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