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DILLISTONE GROUP PLC — Earnings Release 2014
Apr 27, 2015
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Earnings Release
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RNS Number : 3390L
Dillistone Group PLC
27 April 2015
27 April 2015
Dillistone Group Plc
("Dillistone", the "Company" or the "Group")
Final Results
Dillistone Group Plc, the AIM quoted supplier of recruitment software for the international recruitment industry through its Dillistone Systems and Voyager Software divisions, is pleased to announce its final audited results for the 12 months ended 31 December 2014.
Highlights for the year:
§ Revenues up 6% to £8.6m
§ Record level of recurring revenues of £5.9m, up 12% from 2013
§ Adjusted operating profits1 up 1% to £1.82m
§ Adjusted EBITDA2 up 7% to £2.4m
§ Adjusted pre-tax profits3 up 1% to £1.82m
§ Profit for the year down 7% to £1.15m
§ Adjusted earnings per share4 up 7% to 8.56p
§ Final dividend of 2.7p per share recommended, making total dividend for the year of 4p (a yield of 3.7% on a share price of 107p) (2013: 3.85p)
§ Cash funds of £1.9m (2013: £1.4m) after acquisition related payments of £1.3m offset by £1.0m placing proceeds. Bank borrowings total of £0.5m (2013: nil)
§ ISV Software acquisition completed in October 2014
Commenting on the results, Mike Love, Non-Executive Chairman, said:
"The Group has enjoyed another successful year in 2014, delivering its best ever performance in terms of revenue, adjusted operating profit and adjusted EPS. The business continued to invest, delivering a major new product launch in the Dillistone Systems division, while successfully completing the integration of FCP Internet into the Voyager Software division, and in September 2014 announcing the acquisition of ISV Software.
"This represents our 3rd successive 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."
1Adjusted operating profit is statutory operating profit before acquisition costs, related intangible amortisation, movements in contingent 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 contingent 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 contingent 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 2014 at 1pm 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 22 May 2015 for approval at the Annual General Meeting to be held on 18 June 2015.
Enquiries:
| 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 |
| Walbrook PR | ||
| Tom Cooper / Paul Vann | 0117 985 8989 | |
| 0797 122 1972 | ||
| [email protected] |
Notes to Editors:
Dillistone Group Plc (www.dillistonegroup.com) is a leader in the supply and support of software and services to the recruitment industry. It has four 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 (www.voyagersoftware.com).
Dillistone has made three acquisitions: Voyager Software in September 2011, FCP Internet in July 2013 and ISV Software in October 2014. The Group operates under the FileFinder, Voyager, Evolve and ISV brands.
Dillistone was admitted to AIM, a market operated by the London Stock Exchange plc, in June 2006. The Group employs over 100 people globally with offices in London (head office) Basingstoke, Southampton, Frankfurt, New Jersey and Sydney.
Chairman's Statement
The Group has enjoyed another successful year in 2014, delivering its best ever performance in terms of revenue, adjusted operating profit and adjusted EPS. Revenue was up 6% to £8.63m and adjusted operating profits up 1% to £1.82m. Profit after tax fell 7% to £1.15m. Adjusted EPS rose 7% to 8.56p. The business continued to invest, delivering a major new product launch in the Dillistone Systems division, while successfully completing the integration of FCP Internet into the Voyager Software division, and in September 2014 announcing the acquisition of ISV Software (ISV).
ISV (www.isvgroup.com) is a UK based supplier of training and testing services, primarily to the recruitment industry. ISV works with 9 of the 10 largest recruitment agencies in the UK (by office numbers) and 7 of the 10 largest by revenue. It offers over 200 published materials/tests covering many business sectors. ISV contributed £195,000 to revenue and £18,000 to profit before taxation during the three months of its ownership by Dillistone in 2014.
It is the view of the Board that product development is fundamental to the long term success of the business and, as a result, 2015 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 2014 to 1.30p (2013: 1.25p). The Board has recommended an increased final dividend of 2.7p per share (2013: 2.6p), subject to shareholder approval, payable on 24 June 2015 to holders on the register on 29 May 2015. Shares will trade ex-dividend from 28 May 2015. This takes the total dividend based on the 2014 results to 4.00p (2013: 3.85p), and gives a yield of 3.7% on a share price of 107p.
This represents our 3rd successive 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
Group revenues in the first quarter are ahead of the same period in 2014.
Our Dillistone Systems division has seen incoming orders in Q1 increase on the same period in the previous year reflecting, in part, the launch of the FileFinder Anywhere platform in September 2014. As noted previously, since the launch of FileFinder Anywhere, the Division has been successful in winning a number of larger than average contracts and is currently in talks with a number of potential clients which, if successfully closed, would fall into this same category. These larger contracts do however take longer to implement and the full impact may not be seen in 2015. Nonetheless, the relative scale and increasing frequency of these opportunities validates the Board's strategy of investing in new product development and in the prospects for this iteration of FileFinder.
Revenues for our Voyager Software division are also up on the same period of 2014. The Division has invested significantly in product development over the past 2 years and it expects to announce a number of further notable product updates and launches in the coming months. These are expected to have a positive impact on the business in the medium to longer term.
Both Divisions currently see recurring revenue at record levels and the Group was delighted to sign an extension of one of its largest SaaS contracts during the first quarter of 2015. This contract, worth, at a minimum, in the region of £250,000 per annum, has been extended until November 2016.
In the longer term, the Group's continuing investment in product development across all parts of the business gives the Board confidence in the future and, as a result, we are delighted to propose an increase in our final dividend of 3.8% to 2.7p (2013: 2.6p).
Dr Mike Love
Non-Executive Chairman
Chief Executive's Statement
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 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;
· increase our profitability and deliver increased shareholder value year on year in conjunction with following a progressive dividend policy.
Group Review
2014 saw recurring revenues grow 12% to £5.929m (2013: £5.271m) reflecting the full year impact of the acquisition of FCP Internet and also the acquisition of ISV in October 2014. Non recurring revenues fell 6% to £2.285m (2013: £2.428m). As a result, overall revenues, which were negatively impacted by exchange rates, increased by 6% to £8.625m (2013: £8.101m). Recurring revenues represent 69% of Group revenues (2013: 65%). Overheads have increased across the business mainly as a result of the acquisitions with EBITDA increasing 7% to £2.402m (2013: £2.242m). Operating profits before acquisition related items increased 1% to £1.820m (2013: £1.793m) and pre-tax profits before acquisition related items also increased 1% to £1.824m (2013: £1.801m).
Divisional Review
Dillistone Systems
The Dillistone Systems division is primarily focused on providing technology solutions to the executive search market via our range of "FileFinder" applications. This client group is made up of both executive search firms and executive search teams in major organisations.
Dillistone Systems' head office is in London and it has offices in the US, Germany and Australia. The Division accounts for 53% (2013: 61%) of the Group's revenue and saw recurring revenue fall 2% to £3.186m (2013: £3.248m) mainly due to the impact of currency movements. As a whole, the Division saw segmental operating profit before amortisation and depreciation decrease by 21% to £1.597m (2013: £2.013m).
Revenue
| 2014 | 2013 | ||||
| £'000 | £'000 | ||||
| Recurring income | 3,186 | 3,248 | |||
| Non-recurring income | 1,371 | 1,675 | |||
| 4,557 | 4,923 |
On the face of it, these are disappointing results. However, they are not unexpected, given our conscious and pre-stated decision to hold back the number of implementations we completed in the second half of the year. This enabled the successful replacement of the FileFinder 10 product with our new FileFinder Anywhere suite, launched to the market in September 2014, with the first "live" implementations in November. FileFinder systems are business critical for our clients, and so we ensured that the product went through a significant beta test process. This meant that we deliberately implemented virtually no new client FileFinder systems between September and mid-November, so as to ensure that our development, implementation and support teams were able to provide our "early adopters" with the level of service that they required.
This strategy has proven to be the correct one. Client feedback on the new product has been excellent, with a number of case studies and client testimonials already shown on our website.
We reported in our January trading statement that the new product had led to the Division achieving a number of early successes in the market, including:
· Total order intake in Q4 of 2014 was more than 20% up on both Q4 of 2013 and on the average of Q1-Q3 2014;
· We won more new business contracts in December 2014 than in any single month in the last 2 years; and
· Contract wins included our largest single North American win since 2009 with a number of clients switching from competing products.
The Division has seen further positive signs in 2015:
· January 2015 saw us win our largest contract in mainland Europe since 2007;
· February 2015 saw us win one of our largest ever upgrade contracts for an existing client;
· Several new clients converted to FileFinder Anywhere from the product of our main competitor; and
· Total orders in Q1 2015 were more than 12% up on Q1 2014.
As a result, the Division has now seen 3 successive quarters of year on year growth in total orders. Divisional recurring revenues at the end of Q1 are once again climbing and we have a strong prospect pipeline. We are currently ramping up our implementation frequency meaning that Q2 is likely to see realised revenue ahead of Q1 with the expectation that H2 will be stronger again.
The new FileFinder Anywhere suite continues to be developed, and we anticipate further positive announcements within the next 12 months. As a result, while the 2014 divisional results were disappointing, the Board is confident that the Division has an exciting future.
Voyager Software
Voyager Software is a leading provider of innovative recruitment software with products targeted at the entire recruitment landscape, from front office to back office and bureaus.
Revenue
| 2014 | 2013 | ||||
| £'000 | £'000 | ||||
| Recurring income | 2,743 | 2,023 | |||
| Non-recurring income | 914 | 777 | |||
| Third party revenues | 411 | 402 | |||
| 4,068 | 3,202 |
In 2014, the Voyager Software division accounted for 47% (2013: 39%) of Group revenues. The Division's revenues were £4.068m and its segmental operating profit before amortisation and depreciation increased by 34% to £0.802m (2013: £0.598m). Recurring revenues increased by 36% to £2.743m (2013: £2.023m).
The Division benefited from the full year impact of the FCP acquisition made in July 2013 and the acquisition of ISV in October 2014. The Division successfully won 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 additional delivery models. Further announcements on this are expected in due course.
The year in review was our first full year with FCP Internet under our management. This acquisition has proven to be very successful, with the Evolve product now supporting more users than at any point in its history. Work is underway to deliver an updated version of the product, with completion expected in the coming months.
ISV Software was acquired in October 2014. Unlike our other products, ISV provides pre-employment testing tools. It is the UK market leader. The business made a small contribution in 2014, and work is underway to integrate the product with the Voyager Software Infinity platform. This project should increase cross selling opportunities, and is likely to be completed this summer.
Jason Starr
Chief Executive Officer
Financial Review
Total revenues increased by 6% to £8.625m (2013: £8.101m), with pre-tax profits before acquisition related items up 1% to £1.824m (2013: £1.801m). Recurring revenues increased by 12% to £5.929m (2013: £5.271m) while non-recurring revenues saw a 6% decrease to £2.285m from £2.428m in 2013. Third party software product sales amounted to £0.411m in the period (2013: £0.402m). These results include FCP revenues for the full year and ISV revenues from October 2014.
Cost of sales increased by 16% to £1.108m (2013: £0.957m), reflecting the full year impact of FCP and also the impact of ISV from October 2014.
Administrative costs, excluding acquisition related items, depreciation and amortisation, rose 4% to £5.116m (2013: £4.901m), again reflecting the full year of FCP and ISV costs from October 2014. Depreciation and amortisation increased to £0.582m (2013: £0.449m). Administrative costs totalling £0.418m (2013: £0.210m), related to acquisition costs and amortisation of intangibles arising on the Voyager, FCP, and ISV acquisitions. Finance cost includes £0.101m relating to the unwinding of the discount in respect of the contingent consideration.
Recurring revenues covered 104% of administrative expenses before acquisition related costs (2013: 98%). Excluding depreciation and amortisation of our own internal development, the administrative costs are covered 116% (2013: 108%) by recurring revenues.
Tax has been provided at an effective rate of 13% (2013: 19%) excluding acquisition related items and at 12% (2013: 19%) post acquisition related costs. These rates reflect the R&D tax credits available to both Dillistone Systems and Voyager Software that have been claimed; the reduction in corporation tax rates from 23.25% to 21.5%; the release of prior year provisions relating in part to agreement of the prior years' tax position of the branch operation in Germany; and partially offset by the higher rates of corporation tax that are payable overseas. The post acquisition related items tax rate also reflects the reduction in deferred consideration and the write off of acquisition costs together with the reduction in the deferred tax rate used in the accounts from 21% to 20%.
Profits for the year before acquisition related items rose 9% to £1.584m (2013: £1.455m) and profits for the year after acquisition related items decreased to £1.145m (2013: £1.231m). Basic earnings per share (EPS) rose 7% to 8.56p (2013: 7.99p) before acquisition related items and decreased by 9% to 6.18p (2013: 6.76p) after such items. Fully diluted EPS rose 7% to 8.23p before acquisition related items (2013: 7.70p) and decreased 9% to 5.95p (2013: 6.51p) after acquisition related items.
Capital expenditure
The Group invested £1.073m in property, plant and equipment and product development during the year (2013: £0.830m). This expenditure included £0.814m (2013: £0.747m) spent on development costs, of which £0.319m relates to development in Voyager Software division (2013: £0.250m) 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 2014 but that are in respect of services to be delivered in 2015. 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 £1.322m (2013: £0.918m) relating to deferred consideration and contingent consideration due to former FCP and ISV shareholders. The contingent consideration in respect of FCP is dependent on the level of revenue achieved by the Division in the periods up to 31 March 2015. There are four tranches of contingent consideration in respect of ISV and they are dependent on levels of revenue achieved in periods up until 30 September 2017 plus a deferred consideration payment payable in January 2015.
Cash
To part finance the acquisition of ISV, a placing of £0.500m was carried out and a bank loan of £0.500m obtained. Also in view of the demand for shares, two further placings, raising a total of £0.500m for working capital purposes, were carried out. Dillistone finished the year with cash funds of £1.929m (2013: £1.399m) and bank borrowings of £0.487m (2013: nil). This is after capital expenditure of £1.073m, the payment to the vendors of Voyager, FCP and ISV of £1.268m (net of cash received with ISV) (2013: £0.900m) and dividend payments of £0.723m (2013: £0.683m).
Julie Pomeroy
Finance Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
| 2014 | 2013 | ||||
| Note | £'000 | £'000 | |||
| Revenue | 5 | 8,625 | 8,101 | ||
| Cost of sales | (1,108) | (957) | |||
| Gross profit | 7,517 | 7,144 | |||
| Administrative expenses | (6,115) | (5,561) | |||
| Profits from operating activities | 1,402 | 1,583 | |||
| Adjusted operating profit before acquisition related items | 4 | 1,820 | 1,793 | ||
| Acquisition related items | 7 | (418) | (210) | ||
| Operating profit | 1,402 | 1,583 | |||
| Financial income | 6 | 8 | |||
| Finance cost | (103) | (68) | |||
| Profit before tax | 1,305 | 1,523 | |||
| Tax expense | 8 | (160) | (292) | ||
| Profit for the year | 1,145 | 1,231 | |||
| Other comprehensive income net of tax: | |||||
| Items that will be reclassified subsequently to profit and loss Currency translation differences |
(8) | (16) | |||
| Total comprehensive income for the year net of tax | 1,137 | 1,215 |
Earnings per share - from continuing activities
| Basic | 9 | 6.18p | 6.76p | ||
| Diluted | 9 | 5.95p | 6.51p | ||
*see accounts note 4 & 7
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
| Share | Share | Merger | Retained | Share | Foreign | Total | |||||||
| capital | premium | Reserve | earnings | option | exchange | ||||||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
| 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 charge | - | - | - | - | 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 | ||||||
| Comprehensive income | |||||||||||||
| Profit for the year ended 31 Dec 2014 | - | - | - | 1,145 | - | - | 1,145 | ||||||
| Other comprehensive income | |||||||||||||
| Exchange differences on translation of overseas operations | - | - | - | - | - | (8) | (8) | ||||||
| Total comprehensive income | - | - | - | 1,145 | - | (8) | 1,137 | ||||||
| Transactions with owners | |||||||||||||
| Issue of share capital | 55 | 934 | - | - | - | - | 989 | ||||||
| Share option charges | - | - | - | 16 | (3) | - | 13 | ||||||
| Dividends paid | - | - | - | (723) | - | - | (723) | ||||||
| Total transactions with owners | 55 | 934 | - | (707) | (3) | - | 279 | ||||||
| Balance at 31 December 2014 | 969 | 1,432 | 365 | 3,514 | 118 | 128 | 6,526 |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2014
| Group | |||||
| 2014 | 2013 | ||||
| ASSETS | £'000 | £'000 | |||
| Non-current assets | |||||
| Goodwill | 3,415 | 2,745 | |||
| Other intangible assets | 6,317 | 4,833 | |||
| Property, plant and equipment | 299 | 127 | |||
| Investments | - | - | |||
| 10,031 | 7,705 | ||||
| Current assets | |||||
| Inventories | 41 | 78 | |||
| Trade and other receivables | 1,784 | 1,790 | |||
| Cash and cash equivalents | 1,929 | 1,399 | |||
| 3,754 | 3,267 | ||||
| Total assets | 13,785 | 10,972 | |||
| EQUITY AND LIABILITIES | |||||
| Equity attributable to owners of the parent | |||||
| Share capital | 969 | 914 | |||
| Share premium | 1,432 | 498 | |||
| Merger reserve | 365 | 365 | |||
| Retained earnings | 3,514 | 3,076 | |||
| Share option reserve | 118 | 121 | |||
| Translation reserve | 128 | 136 | |||
| Total equity | 6,526 | 5,110 | |||
| Liabilities | |||||
| Non-current liabilities | |||||
| Trade and other payables | 666 | 459 | |||
| Borrowings | 325 | ||||
| Deferred tax liability | 1,152 | 901 | |||
| Current liabilities | |||||
| Trade and other payables | 4,669 | 4,313 | |||
| Borrowings | 162 | - | |||
| Current tax payable | 285 | 189 | |||
| Total liabilities | 7,259 | 5,862 | |||
| Total liabilities and equity | 13,785 | 10,972 |
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2014
| 2014 | 2014 | 2013 | 2013 | |||||
| Operating activities | £'000 | £'000 | £'000 | £'000 | ||||
| Profit before tax | 1,305 | 1,523 | ||||||
| Less taxation paid | (122) | (273) | ||||||
| Adjustment for | ||||||||
| Financial income | (6) | (8) | ||||||
| Financial cost | 103 | 68 | ||||||
| Depreciation and amortisation | 868 | 621 | ||||||
| Share option expense | 13 | 53 | ||||||
| Foreign exchange adjustments arising from operations | (3) | 14 | ||||||
| Operating cash flows before | 2,158 | 1,998 | ||||||
| movement in working capital | ||||||||
| Increase in receivables | (81) | (120) | ||||||
| Decrease/ (increase) in inventories | 37 | (15) | ||||||
| Increase in payables | 4 | 259 | ||||||
| Net cash generated from operating activities | 2,118 | 2,122 | ||||||
| Investing activities | ||||||||
| Interest received | 6 | 7 | ||||||
| Finance cost | (2) | - | ||||||
| Purchases of property, plant and | ||||||||
| equipment | (259) | (83) | ||||||
| Investment in development costs | (814) | (747) | ||||||
| Acquisition of subsidiaries net of cash acquired | (718) | (715) | ||||||
| Contingent consideration paid | (550) | (185) | ||||||
| Net cash used in investing activities | (2,337) | (1,723) | ||||||
| Financing activities | ||||||||
| Net proceeds from issue of share capital | 989 | 51 | ||||||
| Bank loan received | 500 | - | ||||||
| Bank loan repayments made | (13) | - | ||||||
| Dividends paid | (723) | (683) | ||||||
| Net cash generated from/(used in) by financing activities | 753 | (632) | ||||||
| Net increase/(decrease) in cash and cash equivalents | 534 | (233) | ||||||
| Cash and cash equivalents at | 1,399 | 1,643 | ||||||
| beginning of year | ||||||||
| Effect of foreign exchange rate changes | (4) | (11) | ||||||
| Cash and cash equivalents at end of year | 1,929 | 1,399 |
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
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 2014 or 2013, but is derived from these financial statements. The financial statements for the year ended 31 December 2013 have been delivered to the Registrar of Companies. The financial statements for the year ended 31 December 2014 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 2014 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 2014 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 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 2013 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 2014:
· IFRS 10 'Consolidated Financial Statements' (IFRS 10)
· IFRS 12 'Disclosure of Interests in Other Entities' (IFRS 12)
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 2014 |
Acquisition related items 2014* |
2014 | Adjusted operating profits 2013 |
Acquisition related items 2013* |
2013 | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
| Revenue | 8,625 | - | 8,625 | 8,101 | - | 8,101 | |||||
| Cost of sales | (1,108) | - | (1,108) | (957) | - | (957) | |||||
| Gross profit | 7,517 | - | 7,517 | 7,144 | - | 7,144 | |||||
| Administrative expenses | (5,697) | (418) | (6,115) | (5,351) | (210) | (5,561) | |||||
| Results from operating activities | 1,820 | (418) | 1,402 | 1,793 | (210) | 1,583 | |||||
| Financial income | 6 | - | 6 | 8 | - | 8 | |||||
| Financial cost | (2) | (101) | (103) | - | (68) | (68) | |||||
| Profit before tax | 1,824 | (519) | 1,305 | 1,801 | (278) | 1,523 | |||||
| Tax expense | (240) | 80 | (160) | (346) | 54 | (292) | |||||
| Profit for the year | 1,584 | (439) | 1,145 | 1,455 | (224) | 1,231 | |||||
| Other comprehensive income net of tax: | |||||||||||
| Currency translation differences | (8) | - | (8) | (16) | - | (16) | |||||
| Total comprehensive income for the year net of tax | 1,576 | (439) | 1,137 | 1,439 | (224) | 1,215 | |||||
Earnings per share - from continuing activities
| Basic | 9 | 8.56p | 6.18p | 7.99p | 6.76p | |
| Diluted | 9 | 8.23p | 5.95p | 7.70p | 6.51p |
* see accounts 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 2014 | |||||||||
| Dillistone | Voyager | Inter-divisional Revenue | Central | Total | |||||
| £'000 | £'000 | £'000 | £'000 | £'000 | |||||
| Recurring income | 3,186 | 2,743 | - | - | 5,929 | ||||
| Non-recurring income | 1,371 | 914 | (-) | - | 2,285 | ||||
| Third party revenues | - | 411 | - | - | 411 | ||||
| Segment revenue | 4,557 | 4,068 | (-) | - | 8,625 | ||||
| Segment EBITDA | 1,597 | 802 | 3 | 2,402 | |||||
| Depreciation and amortisation expense | (429) | (153) | (582) | ||||||
| Segment result | 1,168 | 649 | 3 | 1,820 | |||||
| Acquisition related amortisation | - | - | (286) | (286) | |||||
| Acquisition related charges | - | - | (132) | (132) | |||||
| Operating profit/ (loss) | 1,168 | 649 | (415) | 1,402 | |||||
| Financial income | 5 | 1 | 6 | ||||||
| Loan interest | (2) | (2) | |||||||
| Acquisition related interest expenses | (101) | (101) | |||||||
| Income tax expense | (160) | ||||||||
| Profit after tax | 1,145 | ||||||||
| Additions of non-current assets | 720 | 353 | 1,073 | ||||||
| Segment assets | 2,546 | 1,107 | 400 | 4,053 | |||||
| Intangibles and goodwill | 2,003 | 884 | 6,845 | 9,732 | |||||
| Total | 4,549 | 1,991 | 7,245 | 13,785 | |||||
| Segment liabilities | 3,097 | 1,376 | 2,796 | 7,269 |
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 |
Products and services
The following table provides an analysis of the Group's revenue by products and services:
Revenue
| 2014 | 2013 | ||||
| £'000 | £'000 | ||||
| Recurring income | 5,929 | 5,271 | |||
| Non-recurring income | 2,285 | 2,428 | |||
| Third party revenues | 411 | 402 | |||
| 8,625 | 8,101 |
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
| 2014 | 2013 | ||||
| £'000 | £'000 | ||||
| UK | 6,859 | 6,188 | |||
| US | 1,198 | 1,228 | |||
| Australia | 568 | 685 | |||
| 8,625 | 8,101 |
Non-current assets by geographical location
| 2014 | 2013 | ||||
| £'000 | £'000 | ||||
| UK | 10,025 | 7,698 | |||
| US | 4 | 5 | |||
| Australia | 2 | 2 | |||
| 10,031 | 7,705 |
7. Acquisition related items
| 2014 | 2013 | ||||
| £'000 | £'000 | ||||
| Included within administrative expenses | |||||
| Estimated change in fair value of contingent consideration (note 10) | (9) | (57) | |||
| Amortisation of acquisition intangibles | 286 | 172 | |||
| Fees relating to the acquisition of ISV/FCP (note 10) | 141 | 95 | |||
| 418 | 210 | ||||
| Included within finance cost | |||||
| Unwinding of discount on contingent consideration | 101 | 68 | |||
| 519 | 278 |
8. Tax expense
| 2014 | 2013 | |||||
| £'000 | £'000 | |||||
| Current tax | 200 | 308 | ||||
| Deferred tax | 40 | 38 | ||||
| Deferred tax re acquisition intangibles | (80) | (54) | ||||
| Income tax expense for the year | 160 | 292 | ||||
| Factors affecting the tax charge for the year | ||||||
| Profit before tax | 1,305 | 1,523 | ||||
| UK rate of taxation | 21.5% | 23.25% | ||||
| Profit before tax multiplied by the UK rate of taxation | 281 | 354 | ||||
| Effects of: | ||||||
| Overseas tax rates | 84 | 49 | ||||
| Impact of deferred tax not provided | (-) | (15) | ||||
| Enhanced R&D relief | (99) | (112) | ||||
| Disallowed expenses | 75 | 103 | ||||
| Rate change impact on deferred tax | (37) | (27) | ||||
| Prior year adjustments | (144) | (60) | ||||
| Tax expense | 160 | 292 |
Deferred tax provided in the financial statements is as follows:
| Group | Company | |||||||
| 2014 | Movement | 2013 | 2014 | 2013 | ||||
| £'000 | £'000 | £'000 | £'000 | £'000 | ||||
| Accelerated intangible amortisation | 473 | 40 | 433 | - | - | |||
| Provisions | (7) | 2 | (9) | - | - | |||
| Acquisition intangibles | 686 | 209 | 477 | - | - | |||
| 1152 | 251 | 901 | - | - |
The UK corporation tax rate in the year fell from 23% to 21% giving an effective rate for the year of 21.5%. The tax rate is expected to fall again to 20% in April 2015. Where deferred tax is provided in relation to the UK it has been provided at 20%. 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, Voyager Software, FCP and ISV. The release of prior year provisions relate in part to the agreement of the prior years' tax position of the branch operation in German. The Group has gross tax losses and temporary timing differences of £292,000 (2013: £227,000) for which no deferred tax asset has been recognised.
9. Earnings per share
| 2014 | 2014 | 2013 | 2013 | |
| Using adjusted operating profit | Using adjusted operating profit | |||
| £'000 | £'000 | £'000 | £'000 | |
| Profit attributable to ordinary shareholders | 1,584,000 | 1,145,000 | 1,455,000 | 1,231,000 |
| Weighted average number of shares | 18,512,594 | 18,512,594 | 18,211,321 | 18,211,321 |
| Basic earnings per share | 8.56 pence | 6.18 pence | 7.99 pence | 6.76 pence |
| Weighted average number of shares after dilution | 19,243,357 | 19,243,357 | 18,902,055 | 18,902,055 |
| Fully diluted earnings per share | 8.23 pence | 5.95 pence | 7.70 pence | 6.51 pence |
Reconciliation of basic to diluted average number of shares
| 2014 | 2013 | |||||
| Weighted average number of shares (basic) | 18,512,594 | 18,211,321 | ||||
| Effect of dilutive potential ordinary shares - employee share plans | 730,763 | 690,734 | ||||
| Weighted average number of shares after dilution | 19,243,357 | 18,902,055 |
10. Acquisitions
On 29 September 2014 the Group signed an agreement to acquire the entire share capital ISV Software Limited ("ISV") for an estimated consideration before fees of £1.924m, which was satisfied as detailed below. This was part of the Group's strategy to broaden our offering to the recruitment sector. The acquisition was completed on 3 October 2015.
ISV (www.isvgroup.com) is a UK based supplier of training and testing services, primarily to the recruitment industry. ISV works with 9 of the 10 largest recruitment agencies in the UK (by office numbers) and 7 of the 10 largest by revenue. It offers over 200 published materials/tests covering many business sectors and over 500,000 tests were carried out in 2014 for over 350 clients.
For the year ended 31 December 2013 the unaudited accounts of ISV showed profit before tax and profit after tax of £162,000 and £159,000 respectively on revenues of £750,000. These accounts also showed net assets of £256,000 as at 31 December 2013. Following the acquisition the revenues and profits have been restated to reflecting accounting for deferred income on annual contracts and the income in respect of token sales. ISV 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 | 14 | (7) | - | 7 | ||||||||||
| Intangible assets | - | - | 1,443 | 1,443 | ||||||||||
| Current assets | ||||||||||||||
| Trade and other receivables | 105 | (10) | - | 95 | ||||||||||
| Cash and cash equivalents | 345 | - | - | 345 | ||||||||||
| Total assets | 464 | (17) | 1,443 | 1,890 | ||||||||||
| Liabilities | ||||||||||||||
| Trade and other payables | (303) | (38) | - | (341) | ||||||||||
| Tax liability | - | (7) | (7) | |||||||||||
| Deferred tax liability | - | - | (289) | (289) | ||||||||||
| Net assets acquired | 161 | (62) | 1,154 | 1,253 | ||||||||||
| Goodwill | 671 | |||||||||||||
| 1,924 | ||||||||||||||
| Satisfied by | ||||||||||||||
| Initial Cash consideration | 850 | |||||||||||||
| Deferred cash consideration (discounted) | 148 | |||||||||||||
| Cash consideration in relation to surplus working capital | 213 | |||||||||||||
| Contingent consideration | 713 | |||||||||||||
| 1,924 | ||||||||||||||
| Consideration transferred | £'000 | |||||||||||||
| Amount settled in cash consideration in period | 1,063 | |||||||||||||
| Cash and cash equivalents acquired | (345) | |||||||||||||
| Net cash outflow on acquisition | 718 | |||||||||||||
| Acquisition costs charged to expenses | 141 | |||||||||||||
| Net cash paid relating to acquisition | 859 | |||||||||||||
The total consideration of £1,924,000 net of cash acquired of £345,000 was £1,579,000. The fair value adjustment of £62,000 relates mainly to the writing down of property, plant and equipment to their fair value and adopting more closely the accounting policies adopted by the Group. Fees of £141,000 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 £1,443,000 made up as follows:
| £'000 | Estimated life |
||
| Intangible assets | |||
| Brand /IP | 614 | 15 years | |
| Customer relationships | 829 | 10 years | |
| 1,443 |
Goodwill of £671,000 represents the excess of the purchase price over the fair value of the net tangibleand 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.
From the date of acquisition to 31 December 2014, the acquired companies contributed £195,000 to revenue and £18,000 to profit before taxation. In the last financial year, being the year ended 31 December 2013, the acquired companies made a profit before taxation of £162,000. However, as no audited accounts had previously been required and change in the accounting policies including those for deferred income on annual contracts and token sales, pro-forma profit or loss of the combined entity for the complete 2014 reporting period cannot readily be determined.
As part of the acquisition, deferred consideration of £150,000 is payable in January 2015. The Group also 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 £213,000 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:
· 30% of net revenues in the three month period to 31 December 2014.
· 30% of net revenues in the year to 31 December 2015 less £15,000
· 30% of net revenues in the year to 31 December 2016 less £15,000
· 30% of net revenues in the nine month period to 31 December 2017 less £25,000.
The fair value of the contingent consideration has been calculated based on the information available based on the information available at the time of the acquisition. The contingent consideration as at acquisition has been discounted at an annual rate of 3.48% with a resulting charge in the 2014 accounts of £6,000. The value of the contingent consideration at 31 December 2014 was £713,000. The maximum total consideration, including contingent consideration, payable is capped at £2,500,000.
Contingent consideration payable in respect of earlier acquisitions
As part of the acquisition of Voyager Software in 2011, the Group agreed to pay additional contingent consideration. During 2014 it made the final payment due of £129,000. A £2,000 discount was charged in 2014.
As part of the acquisition of FCP, the Group agreed to pay the vendors contingent consideration over the period to 31 March 2015. During 2014, contingent consideration of £421,000 was paid. At the year end the Group had a liability for contingent consideration calculated as follows:
· 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.
In the 2014 accounts, the amounts payable under the contingent consideration have been reduced by £9,000 based on the revenues for 2014 and on the estimated revenue for 2015. This contingent consideration had originally been discounted at 16.99% but following the acquisition of ISV and the availability of bank finance the rate has been reduced to 3.48%. The discount charged to the profit and loss account in 2014 totalled £93,000.
This information is provided by RNS
The company news service from the London Stock Exchange
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FR SELEFMFISEIL