A N N U A L R E P O R T 2 0 0 1 C A D C E N T R E ANNUAL REPORT 2001 S G N H T I F O E P A H S E H T FINANCIAL HIGHLIGHTS Profit and loss account highlights Turnover Recurring licence fees Initial licence fees Other sales Total Far East Americas Europe, Middle East & Africa Total 31-Mar-01 31-Mar-00 £000’s £000’s 13,393 10,262 10,957 3,750 9,629 3,998 28,100 23,889 6,616 7,873 13,611 28,100 4,115 6,608 13,166 23,889 Research & Development costs 6,485 4,338 Gross profit Gross margin Amortisation of goodwill software rights Operating profit Operating margin Profit before taxation Earnings per share – pence 19,061 16,007 67.8% 67.0% 267 335 5,157 18.4% 5,225 20.94 267 137 4,239 17.7% 4,338 17.72 5.4 Total dividend per share, paid and proposed – pence 5.4 Balance sheet highlights Goodwill & software rights (net) Cash at bank and in hand 5,165 5,620 5,444 4,214 Shareholders’ funds: all equity 13,904 10,886 Growth Growth Growth Growth Growth 31% 14% -6% 18% 61% 19% 3% 18% 49% 19% 0% 145% 22% 20% 18% -5% 33% 28% Contents i Chairman’s statement v Chief Executive’s statement x Financial review 1 Directors’ report 4 Board of directors 6 Corporate governance statements 8 Remuneration report 11 Directors’ responsibilities 12 Auditors’ report 14 Consolidated profit and loss account 16 Consolidated balance sheet 17 Company balance sheet 18 Consolidated cash flow statement 19 Notes to the financial statements 40 Company information and advisors CHAIRMAN’S STATEMENT I am delighted to report excellent results for the year ended 31 March 2001, maintaining Cadcentre’s unbroken record of growth in revenue, profit and earnings per share. We have sustained our progress in implementing our strategy to extend from being solely a supplier of specialist 3D design software to becoming a core partner for comprehensive engineering information technology for our customers. These customers mainly comprise large engineering, procurement and construction companies (EPCs) and owner operators (O/Os) in the process and power industries. RESULTS AND FINANCE During the year ended 31 March 2001 turnover increased by 17.6% to £28.1 million (2000: £23.9 million). After providing for the investment in skills and products that has contributed to the re- positioning of the business, operating margins moved ahead again to 18.4% (2000: 17.7%). Profit before tax and the amortisation of intangible assets arising from acquisitions increased by 23% to £5.8 million (2000: £4.7 million) and earnings per share on a similar basis increased by 22% to 24.51p (2000: 20.14p). Profit before tax reported under FRS3 and other UK Accounting Standards improved by 20% to £5.2 million (2000: £4.3 million) and earnings per share were up by 18% to 20.94p (2000: 17.72p). Despite unsettled economic conditions during the year, particularly in the USA, the gr oup experienced strong revenue growth of 19% in the Americas and 61% in Asia Pacific where sales of Cadcentre’s new products were particularly successful. Sales in Europe, Middle East and Africa were less strong but after an unchanged first half, they recovered with an increase of 8% in the second half to make a 3% improvement for the year as a whole. Income directly related to the acquired products, VANTAGE and FOCUS, was £2.9m in the year (2000: £1.1m), an increase of 156% and now represents over 10% of our revenues. In addition to the first end-user licences for these products, this figure includes a $1 million licence to enhance a world wide web e-procurement development within the process plant industry. Net cash at 31 March 2001 was £5.6 million (2000: £4.2 million). i CHAIRMAN’S STATEMENT DIVIDENDS In the interim statement on 7 November 2000 the Board stated that, with the success of Cadcentre’s strategy to drive forward its plans for growth and repositioning, it would maximise the resources funding that growth. As previously indicated, an unchanged final dividend of 3.6p is proposed, making a total dividend for the year of 5.4p (2000: 5.4p). The final dividend will be paid on 3 August 2001 to shareholders on the register at the close of business on 6 July 2001. CREATING A MORE BALANCED BUSINESS PROFILE The past year has witnessed exceptional volatility within stock markets, affecting TMT (technology, media and telecommunications) stocks in particular. Although the Software and Computer Services sub-sector (which includes Cadcentre) fell by more than 60% over the year to 31 March 2001, Cadcentre has fared well, bucking the trend with its share price increasing by nearly 33%. During this period Cadcentre has been able to demonstrate a reduction in its former dependence on a rather ‘lumpy’ turnover profile with a more even spread of revenue and profit between the first and second halves of the year. At the same time there has been an increase in the proportion of orders generated from service contracts and, for the first time, Cadcentre has started its new financial year with a forward order book for services. We have maintained a good spread across industry sectors with our three main business sectors of power generation, oil and gas and chemicals each contributing approximately 20 to 25% of total revenue; the balance comes mainly from pharmaceuticals, paper & pulp, food and shipbuilding. Furthermore, we have established a wide geographic pr esence, with sales in the UK (16%), rest of Europe, Middle East and Africa (32%), the Americas (28%) and Asia Pacific (24%). ii CHAIRMAN’S STATEMENT BUSINESS ENVIRONMENT AND TRENDS Several trends have become apparent in our industry. Cadcentre’s customers have always been concerned about the efficiency of their asset creation programmes, but their expectation of software vendors is now extending from specification, design and build requirements to include subsequent operation, maintenance, repair and decommissioning. This requires the re-use over an extended period of the data initially captured in the earlier stages of a design and then supplemented over the life of the plant. It is the efficient capture, re-use, management and control of this data which underlies Cadcentre’s ‘data for life’ approach. The company’s integrated product and services vision has been welcomed by our customers and the results announced today demonstrate the progress in its implementation whilst maintaining an unbroken record of profit growth. The increasing use of the Internet as a delivery mechanism for our products has been assumed and the products are being web-enabled and prepared for delivery to users through an application service provider (ASP) arrangement. All Cadcentre’s products already work across the web and are progressively being optimised to work in this way. This is attractive to customers because, when a project is awarded to a contractor, that contractor may wish to mobilise many people in various locations around the world within hours to work on the same design using a single database. This can only be achieved using the Internet or a corporate intranet. Bandwidth restrictions are being lifted or circumvented, so this method of working is expected to become a reality in due course. In turn, this led to a change in pricing policy which was also addressed last year. Many companies in the process and power industries are well advanced with programmes to invest in tailoring ERP business systems to their requirements. For Cadcentre’s customers to be able to achieve the potentially substantial savings available, it is increasingly appreciated that these ERP systems must be linked into their engineering processes. Cadcentre has positioned itself – and is recognised – as a provider of a wide range of engineering IT products and expertise with a deep understanding of the issues, and is being asked to help create these critical links between engineering and corporate ERP installations. Cadcentre has formed AVEVA Consulting, drawing together these skills from around the group, in order to provide a focus to drive forward revenue generation within this arena. CHANGE OF NAME While computer-aided design (CAD) will remain an important part of the company’s business for the foreseeable future, the name Cadcentre is becoming misleading as our strategy expands into more complete engineering IT including design, data management, business process re-engineering, supply chain management and resource planning systems. Consent of shareholders will be sought in a Special Resolution to change the company’s name to AVEVA Group plc from Cadcentre Group plc. Formal notice of the Resolution will be included with the notice for the forthcoming Annual General Meeting, scheduled for 12 July 2001. OUTLOOK These results begin to demonstrate the success of Cadcentre’s new business proposition. With the new products already in profit and the core services infrastructure in place we look forward with confidence to further improvements in financial results in future years. Richard A. King CBE Chairman 23 May 2001 iii While computer-aided design (CAD) will remain an important part of the company’s business for the foreseeable future, the name Cadcentre is becoming misleading as our strategy expands into more complete engineering IT including design, data management, business process re-engineering, supply chain management and resource planning systems. Consent of shareholders will be sought in a Special Resolution to change the company’s name to AVEVA Group plc from Cadcentre Group plc. Formal notice of the Resolution will be included with the notice for the forthcoming Annual General Meeting, scheduled for 12 July 2001. iv CHIEF EXECUTIVE’S STATEMENT In line with our stated objectives for sustainable long term growth, Cadcentre has extended its solution beyond our core 3D PDMS plant design system to span the plant lifecycle from conceptual design through to fabrication and ultimately to decommissioning. Cadcentre has undergone more changes in the past year than ever before, with the adoption of the acquired products into an integrated application package that is world class in all respects. Our combined development team has assembled a set of applications on which we can build on last year’s revenue growth. The quality of our product set is a major contributing factor in attracting the largest number of new staff we have ever had join in one year. We have achieved a very good result in a difficult market, largely due to the commitment and talent of our staff and continued support from customers. PEOPLE AND ORGANISATION Following the establishment of our three geographic business units during 2000, we had the platform on which to build up our intellectual capital. Last year we were able to attract some of the industry’s leading talent in order to further develop our product set and enhance our sales and service delivery capability. We have augmented the development teams for the newly acquired products and invested heavily in their integration and commercialisation. Throughout the Group we have built up a significant skill set of industry experts, who are able to consult with customers on the deployment and integration of new data management tools. This activity has evolved to the point that we have created a new high level consulting business, AVEVA Consulting. Having moved dedicated consulting resource out, our Services and Technology division now becomes the Research and Development facility to the Group. To support both our product business and our consulting business we have made provision for providing the essential services centrally via a shared ser vices team. This will enable us to maintain consistency and standards which are essential for the effective running of a global business. Lynn Muir Group HR Manager Cadcentre Group David Wheeldon Vice President R&D Cadcentre Ltd Peter Kidney Director of Shared Services Cadcentre Ltd v CHIEF EXECUTIVE’S STATEMENT GLOBAL EXPANSION Our policy of selling directly to our customers continues and over the last year we have expanded considerably our presence in the Asia Pacific region with our regional headquarters fully operational fr om Kuala Lumpur supporting six local sales and support offices. As a result of this investment we have seen an increase in revenue of 61% within this region. We have additional offices planned around the world as we continue to expand our geographic coverage. In our Europe, Middle East, Africa (EMEA) and North American business units we have str engthened our regional offices with additional sales and support staff able to develop the market for our newer products. Peter Finch President Cadcentre Asia Pacific ACQUISITIONS During the year we acquired the rights to the Open Plant Environment (OPE). This was a technology acquisition needed to complete the product portfolio that we outlined in our planned strategy two years ago. OPE enables us to provide an integration toolkit to link customers’ Engineering IT applications and environments to enterprise systems, such as a corporate ERP system. Parts of the OPE technology will also provide enhanced functionality within other Cadcentre products. We will consider future acquisitions if they broaden our product footprint, or accelerate our business development. Mike Bezzant Vice President Cadcentre International vi CUSTOMER DEVELOPMENT We now have over 700 customers using in excess of 16,000 systems worldwide. During the period under review we have seen a strong take up of our new products in the Asia Pacific region. Our larger established customers in EMEA and North America are also looking closely at how they will achieve substantial business improvement using some of Cadcentre’s new products as part of a policy of integrating the Engineering IT domain with their enterprise-wide corporate systems. We have introduced a more flexible pricing structure and have seen a small number of customers migrating to the new structure. Others are using the mor e flexible leasing option in addition to their traditionally purchased software licences. CHIEF EXECUTIVE’S STATEMENT vii CHIEF EXECUTIVE’S STATEMENT PRODUCT STRATEGY With the acquisition of products over the last two years we have considerably enhanced our internal development capability. During the year in review we launched a new conceptual design product and new design applications which add further scope to our 2D design capabilities. We have packaged our integrated solution set under the VANTAGE product brand and continue to develop the interactivity between applications contained within the VANTAGE suite. The next major r elease of our cor e 3D design system based on Windows is currently being developed and is due to be released this year. It will deliver substantial productivity benefits to customers. Also due for release in mid 2001 is our Engineering Portal which will appeal to a wider gr oup of customers and form a useful component for delivering further integration to customers. The portal will also be used as a front-end to our products as they start to become used via Application Ser vice Providers (ASPs). A web- enabled version of our materials management system has already been delivered for inclusion in an e-procurement system. SERVICES STRATEGY In Spring 2000 Cadcentre began to draw together a global team of professionals within its Services and Technology Division. The role of this team was to consult with and assist customers with the issues surrounding the introduction of new technology and processes in the Engineering IT domain. During the year the team carried out a variety of assignments for customers focused on the introduction of new Engineering IT methods and the linking of Engineering IT and corporate systems. In May 2001 we evolved this capability as a new business under the AVEVA Consulting brand. This will provide a range of services, from assessment of the client’s business strategy, through integration of its infrastructure, to the day-to-day management of the operational system. We will initially focus AVEVA Consulting on the Cadcentre installed base but expect to broaden the potential market place to include customers not yet using Cadcentre products. viii CHIEF EXECUTIVE’S STATEMENT As the company’s service provision capability increases and customers realise that Engineering IT is not one of their own core competencies, we aim to capture additional service revenue by adding strategic and integration consulting. This will enhance the overall Cadcentre Group service capability beyond the training and implementation services already available. FUTURE DEVELOPMENT Cadcentre starts the year with a world-leading product portfolio and an evolving services division. Having invested heavily in the developing and marketing of the recently acquired products, we go into the new year with a strong pipeline of new business possibilities both within our existing customer base and new accounts. With the oil and gas market emerging from a depressed period we are already seeing positive signs from this significant sector. As the workload in companies increases we expect to see the market for new products and the outsourcing of services increase. Cadcentre’s stability and its long term relationships with customers will place it favourably to take advantage of these trends. As Cadcentre has been acquiring additional products, and indeed its competitors, the supplier market is going through a period of consolidation which could yield a number of further opportunities for the company. An emer ging industr y tr end is to move applications to ASP and both our web development work and our more flexible pricing strategy will enable us to become an early player as this market develops. Richard Longdon Chief Executive 23 May 2001 ix FINANCIAL REVIEW We have achieved a further year of substantial profitable growth. OPERATING REVIEW Turnover grew 18% to £28.1million (2000: £23.9 million). The largest increase was in the Far East where we have continued to expand our local presence opening new offices in Malaysia and Korea. Recurring Licence revenues increased by 31% to £13.4m. Initial Licence fees increased by 14% to £11.0m and other sales reduced by 6% to £3.7m. Operating profit amounted to £5.16 million an increase of 22%. This was after charging amortisation of goodwill arising on acquisition of £267k (2000: £267k) and £335k (2000: £137k) as the cost of amortising software rights acquired on acquisition. Gross margin increased from 67% to 68%, and operating expense was maintained at 49%. Operating margin improved from 17.7% to 18.4%. Excluding the effect of amortisation of intangibles, operating margin improved to 20% (2000:19%). Profit before tax increased to £5.23 million (2000: £4.34 million). Expenditure on research and development increased by 49% to £6.49 million and now represents 23.1% of turnover (2000: £4.34 million and 18.2% of turnover). This increase reflects the costs of the acquired software development teams and the integration of our packaged solution set VANTAGE. All research and development costs are written off in the year of expenditure. Earnings per share were 20.94 pence (2000: 17.72 pence), an increase of 18%. A final dividend of 3.6 pence per share is to be proposed at the AGM, making a total for the year of 5.4 pence (2000: 5.4 pence). x FINANCIAL REVIEW CASH AND CAPITAL EXPENDITURE Cash balances increased by £1.4m in the year to £5.6m. Expenditur e on tangible fixed assets in the year was £1.2m (2000: £1.4m). ACQUISITIONS During the year we acquired the product Open Plant for £323,000. The develop or buy decision was based on cost and speed to market and now completes our planned product portfolio. FINANCIAL RISKS AND TREASURY POLICY 84% of the group’s revenue is sourced outside the United Kingdom, 80% being invoiced in currencies other than pounds sterling. Only 40% of expenditure is in currencies other than sterling. The group therefore has a clearly defined policy for managing foreign exchange risk, which prohibits speculative dealings for which no underlying exposure exists. Foreign currency assets and liabilities are matched as far as possible and the net exposure may be hedged by means of forward currency contracts. During 2000/2001 the company entered into forward contracts amounting to £8.2 million sterling. xi DIRECTORS Richard King Richard Longdon Paul Taylor Tony Christian John Dersley Jeremy Fairbrother Colin Garrett Peter Littleton David Mann xii Directors’ report For the year ended 31 March 2001 The directors present their annual report on the affairs of the group together with the (cid:222)nancial statements and auditors(cid:146) report for the year ended 31 March 2001. Principal activities The company is a holding company. The principal activities of the trading subsidiaries are the marketing and development of computer software and services for engineering and related solutions. Business review A review of the group(cid:146)s operations during the year and its plans for the future is given in the Chairman(cid:146)s and Chief Executive(cid:146)s Statements. The group made a pro(cid:222)t for the year after taxation of £3,525,000 (2000 (cid:150) £2,950,000). Sales were £28,100,000 (2000 (cid:150) £23,889,000) with overseas sales representing 84% (2000 (cid:150) 82%) of the business. Creditors payment practice The company has no trade creditors (2000 (cid:150) £nil). Results and dividends The group results and dividends are as follows: Group pro(cid:222)t for the year after taxation Dividends paid and proposed (cid:150) interim dividend paid of 1.8p per 10p ordinary share (cid:150) (cid:222)nal proposed of 3.6p per 10p ordinary share Retained pro(cid:222)t for the year Research and development £000 3,525 (303) (609) __________ 2,613 __________ The group continues an active programme of research and development and all costs are expensed as incurred. The research and development programme covers the updating and extension to the group(cid:146)s range of products. Intellectual property The group owns intellectual property both in its software tools and the products derived from them. This includes the product known as PDMS. The directors consider these to be of signi(cid:222)cant value to the business, with those being acquired capitalised at cost and internally developed intellectual property costs being written off as incurred. 1 Directors’ report (continued) Directors and their interests The directors who served during the year under review are shown below: * R A King (Chairman) R Longdon P R Taylor A D Christian J R Dersley * J R F Fairbrother (appointed 1 March 2001) * C A Garrett (appointed 1 August 2000) P D Littleton * D W Mann * Non-executive directors The bene(cid:222)cial interests in the shares of the company of directors who held of(cid:222)ce at 31 March 2001 are as follows: R A King R Longdon P R Taylor A D Christian J R Dersley P D Littleton D W Mann 2001 2000 (or subsequent date (or subsequent date of appointment) of appointment) __________ 10p ordinary __________ 10p ordinary shares 131,250 778,000 4,000 6,722 808,000 12,000 shares 156,250 953,000 4,000 4,512 911,000 - 17,800 __________ 17,800 __________ No changes took place in the interests of directors in the shares of the company between 31 March 2001 and 23 May 2001. Director(cid:146)s share options are disclosed in the remuneration report on page 9. 2 Directors’ report (continued) Other substantial shareholdings On 16 May 2001, the company had been noti(cid:222)ed in accordance with sections 198 to 208 of the Companies Act 1985, of the following interests in the ordinary share capital of the company: Name of holder Gartmore Investment Management plc Hermes Administration Services Ltd Amvescap PLC Invesco English and International Trust 3i Group PLC University of Cambridge Standard Life Investments Ltd Barclays Bank plc Charitable donations Number 2,068,595 1,295,367 1,080,592 763,000 706,272 675,000 649,321 Percentage held 12.22 7.65 6.38 4.51 4.17 3.99 3.84 534,703 3.16 __________ __________ During the year the group made charitable donations of £410 (2000 (cid:150) £3,800). Auditors The directors will place a resolution before the annual general meeting to re-appoint Arthur Andersen as auditors for the ensuing year. High Cross Madingley Road Cambridge CB3 0HB 23 May 2001 By order of the Board, P R Taylor Secretary 3 Board of directors Richard King CBE, aged 71, Chairman Richard King was appointed Chairman of Cadcentre in August 1994. Previously he held a number of senior managerial appointments in Philips N.V. in the UK, USA and Australia. Subsequently he formed Cambridge Electronic Industries plc which was (cid:223)oated on the London Stock Exchange. He was Chief Executive from 1980 to 1990. Since then he has been directly involved in a number of high technology companies as Chairman or as director. Currently he is Deputy Chairman of Xaar plc, a Director of Lionheart Management Services, Cambridge Technology Management and Chairman of Sentec Ltd. He is a Fellow of Darwin College, Cambridge. Richard Longdon, aged 45, Chief Executive Richard Longdon received an engineering training in the defence industry then gained experience in the project management of high value engineering projects. He moved into sales and held a series of international sales and marketing positions. He joined Cadcentre in 1984 and shortly afterwards was made marketing manager for the process products. In January 1992 he relocated to Frankfurt where he was responsible for setting up and running the group(cid:146)s German of(cid:222)ce. He returned to the UK as part of the management buyout team in 1994 subsequently taking responsibility for the group(cid:146)s worldwide sales and marketing activities before being appointed Managing Director in May 1999. He took over as Group Chief Executive in December 1999. Paul Taylor FCCA, aged 36, Finance Director and Company Secretary Paul Taylor is a Fellow of the Association of Chartered Certi(cid:222)ed Accountants and has been with the company for eleven years, latterly as Finance Director of Cadcentre Limited and Group Accountant. He was deeply involved in the (cid:223)otation process and has been responsible for both UK accounting and overseas subsidiaries including adherence to group standards. Since 1998 Paul has also been UK Director of Human Resources and was appointed to the position of Finance Director and Company Secretary on 1 March 2001. Prior to joining Cadcentre, Paul originally trained within the accountancy profession before moving to Philips Telecommunications (UK) where he was responsible for the management accounts of its Public sectors division. Tony Christian, aged 46, President (cid:150) AVEVA Consulting Limited Tony Christian joined Cadcentre in 1998 from Computer Sciences Corporation (CSC), the global IT consulting and services (cid:222)rm. He was a director of CSC(cid:146)s UK Consulting and Systems Integration Division and managed a consulting practice working in the petrochemical sector. He holds a Bachelor(cid:146)s degree in Mechanical Engineering and a Master(cid:146)s degree in Acoustics from the University of Nottingham. He held research and development posts at Racal and British Rail before moving into the CAD industry in 1982. His subsequent software industry experience includes three years with the factory control systems subsidiary of British Aerospace and four years with the computing subsidiary of Davy Corporation (now part of Kvaerner Group), where he headed the Division responsible for its process industry solutions. Cadcentre(cid:146)s broader product portfolio and growing services activity merged into a new Services and Technology Division, and Tony moved from his previous role as Managing Director of Cadcentre International Limited to head up this Division, before taking up his current role as President of AVEVA Consulting Limited. 4 Board of directors (continued) John Dersley FCA, aged 52, Deputy Chief Executive John Dersley quali(cid:222)ed as a Chartered Accountant in 1971 then spent four years with the London of(cid:222)ce of Price Waterhouse including one year with the Insolvency Department. He moved into industry through internal audit and then into line management with a manufacturing company. He joined the UK subsidiary of a US group as Administration Manager, before moving to Cadcentre as Financial Controller and Company Secretary immediately after its privatisation in 1983. Appointed Finance Director in 1989, he was part of the management buyout team in 1994 and the (cid:223)otation team in 1996. John has subsequently resigned from his position as Finance Director and Company Secretary, but remains Deputy Chief Executive pending full retirement at the annual general meeting to be held in July 2001. Jeremy Fairbrother, aged 61, Non-Executive Director Jeremy Fairbrother was educated at Balliol College, Oxford. He became a non-executive director of Cadcentre in 1994 and now chairs the audit and remuneration committees. He was a director at Baring Brothers & Co. Limited from 1982 to 1992. He left Barings in June 1992 to take up his present appointment as Senior Bursar at Trinity College Cambridge. Colin Garrett, aged 44, Non-Executive Director Colin Garrett was formerly the Head of Plc Advisory at PricewaterhouseCoopers in the Midlands. Previously, Colin was a Director of Corporate Finance at Albert E Sharp. He has advised a number of private and quoted technology companies and worked closely with management teams on their strategy and plans for growth. Colin is a non-executive director of Mettoni Group plc, Recognition Systems Group plc, and Vocalis Group plc. He is also non-executive chairman of 3G Comms Limited and ZBD Displays Limited. Peter Littleton, aged 49, President (cid:150) Cadcentre Inc Peter Littleton was educated at the University of Pennsylvania. He has been involved with various aspects of Computer Graphics for the past 20 years. He worked at Day and Zimmerman, Inc., a large engineering and construction (cid:222)rm in Philadelphia. Peter then moved to the Boston area and was responsible for the international and domestic marketing of the CADDS 4x AEC offering from Computervision. He was Vice President of Sales & Marketing at Geographic Data Technology, in New Hampshire until 1996 when he joined Cadcentre Inc. In May 1999, Peter became a member of the Board of Directors for Cadcentre Group plc. David Mann, aged 57, Non-Executive Director David Mann was educated at Jesus College, Cambridge and spent twenty-(cid:222)ve years with Logica plc. He became head of worldwide operations, then Group Chief Executive and (cid:222)nally Deputy Chairman before leaving the company in 1994. He is currently Chairman of Charteris plc and Flomerics Group plc (both quoted on AIM) and a non-executive director of Ansbacher Holdings Limited and Room Underwriting Systems Limited. He was President of the British Computer Society in 1994/95 and Master of the Worshipful Company of Information Technologists in the City of London in 1997/98. 5 Corporate governance statements Statement of compliance with the Code of Best Practice The company has complied throughout the year with the Provisions of the Code of Best Practice set out in section 1 of the Combined Code, published by the Hampel Committee and the London Stock Exchange. Statement about applying the Principles of Good Governance The company has applied the Principles of Good Governance set out in section 1 of the Combined Code by complying with the Code of Best Practice as described above. Further explanation of how the Principles have been applied is set out below and, in connection with directors(cid:146) remuneration, in the remuneration report. Board of directors The executive directors of the group are fully involved in its management at all levels, and its direction and control remains (cid:222)rmly in their hands. The board is fully involved in the nomination, selection and appointment of non-executive and executive directors, although there is no formal written procedure in place. The board currently comprises the non-executive chairman, three non-executive directors, including the senior independent director, and (cid:222)ve executive directors. The board meets at least eight times during the year. It is responsible for the business and commercial strategy of the group, monitoring progress, the approval of major transactions and the approval of the (cid:222)nancial statements and operating and capital expenditure budgets. A nomination committee for board appointments has not been established, because the full board is actively involved in all appointments. There is currently no intention to form a nomination committee given the board(cid:146)s size. It is the view of the group, that all non-executive directors are deemed to be independent. Audit committee The audit committee comprises the four non-executive directors and is chaired by J R F Fairbrother, the senior independent director, with R A King , D W Mann and C A Garrett as members. The committee meets as required to review the scope of the audit and the audit procedures, the format and content of the audited (cid:222)nancial statements, including their notes and the accounting principles applied. The committee will also review any proposed change in accounting policies and any recommendations from the group(cid:146)s auditors regarding improvements to internal controls and the adequacy of resources within the group(cid:146)s (cid:222)nance function. Dialogue with institutional shareholders The chief executive and the (cid:222)nance director have meetings with representatives of institutional shareholders at least twice annually. These meetings seek to build a mutual understanding of objectives by discussing long term issues and obtaining feedback. All shareholders are encouraged to participate in the company(cid:146)s annual general meeting. 6 Corporate governance statements (continued) Internal control The board has applied Principle D.2 of the Combined Code by establishing a continuous process for identifying, evaluating and managing the signi(cid:222)cant risks the group faces. The board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with Internal Control: Guidance for Directors on the Combined Code published in September 1999. The board is responsible for the group(cid:146)s system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance with respect to the preparation of (cid:222)nancial information and the safeguarding of assets and against material misstatement or loss. In compliance with Provision D.2.1 of the Combined Code, the board continuously reviews the effectiveness of the group(cid:146)s system of internal control. The board(cid:146)s monitoring covers all controls, including (cid:222)nancial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether signi(cid:222)cant risks are identi(cid:222)ed, evaluated, managed and controlled and whether any signi(cid:222)cant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The board has also performed a speci(cid:222)c assessment for the purpose of this annual report. This assessment considers all signi(cid:222)cant aspects of internal control arising during the period covered by the report. The audit committee assists the board is discharging its review responsibilities. 7 Remuneration report As well as complying with the Provisions of the Code as disclosed in the company(cid:146)s corporate governance statements, the board has applied the Principles of Good Governance relating to directors(cid:146) remuneration as described below. Remuneration committee The committee is made up of two of the non-executive directors, R A King and J R F Fairbrother, and is chaired by the senior independent director, J R F Fairbrother. The principal function of the committee is to make recommendations to the board on the group(cid:146)s policy for executive remuneration, and to determine the individual remuneration packages on behalf of the board for the executive directors and senior managers within the group. Information prepared by independent consultants and appropriate survey data on the remuneration practices of comparable companies is taken into consideration. Members of the committee do not participate in decisions concerning their own remuneration. Remuneration policy The policy is to ensure that the group has remuneration packages in place by which it can recruit and retain high quality management. In setting the packages for executive directors and senior managers, the committee benchmarks against companies of a similar size, structure and complexity. Remuneration packages consist of basic salary, bonus, bene(cid:222)ts in kind and contributions to pension schemes. Directors(cid:146) remuneration The total amounts for directors(cid:146) remuneration and other bene(cid:222)ts were as follows: Name of director Non-executive R A King J R F Fairbrother C A Garrett * D W Mann Executive A D Christian J R Dersley P D Littleton R Longdon P R Taylor * Basic salary £000 Fees £000 Bonus £000 Bene(cid:222)ts in kind £000 2001 Total £000 - - - - 132 137 139 137 9 32 12 9 12 - - - - - - - - - 69 69 - 69 2 - - - - 33 37 17 36 2 32 12 9 12 234 243 156 242 13 2000 Total £000 25 11 - 10 195 214 230 214 - Aggregate emoluments __________ __________ __________ __________ __________ __________ 554 __________ 65 __________ 209 __________ 125 953 __________ __________ 899 __________ * Remuneration shown is from date of appointment 8 Remuneration report (continued) Directors(cid:146) remuneration (continued) Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the company granted to or held by the directors. Details of the options are as follows: Name As at 1 April Granted Exercised As at 31 Gain on Exercise Earliest 2000 March 2001 exercise price date of exercise Number Number Number Number A D Christian 150,000 - P D Littleton - 50,000 50,000 50,000 - - R Longdon - 100,000 P R Taylor 3,000* 3,000* 23,000* 71,000* - - - - - - (12,000) - - - - - - 150,000 50,000 38,000 50,000 100,000 3,000 3,000 23,000 71,000 £ - - 51,072 - - - - - - 272.5p 01.06.01 524.7p 19.01.04 50.4p 200p 27.11.99 24.05.00 524.7p 19.01.04 50.4p 200p 27.11.99 24.05.00 179.2p 16.03.02 524.7p 19.01.04 *Share options held by P R Taylor were as at date of appointment. All options except for those at 50.4 pence are subject to performance conditions. The market price as at 31 March 2001 was 447.5p with a high-low spread for the year of 570p to 318.5p. These options are normally exercisable in full or in part between the third and seventh anniversaries of the date of grant. In addition to those options granted through the remuneration committee, it is the group(cid:146)s policy to grant new options once in each (cid:222)nancial year to staff who have joined the group since the date of the previous grant. 9 Remuneration report (continued) Pensions R Longdon, J R Dersley, A D Christian and P R Taylor are members of the Cadcentre Limited de(cid:222)ned bene(cid:222)t pension scheme. It is a contributory, funded, (cid:222)nal salary occupational pension scheme approved by the Inland Revenue. Under this scheme they are entitled to a pension on normal retirement, or on retirement due to ill-health, equivalent to two-thirds of their pensionable salary provided they have completed (or would have completed in the case of ill-health) 25 years(cid:146) service (Inland revenue earnings limits apply to A D Christian and P R Taylor when calculating (cid:222)nal salary). In the event of voluntary early retirement a lower pension is payable if the company so agrees, provided they have attained age 50. Pensions are payable to dependents on the director(cid:146)s death in retirement and a lump sum is payable if death occurs in service. The following directors had accrued entitlements under the pension scheme as follows: A D Christian J R Dersley R Longdon P R Taylor Annual pension at normal Increase in Transfer retirement date accrued pension value of Service to Service to increase 31 March 31 March £ 740 6,880 6,690 3,480 £ - 76,590 51,680 17,050 2001 £ 8,670 65,150 61,500 13,830 2000 £ 6,130 57,630 54,210 10,246 __________ __________ __________ __________ The increase in accrued pension during the year excludes any increase for in(cid:223)ation. The transfer value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11 less directors(cid:146) contributions. Members of the scheme have the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting bene(cid:222)ts are included in the above table. Service contracts The service contracts for R Longdon and J R Dersley provide for a 52 week notice period, those of A D Christian and P R Taylor provide for a 39 week notice period, and that of P D Littleton provides for a 26 week notice period. The committee considers this to be in the best interests of the group to ensure stability in senior management, a pro(cid:222)table growth path for the business and to ensure that the business is in line with other companies of a similar size and nature. The service contracts for the non-executive directors provide for a three month notice period and for them to retire at any annual general meeting where they are so required by the Articles of Association. 10 Directors’ responsibilities Financial statements, including adoption of going concern basis Company law requires the directors to prepare (cid:222)nancial statements for each (cid:222)nancial year which give a true and fair view of the state of affairs of the company and group and of the pro(cid:222)t or loss of the group for that period. After making enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the (cid:222)nancial statements. In preparing the (cid:222)nancial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; and state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the (cid:222)nancial statements. Other matters The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the (cid:222)nancial position of the company and group and enable them to ensure that the (cid:222)nancial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the company and group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 11 Auditors’ report To the Shareholders of Cadcentre Group plc: We have audited the (cid:222)nancial statements on pages 14 to 38 which have been prepared under the historical cost convention and the accounting policies set out on pages 19 to 22. We have also examined the amounts disclosed relating to emoluments, share options and pension bene(cid:222)ts of the directors which form part of the remuneration report on pages 8 to 10. Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report including, as described on page 11, preparing the (cid:222)nancial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services Authority, and by our profession(cid:146)s ethical guidance. We report to you our opinion as to whether the (cid:222)nancial statements give a true and fair view and are properly prepared in accordance with the Companies Act. We also report to you if, in our opinion, the directors(cid:146) report is not consistent with the (cid:222)nancial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information speci(cid:222)ed by law or the Listing Rules regarding directors(cid:146) remuneration and transactions with the company and the group is not disclosed. We review whether the corporate governance statement on pages 6 and 7 re(cid:223)ects the company(cid:146)s compliance with the seven provisions of the Combined Code speci(cid:222)ed for our review by the Financial Services Authority, and we report if it does not. We are not required to consider whether the board(cid:146)s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the company(cid:146)s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited (cid:222)nancial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the (cid:222)nancial statements. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the (cid:222)nancial statements. It also includes an assessment of the signi(cid:222)cant estimates and judgments made by the directors in the preparation of the (cid:222)nancial statements and of whether the accounting policies are appropriate to the circumstances of the company and of the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with suf(cid:222)cient evidence to give reasonable assurance that the (cid:222)nancial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the (cid:222)nancial statements. 12 Auditors’ report (continued) Opinion In our opinion the (cid:222)nancial statements give a true and fair view of the state of affairs of the company and of the group at 31 March 2001 and of the group(cid:146)s pro(cid:222)t and cash (cid:223)ows for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Arthur Andersen Chartered Accountants and Registered Auditors Betjeman House 104 Hills Road Cambridge CB2 1LH 23 May 2001 13 Consolidated profit and loss account For the year ended 31 March 2001 Turnover Cost of sales Gross pro(cid:222)t Other operating expenses (net) Operating pro(cid:222)t Finance income (net) Pro(cid:222)t on ordinary activities before taxation Tax on pro(cid:222)t on ordinary activities Pro(cid:222)t on ordinary activities after taxation, being pro(cid:222)t for the (cid:222)nancial year Dividends paid and proposed on equity shares Retained pro(cid:222)t for the year Basic earnings per share Diluted earnings per share Notes 2001 £000 2000 £000 2 3 4 5 7 8 19 9 9 28,100 (9,039) 23,889 (7,882) __________ __________ 19,061 16,007 (13,904) (11,768) __________ __________ 5,157 68 4,239 99 __________ __________ 5,225 (1,700) 4,338 (1,388) __________ __________ 3,525 2,950 (912) (902) __________ __________ 2,613 2,048 __________ __________ 20.94p 17.72p __________ __________ 20.39p 17.40p __________ __________ The accompanying notes are an integral part of this consolidated pro(cid:222)t and loss account. All results are derived from continuing activities. 14 Consolidated statement of total recognised gains and losses For the year ended 31 March 2001 Pro(cid:222)t for the (cid:222)nancial year Translation gain arising on consolidation Total recognised gains and losses relating to the year 2001 £000 3,525 112 2000 £000 2,950 60 __________ __________ 3,637 __________ 3,010 __________ The accompanying notes are an integral part of this consolidated statement of total recognised gains and losses. 15 Consolidated balance sheet 31 March 2001 Fixed assets Goodwill Intangible assets Tangible assets Current assets Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called-up share capital Share premium account Pro(cid:222)t and loss account Shareholders(cid:146) funds (cid:150) all equity Notes 10 10 11 13 14 15 17 18 19 19 20 2001 £000 2,114 3,051 3,487 2000 £000 2,381 3,063 3,409 __________ __________ 8,652 8,853 __________ __________ 9,734 5,620 7,956 4,214 __________ __________ 15,354 (9,686) 12,170 (9,946) __________ __________ 5,668 2,224 __________ __________ 14,320 11,077 (50) (366) - (191) __________ __________ 13,904 10,886 __________ __________ 1,692 7,151 5,061 1,673 6,877 2,336 __________ __________ 13,904 10,886 __________ __________ The accompanying notes are an integral part of this consolidated balance sheet. 16 Company balance sheet 31 March 2001 Fixed assets Investments Current assets Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities being net assets Capital and reserves Called-up share capital Share premium account Pro(cid:222)t and loss account Shareholders’ funds (cid:150) all equity The accompanying notes are an integral part of this balance sheet. Signed on behalf of the Board R A King R Longdon 23 May 2001 Directors Notes 2001 2000 £000 £000 12 13 14 18 19 19 7,205 7,205 __________ __________ 3,063 46 2,675 46 __________ __________ 3,109 (609) 2,721 (602) __________ __________ 2,500 2,119 __________ __________ 9,705 9,324 __________ __________ 1,692 7,151 862 1,673 6,877 774 __________ __________ 9,705 9,324 __________ __________ 17 Consolidated cash flow statement For the year ended 31 March 2001 Net cash in(cid:223)ow from operating activities Returns on investments and servicing of (cid:222)nance Taxation Capital expenditure and (cid:222)nancial investment Acquisition Equity dividends paid Cash in(cid:223)ow (out(cid:223)ow) before (cid:222)nancing Financing Increase (decrease) in cash in the year Notes 21 22 22 22 22 22 23 2001 £000 2000 £000 5,155 6,388 68 (1,843) (1,310) - (905) 99 (1,090) (4,609) 2 (832) __________ __________ 1,165 286 (42) 34 __________ __________ 1,451 (8) __________ __________ The accompanying notes are an integral part of this consolidated cash (cid:223)ow statement. 18 Notes to the financial statements 31 March 2001 1 Accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year and the preceding year, is set out below. a) Basis of accounting The (cid:222)nancial statements are prepared under the historical cost convention and in accordance with applicable accounting standards. b) Basis of consolidation The group (cid:222)nancial statements consolidate the (cid:222)nancial statements of Cadcentre Group plc and its subsidiary undertakings made up to 31 March each year. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated pro(cid:222)t and loss account from the date of acquisition or up to the date of disposal. Where the company does not hold a majority shareholding in an investee company, but the directors consider that dominant in(cid:223)uence is exercised over its operating and (cid:222)nancial policies, the investee company will be treated as a subsidiary for the purposes of consolidation. No pro(cid:222)t and loss account is presented for Cadcentre Group plc as provided by Section 230 of the Companies Act 1985. The company(cid:146)s pro(cid:222)t after taxation for the (cid:222)nancial year, determined in accordance with the Act, was £1,000,000 (2000 (cid:150) £1,001,000). c) Intangible assets Goodwill arising on the acquisition of subsidiary undertakings and businesses, representing any excess of the fair value of the consideration given over the fair value of the identi(cid:222)able assets and liabilities acquired, is capitalised and written off on a straight-line basis over its useful economic life, which is between seven and a maximum of twenty years. Provision is made for any impairment. Goodwill arising on acquisitions in the year ended 31 March 1998 and earlier periods was written off to reserves in accordance with the accounting standard then in force. As permitted by the current accounting standard the goodwill previously written off to reserves has not been reinstated in the balance sheet. On disposal or closure of a previously acquired business, the attributable amount of goodwill previously written off to reserves is included in determining the pro(cid:222)t or loss on disposal. Purchased software rights are included at cost and depreciated in equal annual instalments over a period of ten years, which is the estimated useful economic life. Provision is made for any impairment. d) Research and development Research and development expenditure is written off in the year of expenditure. e) Tangible (cid:222)xed assets Tangible (cid:222)xed assets are stated at cost, net of depreciation and any provision for impairment. The group has taken advantage of the transitional provisions of FRS15 Tangible Fixed Assets and retained the book amounts of certain freehold properties which were revalued prior to implementation of that standard. The properties were last revalued in 1994 and the valuations have not subsequently been updated. 19 Notes to the financial statements (continued) 1 Accounting policies (continued) e) Tangible (cid:222)xed assets (continued) Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset on a straight- line basis over its expected useful life, as follows: Computer equipment Of(cid:222)ce equipment Fixtures and (cid:222)ttings Motor vehicles - - - - 24% 15% 12% 25% Leasehold property is amortised on a straight-line basis over the period of the lease or useful economic life if shorter. Residual value is calculated on prices prevailing at the date of acquisition. Pro(cid:222)ts or losses on the disposal of (cid:222)xed assets are included in the calculation of operating pro(cid:222)t. f) Investments Fixed asset investments are shown at cost less any provision for impairment. g) Taxation Current tax including UK corporation tax and foreign tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred taxation is provided using the liability method on all timing differences only to the extent that they are expected to reverse in the future without being replaced, except that the deferred tax effects of timing differences arising from pensions and other post-retirement bene(cid:222)ts are always recognised in full. h) Pension costs The group operates a de(cid:222)ned bene(cid:222)t pension scheme available to all UK employees after a qualifying period, which is contracted out of the state scheme. Pension costs are accounted for on the basis of charging the expected cost of providing pensions over the period during which the group bene(cid:222)ts from the employees(cid:146) services. The effect of variations from regular cost is spread over the expected average remaining service lives of current members of the schemes. The pension cost is assessed in accordance with the advice of quali(cid:222)ed actuaries. The group also operates a de(cid:222)ned contribution pension scheme for a number of non-UK employees. Costs are charged to the pro(cid:222)t and loss account as incurred. 20 Notes to the financial statements (continued) 1 Accounting policies (continued) i) Foreign currency Transactions denominated in foreign currencies are recorded at actual exchange rates as of the date of the transaction, or, if hedged, at the forward contract rate. Monetary assets and liabilities denominated in foreign currencies at the year end are reported at the rates of exchange prevailing at the year end, or, where appropriate at the forward contract rate. Any gain or loss arising from a change in exchange rates subsequent to the date of the transaction is included as an exchange gain or loss in the pro(cid:222)t and loss account. The results of overseas subsidiary undertakings are translated at the average exchange rate during the year, and their balance sheets at the rates ruling at the balance sheet date. Exchange differences arising on translation of the opening net assets and results of overseas subsidiary undertakings are dealt with through reserves. j) Turnover Turnover comprises initial and extension licence fees, annual licence fees and leasing fees, income from consultancy and other allied services to third party customers (excluding VAT and similar taxes). The group(cid:146)s products are licensed, not sold. Most users pay an initial fee upon installation followed by an obligatory annual fee on each anniversary of installation. Additional usage can be licensed at any time on payment of an extension fee similar to the initial fees. The annual fee covers continuing right to use, core product enhancements and remote support services. As an alternative to the initial/extension plus annual fee, the group offers to lease its products. Consistent with previous years, no revenue is recognised unless and until: (cid:149) (cid:149) (cid:149) (cid:149) a clear contractual arrangement can be evidenced delivery has been made in accordance with that contract even if locked by a software key if required, contractual acceptance criteria have been met our fee has been agreed and collectability is probable. Initial and extension fees are recognised in full once the above conditions have been met. Annual and leasing revenues are allocated on a month by month basis to the period to which they relate. No provision is made for uninvoiced post contract support in the twelve months following an initial contract, as the incremental cost of this is considered incidental. 21 Notes to the financial statements (continued) 1 Accounting policies (continued) k) Leases Rentals payable under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Where (cid:222)xed assets are (cid:222)nanced by leasing arrangements which transfer to the group substantially all the bene(cid:222)ts and risks of ownership, the assets are treated as if they had been purchased outright and are included in tangible (cid:222)xed assets. The capital element of the leasing commitments is shown as obligations under (cid:222)nance leases. The lease rentals are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against pro(cid:222)t in proportion to the reducing capital element outstanding. Assets held under (cid:222)nance leases are depreciated over the shorter of the lease terms and the useful lives of equivalent owned assets. l) Derivative (cid:222)nancial instruments The group uses derivative (cid:222)nancial instruments to reduce exposure to foreign exchange risk. The group does not hold or issue derivative (cid:222)nancial instruments for speculative purposes. For a forward foreign exchange contract to be treated as a hedge the instrument must be related to actual foreign currency assets or liabilities or to a probable commitment. It must involve the same currency or similar currencies as the hedged item and must also reduce the risk of foreign currency exchange movements on the group(cid:146)s operations. Gains and losses arising on these contracts are deferred and recognised in the pro(cid:222)t and loss account, or as adjustments to the carrying amount of (cid:222)xed assets, only when the hedged transaction has itself been re(cid:223)ected in the group(cid:146)s (cid:222)nancial statements. 22 Notes to the financial statements (continued) 2 Turnover An analysis of turnover by geographical area is set out below: United Kingdom Europe, Middle East and Africa Americas Far East 2001 £000 4,517 9,094 7,873 6,616 2000 £000 4,292 8,874 6,608 4,115 __________ __________ 28,100 23,889 __________ __________ No further segmental analysis is given as, in the opinion of the directors, disclosure of this information would be seriously prejudicial to the interests of the group. 3 Other operating expenses (net) Selling costs Administrative expenses 4 Finance income (net) Bank interest receivable Bank interest payable Finance leases Finance charges (net) 2001 £000 9,949 3,955 2000 £000 7,372 4,396 __________ __________ 13,904 11,768 __________ __________ 2001 £000 115 2000 £000 131 __________ __________ (47) - (31) (1) __________ __________ (47) (32) __________ __________ 68 99 __________ __________ 23 Notes to the financial statements (continued) 5 Pro(cid:222)t on ordinary activities before taxation Pro(cid:222)t on ordinary activities before taxation is stated after charging: Depreciation of tangible (cid:222)xed assets (cid:150)owned (cid:150)held under (cid:222)nance leases Amortisation of purchased software rights Amortisation of goodwill Auditors’ remuneration (cid:150)audit fees (cid:150)non-audit fees Research and development costs Operating lease rentals (cid:150)motor vehicles (cid:150)other 6 Staff costs Particulars of employees (including executive directors) are shown below: Wages and salaries Social security costs Other pension costs The average monthly number of persons (including executive directors) employed by the group was as follows: Research, development and product support Sales, marketing and customer support Administration 24 2001 £000 1,028 - 335 267 106 35 6,485 167 30 2000 £000 884 49 137 267 96 43 4,338 332 15 __________ __________ 2001 £000 10,319 901 1,008 2000 £000 9,229 835 721 __________ __________ 12,228 10,785 __________ __________ 2001 2000 Number Number 117 116 33 88 116 24 __________ __________ 266 228 __________ __________ Notes to the financial statements (continued) 7 Tax on pro(cid:222)t on ordinary activities The tax charge comprises: UK corporation tax Double tax relief Foreign tax Deferred tax 8 Dividends paid and proposed on equity shares Interim dividend paid of 1.8p (2000 (cid:150) 1.8p) per 10p ordinary share Final dividend proposed of 3.6p (2000 (cid:150) 3.6p) per 10p ordinary share 2001 £000 603 (50) 2000 £000 498 (70) __________ __________ 553 972 175 428 769 191 __________ __________ 1,700 1,388 __________ __________ 2001 £000 303 609 2000 £000 300 602 __________ __________ 912 902 __________ __________ 9 Earnings per share The calculations of earnings per share are based on the pro(cid:222)t after tax for the year and the following weighted average numbers of shares: For basic earnings per share Exercise of share options For diluted earnings per share 2001 2000 Number Number 16,837,650 16,651,512 451,979 301,264 __________ __________ 17,289,629 16,952,776 __________ __________ 25 Notes to the financial statements (continued) 10 Intangible (cid:222)xed assets Group Cost At 1 April 2000 Additions At 31 March 2001 Amortisation At 1 April 2000 Charge for the year At 31 March 2001 Net book value At 1 April 2000 At 31 March 2001 Purchased software rights Goodwill £000 £000 3,200 323 2,669 - __________ __________ 3,523 2,669 __________ __________ 137 335 288 267 __________ __________ 472 555 __________ __________ 3,063 2,381 __________ __________ 3,051 2,114 __________ __________ Purchased goodwill arose on the acquisition of rights to integrate, develop and market 3D design software from AEA Technology on 30 March 1999. The initial cost of goodwill was £2,169,000. In addition, on 12 November 1998 Cadcentre agreed to acquire from the distributor Kyokuto Boeki Kaisha all Cadcentre(cid:146)s business in Japan. The goodwill arising on acquisition was £500,000. Purchased software rights arose on the acquisition of the products (cid:145)FOCUS(cid:146) for £1,700,000 on 13 September 1999 and (cid:145)VANTAGE(cid:146) for £1,500,000 on 2 December 1999. The current year additions represent the OPE software which was acquired for £323,000 on 7 September 2000. The company had no intangible (cid:222)xed assets in either year. 26 Notes to the financial statements (continued) 11 Tangible (cid:222)xed assets Group Cost At 1 April 2000 Additions Disposals Exchange adjustment Long leasehold Fixtures, (cid:222)ttings land and Computer and of(cid:222)ce Motor buildings equipment equipment vehicles Total £000 £000 £000 £000 £000 1,100 - - - 5,205 701 (320) 59 997 272 - 6 351 207 (77) - 7,653 1,180 (397) 65 __________ __________ __________ __________ __________ At 31 March 2001 1,100 5,645 1,275 481 8,501 __________ __________ __________ __________ __________ Depreciation At 1 April 2000 Charge for the year Disposals Exchange adjustment 133 22 - - 3,593 726 (266) 44 415 170 - 8 103 110 (44) - 4,244 1,028 (310) 52 __________ __________ __________ __________ __________ At 31 March 2001 155 4,097 593 169 5,014 __________ __________ __________ __________ __________ Net book value At 1 April 2000 967 1,612 582 248 3,409 __________ __________ __________ __________ __________ At 31 March 2001 945 1,548 682 312 3,487 __________ __________ __________ __________ __________ The above numbers include £nil in respect of (cid:222)nance leases (2000 (cid:150) £nil). The company had no tangible (cid:222)xed assets. 12 Fixed asset investment Subsidiary undertakings All subsidiary undertakings have been included in the consolidation. 2001 2000 Company Company £000 7,205 £000 7,205 __________ __________ 27 Notes to the financial statements (continued) 12 Fixed asset investment (continued) At 31 March 2001 the parent company and the group had the following investments: Name of undertaking or registration activity shares and voting rights held incorporation Principal Description and proportion of Country of Cadcentre Limited Great Britain Software development 100% ordinary shares of £1 each and marketing Cadcentre Inc. Cadcentre GmbH Cadcentre SA USA Software marketing 100% common stock of US$1 each Germany Software marketing 100% ordinary shares of DM50,000 each France Software marketing 100% ordinary shares of 200 FF each Cadcentre East Asia Limited Hong Kong Software marketing 100% ordinary shares of HK$1 each Cadcentre Property Limited Great Britain Holding property 100% ordinary shares of £1 each Cadcentre Pension Trustee Limited Great Britain Trustee company 100% ordinary shares of £1 each Cadcentre International Limited Great Britain Software marketing 100% ordinary shares of £1 each Cadcentre A/S Cadcentre KK Norway Training and consultancy 100% ordinary shares of NOK 500 each Japan Software marketing 100% ordinary shares of 50,000 Yen each Cadcentre Sendirian Berhad Malaysia Software marketing 49% ordinary shares of MYR1 each Cadcentre Asia Paci(cid:222)c Malaysia Software marketing 100% ordinary shares of MYR1 each Sendirian Berhad Cadcentre Korea Ltd Korea Software marketing 100% ordinary shares of KRW500,000each AVEVA Managed Services Limited Great Britain Consulting 100% ordinary shares of £1 each (formerly Isopipe GB Limited) & support services AVEVA Solutions Limited Great Britain Consulting & 100% ordinary shares of £1 each AVEVA Consulting Limited Great Britain Consulting & 100% ordinary shares of £1 each support services support services All subsidiaries except Cadcentre Limited are indirectly owned. 28 Notes to the financial statements (continued) 13 Debtors Amounts falling due within one year: Trade debtors Amounts owed by group undertakings Prepayments Accrued income 14 Creditors: Amounts falling due within one year Obligations under (cid:222)nance leases Trade creditors UK Corporation tax payable Foreign tax Social security, PAYE and VAT Other creditors Accruals Deferred income Proposed dividend 15 Creditors: Amounts falling due after more than one year Deferred consideration 2001 2000 Group Company Group Company £000 £000 £000 £000 8,514 - 964 256 - 3,063 - - 7,570 - 386 - - 2,675 - - __________ __________ __________ __________ 9,734 3,063 7,956 2,675 __________ __________ __________ __________ 2001 2000 Group Company Group Company £000 £000 £000 £000 - 387 126 539 865 430 1,003 5,727 609 - - - - - - - - 609 7 470 273 710 539 375 2,256 4,714 602 - - - - - - - - 602 __________ __________ __________ __________ 9,686 609 9,946 602 __________ __________ __________ __________ 2001 2000 Group Company Group Company £000 50 £000 - £000 - £000 - __________ __________ __________ __________ The deferred consideration relates to the (cid:222)nal payment for the acquisition of the OPE software and is payable in September 2002. 29 Notes to the financial statements (continued) 16 Derivatives and other (cid:222)nancial instruments The disclosures in this note deal with (cid:222)nancial assets and (cid:222)nancial liabilities as de(cid:222)ned in Financial Reporting Standard 13 (cid:147)Derivatives and other (cid:222)nancial instruments: Disclosures(cid:148). Certain (cid:222)nancial assets such as investments in subsidiaries are excluded from the scope of these disclosures. The group(cid:146)s (cid:222)nancial instruments comprise (cid:222)nance leases, cash and liquid resources, and various items, such as trade debtors and trade creditors, that arise directly from its operations. As permitted by FRS 13, short-term debtors and creditors have also been excluded from the disclosures (except as indicated below). It is, and has been, throughout the period under review, the group(cid:146)s policy that no trading in (cid:222)nancial instruments shall be undertaken. The main risks arising from the group(cid:146)s (cid:222)nancial instruments are interest rate risk, liquidity risk and foreign currency risk. The board reviews and agrees policies for managing such risks on a regular basis as summarised below. Interest rate and liquidity risks The group holds net funds, and hence its interest rate risk and liquidity risk are associated with short term cash deposits. The group(cid:146)s overall objective with respect to holding these deposits is to maintain a balance between accessibility of funds and competitive rates of return. In practice this has meant that no deposits have been made with a maturity date greater than three months in the course of the year. Foreign currency risk Foreign currency risk arises from the group undertaking a signi(cid:222)cant number of foreign currency transactions in the course of operations. Where such transactions are material, the board has a policy of entering into foreign currency contracts or currency matching to help manage currency risk. The group(cid:146)s objectives in managing the currency exposure arising from its net investments overseas are to maintain a low cost of borrowing, and to retain some potential for currency related appreciation, while partially hedging against currency depreciation. Gains and losses arising from these structural currency exposures are recognised in the statement of total recognised gains and losses. 30 Notes to the financial statements (continued) 16 Derivatives and other (cid:222)nancial instruments (continued) Interest rate pro(cid:222)le The group has (cid:222)nancial assets denominated in both sterling and currency deposits. These comprise deposits at short term rates. Sterling US Dollar Deutsche Marks French Francs Euro Yen Norwegian Kroner Korean Won Malaysian Ringgit Total 2001 £000 1,262 1,118 839 274 321 1,206 85 22 493 2000 £000 (28) 1,539 926 122 759 879 17 - - __________ __________ 5,620 4,214 __________ __________ The weighted average rate of interest and average maturity date for applicable deposits are as follows: Sterling Deutsche Marks US Dollar Euro Interest rate 3.56% 3.90% 3.13% 1.20% Maturity 1 month 7 days 7 days 7 days The Yen, French Franc, Norwegian Kroner, Korean Won and Malaysian Ringgit deposits are held in clearing accounts, which bear only a marginal rate of interest. Cash is held in these accounts for operational purposes and limited periods only. As shown above all deposits mature within one year. There are no material (cid:222)nancial liabilities. Currency exposures The table below shows the group’s transactional currency exposures that give rise to the net currency gains and losses recognised in the pro(cid:222)t and loss account. Such exposures comprise the monetary assets and liabilities of the group that are not denominated in the functional currency of the operating unit. As at 31 March 2001 and 31 March 2000 these exposures (including those arising on short term debtors and creditors) were as follows: Functional currency of group operation US Dollar Yen Euro Total 2001 Sterling (£000) 2000 Sterling (£000) 874 - 321 1,195 1,857 105 791 2,753 No overseas subsidiary has exposures in any currency other than the local currency. 31 Notes to the financial statements (continued) 16 Derivatives and other (cid:222)nancial instruments (continued) Borrowing facilities The group had undrawn committed borrowing facilities at 31 March 2001 of £1,000,000 (2000 (cid:150) £1,000,000) in respect of which all conditions precedent had been met. This facility is due for review on 30 September 2001. Fair values There is no material difference between the book value and fair value of the group(cid:146)s (cid:222)nancial instruments in the current or the preceding year. Gains and losses on hedges The group enters into forward foreign currency contracts to minimise the currency exposures that arise on sales denominated in foreign currencies. The notional amount of forward exchange contracts at the year end amounted to £nil (2000 (cid:150) £2,048,183). Changes in the fair value of instruments used as hedges are not recognised in the (cid:222)nancial statements until the hedge position matures. No material unrecognised gains or losses on hedged (cid:222)nancial instruments existed at 31 March 2001 or 31 March 2000. 17 Provisions for liabilities and charges Group At 1 April 2000 Charge for the year At 31 March 2001 Deferred Tax £000 191 175 __________ 366 __________ Provided Tax effect of timing differences due to capital allowances Not provided Tax effect of timing differences due to capital allowances Total potential liability 2001 2000 Group Company Group Company £000 366 £000 - £000 191 £000 - 174 __________ 152 __________ __________ - - __________ In addition, if the long leasehold property were to be sold at its current net book value, a tax liability of up to £283,000 (2000 (cid:150) £290,000) may arise. No provision has been made for this liability as there is no intention to dispose of the property. If the property were to be sold in the future, the tax liability would probably be mitigated or deferred by available reliefs. 32 Notes to the financial statements (continued) 18 Called-up share capital Authorised 22,000,000 ordinary shares of 10p each Allotted, called up and fully paid 16,924,100 (2000 (cid:150) 16,729,850) ordinary shares of 10p each 2001 £000 2000 £000 2,200 2,200 __________ __________ 1,692 1,673 __________ __________ During the year 194,250 ordinary shares with a nominal value of £19,425 were issued following the exercise of employee share options of 63,350 at an exercise price of 50.4p per share and 130,900 at an exercise price of 200p per share. This gave proceeds of £293,728 and a premium of £274,303. Share options Share options have been granted to certain employees of the group (excluding directors) and remain outstanding as follows: 27 November 1996 27 November 1996 13 June 1997 16 March 1998 1 June 1998 16 March 1999 10 January 2000 30 March 2000 31 August 2000 19 January 2001 Number of options Exercise price (p) 160,000 128,650 25,000 42,000 150,000 48,200 100,000 75,600 10,000 407,300 200.0 50.4 230.0 395.0 272.5 179.2 300.9 342.5 491.8 524.7 __________ ___________ These options are normally exercisable in full or in part between the third and seventh anniversaries of the date of grant. 33 Notes to the financial statements (continued) 19 Reserves Group As at 1 April 2000 Retained pro(cid:222)t for the year Translation gain arising on consolidation Share issues At 31 March 2001 Company At 1 April 2000 Share issues Retained pro(cid:222)t for the year At 31 March 2001 The share premium account is not distributable. 20 Reconciliation of movements in group shareholders(cid:146) funds Pro(cid:222)t for the (cid:222)nancial year Other recognised gains and losses relating to the year Dividends paid and proposed on equity shares New shares issued Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 34 Share premium account Pro(cid:222)t and loss account £000 6,877 - - 274 £000 2,336 2,613 112 - __________ __________ 7,151 5,061 __________ __________ Share premium account £000 Pro(cid:222)t and loss account £000 6,877 274 - 774 - 88 __________ __________ 7,151 __________ 862 __________ 2001 £000 3,525 112 2000 £000 2,950 60 __________ __________ 3,637 (912) 293 3,010 (902) 55 __________ __________ 3,018 10,886 2,163 8,723 __________ __________ 13,904 10,886 __________ __________ Notes to the financial statements (continued) 21 Reconciliation of operating pro(cid:222)t to net cash in(cid:223)ow from operating activities Operating pro(cid:222)t Depreciation and amortisation charges Pro(cid:222)t on disposal of (cid:222)xed assets Increase in debtors Increase in creditors Net cash in(cid:223)ow from operating activities 22 Analysis of cash (cid:223)ows Returns on investments and servicing of (cid:222)nance Interest received Interest paid Interest element of (cid:222)nance lease rentals Net cash in(cid:223)ow Taxation UK corporation tax paid Foreign tax paid Net cash out(cid:223)ow Capital expenditure and (cid:222)nancial investment Purchase of tangible (cid:222)xed assets Purchase of intangible (cid:222)xed assets Sale of tangible (cid:222)xed assets Net cash out(cid:223)ow 2001 £000 5,157 1,630 (6) (1,726) 100 2000 £000 4,239 1,337 (6) (1,093) 1,911 __________ __________ 5,155 __________ 6,388 __________ 2001 £000 115 (47) - 2000 £000 131 (31) (1) __________ __________ 68 __________ 99 __________ (700) (1,143) (370) (720) __________ __________ (1,843) __________ (1,090) __________ (1,180) (223) 93 (1,432) (3,200) 23 __________ __________ (1,310) __________ (4,609) __________ 35 Notes to the financial statements (continued) 22 Analysis of cash (cid:223)ows (continued) Acquisition Purchase of subsidiary undertaking Cash acquired with subsidiary undertaking Net cash in(cid:223)ow Financing Issue of ordinary share capital Capital element of (cid:222)nance lease rental payments Net cash in(cid:223)ow 23 Analysis and reconciliation of net funds Cash in hand and at bank Finance leases Net funds Increase (decrease) in cash in the year Cash out(cid:223)ow from decrease in debt and lease (cid:222)nancing Change in net funds resulting from cash (cid:223)ows Currency translation differences Movement in net funds in year Net funds at 1 April 2000 Net funds at 31 March 2001 36 2001 £000 2000 £000 - - (9) 11 __________ __________ - __________ 2 __________ 293 (7) 55 (21) __________ __________ 286 __________ 34 __________ 1 April 2000 £000 4,214 (7) Exchange 31 March Cash (cid:223)ow differences £000 1,451 7 £000 (45) - 2001 £000 5,620 - __________ __________ __________ __________ 4,207 __________ 1,458 __________ (45) __________ 5,620 __________ 2001 £000 1,451 7 2000 £000 (8) 21 _________ _________ 1,458 (45) 13 (85) _________ _________ 1,413 4,207 (72) 4,279 _________ _________ 5,620 4,207 _________ _________ Notes to the financial statements (continued) 24 Guarantees and other (cid:222)nancial commitments a) Pension arrangements The group operates a de(cid:222)ned bene(cid:222)t pension plan providing bene(cid:222)ts based on (cid:222)nal pensionable pay, which is available to all UK employees, after a qualifying period. Administration on behalf of the members is governed by a Trust Deed, and the funds are held and managed by professional investment managers who are independent of the group. Contributions to the scheme are made in accordance with advice from an independent professionally quali(cid:222)ed actuary at rates which are calculated to be suf(cid:222)cient to meet the future liabilities of the scheme. The employees(cid:146) contributions are (cid:222)xed as a percentage of salary, the balance being made up by the employer. The most recent actuarial valuation was carried out as at 1 April 1998 using the projected unit method. The assets of the scheme were taken into account at a smoothed market value. Consistent with this, the liabilities were valued using (cid:222)nancial assumptions derived from yields on index-linked and (cid:222)xed interest government securities. In particular, the main actuarial assumptions were that: a) b) c) the return on scheme investments would be 7% per annum salaries would increase by 5% per annum pensions in payment would increase by 3% per annum. The above approach differs from that used previously. For previous valuations, liabilities were valued using long-term (cid:222)nancial assumptions. Consistent with this, the assets were taken into account at an actuarial value, based on the discounted value of future income. The change in approach represents a move to a market-related basis for valuing assets and liabilities. The market value of the assets of the scheme was £11,030,000 and the smoothed market value of the assets represented 106% of the bene(cid:222)ts that had accrued to members after allowing for expected future increases in earnings. This surplus, amounting to £556,000, is expected to be eliminated over the period to 2020 through reduced employer contributions. The pension charge for the year amounted to £896,000 (2000 (cid:150) £644,000). The group also operates a de(cid:222)ned contribution scheme for US, German, French and Norwegian employees for which the pension charge for the year amounted to £112,000 (2000 (cid:150) £77,000). 37 Notes to the financial statements (continued) 24 Guarantees and other (cid:222)nancial commitments (continued) b) Lease commitments At 31 March 2001 the group had annual commitments under non-cancellable operating leases as follows: Expiring within one year Expiring between two and (cid:222)ve years Expiring after (cid:222)ve years 2001 2000 Motor vehicles £000 71 61 - Other Motor Other vehicles £000 85 80 - £000 - 159 - £000 - - 89 __________ __________ __________ __________ 132 __________ 159 165 __________ __________ 89 __________ c) Capital commitments At the end of the year the group and company had capital commitments contracted for but not provided for of £14,000 (2000 (cid:150) £22,000). 25 Related party transactions There were no transactions with related parties in either year that require disclosure within these (cid:222)nancial statements. 38 39 Company information and advisors Directors Richard King CBE Chairman Richard Longdon Chief Executive Paul Taylor Finance Director Tony Christian Director – AVEVA Consulting John Dersley Director and Deputy Chief Executive Jeremy Fairbrother Non-executive Director Colin Garrett Non-executive Director Peter Littleton President – Cadcentre Inc David Mann Non-executive Director Secretary Paul Taylor Registered Office High Cross Madingley Road Cambridge CB3 0HB Registered Number 2937296 Auditors Arthur Andersen Betjeman House 104 Hills Road Cambridge CB2 1LH Bankers Barclays Bank plc 15 Bene’t Street Cambridge CB2 3PZ Solicitors Mills & Reeve Francis House 112 Hills Road Cambridge CB2 1PH Stockbroker and Investec Henderson Crosthwaite Financial Advisors 2 Gresham Street London EC2V 7QP Registrars Capita IRG plc Balfour House 390–398 High Road Ilford, Essex IG1 1NQ 40 Group Headquarters Subsidiaries Cadcentre Group plc High Cross Madingley Road Cambridge CB3 0HB UK Tel: +44 (0)1223 556611 Fax: +44 (0)1223 556622 www.cadcentregroup.com Cadcentre has product development offices in Cambridge, Manchester, Portsmouth and Sheffield, UK. Cadcentre Asia Pacific (Asia Pacific HQ) Level 59, Tower 2 PETRONAS Twin Towers KLCC, 50088 Kuala Lumpur Malaysia Tel: +60 (0)3 2176 1234 Fax: +60 (0)3 2176 1334 Cadcentre Asia Pacific (Singapore Office) Level 35 UOB Plaza 1 80 Raffles Place Singapore 048624 Tel: +65 248 4558 Fax: +65 248 4501 Cadcentre Asia Pacific (Australia Office) Level 50 120 Collins Street Melbourne VIC 3000 Australia Tel: +61 (0)3 9225 5223 Fax: +61 (0)3 9225 5050 Cadcentre K.K. Y.B.P. West Tower 11/F 134 Godo-cho, Hodogaya-ku Yokohama 240-0005 Japan Tel: +81 (0)45 335 7401 Fax: +81 (0)45 335 7402 Cadcentre East Asia Ltd (East Asia HQ) Regus Shui On Centre 6-8 Harbour Road, Wanchai Hong Kong Tel: +852 2314 2272 Fax: +852 2314 9091 Cadcentre East Asia Ltd (Korea Office) 18/F, KyoungAm Bldg. 157-27 Samsung-Dong, Kangnam-Ku Seoul 135-090 Korea Tel: +82 (0)2 565 2025 Fax: +82 (0)2 555 3612 AVEVA Consulting Ltd. High Cross Madingley Road Cambridge CB3 0HB UK Tel: +44 (0)1223 556633 Fax: +44 (0)1223 556644 Cadcentre International Ltd. High Cross Madingley Road Cambridge CB3 0HB UK Tel: +44 (0)1223 556655 Fax: +44 (0)1223 556666 Cadcentre S.A. 86 Rue du Dôme 92100 Boulogne Billancourt Paris France Tel: +33 1 47 61 69 70 Fax: +33 1 47 61 69 79 Cadcentre GmbH Otto-Volger-Straße 9b Im Limespark 65843 Sulzbach/Taunus Germany Tel: +49 (0)6196 50 52 01 Fax: +49 (0)6196 50 52 22 Cadcentre A/S Vollsveien 2B 1366 Lysaker Norway Tel: +47 67 12 87 00 Fax: +47 67 12 87 01 Cadcentre, Inc. (US HQ) 800 Delaware Avenue Suite 610 Wilmington, DE 19801 USA Tel: +1 302 427 8600 Fax: +1 302 427 8118 Cadcentre, Inc. 10700 Richmond Avenue Suite 300 Houston, TX 77042 USA Tel: +1 713 977 1225 Fax: +1 713 977 1231