Company Announcements

CEO's Review

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 firms.

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.

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 profitability and deliver increased shareholder value year on year in conjunction with a progressive dividend policy.

Key Performance Indicators (KPIs)

The Board and management use absolute figures to monitor the performance of the business using the financial KPIs set out below.  As discussed above the Board is undertaking a major restructuring exercise to address the longer term performance of the business:

Adjusted profit before tax is statutory profit before acquisition costs, related intangible amortisation, movements in contingent consideration and other one-off costs. See note 4.

Restructuring Plan

Results in 2018 have clearly been disappointing and the Board has embarked on a plan which, it believes, will deliver significantly 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 financial system and expect this to be complete prior to the year end.

·    Merged certain back office teams and are in the process of merging the product development and other teams.

·    Terminated the lease of our London office while expanding our Basingstoke office.  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 flagship products and believe that our new development structure will lead to more efficient 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 first 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) reflecting 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 profit fell to £0.055m (restated 2017: £0.459m) and pre-tax profits 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: profit £0.057m).  Cash at the year end was £0.725m (2017: £1.390m).

¹Adjusted EBITDA is adjusted operating profit with depreciation and amortisation added back.  See note 4.

Divisional Reviews

Dillistone Systems

The Dillistone Systems division is primarily focused on providing technology solutions to the executive search market via our range of "FileFinder" applications.  This client group is made up of both executive search firms and executive search teams in major organisations.

Dillistone Systems' head office is currently in London and it has offices 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 significant number of user experience improvements.  As part of our restructuring, we have brought development resources from other parts of the Group in to support FileFinder product development, and are already seeing the benefits 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 profit 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 office to back office 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 profit 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 Infinity

·    A new fast-paced temporary recruitment Planner system in Infinity

·    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

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 first revenues occurring in 2018 of £0.068m. 

The basic platform has over 50,000 profiles and is free to executives.  New profiles 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 Gated Talent (including capitalised development) to 31 December 2018 was over £1.700m.

The Board is confident that all three Divisions have strong futures.

Financial Review

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 reclassified as administrative expenses from costs of sales and the 2017 comparatives have also been restated on this basis.  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 figure 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 benefitted from a tax credit in 2018 of £0.191m (restated 2017: credit £0.432m).  The 2018 credit reflects the significant R&D tax credits available to all three divisions and the assumption that any tax losses will be surrendered for the R&D tax credit payment.  It also benefits 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 reflects the reduction in deferred tax that arises as amortisation is charged in the profit and loss account. 

Profit for the year before acquisition related and other one-off items amounted to £0.120m (restated 2017: £0.734m).  The 2018 adjusted profits benefitted 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: profit £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 profit 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 finished 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 final payment to the vendors of ISV of £0.146m and dividend payments of £0.098m.

Jason Starr

Chief Executive Officer