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DILLISTONE GROUP PLC — Earnings Release 2013
Apr 29, 2014
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Earnings Release
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RNS Number : 7131F
Dillistone Group PLC
29 April 2014
29 April 2014
Dillistone Group Plc
("Dillistone", the "Company" or the "Group")
Final Results
Dillistone Group Plc, the AIM quoted supplier of recruitment software, is pleased to announce its audited results for the 12 months ended 31 December 2013.
| Highlights for the year: § Revenues up 15% to £8.1m § Record level of recurring revenues of £5.3m up 16% from 2012 § Adjusted operating profits1 up 7% to £1.8m § Adjusted EBITDA2 increased 12% to £2.2m § Adjusted pre-tax profits3 up 7% to £1.8m § Adjusted earnings per share4 up 11% to 7.99p § Final dividend of 2.6p per share recommended, making total dividend for the year of 3.85p (a yield of 3.5% on a share price of 111p) § Cash funds of £1.4m (2012: £1.6m) after acquisition related payments of £0.9m. The Group remains debt free § FCP Internet acquired in July 2013 Commenting on the results, Mike Love, Non-Executive Chairman, said: "These are another strong set of results with each of our divisions delivering both top line and bottom line growth, while integrating the FCP Internet business and continuing to invest in our future. We are also, once again, pleased to be increasing our dividend." 1 Adjusted operating profit is statutory operating profit before acquisition costs, related intangible amortisation, movements in deferred consideration and other one-off costs relating to acquisitions. 2 Adjusted EBITDA is adjusted operating profit with depreciation and amortisation added back. 3 Adjusted pre-tax profits is statutory pre-tax profits before acquisition costs, related intangible amortisation, movements in deferred consideration and other one-off costs relating to acquisitions. 4 Adjusted earnings per share is computed from statutory profits after tax adjusted to exclude the post-tax effect of acquisition costs, related intangible amortisation, movements in deferred consideration and other one-off costs relating to acquisitions. |
Results Webinar - Jason Starr, Chief Executive, and Julie Pomeroy, Finance Director, will be hosting a webinar to review the results of 2013 at 3pm today. To register please visit www.dillistonegroup.com/ir.aspx or contact Tom Cooper on [email protected] or 0797 122 1972.
Annual Report and Accounts - The final results announcement can be downloaded from the Company's website (www.dillistonegroup.com). Copies of the Annual Report and Accounts (in addition to the notice of the Annual General Meeting) will be sent to shareholders by 16 May 2014 for approval at the Annual General Meeting to be held on 11 June 2014.
Contacts:
| Dillistone Group Plc | ||
| Mike Love | Chairman | 020 7749 6100 |
| Jason Starr | Chief Executive | 020 7749 6100 |
| Julie Pomeroy | Finance Director | 020 7749 6100 |
| WH Ireland Limited (Nominated adviser) | ||
| Chris Fielding | Head of Corporate Finance | 020 7220 1650 |
| Winningtons | ||
| Tom Cooper / Paul Vann | 020 3176 4722 | |
| 0797 122 1972 | ||
| [email protected] |
Notes to Editors:
Dillistone Group Plc (www.dillistonegroup.com) is a leader in the supply and support of recruitment software. It has three trading businesses operating through two divisions: Dillistone Systems, which targets the executive search industry (www.dillistone.com); and Voyager Software, which targets other recruitment markets via its Voyager and Infinity products (www.voyagersoftware.com) and its recently acquired FCP Internet business (www.evolvedb.co.uk).
Dillistone was admitted to AIM, a market operated by the London Stock Exchange plc, in June 2006.
Chairman's Statement
The Group has again enjoyed another successful year in 2013, delivering its best ever performance in terms of both revenue and operating profit. Revenue was up 15% to £8.1m and adjusted operating profits up 7% to £1.8m. We have two divisions - Dillistone Systems and Voyager Software - and both delivered top line and bottom line growth.
The acquisition of FCP Internet (FCP) in July 2013 has once again proven our ability to acquire and integrate businesses successfully. The FCP team is now settled into our wider Group, client retention has been good and the evolveTM SaaS product is continuing to perform well in the market. FCP contributed £472,000 to revenue and £55,000 to profit before taxation in 2013.
It is the view of the Board that product development is fundamental to the long term success of the business and as a result 2014 will see us continue to invest in the development of software within both of our divisions.
Dividends
The Board was pleased to increase the interim dividend payment in September 2013 to 1.25p (2012: 1.2p). The Board has recommended a final dividend of 2.6p per share (2012: 2.5p), subject to shareholder approval, payable on 25 June 2014 to holders on the register on 16 May 2014. Shares will trade ex-dividend from 14 May 2014. This takes the total dividend based on the 2013 results to 3.85p, and gives a yield of 3.5% on a share price of 111p.
This represents another year on year increase in the dividend, in line with our progressive dividend policy, which illustrates the Board's confidence in the future prospects of the Group. The business is committed to maintaining its policy of investing in its products and services whilst rewarding its shareholders.
Staff
Our staff are fundamentally important to the success of the business. 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 them.
Outlook
The Board retains a confident outlook on prospects for the Group.
At this stage, while first half revenues are expected to be ahead of the equivalent period for 2013, it is anticipated that first half pre-tax profit will be below that delivered in 2013. We announced in summer 2013 that we were strengthening our management team and this, along with the increased amortisation of our product development, are two of the key reasons behind the increase in expected costs. However, taking the year as a whole, the Group expects to make positive progress in 2014, the scale of which will become clearer as the year evolves.
Within our Dillistone Systems division, we have sold more new systems in the first quarter of 2014 than we did in the same period of 2013, however, income from new systems sales in 2014 is lagging that seen in 2013, in part due to an increase in the proportion of purchases delivered on the cloud subscription model, which has an impact on near term revenues.
Our Voyager division delivers products into a range of recruiting markets. Performance has varied across these, with a number of products delivering a strong performance.
With a strong profile of recurrent revenues, the Group continues to generate cash allowing us to continue to invest in improving our products and services whilst maintaining our dividend policy.
Both the Dillistone Systems and Voyager Software divisions anticipate making significant product related announcements later in the year.
Dr Mike Love
Non-Executive Chairman
28 April 2014
Chief Executive's Statement
Introduction
Dillistone Group Plc is a global leader in the supply of technology solutions and services to the recruitment industry worldwide.
Strategy and objectives
The Group's strategy is to grow the business both organically and through acquisition. This strategy is made possible by our commitment to product development, which ensures that the business continues to command a leading role in all of the markets in which it operates.
Our acquisition strategy typically entails consideration of firms 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 of our products;
· be a leading player in all of the markets we serve;
· develop our staff;
· increase our profitability and deliver increased shareholder value year on year and to follow a progressive dividend policy.
Review of the business
2013 saw recurring revenues grow 16% to £5.271m (2012: £4.529m) reflecting the acquisition of FCP Internet, whose revenues (£472,000) are included in the Group results for the first time and are mainly recurring in nature. Recurring revenues represent 65% of Group revenues (2012: 64%). Overheads have increased across the business in part as a result of our decision to strengthen management depth in anticipation of future growth but, despite this, pre-tax profits before acquisition related items increased 7% to £1.801m (2012: £1.684m).
Dillistone Systems
The Dillistone Systems division is primarily focused on providing technology solutions to the executive search market. This client group is made up of both executive search firms and executive search teams in major organisations.
In my 2013 report, I noted that, in 2012,- according to statistics from the Trade association, the Association of Executive Search Consultants (AESC), the retained search market had shrunk but that Dillistone Systems had grown its install base despite that trend. I am able to report a very similar story in 2013, with the AESC reporting that the total number of mandates taken on by search firms in 2013 fell by 8.5%. Despite this, Dillistone Systems was again able to sign up a new client roughly every other working day.
In addition, we successfully sold our FileFinder product into a variety of different corporate sectors. These included retail, technology, private equity, management consulting, energy, banking, publishing and the public sector.
The division continued to invest in enhancing our products and services. For a number of years, Dillistone Systems has offered cloud hosting facilities in the UK and Australia, and facilities in the US and Asia have been added since the publication of our last report.
Our development team has continued to develop the FileFinder product, and has delivered performance and functionality improvements since launch. The division expects to make an important product related announcement later this year.
Dillistone Systems' head office is in London and it has offices in the US, Germany and Australia. The division accounts for 61% (2012: 66%) of the Group's revenue and saw recurring revenue grow 3% to £3.248m (2012: £3.144m). As a whole, the division saw segmental operating profit before amortisation and depreciation increase by 5% to £2.013m (2012: £1.912m).
Revenue
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| Recurring income | 3,248 | 3,144 | |||
| Non-recurring income | 1,675 | 1,522 | |||
| 4,923 | 4,666 |
Voyager Software
Voyager Software performed well in 2013. The division successfully delivered its largest ever contract and has seen its 'Infinity' product gain good momentum in the market.
The Infinity product was a major development for the business and, since launch, work has continued to optimise it for larger firms and certain delivery models.
July 2013 saw us acquire FCP Internet, a UK focused SaaS business targeting the recruitment industry via its product, evolveTM. The integration of the business has been successfully completed, with the majority of staff transferring to existing Group offices in Basingstoke and London. Client retention has been strong, and the evolveTM platform today supports more users than ever before.
In 2013, the Voyager Software division accounted for 40% of Group revenues. The division's revenues were £3.202m and it had a segmental operating profit before amortisation and depreciation of £0.598m.
Revenue
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| Recurring income | 2,023 | 1,385 | |||
| Non-recurring income | 777 | 618 | |||
| Third party revenues | 402 | 383 | |||
| 3,202 | 2,386 |
Although both divisions are run separately, synergies continue to be delivered. Both divisions are committed to continuing to invest in their products to ensure they retain their market leading positions.
Jason Starr
Chief Executive Officer
Finance Director's Statement
Financial review
Total revenues increased by 15% to £8.101m (2012: £7.052m), with profit before tax and acquisition related items up 7% to £1.801m (2012: £1.684m). Recurring revenues increased by 16% to £5.271m (2012: £4.529m). Non-recurring revenues saw an increase of 13% to £2.428m from £2.140m in 2012. Third party software product sales amounted to £0.402m in the period (2012: £0.383m). These results include FCP revenues from July 2013.
Cost of sales increased by 11% to £0.957m (2012: £0.864m), reflecting the impact of FCP from 8 July 2013.
Administrative costs, excluding acquisition related items, depreciation and amortisation, rose 15% to £4.901m (2012: £4.246m), reflecting a part year of FCP and increased investment in management. Depreciation and amortisation increased to £0.449m (2012: £0.327m). Acquisition related administrative costs totalled £0.210m (2012: £0.102m) and relate to acquisition costs and amortisation of intangibles arising on the Voyager and FCP acquisitions offset by a reduction in the estimated contingent consideration payable re Voyager of £0.058m. Interest income has also been offset by the unwinding of the discount in respect of the deferred consideration.
Recurring revenues covered 98% of administrative expenses before acquisition related costs (2012: 99%). Excluding depreciation and amortisation of our own internal development, the administrative costs are more than covered at 108% (2012: 107%).
Tax has been provided at an effective rate of 19% (2012: 22%) excluding acquisition related items and at 19% (2012: 18%) post acquisition related costs. These rates reflect the R&D tax credits available to both Dillistone Systems and Voyager Software that have been claimed, partially offset by the higher rates of corporation tax that are payable overseas. The post acquisition related items rate also reflects the reduction in deferred consideration and the write off of acquisition costs together with the reduction in deferred tax rate used in the accounts from 23% to 21%.
Profits for the year before acquisition related items rose 11% to £1.455m (2012: £1.311m) and profits for the year after acquisition related items decreased marginally to £1.231m (2012: £1.235m). Basic earnings per share (EPS) rose 11% to 7.99p (2012: 7.20p) before acquisition related items and decreased by 0.5% to 6.76p (2012: 6.79p) after such items. Fully diluted EPS rose 7% to 7.70p (2012: 7.18p) and decreased 4% to 6.51p (2012: 6.76p) after acquisition related items.
Capital expenditure
The Group invested £0.830m in property, plant and equipment and product development during the year (2012: £0.872m). This expenditure included £0.747m (2012: £0.803m) spent on development costs, of which £0.250m relates to development in Voyager Software (2012: £0.403m), that has been capitalised under IFRS in the Group accounts.
Trade and other payables
As with previous years, the trade and other payables include income which has been billed in advance but is not recognised as income at that time. This principally relates to support, SaaS and hosting renewals which are billed in December 2013 but that are in respect of services to be delivered in 2014. Contractual income of this type is recognised monthly over the period to which it relates. It also includes deposits taken for work which has not yet been completed, as such income is only recognised when the work is substantially complete or the client software goes 'live'. Also included in trade and other payables is £0.918m (2012: £0.360m) relating to consideration and contingent consideration due to former Voyager and FCP shareholders. The contingent consideration in respect of Voyager Software is dependent on the level of revenue achieved by the division in the periods up to 31 December 2013. There are four tranches of deferred contingent consideration in respect of FCP and they are dependent on levels of revenue achieved in periods up until 31 March 2015.
Cash
Dillistone finished the year with cash funds of £1.399m (2012: £1.643m) and remains debt free. This is after capital expenditure of £0.830m, the payment to the vendors of Voyager and FCP of £0.900m (net of cash received with FCP) and dividend payments of £0.683m.
Julie Pomeroy
Finance Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2013
| 2013 | 2012 | ||||
| Note | £'000 | £'000 | |||
| Revenue | 5 | 8,101 | 7,052 | ||
| Cost of sales | (957) | (864) | |||
| Gross profit | 7,144 | 6,188 | |||
| Administrative expenses | (5,561) | (4,675) | |||
| Profit from operating activities | 1,583 | 1,513 | |||
| Adjusted operating profit before acquisition related items | 1,793 | 1,671 | |||
| Acquisition related items * | (210) | (158) | |||
| Operating profit | 1,583 | 1,513 | |||
| Financial income | 8 | 13 | |||
| Finance cost | 7 | (68) | (13) | ||
| Profit before tax | 1,523 | 1,513 | |||
| Tax expense | 8 | (292) | (278) | ||
| Profit for the year | 1,231 | 1,235 | |||
| Other comprehensive income net of tax: | |||||
| Items that will be reclassified subsequently to profit and loss Currency translation differences |
(16) | (11) | |||
| Total comprehensive income for the year net of tax | 1,215 | 1,224 |
Earnings per share - from continuing activities
| Basic | 9 | 6.76p | 6.79p | |
| Diluted | 9 | 6.51p | 6.76p |
*see accounts note 4 & 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2013
| Share | Share | Merger | Retained | Share | Foreign | Total | |||||||
| capital | premium | Reserve | earnings | option | exchange | ||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
| Balance at 31 December 2011 | 910 | 451 | 365 | 1,934 | 24 | 163 | 3,847 | ||||||
| Comprehensive income | |||||||||||||
| Profit for the year ended 31 Dec 2012 | - | - | - | 1,235 | - | - | 1,235 | ||||||
| Other comprehensive income | |||||||||||||
| Exchange differences on translation of overseas operations | - | - | - | - | - | (11) | (11) | ||||||
| Total comprehensive income | - | - | - | 1,235 | - | (11) | 1,224 | ||||||
| Transactions with owners | |||||||||||||
| Share option charge | - | - | - | 2 | 44 | - | 46 | ||||||
| Dividends paid | - | - | - | (643) | - | - | (643) | ||||||
| Total transactions with owners | - | - | - | (641) | 44 | - | (597) | ||||||
| Balance at 31 December 2012 | 910 | 451 | 365 | 2,528 | 68 | 152 | 4,474 | ||||||
| Comprehensive income | |||||||||||||
| Profit for the year ended 31 Dec 2013 | - | - | - | 1,231 | - | - | 1,231 | ||||||
| Other comprehensive income | |||||||||||||
| Exchange differences on translation of overseas operations | - | - | - | - | - | (16) | (16) | ||||||
| Total comprehensive income | - | - | - | 1,231 | - | (16) | 1,215 | ||||||
| Transactions with owners | |||||||||||||
| Issue of share capital | 4 | 47 | - | - | - | - | 51 | ||||||
| Share option charges | - | - | - | - | 53 | - | 53 | ||||||
| Dividends paid | - | - | - | (683) | - | - | (683) | ||||||
| Total transactions with owners | 4 | 47 | - | (683) | 53 | - | (579) | ||||||
| Balance at 31 December 2013 | 914 | 498 | 365 | 3,076 | 121 | 136 | 5,110 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2013
| 2013 | 2012 | ||||
| ASSETS | £'000 | £'000 | |||
| Non-current assets | |||||
| Goodwill | 2,745 | 2,490 | |||
| Intangible assets | 4,833 | 3,048 | |||
| Property, plant and equipment | 127 | 124 | |||
| Investments | - | - | |||
| 7,705 | 5,662 | ||||
| Current assets | |||||
| Inventories | 78 | 62 | |||
| Trade and other receivables | 1,790 | 1,715 | |||
| Cash and cash equivalents | 1,399 | 1,643 | |||
| 3,267 | 3,420 | ||||
| Total assets | 10,972 | 9,082 | |||
| EQUITY AND LIABILITIES | |||||
| Equity attributable to owners of the parent | |||||
| Share capital | 914 | 910 | |||
| Share premium | 498 | 451 | |||
| Merger reserve | 365 | 365 | |||
| Retained earnings | 3,076 | 2,528 | |||
| Share option reserve | 121 | 68 | |||
| Translation reserve | 136 | 152 | |||
| Total equity | 5,110 | 4,474 | |||
| Liabilities | |||||
| Non-current liabilities | |||||
| Trade and other payables | 459 | 256 | |||
| Deferred tax liability | 901 | 592 | |||
| Current liabilities | |||||
| Trade and other payables | 4,313 | 3,609 | |||
| Current tax payable | 189 | 151 | |||
| Total liabilities | 5,862 | 4,608 | |||
| Total liabilities and equity | 10,972 | 9,082 |
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED
31 DECEMBER 2013
| 2013 | 2013 | 2012 | 2012 | ||||
| Operating activities | £'000 | £'000 | £'000 | £'000 | |||
| Profit before tax | 1,523 | 1,513 | |||||
| Less taxation paid | (273) | (250) | |||||
| Adjustment for | |||||||
| Financial income | (8) | (13) | |||||
| Financial cost | 68 | 13 | |||||
| Depreciation and amortisation | 621 | 553 | |||||
| Share option expense | 53 | 47 | |||||
| Foreign exchange adjustments arising from operations | 14 | 9 | |||||
| Operating cash flows before | 1,998 | 1,872 | |||||
| movement in working capital | |||||||
| Increase in receivables | (120) | (4) | |||||
| Increase in inventories | (15) | (51) | |||||
| Increase/(decrease) in payables | 259 | (149) | |||||
| Net cash generated from operating activities | 2,122 | 1,668 | |||||
| Investing activities | |||||||
| Interest received | 7 | 13 | |||||
| Purchases of property, plant and | |||||||
| equipment | (83) | (69) | |||||
| Investment in development costs | (747) | (803) | |||||
| Acquisition of subsidiaries net of cash acquired | (715) | (98) | |||||
| Deferred consideration paid | (185) | ||||||
| Net cash used in investing activities | (1,723) | (957) | |||||
| Financing activities | |||||||
| Proceeds from issue of share capital | 51 | - | |||||
| Dividends paid | (683) | (643) | |||||
| Net cash used by financing activities | (632) | (643) | |||||
| Net (decrease) / increase in cash and cash equivalents | (233) | 68 | |||||
| Cash and cash equivalents at | 1,643 | 1,617 | |||||
| beginning of year | |||||||
| Effect of foreign exchange rate changes | (11) | (42) | |||||
| Cash and cash equivalents at end of year | 1,399 | 1,643 |
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2013
1. Publication of non-statutory accounts
In accordance with section 435 of the Companies Act 2006, the Directors advise that the financial information set out in this announcement does not constitute the Group's statutory financial statements for the year ended 31 December 2013 or 2012, but is derived from these financial statements. The financial statements for the year ended 31 December 2012 have been delivered to the Registrar of Companies. The financial statements for the year ended 31 December 2013 have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The financial statements for the year ended 31 December 2013 will be forwarded to the Registrar of Companies following the Company's Annual General Meeting. The Auditors have reported on these financial statements; their reports were unqualified and did not contain statements under Section 498(2) or (3) of the Companies Act 2006.
The consolidated statement of financial position at 31 December 2013 and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended have been extracted from the Group's financial statements. Those financial statements have not yet been delivered to the Registrar.
2. Basis of preparation
The preliminary announcement is extracted from the consolidated financial statements of all the entities within the Group. The financial statements of the subsidiaries are prepared for the same reporting date as the parent company. Consistent accounting policies are applied for like transactions and events in similar circumstances.
The preliminary announcement has been prepared under the historical cost convention, except for revaluation of certain financial instruments.
All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.
3. Accounting policies and changes thereto
This preliminary announcement has been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2012 except for the adoption of the following new interpretations, revisions and amendments to IFRS issued by the International Accounting Standards Board, which are relevant to and effective for the Group's financial statements for the financial year beginning 1 January 2013:
| · IAS 12 (Amendment): Deferred tax - Recovery of Underlying Assets |
| · IAS 19 (Revised): IAS 19 Employee Benefits |
| · IFRS 7 (Amendment): Disclosures - Offsetting Financial Assets and Financial Liabilities - · IFRS 13: Fair Value Measurement |
None of the above had a material impact on the financial statements of the group. As such there have been no material changes to the Group's accounting policies since the previous Annual Report.
4. Reconciliation of adjusted operating profits to consolidated statement of comprehensive income
| Note | Adjusted operating profits 2013 |
Acquisition related items 2013* |
2013 | Adjusted operating profits 2012 |
Acquisition related items and other one off costs 2012* |
2012 | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Revenue | 8,101 | - | 8,101 | 7,052 | - | 7,052 | |||||
| Cost of sales | (957) | - | (957) | (808) | (56) | (864) | |||||
| Gross profit | 7,144 | - | 7,144 | 6,244 | (56) | 6,188 | |||||
| Administrative expenses | (5,351) | (210) | (5,561) | (4,573) | (102) | (4,675) | |||||
| Results from operating activities | 1,793 | (210) | 1,583 | 1,671 | (158) | 1,513 | |||||
| Financial income | 8 | - | 8 | 13 | - | 13 | |||||
| Financial cost | - | (68) | (68) | - | (13) | (13) | |||||
| Profit before tax | 1,801 | (278) | 1,523 | 1,684 | (171) | 1,513 | |||||
| Tax expense | (346) | 54 | (292) | (373) | 95 | (278) | |||||
| Profit for the year | 1,455 | (224) | 1,231 | 1,311 | (76) | 1,235 | |||||
| Other comprehensive income net of tax: | |||||||||||
| Currency translation differences | (16) | - | (16) | (11) | - | (11) | |||||
| Total comprehensive income for the year net of tax | 1,439 | (224) | 1,215 | 1,300 | (76) | 1,224 | |||||
Earnings per share - from continuing activities
| Basic | 9 | 7.99p | 6.76p | 7.20p | 6.79p | |
| Diluted | 9 | 7.70 | 6.51p | 7.18p | 6.76p |
* see note 7
5. Segment reporting
The Board principally monitors the Group's operations in terms of results of the two divisions, Dillistone Systems and Voyager Software. Segment results reflect management charges made or received. Intercompany balances are excluded from segment assets and liabilities.
Divisional segments
| For the year ended 31 December 2013 | |||||||||
| Dillistone | Voyager | Inter-divisional Revenue | Central | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Recurring income | 3,248 | 2,023 | - | - | 5,271 | ||||
| Non-recurring income | 1,675 | 777 | (24) | - | 2,428 | ||||
| Third party revenues | - | 402 | - | - | 402 | ||||
| Segment revenue | 4,923 | 3,202 | (24) | - | 8,101 | ||||
| Segment EBITDA | 2,013 | 598 | (369) | 2,242 | |||||
| Depreciation and amortisation expense | (358) | (91) | (449) | ||||||
| Segment result | 1,655 | 507 | (369) | 1,793 | |||||
| Acquisition related amortisation | - | - | (172) | (172) | |||||
| Acquisition related charges | - | - | (38) | (38) | |||||
| Operating profit/ (loss) | 1,655 | 507 | (579) | 1,583 | |||||
| Financial income | 7 | 1 | 8 | ||||||
| Acquisition related interest expenses | (68) | (68) | |||||||
| Income tax expense | (292) | ||||||||
| Profit after tax | 1,231 | ||||||||
| Additions of non-current assets | 546 | 284 | 830 | ||||||
| Segment assets | 2,341 | 971 | 82 | 3,394 | |||||
| Intangibles and goodwill | 1,870 | 691 | 5,017 | 7,578 | |||||
| Total | 4,211 | 1,662 | 5,099 | 10,972 | |||||
| Segment liabilities | 2,959 | 1,009 | 1,894 | 5,862 |
For the year ended 31 December 2012
| Dillistone | Voyager | Central | Total | |||||
| £'000 | £'000 | £'000 | £'000 | |||||
| Recurring income | 3,144 | 1,385 | - | 4,529 | ||||
| Non-recurring income | 1,522 | 618 | - | 2,140 | ||||
| Third party revenues | - | 383 | - | 383 | ||||
| Segment revenue | 4,666 | 2,386 | - | 7,052 | ||||
| Segment EBITDA | 1,912 | 484 | (398) | 1,998 | ||||
| Depreciation and amortisation expense | (281) | (46) | - | (327) | ||||
| Segment result | 1,631 | 438 | (398) | 1,671 | ||||
| Acquisition related amortisation | - | - | (227) | (227) | ||||
| Acquisition related charges | - | (84) | 153 | 69 | ||||
| Operating profit | 1,631 | 354 | (472) | 1,513 | ||||
| Financial income | 12 | 1 | 13 | |||||
| Acquisition related interest expenses | (13) | (13) | ||||||
| Income tax expense | (278) | |||||||
| Profit after tax | 1,235 | |||||||
| Additions of non-current assets | 465 | 407 | 872 | |||||
| Segment assets | 3,181 | 349 | 14 | 3,544 | ||||
| Intangibles and goodwill | 1,667 | 488 | 3,383 | 5,538 | ||||
| Total | 4,848 | 837 | 3,397 | 9,082 | ||||
| Segment liabilities | 2,961 | 749 | 898 | 4,608 |
Products and services
The following table provides an analysis of the Group's revenue by products and services
Revenue
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| Recurring income | 5,271 | 4,529 | |||
| Non-recurring income | 2,428 | 2,140 | |||
| Third party revenues | 402 | 383 | |||
| 8,101 | 7,052 |
Recurring income includes all support services, SaaS and hosting income. Non-recurring income includes sales of new licenses, and income derived from installing those licenses including training, installation, and data translation. Third party revenues arise from the sale of third party software.
It is not possible to allocate assets and additions between recurring, non-recurring income and third party revenue.
No customer represented more than 10% of revenue of the Group.
6. 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
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| UK | 6,188 | 4,995 | |||
| US | 1,228 | 1,239 | |||
| Australia | 685 | 818 | |||
| 8,101 | 7,052 |
Non-current assets by geographical location
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| UK | 7,698 | 5,654 | |||
| US | 5 | 4 | |||
| Australia | 2 | 4 | |||
| 7,705 | 5,662 |
7. Acquisition related items
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| Estimated change in fair value of contingent consideration (note 10) | (57) | (153) | |||
| Payment in respect of onerous contract acquired at acquisition | - | 56 | |||
| Tax costs relating to options exercised pre-acquisition of Woodcote | - | 28 | |||
| Amortisation of acquisition intangibles | 172 | 227 | |||
| Fees relating to the acquisition of FCP (note 10) | 95 | - | |||
| 210 | 158 | ||||
| Unwinding of discount on contingent consideration | 68 | 13 | |||
| 278 | 171 |
8. Tax expense
| 2013 | 2012 | ||||
| £'000 | £'000 | ||||
| Current tax | 308 | 251 | |||
| Deferred tax | 38 | 101 | |||
| Deferred tax re acquisition intangibles | (54) | (74) | |||
| Income tax expense for the year | 292 | 278 | |||
| Factors affecting the tax charge for the year | |||||
| Profit before tax | 1,523 | 1,513 | |||
| UK rate of taxation | 23.25% | 24.5% | |||
| Profit before tax multiplied by the UK rate of taxation | 354 | 371 | |||
| Effects of: | |||||
| Overseas tax rates | 49 | 67 | |||
| Impact of deferred tax not provided | (15) | 16 | |||
| Enhanced R&D relief | (112) | (142) | |||
| Disallowed expenses | 103 | 31 | |||
| Rate change impact on deferred tax | (27) | (50) | |||
| Prior year adjustments | (60) | (15) | |||
| Tax expense | 292 | 278 |
Deferred tax provided in the financial statements is as follows:
| Group | Company | |||||||
| 2013 | Movement | 2012 | 2013 | 2012 | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||
| Accelerated intangible amortisation | 433 | 39 | 394 | - | - | |||
| Provisions | (9) | (1) | (8) | - | - | |||
| Acquisition intangibles | 477 | 271 | 206 | - | - | |||
| 901 | 309 | 592 | - | - |
The UK corporation tax rate in the year fell from 24% to 23% giving an effective rate for the year of 23.25%. The tax rate is expected to fall again to 21% in April 2014 and subsequently to 20%. Where deferred tax is provided in relation to the UK it has been provided at 21%. The tax charge is impacted by the higher rates of corporation tax payable in the US and Australia partially offset by the R&D tax credits available to both Dillistone Systems and Voyager Software. The Group has gross tax losses and temporary timing differences of £227,000 (2012: £221,000) for which no deferred tax asset has been recognised.
9. Earnings per share
| 2013 | 2013 | 2012 | 2012 | |
| Using adjusted operating profit | Using adjusted operating profit | |||
| £'000 | £'000 | £'000 | £'000 | |
| Profit attributable to ordinary shareholders | 1,455,000 | 1,231,000 | 1,311,000 | 1,235,000 |
| Weighted average number of shares | 18,211,321 | 18,211,321 | 18,201,294 | 18,201,294 |
| Basic earnings per share | 7.99 pence | 6.76 pence | 7.20 pence | 6.79 pence |
| Weighted average number of shares after dilution | 18,902,055 | 18,902,055 | 18,261,915 | 18,261,915 |
| Fully diluted earnings per share | 7.70 pence | 6.51 pence | 7.18 pence | 6.76 pence |
Reconciliation of basic to diluted average number of shares
| 2013 | 2012 | ||||
| Weighted average number of shares (basic) | 18,211,321 | 18,201,294 | |||
| Effect of dilutive potential ordinary shares - employee share plans | 690,734 | 60,621 | |||
| Weighted average number of shares after dilution | 18,902,055 | 18,261,915 |
10. Acquisitions
On 8 July 2013, the Group acquired the entire share capital of FCP Internet Holdings Limited ('Holdings') and its wholly owned subsidiary FCP Internet Limited ('FCP') for an estimated consideration before fees of £1,565,000, which was satisfied as detailed below. This was part of the Group's strategy to broaden our offering to the recruitment sector.
Holdings is a non-trading holding company. FCP (www.evolvedb.co.uk) sells its evolveTM product to its target market of recruitment agencies. This product, which is wholly delivered through a SaaS model, is designed to facilitate the filling of temporary or permanent vacancies and is used by hundreds of users around the World. FCP operates in the same market sector as the Group's Voyager Software business and is UK based. It forms part of the Voyager Software division.
The details of the business combination are as follows:
| Book value | Fair value adjustments | Fair value intangibles adjustments | Fair value | |||||||||||||
| £'000 | £'000 | £'000 | £'000 | |||||||||||||
| Assets | ||||||||||||||||
| Non-current assets | ||||||||||||||||
| Property, plant and equipment | 33 | (20) | - | 13 | ||||||||||||
| Intangible assets | 82 | (67) | 1,551 | 1,566 | ||||||||||||
| Current assets | ||||||||||||||||
| Trade and other receivables | 35 | (1) | - | 34 | ||||||||||||
| Cash and cash equivalents | 117 | - | - | 117 | ||||||||||||
| Total assets | 267 | (88) | 1,551 | 1,730 | ||||||||||||
| Liabilities | ||||||||||||||||
| Trade and other payables | (93) | (1) | - | (94) | ||||||||||||
| Deferred tax liability | - | - | (326) | (326) | ||||||||||||
| Net assets acquired | 174 | (89) | 1,225 | 1,310 | ||||||||||||
| Goodwill | 255 | |||||||||||||||
| 1,565 | ||||||||||||||||
| Satisfied by | ||||||||||||||||
| Cash consideration | 750 | |||||||||||||||
| Cash consideration in relation to surplus working capital | 82 | |||||||||||||||
| Contingent consideration | 733 | |||||||||||||||
| 1,565 | ||||||||||||||||
| Fair value of consideration transferred | £'000 | |||||||||||||||
| Amount settled in cash consideration in period | 832 | |||||||||||||||
| Cash and cash equivalents acquired | (117) | |||||||||||||||
| Net cash outflow on acquisition | 715 | |||||||||||||||
| Acquisition costs charged to expenses | 95 | |||||||||||||||
| Net cash paid relating to acquisition | 810 | |||||||||||||||
The total consideration of £1,565,000 net of cash acquired of £117,000 was £1,448,000 before fees. The fair value adjustment of £89,000 relates mainly to the writing down of intangible assets and property, plant and equipment to their fair value, adopting more closely the accounting policies adopted by the Group. Fees of £95,000 were expensed and included in acquisition related costs. In addition, following a detailed review of the fair value of assets and liabilities acquired, in accordance with IFRS 3 Business Combinations the Group has recognised two intangible assets totalling £1,551,000 made up as follows:
| £'000 | Estimated life |
||
| Intangible assets | |||
| Developed technology | 157 | 6 years | |
| Customer relationships | 1,394 | 10 years | |
| 1,551 |
Goodwill of £255,000 represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The goodwill arising on the acquisition consists largely of the workforce value, synergies and economies of scale expected from combining the operating with Dillistone Group companies.
As part of the acquisition, the Group agreed to pay additional consideration based on surplus working capital retained in the business at completion. Following a completion accounts verification process, an amount of £82,000 was agreed to be paid to the vendors and this was paid in the year. In addition, the vendors are entitled to contingent consideration as follows:
· £50,000 - provided that certain revenues in January 2014 exceeded those in January 2013.
· Up to 60% of recurring revenues in the nine month period to 31 March 2014. The percentage varies depending on the level of recurring revenues.
· Up to 50% of recurring revenues in the nine month period to 31 December 2014. The percentage varies depending on the level of recurring revenues.
· Up to 50% of recurring revenues in the three month period to 31 March 2015. The percentage varies depending on the level of recurring revenues.
The contingent consideration has been calculated based on the information available at the year end and not solely based on the information at the time of the acquisition. The deferred consideration as at acquisition has been discounted at an annual rate of 16.99% with a resulting charge in the 2013 accounts of £58,000. The value of the deferred contingent consideration at 31 December 2013 was £790,000. The maximum deferred consideration payable is £1,200,000.
From the date of acquisition to 31 December 2013, the acquired companies contributed £472,000 to revenue and £55,000 to profit before taxation. In the last financial year, being the year ended 31 October 2012, the acquired companies made a profit before taxation of £171,000 and before an exceptional loss totalling £320,000 relating to a loan write-off to a sister company, NowWeComply Limited, which was sold prior to acquisition. However, due to a change in year end, lack of audited accounts and exceptional write-offs, pro-forma profit or loss of the combined entity for the complete 2013 reporting period cannot readily be determined.
Deferred consideration payable in respect of earlier acquisitions
As part of the acquisition of Voyager Software, the Group agreed to pay additional contingent consideration. During 2013 it made payments totalling £186,000. The final tranche of the deferred consideration is due to be paid in April 2014 and is derived as follows:
· 30 per cent of the revenue of the acquired companies over £2,300,000 in the year ending 31 December 2013.
In the 2013 accounts, the amounts payable under the contingent consideration have been reduced by £57,000 based on the revenues for 2012 and on the revenue for 2013. These amounts have been discounted at 4.5% and resulted in a discount charge to the profit and loss account of £11,000.
This information is provided by RNS
The company news service from the London Stock Exchange
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