Dillistone Regulatory News (DSG)

25 April 2012

Dillistone Group Plc

("Dillistone", the "Company" or the "Group")

Final results for the year ended 31 December 2011

Dillistone, the AIM quoted supplier of recruitment software, is pleased to announce its audited results for the year ended 31 December 2011.

Highlights for the year:

§ Revenues up 28% to £5.4m with non recurring revenues up 24%

§ Record level of recurring revenues of £3.2m up 28% from 2010

§ Underlying organic growth in revenues of 12%

§ Operating profits before exceptional items up 17% to £1.4m and up 4% to £1.2m after exceptional items

§ Final dividend of 2.3333p per share recommended, making total dividend for year of 3.5p

§ Cash funds of £1.6m (2010: £2.1m) and the Group remains debt free

§ EPS* pre exceptional items up 22% to 6.26p and up 4% to 5.34p post exceptional items

§ Acquisition of Voyager Software successfully completed

§ Results of Voyager Software included from 21 September 2011

§ Healthy growth in new clients: clients in more than 60 countries

§ FileFinder 10 launched on 31 March 2011

*rebased following 2:1 bonus issue

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

"2011 has been an excellent year for Dillistone. The Group has delivered a strong set of results, completed its first acquisition and launched its next generation executive search software."

"The Group's strategy is to continue to grow the business both organically and through acquisition. Our organic growth is supported by our commitment to product development which ensures that the business continues to command a leading role in all of the market sectors in which it operates."

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 (as well as the notice of Annual General Meeting) will be sent to shareholders by 4 May 2012 for approval at the Annual General Meeting to be held on 29 May 2012.

Contacts:

Notes to Editors:

Dillistone Group Plc (www.dillistonegroup.com) is a leader in the supply and support of recruitment software. It has two main trading businesses: Dillistone Systems, which targets the executive search industry (www.dillistone.com) and Voyager Software which targets other recruitment markets (www.voyage.co.uk). Dillistone was admitted to AIM, a market operated by the London Stock Exchange plc, in June 2006.

Chairman's Statement

Results Overview

The Group enjoyed a successful year in 2011, achieving a number of its shorter and longer term objectives. A strong set of results were delivered showing a profit before exceptional items of £1.084m (2010: £0.872m). The profit after exceptional items was £0.926m (2010: £0.872m).

The Group began the year with our Dillistone Systems subsidiaries specialising in supplying our FileFinder software to the executive search industry. The main operational objective for Dillistone Systems in 2011 was to launch its next generation platform, FileFinder 10. This was achieved and has been well received in the market.

We also said in our 2010 annual report that we were actively pursuing an acquisition strategy. This strategy came to fruition when, in September 2011, the Group acquired Woodcote Software Limited and its subsidiary companies, Voyager Software and Voyager Software (Australia) Pty. Voyager Software is a recruitment software firm which provides software solutions to a number of sectors of the wider recruitment market outside the executive search sector. The acquisition significantly broadens our capabilities and market reach. This is my first opportunity to welcome publicly the new members of our enlarged team to the Group.

Strategy

The Group's strategy is to continue to grow the business both organically and through acquisition. Our organic growth is supported by our commitment to product development which ensures that the business continues to command a leading role in all of the market sectors in which it operates.

We are focussed on the integration of Voyager Software and Dillistone Systems. Whilst separate brands and products will be maintained, a number of synergies and cost savings have been identified and are being implemented. Voyager Software's UK management team has been retained and they will continue to manage their brand and customers which are fundamentally important to the success of the business. We anticipate making further acquisitions, although we do not expect to make any announcements on this front in the near future.

Investor relations

In my last report, I stated that we planned to make a bonus issue of shares. The aim of this was to increase the liquidity and marketability of our shares. The AGM in June 2011 subsequently approved the two for one bonus issue which was then completed on 14 June 2011. We believe that this has proven successful with the share spread reducing to around 5% from over 15% previously.

I also stated that a strategic objective was to broaden our shareholder base. Through the issuing of shares as part of the acquisition consideration and the issue of shares in a placing to part finance the acquisition we have made some progress with this. Directors' holdings have reduced to 45.7% (2010: 48.6%) and institutional holdings increased to over 20%.

The Group will continue to develop opportunities to broaden its shareholder base. As part of this strategy, I am delighted that we have appointed WH Ireland as our Nomad and Broker as of 5 April 2012. On a related topic, the Board has appointed Grant Thornton UK LLP as our Auditors for the year ended 31 December 2011. We would like to thank our former Nomad, Broker and Auditors for their efforts on our behalf in previous years.

Dividends

An interim dividend of 1.1667p per share was paid in November 2011. The Board has recommended a final dividend of 2.3333p per share, subject to shareholder approval, payable on 26 June 2012 to holders on the register on 1 June 2012. Shares will trade ex-dividend from 30 May 2012. This takes the dividend for the year to 3.5p and gives a yield of 4.9% on a share price of 71.5p.

Board Changes

Alistair Milne joined the Board as Director of Support Services with effect from January 2011. Alistair has been with the Group since 2003, and continues as a Director of our UK subsidiary, Dillistone Systems Ltd.

Staff

Our staff are fundamentally important to the success of the business. It is through their efforts, commitment and determination that we continue as a leading player in the executive search and now recruitment software industries and have been able to produce strong results for 2011. On behalf of the Board I would like to take this opportunity to thank all of them.

Outlook

We issued a trading update in January in which we stated that the market was patchy, but that Dillistone Systems had enjoyed some success winning contracts with larger clients. Both of these statements continue to reflect the state of our markets.

Dillistone Systems operates internationally and, as such, is subject to the difficulties in Europe whilst enjoying the improving market in the Americas.

Voyager Software is currently much more focussed on the UK and, to a lesser extent, Australian markets. Although the company delivered better than expected results in the three months of our ownership prior to our year end, it is more exposed to the domestic economy. The next 18 months for Voyager Software will primarily be focussed on the launch of its next generation recruitment technology platform within the UK and taking this new product offering into further overseas markets. Therefore, whilst we anticipate that Voyager Software will deliver earnings enhancing results for the Group in 2012, it is our belief that we can significantly improve the performance of the Voyager Software business in the longer term.

Whilst the Group is not immune to wider economic difficulties, at this stage we remain confident in making further progress in FY 2012.

Dr Mike Love

Non-Executive Chairman

Chief Executive's Statement

Business Review

I believe that 2011 will prove to be a transformational year for the Group. March saw Dillistone Systems launch the latest generation of its FileFinder software system, whilst in September the Group completed its first acquisition of Woodcote Software and its subsidiaries Voyager Software and Voyager Software Australia.

In our report last year, I was able to state that "we believe that we have implemented more systems, in more countries, for more executive search firms, than any comparable supplier." I believe that this statement still applies, and, with the acquisition of Voyager taking our business into the wider recruitment industry, we believe that, in terms of number of new contract wins, the Group has become one of Europe's leading suppliers of specialist software to the third party recruitment industry.

The business now has 2 distinct brands and products serving different sectors of the recruitment industry and we will in future years, report on the business on the basis of two divisions, namely Dillistone Systems, our executive search software business, and Voyager Software, our recruitment software business.

Dillistone Systems

Dillistone Systems launched its next generation FileFinder 10 application at the end of March 2011. This product has been well received in the market, and is currently being used by more than 130 firms. In December 2011, we announced the availability of our "WebPort" tool for social network integration and are pleased to announce that our web application for mobile devices "FFMobile" will be launched in May 2012.

Dillistone Systems' head office is based in London and it has offices in the US, Germany and Australia. We saw revenues in this division increase by 12% in 2011 to £4.759m (2010: £4.251m). It had a segmental operating profit of £1.630m (2010: £1.414m) before unallocated central costs and exceptional items.

Voyager Software

Voyager Software is a software firm with a number of products targeting different parts of the recruitment sector to Dillistone Systems. It has operations in the UK and Australia. Voyager Software is well known in the recruitment industry and its brand will be maintained. It has a strong customer base of over 700 customers and maintains good customer relationships, which are fundamental to the future well being of the business. Voyager Software also has an excellent work force.

We have consolidated the results of Voyager Software from 21 September 2011, with revenues of £0.689m and a segmental pre tax profit of £0.165m before unallocated central costs and exceptional items.

The acquisition of Voyager will make the combined group more UK centric in the short term as the Voyager Software business is largely UK based. In the longer term we would anticipate Voyager Software leveraging Dillistone Systems' experience in international sales, marketing and implementation of recruitment software.

The integration of Voyager has gone smoothly with trading being ahead of internal expectations in 2011. The teams in both divisions have worked well together which has helped to deliver synergy benefits. On an annualised basis, we have already made savings in Voyager Software worth more than £200,000, and we will continue to make savings where appropriate. All staff (both Voyager Software and Dillistone Systems) were granted options (in aggregate over 420,794 ordinary shares) immediately following the acquisition.

Product development

Product development remains fundamental to both businesses. Dillistone Systems launched its next generation of technology, FileFinder 10, in 2011, and Voyager Software is going through a similar process, expecting to launch its "Infinity" platform later this year. Infinity has been developed using similar technologies to those behind the FileFinder 10 platform and we anticipate that this will allow the Group to generate further synergies over time.

The global market for Voyager Software's products is potentially much larger than that for Dillistone Systems, and as such, represents a significant opportunity for the Group. The acquisition has seen us inherit a first class team and, working with the existing staff of Dillistone Systems, we are confident of our ability to take advantage of the new opportunities created by the acquisition.

Jason Starr

Chief Executive Officer

Finance Director's Statement

Overview

Total revenues increased by 28% to £5.448m (2010: £4.251m), with profit before tax and exceptional items up 19% to £1.405m (2010: £1.182m). Recurring revenues increased by 28% to £3.248m (2010: £2.536m). Non-recurring revenues saw an increase of 24% to £2.122m, from £1.715m in 2010. Third party software product sales amounted to £0.078m in the period (2010: £nil). 

Excluding the acquisition of Voyager, revenues grew organically by 12% to £4.759m (2010: £4.251m) with recurring revenues increasing by 13% to £2.874m (2010: £2.536m). Non recurring revenues saw a 10% increase to £1.885m (2010: £1.715m).

On a Group basis we saw strong growth in UKMEA and Europe in 2011 with a slight fall in US revenues due to the implementation of an exceptional contract in that region in 2010. In reality, the number of new orders received in the US increased in 2011.

Cost of sales increased by 136% to £0.441m (2010: £0.187m). £0.098m of the increase relates to costs associated with Voyager Software and the balance mainly relates to development costs which have not been capitalised.

Administrative costs excluding exceptional items rose 26% to £3.627m (2010: £2.889m). This was in part due to the administration costs of Voyager Software from 21 September 2011 which totalled £0.394m. Exceptional items total £0.172m and relate to the costs of the acquisition that have been expensed totalling £0.115m plus amortisation of intangibles arising on acquisition.

Tax has been provided at an effective rate of 23% (2010: 26.2%) excluding exceptional items and at 25% post exceptional costs. These rates reflect the higher R&D tax credits available to both Dillistone Systems and Voyager Software that have been claimed, though not yet agreed, partially offset by the higher rates of corporation tax that are payable in the US and Australia.

Profits for the year before exceptional items rose 24% to £1.084m (2010: £0.872m) and profits for the year after exceptional items increased by 6% to £0.926m. Basic EPS rose 22% to 6.26p (2010: 5.13p) before exceptional items and 4% to 5.34p after exceptional items. Fully diluted EPS rose 22% to 6.23p (2010: 5.12p) and 4% to 5.32p after exceptional items.

Capital expenditure

Dillistone invested £0.661m in fixed assets and product development during the year (2010: £0.679m) of which £0.580m was spent on development costs (2010: £0.623m) of which £0.101m relates to expenditure on development in Voyager Software that has been capitalised under IFRS in the Group accounts since acquisition.

Trade and other payables

This liability includes income which has been billed in advance but is not recognised at that time. This principally relates to support renewals which have been billed in December 2011 but that are in respect of services to be delivered in 2012. This also impacts on debtors at the year end. Support income is recognised monthly over the period to which it relates. It also includes deposits taken for work which has not yet been completed. Income is only recognised when the work is complete or the project goes "live".

Also included in trade and other payables is £0.098m relating to the working capital payment which was paid in February 2012 and £0.499m relating to contingent consideration due to Woodcote shareholders. The contingent consideration is dependent on the level of turnover achieved in 12 month periods to:

·; 30 June 2012

·; 31 December 2012

·; 31 December 2013

Cash

Dillistone finished the year with cash funds of £1.617m (2010: £2.147m) and remains debt free. This was after taking into account cash from Voyager Software of £0.171m. The Group raised £0.5m from a placing and paid out £1.638m (including fees) to acquire Voyager Software. Dividends paid in the year totalled £0.609m (2010: £0.595m).

Julie Pomeroy

Group Finance Director

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2011

Earnings per share - from continuing activities

*\* The comparative earnings per share have been adjusted to reflect the effect of the two for one bonus issue.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2011

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2011

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2011

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 2011 or 2010, but is derived from these financial statements. The financial statements for the year ended 31 December 2010 have been delivered to the Registrar of Companies. The financial statements for the year ended 31 December 2011 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 2011 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 balance sheet at 31 December 2011 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 financial statements comprise 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 financial statements have 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

These preliminary financial statements have been prepared in accordance with the accounting policies adopted in the last annual financial statements for the year to 31 December 2010 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 2011:

·; IAS 24 (revised), 'Related party disclosures'

·; Amendment to IAS 32, 'Classification of rights issues'

·; IFRIC 19, 'Extinguishing financial liabilities with equity instruments'

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.

Adoption of IFRS 3 Business Combinations (Revised 2008) as the result of the first acquisition.

The group applied IFRS 3 for the first time in 2011. The standard on business combinations (IFRS 3) introduced major changes to the accounting requirements for business combinations. It retains the major features of the purchase method of accounting, now referred to as the acquisition method. The most significant changes in IFRS 3 that will have an impact on the Group's acquisition in future are as follows:

• acquisition-related costs of the combination are recorded as an expense in the income statement. Previously, these costs would have been accounted for as part of the cost of the acquisition

• any contingent consideration is measured at fair value at the acquisition date. If the contingent consideration arrangement gives rise to a financial liability, any subsequent changes are generally recognised in profit or loss. Previously, contingent consideration was recognised only once its payment was probable and changes were recognised as an adjustment to goodwill

• the measurement of assets acquired and liabilities assumed at their acquisition-date fair values is retained. However, IFRS 3 includes certain exceptions and provides specific measurement rules.

4. Segment reporting

Since the acquisition of Woodcote, the Board have principally monitored the Group's operations in terms of results of the two divisions, Dillistone and Voyager rather than on the geographical basis used prior to the acquisition and accordingly the segment reporting on this basis is also presented for 2011. It is expected that in future years the geographic segmental analysis will not be included, although a breakdown of turnover will continue to be provided. Voyager numbers are included from 21 September 2011. Segment results reflect management charges made or received. Intercompany balances are excluded from segment assets and liabilities.

Divisional segments

No comparative is given as in 2010 only the Dillistone division existed.

Geographical segments

The following tables provide an analysis of the Group's revenue, assets, liabilities and additions by geographic market.

Business segment

The following table provides an analysis of the Group's revenue by business segment

Revenue

Recurring income includes all support services, software as a service income (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.

5. Exceptional Items

6. Earnings per share

* a bonus issues of shares took place in June 2011 and the number of shares in 2010 have been adjusted to take account of this issue.

7. Acquisitions

On 21 September 2011, the Group acquired the entire share capital of Woodcote Software Limited for an estimated consideration before fees of £2,487,000, which was satisfied as detailed below. This was part of the Group's strategy to broaden our offering to the recruitment sector. 

Woodcote is a non-trading holding company. Voyager Software Limited (www.voyage.co.uk/), which was a wholly owned subsidiary of Woodcote, sells a number of software products to its target market of recruitment agencies. The products are designed to facilitate the filling of temporary or permanent vacancies. Voyager Software (Australia) Pty Ltd., a wholly owned subsidiary of Voyager, markets a similar product range. Between them, Voyager and Voyager (Australia) have over 700 active unique clients and nearly 5,000 active licensed users.  

The details of the business combination are as follows:

*included in trade payables at the year end

Equity consideration was agreed at £390,000 and satisfied by the issue of 505,509 ordinary shares in Dillistone Group. It was also contractually agreed that the price used to calculate the shares would be the mid market price over the average of the previous 30 days. This was calculated to be 77.15p. 

The placing was carried out at a price of 72p and this has been used to value the equity issued.

The total consideration of £2,487,000 net of cash acquired of £208,000 was £2,279,000 before fees. The fair value adjustment of £24,000 to liabilities was in relation to employee redundancy costs which had been approved by previous management pre acquisition but not recognised. Fees of £43,000 in respect of the issue of equity have been offset against the merger reserve and £115,000 were expensed as exceptional costs. In addition, following a detailed review of the fair value of assets and liabilities acquired, in accordance with IFRS3 Business Combinations the Group has recognised 4 intangible assets totalling £1,178,000 made up as follows:

Goodwill of £1,994,000 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 against surplus working capital up to a certain level that was retained in the business at completion. Following a completion accounts verification process, an amount of £98,000 was agreed to be paid to the vendors and is included in creditors at the year end. In addition the vendors are entitled to contingent consideration:

·; £200,000 - provided that the revenue of the acquired companies exceeds £2,200,000 in the year ending 30 June 2012

·; 30 per cent of the revenue of the acquired companies over £2,300,000 in the year ending 31 December 2012

·; 30 per cent of the revenue of the acquired companies over £2,300,000 in the year ending 31 December 2013

From the date of acquisition to 31 December 2011, the acquired companies contributed £689,000 to revenue and £165,000 to profit before taxation. In the last financial year, being the year ended 30 June 2011 the acquired companies made a profit before taxation of £105,000 and before an exceptional loss totalling £384,000 relating to a loan write-off to a Group company, ExpressHR Services Limited, which was sold on acquisition. However, due to a change in year end, lack of audited accounts, changed capital structure and exceptional write-offs, pro-forma profit or loss of the combined entity for the complete 2011 reporting period cannot be readily be determined.