Stilo Regulatory News (STL)

15 March 2018

STILO INTERNATIONAL PLCPreliminary Announcement of Resultsfor Year Ended 31 December 2017

Stilo International plc ("Stilo", the "Group" or the "Company") today announces its results for the year ended 31 December 2017. The Company develops software tools and cloud services that help organisations create and process structured content in XML format so that it can be more easily stored, managed, re-used, translated and published to multiple print and digital channels.

FINANCIAL HIGHLIGHTS

· 8% increase in sales revenues to £1,894,000 (2016: £1,761,000).

· Profit before tax of £309,000 (2016: £318,000).

· 10% increase in operating costs, net of capitalised development costs, to £1,578,000(2016: £1,437,000).

· Increased investment in total product development to £656,000 (2016: £538,000) of which £213,000 capitalised (2016: £204,000).

· Improved cash position of £1,621,000 as at 31 December 2017 (2016: £1,466,000).

· Final dividend proposed of 0.05 pence per Ordinary Share, providing an 11% increase in total dividend to 0.10 pence for the year (2016: total 0.09 pence).

BUSINESS HIGHLIGHTS

· Significant OmniMark software licence orders received from the Japan Patent Office.

· 7% increase in Migrate revenues, with customers for the period including GE, Brocade, Qualcomm, Tyco, ITT, Microchip, Tibco, Cisco, Deltek, RSSB (Rail and Safety Standards Board), Motorola, TetraPak, Viewpoint, AMAT Varian and Atmel.

· 6% increase in recurring software maintenance revenues to £929,000 (2016: £871,000).

· Release of trial version of AuthorBridge v2.

· Launch of new web site (www.stilo.com).

David Ashman, Chairman, commenting on the Company's performance, stated:

I am pleased to report that in 2017 we increased sales by 8% to £1,894,000 and continued to invest in new product development and marketing initiatives while maintaining our levels of profitability.

Sales of OmniMark software licences to Japan were particularly strong and we saw a healthy increase in Migrate revenues as the XML DITA market grew encouragingly from previous levels. Recurring software maintenance revenues also increased during the period.

The development of AuthorBridge has taken longer than we expected, as v2 development continues into 2018. However, we recognise that this is a multi-year endeavour which will serve to underpin the future growth of the Company, and are encouraged by the feedback so far received from early customers.

Our reported profits are stated after the capitalisation of AuthorBridge development costs, as mandated by IFRS reporting standards and we anticipate amortising the accumulated capitalised costs (which now amount to £688,000) over a ten year period starting in the current financial year, following the general release of AuthorBridge v2.

With increasing cash reserves, I am pleased to propose the payment of a final dividend of 0.05 pence per share, providing a total dividend for the year of 0.10 pence per share.

OUTLOOK

The Directors are aware that material orders from two key customers for OmniMark and Migrate will not be repeated in 2018 and the revenue shortfall will need to be offset by new business sales to maintain the current level of revenues. To support this we are undertaking additional investments in sales and marketing with the objective of further broadening the customer base and accelerating the growth of AuthorBridge.

We are encouraged by the sales pipeline for new business prospects, but at the current time it is far too early to know what the outcome will be for 2018. However, Stilo has the balance sheet, and product portfolio, not to shy away from incurring costs today in order to steepen the Company's 's long term growth curve and to deliver sustainable value growth to investors.

ENQUIRIES

CHAIRMAN'S STATEMENT

I am pleased to report that in 2017 we increased sales by 8% to £1,894,000 and continued to invest in new product development and marketing initiatives while maintaining our levels of profitability.

Sales of OmniMark software licences to Japan were particularly strong and we saw a healthy increase in Migrate revenues as the XML DITA market grew encouragingly from previous levels. Recurring software maintenance revenues also increased during the period.

The development of AuthorBridge has taken longer than we expected, as v2 development continues into 2018. However, we recognise that this is a multi-year endeavour which will serve to underpin the future growth of the Company, and are encouraged by the feedback so far received from early customers.

Our reported profits are stated after the capitalisation of AuthorBridge development costs, as mandated by IFRS reporting standards and we anticipate amortising the accumulated capitalised costs (which now amount to £688,000) over a ten year period starting in the current financial year, following the general release of AuthorBridge v2.

With increasing cash reserves, I am pleased to propose the payment of a final dividend of 0.05 pence per share, providing a total dividend for the year of 0.10 pence per share.

David Ashman

Chairman

15 March 2018

BUSINESS OVERVIEW

Stilo develops software tools and cloud services that help organisations create and process structured content in XML format, so that it can be more easily stored, managed, re-used, translated and published to multiple print and digital channels.

Over recent years, many organisations have adopted industry specific XML standards eg Publishing (DocBook), Aerospace & Defence (S1000D), Finance (XBRL), Life Sciences (SPL), Software and High Tech (DITA). Stilo made the decision some years ago to focus new product development and marketing efforts on the emerging DITA standard. This standard originated within IBM to support the publishing of its technical documentation and has been increasingly adopted by other software and high tech companies. DITA is now beginning to make inroads into additional market sectors including Manufacturing, Life Sciences and Publishing.

In order to diversify beyond the DITA market, we have recently undertaken research into the XML JATS (Journal Article Tag Suite) market for scientific and scholarly publishers. Initial indications are that this could represent a promising new business opportunity for Stilo, and we will seek to address this through the incremental development of AuthorBridge and Migrate.

We continue to build upon our strong reputation for excellent products and supporting technical expertise, resulting from many years of experience in the structured content marketplace. With offices in the UK and Canada, we support clients throughout North America, Europe and Japan.

PRODUCTS AND CUSTOMERS

OmniMark

Stilo's core technology is OmniMark, a long-established development platform used to build high-performance content processing applications integral to enterprise publishing solutions.

Users include Boeing, Pratt and Whitney, EADS, Thomson Publishing and Wolters Kluwer.

Sales for the year included orders from the European Parliament and the Japan Patent Office.

Migrate

Migrate is the world's first cloud XML content conversion service and utilises OmniMark technology. Through advanced levels of automation, it enables organisations to improve turnaround times, reduce operating costs and take direct control of their work schedules, providing an attractive alternative to traditional outsourced conversion services.

Migrate sales for the year include orders from GE, Brocade, Qualcomm, Tyco, ITT, Microchip, Tibco, Cisco, Deltek, RSSB (Rail and Safety Standards Board), Motorola, TetraPak, Viewpoint, AMAT, Varian and Atmel. 

Using Migrate, we have helped our customers convert over one million pages of content to the DITA format.

AuthorBridge

AuthorBridge is a web-based XML authoring tool, designed for occasional content contributors who have no knowledge of XML or its complexities. It is currently targeted at large enterprises, which are looking to extend the use of DITA across different business units and potentially support thousands of users.

Development of AuthorBridge is progressing well, albeit with some slippage against original schedules. Its initial deployment in production at IBM, following extensive co-operation and testing by the central Information Developer Tools team, serves as a good foundation upon which we can build future sales.

The ongoing development of AuthorBridge continues into 2018, as we add functionality that is necessary to advance sales more generally in the DITA market.

Planned developments in 2018 also include support for the XML JATS (Journal Article Tag Suite) standard for scientific and scholarly publishers, and for the NISO-STS (Standards Tagging Set) standards developed by NISO (National Information Standards Organisation).

Sales analysis by geographic region

Our customers typically comprise large organisations, and are spread globally. Geographic sales revenues were derived as follows:

Region 2017 2016

UK 2% 2%

Rest of Europe 12% 10%

North America 51% 49%

South America 3% 9%

Asia 32% 30%

North America continues to represent a significant proportion of sales revenues as adoption of the DITA XML standard has been primarily led by corporations with their headquarters based in the USA. It is anticipated that adoption of the DITA XML standard will spread internationally over the coming years.

Technical expertise

Our technical team includes leading experts in the development of XML content processing technologies and along with our support services, are very highly regarded by customers.

OmniMark is used in the development of Migrate, and both Migrate and OmniMark technologies are used in AuthorBridge, which results in very efficient integrated development and support activities.

Operations

Stilo operates from offices located in Swindon, UK and Ottawa, Canada. The technical team is based in our Ottawa office.

As of 31 December 2017, there were 18 permanent employees in the Group, complemented by the use of contractors. In 2018 we will be making additional investments in the recruitment of development personnel, but it is not anticipated that we will be growing headcount significantly, as we look to contain our costs and scale the business through technology sales.

FINANCIAL RESULTS

The results for the year ended 31 December 2017 have been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union.

In 2017, the results for Stilo show a decrease in EBITDA to £315,000 (2016: £327,000). Pre-tax profits were £309,000 (2016: £318,000).

Total sales revenues for the year increased by 8% to £1,894,000 (2016: £1,761,000). The Group continued to benefit from recurring revenue from software maintenance contracts of £929,000 (2016: £871,000) which represents 49% (2016: 49%) of annual sales revenue.

The Group continues to maintain careful control over operating costs. Investment in additional development staff has meant that operating costs increased in the year. Operating expenses, excluding capitalised development costs, were £1,591,000 (2016: £1,449,000).

Investment in research and development continued in 2017, with total expenditure for the year of £656,000 (2016: £538,000). As a result of this investment, Stilo continues to benefit from research and development tax credits. Of this expenditure, £213,000 (2016: £204,000) relating to the development of AuthorBridge has been capitalised, and the total accumulated capitalised costs will be depreciated over a 10 year period, commencing in 2018.

There was a cash balance of £1,621,000 as at 31 December 2017 (31 December 2016: £1,466,000), and Stilo remains entirely un-geared. This Statement of Financial Position stability provides a sound financial base for the Group and will support continued investment in product development, sales and marketing. Further investment in staff recruitment is expected in 2018, however, overall costs will continue to be carefully managed in order to maintain cash reserves at a satisfactory level.

Total trade receivables were £126,000 (2016: £348,000), equating to 24 days (2016: 72 days). Overdue amounts are closely monitored.

The Board recommends the payment of a final dividend for the year of 0.05 pence per Ordinary Share which, if approved by the shareholders at the AGM on 23 May 2018, will be paid on 30 May 2018 to shareholders on the register on 20 April 2018. The shares will be marked ex-dividend on 19 April 2018. If approved, payment of the final dividend will bring the total dividends paid to shareholders for the year to 0.10 pence per Ordinary Share.

The Board's policy is to maintain payment of a steady and progressive dividend, well covered and paid subject to maintaining sufficient funds within the business with regard to prudent forecasts of future capital requirements, without the need for debt funding.

The Directors are aware that material orders from two key customers for OmniMark and Migrate will not be repeated in 2018 and the revenue shortfall will need to be offset by new business sales to maintain the current level of revenues. To support this, we are undertaking additional investments in sales and marketing with the objective of further broadening the customer base and accelerating the growth of Authorbridge.

We are encouraged by the sales pipeline for new business prospects, but at the current time it is far too early to know what the outcome will be for 2018. However, Stilo has the balance sheet, and product portfolio, not to shy away from incurring costs today in order to sharpen the Group's long term growth curve and deliver sustainable value growth to investors.

Group Income Statement

Year Ended 31 December 2017

Group Statement of Comprehensive Income

Year Ended 31 December 2017

Group Statement of Financial Position

as at 31 December 2017

Group Statement of Changes in Equity

for the year ended 31 December 2017

Attributable to the equity shareholders of the parent

Group Cash Flow Statement

for the year ended 31 December 2017

1. The figures for the years ended 31 December 2017 and 2016 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The figures for the year ended 31 December 2017 have been extracted from the statutory accounts for that year on which the auditor has issued an unqualified audit report which have yet to be delivered to the Registrar of Companies. The figures for the year ended 31 December 2016 have been extracted from the statutory accounts for that year which have been delivered to the Registrar of Companies and on which the auditor has issued an unqualified audit report. No statement has been made by the auditor under Section 498(2) or (3) of the Companies Act 2006 in respect of either of these sets of accounts. This announcement was approved by the board of directors on 14 March 2018 and authorised for issue on 15 March 2018.

2. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards adopted by the International Accounting Standards Board ('IASB') and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together 'IFRS') as endorsed by the European Union. The information in this preliminary statement has been extracted from the audited financial statements for the year ended 31 December 2017 and as such, does not contain all the information required to be disclosed in the financial statements prepared in accordance with the International Financial Reporting Standards ('IFRS').

3. Earnings per Share. Earnings per share is based on the profit for the year after tax of £313,000 (2016: £331,000), and the weighted average number of ordinary shares in issue during the year of 113,854,048 (2016: 112,846,662). The fully diluted earnings per share takes account of outstanding options which results in a weighted average number of shares in issue during the year of 119,241,436 (2016: 118,276,189). 

4. DIVIDENDS

Ordinary 2017 2016

£'000 £'000

Final 2016 paid (0.05 pence per share (2015: 0.05 pence per share)) 57 56

Interim 2017 paid (0.05 pence per share (2016: 0.04 pence per share)) 57 46

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114 102

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The directors recommend the payment of a final dividend of 0.05 pence per Ordinary Share (2016: 0.05 pence per share) to be paid on 30 May 2018 to those shareholders on the register on 20 April 2018.

The proposed dividend is not included as a liability in these financial statements as it is subject to shareholders' approval.

5. These financial statements are presented in sterling as that is the currency of the primary economic environment in which the Group operates.

6. Copies of the 2017 Annual Report and Accounts will be made available to shareholders in April. Copies may be obtained by contacting the Company Secretary at the registered office. The 2017 Annual Report and Accounts will be available to download from the investor relations section on the Company's website www.stilo.com.

The annual general meeting is due to be held at the offices of RSM UK Audit LLP, 25 Farringdon Street, London EC4A 4AB at 11.30am on 23 May 2018.