2017 Brand £’000 126 (13) 113 Developed technology £’000 229 (53) 176 Contractual and non-contractual relationship £’000 1,795 (731) 1,064 Brand and IP £’000 522 (41) 481 Total £’000 2,672 (838) 1,834 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. The Group has reviewed its useful economic life in respect of non contractual relationships following the loss of a major contract in one part of the business. The revised useful economic life was reduced to 6 years (from 10 years) and resulted in additional amortisation in the period of £459,000. Purchased software is reviewed for impairment based on its continued use within the business. In 2016, the change in the estimate of the useful economic life of platform technology resulted in a one-off increase to the amortisation charge for the year of £720,000. The Company has no intangible assets. 14. Property, plant and equipment Group Cost At 1 January 2016 Currency impact Additions Disposals At 31 December 2016 Currency impact Additions Reclassify Disposals At 31 December 2017 Depreciation At 1 January 2016 Currency impact Charge for the year Eliminated on disposal At 31 December 2016 Currency impact Charge for the year Eliminated on disposal At 31 December 2017 Carrying amount At 31 December 2017 At 31 December 2016 The Company has no property, plant and equipment. Land and buildings £’000 Office and computer equipment £’000 Fixtures and fittings £’000 Motor vehicles £’000 186 – – – 186 – – – – 186 44 – 38 – 82 – 38 – 120 66 104 758 16 57 (1) 830 (6) 47 10 (20) 861 652 15 71 (1) 737 (6) 62 (19) 774 87 93 152 3 13 – 168 (1) 8 (10) – 165 143 3 4 – 150 (1) 5 – 154 11 18 – – – – – – – – – – – – – – – – – – – – – Total £’000 1,096 19 70 (1) 1,184 (7) 55 – (20) 1,212 839 18 113 (1) 969 (7) 105 (19) 1,048 164 215 www.dillistonegroup.com 50 Notes to the Financial Statements continued For the year ended 31 December 2017 15. Non-current asset investments Company Cost At 1 January 2016 Additions At 31 December 2016 Additions At 31 December 2017 Investments in subsidiaries £’000 7,599 2 7,601 1 7,602 The addition in the year related to the formation of GatedTalent. The 2016 addition related to the transfer of FCP Internet Limited from FCP Internet Holdings Limited to Dillistone Group Plc. Investments are reviewed when evidence exists that their may be a loss in value or in certain circumstances where dividends are paid by the subsidiary. In 2017, following the loss of a major contract the Voyager/FCP investment has been reviewed as has the ISV investment following a dividend payment. The recoverable amount of the cash generating unit is based on value-in-use calculations Forecasts of future cash generation are prepared and these are discounted and compared to the carrying value of the investment. 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. The key assumptions used in these calculations are those regarding growth rates, increases in costs and discount rates. The pre-tax discount rate used was 15.5%. 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 2.5%. The calculations for Voyager/FCP showed that no impairment was required. If cashflows reduced by more than 7% or the discount rate increased to 16.5% an impairment would be required. No impairment loss was required for ISV and cashflows would need to reduce by 37% or the discount rate to increase to more than 23% before impairment was considered necessary. 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 GatedTalent 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 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 The registered addresses of related undertakings are as follows: Holding of ordinary shares 100% 100% (indirect) 100% 100% 100% 100% 100% 100% 100% 100% (indirect) Registered England & Wales Australia USA England & Wales England & Wales England & Wales England & Wales England & Wales England & Wales Australia Company Dillistone Group Plc Dillistone Systems Limited Dillistone Systems (Australia) Pty Limited Dillistone Systems (US) Inc FCP Internet Limited FCP Internet Holdings Limited GatedTalent 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 Suite 3, Level 3, 245 Castlereagh Street, Sydney, NSW 2000, 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 50 Leman St, London E1 8HQ 12 Cedarwood, Crockford Lane, Chineham Business Park, Basingstoke, RG24 8WD Suite 3, Level 3, 245 Castlereagh Street, Sydney, NSW 2000, Australia DILLISTONE GROUP PLC - Annual Report and Accounts 201751 2016 £’000 – 2016 £’000 – 329 – 20 349 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S Group Company 2016 £’000 5 2017 £’000 – Group Company 2016 £’000 1,787 – 37 372 2,196 2017 £’000 – 915 – 19 934 2017 £’000 3 2017 £’000 1,377 – 37 263 1,677 16. Inventories Licences for resale 17. Trade and other receivables Trade receivables - net Group receivables Other current assets Prepayments and accrued income 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 30 days overdue. The Company has no bad debt provision against intercompany receivables. 18. Trade and other payables Current liabilities Trade payables Group payables Deferred income Accruals Contingent consideration Non-current liabilities Cash settled LTIP Contingent consideration is valued at fair value. Further details of the contingent consideration are given in note 24. 2017 £’000 97 51 148 2017 £’000 1,205 54 118 1,377 Group Company 2017 £’000 664 – 2,589 936 146 4,335 12 12 2016 £’000 685 – 2,850 689 375 4,599 15 15 2017 £’000 73 2,135 – 195 146 2,549 12 12 2016 £’000 88 9 97 2016 £’000 1,491 121 175 1,787 2016 £’000 56 2,376 – 124 375 2,931 15 15 www.dillistonegroup.com 52 Notes to the Financial Statements continued For the year ended 31 December 2017 19. Cash and cash equivalents Cash balances available on demand 20. Borrowings Current bank borrowings Current loan note borrowings Non current loan note borrowings Total borrowings Group Company 2016 £’000 1,537 2017 £’000 99 Group Company 2016 £’000 158 – – 158 2017 £’000 – 5 386 391 2016 £’000 43 2016 £’000 158 – – 158 2017 £’000 1,390 2017 £’000 – 5 386 391 The Directors consider that the fair value of borrowings approximates to the carrying value except for the convertible loan note. In 2017, the Company raised £400,000 from Directors and other PDMRs via a convertible loan note. The loan notes carry an interest coupon of 8.15% pa over their maximum term of 36 months, with a conversion price of 71.6p per new Dillistone ordinary share. The interest payments are payable quarterly in arrears and will be satisfied through the issue of further new ordinary shares or in cash at the individual loan note holder’s election. Various rights are built into the agreement for early repayment or conversion. Based on other outline loan offers around the time of the fund raising, a 10% rate has been used as the borrowing rate without conversion. This rate has been used in the calculation of the equity adjustment required in respect of this loan which totals £14,000. The borrowings consisted 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. This loan was repaid in 2017. The loan included 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 has 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. Reconciliation of liabilities arising from financing activities Long term borrowings Bank Loan Convertible loan note Long term borrowings Bank Loan Non cash changes – equity adjustment £’000 – (14) (14) Non cash changes – equity adjustment £’000 – (–) Cashflows £’000 (158) 400 242 Cashflows £’000 (167) (167) 2016 £’000 158 – 158 2015 £’000 325 325 Closing 2017 £’000 – 386 386 Closing 2016 £’000 158 158 DILLISTONE GROUP PLC - Annual Report and Accounts 2017O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 53 2017 £’000 983 2016 £’000 983 2017 Number 2016 Number 19,668,021 – 19,668,021 19,668,021 – 19,668,021 2017 £’000 295 158 137 2016 £’000 559 262 296 21. Share capital Allotted, called up and fully paid Ordinary shares of 5p each No share options were exercised in the period (2017: nil). 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 2017, the Group had future total commitments under non-cancellable operating leases as follows: Commitments payable: Within one year Between two and five years The Company has no operating leases. 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 LTIP options granted on 14 July 2015, 29 June 2016 and 9 November 2017. The Company launched its first SAYE scheme in 2016 with a second issue in 2017. Under this scheme discounts of up to 20% can be offered. The scheme has a linked savings contract of 3 years. There were three grants of options in 2017. The weighted average share price of all grants in 2017 was 57.28p. 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 9 November 2017 LTIP/EMI 9 November 2017 EMI 9 November 2017 Sharesave Number granted 845,000 90,000 131,713 Share price on issue date 58p 58p 58p Exercise price 58p 58p 52.2p Expected volatility 30% 30% 30% Vesting period 3.3 years 3.3 years 3.3 years Leaver rate over vesting period 0% 10% 10% Risk-free rate 1.00% 1.00% 1.00% Expected dividend yield 2.0% 2.0% 2.0% Expected volatility takes into account historic volatility of the share price and its current trend. www.dillistonegroup.com 54 Notes to the Financial Statements continued For the year ended 31 December 2017 23. Share options (continued) 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 LTIP/EMI 14 October 2016 Sharesave 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% Details of the number of share options and the weighted average exercise price (WAEP) outstanding during the year are as follows: Outstanding at the beginning of year Granted during the year Exercised during the year Forfeited during the year Outstanding at the end of the year Exercisable at the year end * Adjusted for the 2 for 1 bonus issue where appropriate 2017 2016 No of options* 1,364,351 1,066,713 (–) (63,619) 2,367,445 384,500 WAEP* 89.15 57.28 – 90.55 74.75 88.76 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 The Company’s mid-market share price on 29 December 2017 was 65.5p. The average mid- market share price in 2017 was 71.26p. 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 £20,000 (2016: £16,000). Share options remaining in the schemes are as follows: Scheme type Unapproved EMI Unapproved EMI EMI Unapproved EMI EMI EMI EMI Sharesave EMI (LTIP) EMI Sharesave Date of grant 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 09/11/2017 09/11/2017 09/11/2017 Exercise from 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 01/11/2019 09/11/2020 09/11/2020 01/12/2020 Lapse date 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 08/11/2027 08/11/2027 31/5/2021 Options remaining 30,000 87,500 16,000 17,000 20,000 10,000 204,000 58,500 306,257 441,500 109,975 845,000 90,000 131,713 2,367,445 Exercise price (p) 58.33 77.00 77.00 79.50 115.00 97.00 97.00 90.50 108.5 78.50 77.80 58.00 58.00 52.20 The weighted average remaining contractual life of options at 31 December 2017 was 7.8 years (2016: 7.6 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 2017, the charge in respect of the LTIP schemes, which are share based and require separate disclosure under IFRS 2, was £10,000. DILLISTONE GROUP PLC - Annual Report and Accounts 201755 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 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 £219,000 was made in 2017. In the 2017 financial statements, the amount payable under the contingent consideration was decreased by £15,000 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 2017 totalled £5,000 (2016: £15,000). At the year end the Group had a liability for contingent consideration made up as follows: • 30% of net revenues in the nine month period to 30 September 2017 less £25,000 (calculated at £146,000). 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 2017 was: At 31 December 2017 Trade and other receivables (current assets) Cash and cash equivalents Total 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 Group Company Non interest bearing financial assets £’000 1,414 – 1,414 Floating rate financial assets £’000 – 1,390 1,390 Non interest bearing financial assets £’000 915 – 915 Floating rate financial assets £’000 – 99 99 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 www.dillistonegroup.com 56 Notes to the Financial Statements continued For the year ended 31 December 2017 25. Financial instruments (continued) The table below shows the Group’s financial liabilities split by those bearing interest at floating rates or fixed rates and those that are non interest bearing. At 31 December 2017 Trade and other payables (current liabilities) Trade and other payables (non-current liabilities) Borrowings – convertible loan note Contingent consideration (current liabilities) At 31 December 2016 Trade and other payables (current liabilities) Trade and other payables (non-current liabilities) Bank borrowings Contingent consideration (current liabilities) Non interest bearing financial assets £’000 1,196 12 – 146 1,354 Non interest bearing financial assets £’000 925 15 – 375 1,315 Group Company Floating rate financial assets £’000 – – 391 – 391 Non interest bearing financial assets £’000 2,382 12 – 146 2,540 Floating rate financial assets £’000 – – 391 – 391 Group Company Floating rate financial assets £’000 – – 158 – 158 Non interest bearing financial assets £’000 2,550 15 – 375 2,940 Floating rate financial assets £’000 – – 158 – 158 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 ageing 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 Company 2017 £’000 1,414 1,390 2,804 2016 £’000 1,824 1,537 3,361 2017 £’000 915 99 1,014 2016 £’000 329 42 371 DILLISTONE GROUP PLC - Annual Report and Accounts 2017O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 57 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 2017, the Group and Company’s financial liabilities (excluding deferred income, payroll taxes, VAT and similar taxes) have contractual cashflows as summarised below: Group 31 December 2017 Trade and other payables (current liabilities) Contingent consideration (current liabilities) Trade and other payables (non-current liabilities) Borrowings 31 December 2016 Trade and other payables (current liabilities) Contingent consideration (current liabilities) Trade and other payables (non-current liabilities) Bank borrowings Company 31 December 2017 Trade and other payables (current liabilities) Contingent consideration (current liabilities) Trade and other payables (non-current liabilities) Borrowings 31 December 2016 Trade and other payables (current liabilities) Contingent consideration (current liabilities) Trade and other payables (non-current liabilities) Bank borrowings Carrying amount £’000 1,196 146 12 400 1,754 Carrying amount £’000 925 375 15 158 1,473 Carrying amount £’000 2,382 146 12 400 2,940 Carrying amount £’000 2,550 375 15 158 3,098 < 1 year £’000 1,196 146 – – 1,342 < 1 year £’000 925 375 – 158 1,458 < 1 year £’000 2,382 146 – – 2,528 < 1 year £’000 2,550 375 – 158 3,083 1–2 years £’000 – – – – – 1–2 years £’000 – – – – – 1–2 years £’000 – – – – – 1–2 years £’000 – – – – – 2–5 years £’000 – – 12 400 412 2–5 years £’000 – – 15 – 15 2–5 years £’000 – – 12 400 412 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. www.dillistonegroup.com 58 Notes to the Financial Statements continued For the year ended 31 December 2017 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. The Group aims to manage foreign exchange risk at a local level by matching the currency in which revenue is generated and expenses are incurred. At the year end, the Group had assets totalling £1,837,000 and liabilities totalling £443,000 denominated in Euros (2016: assets totalling £1,307,000 and liabilities totalling £547,000), assets totalling £1,655,000 and liabilities totalling £997,000 denominated in US Dollars (2016: assets totalling £1,729,000 and liabilities totalling £1,119,000) and assets totalling £441,000 and liabilities totalling £447,000 denominated in Australian Dollars (2016: assets totalling £445,000 and liabilities totalling £403,000). If each of the exchange rates strengthened by 5%, the impact on the statement of comprehensive income would be as follows: Euros US Dollars Australian Dollars Group 2017 £’000 31 6 (2) 35 2016 £’000 20 7 (1) 26 At the year end, the Company had liabilities totalling £115,000 denominated in Euros (2016: liabilities totalling £115,000), assets totalling £257,000 denominated in US Dollars (2016: assets totalling £281,000) and assets totalling £36,000 denominated in Australian Dollars (2016: assets totalling £27,000). For the Company a 5% increase in the value of each of the above currencies would have resulted in an impact on the income statement as follows: Euros US Dollars Australian Dollars Company 2017 £’000 (6) 12 2 8 2016 £’000 (6) 15 1 10 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, convertible loan note reserve, share option reserve, retained earnings and net cash. 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 19 2017 £’000 391 (1,390) (999) 6,294 0% 2016 £’000 158 (1,537) (1,379) 6,906 0% DILLISTONE GROUP PLC - Annual Report and Accounts 201759 O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S 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 Company 2017 £’000 1,390 1,414 2,804 1,208 391 146 1,745 2016 £’000 1,537 1,824 3,361 940 158 375 1,473 2017 £’000 99 915 1,014 2,394 391 146 2,931 2016 £’000 42 329 371 2,594 158 375 3,127 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 2017 and 31 December 2016: Contingent consideration: 2017 £’000 Level 2 146 2016 £’000 Level 3 375 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 2 and 3 are described below: Contingent consideration (2017 – Level 2, 2016 – 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 at 31 December 2017 (level 2) of £146,000 is included at fair value which has been calculated as payable based on the revenues of ISV Software to 30 September 2017. The contingent consideration at 31 December 2016 (level 3) 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 in respect of 2016 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 estimate of the Group’s current borrowing rate. The reconciliation of the carrying amounts of financial instruments classified within Level 3 is as follows: At start of the year Paid in the 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 Reclassified to Level 2 At the year end 2017 £’000 (375) – – – 375 – 2016 £’000 (620) 212 (15) 48 – (375) www.dillistonegroup.com 60 Notes to the Financial Statements continued For the year ended 31 December 2017 26. 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’. 27. Related party transactions Group The Directors received dividends paid by the Company of £240,000 (2016: £353,000). 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. The amounts outstanding at the year end due to key management was £30,000 (2016: £40,000) (excluding Employer’s NI) and related to estimated bonus payments payable in relation to 2017. In addition, Dr Love’s fees of £35,000 are paid to Pond Associates LLP, a business owned by him. The balance outstanding payable to Dr Love at the year end was £27,000 (2016: £9,000). The Directors and certain key management participated in the issue of convertible loan notes in 2017 as follows: Mike Love Giles Fearnley Jason Starr Rory Howard Julie Pomeroy Alex James Simon Warburton Paul Mather £250,000 £75,000 £24,250 £24,250 £10,000 £1,000 £8,000 £7,500 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 £nil (2016: £56,000) and a dividend of £nil from its subsidiary company Dillistone Systems (US) Inc (2016: £81,000). At the year end, Dillistone Systems (US) Inc owed £257,000 (2016: owed £281,000) to the Company. During the current year Dillistone Systems Limited paid a dividend of £nil (2016: £1,000,000) to Dillistone Group Plc and a management charge of £306,000 (2016: £296,000). At the year end Dillistone Systems Limited was owed £752,000 (2016: £458,000). The Company received a management charge during the year from Dillistone Systems (Australia) Pty Limited of £nil (2016: £17,000) and at the year end was owed £36,000 (2016: £27,000). Voyager Software paid a management charge of £144,000 (2016: £144,000) and owed the Company £187,000 at the year end (2016: £201,000). FCP Internet Limited paid a management charge of £84,000 (2016: £84,000) and a dividend of £1,000,000 (2016: £nil) and was owed by the Company £754,000 at the year end (2016: owed by the Company £1,293,000). A management charge of £60,000 (2016: £60,000) was received from ISV Software together with a dividend of £400,000 (2016: £nil) and at the year end the Company owed ISV £208,000 (2016: £414,000). GatedTalent Limited paid a management charge of £86,000 (2016: £nil) and owed the Company £373,000 at the year end (2016: £nil). FCP Internet Holdings Limited was owed by the Company £2,000 at the year end (2016: owed by the Company £2,000). Woodcote Software Limited owed the Company £13,000 (2016: £13,000). Management charges payable by Group members to Dillistone Group Plc relate to management support provided directly to them. 28. Dividends The dividends paid in 2017 and 2016 were £551,000 (2.8p per share) and £811,000 (4.125p per share). A final dividend in respect of the year ended 31 December 2017 of 0.5p per share will be paid on 13 July 2018. These financial statements do not reflect this dividend. DILLISTONE GROUP PLC - Annual Report and Accounts 2017O V E R V I E W R E P O R T S T R A T E G I C G O V E R N A N C E F I N A N C I A L S T A T E M E N T S DIRECTORS AND ADVISERS Directors Secretary Company number Registered office Independent auditor 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 – MD – Dillistone Systems 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 Blake Morgan LLP Apex Plaza Forbury Road Reading RG1 1AX WH Ireland Limited 24 Martin Lane London EC4R 0DR WH Ireland Limited 24 Martin Lane London EC4R 0DR Link Assets Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU www.dillistonegroup.com 50 Leman Street London E1 8HQ T: +44 (0)20 7749 6100 www.dillistonegroup.com D i l l i s t o n e G r o u p P l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 1 7 

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