Dillistone Group (DSG: LSE), the UK-based supplier of recruitment software to the executive search industry announced a trading update for full year of 2017 with results expected to be ‘significantly below market expectations’.  

In an update, Dillistone stated, “At the final results announcement for 2016 released in April, the Board noted some softness in the UK recruitment market, following the Brexit vote. As we have moved further into the year, we have seen some improvement in terms of the volume of new business wins and are pleased to have taken a number of clients from our direct competitors.  However, a significant majority of our new clients have been new or young businesses with relatively few users purchasing on a subscription, as opposed to a licence model.  While these subscriptions may be valuable in the long term, they have a much reduced impact on short term revenues and this has not allowed us to catch up on the slow start to the year.”

The group has also been informally notified that a contract with a client, worth approximately £600,000 per year, is likely to expire later this year or early next.

Dillistone also states that they anticipate that revenue in the first six months of the year will be broadly in line with the first six months of the previous year.

Meanwhile, Dillistone is developing a confidential new product on which it expects to spend £2.4 million in development, marketing and other costs in the period to the end of 2018, of which approximately £700,000 will be capitalised. The group states that it does not anticipate that meaningful revenues will be generated prior to 2018 and the new product is not expected to be profitable before 2019. After this, the company anticipates the product will be "highly cash generative". Dillistone also stated that it has already received a non-binding letter of intent from one organisation to adopt the product on release, and fundraising for completion of the product is now being explored.

“The Board currently expects that the second half of the year will deliver better results than the first half in terms of general trading,” a statement from Dillistone read. “However, the slow start to the year and the higher cost base mean that the results for the full year are expected to be significantly below market expectations.  In view of the proposed fund raising, the Board expects to reduce its dividend until the benefits of its investment in the new product flow through to the Group’s balance sheet.

Jason Starr, CEO of Dillistone Group, also commented: “We’ve seen improvement in the order book since the beginning of the year and are confident that this will improve further in H2. We are delighted by the early response to our new product and excited by its potential. The new product is essentially a start up being developed within the auspices of an established business. We believe that it has the potential to transform the nature of our business and to deliver significant shareholder value.”