Dillistone : Annual Report (17 May 2024) (2024)

Contents

FileFinder

FileFinder is an executive search CRM used by recruiting teams at major corporations and executive search firms worldwide.

Voyager

Voyager Infinity is an easy-to-use,all-in-one solution that streamlines the recruitment processes for all types of permanent, contract and temporary positions automating administrative tasks to make businesses more efficient, customer-centric and competitive.

Voyager Mid-Office is an automated way of managing placements, processing timesheets, raising invoices, paying staff and updating accounts packages.

Talentis Global

Talentis is the next generation of executive search, recruiting and candidate sourcing software. Its proprietary Talentis TalentGraph takes advantage of AI and big data technology to allow recruiters

to identify and engage with potential candidates across the world.

GatedTalent

GatedTalent offers career services to executives, and candidate sourcing opportunities and a job board to recruiters.

ISV.online

ISV.online offers online skills testing, working with recruiters, consultancies and employers to help them secure and retain the best talent. ISV works with many of the UK's largest recruiting businesses.

I am pleased to report the Group has returned to operating profitability in 2023 for the first time for a number of years.

In a challenging market, the Group has delivered profit performance in line with expectations while paying down debt and continuing to invest for the future.

The underlying business results continue to improve. The Group moved into profit at an operating level, adjusted EBITDA increased 38%, loss before tax was reduced by 77% and earnings per share reached breakeven. We have delivered on our turnaround and present profit results in line with market expectations.

For the purposes of obtaining true comparatives, we focus on measures which are adjusted to remove items of Government support, acquisition related or exceptional items, to better understand the underlying business.

The adjusted operating profit before acquisition related, furlough and other items improved by 241% to £0.220m (FY2022: (£0.156m)). This marks the first adjusted operating profit since 2018.

Net cash from operating activities dipped slightly to £1,063m (FY2022: £1.189m) with a similar level of reduction in the change in cash and cash equivalents at (£0.441m) (FY2022: (£0.362m)).

During the year the Group paid down £300k of debt.

Dividends

The Group is not recommending a final dividend in respect of the year to 31 December 2023 (2022: nil).

Staff

In a challenging year for our markets, to deliver a successful outcome is creditable, and I would like to, once again, thank all involved for their efforts, commitment and determination to deliver first class products and services to the sectors we serve.

Corporate governance

It is the Board's duty to ensure that the Group is managed for the long-term benefit of all stakeholders.

Outlook

Our Group generates revenue primarily from the recruitment sector, and this is a market that remains soft. We assume that the environment will remain challenging, but we have made a solid start to the year, with all products performing broadly in line with expectations in the first quarter. With our recurring revenues covering our overheads and our ability to deliver our products far more

Giles Fearnley

Non-Executive Chairman

24 April 2024

We split our products into two groups - products primarily targeting contingency recruiters (largely, but not exclusively, in the United Kingdom) and products targeting executive search firms and in-house executive search teams across the globe.

Contingency recruitment products:

Our products serving this sector are:

• Infinity, which is an established recruitment CRM used primarily by agencies in
  the UK, but also with users in Europe and Australia. It enables recruitment businesses to manage prospects, clients, candidates and jobs in one place and offers deep integration to Office365 and other recruitment industry complementary solutions. It is one of the few solutions in the UK market with extensive functionality for permanent, contract and temporary jobs all in one system;
• ISV.Online, which is an online skills testing product used by both recruitment agencies and corporate organisations and has a strong international footprint. It allows recruiters and HR professionals to assess individuals using our extensive portfolio of tests or to create their own unique tests to meet their requirements; and
• Mid-Office,which is a comprehensive pay & bill solution that allows recruitment businesses and back office service providers to process timesheets and bridges the gap between paying workers and invoicing clients. It can be used on a standalone basis or integrated with other recruitment systems including our Infinity product.

Contingency review:

• Despite market conditions, the recurring revenue associated with this part of our business was stable, generating a combined £3.460m in recurring revenue, (FY2022 £3.441m).
• In Q1 2023, we announced a contract with a well-known leading UK based contingency recruiter. This contract featured a significant amount of custom work and the scope of this work grew over the course of the year. As a result, while we anticipated that it would be fully live within the year, the platform is now expected to go live in 2024. A significant proportion of the non-recurring revenue associated with the custom development work was realised within the year in review.
• Summer 2023 saw us launch our Mid- Office cloud offering. This offers new and existing clients the ability to use our Mid Office product without the need for internal servers. We are seeing encouraging early adoption of this offering,

During Q1, we have delivered further enhancements to our range of contingency products, including the development and successful use of a psychometric testing service as an enhancement to our ISV platform. The first client to use this product was one of the best-known recruiting firms in the UK, operating on behalf of a globally known automotive company.

Executive Search products:

Our primary products in the Executive Search sector are:

• Talentis, which is our latest product targeting executive recruiters and is used for both candidate research and sourcing and as an executive recruiting CRM;
• FileFinder, which is an established CRM product with thousands of users worldwide; and
• GatedTalent, which is a service that helps recruiters source candidates and candidates find jobs.

Executive search review:

Our executive search products have suffered a challenging few years. However we are pleased to report that while we have further work to do in this sector, our performance is stabilising. Despite continued challenging market conditions, following a 24% fall in 2021 and a 10% fall in 2022, revenue fell by a lower 5% in 2023, totalling £2.135m compared to £2.258m in 2022.

The Board believes that Talentis will become the main revenue driver for the executive search division in the fullness of time. Initially positioned primarily as a research tool, we have continued to add CRM functionality and, since late Q4 2023, we have been actively positioning the platform as a viable upgrade option for FileFinder customers.

As part of that process, the GatedTalent platform has since Q1 2024 no longer been supported by FileFinder and, instead, key GatedTalent functionality has been integrated with Talentis with the legacy GatedTalent platform being turned off.

While FileFinder and GatedTalent revenue fell in 2023, Talentis revenue grew. The Board believes that positioning Talentis as the natural successor to FileFinder will help to retain customers within the Group.

During Q1 2024, we have continued to enhance our executive search products, with the primary focus being on Talentis. Despite the challenging market conditions, Talentis revenues have grown in the quarter.

Cost savings and EBITDA Margin step-change.

During 2023, we made significant strides in improving margins within the business, reflecting our investment in improving our internal systems and architecture. This allows us to deliver products and services more efficiently and, with the downturn in our market, we were able to reduce our personnel related and office overheads while continuing to provide what we consider to be industry leading levels

of service. The majority of the financial benefit of these moves will be felt from FY2024 onwards.

Nevertheless, due in part to these measures, we were able to reduce our cost base by £0.400m in FY23 enabling the adjusted EBITDA margin to reach 23.5%.

This is a step change from the margins obtained between 2017 and 2022, when the average margin was 16.8%. Excluding the Covid-19 support received from Government, the average historical margin over the same period was 14.9%.

Strategy

The Group's strategy is to grow the business organically. This strategy is made possible through our commitment to product development, which generates the future revenue of the business. In 2023, product development equated to 17.2% of

revenues (FY2022: 17.4%) and we continue to invest in our products going forward.

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 the markets we serve;
• Develop our staff; and
• Increase our profitability and deliver increased shareholder value year on year.

Summary

The Group saw a return to operating profitability in the year.

• First operating profit since 2016
• Improvement of £0.376m in operating profit before acquisition, reorganisation and other items results in first such profit since 2018
• Adjusted EBITDA increased by 38%
• EBITDA margin up to 23.5% from 16.7% in FY2022
• Loss before tax down by 77%
• EPS returned to breakeven position
• CBIL loan reduced by £0.300m in year
• Net debt increased to £1.169m (FY2022: £1.017m)

The above was achieved whilst maintaining the level of investment in our products and paying down the CBIL loan.

Revenue

Group revenue decreased by 2% to £5.595m from £5.699m in FY2022.

Revenue by type

The total annual contract value (TACV), which is a forward looking measure of recurring revenue expectations for the next 12 months, has fallen to £4.451m (FY2022: £4.995m).

Gross profit margin

The gross margin increased to 89% from 86%. Going forward, the management team is focused on maintaining gross margin levels, particularly during challenging economic conditions.

Adjusted EBITDA*

The adjusted EBITDA* increased by 38% to £1.314m from £0.949m in FY2022. This resulted in a higher EBITDA margin of 23.5%, compared to 16.7% in FY2022. This was a result of the Group's agility in responding to market conditions, as a result of the investment we have made in systems over recent years.

Operating profit/(loss) and profit/ (loss) before tax

The operating position, before acquisition related, reorganisation and other items (adjusted operating profit) improved greatly to deliver a profit of £0.220m from (£0.156m) in FY2022. This is the Group's first such profit since 2018.

Inclusive of acquisition related, reorganisation and other items, the Group made an operating profit of £0.051m compared to an operating loss of (£0.319m) in FY2022. This is the first profit at an operating level since 2016.

The loss before tax decreased to (£0.104m) from (£0.453m) in FY2022 representing

a decrease in loss of 77%. This led to a small profit after tax of £0.003m (FY2022: (0.183m)).

This set of profit figures demonstrates the progress made in recent years.

Taxation

The net tax credit for the year was £0.107m (FY 2022: £0.270m).

Balance sheet

The Group's net assets decreased slightly to £3.217m (FY 2022: £3.223m).

Trade and other receivables decreased slightly to £0.559m (FY 2022: £0.608m). Trade and other payables also decreased to £2.019m (FY2022: £2.341m).