The Descartes Systems Group Annual Report 2018

← All annual reports

FY2018 Annual Report · The Descartes Systems Group

Loading PDF…

A
N
N
U
A
L

R
E
P
O
R
T
2
0
1
8

50 Leman St

London

E1 8HQ

www.dillistonegroup.com

STRATEGIC REPORT

Designed and printed by Perivan

D
I
L
L
I
S
T
O
N
E

A
N
N
U
A
L
R
E
P
O
R
T

2
0
1
8

DILLISTONE GROUP PLC
EMPOWERING RECRUITMENT
GLOBALLY THROUGH TECHNOLOGY

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

Strategic Report

Highlights

Dillistone Group at a glance

Chairman’s statement

CEO’s review

Financial review

Governance

Corporate governance report

Report to the Shareholders on Directors’
remuneration

Board of Directors

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 31

Company statement of changes in equity

Consolidated and Company statement
of financial position

Consolidated cash flow statement

Company cash flow statement

Notes to the financial statements

Directors and advisers

FINANCIAL STATEMENTSDILLISTONE GROUP PLC Annual Report and Accounts 2018

HIGHLIGHTS

STRATEGIC REPORT

0.61p

Adjusted basic EPS3
(2017: 3.73p)

82%

Recurring revenues1
(restated 2017: 82%)

• Recurring revenues1 represent 82%

(restated 2017: 82%) of Group revenue

• Adjusted operating proﬁ t2 of £0.055m

(restated 2017: £0.459m) before acquisition
intangible writes offs, reﬂ ecting the loss of the
major contract announced in 2017 which
reduced revenues by £0.625m compared to
2017 in a ten-month period

• Loss for the year of £0.260m

(restated 2017: proﬁ t £0.057m)

• Adjusted basic EPS3 of 0.61p (2017: 3.73p)

• The Group continued to generate cash from
operating activities resulting in cash at 31
December 2018 of £0.725m (2017: £1.390m)
with borrowings of £0.404m (2017: £0.391m).

[2017 numbers have been restated for the introduction of IFRS 15, the new revenue recognition standard.]

Commenting on the results
and prospects, Mike Love,
Non-Executive Chairman, said:

“2018 was clearly a
challenging year for the
Group. The executive
team has nevertheless
worked tirelessly and,
despite the challenges
faced during the year
of GDPR, the loss of
a major client, the
continued investment
in new products and,
during 2018, the
implications of re-
structuring to reduce
our cost base, we are
now well on our way to
restoring Dillistone to
healthy operating proﬁ ts
on a sustainable footing.”

Deﬁ nitions:
1 The component elements of recurring revenues are detailed in note 3.
2

Adjusted operating proﬁ t is statutory operating proﬁ t 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 proﬁ ts 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.

Visit our investor relations website at
www.dillistonegroup.com for further
information about Dillistone Group Plc.

254300 Dillistone AR Cover-pp9.indd 1

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

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 ﬁ rms, we are made up of 3 divisions.

Dillistone
Systems

Dillistone Systems division
Dillistone Systems is a leading global supplier of technology and services to executive search
ﬁ rms and to in-house search teams at major corporations and not-for-proﬁ t 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 ofﬁ ces 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 50 people.

Products

FileFinder is designed speciﬁ cally 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. 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.

GatedTalent division
GatedTalent was established in 2017 with ﬁ rst
revenue seen in 2018 as a network allowing
executives to share information with executive
recruiters in a GDPR compliant manner.
GatedTalent generates revenue from both
Executive Search ﬁ rms (where it has a similar
client base to the Dillistone Systems division)
and directly from Executives.

Products

GatedTalent is a private network allowing
executives to share conﬁ dential data
with executive recruiters. The product
beneﬁ ts from exclusive integration with the
FileFinder Anywhere CRM, developed by
the Dillistone Systems division.

254300 Dillistone AR Cover-pp9.indd 2

22/05/2019 22:30

STRATEGIC REPORT

Voyager Software division
Voyager Software 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 clients working on a contingency basis, and continues to do so to this day. In September 2012, Voyager
Software launched its Inﬁ nity product which has been and continues to be designed to improve the performance and efﬁ ciency of recruitment
businesses specialising in permanent, contract and temporary roles. With automation at its heart, it meets the demands of ﬂ exibility and
functionality required by these recruitment ﬁ rms. Furthermore, its ongoing development continues to enhance its capabilities and widen its
market appeal. Alongside Voyager Software’s VDQ product, for pure fast paced temporary agencies, and Mid-Ofﬁ ce, the pay-and-bill solution
for the back ofﬁ ce, the Division 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 globally by many thousands of users in different-sized recruitment businesses. The Division has ofﬁ ces in the UK and
Australia and employs around 60 people.

Products

Voyager front ofﬁ ce:
Voyager Inﬁ nity manages the work of
recruiters working to ﬁ ll permanent,
contract and both short and long term
temporary vacancies and delivers
measurable performance efﬁ ciencies and
audit trails.

Voyager Inﬁ nity SaaS has all of the great
features of Inﬁ nity available as a managed
service on the Azure Cloud with affordable
set-up and monthly cost.

Voyager Inﬁ nity Connect Mobile App is the
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 Inﬁ nity 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.

TempNinja is a smartphone app for
temporary workers that increases their
engagement with recruiters, both on and
off assignment. It seamlessly integrates
with Voyager’s Inﬁ nity and VDQ! front ofﬁ ce
applications, as well as being available as a
white label option for customers wanting to
promote their own brand.

Through FCP Internet, the Division also
provides its evolveTM solution. evolve™
has been designed to deliver an effective
workﬂ ow solution for all sizes and types of
recruitment business. It is delivered only as
a SaaS product.

Voyager back ofﬁ ce:
Voyager Mid-Ofﬁ ce is a ﬂ exible 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-ofﬁ ce 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 2017, ISV launched
ISV Online, incorporating all the best
elements from its original testing platform,
FastPath.

254300 Dillistone AR Cover-pp9.indd 3

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CHAIRMAN’S STATEMENT

For the year ended 31 December 2018

2018 was a challenging year for the
business. The loss of a major client,
announced in Summer 2017 but
materialising in February 2018, had a year
on year revenue impact of around £0.625m.

Meanwhile, the new General Data
Protection Regulations meant that the
Group, like all technology businesses,
had to invest heavily in compliance. This
investment covered everything from product
development and infrastructure through
to staff training and reviews of our various
legal documents.

2018 was also the start of a period
of change. In February of 2019, we
announced the closure of our London
ofﬁ ce as part of a broader restructuring.
However, some of the groundwork for this
project was undertaken in 2018, with the
implementation of various company wide
systems and procedures. The restructuring
programme is expected to return the Group
to a healthy level of operating proﬁ t on a
sustainable basis.

While much work was undertaken behind
the scenes in 2018, we also continued to
develop our products. Enhancements and
new functionality were delivered for each
of our leading products, while the year also
saw the ﬁ rst revenue materialise for our
GatedTalent platform.

GatedTalent experienced various highs and
lows during the year. In the early stages
of the year, we signiﬁ cantly surpassed our
initial expectations for recruiter take up
but were disappointed by the number of
executive registrations. In the second half
of the year, we saw registrations begin
to accelerate, and in Q4 we launched
“Member Services” which is a new
premium B2C revenue stream. We are

pleased to report that this has proven
successful and, less than 6 months since
launch, we now realise more recurring
revenue every month from Member
Services than we do from any single
executive search ﬁ rm contract.

Overall, Group revenue fell 11% to
£8.692m, of which recurring revenue fell
10% to £7.154m – a signiﬁ cant part of this
loss was the previously referenced client
departure. IFRS 15 Revenue from contracts
with customers was introduced with effect
from 1 January 2018 and has resulted in
the restatement of the 2017 numbers.

Adjusted operating proﬁ t dropped
signiﬁ cantly to £0.055m (2017: £0.459m),
in part due to the continued investment
in GatedTalent and in part due to the loss
of the major client. The operating loss
generated by GatedTalent was £0.612m.

The Board remains committed to investing
in and supporting the Group’s core products
and remains excited by the potential of
GatedTalent.

Dividends
The Group is not recommending a ﬁ nal
dividend in respect of the year to 31
December 2018 (2017: 0.5p per share).

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 2018 and the support
we have seen for the changes we are
making to the Group.

Outlook
The current year has begun well in each of
the three divisions. However, the Board is
cognisant of the economic challenges that
the year may bring.

As announced in February 2019, the
Directors are taking the opportunity to
reduce the number of UK ofﬁ ces from three
to two by exercising an option to break the
lease of the London ofﬁ ce later in the year
and to increase the size of our Basingstoke
and Eastleigh ofﬁ ces.

The majority of our London based staff have
been given the opportunity to relocate to
Basingstoke, Eastleigh or to work from home
and we are pleased to report that the vast
majority of our client facing staff are likely
to accept this offer. The Board anticipates
that the efﬁ ciencies gained from merging the
various teams across the Group into fewer
locations will allow the Group to maintain
current levels of client service and product
development investment while delivering
a signiﬁ cant reduction in costs from 2020
onwards. This exercise will inevitably lead
to the Group incurring restructuring costs
this year, which are currently estimated to
be in the region of £500,000 to £900,000
and which are expected to be met without
recourse to shareholders. An update on the
cost of the restructuring and the anticipated
savings will be provided later in the year.

The Board currently expects that the Group
will deliver a proﬁ t before tax in 2019 which
will be comparable with 2018 (£0.018m)
before restructuring and acquisition
related costs. Proﬁ t is expected to grow
strongly in future years as the beneﬁ ts of
the restructuring and the investment in
GatedTalent start to materialise.

Dr Mike Love
Non-Executive Chairman

29 April 2019

254300 Dillistone AR Cover-pp9.indd 4

22/05/2019 22:30

STRATEGIC REPORT

CEO’S REVIEW

For the year ended 31 December 2018

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; and

increase our proﬁ tability and deliver
increased shareholder value year on
year in conjunction with a progressive
dividend policy.

Dillistone Group Plc
supplies products and
services to facilitate
recruitment. We do this
through three divisions
which, between them,
cover everything from
retained executive search
technology through to tools
to facilitate the hiring of
temporary staff, from pre-
employment skills testing
through to a B2C platform
that allows executives to
share information with
executive search ﬁ rms.

Strategy and objectives
In our time as a public company, we have
made three acquisitions and each of them
has made a contribution to the business.
However, as our markets have become
increasingly competitive, it has become
apparent that it is necessary to streamline
our operating structure and this is a major
focus for us in 2019.

In the longer term, our strategy remains
to grow the business both organically and
through acquisition.

This requires ongoing investment in product
development which ensures that the
business continues to command a leading
role in 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 ﬁ gures to monitor the performance of the business
using the ﬁ nancial KPIs set out below. As discussed above the Board is undertaking a major
restructuring exercise to address the longer term performance of the business:

Total revenues

Recurring revenues

Non recurring revenues

Adjusted proﬁ t before tax

Cash

FY 2017
£000

9,732

7,942

1,326

453

1,390

FY 2018
£000

8,692

7,154

1,169

725

Measure used by management

Met /Not met

year on year growth

not met

sufﬁ cient cash resources maintained met

Adjusted proﬁ t before tax is statutory proﬁ t before acquisition costs, related intangible amortisation, movements in contingent
consideration and other one-off costs. See note 2 and note 5.

254300 Dillistone AR Cover-pp9.indd 5

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CEO’S REVIEW

Continued

Restructuring Plan
Results in 2018 have clearly been
disappointing and the Board has embarked
on a plan which, it believes, will deliver
signiﬁ cantly improved performance from
2020 onwards. We are now well progressed
on our plan to streamline our operating
procedures while maintaining our excellent
reputation for client service. As stated
previously we expect the costs of the
restructuring to be in the region of £500,000
to £900,000. These costs are expected to be
met without recourse to shareholders.

We have:

• Completed the implementation of a

Group wide CRM system, allowing team
members to operate more easily on
Group wide projects

• Begun the process of implementing a

Group wide ﬁ nancial system and expect
this to be complete prior to the year end.

• Merged certain back ofﬁ ce teams and

are in the process of merging the product
development and other teams.

• Terminated the lease of our London ofﬁ ce
while expanding our Basingstoke ofﬁ ce.
We expect to vacate London before the
end of the year.

• While conversations with staff are

ongoing, we are pleased that the vast
majority of our client facing staff have
agreed to remain with the Group,
ensuring that client service is not
negatively impacted by these changes.

• Informed clients that certain products are
being withdrawn from the market, while
maintaining overall product development
expenditure. We will continue to invest
in product development for each of our
ﬂ agship products and believe that our new
development structure will lead to more
efﬁ cient development going forward.

Our business model
The business is currently split into three
Divisions. Dillistone Systems and Voyager
Software are our established businesses,
with GatedTalent launched in the second
half of 2017 with ﬁ rst revenue seen in 2018.
The statutory and operational structure of
the Group is being reviewed as part of the
restructuring exercise with an aim to simplify
this and reduce the costs of reporting.

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. 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 licence model towards our cloud
delivery (SaaS) services.

The GatedTalent Division generates
revenue from a combination of recruiter
subscription fees and premium fees direct
from executives. 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.

Group review of the business
2018 saw recurring revenues fall 10%
to £7.154m (restated 2017: £7.942m)
reﬂ ecting principally the loss of the major
client in 2018. Non-recurring revenues
decreased to £1.169m (restated 2017:
£1.326m). As a result, overall revenues
decreased by 11% to £8.692m (restated
2017: £9.732m) with recurring revenues
representing 82% of Group revenues
(restated 2017: 82%). Costs have reduced
despite continuing investment in GatedTalent
which made, as expected, an operating loss
of £0.612m (2017: loss £0.439m).

Adjusted EBITDA1 fell to £1.301m (restated
2017: £1.559m). Adjusted operating proﬁ t
fell to £0.055m (restated 2017: £0.459m)
and pre-tax proﬁ ts before acquisition related
items and one-off adjustments reduced
to £0.018m (restated 2017: £0.453m).
There was an operating loss for the year of
£0.414m (restated 2017: loss £0.364m)
and loss for the year of £0.260m (restated
2017: proﬁ t £0.057m). Cash at the year
end was £0.725m (2017: £1.390m).

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 ﬁ rms and executive search teams in
major organisations.

Dillistone Systems’ head ofﬁ ce is currently
in London and it has ofﬁ ces in the US,
Germany and Australia. The Division
accounts for 48% (restated 2017: 47%) of
the Group’s revenue and it saw revenue fall
7% to £4.195m (restated 2017: £4.531m).

Product development focus in 2018
included GDPR and integration with
GatedTalent, along with a signiﬁ cant
number of user experience improvements.
As part of our restructuring, we have

1 Adjusted EBITDA is adjusted operating proﬁ t with depreciation and amortisation added back. See note 3.

254300 Dillistone AR Cover-pp9.indd 6

22/05/2019 22:30

STRATEGIC REPORT

brought development resources from other
parts of the Group in to support FileFinder
product development, and are already
seeing the beneﬁ ts of this. We continue to
invest in FileFinder and expect new releases
later in the year.

Earnings before interest, tax, depreciation
and amortisation (‘EBITDA’) fell to £0.723m
(restated 2017: £0.761m) as sales fell and
costs improved. The total amortisation and
depreciation charge was £0.644m (2017:
£0.589m). Operating proﬁ t for 2018 was
£0.079m (restated 2017: £0.172m).

Voyager Software

Voyager Software is a provider of technology
products targeted at the entire recruitment
landscape, from front ofﬁ ce to back ofﬁ ce
and bureaus, and includes both recruitment
management systems and pre-employment
skills testing technology.

In 2018, the Voyager Software division
accounted for 51% (2017: 53%) of
Group revenues. The Division’s revenues
decreased by 15% to £4.429m (restated
2017: £5.201m) mainly due to the loss of
a major client in 2018. EBITDA decreased
to £1.003m (restated 2017: £1.367m).
Amortisation and depreciation decreased
to £0.475m (2017: £0.511m). Divisional
operating proﬁ t decreased to £0.528m
(restated 2017: £0.856m).

2018 saw some major developments in the
Division including:

• The addition of global addressing and

location searching in Inﬁ nity

• A new fast-paced temporary recruitment

Planner system in Inﬁ nity

• The extension of ISV.online to include
psychometric as well as skills testing

• Market leading support for enabling
clients to work under the GDPR

We are in the process of removing certain
legacy Voyager products from the market.
However we continue to invest in the core
products of the Division.

GatedTalent

Interest rate risk

The Group is exposed to interest rate risk
through its ﬂ oating 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 signiﬁ cant credit risk.

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 proﬁ ts. The Group
only seeks to remit cash when required in
the UK and it usually has some ﬂ exibility 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
sufﬁ cient available funds for its operations and
planned expansion of its existing activities.

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 launched in
late 2017 with ﬁ rst revenues occurring in
2018 of £0.068m.

The basic platform has over 50,000 proﬁ les
and is free to executives. New proﬁ les
are being added at around 1,000 per
week. Revenue is being generated from
executive recruiters through subscriptions
to the platform. In Q4 2018, we launched
“Member Services” generating a new
premium B2C revenue stream for the
Division. This has been successful and has
accelerated rapidly. We would anticipate
that member revenues will be larger than
recruiter revenues in 2019. After less than
six months, we realise more recurring
revenue every month from Member
Services than we do from any single
executive search contract.

The Division is effectively a start-up
business within the Group and made
an operating loss of £0.612m (2017
loss: £0.439m) after depreciation and
amortisation charges of £0.127m (2017:
£nil). The business is expected to remain
loss making in 2019. The total investment
in GatedTalent (including capitalised
development) to 31 December 2018 was
over £1.700m.

The Board is conﬁ dent 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 ﬁ nancial
instruments. Further details in relation to
these risks are shown in note 25.

254300 Dillistone AR Cover-pp9.indd 7

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CEO’S REVIEW

Continued

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

Economic risk

Potential adverse impact

Mitigation

The recruitment industry has a reputation for being
vulnerable to the cyclical nature of the economy. This
can impact signiﬁ cantly 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 inﬂ uence on what is being developed.

We strengthened the Product team in 2018 and expect
to add further resource in 2019.

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 ﬁ nancial,
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 ﬁ rms 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 2018 saw the continued development of temp
functionality to Inﬁ nity, tempNinja and the continued
development of ISV Online. The Group continues to
innovate and provide solutions to client needs.

There is a focus on ﬁ xing 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.

254300 Dillistone AR Cover-pp9.indd 8

22/05/2019 22:30

STRATEGIC REPORT

Risk

Potential adverse impact

Mitigation

Business continuity risks
associated with information
systems, operational failure,
data security and cyber
security risks

Employee engagement and
retention

A failure of systems or failure of hosting facilities
leading to loss of customer conﬁ dence in the Group
being able to deliver their requirements.

Each division is reliant on data centres. Work ongoing
to move data centres to the cloud through Amazon and
Azure.

Loss or corruption of data held on behalf of customers
which could have a detrimental effect on their
conﬁ dence in data security processes and could
cause ﬁ nancial loss.

External attacks on servers could result in lost or
corrupted data and loss of reputation.

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.

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.

Ability to fund the
restructure

Management capacity

The restructuring potentially requires access to short
term funding either via borrowing or through the
availability of its own cash resources.

Ongoing discussions with investors and potential
investors to build a following in Dillistone.

Strong relationship with bank.

Size of business means that management tends to be
stretched and under resourced. As the business grows
there may be insufﬁ cient support to ensure that the
growth is effectively managed and integrated.

A major restructuring is planned for 2019 to add
efﬁ ciencies to the Group and help ensure it has the right
resources.

Foreign exchange volatility

The Group has substantial operations in both the
UK and overseas. Proﬁ ts are exposed to variations in
exchange rates thereby impacting on reported proﬁ ts.

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 difﬁ culty in recruiting skilled employees.

Clients usually choose best in class and already buy
from global ﬁ rms. 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.

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.

Work continues to be carried out to ensure data is
secure and protected at appropriate levels.

Senior member of executive team has GDPR
practitioner certiﬁ cate. Appropriate internal committee
established. Data Protection Ofﬁ cer (‘DPO’) appointed.

Look more broadly at where staff are based or use of
outsourcing.

Reorganisation risk

The Group is planning a major restructuring exercise
which could result in losing people that are key to the
business or loss of focus on delivery of the business plan.

Detailed project plan in place and key people appointed
to roles. Frequent discussions with staff and ﬂ exibility on
working arrangement being adopted.

254300 Dillistone AR Cover-pp9.indd 9

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

FINANCIAL REVIEW

For the year ended 31 December 2018

Total revenues decreased by 11% to
£8.692m (restated 2017: £9.732m) with
recurring revenues decreasing by 10%
to £7.154m (restated 2017: £7.942m)
while non-recurring revenues decreased to
£1.169m (restated 2017: £1.326m). Third
party resell revenue amounted to £0.369m
in the period (2017: £0.464m).

Contractor and internal development
costs were reclassiﬁ ed as administrative
expenses from costs of sales and the 2017
comparatives have also been restated
on this basis (see note 27). Cost of sales
decreased to £1.054m (2017: £1.247m).

Administrative costs, excluding acquisition
related items, depreciation and amortisation,
fell 8% to £6.337m (2017: £6.926m)
as measures were taken to reduce costs
following the loss of the major contract
in 2018. Depreciation and amortisation
(excluding acquisition related amortisation)
increased to £1.246m (2017: £1.100m).

Acquisition related administrative costs
totalled £0.469m (2017: £0.823m) and
were in respect of the amortisation of
intangibles arising on the Voyager, FCP
and ISV acquisitions. The prior year ﬁ gure
included an acceleration of the acquisition
intangibles amortisation as a result of the
loss of the major contract in that business.

Recurring revenues covered 94% of
administrative expenses before acquisition
related and one-off costs (restated
2017: 99%). Excluding depreciation
and amortisation of our own internal
development, the administrative costs are
covered 112% (restated 2017: 115%) by
recurring revenues.

The Group beneﬁ tted from a tax credit in
2018 of £0.191m (restated 2017: credit
£0.432m). The 2018 credit reﬂ ects the
signiﬁ cant 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 also beneﬁ ts from

a deduction for the IFRS 15 adjustment
put through the accounts although this
is largely offset by the release of the
deferred tax asset created in the opening
balance position at 1 January 2017. The
acquisition related items tax credit reﬂ ects
the reduction in deferred tax that arises as
amortisation is charged in the proﬁ t and
loss account.

Proﬁ t for the year before acquisition related
and other one-off items amounted to
£0.120m (restated 2017: £0.734m). The
2018 adjusted proﬁ ts beneﬁ tted from a tax
credit of £0.102m (restated 2017: tax credit
of £0.281m). The loss for the year after
acquisition related items and other one-off
items was £0.260m (2017: proﬁ t £0.057m).
Basic loss per share (EPS) fell to (1.32)p
(restated 2017: EPS of 0.29p). Fully diluted
EPS fell to (1.32)p (restated 2017: EPS of
0.29p). Adjusted basic EPS fell to 0.61p
(restated 2017: EPS of 3.73p).

Dillistone Group Plc company results show
a proﬁ t of £1.338m (2017: £1.311m) after
an impairment of £0.451m (2017: £nil) to
its investment in Voyager/FCP due to the
loss of a major contract.

Capital expenditure
The Group invested £1.536m in property,
plant and equipment and product
development during the year (2017:
£1.506m). This expenditure included
£1.446m (2017: £1.358m) spent on
capitalised development related costs.

Trade and other payables
As with previous years, the trade and other
payables includes deferred income of
£3.575m (2017 restated: £3.811m), i.e.
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 2018 but are in respect of services

to be delivered in 2019. It also includes
licence revenue for which a support
contract is required, and which is spread
over 5 years under IFRS15. Contractual
income 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”.
At the end of 2018, there was no contingent
consideration payable (2017: £0.146m).

Cash
The Group ﬁ nished the year with cash
funds of £0.725m (2017: £1.390m); and
a convertible loan of £0.404m (2017:
£0.391m after taking into account the
equity adjustment). This is after capital
expenditure of £1.536m, the ﬁ nal payment
to the vendors of ISV of £0.146m and
dividend payments of £0.098m.

On behalf of the Board

Julie Pomeroy
Finance Director

29 April 2019

The Strategic Report is signed on behalf of
the Board by

Jason Starr
Chief Executive

29 April 2019

254300 Dillistone AR pp10-pp23.indd 10

22/05/2019 22:30

CORPORATE GOVERNANCE REPORT

For the year ended 31 December 2018

GOVERNANCE

The Board is collectively responsible
for setting the tone and culture of the
Group and promoting good corporate
governance. Dillistone has adopted the
Quoted Companies Alliance Corporate
Governance Code (the “Code”). At Dillistone
we believe in good corporate governance
and accountability and we make robust
corporate governance part of our culture
and business values. Details of the Code
and how Dillistone complies with it is
detailed below:

1. Establish a strategy and
business model which promote
long-term value for shareholders

Compliance

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. Details of the Group’s
strategy, objectives and business model
are set out on pages 5 and 6 of this report.
The key challenges and risks faced by the
business are included on pages 8 and 9.

The business is split into three Divisions.
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 is
a private network of executives, accessed
by executive recruiters. This Division
generates revenue based on a combination
of recruiter subscription, member services
and transaction fees for connecting with
executives. There is a close relationship
between GatedTalent and Dillistone Systems.

There is a 3-year rolling process of business
planning throughout the Group, within a
framework and structure set by the Board.
For new projects or products, a 5-year
horizon may be used. The Group seeks

to deliver long term growth and value to
shareholders and other stakeholders and its
strategy evolves over time as the Group grows.
The Executive Directors through the Chief
Executive Ofﬁ cer are responsible for executing
the strategy once agreed by the Board. The
Chief Executive Ofﬁ cer is also responsible for
reporting on business strategy, operational
performance, risks and other signiﬁ cant
developments at Board meetings.

2. Seek to understand and
meet shareholder needs and
expectations

Compliance

The Board recognises its primary role of
representing and promoting the interests
of the Group’s shareholders. The Board
is accountable to shareholders for the
long-term performance and success
of the Company. The Chief Executive
Ofﬁ cer and Finance Director hold regular
meetings with institutional shareholders
and private client brokers to discuss and
review the Group’s activities, strategies
and performance. Investor feedback from
these meetings is provided by the Group’s
NOMAD. The Chief Executive Ofﬁ cer and
Finance Director also present interim and
annual results through webinars open to all
shareholders and members of the public,
which has been well received. Questions
are also encouraged at these sessions. For
the majority of RNS announcements the
Chief Executive also records an appropriate
update to explain the announcement and
again this is available to shareholders. The
Chief Executive Ofﬁ cer and Finance Director
also make themselves available to speak to
potential institutional shareholders. These
meetings and discussions give the Board an
opportunity to gauge shareholder feedback
and expectations, much of which has been
around GatedTalent in 2018.

A RNS is published after the AGM to
announce the resolutions passed at
the AGM. To date all AGM resolutions
proposed have been passed; the Group
has not experienced signiﬁ cant dissenting
shareholder votes for resolutions proposed at
the AGM (over 20%), including proxy votes.

3. Take into account wider
stakeholder and social
responsibilities and their
implications for long-term success

Compliance

The Board recognises its prime
responsibility under UK corporate law is to
promote the success of the Group for the
beneﬁ t of its members as a whole.

Our customers are essential to our business
and we maintain long-term relationships
with our customers. Dillistone operates a
system of key account managers whose role
is to communicate with them and ensure
close liaison, in addition to the day-to-day
communication that occurs with every
customer contract. Customer feedback is
considered at Divisional board meetings,
and our services evolves accordingly. Senior
executives have frequent discussions with
key customers and regular newsletters and
other mailings are used to inform customers
and potential customers.

Our staff are key to the business and
the Directors recognise the need for
engagement with employees. Each main
division hold monthly staff meetings to
update staff on current matters both
in the division and in the wider group.
With less than 150 people, it means
that Directors and management staff are
relatively accessible to all employees. We
also encourage engagement of staff in the
business through share schemes and the
Group runs a Sharesave scheme for all UK
employees.

We develop long standing relationships
with our bankers and keep them regularly
updated as to how the business is
performing. We also seek to maintain long
term relationships with key suppliers.

The Board also understands that it
has a responsibility to consider, where
practicable, the social, environmental and
economic impact of its approach.

254300 Dillistone AR pp10-pp23.indd 11

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CORPORATE GOVERNANCE REPORT

For the year ended 31 December 2018
Continued

4. Embed effective risk
management, considering both
opportunities and threats,
throughout the organisation

Compliance

The Board undertakes a regular and robust
assessment of the effectiveness of the
Group’s risk management framework at
least annually. Each Board meeting includes
an agenda item on risk and consideration
is also given to whether any new risks have
been identiﬁ ed. The latest annual summary
of the signiﬁ cant risks and uncertainties, is
contained in pages 8 and 9. We do not have
a formal risk committee.

Our internal governance and reporting
structure, for example through monthly

Divisional board meetings and ﬁ nancial
reporting, provides a key and effective
risk management tool. Divergences
from expected ﬁ nancial and project
performances are discussed in detail and
remedial action taken where possible. All
divisional Board meetings are attended by
the Chief Executive and Finance Director.

The Group takes external advice from its
advisors on signiﬁ cant matters, and also
tries to ensure that it has qualiﬁ ed staff who
understand key risk issues. For example,
GDPR had a signiﬁ cant impact within the
recruitment and software industry. A senior
member of executive team qualiﬁ ed for a
GDPR practitioner certiﬁ cate and also an
internal committee was established to help
manage risk and compliance. Legal advice
was also sought.

5. Maintain the board as a well-
functioning, balanced team led
by the chair

Compliance

The Board exercises full and effective control
over Dillistone Group. There is a formal
schedule of matters reserved speciﬁ cally for
its decisions, relating to strategy, ﬁ nance,
risk, operations and governance.

The Board delegates certain functions to
its three principal committees, the Audit
Committee, the Remuneration Committee and
the Nomination Committee, as set out below.

Details of the members of the Board are set
out below and further biographical details
are on pages 20 and 21 or on our website.

Non-Executive Directors

M D Love

Non-executive Chairman

G R Fearnley

Non-executive Director

Independent – although Dr Love has served on the Board
for over 9 years and holds 5% of the share capital he is
free from any business or other relationship which could
materially interfere with the exercise of his independent
judgement.

Time commitment to the business is appropriately 1 day
per month.

Senior independent director. Mr Fearnley holds 2.3% of the
share capital and this level of holding is not considered by
the Board to change his independence.

Commitment to the business is approximately ½ day
per month.

Executive Directors

J S Starr

R Howard

A D James

Chief Executive

Operations Director

Director

Full time

Part time – 3 days per week

Full time

J P Pomeroy

Finance Director

Part time – 4 days per week

A Milne

Managing Director – Dillistone Systems Division

Full time

254300 Dillistone AR pp10-pp23.indd 12

22/05/2019 22:30

GOVERNANCE

6. Ensure that between them the
directors have the necessary
up-to-date experience, skills and
capabilities

Compliance

Directors who have been appointed to the
Company have been chosen because of
the skills and experience they offer. Full
biographical details of the Directors are
included under the Management section
on the website and on pages 20 and 21 of
this report.

The Board considers itself sufﬁ ciently
diverse when considering the background,
knowledge and experience that each
individual member brings to the Board.
Where Board appointments are made the
whole Board is involved. One member of
the Board is female. Board appointments
are made solely on merit. Other senior
management appointments, i.e. divisional
and subsidiary directors, are considered by
the remuneration committee and the Board.

Directors are encouraged to keep their skills
up to date by attending appropriate courses
or by being members of other boards where
new skills and ideas can be learned. The
Board keeps under review the strength
and depth of its senior management and
encourages the divisional teams to ensure
they have the skills required. Succession
planning is currently not formally discussed
but will be considered going forward as part
of the Board appraisal process.

The Chairman leads the Board, while
the Chief Executive Ofﬁ cer is charged
with managing the Group’s business.
The roles of the Chairman and Chief
Executive Ofﬁ cer are distinct. The Code
expects an appropriate combination of
executive and non-executive directors.
Our split is between ﬁ ve Executive and two
Non-Executive Directors (including the Non-
Executive Chairman).

The Chairman and the Board collectively
believes this split between its Executive
and Non-Executive Directors is appropriate.
This composition continues to provide
the expertise, breadth of experience and
independence of thought needed, while
maintaining efﬁ cient Board meetings.

The Group considers that both of its Non-
executive directors are independent as
discussed above. The Board considers its
composition appropriate for an AIM-quoted
Group of its size, market cap, and individual
circumstances.

The Board meets at least ﬁ ve times each
year and has adopted a formal schedule of
matters speciﬁ cally reserved for decision
by it, thus ensuring that it exercises control
over appropriate strategic, ﬁ nancial,
operational and compliance issues. At these
meetings the Board reviews trading
performance, ensures adequate ﬁ nancing,
sets and monitors strategy, examines
investment and acquisition opportunities
and discusses reports to Shareholders.

The Board meeting attendance record is set
out below:

Number of
meetings held

Number of
meetings
attended

Name

M D Love

G R Fearnley

J S Starr

R Howard

A D James

J P Pomeroy

A Milne

Currently one third of the Board submits
itself for re-election at each AGM as part of
the Group’s formal retirement by rotation
policy. Under the current Articles every
Director must offer himself for re-election
every three years. We consider a re-
election every three years appropriate for
all Directors, which is not in line with the
Code’s suggestion of annual re-elections.
Mike Love, Jason Starr, Alex James and
Rory Howard have served on the Board
for more than 9 years; despite serving the
Board on a long term basis, the Directors
individually believe that they act objectively
in their respective roles and can act with
sufﬁ cient independence.

All Directors are given full and timely access
to all relevant management and accounting
information. All Directors are able to seek
independent professional advice in the
course of their duties, at the Group’s
expense. If any Director has concerns
regarding unresolved business issues,
they are entitled to require the Company
Secretary to minute their concerns. Formal
terms of reference have been agreed for all
Board Committees.

The Board has three principle committees.
The audit committee which is made up of
the two non executive directors, meets twice
yearly and is chaired by Giles Fearnley. The
remuneration committee again is made up
of the two independent directors and meets
on an adhoc basis and is chaired by Mike
Love. The nomination committee meets as
and when required and there were no such
meetings in 2018.

The Board reviews trading and operational
performance regularly. Divergences
from expected performance are followed
up promptly and rigorously. Monthly
management accounts are prepared
and distributed members of the Board.
Divisional management accounts are also
produced and circulated to divisional
directors.

254300 Dillistone AR pp10-pp23.indd 13

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CORPORATE GOVERNANCE REPORT

For the year ended 31 December 2018
Continued

Board member

Role

Mike Love

Chairman

Giles Fearnley

Senior Independent Director

Jason Starr

CEO

Rory Howard

Operations Director

Alex James

Director

Julie Pomeroy

Finance Director and Company
Secretary

Alistair Milne

Managing Director – Dillistone Systems
Division

Experience

Mike brings a wealth of experience to the Dillistone Board. He was group
managing director of SciSys from 1986 to 2003 during which time he led
a management buy-out of the business and ﬂ oated it on AIM in 1997.
He is an experienced chairman through his current role at SciSys and
also as chairman of a private company Redcliffe Precision Ltd. He has
a good understanding of software development projects and he brings
strong independent judgement to Dillistone.

Giles has a signiﬁ cant experience leading large business in the
passenger transport sector. He brings real commercial judgement to
Dillistone through his knowledge of working in challenging sectors.

Jason has worked for the majority of his career at Dillistone and so
knows the sector extremely well. He also brings further AIM experience
through his role as a non-executive director of AIM listed PCIPAL PLC
where he chairs the remuneration committee.

Rory has a background as a technical and database analyst as well as
being an experienced project manager and a PRINCE2 practitioner.

Alex brought his experience of quality control and account manager as
well as his background in recruitment to Dillistone when he joined in
1999. He has since worked in training and consultancy and in projects
management. He is now responsible for the implementation of products
and services GatedTalent and also projects director for Voyager Division.

Julie is a chartered accountant (ACA) with additional qualiﬁ cations
in both tax and treasury. She is also a Chartered Director. She is an
experienced ﬁ nance director of quoted and private companies. Julie is
also a non-executive director of Nottingham University Hospitals NHS
Trust.

Alistair brought with him a background in marketing and management
when he joined Dillistone in 2003. He has worked principally in support
and technical services within the business.

7. Evaluate board performance
based on clear and relevant
objectives, seeking continuous
improvement

Compliance

The Group undertakes regular monitoring of
personal and corporate performance using
agreed Key Performance Indicators and
detailed ﬁ nancial reports.

The Board does not expect to undertake
an annual independent evaluation as
recommended by the Code. A two-yearly
internal evaluation is considered appropriate

given the smaller size of the Board and
regular day-to-day contact between Board
members. The Board’s ﬁ rst evaluation
took place in March 2019 with the results
reported to the Board in April 2019. The
Chairman and Independent Non-Executive
Director prepared the board evaluation
questionnaire and assessment criteria
drawing on their experience of running
evaluation programmes at other quoted
companies.

The key areas addressed by the
questionnaire were as follows:

•

Board Role and Agenda Setting (Monitoring
Performance and Strategic Planning)

Size, Composition and Independence of
Boa rd

• Director Orientation and Development

•

Board Leadership, Teamwork and
Management Relations

• Board (and Committee) Meetings

•

Director and Board Evaluation,
Compensation and Ownership

Management Evaluation, Compensation
and Ownership

• Succession Planning

• Ethics

254300 Dillistone AR pp10-pp23.indd 14

22/05/2019 22:30

GOVERNANCE

The Chairman aggregated the scores and
the results were discussed. For the low
scoring questions plans are being drawn for
the following areas:

8. Promote a corporate culture
that is based on ethical values
and behaviours

1. Board training

Compliance

2. Board performance benchmarks

3. Board evaluation

4. Succession planning

Directors’ performance has been informally
reviewed by the chairman annually.
A formal annual review is currently being
put in place.

The Board keeps under review the strength
and depth of its senior management and
encourages the divisional teams to ensure
they have the skills required. Succession
planning is currently not formally discussed
but will be considered going forward as part
of the Board appraisal process.

Our corporate values of openness and
respect, set by the Board, seek to promote
good corporate behaviours. The Group
operates in international markets and is
mindful that respect of individual cultures is
critical to corporate success.

The Group has an anti-bribery policy and
has implemented adequate procedures
described by the Bribery Act 2010.

The Group has undertaken a review of
its requirements under the General Data
Protection Regulation, implementing
appropriate policies, procedures and
training to ensure it is compliant. A senior
member of executive team has a GDPR
practitioner certiﬁ cate and also an internal
committee has been established to help
manage risk and compliance. Legal advice
was also sought.

9. Maintain governance
structures and processes that are
ﬁ t for purpose and support good
decision-making by the board

Compliance

The Board sets the Group’s strategic aims
and ensures that necessary resources are
in place in order for the Group to meet its
objectives. All members of the Board take
collective responsibility for the performance
of the Group and all decisions are taken in
the interests of the Group.

The Chairman leads the Board, while the
Chief Executive Ofﬁ cer is charged with
managing the Group’s business. The roles
of the Chairman and Chief Executive Ofﬁ cer
are distinct.

Board member

Role

Mike Love

Chairman

Responsibilities

Leads the Board

Giles Fearnley

Senior Independent Director

NED

Jason Starr

Rory Howard

CEO

Operations Director

Alex James

Director

Managing the Group’s businesses

Responsible for operations at Dillistone Division including commercial
contracts and insurance. He is also Group DPO

Responsible for the implementation of products and services for
GatedTalent and also projects director for Voyager Division

Julie Pomeroy

Finance Director

Group Finance Director and Company Secretary

Alistair Milne

Managing Director – Dillistone Systems
Division

Responsible for the performance of Dillistone Division

254300 Dillistone AR pp10-pp23.indd 15

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CORPORATE GOVERNANCE REPORT

For the year ended 31 December 2018
Continued

We have two main Board committees; an
Audit Committee and a Remuneration
Committee. The Board as a whole makes
up the Nomination committee. Their
responsibilities are summarised below:

Audit Committee

•

The Committee is made up of the 2
non executive directors and meets
twice a year to consider the scope
of the annual audit and the interim
ﬁ nancial statements and to assess the
effectiveness of the Group’s system of
internal controls.

It reviews the results of the external
audit, its cost effectiveness and the
objectives of the auditor.

Given the size of the Group, the Audit
Committee considers an internal audit
function is not currently justiﬁ ed.

The audit committee meets at least
annually with the auditors without
executive management.

While our divisions operate as separate
units with areas of autonomy set by the
Board, they are supervised by the Board
through structured Divisional board
meetings and reporting, which is fed into
the Chief Executive Ofﬁ cer, and reported
back into the Board meetings. Divisional
boards normally meet monthly.

In 2017, a separate GDPR committee
was formed and meets monthly. A Data
Protection Ofﬁ cer has been appointed.

Further details of the Group’s corporate
governance arrangements are provided
within this Corporate Governance section
of the website. The appropriateness of the
Company’s governance structures will be
reviewed as the Company evolves.

10. Communicate how the
company is governed and is
performing by maintaining a
dialogue with shareholders and
other relevant stakeholders

•

The audit committee reports its
discussions to the next Board Meeting.

Compliance

Remuneration Committee

•

It meets at least once a year to determine
Group policy on senior Executive
remuneration, to make detailed
recommendations to the Board regarding
the remuneration packages of the Executive
Directors and to consider awards under the
Group’s option schemes.

The Chief Executive Ofﬁ cer is consulted
on remuneration packages and policy
but does not attend discussions
regarding his own package.

The remuneration and terms and
conditions of the appointment of Non-
executive Directors are determined by
the Board.

The Board recognises its primary role of
representing and promoting the interests
of the Group’s shareholders. The Board is
accountable to shareholders for the long-
term performance and success of the Group.
The Chief Executive and Finance Director
hold regular meetings with institutional
shareholders and private client brokers to
discuss and review the Group’s activities,
strategies and performance. Investor
feedback from these meetings is provided
by WH Ireland. The Chief Executive Ofﬁ cer
and Finance Director also present interim
and annual results through webinars open to
all shareholders and members of the public,
which has been well received. Questions are
also encouraged at these sessions. For the
majority of RNS announcements the Chief
Executive also records an appropriate update
to explain the announcement and again this
is available to shareholders.

The Chief Executive Ofﬁ cer and Finance
Director also make themselves available to
speak to potential institutional shareholders.
These meetings and discussions give the
Board an opportunity to gauge shareholder
feedback and expectations.

In conjunction with the Group’s Nomad and
other ﬁ nancial advisers we distribute news
in a timely fashion through appropriate
channels, to ensure that shareholders are
able to access material information about
the Group’s progress.

Details of the work of the audit and
remuneration committee are dealt with
above. The remuneration report is
contained on pages 17 to 19. In view of
the size of the organisation no formal audit
committee report is produced.

Regular newsletters are sent to customers
and potential customers to keep them
updated. Also LinkedIn groups have been
formed which enable interested parties to
have appropriate dialogues with the various
businesses.

Monthly staff meetings are held in the
divisions to keep them informed about
developments in the business and for
issues to be raised.

Details of RNS announcements and copies
of annual and interim reports are contained
within the accounts and RNS sections of
the AIM Rule 26 area of our website.

254300 Dillistone AR pp10-pp23.indd 16

22/05/2019 22:30

GOVERNANCE

REPORT TO THE SHAREHOLDERS
ON DIRECTORS’ REMUNERATION

For the year ended 31 December 2018

Remuneration report

Service contracts
The Board’s policy is that service contracts of Executive Directors should provide for termination by the Group on one year’s notice.
The service contracts of each of the current Executive Directors provide for such a period of notice.

The independent Non-Executive Directors have letters of appointment providing ﬁ xed 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 inﬂ ation 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 ﬁ rst is an annual bonus scheme which is based upon the
achievement of certain proﬁ t and commercial targets for the Group, as appropriate. The Executive Directors’ bonus recognised in the 2018
ﬁ nancial year is £nil (2017: £17,000) 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 or other targets set by the
Remuneration Committee. 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 ﬁ xed as a percentage of salary. The awards are subject to meeting challenging
targets. Annual awards are usually 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 ﬁ nancial 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

Beneﬁ ts
£’000

124
46
98
91
98

35
13
505

-
-
-
-
-

-
-
-

8
33
9
12
8

-
-
70

1
1
-
1
-

-
-
3

2018
£’000

133
80
107
104
106

35
13
578

2017
£’000

133
81
104
105
104

35
13
575

* Salary is calculated after deducting salary sacriﬁ ce payments which totalled £36,000.

† Includes salary sacriﬁ ce payments which totalled £36,000.

254300 Dillistone AR pp10-pp23.indd 17

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

REPORT TO THE SHAREHOLDERS
ON DIRECTORS’ REMUNERATION

For the year ended 31 December 2018
Continued

Long term incentive payments made in the period are not included in the above ﬁ gures but are detailed below:

LTIP award – % of salary arrangement

J S Starr
R Howard

Maximum payout
awarded in period
£’000

Paid in the year including
NI Employer’s
£’000

Total value of salary
based LTIP awards carried
at 31 December 2018*
£’000

Total value of all salary
based LTIP awards carried
at 31 December 2017*
£’000

-
-
-

1
1
2

8
4
12

* 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
Total

No options were exercised in the year.

Number of options granted
under LTIP scheme in year

Total number of options
granted under LTIP
scheme at 31 December
2018

Total number of options
granted under LTIP scheme
at 31 December 2017

-
-
-
-

264,471
264,063
264,471
793,005

330,830
330,134
327,659
988,623

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 2018

At 31 December 2017

3,577,591
3,300,000
112,744
989,754
453,435
59,109
63,733

254300 Dillistone AR pp10-pp23.indd 18

22/05/2019 22:30

GOVERNANCE

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 2018

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 satisﬁ ed 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 2018

At 31 December 2017

264,471
275,586
269,098
809,155

330,830
341,657
332,286
1,004,773

254300 Dillistone AR pp10-pp23.indd 19

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

BOARD OF DIRECTORS

For the year ended 31 December 2018

MIKE LOVE
70
NON-EXECUTIVE
CHAIRMAN

JASON STARR
47
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
ﬂ oated 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 Ofﬁ cer. 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 2015.

RORY HOWARD
51
OPERATIONS
DIRECTOR

ALEX JAMES
46
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.

254300 Dillistone AR pp10-pp23.indd 20

22/05/2019 22:30

GOVERNANCE

ALISTAIR MILNE
43
MANAGING DIRECTOR
– DILLISTONE
SYSTEMS DIVISION

JULIE POMEROY
63
FINANCE DIRECTOR

Alistair started his career at Richmond Theatre in 1994, working
in both the marketing department and box ofﬁ ce. 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 Ofﬁ ce
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 2018, previously being the Director of Support Services.

Julie is an experienced ﬁ nance 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 qualiﬁ cations.
Julie was group ﬁ nance director of Carter & Carter Group plc
until October 2005, having joined in 2002 to help grow and ﬂ oat
the business. She had previously been chief ﬁ nancial ofﬁ cer of
Weston Medical Group plc and prior to this Julie worked at East
Midlands Electricity plc as director of corporate ﬁ nance. She was
ﬁ nance 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
64
NON-EXECUTIVE
DIRECTOR

A career in the passenger transport industry saw Giles lead an
MBO in 1991, forming Blazeﬁ eld 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.

254300 Dillistone AR pp10-pp23.indd 21

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

DIRECTORS’ REPORT

For the year ended 31 December 2018

The Directors present their report and ﬁ nancial statements for the year ended 31 December 2018.

Results and dividends

The consolidated statement of comprehensive income for the year is set out on page 30.

No ﬁ nal dividend will be paid (2017: 0.5p)

Directors

The following Directors have held ofﬁ ce since 1 January 2018:

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 pages 18 and 19.

Giles Fearnley and Julie Pomeroy are proposed for re-election at the forthcoming AGM. Julie has a service contract with a one year notice
period. Mike Love has been a Non-Executive Director for over nine years and therefore will offer himself for re-election annually.

Financial risk management

Details of the Group’s ﬁ nancial risk management are set out in the Strategic Report section.

Directors’ and ofﬁ cers’ insurance

The Group maintains insurance cover for all Directors and ofﬁ cers of Group companies against liabilities which may be incurred by them while
acting as Directors and ofﬁ cers.

Future developments

The Directors consider that the continued investment in product and market development will allow the business to grow organically in its core
markets. The combination of organic growth along with strategic acquisitions will support the expected growth as outlined in the Chairman’s
Statement and the Strategic Report.

Research and development activities

The Group continues its development programme of software for the recruitment market including the research and development of new
products and enhancement to existing products. The Directors consider the investment in research and development to be fundamental to the
success of the business in the future.

Post balance sheet events

In February 2019 the Group announced a major restructuring and closing of its London Ofﬁ ce.

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 the ofﬁ ces of Voyager Software, 12 Cedarwood, Crockford Lane, Chineham Business
Park, Basingstoke, RG24 8WD on 26 June 2019 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.

254300 Dillistone AR pp10-pp23.indd 22

22/05/2019 22:30

GOVERNANCE

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.

Directors’ responsibilities

The Directors are responsible for preparing the Directors’ Report and the ﬁ nancial statements in accordance with applicable law and
regulations.

Company law requires the Directors to prepare ﬁ nancial statements for each ﬁ nancial year. The Directors are also required to prepare
ﬁ nancial 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 ﬁ nancial statements in accordance with International
Financial Reporting Standards as adopted by the European Union (IFRSs). Under company law the Directors must not approve the ﬁ nancial
statements unless they are satisﬁ ed that they give a true and fair view of the state of affairs and proﬁ t or loss of the Group and Company for
that period.

In preparing the Group and Company ﬁ nancial 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; and

prepare the ﬁ nancial 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 sufﬁ cient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the ﬁ nancial position of the Company and enable them to ensure that the ﬁ nancial statements
comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and 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 ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements
contained therein.

The Directors conﬁ rm 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

29 April 2019

254300 Dillistone AR pp10-pp23.indd 23

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

INDEPENDENT AUDITOR’S REPORT

to the members of Dillistone Group Plc
For the year ended 31 December 2018

Opinion
We have audited the ﬁ nancial statements of Dillistone Group Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 December 2018 which comprise the consolidated statement of comprehensive income, the consolidated and company statement of
changes in equity, the consolidated and company statement of ﬁ nancial position, the consolidated and company cash ﬂ ow statement; and
notes to the ﬁ nancial statements, including a summary of signiﬁ cant accounting policies.

The ﬁ nancial reporting framework that has been applied in the preparation of the ﬁ nancial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company ﬁ nancial statements, as applied
in accordance with the provisions of the Companies Act 2006.

In our opinion:

•

the ﬁ nancial 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 2018
and of the group’s loss for the year then ended;

the group ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

the parent company ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial statements in the
UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulﬁ lled our other ethical responsibilities in accordance with
these requirements. We believe that the audit evidence we have obtained is sufﬁ cient 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 ﬁ nancial statements is not appropriate; or

the directors have not disclosed in the ﬁ nancial statements any identiﬁ ed material uncertainties that may cast signiﬁ cant 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 ﬁ nancial statements are authorised for issue.

Overview

MATERIALITY

AUDIT SCOPE

Group materiality was £130,000 (2017: £143,000), which represents 1.50% (2017: 1.50%)
of total revenue. Component materiality and other considerations are detailed in the materiality
section below.

We identiﬁ ed ﬁ ve 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 ﬁ nancial
information.

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 ofﬁ ce. BDO network component auditors were
engaged to perform speciﬁ c audit procedures on the operations located in Australia.

AREAS OF FOCUS

We have identiﬁ ed and reported on three key audit matters, Capitalised Development Costs,
Impairment of Intangible Assets and Revenue Recognition (as detailed below).

254300 Dillistone AR pp24-pp29.indd 24

22/05/2019 22:30

FINANCIAL STATEMENTS

Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most signiﬁ cance in our audit of the ﬁ nancial statements
of the current period and include the most signiﬁ cant assessed risks of material misstatement (whether or not due to fraud) we identiﬁ ed,
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 ﬁ nancial 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 signiﬁ cant judgement, including:

• Determining the distinction between research and

development costs; and

• Determining the value of salary costs relating

to members not in the development team to be
capitalised.

Management have also utilised signiﬁ cant 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 2 and 3.

Recognition of
revenue

The group’s revenue recognition policy can be found in
note 1.4 to the ﬁ nancial statements.

We consider a signiﬁ cant 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.

Therefore the key audit matter was 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.

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 completed projects during the year for which
costs were capitalised.

• Consideration of management’s assessment of

technical feasibility.

• Where appropriate, conﬁ rmation 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.

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:

• 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 conﬁ rm revenue cut-off procedures
have been correctly applied.

254300 Dillistone AR pp24-pp29.indd 25

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

INDEPENDENT AUDITOR’S REPORT

to the members of Dillistone Group Plc
For the year ended 31 December 2018
Continued

Key audit matter

Description of key audit matter

Our response

Impairment of
Intangible Assets

The group’s policy regarding impairment of intangible
assets can be found in note 1.10 to the ﬁ nancial
statements.

In the current year, the group lost a major customer
contract, signiﬁ cantly reducing the income generated by
the Voyager division. In addition, the group experienced
lower sales and proﬁ ts than forecast across all divisions
during 2018. Given the group carries a material balance
of intangible assets, we determined that these indicators
of impairment presented a signiﬁ cant risk of material
misstatement.

Therefore, the key audit matter was the valuation of
the goodwill and other intangible asset balances held
on the statement of ﬁ nancial position at year-end, and
speciﬁ cally, the potential for these to be impaired.

Our audit procedures involved:

•

We reviewed management’s impairment
assessments for each CGU, including the discounted
cash ﬂ ow analysis. As part of this, we challenged
the key assumptions, including the growth rate and
discount rates applied. This included consultation
with valuation experts on the appropriate use of
these assumptions, where required.

Based on external evidence, we performed
sensitivity testing on certain assumptions used in the
impairment assessment.

Compared the discounted cash ﬂ ow analysis to the
historical performance and the actual post year-end
results of each CGU.

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 inﬂ uence the economic decisions of reasonable users that are taken on the
basis of the ﬁ nancial 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 identiﬁ ed misstatements, and the particular circumstances of their
occurrence, when evaluating their effect on the ﬁ nancial statements as a whole.

We agreed with the audit committee that we would report to the committee all individual audit differences identiﬁ ed during the course of our
audit in excess of £6,500 (2017: £7,150). We also agreed to report differences below these thresholds that, in our view, warranted reporting
on qualitative grounds.

Overall group materiality

Basis for determining

Rationale for benchmark applied

£130,000 (2017: £143,000)

1.50% of total group revenue (2017: 1.50%)

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 capitalise costs in accordance with IAS 38. Furthermore,
as a signiﬁ cant driver of proﬁ t, revenue growth impacts the achievement of key
performance indicators resulting in bonus schemes and incentive plans offered by
the group.

Parent company materiality

£121,000 (2017: £108,000)

254300 Dillistone AR pp24-pp29.indd 26

22/05/2019 22:30

FINANCIAL STATEMENTS

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 ﬁ nancial information of subsidiaries within the group where the
subsidiary is considered signiﬁ cant to the group.

We determined component materiality as follows:

Range of component materiality 8% to 92% (2017: 3% to 93%) of group materiality

Performance materiality was set at 75% (2017: 75%) of the above materiality ﬁ gures.

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 ﬁ nancial 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 sufﬁ cient
assurance was gained to allow us to express an opinion on the ﬁ nancial 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 identiﬁ ed ﬁ ve centrally controlled components as signiﬁ cant,
and have audited these for group reporting purposes.

The group audit team centrally performed the audit of 83% (2017: 82%) of group revenue and 95% (2017: 95%) of total assets using the
materiality levels set out above.

For two of the components not considered signiﬁ cant, the component auditors performed speciﬁ c 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 speciﬁ c scope
procedures were performed by the group audit team on the remaining three reporting components not considered signiﬁ cant to the group.

Total Revenue

Total Assets

UK, 83%

US, 13%

AUS, 4%

UK, 95%

US, 4%

AUS, 1%

254300 Dillistone AR pp24-pp29.indd 27

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

INDEPENDENT AUDITOR’S REPORT

to the members of Dillistone Group Plc
For the year ended 31 December 2018
Continued

Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other
than the ﬁ nancial statements and our auditor’s report thereon. Our opinion on the ﬁ nancial 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 ﬁ nancial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the ﬁ nancial 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 ﬁ nancial 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 ﬁ nancial year for which the ﬁ nancial statements are prepared
is consistent with the ﬁ nancial statements; and

•

the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit,
we have not identiﬁ ed 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 ﬁ nancial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration speciﬁ ed 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 23, the directors are responsible for the preparation of
the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of ﬁ nancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the ﬁ nancial 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 ﬁ nancial statements
Our objectives are to obtain reasonable assurance about whether the ﬁ nancial 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 inﬂ uence the economic decisions of users taken on the basis of these ﬁ nancial statements.

A further description of our responsibilities for the audit of the ﬁ nancial 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.

254300 Dillistone AR pp24-pp29.indd 28

22/05/2019 22:30

FINANCIAL STATEMENTS

Use of our report
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.

Signature

David Butcher (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London

29 April 2019

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

254300 Dillistone AR pp24-pp29.indd 29

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME

For the year ended 31 December 2018

Revenue

Cost of sales

Gross proﬁ t

Administrative expenses

Operating loss

Adjusted operating proﬁ t before acquisition related and one–off items

Acquisition related and one-off items

Operating (loss)/proﬁ t

Financial income

Financial cost

Loss before tax

Tax income

(Loss)/proﬁ t for the year

Other comprehensive income/(loss)

Items that will be reclassiﬁ ed subsequently to proﬁ t and loss:

Currency translation differences

Total comprehensive (loss)/income for the year

Earnings per share

Basic

Diluted

Note

2018
£’000

8,692

(1,054)

7,638

(8,052)

(414)

(469)

(414)

(38)

(451)

191

(260)

(30)

(290)

(1.32)p

2017
restated
£’000

9,732

(1,247)

8,485

(8,849)

(364)

459

(823)

(364)

(12)

(375)

432

(24)

0.29p

See note 26 for details of restatement of 2017 numbers as a result of a change in accounting policy.

Cost of sales have been reduced by £0.289m in 2017 and administrative costs increased by the same amount due to the reclassiﬁ cation of
contractors and internal development costs.

The notes on pages 36 to 73 are an integral part of these consolidated and company ﬁ nancial statements.

254300 Dillistone AR pp30-pp35.indd 30

22/05/2019 22:30

CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY

For the year ended 31 December 2018

Share
Share
capital premium
£’000
£’000

Merger Retained
reserve earnings
£’000

£’000

Convertible
loan
reserve
£’000

FINANCIAL STATEMENTS

Share
Foreign
option exchange
£’000
£’000

Total
£’000

Balance at 1 January 2017 (as previously stated)

983

1,631

365

3,725

117

6,906

Prior year adjustment IFRS 15

(1,190)

Balance at 1 January 2017 (restated)

983

1,631

365

2,535

117

5,716

Comprehensive income

Proﬁ t for the year (as restated)

Other comprehensive income

Exchange differences on translation of overseas operations

Total comprehensive income (as restated)

Transactions with owners

Share option charge

Issue of convertible loan note

Dividends paid

Total transactions with owners

(551)

(547)

Balance at 31 December 2017 (as restated)

983

1,631

365

2,045

Comprehensive income

(Loss) for the year ended 31 December 2018

Other comprehensive income/(loss)

Exchange differences on translation of overseas operations

Total comprehensive income

Transactions with owners

Share option charges

Dividends paid

Total transactions with owners

Balance at 31 December 2018

(260)

(98)

101

(24)

(551)

(517)

5,232

(260)

(30)

(290)

(98)

(93)

983

1,631

365

1,687

106

4,849

The notes on pages 36 to 73 are an integral part of these consolidated and company ﬁ nancial statements.

254300 Dillistone AR pp30-pp35.indd 31

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

COMPANY STATEMENT OF
CHANGES IN EQUITY

For the year ended 31 December 2018

Balance at 1 January 2017

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

Comprehensive income

Total comprehensive income for the year ended 31 December 2018

Transactions with owners

Share option charge

Dividends paid

Total transactions with owners

Balance at 31 December 2018

Convertible

Share
Share
capital premium
£’000
£’000

Merger
reserve
£’000

loan Retained
reserve earnings
£’000

£’000

Share
option
£’000

Total
£’000

983

1,631

365

1,825

4,889

983

1,631

365

1,311

(551)

(547)

(551)

(517)

2,589

101

5,683

1,338

(98)

(93)

983

1,631

365

3,829

106

6,928

The notes on pages 36 to 73 are an integral part of these consolidated and company ﬁ nancial statements.

254300 Dillistone AR pp30-pp35.indd 32

22/05/2019 22:30

FINANCIAL STATEMENTS

CONSOLIDATED AND COMPANY STATEMENTS
OF FINANCIAL POSITION

As at 31 December 2018

Group

Company

ASSETS

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment

Investments

Total non-current assets

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

Total current assets

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

Note

2018
£’000

3,415

4,754

113

8,282

1,522

725

2,250

2017
restated
£’000

3,415

4,881

164

8,460

1,677

1,390

3,070

10,532

11,530

983

1,631

365

1,687

106

4,849

690

390

489

4,370

(270)

5,683

10,532

983

1,631

365

2,045

101

5,232

794

386

508

4,775

(170)

6,298

11,530

2018
£’000

7,151

1,289

8,440

983

1,631

365

3,829

106

6,928

390

1,091

1,512

8,440

2017
£’000

7,602

934

1,033

8,635

983

1,631

365

2,589

101

5,683

386

2,549

2,952

8,635

The proﬁ t for the ﬁ nancial year for the parent Company was £1,338,000 (2017: £1,311,000).

The notes on pages 36 to 73 are an integral part of these consolidated and company ﬁ nancial statements.

The ﬁ nancial statements were approved by the Board of Directors and authorised for issue on 29 April 2019. They were signed on its behalf by
J P Pomeroy – Director
Company Registration No. 4578125

254300 Dillistone AR pp30-pp35.indd 33

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

CONSOLIDATED CASH FLOW STATEMENT

As at 31 December 2018

Operating activities

(Loss) before tax

Adjustment for:

Financial income

Financial cost

Depreciation and amortisation

Share option expense

Foreign exchange adjustments arising from operations

Operating cash ﬂ ows before

movement in working capital:

(Increase) in receivables

Decrease in inventories

(Decrease) in payables

Taxation refunded/(paid)

2018
£’000

(451)

(1)

1,714

1,375

171

(471)

2018
£’000

2017
restated
£’000

(375)

(1)

1,938

(12)

1,582

573

(273)

(12)

Net cash generated from operating activities

1,140

1,872

Investing activities

Interest received

Purchases of property, plant and

equipment

Investment in development costs

Contingent and deferred consideration paid

Net cash used in investing activities

Financing activities

Financial cost

Net proceeds from convertible loan note

Bank loan repayments made

Dividends paid

Net cash used in ﬁ nancing 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

(55)

(1,481)

(146)

(33)

(98)

(55)

(1,439)

(219)

(1,681)

(1,712)

(7)

400

(158)

(551)

(131)

(672)

1,390

725

(316)

(156)

1,537

1,390

The notes on pages 36 to 73 are an integral part of these consolidated and company ﬁ nancial statements.

254300 Dillistone AR pp30-pp35.indd 34

22/05/2019 22:30

FINANCIAL STATEMENTS

COMPANY CASH FLOW STATEMENT

For the year ended 31 December 2018

Operating activities

Proﬁ t before tax

Adjustment for:

Financial cost

Impairment

Share option expense

Operating cash ﬂ ows before

movements in working capital

Increase in receivables

(Decrease) in payables

Net cash generated from operating activities

Investing activities

Acquisition of subsidiaries

Contingent consideration paid

Net cash used in investing activities

Financing activities

Net proceeds from convertible loan note

Financial cost

Bank loan repayments made

Dividends paid

Net cash used in ﬁ nancing 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

2018
£’000

1,338

451

1,831

(355)

(1,313)

(146)

(33)

(98)

2017
£’000

1,311

1,343

(583)

(168)

(1)

(219)

400

(7)

(158)

(551)

2018
£’000

163

(146)

(131)

(114)

(15)

2017
£’000

592

(220)

(316)

The notes on pages 36 to 73 are an integral part of these consolidated and company ﬁ nancial statements.

254300 Dillistone AR pp30-pp35.indd 35

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018

Dillistone Group Plc (the ‘Company’) is a company incorporated in England and Wales. The ﬁ nancial statements are presented in thousand
Pounds Sterling. The principal activities have been detailed in the Strategic Report and the registered ofﬁ ce is 50 Leman St, London, E1 8HQ.

The Group ﬁ nancial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’). The parent
company ﬁ nancial statements present information about the Company as a separate entity and not about its Group.

Both the Group ﬁ nancial statements and the Company ﬁ nancial 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 ﬁ nancial statements here together with the Group
ﬁ nancial 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 ﬁ nancial statements.

Accounting policies

1.1

Basis of accounting

The consolidated and company ﬁ nancial statements have been prepared using the signiﬁ cant accounting policies and measurement bases
summarised below:

Signiﬁ cant 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:

Expected life of support contracts
As detailed in note 1.4, the Group recognises revenue arising on perpetual licences with mandatory support contracts over time. The Group
must determine the relevant period to be the life of the support contract, which is unknown at inception. Having reviewed support contract
turnover, Management estimates the typical life of relevant contracts to be ﬁ ve years. Changes to this estimate would impact the timing of
revenue recognition on such contracts.

Amortisation of internal development expenditure
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 life cycle 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 estimate the amount of Directors’ costs that are capitalised given the degree of the Director’s involvement in relevant projects.

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 ﬂ ows 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 ﬁ nancial
position date. Valuation techniques commonly used by market practitioners are applied. In particular, in applying the provision matrix model to
trade receivables (see note 1.14) Management has estimated the impact of forward-looking economic data on the future collectability of its trade
receivables. In particular, given its geographical areas of operation include the UK and Europe, Management has considered the potential impact
of the UK’s exit from the European Union. Although it is thought likely to increase default levels, the ongoing uncertainty of the outcome to this
process and the uncertainty of its effect on the Group’s clients has meant that precision is very difﬁ cult to achieve. Thus the Group evaluated a
range of outcomes in determining probable future loss rates and chose what it considered to be the most likely scenario. See note 17.

254300 Dillistone AR pp36-END.indd 36

22/05/2019 22:30

FINANCIAL STATEMENTS

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 and leaver 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 signiﬁ cantly affect the amounts
recognised in the ﬁ nancial statements. The critical judgements are considered to be the following:

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 beneﬁ ts.

Valuation of separately identiﬁ able intangible assets
As detailed in note 1.8, separately identiﬁ able intangible assets are identiﬁ ed and amortised over a deﬁ ned 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.

Customers’ practical acceptance of licence software
As detailed in note 1.4, various elements of the Group’s revenue recognition policy require determination of point at which control of the good
or service being provided passes to the customer.

The Group uses the ‘live’ date as the basis of determining the timing of customer practical acceptance of the software and the passing of
control. In particular for sales of perpetual licences without mandatory support, this constitutes the point in time at which performance
obligations relating to the licence are fulﬁ lled and revenue can be recognised. Likewise, for SaaS contracts, this date is the commencement for
the period of time over which licence revenue can be recognised. Alternative judgements of when control passes to the customer could impact
the timing of revenue recognition.

The accounting policies set out below have, unless otherwise stated, been applied consistently by the Group to all periods presented in these
ﬁ nancial statements.

1.2

Going concern

The Group’s business activities and ﬁ nancial 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 5 to 10. In addition, note 25 to the ﬁ nancial statements includes
the Company’s objectives, policies and processes for managing its capital; its ﬁ nancial risk management objectives; details of its ﬁ nancial
instruments; and its exposures to credit risk and liquidity risk. The Group prepare budgets and cashﬂ ow forecasts to ensure that the Group
can meet its liabilities as they fall due.

The Group has considerable ﬁ nancial 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 ﬁ nancial statements. Thus they continue to adopt the going concern basis of accounting in
preparing the annual ﬁ nancial statements.

254300 Dillistone AR pp36-END.indd 37

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

1.3

Basis of consolidation

The Group ﬁ nancial statements consolidate those of the parent company and all of its subsidiaries as of 31 December 2018. 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. Amounts reported in the ﬁ nancial statements of subsidiaries have been adjusted where necessary to
ensure consistency with the accounting policies adopted by the Group.

Proﬁ t 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

The Group’s revenue recognition policy is based on the principle of transfer of promised goods and services (‘performance obligations’) to the
customer. Revenue is recognised on the satisfaction of these contractual performance obligations using a ﬁ ve-step approach, consisting of:

(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)

identiﬁ cation of the contract with the customer;
identiﬁ cation of all performance obligations in that contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations; and
recognition of revenue as the performance obligations are fulﬁ lled.

Contracts are broken down into distinct goods and services in order to identify the separate performance obligations within. Goods and
services are considered distinct if they are capable of being used independently by the customer, and if they are separately identiﬁ able in the
context of the contract.

Depending on the work being performed, customers are typically invoiced work in two stages: a deposit invoice at contract inception before
work commences, then a ﬁ nal invoice on completion. For ongoing contracts such as support and SaaS contracts, invoices are issued in
advance for the relevant subscription period. All such invoices are typically due for payment within 30 days.

Transaction prices are the amounts of consideration the Group expects to be entitled to in exchange for the transfer of promised goods and
services to the customer, exclusive of VAT or any applicable sales taxes. If the timing of payments provides either the Group or customer
with a beneﬁ t of ﬁ nancing the transfer of goods or services, a signiﬁ cant ﬁ nancing component exists. Although standard payment terms for
all customers is 30 days, there is some variability in the timing of payment and delivery (for instance, some customers pay by instalments).
However, timing differences between delivery and settlement are one year or less. As such, the Group applies the practical expedient in
IFRS 15 not to adjust for signiﬁ cant ﬁ nancing components.

Transaction prices are allocated to contractual performance obligations based on stand-alone selling prices. Where the Group occasionally offers
discounts to customers, these are allocated to performance obligations within the contract on the basis of relative stand-alone selling prices.

Revenue is recognised when control of the good or service has been passed to the customer by satisfying the performance obligation, either
over time or at a point in time, as follows:

(cid:129)
(cid:129)

Over time: this typically occurs when the customer simultaneously receives and consumes the beneﬁ ts of a service performed by the Group.
At a point in time: The moment of transfer of control is typically indicated by:
o
o
o
o
o

the Group having right to payment;
the customer having legal title to the asset;
the Group transferring physical possession of the asset to the customer, where relevant;
the customer having signiﬁ cant risks and rewards of ownership of the asset; and
the customer having accepted the asset.

The incremental costs incurred in obtaining contracts with customers (e.g. sales commissions) are recognised as an expense as incurred using the
practical expedient under IFRS 15 since, if such costs were recorded as an asset, the amortisation period of that asset would be less than one year.

The Group has considered the most signiﬁ cant ways it generates revenue from the goods and services it sells. The following sets out how the
general principles above apply to each of these signiﬁ cant areas and how revenue on each is recognised.

254300 Dillistone AR pp36-END.indd 38

22/05/2019 22:30

FINANCIAL STATEMENTS

Sales of perpetual licences without a mandatory support contract
The Group licences software under licence agreements. The customer typically pays a one-off amount to purchase a licence conferring a
perpetual right to use a version of the software. Revenue is recognised at a point in time, when control of the licence passes to the customer
through practical acceptance. The Group considers the ‘live’ date to indicate practical acceptance of the software (refer note 1.1) and thus
the date for transfer of control. If payments have been received in advance for licences, where practical acceptance has not yet been reached,
these amounts are not recognised as revenue but as deferred income in the statement of ﬁ nancial position.

Sales of perpetual licences with a mandatory support contract
Some of the Group’s perpetual licences are sold with mandatory support contracts. In these instances, if the customer decides to cancel their support
contract their ability to use the perpetual licence ceases. In these cases, the Group considers the provision of the perpetual licence and the support
contract to constitute one performance obligation. As such, the Group recognises the revenue relating to the perpetual licence over time, being the
life of the support contract. As this is not known at inception, the group estimates the expected life of support contracts to be ﬁ ve years.

Subscription services, such as support, hosting and SaaS (‘Software as a Service’)
Each subscription service constitutes a separate contractual arrangement, and separate performance obligation. In each case the customer
pays a regular ﬁ xed amount for the right to access relevant services, commencing on practical acceptance of the software (as previously
deﬁ ned). As these services are consumed as they are provided revenue is recognised over time, matching the period of the contract.
If subscription services are invoiced in advance, these amounts are deferred and recognised as revenue over the relevant period.

Installations
The customer pays a fee for the software to be installed. To the extent to which this work is not complex and could be performed by a third
party, revenue is recognised at a point in time, on completion. Complex work constitutes one performance obligation with the software licence,
with installation revenue recognised in accordance with how revenue is recognised on the licence.

Training
The customer pays a fee for training. To the extent to which training is not essential for use of the software, revenue is recognised at a point in
time, on delivery. Training that is considered essential constitutes one performance obligation with the software licence, and training revenue is
recognised in accordance with how revenue is recognised on the licence.

Third party revenues
The Group sells, predominantly as principal, software developed by other organisations together with services that are bought in from third
parties. The Group applies the principles of its revenue recognition policy to sales of third-party software in the same way it does sales of its
own licenced products. As such, where perpetual licences that are capable of independent use represent one performance obligation, revenue
on these is recognised at a point in time on practical acceptance of the software. If use of the software relies on using other services that are
consumed over time, revenue from perpetual licence sales are recognised over time in line with recognition of those other services. Services
are recognised over time in the period in which they are provided.

Tokens
The Group sells single-use tokens to access certain services within the business. Tokens are normally bought in bundles and can be used
once within a certain period of time. Tokens have a ﬁ xed expiry period after which the customer has no legally enforceable right to claim on the
tokens. The performance obligation conveyed by each token is satisﬁ ed when the token is used. As such, revenue is recognised at a point in
time, being on use of the token or on expiry of unused 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. proﬁ tability or sales growth targets).

All equity-settled share-based compensation is ultimately recognised as an expense in the proﬁ t 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 share 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.

254300 Dillistone AR pp36-END.indd 39

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

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 or other targets set by the Remuneration Committee. 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 usually based on a
percentage of salary with performance conditions related to the growth in earnings per share of the Group or other targets set by the
Remuneration Committee. These awards can be exercised between three and ten years after the date of the grant. This element is expensed
and recognised in the statement of comprehensive income over the vesting period.

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 identiﬁ able assets acquired and liabilities assumed in a business combination regardless of whether they have been
previously recognised in the acquiree’s ﬁ nancial 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 identiﬁ able 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 identiﬁ able net assets. If the

fair values of identiﬁ able net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in
proﬁ t 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 proﬁ t or loss immediately.

1.9

Adjusted operating proﬁ t

Adjusted operating proﬁ t excludes acquisition costs and related intangible asset 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 inﬂ ows (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 beneﬁ t 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 ﬂ ows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash
ﬂ ows. 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 reﬂ ect management’s assessment of respective risk proﬁ les, such as market and asset-speciﬁ c risks factors. Impairment losses for
cash generating units reduce ﬁ rst 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.

254300 Dillistone AR pp36-END.indd 40

22/05/2019 22:30

FINANCIAL STATEMENTS

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
identiﬁ ed 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 beneﬁ ts, 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 ﬁ ve years. As development expenditure is incurred on multiple
projects simultaneously, with roll-outs occurring on a continuous basis, amortisation commences 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 proﬁ t 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 reﬂ ects market expectations about the probability that the
future economic beneﬁ ts embodied in the asset will ﬂ ow to the Group. Where an intangible asset might be separable, but only together with a
related tangible or intangible asset, the Group of assets is recognised as a single asset separately from goodwill where the individual fair values
of the assets in the Group are not reliably measurable. Where the individual fair values of the complementary assets are reliably measurable,
the Group recognises them as a single asset provided the individual assets have similar useful lives.

Subsequent to initial recognition, intangible assets are reported at cost less accumulated amortisation and accumulated impairment losses.
Amortisation is provided to write off the cost of each intangible asset over its useful economic life as follows:

Intangible assets:

Brand and IP
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.

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
Ofﬁ ce and computer equipment
Fixtures, ﬁ ttings and equipment

the lower of 5 years or the remaining lease period
3-5 years straight line
4-5 years straight line

254300 Dillistone AR pp36-END.indd 41

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

1.14 Financial assets

The Group classiﬁ es its ﬁ nancial assets under the deﬁ nitions provided in International Financial Reporting Standard 9 (IFRS 9), depending on
the purpose for which the ﬁ nancial assets were acquired. Management determines the classiﬁ cation of its ﬁ nancial assets at initial recognition.

Management considers that the Group’s ﬁ nancial assets fall under the amortised cost category. These are non-derivative ﬁ nancial assets
with ﬁ xed 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 ﬁ nancial position date, which are classiﬁ ed as non-current assets. The Group’s ﬁ nancial assets held
at amortised cost arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate
other types of contractual monetary asset. As such they comprise trade receivables, intercompany trading balances (in relation to Company
accounts), and cash and cash equivalents. Financial assets do not comprise prepayments.

The Group’s ﬁ nancial assets are initially recognised at fair value plus transaction costs that are directly attributable to their acquisition or issue.
The exception are trade and receivables balances, which are recorded at their transaction price as they do not contain a signiﬁ cant ﬁ nancing
component (see note 1.4). The Group’s ﬁ nancial assets are subsequently measured at amortised cost using the effective interest rate method,
less provision for impairment.

Impairment provisions for trade receivables, being loss allowances for ‘expected credit losses’ (ECLs) per IFRS 9, are measured on a lifetime
basis using the simpliﬁ ed approach set out in that ﬁ nancial reporting standard. The Group’s method in measuring ECLs reﬂ ects:

(cid:129)
(cid:129)
(cid:129)

unbiased and probability-weighted amounts, determined using a range of possible outcomes;
the time value of money; and
reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.

The Group has applied the practical expedient in IFRS 9 of using a provision matrix to calculate ECLs. This requires the use of historical credit
loss experience, as revealed for groupings of similar trade receivable assets, to estimate the relevant ECLs. As such, the Group has employed
the following process in calculating ECLs:

(cid:129)

(cid:129)
(cid:129)

Grouping – trade receivables are grouped based on the similarity of their customer risk proﬁ le, being underlying product type and
geographical region;
Default deﬁ nition – amounts not collected are deﬁ ned in accordance with the credit risk management of the Group and include qualitative
factors, broadly encompassing scenarios where the customer is either unable or unwilling to pay;
Collection proﬁ les and loss rates – the collection time periods (e.g. within 30 days, 30 – 60 days, etc.) for sales made in the preceding
12-month period are gathered, amounts not collected assessed and loss rates based on ageing inferred;
Historical periods – historic losses are reviewed over a 3-year time horizon; and
Forward-looking assessment – the Group considers relevant future economic factors affecting each group of trade receivables, giving an
expected probability of default for the portfolio.

The resultant expected loss rates are applied to the ageing proﬁ le of grouped trade receivables at the balance sheet date to give the lifetime
ECLs for each. This produces the loss allowances to be booked as an impairment adjustment to the carrying value of trade receivables. For
further details on the estimates applied in these calculations, see note 1.1.

Trade receivables are reported net of the resultant loss allowances. The loss is recognised within administrative expenses in the consolidated
statement of comprehensive income. On conﬁ rmation that the trade receivable will not be collectable, the gross carrying value of the asset is
written off against the associated provision.

Impairment provisions for other receivables are recognised based on the general impairment model within IFRS 9.

The Parent Company’s receivables due from Group company’s are subject to the requirements of IFRS 9, with speciﬁ c considerations
relating to:

(cid:129)
(cid:129)
(cid:129)

Whether the loans are within the scope of IFRS 9;
Whether the loans meet the Solely Payments of Principal and Interest test; and
Whether the loans are in a “hold to collect” business model.

The Parent Company has followed the considerations required under IFRS 9 on the above, and determined the appropriate recognition of the
balances receivable from Group companies is at ‘amortised cost’ following the General ECL model.

254300 Dillistone AR pp36-END.indd 42

22/05/2019 22:30

FINANCIAL STATEMENTS

This requires the Parent Company to further consider:

(cid:129)
(cid:129)

Whether the loans are credit impaired; and
Whether the loans have suffered a signiﬁ cant increase in credit risk.

The Parent Company has followed the considerations required under IFRS 9 on the above, and noted that neither of the above have occurred
during the year ended 31 December 2018, and as such, the appropriate model is the 12-month ECL model. The implications of this have
been disclosed in note 17.

1.15 Financial liabilities

The Group classiﬁ es its ﬁ nancial liabilities under the deﬁ nitions provided in IFRS 9. All ﬁ nancial liabilities are recorded initially at fair value plus
or minus directly attributable transaction costs. Except where noted, such liabilities are then measured at amortised cost using the effective
interest method.

Financial liabilities measured at amortised cost include trade payables, intercompany trading balances (in relation to Company accounts),
bank loans and accruals. All ﬁ nancial liabilities are recognised in the statement of ﬁ nancial position when the Group becomes a party to the
contractual provision of the instrument.

Unless otherwise indicated, the carrying values of the Group’s ﬁ nancial liabilities measured at amortised cost represents a reasonable
approximation of their fair values.

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 ﬂ ows 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 ﬁ nancial 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.

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 ﬁ nance leases or operating leases. Leases are classiﬁ ed as ﬁ nance
leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classiﬁ ed
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
beneﬁ t 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 ﬁ rst in, ﬁ rst 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 insigniﬁ cant risk of changes in value.

254300 Dillistone AR pp36-END.indd 43

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

1.21 Equity

Equity comprises the following:

(cid:129)
(cid:129)

(cid:129)

(cid:129)
(cid:129)

‘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 proﬁ ts and losses.
‘Translation reserve’ represents translation differences arising on the consolidation of investments in overseas subsidiaries.

1.22 Foreign currency translation

The consolidated ﬁ nancial 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 ﬁ nancial position date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. All
differences are taken to proﬁ t 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 ﬁ nancial 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.

1.23 Income taxes

Current income tax assets and liabilities comprise those obligations to ﬁ scal 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 ﬁ scal period and the country to which they relate.
Tax expense recognised in proﬁ t 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 ﬁ nancial 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 proﬁ t. 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
proﬁ ts 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
ﬁ nancial position date.

1.24 Deﬁ ned contribution pension scheme

The pension costs charged in proﬁ t or loss represent the contributions payable by the Group during the year.

254300 Dillistone AR pp36-END.indd 44

22/05/2019 22:30

FINANCIAL STATEMENTS

1.25 New accounting standards to update

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 16

Key requirements

Effective date as adopted by the EU

Leases

01-Jan-19

IFRS 16 requires almost all leases to be recorded in the statement of ﬁ nancial 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 Group expects to apply the modiﬁ ed retrospective approach in adopting IFRS 16. This recognises the right-of-use asset at the date of
initial application (1 January 2019). The lease liability is measured based on remaining payments. There is no effect on prior year ﬁ gures and
no need to re-state comparatives.

The Group has undertaken a review of its lease arrangements and concluded that the most signiﬁ cant leases the Group has are its ofﬁ ces.
Following the contracted closure of the Group’s London ofﬁ ces, it is expected that the impact of this standard for the year ending 31 December
2019 will be reduced. The anticipated estimated changes to the Group’s statement of ﬁ nancial position, statement of comprehensive income
and key metrics for the year ending 31 December 2019 are set out below.

These calculations assume no changes to the contracted leases anticipated in the reporting period to end 31 December 2019, although it is
possible additional leases will be entered into or existing lease contracts amended during the forthcoming period.

Under the existing standard (IAS 17) £130,000 would be expected as an expense in 2019. The adjustment to ‘Current liabilities – Trade and
other receivables’ arises on the reversal of an accrual in respect of rent-free periods and other cash timing differences that would be made
under that standard.

Statement of ﬁ nancial position year ending 31 December 2019

Assets

Non-current assets – right-of-use asset

Increase to Total assets

Equity attributable to owners of the parent

Retained earnings

(Decrease) to Total Equity

Liabilities

Current liabilities – lease liability

Current liabilities – Trade and other receivables

Non-current liabilities – lease liability

Increase to Total liabilities and equity

Statement of comprehensive income 2019

Administrative Expenses

Financial Cost

Decrease to proﬁ t before tax

Increase to depreciation in the year

Increase in EBITDA in the year

£’000

583

(14)

(92)

673

597

583

£’000

(40)

£’000
90

130

254300 Dillistone AR pp36-END.indd 45

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

2. Reconciliation of adjusted operating proﬁ ts to consolidated statement of comprehensive income

Note

Adjusted
operating
proﬁ ts
2018
£’000

8,692

(1,054)

7,638

(7,583)

(38)

102

120

(30)

Acquisition
related and
one-off items
2018*
£’000

(469)

(380)

2018
£’000

8,692

(1,054)

7,638

(8,052)

(414)

(38)

(451)

191

(260)

(30)

(380)

(290)

0.61p

(1.32)p

Adjusted
operating
proﬁ ts restated
2017
£’000

Acquisition
related items
2017*
£’000

–

(823)

(5)

(828)

151

(677)

9,732

(1,247)

8,485

(8,026)

459

(7)

453

281

734

(24)

710

3.73p

2017
restated
£’000

9,732

(1,247)

8,485

(8,849)

(364)

(12)

(375)

432

(24)

0.29p

Revenue

Cost of sales

Gross proﬁ t

Administrative expenses

Operating proﬁ t/(loss)

Financial income

Financial cost

Proﬁ t/(loss) before tax

Tax income

Proﬁ t/(loss) for the year

Other comprehensive loss net of tax:

Currency translation differences

Total comprehensive income/(loss)
for the year net of tax

Earnings per share

Basic

Diluted

* See note 5

254300 Dillistone AR pp36-END.indd 46

22/05/2019 22:30

FINANCIAL STATEMENTS

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 reﬂ ect management charges made or received.

Divisional segments
For the year ended 31 December 2018

Segment revenue

Segment EBITDA

Depreciation and amortisation expense

Segment result

Acquisition related amortisation

Operating proﬁ t/(loss)

Financial income

Loan interest

Loss before tax

Income tax income

Loss for the year

Dillistone
£’000

4,195

723

(644)

Voyager
£’000

4,429

1,003

(475)

528

GatedTalent
£’000

Central
£’000

(485)

(127)

(612)

–

(612)

–

(469)

(409)

(38)

Total
£’000

8,692

1,301

(1,246)

(469)

(414)

(38)

(451)

191

(260)

Additions of non-current assets

567

536

434

1,537

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 proﬁ t/(loss)

Financial income

Loan interest

Acquisition related interest expenses

Loss before tax

Income tax income

Proﬁ t for the year

Dillistone
£’000

4,531

761

(589)

172

Voyager
£’000

5,201

1,367

(511)

856

GatedTalent
£’000

–

(439)

–

(439)

172

856

(439)

Central
£’000

–

(130)

(838)

(953)

(7)

(5)

Total
£’000

9,732

1,559

(1,100)

459

(838)

(364)

(7)

(5)

(375)

432

Additions of non-current assets

608

502

396

1,506

254300 Dillistone AR pp36-END.indd 47

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
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

2018
£’000

7,154

1,169

369

8,692

2017
restated
£’000

7,942

1,326

464

9,732

See note 1.4 on the revenue recognition policy under IFRS 15 and the distinction on timing of revenue recognition. In the analysis above
‘Recurring income’ represents all income recognised over time, whereas ‘Non-recurring income’ and ‘Third party revenues’ represent all
income recognised at a point in time.

Recurring income includes all support services, SaaS and hosting income and revenue on perpetual licenses with mandatory support
contracts deferred under IFRS 15. Non-recurring income includes sales of new licenses which do not require a support contract, and income
derived from installing 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 in 2018 or 2017.

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

Europe

Australia

Non-current assets by geographical location

Australia

2018
£’000

6,188

1,007

1,118

379

8,692

2018
£’000

8,274

2017
restated
£’000

6,920

1,041

1,359

412

9,732

2017
restated
£’000

8,453

8,282

8,460

254300 Dillistone AR pp36-END.indd 48

22/05/2019 22:30

FINANCIAL STATEMENTS

2018
£’000

469

2018
£’000

106

1,608

229

359

2017
£’000

(15)

379

459

823

828

2017
£’000

105

1,833

234

319

2018
number

108

120

2017
number

111

124

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

Included within ﬁ nancial cost:

Unwinding of discount on contingent consideration (note 8)

6. Operating loss

Operating loss is stated after charging:

Depreciation

Amortisation

Realised net 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 ﬁ nancial statements

Other services:

Audit of accounts of subsidiaries of the Company

Taxation compliance services

Tax advisory services

7. Employees
The average number of employees was:

Operations

Management

Total Employee numbers

254300 Dillistone AR pp36-END.indd 49

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

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

2018
£’000

5,139

542

359

(7)

(10)

2017
£’000

5,255

528

319

(3)

6,035

6,120

The aggregate remuneration includes salary cost totalling £1,253,000 (2017: £1,168,000) 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

2018
£’000

922

115

100

(7)

(10)

2017
£’000

936

116

107

(3)

1,122

1,159

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 17 to 19.

8. Financial income and cost

Interest receivable

Finance cost on bank overdraft

Finance cost on bank loan

Finance cost on convertible loan

Unwinding of discount on convertible loan

Unwinding of discount on contingent consideration

2018
£’000

(1)

(33)

(4)

(37)

2017
£’000

(2)

(5)

(11)

254300 Dillistone AR pp36-END.indd 50

22/05/2019 22:30

FINANCIAL STATEMENTS

2018
£’000

(165)

(7)

(172)

(89)

(19)

(191)

2017
restated
£’000

(100)

(238)

(338)

(1)

(151)

(94)

(432)

(451)

(375)

19.00%

19.25%

(86)

(72)

(3)

(148)

(25)

(7)

(1)

(191)

(209)

(1)

(239)

(432)

9. Tax income

Current tax

Prior year adjustment – current tax

Total current tax

Deferred tax

Prior year adjustment – deferred tax

Deferred tax re acquisition intangibles

Total deferred tax

Tax (income) for the year

Factors affecting the tax credit for the year

Loss before tax

UK rate of taxation

Loss 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

IFRS 15 impact

Rate differences re current tax and deferred tax

Rate difference between CT rate and rate of R&D repayment

Prior year adjustments

Tax (income)

254300 Dillistone AR pp36-END.indd 51

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

Deferred tax liability provided in the ﬁ nancial statements is as follows:

Internally generated intangible and ﬁ xed assets

IFRS 15

Provisions

Acquisition intangibles

Internally generated intangible and ﬁ xed assets

IFRS 15

Provisions

Acquisition intangibles

Group

Movement
£’000

(90)

160

(89)

(19)

Group

Movement
restated
£’000

(151)

(94)

2018
£’000

251

238

489

2017
restated
£’000

341

(160)

327

508

2017
restated
£’000

341

(160)

327

508

2016
restated
£’000

315

(182)

(9)

478

602

Company

2018
£’000

2017
£’000

–

Company

2017
£’000

2016
£’000

–

The UK corporation tax rate for the year is 19.00%. 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 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 Group has gross tax losses of £154,000 (2017: £205,000) for
which no deferred tax asset has been recognised as the timing of their utilisation is uncertain.

10. Earnings per share

2018
Using adjusted
operating proﬁ t

2017
Using adjusted
operating proﬁ t
restated

2018

2017
restated

Proﬁ t/(loss) attributable to ordinary shareholders (note 2)

£120,000

£(260,000)

£734,000

£57,000

Weighted average number of shares

Basic earnings/(loss) per share

19,668,021

0.61 pence

(1.32) pence

3.73 pence

0.29 pence

Weighted average number of shares after dilution

19,797,067

19,668,021

19,676,018

Fully diluted earnings/(loss) per share

0.61 pence

(1.32) pence

3.73 pence

0.29 pence

Reconciliation of basic to diluted average number of shares:

Weighted average number of shares (basic)

Effect of dilutive potential ordinary shares – employee share plans

Weighted average number of shares after dilution

2018

2017

19,668,021

129,046

7,997

19,797,067

19,676,018

There are 919,848 (2017: 1,270,732) share options not included in the above calculations, as they are underwater or have not yet vested.

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.

254300 Dillistone AR pp36-END.indd 52

22/05/2019 22:30

FINANCIAL STATEMENTS

11. Proﬁ t for the ﬁ nancial year
As permitted by section 408 of the Companies Act 2006, the parent company’s income statement has not been included in these ﬁ nancial
statements. The proﬁ t for the ﬁ nancial year for the parent Company was £1,338,000 (2017: £1,311,000) and has been approved by the Directors.

12. Goodwill

Group

Cost

At 1 January 2017

Additions

At 31 December 2017

Additions

At 31 December 2018

Carrying amount

At 31 December 2018

At 31 December 2017

Goodwill
£’000

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 ﬂ ow projections covering a three year period based on ﬁ nancial 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 speciﬁ c to the cash
generating units and rates used by comparable companies. The pre-tax discount rate used to calculate value-in-use is 15.5% (2017: 12%
to 15.5%). Costs are reviewed and increased for inﬂ ation and other cost pressures. The long term growth rate used for the terminal value
calculation was 2.5% (2017: 2.5%) 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 forecast future cashﬂ ow by 10% would result in an impairment of £341,000 for the Voyager and FCP consolidated CGU and
an increase in the discount rate to 16.25% would require an impairment of £181,000. For ISV the discount rate would need to increase to over
22% or future forecast cash ﬂ ows would need to fall by 32% to reduce the headroom to £nil. Cashﬂ ows in respect of Dillistone goodwill would
need to reduce by over 65% or the discount rate to increase to over 36% to reduce the headroom to £nil.

254300 Dillistone AR pp36-END.indd 53

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

13. Other intangible assets

Group

Cost

At 1 January 2017

Additions

At 31 December 2017

Additions

At 31 December 2018

Amortisation

At 1 January 2017

Charge for the year

At 31 December 2017

Charge for the year

At 31 December 2018

Carrying amount

At 31 December 2018

At 31 December 2017

Acquisition intangibles can be summarised as follows:

NBV

At 1 January 2018

Amortisation

At 31 December 2018

Development
costs
£’000

Purchased
software
£’000

Acquisition
intangibles
£’000

6,612

1,358

7,970

1,446

9,416

4,054

991

5,045

1,128

6,173

3,243

2,925

127

162

146

122

4,172

1,500

838

2,338

469

2,807

1,365

1,834

Developed
technology
£’000

Brand and IP
£’000

Contractual and
non-contractual
customer
relationships
£’000

176

(53)

123

481

(41)

440

1,064

(362)

702

Brand
£’000

113

(13)

100

Total
£’000

10,818

1,451

12,269

1,481

13,750

5,555

1,833

7,388

1,608

8,996

4,754

4,881

Total
£’000

1,834

(469)

1,365

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 discount rates.

Purchased software is reviewed for impairment based on its continued use within the business.

The Company has no intangible assets.

254300 Dillistone AR pp36-END.indd 54

22/05/2019 22:30

FINANCIAL STATEMENTS

Land and
buildings
£’000

Ofﬁ ce &
computer
equipment
£’000

Fixtures and
ﬁ ttings
£’000

Total
£’000

1,184

(7)

(20)

1,212

168

(1)

(10)

165

166

1,272

150

(1)

154

969

(7)

105

(19)

1,048

106

161

1,159

113

164

186

–

186

120

157

830

(6)

(20)

861

920

737

(6)

(19)

774

841

14. Property, plant and equipment

Group

Cost

At 1 January 2017

Currency impact

Additions

Reclassiﬁ cation

Disposals

At 31 December 2017

Currency impact

Additions

At 31 December 2018

Depreciation

At 1 January 2017

Currency impact

Charge for the year

Eliminated on disposal

At 31 December 2017

Currency impact

Charge for the year

At 31 December 2018

Carrying amount

At 31 December 2018

At 31 December 2017

The Company has no property, plant and equipment.

254300 Dillistone AR pp36-END.indd 55

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

15. Non-current asset investments

Company

Cost

At 1 January 2017

Additions

At 31 December 2017

Impairment

At 31 December 2018

Investments in
subsidiaries
£’000

7,601

7,602

(451)

7,151

The addition in 2017 related to the formation of GatedTalent Limited.

Investments are reviewed when evidence exists that there may be a loss in value or in certain circumstances where dividends are paid by
the subsidiary. In 2018, 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
ﬂ ow projections covering a three year period based on ﬁ nancial 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%. Costs are reviewed and increased for inﬂ ation 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 an impairment was required. No impairment loss was required for ISV and cashﬂ ows would
need to reduce by over 28% or the discount rate to increase to more than 22% before impairment was considered necessary. No impairment
loss was required for Dillistone and cashﬂ ows would need to reduce by over 70% before impairment was considered necessary

The Company has the following subsidiary undertakings:

Name

Principal activity

Holding of
ordinary shares

Registered

Dillistone Systems Limited

Sale of computer software and related support services

100% England & Wales

Dillistone Systems (Australia) Pty Limited

Sale of computer software and related support services

Dillistone Systems (US) Inc

Sale of computer software and related support services

100%
(indirect)

100%

Australia

USA

FCP Internet Limited

Provision of software services and related consultancy services

100% England & Wales

FCP Internet Holdings Limited

Dormant holding company

GatedTalent Limited

Provision of software services

100% England & Wales

ISV Software Limited

Provision of software services and related consultancy services

100% England & Wales

Woodcote Software Limited

Dormant company

100% England & Wales

Voyager Software Limited

Sale of computer software and related support services

100% England & Wales

Voyager Software (Australia) Pty Limited

Sale of computer software and related support services

100%
(indirect)

Australia

254300 Dillistone AR pp36-END.indd 56

22/05/2019 22:30

FINANCIAL STATEMENTS

The registered addresses of related undertakings are as follows:

Company

Dillistone Group Plc

Dillistone Systems Limited

Registered Address

50 Leman St, London E1 8HQ

Dillistone Systems (Australia) Pty Limited

Suite 3, Level 3, 245 Castlereagh Street, Sydney, NSW 2000, Australia

Dillistone Systems (US) Inc

50 Harrison Street, Suite 201A, Hoboken, NJ 07030, USA

FCP Internet Limited

50 Leman St, London E1 8HQ

FCP Internet Holdings Limited

50 Leman St, London E1 8HQ

GatedTalent Limited

ISV Software Limited

Woodcote Software Limited

Voyager Software Limited

50 Leman St, London E1 8HQ

12 Cedarwood, Crockford Lane, Chineham Business Park, Basingstoke, RG24 8WD

Voyager Software (Australia) Pty Limited

Suite 3, Level 3, 245 Castlereagh Street, Sydney, NSW 2000, Australia

16. Inventories

Licences for resale

17. Trade and other receivables

Trade receivables – net

Group receivables

Other current assets

Prepayments and accrued income

Group
Group

2018
£’000

2017
£’000

Company
Company

2018
£’000

Group
Group

Company
Company

2018
£’000

1,171

316

1,522

2017
£’000

1,377

263

1,677

2018
£’000

1,253

1,289

2017
£’000

915

934

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.

Trade receivables are recorded and measured in accordance with note 1.14 above. The Group applies the IFRS 9 simpliﬁ ed approach to
measuring expected credit losses (ECLs) using a lifetime expected credit loss provision for trade receivables. To measure expected credit
losses on a collective basis, trade receivables are grouped based on similar credit risk and ageing.

The expected loss rates are based on the Group’s historical credit losses experienced over the three-year period prior to the period end. The
historical loss rates are then adjusted for current and forward-looking information on macroeconomic factors affecting the Group’s customers.
The Group has identiﬁ ed gross domestic product (GDP) as the key macroeconomic factor for each geographical region where the Group
operates. It has also considered the impact of the UK’s exit from the European Union on the recoverability of its trade receivables. This has
resulted in a range of potential loss rates and provision levels, as set out below. See note 1.1 and 1.14 for further details on the Group’s
approach to calculating ECLs and the material estimates and judgements involved.

254300 Dillistone AR pp36-END.indd 57

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

Trade Receivables

Gross Carrying Amount

Loss Allowance Provision

Expected Loss Rate

The movement in the provision for loss allowances is as follows:

Current
£’000

1,064

From 1 to 30
days past due
£’000

From 31 to 60
days past due
£’000

Greater than 60
days past due
£’000

116

16%

25%

Balance as at 1 January 2017

Increase during the year

Amounts written off as uncollectible

Balance as at 31 December 2017

Unused amounts reversed

Amounts written off as uncollectible

Balance as at 31 December 2018

The ageing proﬁ le of trade receivables as at the year end is as follows:

Current

Past due date:

Up to 30 days overdue

More than 30 days overdue

Total

Total
£’000

1,242

£’000

125

(74)

148

(2)

(75)

2017
£’000

1,205

118

2018
£’000

1,064

116

1,242

1,377

The Company’s group receivables, being amounts due from wholly-owned subsidiaries, are repayable on demand. Additionally, all companies
are covered by a group-wide guarantee.

The Parent Company has determined that Credit risk for receivables from Group Company’s has not increased signiﬁ cantly since their initial
recognition. The Parent Company have considered a range of scenarios relating to amounts to be received from amounts receivable from
Group Company’s, and the likelihood of those outcomes. The impact of these scenarios using the 12-month ECL model disclosed in note 1.14
was not material to the Company.

254300 Dillistone AR pp36-END.indd 58

22/05/2019 22:30

FINANCIAL STATEMENTS

18. Trade and other payables

Current liabilities

Trade payables

Group payables

Deferred income

Accruals

Contingent consideration

Non-current liabilities

Deferred Income

Cash settled LTIP

Group
Group

Company
Company

2018
£’000

776

2017
£’000

664

2,887

3,029

707

936

146

2018
£’000

122

824

145

2017
£’000

2,135

195

146

4,370

4,775

1,091

2,549

£’000

688

690

782

794

Contingent consideration is valued at fair value. Further details of the contingent consideration are given in note 24.

The deferred income in 2018 and 2017 represents the entire balance of contract liabilities from contracts with customers. The movement on
this balance is the revenue recognised in the reporting period.

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
Group

2018
£’000

725

2017
£’000

1,390

Company
Company

2018
£’000

Group
Group

Company
Company

2018
£’000

390

404

2017
£’000

386

391

2018
£’000

390

419

2017
£’000

386

391

The Directors consider that the fair value of borrowings approximates to the carrying value except for the convertible loan note.

254300 Dillistone AR pp36-END.indd 59

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

The Group has an overdraft facility in the UK of £200,000 which was unused at the year-end (2017: unused). Under the banking
arrangements all UK accounts are netted.

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 satisﬁ ed 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.

Reconciliation of liabilities arising from ﬁ nancing activities

Long term borrowings

Convertible loan note

Long term borrowings

Bank Loan

Convertible loan note

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

2017
£’000

Cashﬂ ows
£’000

Non cash
changes
– interest
adjustment
£’000

Closing 2018
£’000

386

390

2016
£’000

Cashﬂ ows
£’000

158

(158)

400

242

Non cash
changes equity
adjustment
£’000

Closing 2017
£’000

(14)

2018
£’000

983

386

2017
£’000

983

2018
Number

2017
Number

19,668,021

254300 Dillistone AR pp36-END.indd 60

22/05/2019 22:30

FINANCIAL STATEMENTS

22. Operating lease arrangements
The Group leases ofﬁ ces under non-cancellable operating lease agreements.

At 31 December 2018, the Group had future total commitments under non-cancellable operating leases as follows:

Commitments payable:

Within one year

Between two and ﬁ ve years

The Company has no operating leases.

23. Share options

Share based payments

2018
£’000

182

172

2017
£’000

295

158

137

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 29 June 2016 and 9 November 2017. The Company launched its ﬁ rst 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 no grants of options in 2018.

Expected volatility takes into account historic volatility of the share price and its current trend.

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

Share
price on
issue
date

58p

Number
granted

845,000

90,000

131,713

Exercise
price

Expected
volatility

Vesting
period

Leaver
rate over
vesting
period

Risk-free
rate

Expected
dividend
yield

58p

30%

3.3 years

1.00%

30%

3.3 years

10%

1.00%

52.2p

30%

3.3 years

10%

1.00%

2.0%

254300 Dillistone AR pp36-END.indd 61

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

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

2018

2017
2017

No of options

WAEP

No of options

2,367,445

74.75

1,364,351

(-)

(391,884)

1,975,561

403,000

1,066,713

(-)

101.73

(63,619)

69.40

88.15

2,367,445

384,500

WAEP

89.15

57.28

90.55

74.75

88.76

The Company’s mid-market share price on 31 December 2018 was 47.5p. The average mid- market share price in 2018 was 67.07p.

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 £5,000 (2017: £20,000).

Share options remaining in the schemes are as follows:

Scheme type
Unapproved

EMI

Unapproved

EMI

Unapproved

EMI

Sharesave

EMI (LTIP)

EMI

Sharesave

Date of grant
14/01/2011

Exercise from
14/01/2014

Lapse date
13/01/2021

21/09/2011

21/09/2014

20/09/2021

21/09/2011

21/09/2014

20/09/2021

08/07/2013

08/07/2016

07/07/2023

25/11/2013

25/11/2016

24/11/2023

08/12/2014

08/12/2017

07/12/2024

Options
remaining
30,000

79,500

16,000

17,000

10,000

08/12/2014

08/12/2017

07/12/2024

182,000

03/02/2015

03/02/2017

02/02/2025

29/06/2016

29/06/2019

28/06/2026

14/10/2016

01/11/2019

30/04/2020

09/11/2017

09/11/2020

08/11/2027

09/11/2017

09/11/2020

08/11/2027

58,500

441,500

105,348

814,000

80,000

09/11/2017

01/12/2020

31/5/2021

131,713

1,975,561

Exercise
price (p)
58.33

77.00

79.50

115.00

97.00

90.50

78.50

77.80

58.00

52.20

The weighted average remaining contractual life of options at 31 December 2018 was 6.9 years (2017: 7.8 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 2018, the credit in respect of the LTIP schemes, which are share based and require
separate disclosure under IFRS 2, was (£7,000) (2017: £1,000).

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. The ﬁ nal payment of £146,000 was made in 2018.

254300 Dillistone AR pp36-END.indd 62

22/05/2019 22:30

FINANCIAL STATEMENTS

25. Financial instruments
The Group uses various ﬁ nancial 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 ﬁ nancial instruments is to provide ﬁ nance for the Group’s operations.

The Group’s ﬁ nance department maintains liquidity, manages relations with the Group’s bankers, identiﬁ es 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 ﬁ nancial risks to which it is exposed are outlined below

(i)

Interest rate risk

The Group is exposed to interest rate risk on its ﬂ oating rate borrowings and its ﬁ nancial assets. The interest rate proﬁ le of the Group’s ﬁ nancial
assets at 31 December 2018 was:

At 31 December 2018

Trade and other receivables (current assets)

Cash and cash equivalents

Total

Group

Company

Non interest
bearing
ﬁ nancial assets
£’000

Floating rate
ﬁ nancial assets
£’000

Non interest
bearing
ﬁ nancial assets
£’000
£’000

Floating rate
ﬁ nancial assets
£’000

1,205

725

1,253

The interest rate proﬁ le of the Group’s ﬁ nancial assets at 31 December 2017 was:

At 31 December 2017

Trade and other receivables (current assets)

Cash and cash equivalents

Total

Group

Company

Group Non
interest bearing
ﬁ nancial assets
£’000

Floating rate
ﬁ nancial assets
£’000

Non interest
bearing
ﬁ nancial assets
£’000
£’000

Company
Floating rate
ﬁ nancial assets
£’000

1,414

1,390

915

The table below shows the Group’s ﬁ nancial liabilities split by those bearing interest at ﬂ oating rates or ﬁ xed rates and those that are non
interest bearing.

At 31 December 2018

Group

Company

Trade and other payables (current liabilities)

Trade and other payables (non-current liabilities)

Borrowings – convertible loan note

Borrowings – bank

Non interest
bearing
ﬁ nancial
liabilities
£’000

1,126

1,128

Fixed rate
ﬁ nancial
liabilities
£’000

404

Non interest
bearing
ﬁ nancial
liabilities
£’000
£’000

1,068

1,070

Fixed rate
ﬁ nancial
liabilities
£’000

404

419

254300 Dillistone AR pp36-END.indd 63

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

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)

Group

Company

Non interest
bearing
ﬁ nancial
liabilities
£’000

1,196

146

1,354

Floating rate
ﬁ nancial
liabilities
£’000

391

Non interest
bearing
ﬁ nancial
liabilities
£’000
£’000

2,382

146

2,540

Floating rate
ﬁ nancial
liabilities
£’000

391

The benchmarks for interest rates on ﬂ oating rate ﬁ nancial assets and ﬁ nancial 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 proﬁ ts or equity.

(ii) Credit risk

The Group’s principal ﬁ nancial assets are cash and cash equivalents and trade and other receivables. Credit risk is the risk of ﬁ nancial loss to
the Group if a customer or counterparty to a ﬁ nancial instrument fails to meet its contractual obligations and arises principally from the Group’s
receivables from customers and monies on deposit with ﬁ nancial institutions.

Trade receivables are adjusted for credit risk by applying the impairment methodology set out in IFRS 9 (see note 1.14). Provisions for loss
allowances arising from expected credit losses are booked against the carrying value of trade receivables (see note 17). Once the Group has
determined that there is no reasonable expectation of recovery, the relevant trade receivable balances are written off against the loss allowance
provision. Indicators that recovery cannot reasonably be expected include the conclusion of legal proceedings or 3rd-party debt collection
without full recovery.

Historically, the cash collection proﬁ le has been very good. Debt ageing and collections are monitored on a regular basis and for new
customers deposits are usually required. Some trade receivables are past due as at the reporting date. The company bases its provisions on
trade receivable balances based on the expected credit loss model (‘ECL’) as required by IFRS. Information on ﬁ nancial assets past due 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 signiﬁ cant concentration of credit risk. The Group’s maximum exposure to credit risk at the reporting date is
represented by the carrying value of ﬁ nancial assets, as follows:

Trade and other receivables (current assets)

Cash and cash equivalents

Total

Group
Group

Company
Company

2018
£’000

1,205

725

1,930

2017
£’000

1,414

1,390

2,804

2018
£’000

1,253

2017
£’000

915

1,014

The Company’s other receivables are primarily intercompany loans made to wholly-owned subsidiaries and supported by a group-wide
guarantee and repayable on demand. The Company has followed the considerations required under IFRS 9 on the above and as such, no
provision has been raised on these balances. See note 17.

254300 Dillistone AR pp36-END.indd 64

22/05/2019 22:30

FINANCIAL STATEMENTS

(iii) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its ﬁ nancial obligations as they fall due. The Group’s approach to managing
liquidity is to ensure it has sufﬁ cient liquidity to meet its liabilities when due.

As at 31 December 2018, the Group and Company’s ﬁ nancial liabilities (excluding deferred income, payroll taxes, VAT and similar taxes) have
contractual cashﬂ ows as summarised below:

Group
At 31 December 2018

Trade and other payables (current liabilities)

Trade and other payables (non-current liabilities)

Borrowings

At 31 December 2017

Trade and other payables (current liabilities)

Contingent consideration (current liabilities)

Trade and other payables (non-current liabilities)

Borrowings

Carrying amount
£’000

1,126

400

< 1 year
£’000

1,126

1,528

1,126

Carrying amount
£’000

1,196

146

400

< 1 year
£’000

1,196

146

1,754

1,342

1-2 years
£’000

2-5 years
£’000

400

402

1-2 years
£’000

2-5 years
£’000

400

412

The Group forecasts its cash requirements through its budget processes and looks to ensure that it has sufﬁ cient cash over the coming year to
meet liabilities as they fall due and over each subsequent annual period covered by the 3 year forecast. As such it considers the time bands
set out above the most appropriate representation of its liquidity risk proﬁ le.

Company
At 31 December 2018

Trade and other payables (current liabilities)

Trade and other payables (non-current liabilities)

Borrowings

Bank overdraft

At 31 December 2017

Trade and other payables (current liabilities)

Contingent consideration (current liabilities)

Trade and other payables (non-current liabilities)

Borrowings

Carrying amount
£’000

1,068

400

< 1 year
£’000

1,068

1,485

1,083

Carrying amount
£’000

2,382

146

400

< 1 year
£’000

2,382

146

2,940

2,528

1-2 years
£’000

2-5 years
£’000

400

402

1-2 years
£’000

2-5 years
£’000

400

412

The Group would normally expect that sufﬁ cient cash is generated in the operating cycle to meet contractual cash ﬂ ows as disclosed above. In
addition, the Group has signiﬁ cant cash balances as at the year end to minimise any liquidity risk.

254300 Dillistone AR pp36-END.indd 65

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
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 £1,105,000 and liabilities totalling £695,000 denominated in Euros (2017: assets totalling
£1,837,000 and liabilities totalling £443,000), assets totalling £1,239,000 and liabilities totalling £1,187,000 denominated in US Dollars
(2017: assets totalling £1,655,000 and liabilities totalling £997,000) and assets totalling £497,000 and liabilities totalling £473,000
denominated in Australian Dollars (2017: assets totalling £441,000 and liabilities totalling £447,000).

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
Group

2018
£’000

(1)

2017
£’000

(2)

At the year end, the Company had liabilities totalling £116,000 denominated in Euros (2017: liabilities totalling £115,000), assets totalling
£288,000 denominated in US Dollars (2017: assets totalling £257,000) and assets totalling £42,000 denominated in Australian Dollars (2017:
assets totalling £36,000).

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
Company

2018
£’000

(6)

2017
£’000

(6)

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 beneﬁ ts 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 ﬂ exibility 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

NoteNote

2018
£’000

404

(725)

(321)

4,849

2017
restated
£’000

391

(1,390)

(999)

5,232

254300 Dillistone AR pp36-END.indd 66

22/05/2019 22:30

FINANCIAL STATEMENTS

Summary of ﬁ nancial assets and liabilities by category
The carrying amounts of the ﬁ nancial assets and liabilities as recognised at the statement of ﬁ nancial 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

Bank overdraft

Financial liabilities held at fair value

Contingent consideration

Group
Group

2018
£’000

725

1,205

1,930

Group
Group

2018
£’000

1,128

404

1,532

2017
£’000

1,390

1,414

2,804

2017
£’000

Company
Company

2018
£’000

1,253

Company
Company

2018
£’000

2017
£’000

915

1,014

2017
£’000

1,208

1,070

2,394

391

146

1,745

404

1,489

391

146

2,931

Financial assets and ﬁ nancial liabilities measured at fair value in the statement of ﬁ nancial position are grouped into three Levels of a fair value
hierarchy. The three Levels are deﬁ ned based on the observability of signiﬁ cant inputs to the measurement, as follows:

(cid:129) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities

(cid:129) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

(cid:129) Level 3: unobservable inputs for the asset or liability.

The following table shows the Levels within the hierarchy of ﬁ nancial assets and liabilities measured at fair value on a recurring basis at 31
December 2018 and 31 December 2017:

Contingent consideration

2018
£’000
Level 2

2017
£’000
Level 2

146

The Group’s ﬁ nance team performs valuations of ﬁ nancial items for ﬁ nancial 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 ﬁ nance 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)

In 2017, 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 was paid in 2018.

254300 Dillistone AR pp36-END.indd 67

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

26. IFRS 15 impact on 2017 and 2018 results
The material change to the Group’s reported revenue following adoption of IFRS 15 arose on the timing of recognising revenue on perpetual
licences sold with mandatory support contracts. Previously, these licences were deemed separate from the support contract, whereas under
IFRS 15 they represent one performance obligation. Revenue on such licence sales was thus recognised at a point in time, on the customer’s
practical acceptance of the software. Under IFRS 15, this revenue is recognised over time.

As the actual life of the support contract is unknown at inception, an estimate of 5 years has been made following analysis of the historic
turnover rates of support contracts. If this period was shorter, revenue would be recognised more quickly and vice versa. See note 1.4 for
further details of how revenue is recognised following the adoption of IFRS 15.

Revenue from previous periods is thus deferred and recognised later. Adjustments are required to:

(cid:129)

Revenue in the period, being revenue released as deferred from prior periods and current period revenue deferred;

Retained earnings, being revenue deferred from prior periods and cumulative tax effects;

Trade and other liabilities both current and non-current, being deferred revenue; and

Deferred and current tax, arising on revenue already subject to tax that will be recognised in future periods.

The results for 2018 fully incorporate these changes. As IFRS 15 has been adopted retrospectively, the reported results for 2017 must also be
adjusted as if that standard applied in full to that period.

The impact of adopting IFRS 15 therefore had the following effect on the Group’s primary ﬁ nancial statements:

Impact on the Consolidated Statement of Comprehensive income for the year ended 31 December 2017

Revenue

Cost of sales

Gross proﬁ t

Administrative expenses

Result from operating activities

Financial income

Financial cost

Loss before tax

Tax income

(Loss)/proﬁ t for the period

Earnings per share

Basic

Diluted

As reported
previously
£’000

9,582

(1,536)

8,046

(8,560)

(514)

(12)

(525)

454

(71)

(0.36)p

Effect
£’000

150

(22)

128

As reported
under IFRS 15
£’000

9,732

(1,536)

8,196

(8,560)

(364)

(12)

(375)

432

0.29p

254300 Dillistone AR pp36-END.indd 68

22/05/2019 22:30

FINANCIAL STATEMENTS

As reported
previously
£’000

Effect
£’000

As reported
under IFRS 15
£’000

8,460

3,070

11,530

983

1,631

365

8,460

3,070

11,530

983

1,631

365

3,107

(1,062)

2,045

101

6,294

(1,062)

5,232

386

668

4,335

(170)

5,236

11,530

782

(160)

794

386

508

440

4,775

1,062

(170)

6,298

11,530

Impact on Consolidated statement of ﬁ nancial position as at 31 December 2017

ASSETS

Non-current assets

Current assets

Total assets

EQUITY AND LIABILITIES

Equity

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

Current liabilities

Trade and other payables

Borrowings

Current tax (receivable)/payable

Total liabilities

Total liabilities and equity

254300 Dillistone AR pp36-END.indd 69

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

Impact on Consolidated statement of cash ﬂ ows for year ended 31 December 2017

Operating activities

Loss before taxation

As reported
previously
£’000

Effect
£’000

As reported
under IFRS 15
£’000

(525)

150

(375)

Operating cash ﬂ ows before movements in working capital

1,432

150

Decrease in receivables

Decrease in inventories

Decrease in payables

Taxation Paid

Net Cash generated by operating activities

573

(123)

(12)

1,872

(150)

1,582

573

(273)

(12)

1,872

Impact on Consolidated Statement of Comprehensive Income for year ended 31 December 2018

See Note 1.4 for details of how revenue income is recognised following the adoption of IFRS 15.

Revenue

Cost of sales

Gross proﬁ t

Administrative expenses

Result from operating activities

Financial income

Financial cost

Loss before tax

Tax income

(Loss)/proﬁ t for the period

Earnings per share

Basic

Diluted

Under previous
accounting
policy
£’000

Effect of
IFRS 15
£’000

As reported
under IFRS 15
£’000

8,588

(1,054)

7,534

(8,052)

(518)

(38)

(555)

206

(349)

(1.85)p

104

(15)

8,692

(1,054)

7,638

(8,052)

(414)

(38)

(451)

191

(260)

(1.32)p

254300 Dillistone AR pp36-END.indd 70

22/05/2019 22:30

FINANCIAL STATEMENTS

Impact on Consolidated Statement of Financial Position for year ended 31 December 2018

ASSETS

Non-current assets

Current assets

Total assets

EQUITY AND LIABILITIES

Equity

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

Current liabilities

Trade and other payables

Borrowings

Current tax (receivable)/payable

Total liabilities

Total liabilities and equity

Under previous
accounting
policy
£’000

Effect of
IFRS 15
£’000

As reported
under IFRS 15
£’000

8,282

2,250

10,532

983

1,631

365

2,659

106

5,831

390

518

3,931

(154)

4,701

10,532

(972)

(10)

(982)

688

(29)

439

(116)

982

8,282

2,250

10,532

983

1,631

365

1,687

106

4,849

690

390

489

4,370

(270)

5,683

10,532

254300 Dillistone AR pp36-END.indd 71

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2018
Continued

Impact on Consolidated Statement of Cash ﬂ ows for year ended 31 December 2018

Operating activities

Loss before taxation

Operating cash ﬂ ows before movements in working capital

Decrease in receivables

Decrease in inventories

Decrease in payables

Taxation Paid

Net Cash generated by operating activities

Under previous
accounting
policy
£’000

Effect of
IFRS 15
£’000

As reported
under IFRS 15
£’000

(555)

104

(451)

1,271

171

(367)

1,140

104

1,375

(104)

171

(471)

1,140

27. Prior year reclassiﬁ cation
The Group reclassiﬁ ed contractor and internal development costs previously recognised as cost of sales as administrative expenses during the
period. The 2017 comparatives have also been restated on this basis. The impact in 2018 was £0.216m (2017: £0.289m).

28. Post Balance Sheet events
In February 2019 the Group announced a major restructuring and closing of its London Ofﬁ ce. The Board anticipates that the efﬁ ciencies
gained from merging the function teams across the Group into fewer locations will allow the Group to maintain current levels of client service
and product development investment while delivering a signiﬁ cant reduction in costs from 2020 onwards. This process will inevitably lead to
the Group incurring restructuring costs during 2019, which are currently estimated to be in the region of £500,000 to £900,000.

29. 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’.

30. Related party transactions

Group

The Directors received dividends paid by the Company of £43,000 (2017: £240,000).

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 £10,000 (2017: £30,000) (excluding Employer’s NI)
and related to estimated bonus payments payable in relation to 2018.

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

254300 Dillistone AR pp36-END.indd 72

22/05/2019 22:30

FINANCIAL STATEMENTS

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 dividend of £589,000 from its subsidiary company Dillistone Systems (US) Inc (2017: £nil). At the
year end, Dillistone Systems (US) Inc owed £282,000 (2017: owed £257,000) to the Company.

During the current year Dillistone Systems Limited paid a management charge of £264,000 (2017: £306,000) to Dillistone Group Plc. At the
year end Dillistone Systems Limited was owed £185,000 (2017: £752,000).

The Company was owed £42,000 (2017: £36,000) by Dillistone Systems (Australia) Pty Limited at the year end.

Voyager Software paid a management charge of £144,000 (2017: £144,000) and a dividend of £500,000 (2017: £nil). It owed the Company
£255,000 at the year end (2017: £187,000).

FCP Internet Limited paid a management charge of £84,000 (2017: £84,000) and a dividend of £500,000 (2017: £1,000,000) and was owed
by the Company £538,000 at the year end (2017: owed by the Company £754,000).

A management charge of £60,000 (2017: £60,000) was received from ISV Software together with a dividend of £250,000 (2017: £400,000)
and at the year end the Company owed ISV £100,000 (2017: £208,000).

GatedTalent Limited paid a management charge of £50,000 (2017: £86,000) and owed the Company £654,000 at the year end (2017:
£373,000).

FCP Internet Holdings Limited was owed by the Company £2,000 at the year end (2017: owed by the Company £2,000).

Woodcote Software Limited owed the Company £13,000 (2017: £13,000).

Management charges payable by Group members to Dillistone Group Plc relate to management support provided directly to them.

31. Dividends
The dividends paid in 2018 and 2017 were £98,000 (0.5p per share) and £551,000 (2.8p per share) respectively. No ﬁ nal dividend in respect
of the year ended 31 December 2018 is proposed.

254300 Dillistone AR pp36-END.indd 73

22/05/2019 22:30

DILLISTONE GROUP PLC Annual Report and Accounts 2018

DIRECTORS AND ADVISERS

Directors

Secretary

Company number

Registered ofﬁ ce

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

Link Assets Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

254300 Dillistone AR pp36-END.indd 74

22/05/2019 22:30

Designed and printed by Perivan

DILLISTONE GROUP PLC

EMPOWERING RECRUITMENT

GLOBALLY THROUGH TECHNOLOGY

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

Strategic Report

Highlights

CEO’s review

Financial review

Governance

Dillistone Group at a glance

Chairman’s statement

Corporate governance report

Report to the Shareholders on Directors’

remuneration

Board of Directors

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 31

Company statement of changes in equity

Consolidated and Company statement

of financial position

Consolidated cash flow statement

Company cash flow statement

Notes to the financial statements

Directors and advisers

FINANCIAL STATEMENTSDILLISTONE GROUP PLC Annual Report and Accounts 2018

50 Leman St
London
E1 8HQ

www.dillistonegroup.com

STRATEGIC REPORT