F I RST DER IVATIVES P LC
Annual Report & Accounts 2012
www.firstderivatives.com
First Derivatives is a
leading provider of
products and consulting
services to the capital
markets industry
Contents Page
Chairman’s statement
Chief Executive’s statement
Directors and advisors
Directors’ report
Statement of directors’ responsibilities
in respect of the directors’ report and
the financial statements
Corporate governance
Independent auditors’ report to the
members of First Derivatives plc
Consolidated statement of
comprehensive income
Consolidated balance sheet
02
04
06
07
10
10
11
12
13
14
Company balance sheet
Consolidated statement of changes in equity 15
Company statement of changes in equity 17
19
Consolidated cash flow statement
Company cash flow statement
Notes forming part of the consolidated
Financial statements
Directories
20
21
80
ANNUAL REPORT (cid:129) 1
Financial highlights
Performance indicators
2012 Performance
In 2012 First Derivatives delivered record performance
in revenue profit, earnings per share and
operating cashflow.
£46.1 million
revenue
Up 25.4% from 2011
Up25.4%
£46.1m
£36.7m
2011
2012
FD’s revenue from both divisions
is expected to continue
to increase.
Revenue per division
(Figures in £millions)
2012
2011
£8.0million
operating profit
Up 21% on 2011
£6.9 million
profit before tax
Up 7% on 201
£8.2 million
36.0p
operating cashflow
eps
Up 52% from 2011
Up 8% on 2011
32,629
13,458
24,229
12,511
0
4
8
12
16
20
30
40
50
Consulting
Software
Geographical Locations
Revenue figures in millions
America
Australasia
39.9%
41.2%
43.0%
40.3%
Rest of Euroope
2012
2011
UK
7.2%
9.5%
8.2%
10.7%
2 • FIRST DERIVATIVES PLC
Chairman’s statement
I am pleased to report another year of continued growth in profitability for
the group, the sixteenth year of continued progression. This achievement is
all the more satisfying given the market backdrop where we are seeing market
trends that are significantly altering the economics of the financial services
industry. In response to these market opportunities and building upon prior
years, we have continued to implement the Board’s strategy of continued
investment into the group’s technology, infrastructure and operations in
order to create a platform for continued success and future growth. Our
ability to generate continued growth in this challenging market, while
implementing our investment growth strategy, demonstrates the strength
of the organisation.
Financials
Revenues for the year ended 29 February 2012
increased by 25.4% to £46.087 million from
£36.740 million in the previous year. Normalised
pre-tax profits (after adjusting for currency
translation and associate) increased by 25.0% to
£7.315 million compared to £5.852 million in
2011 reported pre-tax profits increased by 7.0%
to £6.947 million (2011: £6.495 million).
Normalised basic earnings fully diluted earnings
per share increased by 40.2% to 34.2p per share
(2011: 24.4p).
Dividend
The group continues to generate strong operating
cash flow and this, along with our retained cash
at the year end, allows the Board to recommend a
final dividend of 8.15p per share which together
with the interim dividend of 3.0p per share paid
on 8 December 2011, totals 11.15p and is
covered approximately three times by earnings.
This will be paid on 6 July 2012 to those
shareholders on the register on 8 June 2012. The
shares will be marked ex-dividend on 6 June
2012.
Software
Software sales at £13.458million (2011: £12.511
million) were up 7.6% on the previous year.
While this revenue stream increased it does not
reflect the progress made in revenue generated
from the Delta Suite. Transactional and recurring
revenues were up 102.2% on the previous year
showing the significant progress achieved. This
was partly offset by a reduction of 54.1% in one
off license fee income and a reduction of 68.9%
in technology income stream (Auto Deal+)
obtained as part of the acquisition of “Cognotec”
in 2010.
The technical challenges are extensive in the
capital markets particularly when dealing with
complex instruments on a global scale. This
complexity, in combination with continually
increasing data volumes and the subsequent IT
processing requirements, create many challenges
for the industry. Our products are all developed
on the common Delta technology platform which
is specifically engineered to meet the complex
calculations and large volume of data issues that
exist in the capital markets sector. We also have
made a significant investment in establishing the
physical infrastructure necessary to operate the
software in the ‘cloud’ or on a Software as a
Service model (“SaaS”) to meet the growing trend
and desire of our clients to operate this model.
This allows clients to seek economies of scale by
outsourcing elements of their infrastructure,
while removing the need for internal expertise in
the support of the software. The investment in
expanding this capability enables many of our
products to be sold under annual license or
transactional revenue based pricing models. Both
models allow us to secure a continued and visible
stream of software revenue.
Sales success has been achieved across all our
key products in the year with contract wins for
our complex event processing (“CEP”) engine
(Delta Stream), algorithmic trading engine (Delta
Algo), data management engine (Delta Data
Factory) and FX trading platform (Delta Flow). As
our customer base has expanded, our opportunity
to cross sell to our consulting and software
clients has been enhanced. At the year-end we
concluded the sale of our CEP, Algorithmic engine
and FX platform to one customer and are in
further discussions with a number of other
existing customers for the provision of other
products within our suite.
We have a healthy pipeline of prospects within
our specific domain and are actively looking for
partners to help bring the products to new
markets and new industries. This continuing
investment in our platform, increasing the
channels to market and the successful
deployment of our solutions, allied with our
flexible licensing and service model, gives us
CHAIRMAN’S STATEMENT • 3
confidence in our ability to deliver continued
growth in software revenues.
Consulting
Consulting revenues increased 34.7% to £32.629
million from £24.229 million in the previous year.
It has been another year of continued growth
across the division, both in our client base,
expansion of the number of assignments
undertaken with new and existing customers and
our penetration into the global market place. The
key to this continued growth continues to be the
quality of our people, our commitment to training
and the quality and the flexibility of our service.
Selling services to the market continued to be a
challenge this year with ongoing regulatory
changes, continued globalisation challenges,
increasing complexity, fast moving technology
innovation and margin pressures affecting our
customer base. To meet the challenges facing our
customers, we have continued to invest in our
service offerings, launching three major
initiatives in the period, in addition to the
continual reinvestment and refinement of our
existing portfolio. We undertook a new legal
services initiative aimed at providing resources to
banks in areas such as non-core asset disposal,
regulatory compliance and securitisation, where
personnel with a combination of IT, finance and
legal skills are in short supply. Secondly, we have
launched a strategic vendor service practice
focused on the delivery of global, large scale
implementation and support services for leading
third party trading technology platforms. Finally
we have formed a dedicated data management
team, bringing together a group of highly
experienced and respected professionals from the
data management industry. Market reaction has
proven positive with a number of engagements
already underway and we expect that these new
initiatives combined with continued development
of existing services will have the company well
positioned in the changing market.
We undertake complex assignments for our clients
and our inherent knowledge of their systems
leads to repeat business from upgrades and
ongoing development. This repeat recurring
business model is a key focus for us. We are able
to achieve this by our ability to ensure that our
services are integrated into our customers’
strategy and operations assisting them to
streamline their services and products. We do
this while ensuring we provide the relevant
market or domain expertise along with a
competitive cost operating model to ensure that
we maximize the recurring revenue stream.
Accommodation
No further acquisition of employee residential
accommodation has been made. Disposal of four
individual properties was made in the year with a
resulting profit on sale of £528k. At year end
three properties were listed for sale with selling
agents and have been classified as such in the
accounts. We will continue to dispose of
properties when suitable profitable opportunities
arise. The remaining properties held by the
group have a carrying value of £15.524 million
and at the year-end were independently valued by
external valuers at £18.915 million on an open
market basis.
Outlook
This year has seen continued strong growth
across the Group’s activities with total revenues
up over 25%. As the economic recovery has been
taking a fragile hold we have continued to make
a substantial investment in the development of
all the group’s activities. The goal of this
investment has been to ensure that we build a
robust organisation with a strong asset base and
service offering to ensure future growth. We
expect the market in coming years will continue
to be challenging as the full effects of budget
constraints, regulation and globalisation continue
to impinge our customers. With the improvements
made to the Delta Suite and its revenue stream
and the positioning and improvements to our
service offerings, we feel that the group is well
positioned to continue to grow. We continue to
have a strong pipeline of prospects and have
made a strong start to the current year and
expect to be able to report further progress in the
year to 28 February 2013.
I would like to thank Brian Conlon and his team for
making it another successful year for the group.
David Anderson
Chairman
4 • FIRST DERIVATIVES PLC
Chief Executive’s statement
I am pleased to report that First Derivatives has had another successful year,
despite continuing uncertainty in the financial markets resulting largely from
the European sovereign debt crisis. We have continued to expand and
consider that we are well positioned to continue to grow our operations and
customer base.
Review of activities
First Derivatives sells software products to the
capital markets and provides a range of associated
consulting services. Our customer base continues
to grow and this year we provided services to
91different investment banks, brokers, exchanges
and hedge funds. We continue to expand our
global reach with assignments underway in
countries such as Chile, Russia, Hungary, Turkey
and South Africa as well as in major financial
centres such as New York, London, Toronto,
Chicago, Singapore, Hong Kong, Tokyo and Sydney.
The broad but yet focused nature of our product
and consulting offerings and our geographical
spread is key to our continued organic growth.
Our target industry segment is extensive and gives
us a vast potential market to penetrate and our
success has been built on treating our customers
as partners to build strong recurring revenue
streams both in consulting and software. In
consulting we target assignments that are vital to
the customers’ infrastructure that will be in
existence for years. We sell software on a
subscription model or on a Software as a Service
basis.
Software
We continue to invest heavily in improving our
Delta technology platform and applications. We
have made significant scientific progress in areas
such as messaging and in-memory capacity. Our
Delta technology platform is designed to work
with large volumes of data analytics in the cloud
on any desktop or handheld device. Allied with our
hosting and data centre expertise this means that
we are well placed to take advantage of the wider
trends in the technology market - Cloud
computing, “Big Data” and mobile devices.
We continue to add new features to our existing
flagship products and have successful reference
implementations. Delta Stream for example is now
in use at several large financial institutions
including ANZ and Singapore Exchange and Delta
Algo is firmly embedded in one of the largest
investment banks in the world. We are very excited
about the prospects for Delta Data Factory which
has been successfully deployed by Thomson
Reuters. The sales pipeline is very healthy and we
are cautiously optimistic for the year ahead.
We have successfully migrated RealStream - an
acquired legacy technology – to our architecture
and relaunched this as Delta Flow. We believe
that this product has the potential to be a
disruptive technology in the FX trading arena. It
is a hosted technology and we have mobile
(iPhone, iPad and Android) and desktop versions.
This view has been further reinforced during
recent preliminary demos with a number of
leading players in the market and our order book
for this product is very encouraging. Indeed we
have recently signed up one of the biggest banks
in Asia and one of the biggest brokers in Russia.
Although our software revenue has only grown by
a small amount in total relative to 2011 the mix
has changed considerably. As expected there has
been a tapering off of revenue from a legacy
technology Auto Deal+, with recurring
transactional revenue now accounting for 44% of
our software revenue (2011: 23%). We will
continue to endeavour to sell our software on an
annual recurring or transactional model.
Our common technology platform makes it easier
to develop new products and bring them quickly
to market. In addition, the problems at which we
excel – analysing large volumes of data in
millisecond periods of time – are issues which are
common to many industry sectors. The success of
our technology in the capital markets industry
should make it easier to sell in other areas. We
have had some success in this respect and I am
pleased to report that we have secured our first
customers of Delta in the telecoms and utilities
markets. We have launched a new prototype of a
bandwidth exchange (in partnership with BT and
Nokia at the recent TM Forum) and are launching
an alpha version of a carbon credits trading
platform at the Rio+ Earth Summit in June this
year. This follows the success of an initial
prototype at the recent Clinton Global Initiative
in New York. This gives further validation as to
the flexibility of our technology and gives us
confidence that the market for our software is
extensive.
We have further cemented our relationship with
Kx Systems by recently signing an OEM and
hosting agreement which gives us increased access
to the kdb+ database for all products in a hosted
CHIEF EXECUTIVE’S STATEMENT • 5
or installed basis. We have been working with Kx
Systems for 14 years and they had another
profitable year last year. As a 20% shareholder we
will continue to benefit from their success and
continued investment in making their technology
the world’s leading time series database. Their
products are used by some of the world’s largest
financial institutions and Kx Systems lists
organisations such as JP Morgan, Goldman Sachs,
Zurich Financial Group, Morgan Stanley, Fidelity
Investments and Total Gas & Power.
Consulting
First Derivatives provides highly skilled resources
to the capital markets in the areas of consulting,
support and development services. We have
ongoing contracts with many of the leading global
banks, supporting their activities across a range of
asset classes including credit, interest rate, foreign
exchange, equity cash and derivatives markets. The
Company has been working in this area for sixteen
years and we have seen a trend in the last year for
us to work on increasingly large projects. The
major trends in the industry at the moment are
around outsourcing and trying to implement
various regulatory initiatives introduced
throughout the world as a response to the global
crisis in 2008. We have launched three major
initiatives to respond to these trends:–
• A legal stream offering services around the
disposal of non-core assets by banks and the
impact of regulations and compliance
• A managed services for outsourced third party
product support and
• The creation of a dedicated data management
team.
The market has responded positively to these
initiatives and we have been able to draw upon
the strength of our brand to win new customers in
these areas. We continue to derive significant
recurring revenue in this division from the long-
term nature of the projects we undertake and
these three new initiatives will also generate long-
term work.
Our consultants continue to work closely with our
development team by providing market
intelligence and competitor analysis. They can also
assist the product team with business analyst work
and testing. The fungible nature of our resource
pool gives us significant operational efficiencies.
Management and Personnel
The Company now employs almost 700 people and
our success in retaining staff and senior
management means that the experience profile of
our consultants continues to improve. We continue
to enhance our Capital Markets Training
Programme and have now included legal stream
modules which gives employees the opportunity to
qualify for the New York Bar. Once again I would
like to pay tribute to all First Derivatives
employees who are hard working, talented, flexible
and dedicated. Our customer retention rates are
evidence of this.
Financial Review
The group has reported revenues and profits
significantly higher than last year. Post-tax profit
for the year was £5.946 million (2011: £5.112
million) on turnover of £46.087 million (2010:
£36.740 million). Our balance sheet is strong with
equity attributable to shareholders up to £32.236
million (2011: £24.888 million), an increase of
29.5%. This, and our confidence in the Group’s
ability to generate cash, enables the Board to
recommend a final dividend of 8.15p per share
(2011: 7.25p) which means that we will have paid
a total dividend of 11.15p (2011: 10.15p) per
share for the full year.
Outlook
Based on the health of our current sales pipeline
we anticipate reporting further growth in the year
to 28 February 2013. As well as organic growth
the Board will continue to pursue acquisition
opportunities where we see a strategic fit and
have access to the necessary sources of finance.
On a macro level we are confident that we have
positioned ourselves to benefit from global trends
in technology and consulting and that with our
recurring revenue model and continued
reinvestment in the business we will deliver
further significant benefits in the years ahead.
Brian Conlon
Chief Executive Officer
6 • FIRST DERIVATIVES PLC
Directors and advisors
Directors
R D Anderson –
Non-executive chairman*+
B G Conlon –
Chief Executive Officer
R G Ferguson –
Chief Financial Officer
A Toner -
Chief Operating Officer
K Cunningham –
Executive director
M G O’Neill –
Non-executive director*
P Brazel –
Non-executive director*+
Secretary
Richard Fulton LLB
Registered Office
3 Canal Quay
Newry
Co Down
BT35 6BP
Auditors
KPMG
Chartered Accountants
Stokes House
17/25 College Square East
Belfast
BT1 6DH
Solicitors
Mills Selig
21 Arthur Street
Belfast
BT1 4GA
Bankers
Bank of Ireland
Corporate Headquarters
Donegall Place
Belfast
BT1 5LU
Nominated Advisor/EMI Advisor and
Joint Brokers
Charles Stanley Securities
Ballsbridge Park
Ballsbridge
Dublin 4
Goodbody Corporate Finance
131 Finsbury Pavement
London
EC2A 1NT
Company registration number
NI 30731
Registrar and Transfer Office
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen
West Midlands
B63 3DA
* Members of the audit committee
+ Members of the remuneration committee
DIRECTORS’ REPORT • 7
Directors’ report
The directors have pleasure in submitting to the shareholders their annual
report and the audited financial statements of the group and company for the
year ended 29 February 2012.
Results and dividend
The group’s profit after taxation attributable to
the shareholders for the year to 29 February 2012
was £5,946k (2011: £5,112k).
Principal risks and uncertainties
The group operates in a changing economic and
technological environment.
The directors propose the payment of a final
dividend of 8.15 pence per share (previous year:
7.25 pence which, together with the interim
dividend of 3.00 pence per share (2011: 2.90
pence), totals 11.15 pence (2011: 10.15 pence)
per share. The final dividend has not been
included in payables as it was not approved
before the year end.
Dividends paid during the year comprised of a
final dividend of 7.25 pence per share for the
year ended 28 February 2011 and an interim
dividend of 3.0 pence per share for the year
ended 29 February 2012.
Principal activities and review of the business
The principal activities of First Derivatives plc are
the provision of a range of software and
consulting services to the investment bank
market, the derivatives technology industry, the
foreign exchange market and the provision of
technology sales services to the IT sector.
The group offers a range of services to various
clients across the world. These services interlink
and complement each other, which enables the
group to be managed on an overall basis.
Reviews of the business and likely future
developments are set out below and in the
Chairman’s and Chief Executive’s statements on
pages 2 to 5.
Investments
In recent periods a number of investments have
been made to establish subsidiary entities or
strategic associate holdings.
First Derivatives will continue to try to identify
acquisitions or investments to expand its range
of services and offerings available to its various
clients. The focus of these acquisitions or
investment remain to be that the new services or
offerings interlink and complement each other,
which enables the group to be managed on an
unified basis.
The key business risks affecting the group are set
out below and in the Chairman’s statement on
page 2 and 3 and Chief Executive’s statement on
page 4 and 5. Risks are formally reviewed by the
board and appropriate processes put in place to
monitor and mitigate them. If more than one
event occurs, it is possible that the overall effect
of such events would compound the possible
adverse effects on the group.
Personnel
As a software and services provider, the group is
a people based business and its growth depends
largely on growing staff numbers and training
staff to meet the diverse requirements of our
customer base. The group continues to refine its
recruitment process to ensure a constant intake
of suitable new staff and the internal training
programme for each company is constantly
evolving. Staff retention remains a key focus
with initiatives such as mentoring programmes
being employed, in addition to incentives
schemes which include share options that are
geared towards rewarding and motivating staff.
Market risk
The group operates in a competitive and often
cyclical market environment. We address these
risks by focussing sales campaigns on generating
assignments with long-term visibility, continuing
to increase the human capital of our consultants
and diversifying our software and services
portfolio offerings.
Technological changes
Technology in the software industry can change
rapidly. It is important that our products remain
up to date and that our development plans are
flexible. We make a significant ongoing
investment in research and development to allow
us to identify and adapt to any technological
changes that do occur, thereby ensuring that our
products continue to meet the demands of our
customers.
8 • FIRST DERIVATIVES PLC
Directors’ report (continued)
Financial risk management
The group’s financial risk management objective
is broadly to seek to make neither a profit nor
loss from exposure to currency or interest rate
risk. The policy is to finance working capital and
the acquisitions of property, plant and equipment
through retained earnings and through
borrowings at prevailing market interest rates.
The group does not use derivatives to manage its
financial risk investment. The group’s main cash
flow, credit and liquidity risks are those
associated with selling on credit. This is
managed through credit control procedures. The
group is also exposed to the impact of
fluctuations in exchange rates as it generates
income and incurs expenses in currencies other
than Sterling (GBP). The group has exposure to
the US dollar (USD), Euro (EUR) and Canadian
Dollar (CAD). In addition, the group has
exposure as a result of mortgage financing
apartment purchases, trade receivables and
activities carried on by subsidiary undertakings.
The group’s financial position is structured to
take advantage of a natural foreign currency
hedge using excess cash generated from
operations to repay the associated capital and
interest on US dollar borrowings. In addition, by
funding the acquisitions of Market Resource
Partners LLC (MRP), Reference Data Factory Inc
(RDF) and the investment in Kx Systems in US
dollars, the group can achieve a net investment
hedge against a significant portion of its
translation exposure of the net assets of its
foreign operations.
Key relationships with partners and customers
First Derivatives maintains successful
relationships with Kx Systems, a key partner, and
several key customers. Its relationship with Kx
Systems is governed by a partnership agreement
for the marketing of the kdb+ database to end
customers whilst the use of this database within
the First Derivatives product suite is governed by
a perpetual OEM agreement. A small number of
key customers are important to the success of the
group, our continued expansion will reduce this
reliance.
Other information
The other information required to be disclosed in
respect of the review of the group’s business as
required under Section 417 of the Companies Act
2006 is given in the Chairman’s statement on
pages 2 and 3 and the Chief Executive’s
statement under the heading ‘Financial Review’
on page 5.
The directors do not consider any other risks
attaching to the use of financial instruments to
be material to an assessment of its financial
position or profit. Further information is set out
in note 39.
Property, plant and equipment
The details of property, plant and equipment are
given in note 16 of the financial statements.
During the year the group disposed of 4
properties with a net book value of £2,253k. The
properties were sold at a total profit of £528k.
Directors and secretary
The directors and secretary who held office
during the year were as follows:
R D Anderson
B G Conlon
R G Ferguson
A Toner
K Cunningham
M G O’Neill
P Kinney (resigned 11 March 2011)
P Brazel
Richard Fulton (Company Secretary)
Directors and their interests
The interests held in shares of the company by
the directors who held office at the end of the
financial year, all of which are beneficial
holdings, were as follows:
DIRECTORS’ REPORT • 9
Ordinary shares of £0.005 each
2012
number
Ordinary shares of £0.005 each
2011
number
R D Anderson
B G Conlon
R G Ferguson
A Toner
K Cunningham
M G O’Neill
P Brazel
140,000
7,853,953
117,647
10,000
341,710
640,000
-
140,000
7,748,953
117,647
10,000
168,108
740,000
-
The directors interests in the contracts with the company is disclosed in note 37.
Details of share options granted to directors of the company are disclosed at note 12.
Substantial shareholdings
At 24 May 2012, the group had received no
notification of any interests in 3% or more of the
ordinary share capital, other than those disclosed
by B G Conlon (47.2%), Standard life Investments
Limited (9.3%), M G O’Neill (3.85%) and Janet
Lustgarten (3.1%).
Research and development
The group’s policy is to invest in product
innovation and engage in research and
development activities geared toward the
development of products primarily for the use of
the financial services industry. During the year
costs of £4,819k (2011: £3,475k) were
capitalised in respect of activities which were
deemed to be development activities in
accordance with the group’s accounting policies.
Research and development costs of £1,360k
(2011: £989k) were expensed during the year.
Employees
It is the group’s policy to ensure that equal
opportunity is given for the employment, training
and career development of disabled persons,
including persons who become disabled whilst in
the group’s employment.
The group is committed to keeping employees as
fully informed as possible, on matters which
affect them as employees. The group’s policy on
employees remains to adopt a very open
management style, keeping employees informed
of all matters affecting them as employees
including key financial and economic factors
affecting the group’s performance. This is
achieved through meetings and informal
consultation at all levels.
£18.9 million based on independent valuations
performed in the prior year by external market
valuers on an open market basis (see note 16 to
the financial statements).
Political and charitable donations
The group and company made charitable
donations of £41k (2011:Nil) during the period.
The group and company made no political
donations during the year (2011:Nil).
Supplier payment policy
The group does not have a standard code which
deals specifically with the payment of suppliers.
However, suppliers are made aware of payment
terms and how any disputes are to be settled and
payment is made in accordance with those terms.
At 29 February 2012 the group had 20 days
purchases outstanding (28 February 2011:
20 days).
Disclosure of information to auditors
The directors who held office at the date of
approval of this directors’ report confirm that, so
far as they are each aware, there is no relevant
audit information of which the company’s auditor
is unaware; and each director has taken all the
steps that he ought to have taken as a director
to make himself aware of any relevant audit
information and to establish that the company’s
auditor is aware of that information.
Auditors
In accordance with Section 489 of the Companies
Act 2006, a resolution for the re-appointment of
KPMG as auditors of the company is to be
proposed at the forthcoming Annual General
Meeting.
Market value of land and buildings
The directors consider that the market value of
land and buildings is significantly higher than its
carrying value. The estimated market value is
By order of the board
Richard Fulton
Secretary
10 • FIRST DERIVATIVES PLC
Statement of directors’ responsibilities
in respect of the directors’ report and
the financial statements
The directors are responsible for preparing the
directors' report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare
consolidated and company financial statements
for each financial year. As required by the AIM
Rules of the London Stock Exchange they are
required to prepare the group financial
statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted
by the EU and applicable law and have elected to
prepare the company financial statements on the
same basis.
Under company law the directors must not
approve the financial statements unless they are
satisfied that they give a true and fair view of the
state of affairs of the group and company and of
their profit or loss for that period. In preparing
each of the consolidated and company financial
statements, the directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgments and estimates that are
reasonable and prudent;
• state whether they have been prepared in
accordance with IFRSs as adopted by the EU; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the group and the company will
continue in business.
The directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the company's transactions
and disclose with reasonable accuracy at any
time the financial position of the company and
enable them to ensure that its financial
statements comply with the Companies Act 2006.
They have general responsibility for taking such
steps as are reasonably open to them to
safeguard the assets of the group and to prevent
and detect fraud and other irregularities.
The directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the company's website.
Legislation in the UK governing the preparation
and dissemination of financial statements may
differ from legislation in other jurisdictions.
Corporate governance
As an AIM-quoted company, the group is not
required to produce a corporate governance
report that satisfies all the requirements of the
UK Corporate Governance Code 2010. However,
certain corporate governance procedures have
been put in place which reflects the group’s size
and structure.
The main features of the group’s corporate
governance procedures are:
• The board meets on a regular basis and brings
independent judgement to bear. It approves
budgets, long term plans and significant
contracts. There is a formal schedule of matters
reserved for decision by the board in place.
• The board has three non-executive directors;
they all take an active role in board matters.
• The group has an audit committee and a
remuneration committee. These committees
consist of the non-executive directors. They have
written constitutions and terms of reference.
• The audit committee meets twice each year,
prior to the publication of the half-yearly and
final results. The auditors attend the audit
committee meeting prior to the publication of
the final results.
• The remuneration committee meets annually to
determine the remuneration of the senior
executives. Levels of remuneration are set in
order to attract and retain the senior executives
needed to run the company without paying more
than is necessary for this purpose.
• The board of directors recognises its overall
responsibility for the group’s system of internal
control and for monitoring its effectiveness. All
activity is organised within a defined structure
with formal lines of responsibility and delegation
of authority. The group produces information
packs on a weekly and monthly basis. These
packs, together with annual budgets, enable the
board to monitor operational performance and
cash position each month and allocate the
group’s resources.
• Share options have been granted to certain
non-executive directors (see note 12).
DIRECTORS’ STATEMENT • 11
Independent auditor’s report to the
members of First Derivatives plc
We have audited the financial statements of First
Derivatives plc for the year ended 29 February
2012 which comprise the consolidated statement
of comprehensive income, the consolidated and
company balance sheets, the consolidated and
company statements of changes in equity, the
consolidated and company cash flow statements
and the related notes. The financial reporting
framework that has been applied in their
preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted
by the EU and, as regards the company financial
statements, as applied in accordance with the
provisions of the Companies Act 2006.
This report is made solely to the company's
members, as a body, in accordance with Chapter
3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might
state to the company's members those matters
we are required to state to them in an auditors'
report and for no other purpose. To the fullest
extent permitted by law, we do not accept or
assume responsibility to anyone other than the
company and the company's members, as a body,
for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and
auditors
As explained more fully in the Directors'
Responsibilities Statement set out on page 10,
the directors are responsible for the preparation
of the financial statements and for being
satisfied that they give a true and fair view. Our
responsibility is to audit the financial statements
in accordance with applicable law and
International Standards on Auditing (UK and
Ireland). Those standards require us to comply
with the Auditing Practices Board's (APB's)
Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial
statements is provided on the APB's website at
www.frc.org.uk/apb/scope/private.cfm.
Opinion on financial statements
In our opinion:
• the financial statements give a true and fair
view of the state of the group's and of the
company's affairs as at 29 February 2012 and of
the group's profit for the year then ended;
• the consolidated financial statements have
been properly prepared in accordance with IFRSs
as adopted by the EU;
• the company financial statements have been
properly prepared in accordance with IFRSs as
adopted by the EU and as applied in accordance
with the provisions of the Companies Act 2006;
and
• the financial statements have been prepared in
accordance with the requirements of the
Companies Act 2006.
Opinion on other matter prescribed by the
Companies Act 2006
In our opinion the information given in the
Directors' Report for the financial year for which
the financial statements are prepared is
consistent with the financial statements.
Matters on which we are required to report by
exception
We have nothing to report in respect of the
following matters where the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been
kept by the company, or returns adequate for our
audit have not been received from branches not
visited by us; or
• the company financial statements are not in
agreement with the accounting records and
returns; or
• certain disclosures of directors' remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Arthur O’Brien
(Senior Statutory Auditor)
For and on behalf of KPMG, Statutory Auditor
Chartered Accountants
Stokes House
17/25 College Square East
Belfast
BT1 6DH
25 May 2012
12 • FIRST DERIVATIVES PLC
The notes on pages 21 to
73 form part of these
financial statements.
Consolidated statement of
comprehensive income
Year ended 29 February 2012
2012 2011
Note £’000 £’000
Continuing operations
Revenue 5 46,087 36,740
Cost of sales (30,172) (23,423)
Gross profit 15,915 13,317
Other operating income 6 1,414 1,974
Administrative expenses 7 (9,368) (8,723)
Results from operating activities 7,961 6,568
Finance income 9 2 7
Finance expense 9 (648) (723)
Loss on foreign currency translation 9 (455) (198)
Net financing expense (1,101) (914)
Share of profit of associate using the equity method, net of tax 18 458 841
Share of loss on dilution in associate using the equity method 18 (371) -
Profit before income tax 6,947 6,495
Tax expense 11 (1,001) (1,383)
Profit for the year 5,946 5,112
Other comprehensive income
Deferred tax on share options outstanding 24 (309) 1,030
Net exchange gains/(losses) on net investment in
foreign subsidiaries and associate 27 214 (1,091)
Net (loss)/gain on hedge of net investment in foreign subsidiaries
and associate 27 (121) 594
Other comprehensive income for the period, net of tax (216) 533
Total comprehensive income for the period attributable to equity
holders’ of the company 5,730 5,645
Earnings per share Pence Pence
Basic 15a 36.0 33.2
Diluted 15a 32.8 29.0
All profits are attributable to the owners of the part and relate to continuing activities.
ACCOUNTS • 13
Consolidated balance sheet
Year ended 29 February 2012
The notes on pages 21 to
73 form part of these
financial statements.
2012 2011
Note £’000 £’000
Assets
Property, plant and equipment 16 14,738 18,292
Intangible assets and goodwill 17 30,053 26,732
Investment in associate 18 7,059 7,447
Trade and other receivables 19 437 -
Deferred tax asset 29 1,750 1,860
Non current assets 54,037 54,331
Trade and other receivables 19 13,767 12,563
Cash and cash equivalents 20 1,318 3,501
Assets held for sale 21 1,598 -
Current assets 16,683 16,064
Total assets 70,720 70,395
Equity
Share capital 22 83 80
Share premium 23 10,502 7,846
Share option reserve 24 2,673 2,384
Revaluation reserve 26 167 174
Currency translation adjustment reserve 27 290 197
Retained earnings 18,521 14,207
Equity attributable to shareholders 32,236 24,888
Liabilities
Loans and borrowings 28 18,598 21,544
Deferred tax liabilities 29 2,224 1,319
Contingent deferred consideration 30 - 1,993
Provisions 33 - 344
Trade and other payables 31 2,901 2,034
Non-current liabilities 23,723 27,234
Loans and borrowings 28 3,603 1,124
Trade and other payables 31 7,456 7,955
Current tax payable 32 702 1,176
Employee benefits 40 2,110 2,401
Contingent deferred consideration 30 890 5,617
Current liabilities 14,761 18,273
Total liabilities 38,484 45,507
Total equity and liabilities 70,720 70,395
These financial statements were approved by the board of directors on 25 May 2012.
David Anderson Brian Conlon
Chairman Chief Executive Officer Chief Financial Officer
Graham Ferguson
Registered company number: NI 30731
14 • FIRST DERIVATIVES PLC
The notes on pages 21 to
73 form part of these
financial statements.
Company balance sheet
Year ended 29 February 2012
2012 2011
Note £’000 £’000
Assets
Property, plant and equipment 16 13,849 17,725
Intangible assets 17 5,933 3,183
Investment in subsidiaries 18 14,549 14,217
Investment in associate 18 7,196 7,196
Trade and other receivables 19 2,198 1,919
Deferred tax asset 29 1,084 1,468
Non current assets 44,809 45,708
Trade and other receivables 19 14,787 14,219
Cash and cash equivalents 20 962 2,956
Assets held for sale 21 1,598 -
Current assets 17,347 17,175
Total assets 62,156 62,883
Equity
Share capital 22 83 80
Share premium 23 10,502 7,846
Share option reserve 24 2,673 2,384
Fair value reserve 25 131 126
Retained earnings 16,266 13,406
Equity attributable to shareholders 29,655 23,842
Liabilities
Loans and borrowings 28 17,147 21,544
Deferred tax liabilities 29 1,539 914
Trade and other payables 31 1,820 1,570
Non-current liabilities 20,506 24,028
Loans and borrowings 28 3,447 1,098
Trade and other payables 31 5,590 5,037
Current tax payable 32 798 1,489
Employee benefits 40 1,901 2,121
Contingent deferred consideration 30 259 5,268
Current liabilities 11,995 15,013
Total liabilities 32,501 39,041
Total equity and liabilities 62,156 62,883
These financial statements were approved by the board of directors on 25 May 2012.
David Anderson Brian Conlon
Chairman Chief Executive Officer Chief Financial Officer
Graham Ferguson
Registered company number: NI 30731
ACCOUNTS • 15
Consolidated statement of
changes in equity
Year ended 28 February 2011
Share Share Share Fair Revaluation Currency Retained Total
capital premium option value reserve translation earnings equity
The notes on pages 21 to
reserve reserve adjustment
73 form part of these
£000 £000 £000 £000 £000 £000 £000 £000
financial statements.
Balance at 1 March 2010
72
3,906
983
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Deferred tax on share options outstanding
Net exchange gains on net investment in foreign
subsidiaries and associate
Net exchange loss on hedge of net investment in
foreign subsidiaries and associate
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded
directly in equity
Exercise of share options
Issue of shares as purchase consideration
Other issue of shares
Share based payment charge
Transfer on forfeit of share options
Dividends to equity holders
Total contributions by and distributions
to owners
-
-
-
-
-
-
2
-
6
-
-
-
8
-
-
-
-
-
-
445
251
3,244
-
-
-
-
1,030
-
1,030
1,030
(118)
-
-
538
(49)
-
3,940
371
Balance at 28 February 2011
80
7,846
2,384
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
174
694
10,481 16,310
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
5,112 5,112
- 1,030
(1,091)
- (1,091)
594
(497)
(497)
-
594
-
533
5,112 5,645
-
-
-
-
-
-
-
-
329
-
251
- 3,250
-
538
49
-
(1,435) (1,435)
(1,386)
2,933
174
197
14,207 24,888
16 • FIRST DERIVATIVES PLC
Consolidated statement of
changes in equity
Year ended 29 February 2012
Share Share Share Revaluation Currency Retained Total
The notes on pages 21 to
capital premium option reserve translation earnings equity
73 form part of these
reserve adjustment
financial statements.
£000 £000 £000 £000 £000 £000 £000
Balance at 1 March 2011
80
7,846
2,384
174
197
14,207
24,888
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Deferred tax on share options outstanding
Change in effective rate of deferred tax
Net exchange gains on net investment in foreign
subsidiaries and associate
Net exchange loss on hedge of net investment in
foreign subsidiaries and associate
Transfer on dilution of investment in associate
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded
directly in equity
Exercise of share options
Issue of shares as purchase consideration
Share based payment charge
Transfer on forfeit of share options
Dividends to equity holders
Total contributions by and distributions
to owners
Balance at 29 February 2012
-
-
-
-
-
-
-
-
1
2
-
-
-
3
83
-
-
-
-
-
-
-
-
442
2,214
-
-
-
-
(309)
-
-
-
-
(309)
(309)
(83)
-
725
(44)
-
2,656
10,502
598
2,673
-
-
5
-
-
(12)
(7)
(7)
-
-
-
-
-
-
-
-
-
214
(121)
-
93
93
-
-
-
-
-
-
167
290
5,946
5,946
-
(5)
-
-
12
7
5,953
-
-
44
(309)
214
(121)
-
(216)
5,730
360
2,216
725
-
(1,683)
(1,683)
(1,639)
18,521
1,618
32,236
ACCOUNTS • 17
Company statement of changes
in equity
Year ended 28 February 2011
The notes on pages 21 to
73 form part of these
financial statements.
Share
capital
£000
Share
premium
£000
Share
option
reserve
£000
Fair value
reserve
Retained
earnings
£000
£000
Total
equity
£000
Balance at 1 March 2010
72
3,906
983
126
10,328
15,415
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Net change in fair value of available for sale asset
Deferred tax on share options outstanding
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Exercise of share options
Issue of shares as purchase consideration
Other issue of shares
Share based payment charge
Transfer on forfeit of share options
-
-
-
-
2
-
6
-
-
-
-
-
-
445
251
3,244
-
-
-
1,030
1,030
1,030
(118)
-
-
538
(49)
-
-
-
-
-
-
-
-
-
4,464
4,464
-
-
4,464
-
-
-
-
49
1,030
1,030
5,494
329
251
3,250
538
-
Dividends to equity holders
(1,435)
Total contributions by and distributions to owners 8 3,940 371 - (1,386) 2,933
Balance at 28 February 2011 80 7,846 2,384 126 13,406 23,842
(1,435)
-
-
-
-
18 • FIRST DERIVATIVES PLC
Company statement of changes
in equity
Year ended 29 February 2012
The notes on pages 21 to
73 form part of these
financial statements.
Share
capital
£000
Share
premium
£000
Share
option
reserve
£000
Fair value
reserve
Retained
earnings
£000
£000
Total
equity
£000
Balance at 1 March 2011
80
7,846
2,384
126
13,406
23,842
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Change in effective rate of deferred tax
Deferred tax on share options outstanding
Total other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Exercise of share options
Issue of shares as purchase consideration
Share based payment charge
Transfer on forfeit of share options
Dividends to equity holders
Total contributions by and distributions to owners
Balance at 29 February 2012
-
-
-
-
-
1
2
-
-
-
3
83
-
-
-
-
-
442
2,214
-
-
-
2,656
10,502
-
-
(309)
(309)
(309)
(83)
-
725
(44)
-
598
-
5
-
5
5
-
-
-
-
-
-
4,504
4,504
(5)
-
(5)
4,499
-
-
-
44
-
(309)
(309)
4,195
360
2,216
725
-
(1,683)
(1,639)
(1,683)
1,618
2,673
131
16,266
29,655
ACCOUNTS • 19
Consolidated cash flow
statement
Year ended 29 February 2012
The notes on pages 21 to
73 form part of these
financial statements.
2012 2011
£’000 £’000
Cashflows from operating activities
Profit for the year 5,946 5,112
Adjustments for:
Net finance costs 1,101 914
Share of profit of associate (458) (841)
Share of loss on dilution in associate 371 -
Provision release (266) -
Depreciation 592 475
Amortisation of intangible assets 1,821 1,532
Gain on sale of property, plant & equipment (528) -
Equity settled share-based payment transactions 486 340
Tax expense 1,001 1,383
10,066 8,915
Changes in:
Trade and other receivables (1,331) (2,711)
Trade and other payables 196 880
Onerous provisions (78) (301)
Taxes paid (699) (1,422)
Net cash from operating activities 8,154 5,361
Cash flows from investing activities
Interest received 2 7
Acquisition of subsidiaries, net of cash acquired - (585)
Acquisition of property, plant and equipment (866) (842)
Disposal of property, plant and equipment 2,705 -
Acquisition of intangible assets (4,636) (3,477)
Dividend received from associate 570 654
Payment of deferred consideration (3,316) (1,795)
Net cash used in investing activities (5,541) (6,038)
Cash flows from financing activities
Proceeds from issue of share capital 360 3,579
Receipt of new long term loan 1,553 19,878
Repayment of borrowings (3,602) (19,426)
Payment of finance lease liabilities (26) (66)
Interest paid (767) (537)
Dividends paid (1,683) (1,435)
Net cash from financing activities (4,165) 1,993
Net (decrease)/increase in cash and cash equivalents (1,552) 1,316
Cash and cash equivalents at 1 March 2011 3,501 1,711
Effects of exchange rate changes on cash held (631) 474
Cash and cash equivalents at 29 February 2012 1,318 3,501
20 • FIRST DERIVATIVES PLC
The notes on pages 21 to
73 form part of these
financial statements.
Company cash flow
statement
Year ended 29 February 2012
Cashflows from operating activities
Profit before tax
Adjustments for:
Finance income
Finance expense and foreign exchange loss
Depreciation
Amortisation of intangible assets
Dividend from associate
Equity settled share-based payment transactions
Profit on disposal
Tax expense
Changes in:
Trade and other receivables
Trade and other payables
Taxes paid
Net cash from operating activities
Cash flows from investing activities
Interest received
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Disposal of property, plant and equipment
Acquisition of intangible assets
Dividend received from associate
Payment of deferred consideration
Net cash used in investing activities
2012
£’000
2011
£’000
4,504
-
1,279
293
277
(570)
392
(528)
918
6,565
(1,442)
1,420
(830)
5,713
-
-
(268)
2,705
(2,844)
570
(3,100)
(2,937)
4,464
(6)
241
267
110
(654)
340
-
1,631
6,393
(3,089)
756
(1,053)
3,007
6
(585)
(339)
-
(1,638)
654
(1,550)
(3,452)
Cash flows from financing activities
Proceeds from issue of share capital 360 3,579
Receipt of new long term loan 1,553 19,878
Repayment of borrowings (3,602) (19,426)
Interest paid (767) (529)
Dividends paid (1,683) (1,435)
Net cash from financing activities (4,139) 2,067
Net (decrease)/increase in cash and cash equivalents (1,363) 1,622
Cash and cash equivalents at 1 March 2011 2,956 860
Effects of exchange rate changes on cash held (631) 474
Cash and cash equivalents at 29 February 2012 962 2,956
NOTES • 21
Notes
(forming part of the consolidated financial statements)
1 Significant accounting policies
First Derivatives plc (“FDP” or the “company”) is a company incorporated and domiciled in Northern Ireland. The
address of the company’s registered office is 3 Canal Quay, Newry, BT35 6BP. The company is primarily involved
in the provision of a range of software and consulting services to the investment bank market, the derivatives
technology industry and the provision of technology sales services to the IT sector.
The financial statements were authorised by the Board of Directors for issuance on 25 May 2012.
(a) Basis of preparation
The consolidated financial statements consolidate those of the company and its subsidiaries (together referred to
as the “group”) and equity account for the group’s interest in associates. The company financial statements
present information about the company as a separate entity and not about its group.
Both the consolidated financial statements and the company financial statements have been prepared and
approved by the directors in accordance with International Financial Reporting Standards as adopted by the EU
(“IFRSs”). On publishing the group financial statements together with the company financial statements, the
company is taking advantage of the exemption in Section 408 of the Companies Act 2006 not to present its
individual income statement and related notes that form a part of these approved financial statements.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods
presented in these consolidated financial statements and have been applied consistently by the group.
The financial statements are presented in GBP, rounded to the nearest thousand, which is also the company’s
functional currency. They are prepared on the historical cost basis, except that financial instruments classified as
available-for-sale are stated at their fair value where this can be reliably measured.
Going concern
The group’s business activities, together with the factors likely to affect its future development, performance and
position are set out in the directors’ report on pages 7 to 9. The financial position of the group, its cash flows,
liquidity position and borrowing facilities are described in the Chief Executive’s Review on pages 4 and 5 and
below. In addition, note 2 to the financial statements includes the group’s objectives, policies and processes for
managing its capital; its financial risk management objectives; details of its financial instruments and hedging
activities; and its exposures to credit risk, liquidity risk and market risk.
The group meets its day to day working capital requirements through generated cash flows and loan facilities
most of which are due for renewal in 2016. The group’s forecasts and projections, taking account of reasonably
possible changes in trading performance, show that the group should be able to operate within the level of its
facilities.
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. Accordingly, they continue to
adopt the going concern basis in preparing the annual report and accounts.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRSs requires management to make judgements,
estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,
income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions
are reviewed and revised on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimates are revised and in any future periods affected.
22 • FIRST DERIVATIVES PLC
Notes
(continued)
1 Significant accounting policies (continued)
Information about critical judgements in applying accounting policies that have the most significant impact on
the amounts recognised in the financial statements are as follows:
• It is noted that management have assessed that all residences owned by the group are held for use within the
business (except those classified as held for sale) and as such are classified as property, plant and equipment,
rather than investment property
• Management have estimated the amount of deferred consideration payable on the acquisitions of subsidiaries
which is based on forecast results and certain other criteria as required by the terms of the sale and purchase
agreements. Management have made prudent estimates of deferred consideration payable based on the relevant
share purchase agreement.
• Management have estimated the fair value of intangibles (including goodwill) acquired on acquisitions based
on the projected profitability expected to be generated. The useful economic lives of the intangibles are
assessed as being critical and are based on management’s estimate of the life over which revenue can be
generated and taking cognisance of the useful economic lives of similar competitor products. Where an
intangible asset has been created by the group, the value has been derived by establishing the current cost
associated with generating this asset based on direct costs and reasonable allocations of indirect costs.
• Useful economic lives of internally generated intangibles are assessed as being critical and are based on
management’s estimate of the life over which revenue can be generated and taking cognisance of the useful
economic lives of similar competitor products.
• Goodwill on acquisitions is not amortised but is tested for impairment on an annual basis. Management have
assessed goodwill for impairment based on the projected profitability of the individual cash generating unit to
which the goodwill relates. No impairments have been identified. Other intangibles are tested for impairment if
an indicator of impairment is identified.
Management have assessed that there are no other estimates or judgements that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities recognised in the financial
statements.
New standards and interpretations not adopted
A number of new standards, amendments to standards and interpretations are effective for annual periods
beginning after 1 March 2011 and have not been applied in preparing these financial statements. None of these
is expected to have a significant effect on the financial statements except for IFRS 9 Financial Instruments,
which becomes mandatory for the group’s and company’s 2016 financial statements and could change the
classification and measurement of financial assets. The group does not plan to adopt this standard early and the
extent of this impact has not yet been determined. The standard and interpretations not adopted are outlined
below:
• Amendments to IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (mandatory for the year
commencing on or after 1 July 2011).
• Amendments to IFRS 7 Disclosures – Transfers of Financial Assets (mandatory for the year commencing on or
after 1 July 2011).
• Amendments to IAS 12 Deferred Tax: Recovery of Underlying Assets (mandatory for the year commencing on
or after 1 January 2012).
• Amendments to IFRS 9 Financial Instruments (mandatory for the year commencing on or after
1 January 2015).
NOTES • 23
Notes
(continued)
1 Significant accounting policies (continued)
• IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in other
Entities and IFRS 13 Fair Value Measurement (mandatory for the year commencing on or after 1 January 2013).
• IAS 27 Separate Financial Statements (2011) which supercedes IAS 27 (2008) and IAS 28 Investments in
Associates and Joint Ventures (2011) which supercedes IAS 28 (2008) (mandatory for the year commencing on
or after 1 January 2013).
• Amendments to IAS 19 Employee Benefits (mandatory for the year commencing on or after 1 January 2012).
• Amendments to IAS 1 Presentation of Financial Statements – Presentation of Items of Other Comprehensive
Income (mandatory for the year commencing on or after 1 January 2012).
(b) Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the group. Control exists when the group has the power, directly or
indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases. The accounting policies of subsidiaries have been
changed when necessary to align them with the policies adopted by the group.
In the company’s financial statements, investments in subsidiaries are carried at cost less any provision made for
impairment.
Investments in associates (equity accounted investees)
Associates are those entities in which the group has significant influence, but not control, over the financial and
operating policies. Significant influence is presumed to exist when the group holds between 20 and 50 percent
of the voting power of another entity. Associates are accounted for using the equity method (equity accounted
investees) and are initially recognised at cost. The group’s investment includes goodwill identified on
acquisition, net of any subsequent accumulated impairment losses and fair value of intangibles (these amounts
are not recognised separately in the consolidated financial statements but included in the group’s net
investment in the associate (note 18)). The consolidated financial statements include the group’s share of the
profit or loss and other comprehensive income, after adjustments to align the accounting policies with those of
the group, from the date that significant influence commences until the date that significant influence ceases.
When the group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of
that interest, including any long-term investments is reduced to nil and the recognition of further losses is
discontinued except to the extent that the group has incurred legal or has constructive obligations or has made
payments on behalf of an investee.
In the company’s financial statements, investments in associates are carried at cost less any provision made for
impairment.
Transactions eliminated on consolidation
Intra-group balances and transactions and any unrealised income and expenses arising from intra-group
transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from
transactions with equity-accounted investees are eliminated against the investment to the extent of the group’s
interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the
extent that there is no evidence of impairment.
24 • FIRST DERIVATIVES PLC
Notes
(continued)
1 Significant accounting policies (continued)
(c) Foreign currency
i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currency of the group entities at the
exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
Monetary liabilities designated as a hedge of net investments are treated as set out in note 1(c)(ii) below.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at historical cost are
translated using the exchange rate ruling at the date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are translated to the functional currency at
exchange rate ruling at the date the fair value was determined. Foreign exchange differences arising on
retranslation are recognised in profit or loss, except for differences arising on the retranslation of a financial
liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is
effective, which is recognised in other comprehensive income.
Gains or losses arising on the retranslation of foreign currency contingent deferred consideration estimated as
payable at the year end on acquisitions prior to 1 March 2011 are accounted as an adjustment to goodwill. On
acquisitions on or after 1 March 2011 the gain or loss is accounted for in profit or loss.
ii) Foreign operations
The assets and liabilities of foreign subsidiaries, including goodwill and fair value adjustments arising on
consolidation, are translated to the group’s presentational currency, GBP, at foreign exchange rates ruling at the
balance sheet date. The revenues and expenses of foreign operations are translated at the foreign exchange rates
ruling at the dates of the transactions. Foreign currency differences are recognised in other comprehensive
income and presented in the currency translation adjustment reserve in equity. However, if the operation is a
non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is allocated to
the non-controlling interests.
When a foreign operation is disposed of, such that control, significant influence or joint control is lost, the
cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as
part of the gain or loss on disposal. When the group disposes of only part of its interest in a subsidiary that
includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is
reattributed to non-controlling interests. When the group disposes of only part of its investment in an associate
or joint venture that includes a foreign operation while retaining significant influence or joint control, the
relevant proportion of the cumulative amount is reclassified to profit or loss.
Certain exchange differences arising from a monetary item receivable from or payable to a foreign operation, the
settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net
investment in a foreign operation and are recognised in other comprehensive income and presented in the
currency translation adjustment reserve in equity.
Foreign currency differences arising on the retranslation of foreign currency loans designated as a hedge of net
investments in a foreign operation are recognised in other comprehensive income to the extent the hedge, when
designated in a hedge relationship which has been formally documented and performed in line with IAS
39:(Recognition and Measurement), is effective and are presented within other comprehensive income in the
currency translation adjustment reserve. To the extent that the hedge is ineffective, such differences are
recognised in profit or loss. When the hedged part of a net investment is disposed of, the associated cumulative
amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal.
(d) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are measured at cost less accumulated depreciation (see below) and
accumulated impairment losses (see accounting policy on impairment, note 1(h) below). Cost includes
expenditure that is directly attributable to the acquisition of the asset.
NOTES • 25
Notes
(continued)
1 Significant accounting policies (continued)
When parts of an item of property, plant and equipment have different useful lives, those components are
accounted for as separate items of property, plant and equipment.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the
proceeds from disposal with the carrying amount of the property, plant and equipment and is recognised net
within other expenses in profit or loss. When revalued assets are sold, any related amount included in the
revaluation reserve is transferred to retained earnings.
(ii) Leased assets
Leases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as
finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair
value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is
accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and are not recognised in the group’s statement of financial position.
(iii) Subsequent costs
The group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing
part of such an item when that cost is incurred if it is probable that the future economic benefits embodied
within the item will flow to the group and the cost of the item can be measured reliably. All other costs are
recognised in profit or loss as an expense as incurred.
(iv) Depreciation
Depreciation is calculated to write down the costs of parts of items to their residual values and is charged to
profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant
and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it
is reasonably certain that the group will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives are as follows:
Office furniture and equipment
Plant and equipment
Buildings – long leasehold and freehold
-
-
-
25% straight line
25-50% straight line
2% straight line
Items of property, plant and equipment are depreciated from the date that the asset is completed and ready
for use.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if
appropriate.
(e) Non-current assets held for resale
Non-current assets that are expected to be recovered primarily through sale or distribution rather than through
continuing use, are classified as held for sale or distribution. Immediately before classification as held for sale or
distribution, the assets or components of a disposal group, are remeasured in accordance with the group’s
accounting policies. Thereafter, generally the assets are measured at the lower of their carrying value and fair
value less costs to sell. Impairment losses on initial classification as held for sale or distribution and subsequent
gains and losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any
cumulative impairment loss.
Intangible assets and property plant and equipment once classified as held for sale or distribution are not
amortised or depreciated.
26 • FIRST DERIVATIVES PLC
Notes
(continued)
1 Significant accounting policies (continued)
(f) Intangible assets and goodwill
i) Goodwill
Goodwill that arises on the acquisition of subsidiaries is recognised in intangible assets. Goodwill represents the
difference between the fair value of consideration transferred and the net recognised amount of the identifiable
assets acquired and the liabilities assumed. Identifiable intangibles are those which can be sold separately or
which arise from legal rights regardless of whether those rights are separable.
Goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating
units and is not amortised but is tested annually for impairment. In respect of equity accounted investees, the
carrying amount of goodwill is included in the carrying amount of the investment in the investee. Goodwill
arising on subsidiaries and associates is not amortised.
Negative goodwill arising on an acquisition is recognised immediately in profit or loss.
ii) Research and development
Expenditure on research activities undertaken with the prospect of gaining new technical knowledge and
understanding, is recognised in profit or loss as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the
production of new or substantially improved products and processes, is capitalised only if development costs can
be measured reliably, the product or process is technically and commercially feasible, future economic benefits
are probable and the group intends to and has sufficient resources to complete development and to use or sell
the asset.
The expenditure capitalised in respect of software assets includes the cost of materials, direct labour and an
appropriate proportion of overheads that are directly attributable to preparing the asset for its intended use.
Other development expenditure is recognised in the income statement as an expense as incurred. Capitalised
development expenditure is stated at cost less accumulated amortisation (see below) and impairment losses (see
accounting policy impairment note 1(h)).
Tax credits for research and development are recognised at their fair value based on amounts recoverable from
the tax authorities in current and future years. A credit is recognised in the income statement against the
related expense or recognised in the period in which the expenditure is amortised where the related expenditure
is capitalised.
iii) Other intangible assets
Intangible assets other than goodwill that are acquired by the group are stated at cost less accumulated
amortisation (see (v) below) and impairment losses (see accounting policy on impairment note 1(h)). The fair
value of customer relationships acquired in a business combination is determined using the multi-period excess
earnings method, whereby the subject asset is valued after deducting a fair return of all other assets that are
part of creating the related cash flows. The fair value of other intangible assets acquired in a business
combination is based on the discounted cash flows expected to be derived from the use and eventual sale of
the assets.
iv) Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in
profit or loss as incurred.
v) Amortisation
Except for goodwill, intangible assets are amortised based on the cost of an asset less its residual value.
Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of
intangible assets, from the date that the asset is available for use as follows:
NOTES • 27
Notes
(continued)
1 Significant accounting policies (continued)
Customer lists
Acquired software
Brands
Developed software
-
-
-
-
12.5% straight line
12.5% straight line
12.5% straight line
12.5% straight line
Amortisation methods, useful lives and residual values reviewed at each reporting dates and adjusted if
appropriate.
(f) Trade and other receivables
Trade and other receivables are stated at amortised cost less impairment losses (see accounting policy
impairment note 1(h).
(g) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call deposits with an original maturity of three months
or less. Bank overdrafts that are repayable on demand and form an integral part of the group’s cash management
are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.
(h) Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine
whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if
objective evidence indicates that a loss event has occurred after the initial recognition of the assets and that the
loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity securities) are impaired can include default or
delinquency by a debtor, restructuring of an amount due to the group on terms that the group would not
consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment
status of borrowers or issuers in the group, economic conditions that correlate with defaults or the
disappearance of an active market for a security. In addition, for an investment in an equity security, a
significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
(ii) Loans and receivables
The group considers evidence of impairment for loans and receivables at both a specific asset and collective level.
All individually significant receivables are assessed for specific impairment. All individually significant loans and
receivables found not to be specifically impaired are then collectively assessed for any impairment that has been
incurred but not yet identified. Loans and receivables that are not individually significant are collectively
assessed for impairment by grouping together loans and receivables with similar risk characteristics.
In assessing collective impairment the group uses historical trends of the probability of default, the timing of
recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current
economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by
historical trends.
(iii) Non-financial assets
The carrying amounts of the group’s non-financial assets, other than deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication of impairment. If any such indication exists, then
the asset’s recoverable amount is estimated.
For goodwill and assets that have an indefinite useful life or that are not yet available for use, the recoverable
amount is estimated at each balance sheet date. An impairment loss is recognised if the carrying amount of an
asset or its related cash-generating unit (CGU) exceeds its estimated recoverable amount.
28 • FIRST DERIVATIVES PLC
Notes
(continued)
1 Significant accounting policies (continued)
(iii) Non-financial assets (continued)
The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the
asset or CGU. For the purpose of impairment testing, assets that cannot be individually tested are grouped
together into the smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGU. Subject to an operating segment ceiling test, for the
purposes of goodwill impairment testing, CGU’s to which goodwill has been allocated are aggregated so that the
level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for
internal reporting purposes. Goodwill acquired in a business combination, is allocated to the legal entity or
business that has been acquired in a business combination.
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated
first to reduce the carrying amount of any goodwill allocated to the CGU and (group of CGUs) and then to reduce
the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine
the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
(i) Earnings per share
The group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is
calculated by dividing the profit or loss attributable to ordinary shareholders of the group by the weighted
average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the
profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to
employees, directors and as part of business combinations.
(j) Loans and borrowings
Loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to
initial recognition, loans and borrowings are stated at amortised cost with any difference between cost
and redemption value being recognised in profit or loss over the period of the borrowings on an effective
interest basis.
(k) Employee benefits
(i) Defined contribution plans
The group operates a defined contribution (pension) plan for employees. A defined contribution plan is a post-
employment benefit plan under which the group pays fixed contributions into a separate entity and will have no
legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution
pension plans are recognised as an expense in the income statement as incurred.
(ii) Share-based payment transactions
The share option programme allows group employees to acquire shares of the group. The fair value of options
granted is recognised as an employee expense with a corresponding increase in equity. The fair value is
measured at grant date and spread over the period during which the employees become unconditionally entitled
to the options. The fair value of the options granted is measured using an adjusted Black-Scholes model, taking
into account the terms and conditions upon which the options were granted. Measurement inputs include the
share price on the measurement date, the exercise price of the instrument, expected volatility (based on an
evaluation of the Company’s historic volatility, particularly over the historic period commensurate with the
expected term and adjusted for recent volatility changes) expected term of the instruments (based on historical
ACCOUNTS • 29
Notes
(continued)
1 Significant accounting policies (continued)
experience and general option holder behaviour), expected dividends and the risk-free interest rate (based on
government bonds). Service and non-market performance conditions attached to the transactions are not taken
into account in determining fair value. The amount recognised as an expense is adjusted to reflect the actual
number of share options that vest. On the lapse of share options on the vesting date the amount recognised in
shares to be issued is transferred to retained earnings. On the exercise of share options, the amount recorded in
shares to be issued is transferred to the share premium reserve.
(iii) Short term benefits
Liabilities for employee benefits for wages, salaries and annual leave entitlements represent present obligations
resulting from employees’ services provided up to the reporting date and are calculated at undiscounted
amounts based on remuneration wage and salary rates that the group expects to pay as at the reporting date.
A liability is recognised for the amount expected to be paid under short-term cash bonus plans if the group has
a present legal or constructive obligation to pay this amount as a result of past service provided by the employee
and the obligation can be estimated reliably.
(l) Provisions
A provision is recognised in the balance sheet when the group has a present legal or constructive obligation as a
result of a past event, that can be estimated reliably and it is probable that an outflow of economic benefits will
be required to settle the obligation. If the effect is material, provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money
and, when appropriate, the risks specific to the liability. The unwinding of the discount is recognised as
finance cost.
(m) Trade and other payables
Trade and other payables are stated at the discounted present value of the estimated outflows of funds. Where
the maturity is six months or less they are not discounted and are shown at cost.
(n) Revenue
(i) Product and Services rendered
Revenue from product and services rendered is measured at the fair value of the consideration received or
receivable and is recognised in profit or loss in proportion to the stage of completion of the transaction at the
balance sheet date. No revenue is recognised if there are significant uncertainties regarding recovery of the
consideration due. The group does not have contracts involving a combination of products and services and
negotiates prices separately for each component. Revenue in respect of each product or service is as follows:
• Revenue from perpetual software licensing is recognised upon delivery to the customer where there are no
significant vendor obligations remaining following delivery, the client has accepted the software and the
collection of the resulting receivable is considered probable.
• Revenue from annual licensing is recognised over the period to which the contract relates.
• Revenue from consulting services is recognised in the month the service is performed, upon acceptance by the
customer and the collection of the resulting receivable is considered probable.
• In respect of customisation of software, revenue is recognised upon acceptance by the customer and the
collection of the resulting receivable is considered probable.
• Revenue from data management hosting, other hosting and transactional activities are recognised over the
period to which the contract relates or the transaction occurs which gives rise to the receivable. In instances
where a non-refundable fee is paid by the customer, the fair value of any significant obligations are deferred and
recognised over the life of the contract and the remaining balance is recognised following delivery and the
resulting receivable is considered probable.
30 • FIRST DERIVATIVES PLC
Notes
(continued)
1 Significant accounting policies (continued)
(ii) Commissions
When the group acts in the capacity of an agent rather than as the principal in a transaction, the revenue
recognised is the net amount of commission earned by the group. Revenue is recognised upon acceptance by
the customer of the sale.
(iii) Government grants
An unconditional government grant is recognised in the income statement as other operating income when the
grant becomes receivable. Any other government grant is recognised in the balance sheet initially as deferred
income and when there is reasonable assurance that it will be received and that the group has complied with
the conditions attaching to it, a release is then made to the profit and loss as other income. Grants that
compensate the group for expenses incurred are recognised as other operating income in profit or loss on a
systematic basis in the same periods in which the expenses are incurred. Grants that compensate the group for
the cost of an asset are recognised in profit or loss as other operating income on a systematic basis over the
useful life of the asset.
(o) Lease payments
(i) Operating lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of
the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense,
over the terms of the lease.
(ii) Finance lease payments
Minimum lease payments made under finance leases are apportioned between the finance charge and the
reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as
to produce a constant periodic rate of interest on the remaining balance of the liability.
(iii) Determining whether an arrangement contains a lease
At inception of an arrangement, the group determines whether such an arrangement is or contains a lease. A
specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that specified
asset. An arrangement conveys the right to use the asset if the arrangement conveys to the group the right to
control the use of the underlying asset.
At inception or upon reassessment of the arrangement, the group separates payments and other consideration
required by such an arrangement into those for the lease and those for other elements on the basis of their
relative fair values. If the group concludes for a finance lease that it is impracticable to separate the payments
reliably, then an asset and a liability are recognised at an amount equal to the fair value of the underlying asset.
Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is
recognised using the group’s incremental borrowing rate.
(p) Finance income and expenses
Finance income comprises interest receivable on funds invested and dividend income. Interest income is
recognised in profit or loss as it accrues, using the effective interest method. The interest expense component of
finance lease payments is recognised in profit or loss using the effective interest rate method. When an
available for sale asset is derecognised, the cumulative gain or loss in equity is transferred to finance income or
expense.
Financing expenses comprises interest payable on borrowings calculated using the effective interest rate method,
and foreign exchange gains and losses.
NOTES • 31
Notes
(continued)
1 Significant accounting policies (continued)
(q) Taxation
Tax expense on the profit or loss for the period presented comprises current and deferred tax. Current and
deferred tax is recognised in profit or loss except to the extent that it relates to a business combination or items
recognised directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or
substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes,
those arising from the initial recognition of assets or liabilities acquired in a transaction that is not a business
combination and that affects neither accounting nor taxable profit or loss, and differences relating to
investments in subsidiaries to the extent that it is probable they will not reverse in the foreseeable future. The
amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date.
In determining the amount of current and deferred tax the group takes into account the impact of uncertain tax
positions and whether additional taxes and interest may be due. The group believes that its accruals for tax
liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations
of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series
of judgements about future events. New information may become available that causes the company to change
its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax
expense in the period that such a determination is made.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities
and assets and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets
and liabilities will be realised simultaneously.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and
reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(r) Classification of financial instruments issues by the group
Following the adoption of IAS 32, financial instruments issued by the group are treated as equity only to the
extent that they meet the following two conditions:
• they include no contractual obligations upon the company (or group as the case may be) to deliver cash or
other financial assets or to exchange financial assets or financial liabilities with another party under conditions
that are potentially unfavourable to the company (or group); and
• where the instrument will or may be settled in the company’s own equity instruments, it is either a non-
derivative that includes no obligation to deliver a variable number of the company’s own equity instruments or is
a derivative that will be settled by the company’s exchanging a fixed amount of cash or other financial asset for
a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where
the instrument so classified takes the legal form of the company’s own shares, the amounts presented in these
financial statements for called up share capital and share premium account exclude amounts in relation to those
shares.
32 • FIRST DERIVATIVES PLC
Notes
(continued)
1 Significant accounting policies (continued)
(s) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are
recognised as a deduction from equity, net of any tax effects. The nominal value of shares issued is recognised
as share capital. The value of the consideration received in excess of the nominal value is recognised as
share premium.
(t) Segmental reporting
An operating segment is a component of the group that engages in business activities from which it may earn
revenues and incur expenses, including revenues and expenses that relate to transactions with any of the group’s
other components. The operating results are regularly reviewed by the board and comprise one segment;
however the information provided records revenue split between the various consulting and software activities.
2 Financial risk management
Overview
The group has exposure to the following risks from its use of financial instruments:
• Credit risk
• Liquidity risk
• Market risk
This note presents information about the group’s exposure to the above risks, the group’s objectives, policies and
processes for measuring and managing risk, and the group’s management of capital. Further quantitative
disclosures are included throughout these financial statements.
Risk management framework
The board of directors has overall responsibility for the establishment and oversight of the group’s risk
management framework. The board is responsible for monitoring the group’s risk management policies, which
are established to identify and analyse the risks faced by the group, to set appropriate risk limits and to monitor
adherence to those policies.
Credit risk
Credit risk is the risk of financial loss to the group if a counterparty fails to meet its contractual obligation and
principally arises from the group’s receivables from customers through selling on credit. This is managed
through credit control procedures. Regular contact is made with customers when debts are overdue with
follow up procedures carried out as required. Concentration of credit risk is disclosed in note 39 to the
financial statements
Liquidity risk
Liquidity risk is the risk that the group will encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or other financial assets. The group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking
damage to the group’s reputation.
The group generates positive operating cash flows, and is able to meet its liabilities as they fall due. In addition
the group has lines of credit identified in note 28 to the financial statements.
NOTES • 33
Notes
(continued)
2 Financial risk management (continued)
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity
prices will affect the group’s income or the value of its holdings of financial instruments. The objective of market
risk management is to manage and control market risk exposures within acceptable parameters, while
optimising the return.
The group currently does not use derivative financial instruments to hedge its exposure to currency or interest
rate risk. All loans are currently variable rate in nature, with the terms being at prevailing market interest rates.
The level of trading and borrowings in foreign currency produces a natural hedge of a large proportion of the
group's exposures to foreign currency movements on trading and investments. Certain borrowings in foreign
currencies are designated as net investment hedges of foreign operations.
Capital management
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence
and to sustain future development of the business (capital is defined as share capital, share premium, retained
earnings and shares to be issued). The Board of Directors monitors the return on capital as well as the level of
dividends to ordinary shareholders. The group is not subject to external requirements in respect of its capital,
with the exception of the need to comply with the level of ordinary shares available for trading on the
Alternative Investment Market and Enterprise Securities Market, with which the group has complied in the
current year. Additional shares in the group are made available to staff by the use of share option schemes as
disclosed in the notes to the financial statements and as purchase consideration in business combinations.
The Board seeks to maintain a balance between the higher returns that might be possible with higher level of
borrowings and the advantages and security afforded by a sound capital position.
3 Acquisitions of subsidiaries and associates
There were no acquisitions completed in 2012.
2011 acquisitions
On 6 August 2010 the company obtained control of LakeFront Data Ventures Inc by acquiring all of the ordinary
shares of the company. Acquiring LakeFront Data Ventures Inc enabled the group to establish a presence in
Canada and expand its overall offering to its client base. In the 7 months to 28 February 2011 the subsidiary
contributed revenue of £241k and net profit of £24k to the consolidated net profit for the year. If the acquisition
had occurred on 1 March 2010, management estimates that revenue for the group would have been £37,153k
and net profit would have been an estimated £5,153k. In determining these amounts, management has assumed
that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition
occurred on 1 March 2010.
The following summarises the major classes of consideration transferred and the recognised amounts of assets
acquired and liabilities assumed at the acquisition date.
34 • FIRST DERIVATIVES PLC
Notes
(continued)
3 Acquisitions of subsidiaries and associates (continued)
Effect of aquisitions
The acquisitions had the following effect on the group’s assets and liabilities.
Pre-acquisition
carrying amounts
£000
Fair value
adjustments
£000
Recognised values
on acquisition
£000
Acquiree’s net assets at the
acquisition date:
Intangible assets
Trade and other receivables
Deferred tax liability
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied as follows:
Cash
Shares issued (82,602 shares)
Cash consideration paid
Cash (acquired)
Net cash outflow
-
16
-
16
419
-
(119)
300
419
16
(119)
316
520
836
585
251
836
585
-
585
The trade and other receivables comprised gross contractual amounts of £16k of which no amounts were
expected to be uncollectable at the acquisition date.
Shares issued
The number of ordinary shares issued (82,602 shares) was derived based on the average price of shares on the 20
days prior to 30 July 2010 (303.5 pence per share). The fair value of the ordinary shares issued based on the
listed share price on the 6 August 2010, the effective date of control (312.5 pence per share) was not materially
different. The impact would be to increase goodwill by £7k.
Goodwill has arisen on the acquisition and reflects the future economic benefits arising from assets that are not
capable of being identified individually and recognised as separate assets. The goodwill reflects the anticipated
profitability and synergistic benefits arising from the combination and the ability to leverage off client
relationships and knowhow. The group has carried out an impairment review of goodwill as at 28 February 2011
and 29 February 2012 has not identified any impairment (see note 17).
NOTES • 35
Notes
(continued)
3 Acquisitions of subsidiaries and associates (continued)
Acquisition related costs
The group incurred acquisition-related costs of £68k related to external legal fees and due diligence costs. The
legal fees and due diligence costs have been included in administrative expenses in the group’s consolidated
statement of comprehensive income.
4 Operating segments
Business segments
The group’s board of directors reviews internal management reports on a monthly basis. The reports provided to
the board of directors focus on group performance. The information provided to the board does not report
performance on a segmented income statement basis, however, contained within the group management
accounts is a split of revenue, detailing the various consulting and software sales revenue figures throughout the
group. This level of information is consistent with the directors’ view of the nature of the group’s business. Staff
work in both areas of the business with substantial investment being made by the group in developing highly
technical training which is provided to all staff to allow them to cover both software and consulting skills. Costs
and assets are therefore not segmented nor presented on a segmental basis to the board of directors.
The group has disclosed below certain information on its revenue by geographical location. Details regarding
total revenues are presented in note 5.
The group’s two revenue streams are separated as follows:
• Consulting activities which includes services to capital markets; and
• Software activities which includes the sale of intellectual property and related services.
Revenue by division
Total Segment
Revenue
Consulting
2011
£’000
2012
£’000
2012
£’000
Software
2011
£’000
2012
£’000
Total
2011
£’000
32,629
24,229
13,458
12,511
46,087
36,740
Geographical location analysis
2012
£’000
UK Rest of Europe
2012 2011
£’000 £’000
2011
£’000
America Australasia
2012
£’000
2011 2012 2011 2012
£’000 £’000 £’000 £’000
Total
2011
£’000
18,387 15,811
20,873 22,376
3,795 2,627 18,969 14,812 4,936 3,490 46,087 36,740
8,655 5,930 22,727 24,333 1,782 1,692 54,037 54,331
Revenue from
external customers
Non Current Assets
Revenue generated and non-current assets located in Northern Ireland, the group’s country of domicile are not
material and as such, have not been separately disclosed for either the current or prior year.
Major customers
The group has a key customer who individually generated more than 10% of group revenue in 2012. Revenue
from this customer represents approximately £14,882k of the group’s total revenue. The revenue from this
customer has been derived from 28 different independent decision making business units across seven global
locations with no other unit accounting for more than 2.0%. In the prior year the same key customer accounted
for more than 10% of group revenue. Revenues from this customer accounted for approximately £12,518k of the
group’s total revenue.
36 • FIRST DERIVATIVES PLC
Notes
(continued)
5 Revenue
Sale of goods
Rendering of services
Commissions
6 Other operating income
Government grants
Other income
2012
£’000
7,216
38,472
399
46,087
2012
£’000
1,411
3
1,414
2011
£’000
5,584
30,287
869
36,740
2011
£’000
1,890
84
1,974
During the year, employment grant income of £2,424k (2011: £646k) was claimed from Invest Northern Ireland.
7 Administrative expenses
Rent, rates and insurance
Telephone
Accountancy, audit and legal expenses
Advertising and marketing
Depreciation and amortisation
Payroll costs
Listing expenses
Bad debts (recovered)/written off
Profit on disposal of property, plant and equipment
Other
2012
£’000
1,259
360
623
418
2,413
3,669
131
(60)
(528)
1,083
9,368
2011
£’000
939
327
378
263
2,007
3,315
175
381
-
938
8,723
NOTES • 37
Notes
(continued)
8 Personnel expenses and numbers
The average weekly number of persons (including the directors) employed by the group during the year is
set out below:
2012 2011
Average no. Average no.
Administration 65 58
Technical 544 397
609 455
The aggregate payroll costs of these persons were as follows:
2012 2011
£’000 £’000
Wages and salaries 24,699 19,159
Share based payments (see note 41) 669 340
Social security costs 2,459 1,386
Other pension costs 650 308
Less capitalised costs in research and development (4,622) (3,475)
23,855 17,718
Disclosed as:
2012 2011
£’000 £’000
Cost of sales 20,186 14,401
Administrative expenses 3,669 3,317
23,855 17,718
9 Finance income and expense
2012 2011
£’000 £’000
Interest income on bank deposits 2 7
Finance income 2 7
Loss on foreign currency translation of monetary assets (455) (198)
Interest expense on bank loans (620) (649)
Other interest (28) (74)
Finance expense (648) (723)
(914)
Net finance expense recognised in profit or loss
(1,101)
Exchange gains and losses on net investments in foreign subsidiaries and associates and related effective hedges
are recognised in the foreign currency translation reserve.
38 • FIRST DERIVATIVES PLC
Notes
(continued)
10 Statutory and other information
Depreciation on property, plant and equipment:
Owned assets
Assets held under finance lease
(Reversal of)/provision for impairment of trade receivables
Amortisation of intangibles
Rents payable in respect of operating leases
Research and development costs expensed
Auditor’s remuneration:
KPMG Ireland
Audit of these financial statements
Audit of the subsidiary undertakings included in the consolidation
Other services:
Amounts receivable by the auditor (KPMG Ireland) in respect of:
Audit of financial statements of subsidiaries pursuant to legislation
All other services
Other services relating to taxation
Services relating to corporate finance transactions
2012
£’000
592
-
(60)
1,821
513
1,360
52
15
11
-
130
-
2011
£’000
402
73
381
1,532
348
989
55
13
12
16
51
2
Amounts receivable by the company’s auditor in relation to 2011/2012 activities are £208k.
11 Tax expense
2012 2011
£’000 £’000
Income tax recognised in the income statement
Current tax expense
Current year 757 1,350
Adjustment for prior periods (365) 6
392 1,356
Deferred tax expense
Origination and reversal of temporary differences 542 176
Adjustment for prior periods 159 (121)
Change in tax rates (92) (28)
609 27
Total tax expense in income statement 1,001 1,383
NOTES • 39
Notes
(continued)
11 Tax expense (continued)
2012
£’000
2011
£’000
Reconciliation of effective tax rate
Profit excluding income tax 6,947 6,495
Income tax using the company’s domestic tax rate (26.2%)
(2011: 28%) 1,818 1,819
Tax exempt income (148) (54)
Expenses not deductible for tax purposes 34 60
Over provision in prior year (206) (28)
Other differences 4 20
Profit of associate (23) (236)
Foreign tax rate differences (422) (203)
Reduction in tax rates (92) (28)
Unrelieved overseas taxes 36 33
1,001 1,383
Following the 2012 budget statement, the main rate of UK corporation tax was reduced from 26% directly to
24% with effect from the 1 April 2012 and to 23% from 1 April 2013. Thereafter the main rate of UK
corporation tax will continue to reduce by 1% per annum to 22% by 2014. It is expected that this gradual fall in
the main corporation tax rate will result in a reduction of the groups future current tax charge.
12 Remuneration of directors
The remuneration paid to the directors was:
Aggregate emoluments (including benefits in kind)
Company pension contributions
Fees for provision of services
Share option payment charge
2012
£’000
823
49
-
225
1,097
2011
£’000
454
42
285
88
869
During the period there were 4 directors accruing benefits under a defined contribution pension scheme
(28 February 2011: 4).
The aggregate emoluments and company pension contributions of the highest paid director (excluding fees paid
for provision of services) amounted to £329k and £15k respectively during the year (2011: £125k and £21k
respectively).
40 • FIRST DERIVATIVES PLC
Notes
(continued)
12 Remuneration of directors (continued)
The directors are deemed to be the key management of the group.
Directors emoluments
Salary and Benefits
(1)
fees
£’000
£’000
Share
based
payment
£’000
2012
Total
2011
Total
excluding excluding
2012
2011
Bonus pension pension Pension
£’000
£’000
£’000
£’000
R D Anderson
B G Conlon
R G Ferguson
A Toner
K Cunnigham
M G O’Neill
P Brazel
Total
42
150
150
120
126
50
29
667
-
-
-
-
9
-
-
9
5
-
119
100
-
-
1
225
-
60
60
27
-
-
-
147
47
210
329
247
135
50
30
1,048
35
125
120
80
135
59
-
554
-
21
15
12
1
-
-
49
Pension
£’000
-
21
12
8
1
-
-
42
1 Benefits include health and life assurance.
Paul Kinney (resigned 11 March 2011) provided services to the company in the prior year amounting to £273k.
No services were provided in the current year while he was a director.
Directors interests
Directors’ rights to subscribe for shares in the company are indicated below:
Number of options
At start Granted during
the year
of year
At end
of year
Exercise Exercise
price £ period
Adrian Toner
David Anderson
Graham Ferguson
-
175,000
60,000
-
10,000
175,000
175,000
175,000
-
-
50,000
-
-
-
Pat Brazel
-
25,000
175,000
175,000
60,000
50,000
10,000
175,000
175,000
25,000
4.80
4.15
1.79
4.80
1.79
4.15
1.77
2014-2021
2014-2020
2011-2019
2014-2021
2013-2019
2014-2020
2013-2019
4.80
2014-2021
The average share price during the year was £4.93 (2011: £3.53) and the closing price at year end was £4.75
(2011: £4.24).
NOTES • 41
Notes
(continued)
13 Dividends
2012 2011
£’000 £’000
Final dividend relating to the prior year 1,187 976
Interim dividend paid 496 459
1,683 1,435
The dividends recorded in each financial year represent the final dividend of the preceding financial
year and the interim dividend of the current financial year.
The final dividend relating to the prior year amounted to 7.25 (previous year: 6.75) pence per share
and the interim dividend paid during the year amounted to 3.00 (previous year: 2.90) pence per share.
The cumulative dividend paid during the year amounted to 10.25 (previous year: 9.65) pence per share.
After the respective reporting dates, the following dividends were proposed by the directors.
The dividends have not been provided for and there are no income tax consequences.
2011
£’000 £’000
2012
8.15 pence per ordinary share (2011: 7.25 pence)
1,370
1,185
14 Company result
Under Section 408 of the Companies Act 2006, the company is exempt from the requirement to present
its own income statement. The profit after tax (after subtraction of foreign currency loss of £631k
(2011: gain of £474k)) for the financial year of the company as approved by the Board was £4,504k
(2011: £4,464k).
15(a) Earnings per ordinary share
Basic
The calculation of basic earnings per share at 29 February 2012 was based on the profit attributable to ordinary
shareholders of £5,946k (2011: £5,112k), and a weighted average number of ordinary shares ranking for
dividend of 16,510k (2011: 15,415k).
Basic earnings per share
36.0
33.2
2012
Pence per share
2011
Pence per share
42 • FIRST DERIVATIVES PLC
Notes
(continued)
15(a) Earnings per ordinary share (continued)
Weighted average number of ordinary shares
2012
Number ’000
2011
Number ’000
Issued ordinary shares at beginning of period
Effect of share options exercised
Effect of shares issued as purchase consideration
Effect of shares issued for cash
Weighted average number of ordinary shares at end of period
15,924
170
416
-
16,510
14,421
132
46
816
15,415
Diluted
The calculation of diluted earnings per share at 29 February 2012 was based on the profit attributable to
ordinary shareholders of £5,946k (2011: £5,112k) and a weighted average number of ordinary shares after
adjustment for the effects of all dilutive potential ordinary shares of 18,128k (2011: 17,606k).
Diluted earnings per share
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares (basic)
Effect of dilutive share options in issue
Weighted average number of ordinary shares (diluted) at
end of period
2012
Pence per share
32.8
2011
Pence per share
29.0
2012
Number ‘000
16,510
1,618
18,128
2011
Number ‘000
15,415
2,191
17,606
The average market value of the group’s shares for purposes of calculating the dilutive effect of share options
was based on quoted market prices for the period the options were outstanding.
At 29 February 2012, 600k options (2011: 315k) were excluded from the diluted weighted average number of
ordinary shares calculation as their effect would have been anti-dilutive.
NOTES • 43
Notes
(continued)
15(b) Earnings before tax per ordinary share
Earnings before tax per share are based on profit before taxation of £6,947k (2011: £6,495k). The number of
shares used in this calculation is consistent with note 15(a) above.
2012
Pence per share
2011
Pence per share
Basic earnings before tax per ordinary share
Diluted earnings before tax per ordinary share
42.1
38.3
42.1
36.9
Reconciliation from earnings per ordinary share to earnings before tax per ordinary share.
2012
Pence per share
2011
Pence per share
Basic earnings per share
Impact of taxation charge
Adjusted basic earnings before tax per share
Diluted earnings per share
Impact of taxation charge
Adjusted diluted earnings before tax per share
36.0
6.1
42.1
32.8
5.5
38.3
33.2
8.9
42.1
29.0
7.9
36.9
Earnings before tax per share has been presented to facilitate pre-tax comparison returns on comparable
investments.
15(c) Normalised earnings after tax per ordinary share
Normalised earnings after tax per share are based on profit after taxation of £6,195k (2011: £4,415k). The
adjusted profit after tax has been calculated by adjusting for the Group’s share of loss on dilution of investment
in associate £371k (2011: nil), share of profit of associate £458k (2011: £841k) and loss on foreign currency
translation after tax effect £336k (2011: £143k). The number of shares used in this calculation is consistent with
note 15(a) above.
Basic earnings after tax per ordinary share
Diluted earnings after tax per ordinary share
37.5
34.2
28.6
24.4
2012
Pence per share
2011
Pence per share
44 • FIRST DERIVATIVES PLC
Notes
(continued)
16 Property, plant and equipment
Group
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
Total
£’000
Cost
At 1 March 2011
Additions
Disposals
Reclassification to assets held for sale
Exchange adjustments
At 29 February 2012
Depreciation
At 1 March 2011
Charge for the year
Disposals
Reclassification to assets held for sale
Exchange adjustments
At 29 February 2012
Net book value At 29 February 2012
18,592
320
(2,352)
(1,734)
29
14,855
922
242
(99)
(136)
-
929
13,926
1,143
545
-
-
-
1,688
587
326
-
-
6
919
769
127
1
-
-
-
128
61
24
-
-
-
85
43
19,862
866
(2,352)
(1,734)
29
16,671
1,570
592
(99)
(136)
6
1,933
14,738
Land and
buildings
£’000
Plant and Office furniture
Total
equipment
£’000
£’000
£’000
Cost
At 1 March 2010
Additions
Exchange adjustments
At 28 February 2011
Depreciation
At 1 March 2010
Charge for the year
Exchange adjustments
At 28 February 2011
Net book value At 1 March 2010
At 28 February 2011
18,296
297
(1)
18,592
696
227
(1)
922
17,600
17,670
696
489
(42)
1,143
385
232
(30)
587
311
556
72
56
(1)
127
45
16
-
61
27
66
19,064
842
(44)
19,862
1,126
475
(31)
1,570
17,938
18,292
The basis by which depreciation is calculated is stated in note 1.
Land and buildings in the group of £15,524k (including £1,598k held as available for sale) have been
independently valued by qualified external valuers at £18,915k on an open market basis.
Details of security provided for borrowing in respect of property, plant and equipment are disclosed in note 28
NOTES • 45
Total
£’000
18,990
268
(2,352)
(1,734)
15,172
1,265
293
(99)
(136)
1,323
Notes
(continued)
16 Property, plant and equipment (continued)
Company
Land and
buildings
£’000
Plant and Office furniture
equipment and equipment
£’000
£’000
Cost
At 1 March 2011
Additions
Disposals
Reclassification to assets held for sale
At 29 February 2012
Depreciation
At 1 March 2011
Charge for the year
Disposals
Reclassification to assets held for sale
At 29 February 2012
Net book value
At 29 February 2012
Cost
At 1 March 2010
Additions
At 28 February 2011
Depreciation
At 1 March 2010
Charge for the year
At 28 February 2011
Net book value
At 1 March 2010
At 28 February 2011
18,567
179
(2,352)
(1,734)
14,660
908
237
(99)
(136)
910
13,750
Land and
buildings
£’000
18,283
284
18,567
682
226
908
17,601
17,659
67
1
-
68
52
8
-
60
356
88
-
-
444
305
48
-
-
353
91
8
13,849
Plant and Office furniture
equipment and eequipment
£’000
£’000
310
46
356
270
35
305
40
51
58
9
67
46
6
52
12
15
Total
£’000
18,651
339
18,990
998
267
1,265
17,653
17,725
The basis by which depreciation is calculated is stated in note 1.
No assets are held under finance leases.
Details of security in respect of property, plant and equipment are disclosed in note 28.
46 • FIRST DERIVATIVES PLC
Notes
(continued)
17 Intangible assets and goodwill
Group
Goodwill Customer lists
Acquired Brand name
Software
£’000
£’000
£’000
£’000
Internally
developed
software
£’000
Total
£’000
29,990
4,819
1,340
(1,354)
357
Cost
Balance at
1 March 2011
Development costs
Additions
Adjustment to deferred
consideration
Exchange adjustments
Balance at
29 February 2012
13,941
-
-
(1,354)
303
2,327
-
-
-
35
7,252
-
1,340
-
53
302
-
-
-
2
6,168
4,819
-
-
(36)
12,890
2,362
8,645
304
10,951
35,152
-
-
-
Amortisation and impairment losses
Balance at 1 March 2011
Exchange adjustment
Amortisation for the year
Balance at
29 February 2012
Carrying amounts
At 29 February 2012 12,890
-
617
14
293
924
1,424
6
1,003
2,433
1,438
6,212
65
4
38
107
197
1,152
(4)
487
1,635
3,258
20
1,821
5,099
9,316
30,053
NOTES • 47
Total
£’000
24,057
3,475
2
2,302
1,109
(955)
Notes
(continued)
17 Intangible assets and goodwill (continued)
Goodwill Customer lists
Acquired Brand name
Software
£’000
£’000
£’000
£’000
Internally
developed
software
£’000
Cost
Balance at
1 March 2010
Development costs
Additions
Adjustment to deferred
consideration
Acquisition through
business combinations
Exchange adjustments
Balance at
28 February 2011
11,427
-
-
2,302
690
(478)
13,941
Amortisation and impairment losses
-
-
-
Balance at
1 March 2010
Exchange adjustment
Amortisation for the year
Balance at
28 February 2011
Carrying amounts
At 1 March 2010
11,427
At 28 February 2011 13,941
-
2,039
-
-
-
401
(113)
2,327
372
(30)
275
617
1,667
1,710
7,590
-
2
-
-
(340)
7,252
447
(21)
998
1,424
7,143
5,828
300
-
-
-
18
(16)
302
30
(2)
37
65
270
237
2,701
3,475
-
-
-
(8)
6,168
29,990
930
-
222
1,152
1,771
5,016
1,779
(53)
1,532
3,258
22,278
26,732
The basis by which amortisation is calculated is stated in note 1. Amortisation is recognised in administration
expenses.
Included within development costs is £4,622k (2011: £3,475k) of capitalised employees costs, including £183k of
capitalised share option costs (2011: £nil) together with £197k of capitalised consultancy costs (2011:£nil) for
the year. Developed software includes £4,414k (2011: £2,913k) of software under development at 29 February
2012 not yet commissioned.
The amortisation charge is recognised within the following line in the income statement:
Administration expenses
2012
£000
1,821
2011
£000
1,532
During the year, the group conducted a review of the useful economic life of the intangible assets of First
Derivatives (Ireland) Limited. Certain intangible assets, which management previously assessed as having a
useful economic life of five years are now reassessed as having an eight year life. The effect of these changes on
amortisation charge is recognised in administration expense, in both the current and future years. Amortisation
has decreased by £103k in the current year, followed by a decrease of £70k per annum over years 2 to 4 and this
will reverse in years 5 to 8.
48 • FIRST DERIVATIVES PLC
Notes
(continued)
17 Intangible assets and goodwill (continued)
Impairment testing of goodwill
The group tests goodwill annually for impairment on 28/29 February, or more frequently if there are indications
that goodwill might be impaired. For the purposes of impairment testing, goodwill is allocated to divisions
which represent the lowest level within the group at which goodwill is monitored, which is not higher than the
statutory entity level summary. A statutory entity level summary of the goodwill is presented below:
Subsidiaries
Market Resource Partners LLC
Reference Data Factory LLC
Lepton Pty Limited
First Derivatives (Ireland) Limited
LakeFront Data Ventures Inc.
Associate
Kx Systems Inc. (included in note 18)
2012
£’000
9,602
1,100
1,493
166
529
12,890
4,008
2011
£’000
9,329
2,527
1,386
170
529
13,941
3,933
The recoverable amount of each cash generating unit (CGU) has been determined based on a value-in-use (VIU)
calculation using cash flows derived from financial projections over a fifteen year period, with cash flows
thereafter calculated using a terminal value methodology. A growth rate of 2% (2011: 2%) is assumed. The pre-
tax discount rates applied to cash flow projections of the CGUs was 15% (2011: 15%).
Projected cash flows are most sensitive to assumptions regarding future profitability and working capital
investment. The values applied to these key assumptions are derived from a combination of external and
internal factors, based on past experience together with management’s future expectations about business
performance.
Discount rates reflect the current market assessment of the risk specific to each CGU. The discount rate was
estimated based on past experience and industry average weighted average cost of capital adjusted to reflect the
market assessment of risks specific to each CGU for which the cash flow projections have not been adjusted.
There was no impairment charge for the year ended 29 February 2012 (2011: Nil). For the purposes of
performing sensitivity analysis, a change in the assumption to increase the discount rate by 0.5% or, separately,
to reduce the terminal growth by 0.5% would not result in any indication of impairment.
No reasonable change in assumption would indicate any impairment.
NOTES • 49
Notes
(continued)
17 Intangible assets and goodwill (continued)
Company
Internally developed software
£’000
Cost
Balance at 1 March 2011
Development cost
Balance at 29 February 2012
Amortisation and impairment losses
Balance at 1 March 2011
Amortisation for the year
Balance at 29 February 2012
Carrying amounts
At 29 February 2012
Cost
Balance at 1 March 2010
Development cost
Balance at 28 February 2011
Amortisation and impairment losses
Balance at 1 March 2010
Amortisation for the year
Balance at 28 February 2011
Carrying amounts
At 1 March 2010
At 28 February 2011
4,222
3,027
7,249
1,039
277
1,316
5,933
2,584
1,638
4,222
929
110
1,039
1,655
3,183
Included within development costs is £3,027k (2011: £1,638k) of capitalised employees costs including £183k of
capitalised share option costs (2011:£Nil) for the year. Developed software includes £2,784k (2011: £2,442k) of
software under development at 29 February 2012 not yet commissioned.
50 • FIRST DERIVATIVES PLC
Notes
(continued)
18 Investment in subsidiaries and associate
The group and company have the following investments in subsidiaries:
Group
Market Resource Partners LLC
First Derivatives Holdings Pty Limited
First Derivatives Pty Limited
First Derivatives (Ireland) Limited
Reference Data Factory LLC
First Derivatives Holdings Inc
First Derivatives US Inc
First Derivatives No.1 Inc
LakeFront Data Ventures Inc
Market Resource Partners Limited
Country of
incorporation
share held
Class of Ownership
2011
2012
United States
Australia
Australia
Ireland
United States
United States
United States
United States
Canada
N. Ireland
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Country of
incorporation
share held
Class of Ownership
2011
2012
Company
Market Resource Partners LLC
First Derivatives Holdings Pty Limited
First Derivatives (Ireland) Limited
First Derivatives Holdings Inc
First Derivatives No.1 Inc
LakeFront Data Ventures Inc
Market Resource Partners Limited
United States
Australia
Ireland
United States
United States
Canada
N. Ireland
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
First Derivatives Holdings Pty Limited holds 100% of the ordinary shares of First Derivatives Pty Limited. First
Derivatives Holdings Inc. holds 100% of the ordinary shares of Reference Data Factory LLc and First Derivatives
US Inc. Market Resource Partners NI Limited was incorporated on 7th July 2010.
Company
Unlisted investments in subsidiaries at cost
At 1 March 2011
Additions
Increase of contingent deferred consideration
Additional expenses from previous acquisitions
Foreign exchange movement in contingent deferred consideration
At 29 February 2012
2012
£’000
14,217
-
133
-
199
14,549
2011
£’000
11,652
836
1,981
11
(263)
14,217
NOTES • 51
Notes
(continued)
17 Investment in subsidiaries and associate (continued)
The increase in contingent deferred consideration in the prior year arises from a revaluation of contingent
deferred consideration in line with increased performance of the subsidiary as per the terms of the relevant sale
and purchase agreement.
Associate
The group’s share of profit in associates for the year was £458k (2011: £841k). The associate is not publically
listed and consequently does not have a published share price. During the year, the group received dividends of
£570k (2011: £654k) from its associate. Summary financial information for the year to 29 February 2012 for the
associate for total assets, total liabilities, revenue and net profit was £11,345k (2011: £10,404k), £5,748k (2011:
£6,083k), £9,586k (2011: £11,375k) and £3,329k (2011: £5,776k) respectively.
The group has the following investment in an associate:
Country of
incorporation
Class of Ownership
share held
2012
2011
Group and Company
Kx Systems Inc
United States
Ordinary
20.4%
21.9%
Group
At 1 March 2011
Dividends received
Share of associate profit
Share of loss on dilution in associate using the equity method
Exchange adjustment
At 29 February 2012
£’000
7,447
(570)
458
(371)
95
7,059
The directors are of the view that the fair value of the investment in Kx Systems is substantially in excess of its
carrying value. The loss on dilution arises on the exercise of share options in Kx Systems at an exercise price less
than the carrying value per share at which the group acquired its investment.
£’000
At 1 March 2010 7,710
Dividend received (654)
Share of associate profit 841
Exchange adjustment (450)
At 28 February 2011 7,447
Company £’000
At 28 February 2011 and 29 February 2012 7,196
Goodwill arising on the associate was tested for impairment, see note 17.
52 • FIRST DERIVATIVES PLC
Notes
(continued)
19 Trade and other receivables
Non current assets
Receivables from subsidiaries
Grant income receiveable
2012
£’000
-
437
437
Group
2011
£’000
-
-
-
2012
£’000
2,198
-
2,198
The repayment terms of the receiveable has been agreed as falling due after more than one year.
Current assets
Trade receivables
Receivables from associates
Receivables from subsidiaries
Sundry receivables
Prepayments
Grant income receivable
2012
£’000
9,299
64
-
2,379
1,159
866
13,767
Group
2011
£’000
8,021
454
-
942
718
2,428
12,563
2012
£’000
4,871
64
7,832
180
753
1,087
14,787
Company
2011
£’000
1,919
-
1,919
Company
2011
£’000
4,698
454
5,995
1
643
2,428
14,219
At 29 February 2012 group and company trade receivables are shown net of an allowance for doubtful debts of
£379k and £230k respectively (2011: group £440k; company £350k) arising from on-going invoice disputes and
the risk of companies defaulting. The impairment loss reversal in the year was £60k (2011: charge £381k) for
group and £120k (2011: charge £211k) for the company. The group’s and company’s exposure to credit and
currency risks and impairment losses related to trade and other receivables is disclosed in note 39.
20 Cash and cash equivalents
Bank balances
2012
£’000
1,318
Group
2011
£’000
3,501
2012
£’000
962
Company
2011
£’000
2,956
See note 39 for discussion of interest rate risk and sensitivity analysis.
NOTES • 53
Notes
(continued)
21 Assets held for resale
Three properties are presented as held for sale following the commitment of management to a plan to dispose of
the properties. Efforts to sell the properties have commenced and are expected to be concluded by August 2012.
No impairment loss has been recognised as management expect to dispose of the properties at a profit.
2012
£’000
1,598
Group
2011
£’000
2012
£’000
Company
2011
£’000
-
1,598
-
Property, plant and
Equipment
22 Share capital
On issue at 1 March
Issued for cash
Exercise of share options
Issued in business combination
Issued as payment of deferred consideration
On issue at 29 February – fully paid
2012
15,923,953
-
258,168
-
450,915
16,633,036
Ordinary shares
2011
14,420,726
1,150,000
270,625
82,602
-
15,923,953
2012
Number
2012
£’000
2011
Number
2011
£’000
Equity shares
Issued, allotted and fully paid
Ordinary shares of £0.005 each 16,633,036
83
15,923,953 80
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled
to one vote per share at meetings of the company.
Shares increased in the year due to the exercise of 258,168 share options (2011: 270,625) for consideration of
£360k (2011: £329k) together with an associated transfer from the share option reserve of £83k (2011: £118k),
the issue of 450,915 shares (2011: 82,602) at £2,216k (2011: £251k) purchase consideration for outstanding
deferred consideration on subsidiaries.
54 • FIRST DERIVATIVES PLC
Notes
(continued)
23 Share premium account
Opening balance
Premium on shares issued
Closing balance
24 Share option reserve
2012
£’000
7,846
2,656
10,502
2012
£’000
2,384
Opening balance
Fair value of share based
payments cost (note 41)
725
Options exercised in the period
(83)
Effect of share option forfeits
(44)
Deferred tax on share based payments (309)
Closing balance
2,673
Group
2011
£’000
3,906
3,940
7,846
Group
2011
£’000
983
538
(118)
(49)
1,030
2,384
2012
£’000
7,846
2,656
10,502
2012
£’000
2,384
725
(83)
(44)
(309)
2,673
Company
2011
£’000
3,906
3,940
7,846
Company
2011
£’000
983
538
(118)
(49)
1,030
2,384
The share option reserve comprises the charge for unexercised share options granted to employees and includes
share options granted in consideration for the acquisition of business combinations net of deferred tax assets
relating to the tax deduction receivable when the options are exercised.
25 Fair Value reserve
Group
2012 2011
£’000 £’000
Opening balance
Effect of corporation tax rate reduction on deferred tax asset 126 126
5 -
Closing balance 131 126
The fair value reserve includes the cumulative net change in the fair value of available-for-sale financial assets
until the investment is derecognised or impaired. The amount is retained in the company as the original
investment was included at fair value in the carrying value of the associate when significant influence was
obtained.
NOTES • 55
Notes
(continued)
26 Revaluation reserve
Group
2012 2011
£’000 £’000
Opening balance 174 174
Transfer to retained earnings on loss of interest in associate (12) -
Effect of corporation tax rate reduction on deferred tax asset 5 -
Closing balance 167 174
For the purposes of the group, the revaluation of the available for sale asset prior to its reclassification as an
associate, has been transferred to the revaluation reserve.
27 Currency translation adjustment reserve
Group
2012 2011
£’000 £’000
Opening balance 197 694
Net gain/(loss) on net investment in foreign subsidiaries 119 (641)
Net gain/(loss) on net investment in associate 95 (450)
Net (loss)/gain on hedge of net investment in foreign subsidiaries (63) 351
Net (loss)/gain on hedge of investment in associate (58) 243
Closing balance 290 197
The translation reserve comprises all foreign exchange differences arising from the translation of the financial
statements of foreign operations and intercompany loans that are determined to form part of the net
investment, as well as from the translation of liabilities that hedge the group’s net investment in a foreign
subsidiary.
28 Loans and borrowings
Current liabilities
Secured bank loans
Finance leases
Non-current liabilities
Secured bank loans
Less: Capital arrangement fee
Finance leases
2012
£’000
3,447
156
3,603
17,178
(31)
1,451
18,598
Group
2011
£’000
1,098
26
1,124
21,585
(41)
-
21,544
2012
£’000
3,447
-
3,447
17,178
(31)
17,147
Company
2011
£’000
1,098
-
1,098
21,585
(41)
-
21,544
56 • FIRST DERIVATIVES PLC
Notes
(continued)
28 Loans and borrowings (continued)
Terms and debt repayment schedule
The group had the following loan facilities with Bank of Ireland at the end of the year:
£11,000,000 multi currency loan (Facility A)
£8,000,000 multi currency loan (Facility B)
$3,700,000 US dollar loan (Loan A)
£2,500,000 sterling overdraft (Facility D)
The terms and conditions of outstanding loans were as follows:
28 February 2012
Currency
Nominal
interest maturity
Year of Face value
rate
Carrying Face value
amount
28 February 2011
Carrying
amount
£000
£000
£000
£000
Facility A
Facility B
Facility C
Facility D
Loan A
Finance Lease
Finance Lease
Total interest-bearing
borrowings
USD 2.25%+LIBOR*
GBP 2.25%+LIBOR*
GBP 3.00%+ LIBOR*
2.00%+LIBOR
GBP
3%+ LIBOR
USD
11%
USD
4.375%
EUR
2016
2016
2013
2013
2016
2012
2015
9,652
8,542
-
1,553
878
-
1,607
9,621
8,542
-
1,553
878
-
1,607
10,976
7,909
1,500
-
2,298
26
-
10,935
7,909
1,500
-
2,298
26
-
22,232
22,201
22,709
22,668
* In respect of these loans, the nominal interest rate varies as the group meets financial targets and these have
been assessed as being closely linked to the underlying contract with a minimum rate available of 1.50%+LIBOR.
The bank loans are secured over property, plant and equipment including assets held for sale with a carrying
amount of £15,524k (2011: £17,725k). All outstanding loans have interest charged at 2.00%, 2.25% or 3.00%
(2011: 2.25% or 3%) above LIBOR.
Finance lease liabilities
Finance lease liabilities are payable as follows:
Group
Future
minimum
lease
payments
2012
£’000
Less than one year
224
Between one and five years 1,531
1,755
Interest
2012
£’000
68
80
148
Principal
Future
2012 minimum
lease
payments
2011
£’000
£’000
156
1,451
1,607
28
-
28
Interest
2011
Principal
2011
£’000
£’000
2
-
2
26
-
26
The finance leases are secured over the leased equipment.
NOTES • 57
Notes
(continued)
29 Deferred taxation
Group
Deferred tax assets and liabilities are attributable to the following:
2012
£000
-
1,048
302
-
-
400
1,750
Assets
2011
£000
4
1,427
228
-
-
201
1,860
Liabilities
2011
£000
2012
£000
(1,633)
-
-
(42)
(549)
-
(2,224)
(885)
-
-
(47)
(387)
-
(1,319)
2012
£000
(1,633)
1,048
302
(42)
(549)
400
(474)
Net
2011
£000
(881)
1,427
228
(47)
(387)
201
541
Property, plant and
equipment
Share based payments
Trading Losses
Net fair value movement on
available for sale assets
Intangible assets
Other
Net tax assets/(liabilities)
Movement in temporary differences during the year:
Balance at Recognised Recognised Recognised
in equity
in income
Share Balance at Recognised Recognised
in equity
28 Feb in income
1 March
2010
£000
on
acquisition
£000
options
exercised
£000
£000
£000
Share Balance at
29 Feb
2012
£000
options
xercised
£000
Property, plant and
equipment
Share based payments
Trading losses
Net fair value movement on
available for sale assets
Intangible assets
Other
(506)
438
-
(49)
(124)
80
(161)
£000
(375)
140
228
-
(141)
121
(27)
£000
-
1,030
-
2
(3)
-
1,029
-
-
-
-
(119)
-
(119)
-
(181)
-
-
-
-
(181)
2011
£000
(881)
1,427
228
(47)
(387)
201
541
(752)
32
74
-
(162)
199
(609)
-
(309)
-
5
-
-
(304)
-
(102)
-
-
-
-
(102)
(1,633)
1,048
302
(42)
(549)
400
(474)
The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances.
58 • FIRST DERIVATIVES PLC
Notes
(continued)
29 Deferred taxation (continued)
Company
Deferred tax assets and liabilities are attributable to the following:
2012
£000
Property, plant and equipment
Share based payments
Net fair value movement on
available for sale assets
Other
Net tax assets/(liabilities)
-
1,048
-
36
1,084
Assets
2011
£000
-
1,427
-
41
1,468
2012
£000
(1,497)
-
(42)
-
(1,539)
Liabilities
2011
£000
(867)
-
(47)
-
(914)
2012
£000
(1,497)
1,048
(42)
36
(455)
Net
2011
£000
(867)
1,427
(47)
41
554
Movement in temporary differences during the year:
Balance at Recognised Recognised
in equity
in profit
and loss
£000
1 March
2010
£000
£000
Share Balance at Recognised Recognised
in equity
options
exercised
£000
28 Feb
2011
£000
in profit
and loss
£000
Property, plant and
equipment
Share based payments
Employee benefits
Net fair value movement on
available for sale assets
Other
(461)
438
-
(49)
37
(35)
(406)
140
-
-
4
(262)
-
1,030
-
2
-
1,032
-
(181)
-
-
-
(181)
(867)
1,427
-
(47)
41
554
(630)
32
-
-
(5)
(603)
Share Balance at
28 Feb
2012
£000
options
exercised
£000
-
(102)
-
-
-
(102)
(1,497)
1,048
-
(42)
36
(455)
£000
-
(309)
-
5
-
(304)
The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances.
NOTES • 59
Notes
(continued)
30 Contingent deferred consideration
Contingent deferred consideration liabilities are payable as follows:
2012
£’000
7,610
At 1 March
(Decrease)/Increase in
contingent deferred consideration (1,354)
Foreign exchange movement in
contingent deferred consideration
Settled in year – cash
Settled in year – share issue
Settled in year – share
option charge
At 29 February
222
(3,316)
(2,216)
(56)
890
Group
2011
£’000
7,542
2,302
(241)
(1,795)
-
(198)
7,610
2012
£’000
5,268
133
199
(3,100)
(2,216)
(25)
259
Company
2011
£’000
5,298
1,981
(263)
(1,550)
-
(198)
5,268
The payment of contingent deferred consideration was paid in cash together with a share option charge in
respect of share options issued as part of purchase consideration. The (decrease)/increase in contingent deferred
consideration arises from a reassessment of contingent deferred consideration in line with (decreased)/increased
performance of the subsidiary as per the terms of the relevant sale and purchase agreement. As at 29 February
2012 the maximum total amount payable under the terms of the sale and purchase agreements is £4,772k
(2011: £9,557k) and the minimum total amount payable is £335k (2011: £5,268k).
Less than one year
Between one and five years
2012
£’000
890
-
890
Group
2011
£’000
5,617
1,993
7,610
2012
£’000
259
-
259
Company
2011
£’000
5,268
-
5,268
The amount of contingent deferred consideration is variable depending on the future performance of the
relevant subsidiary. £859k (2011: £5,381k) of the group contingent deferred consideration is payable in cash,
£Nil (2011: £2,068k) payable in a variable number of shares and £31k (2011: £161k) unamortised share option
charge.
60 • FIRST DERIVATIVES PLC
Notes
(continued)
31 Trade and other payables
Current liabilities
Trade payables
Other payables
Accruals
Deferred income including
government grants
Payables to subsidiaries
Non current liabilities
Deferred income in respect of
government grants
2012
£’000
1,265
1,801
692
3,698
-
7,456
2012
£’000
2,901
Group
2011
£’000
1,195
2,210
662
3,888
-
7,955
Group
2011
£’000
2,034
2012
£’000
707
1,405
535
1,978
965
5,590
2012
£’000
1,820
Company
2011
£’000
667
1,766
598
1,771
235
5,037
Company
2011
£’000
1,570
The group and company’s exposure to currency and liquidity risk related to trade and other payables is disclosed
in note 39.
The group has claimed three government grants to date as follows:
• Grant amounting to £5,122k, conditional on recruitment of additional staff. The grant is recognised as
deferred income as additional staff are recruited and is being amortised over the period of the grant.
• Grant amounting to £468k, conditional on the provision of staff training. It is recognised as other income as
training is provided.
• Grant amounting to £1,744k, conditional upon research and development expenditure. This is recognised as
deferred income as expenditure is incurred and is being amortised over the useful life of the generated
intangible.
32 Current tax payable
Current tax payable
2012
£’000
702
Group
2011
£’000
1,176
2012
£’000
798
Company
2011
£’000
1,489
Notes
(continued)
33 Provisions
At 1 March 2011
Payments
Release to income statement
At 29 February 2012
At 1 March 2010
Payments
At 28 February 2011
NOTES • 61
Group
£’000
344
(78)
(266)
-
645
(301)
344
On the acquisition of the trade and assets of Cognotec Holdings Ltd in the 2010 certain contracts were identified
that were deemed to be onerous in nature due to the requirement to deliver services for no additional income.
This related to a prepayment made by a third party prior to the group’s purchase of the trade and assets of the
business. The contracted service to be delivered for this payment had not been delivered at the time of the
acquisition. The group had an obligation to refund the prepayment (payments made of £379k) and has
renegotiated the remaining balance (£266k). No further amounts are due.
34 Capital and other commitments
There was no capital or other commitments at the current or prior year end.
35 Leasing commitments
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2012
£’000
572
1,466
1,121
3,159
Group
2011
£’000
412
1,130
980
2,522
2012
£’000
140
560
840
1,540
Company
2011
£’000
140
560
980
1,680
The group leases four premises under operating lease arrangements.
Group
During the year £513k was recognised as an expense in the income statement in respect of operating leases
(2011: £348k).
Company
During the year £140k was recognised as an expense in the income statement in respect of operating leases
(2011: £140k).
36 Pension contributions
The group makes contributions to the personal pension schemes of certain employees. The pension charge for
the year amounted to £650k (2011: £308k). Contributions amounting to £101k (2011: £84k) were payable to
the schemes at the year end and are included in creditors.
62 • FIRST DERIVATIVES PLC
Notes
(continued)
37 Related party transactions
Group
Key management personnel compensation
The remuneration of the directors and rights to subscribe for shares as set out in note 12 is deemed to be the
remuneration of key management personnel.
Key management personnel and director transactions
The Group is charged rent monthly for the use of apartments located in London owned by Brian Conlon. The
charge incurred during the financial year amounted to £53k (2011: £53k). Rent deposits of £26k (2011: £26k)
have been paid to the Brian Conlon in respect of these apartments.
During the year the group incurred £40k (2011: £50k) expenditure with Glenmount Limited, a consultancy
services company in which M O’Neill is a director. The balance owed to Glenmount at 29 February 2012 is £6k
(2011: £10k).
During the year, until the date of his resignation, the group incurred £nil (2011: £273k) expenditure with
Ishtara Consulting Limited, a company in which P Kinney is a director for consulting services. The balance owed
to Ishtara at 29 February 2012 is £nil (2011: £40k).
A 15 year lease was entered into for the rental of office space for the head office in Newry. The lessor is Oncon
Properties, a partnership owned by B Conlon and M O’Neill. £140k (2011: £140k) rental charge was incurred in
the year. The balance owed to Oncon at 29 February 2012 is £nil (2011: £99k).
Other related party transactions
Associate
Associate
Company
Other related party transactions
Subsidiaries
Associate
106
106
2012
£000
1,783
458
2,241
Commission earned Administrative expenses incurred from
2011
£000
2011
£000
2012
£000
2012
£000
458
458
869
869
121
121
303
303
Receivables outstanding
2011
2012
£000
£000
616
616
Payables outstanding
2011
£000
2012
£000
-
-
-
-
Revenue Administrative expenses incurred from
2011
£000
2011
£000
2012
£000
485
869
1,354
4,317
121
4,438
2,892
303
3,195
NOTES • 63
Notes
(continued)
37 Party related transactions (continued)
Subsidiaries
Associates
Receivables outstanding
2011
2012
£000
£000
10,030
106
10,136
7,914
616
8,530
Payables outstanding
2012
£000
965
-
965
2011
£000
235
-
235
The above associate receivables balances outstanding for group and company includes a trade receivable balance
of £64k (2011: £454k) and a prepayment of £42k (2011: £162k).
All outstanding trade receivable balances with the associate are on an arms length basis and are due to be
settled in cash within six months of the reporting date. The balances are not secured. The group has a perpetual
OEM agreement for the kbd+ software. In addition, the group has a sales partner agreement to regulate
circumstances where it may assist the associate on the sale of its products.
During the year development costs of £328k (2011: £677k) were recharged from a subsidiary to the company.
Interest is charged on inter-company loans at market rates.
38 Ultimate controlling party
There is no one party who is the ultimate controlling party of the group and company.
39 Financial instruments
Fair values
Group
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet,
are as follows:
2012
Loans and
receivables
£’000
Liabilities at
amortised cost
£’000
Trade and other receivables
Cash and cash equivalents
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
Contingent deferred consideration
13,045
1,318
-
-
-
-
-
-
-
(20,625)
(1,607)
(3,758)
(2,110)
(859)
Carrying amount
Fair value
£’000
13,045
1,318
(20,594)
(1,607)
(3,758)
(2,110)
(859)
£’000
13,045
1,318
(20,594)
(1,607)
(3,758)
(2,110)
(859)
64 • FIRST DERIVATIVES PLC
Notes
(continued)
39 Financial instruments (continued)
2011
Loans and
receivables
£’000
Liabilities at
amortised cost
£’000
Trade and other receivables
Cash and cash equivalents
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
Contingent deferred consideration
Provisions
11,845
3,501
-
-
-
-
-
-
-
-
(22,683)
(26)
(4,067)
(2,401)
(7,610)
(344)
Carrying amount
Fair value
£’000
11,845
3,501
(22,642)
(26)
(4,067)
(2,401)
(7,610)
(344)
£’000
11,845
3,501
(22,642)
(26)
(4,067)
(2,401)
(7,610)
(344)
Company
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet,
are as follows:
2012
Loans and
receivables
£’000
Liabilities at
amortised cost
£’000
Trade and other receivables
Cash and cash equivalents
Secured bank loans
Trade, accruals and other payables
Employee benefits
Contingent deferred consideration
16,232
962
-
-
-
-
-
-
(20,625)
(3,612)
(1,901)
(259)
Carrying amount
Fair value
£’000
16,232
962
(20,594)
(3,612)
(1,901)
(259)
£’000
16,232
962
(20,594)
(3,612)
(1,901)
(259)
2011
Loans and
receivables
£’000
Liabilities at
amortised cost
£’000
Trade and other receivables
Cash and cash equivalents
Secured bank loans
Trade, accruals and other payables
Employee benefits
Contingent deferred consideration
15,495
2,956
-
-
-
-
-
-
(22,683)
(3,266)
(2,121)
(5,268)
Carrying amount
Fair value
£’000
15,495
2,956
(22,642)
(3,266)
(2,121)
(5,268)
£’000
15,495
2,956
(22,642)
(3,266)
(2,121)
(5,268)
NOTES • 65
Notes
(continued)
39 Financial instruments (continued)
Exposure to credit risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to
credit risk at the reporting date was:
Trade and other receivables
Cash and cash equivalents
Group
Carrying amount
2011
£’000
11,845
3,501
15,346
2012
£’000
13,045
1,318
14,363
Company
Carrying amount
2011
£’000
15,495
2,956
18,451
2012
£’000
16,232
962
17,194
All financial assets which are subject to credit risk are held at amortised cost.
The maximum exposure to credit risk for trade and other receivables at the reporting date by geographical
region was:
Europe
America
United Kingdom
Australasia
2012
£’000
2,667
4,949
3,666
1,763
13,045
Group
2011
£’000
1,063
4,061
6,211
510
11,845
2012
£’000
6,861
4,899
3,759
713
16,232
Company
2011
£’000
5,688
3,415
6,334
58
15,495
The maximum exposure to credit risk for trade and other receivables at the reporting date by type of
counterparty was:
End-user customer
Other
2012
£’000
9,337
3,708
13,045
Group
2011
£’000
8,566
3,279
11,845
2012
£’000
5,040
11,192
16,232
Company
2011
£’000
5,152
10,343
15,495
The group’s most significant customer is an investment bank which accounts for £1,472k of the trade and other
receivables carrying amount at 29 February 2012 (2011: £3,262k). No other customers had receivable balances
in excess of 10% of the group’s total balance at the year end. In addition £1,303k (2011: £2,428k) is receivable
from Invest Northern Ireland in respect of grants receivable.
66 • FIRST DERIVATIVES PLC
Notes
(continued)
39 Financial instruments (continued)
Impairment losses
The ageing of trade receivables at the reporting date was:
Group
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 120 days +
Total
Company
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 120 days +
Total
Gross
2012
£’000
4,612
1,464
761
2,841
9,678
Gross
2012
£’000
3,192
757
425
727
5,101
Impairment
2012
£’000
-
-
-
379
379
Impairment
2012
£’000
-
-
-
230
230
Gross
2011
£’000
3,402
3,357
215
1,487
8,461
Gross
2011
£’000
2,202
2,409
69
368
5,048
Impairment
2011
£’000
-
-
-
440
440
Impairment
2011
£’000
-
-
-
350
350
The movement in the specific allowance for impairment in respect of trade receivables during the year was as
follows:
Balance at 1 March
Impairment loss (reversed) /charged
Amounts written off
Balance at end of period
2012
£’000
440
(60)
(1)
379
Group
2011
£’000
176
381
(117)
440
2012
£’000
350
(120)
-
230
Company
2011
£’000
150
211
(11)
350
A review of debt outstanding led to the reversal of £60k previously included in the impairment provision.
A specific impairment loss was incurred during the prior year with regard to concerns over the recoverability of
debt relating to four customers mainly due to the economic circumstances of the customers. The group and
company believe that the unimpaired amounts that are past due by more than 30 days are still collectible, based
on historic payment behaviours.
The above allowance for impairment for the group includes a collective based provision of £112k (2011: £82k).
The allowance for impairment for the company is entirely specific.
NOTES• 67
Notes
(continued)
39 Financial instruments (continued)
Liquidity risk
Group
The following are contractual maturities of financial liabilities, including estimated interest payments.
29 February 2012
Carrying Contractual
amount cash flows
£’000
£’000
6 mths 6-12 mths 1-2 years 2-5 years More than
5 years
or less
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Finance leases
Trade and other payables
Deferred consideration
(20,594)
(1,607)
(3,758)
(859)
(26,818)
(25,475)
(1,755)
(3,758)
(859)
(31,847)
(2,881)
(87)
(3,758)
(438)
(7,164)
(1,589)
(137)
-
(421)
(2,147)
(3,045)
(498)
-
-
(3,543)
(17,960)
(1,033)
-
-
(18,993)
-
-
-
-
-
28 February 2011
Carrying Contractual
amount cash flows
£’000
£’000
6 mths 6-12 mths 1-2 years 2-5 years More than
5 years
or less
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Finance leases
Trade and other payables
Deferred consideration
Other provision
(22,642)
(26)
(4,067)
(5,381)
(344)
(32,460)
(27,012)
(28)
(4,067)
(5,483)
(344)
(36,934)
(1,120)
(28)
(4,067)
(3,104)
(50)
(8,369)
(1,120)
-
-
(284)
(50)
(1,454)
(3,163)
-
-
(2,095)
(100)
(5,358)
(21,609)
-
-
-
(144)
(21,753)
-
-
-
-
-
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 28.
68 • FIRST DERIVATIVES PLC
Notes
(continued)
39 Financial instruments (continued)
Company
The following are contractual maturities of financial liabilities, including estimated interest payments.
29 February 2012
Carrying Contractual
amount cash flows
£’000
£’000
6 mths 6-12 mths 1-2 years 2-5 years More than
5 years
or less
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Trade and other payables
Deferred consideration
(20,594)
(3,612)
(259)
(24,465)
(25,475)
(3,612)
(259)
(29,346)
(2,881)
(3,612)
(259)
(6,752)
(1,589)
-
-
(1,589)
(3,045)
-
-
(3,045)
(17,960)
-
-
(17,960)
-
-
-
-
28 February 2011
Carrying Contractual
amount cash flows
£’000
£’000
6 mths 6-12 mths 1-2 years 2-5 years More than
5 years
or less
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Trade and other payables
Deferred consideration
(22,642)
(3,266)
(3,039)
(28,947)
(27,012)
(3,266)
(3,039)
(33,317)
(1,120)
(3,266)
(2,929)
(7,315)
(1,120)
-
(110)
(1,230)
(3,163)
-
-
(3,163)
(21,609)
-
-
(21,609)
-
-
-
-
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 28.
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at
significantly different amounts.
Currency risk
Group
The group’s exposure to currency risk was as follows:
CAD
£000’s
Trade receivables
947
Secured bank loans
-
Trade payables
-
Gross balance sheet exposure 947
29 February 2012
USD
Euro
£’000
£’000
249
-
-
249
4,091
(453)
-
3,638
CAD
£000’s
171
-
-
171
28 February 2011
USD
£’000
Euro
£’000
627
-
-
627
2,901
(3,182)
(65)
(346)
The secured bank loan above excludes bank loans designated in a net investment hedge of £10,036k
(2011: £10,631k).
NOTES • 69
Notes
(continued)
39 Financial instruments (continued)
Company
The company’s exposure to currency risk was as follows:
29 February 2012
CAD
£000’s
Trade receivables
947
Secured bank loans
-
Trade payables
-
Gross balance sheet exposure 947
Euro
£’000
215
-
-
215
USD
£’000
1,679
(453)
-
1,226
28 February 2011
CAD
£000’s
171
-
-
171
Euro
£’000
46
-
-
46
USD
£’000
1,805
(3,182)
(41)
(1,418)
The following significant exchange rates applied during the year:
USD 1
EUR 1
CAD 1
2012
1.60
1.16
1.59
Average rate Reporting date spot rate
2011
2011
2012
1.55
1.17
1.58
1.58
1.18
1.58
1.61
1.17
1.57
Sensitivity analysis
A 10% strengthening of Sterling against the above currencies at the end of the period would decrease group
equity and profit or loss by approximately £762k (2011: £45k). A 10% weakening of Sterling against the above
currencies at the end of the period would increase group equity and profit or loss by approximately £762k
(2011: £45k). This analysis assumes that all other variables, in particular interest rates, remain constant.
Interest rate risks
At the reporting date the interest profile of the group’s and company’s interest bearing financial
instruments was:
Variable rate instruments
• Financial assets
• Financial liabilities
Fixed rate instruments
• Financial assets
• Financial liabilities
2012
£’000
-
(20,625)
(20,625)
-
(1,607)
(1,607)
Group
2011
£’000
-
(22,683)
(22,683)
-
(26)
(26)
2012
£’000
-
(20,625)
(20,625)
-
-
-
Company
2011
£’000
-
(22,683)
(22,683)
-
-
-
A 10% reduction in interest rates at the end of the period would increase group equity and profit and loss by
approximately £116k (2011: £124k). A 10% increase in interest rates at the end of the period would decrease
group equity and profit or loss by approximately £116k (2011: £119k). This analysis assumes that all other
variables remain constant.
70 • FIRST DERIVATIVES PLC
Notes
(continued)
40 Employee benefits
Accrued holiday pay
Employee taxes
41 Share based payments
2012
£’000
632
1,478
2,110
Group
2011
£’000
654
1,747
2,401
2012
£’000
517
1,384
1,901
Company
2011
£’000
527
1,594
2,121
Options have been granted as set out below under the group’s two share option schemes which are open to all
directors and employees of the group. The key terms of all options issued are consistent, with all options subject
to the completion of one, two, three and four years of service as set by the group prior to the grant of the
option, with the exception of options issued as purchase consideration which include conditions relating to
performance. As the options vest at annual intervals over a three year period, they are deemed to consist of
three separate options for valuation purposes. Vested options are exercisable following the satisfaction of the
service criteria for a period not exceeding 10 years from the date of grant. It is noted that share options which
pre-date the scope of IFRS 2: (Share Based Payment), are not accounted for under this standard.
The number and weighted average exercise prices of share options have been analysed into three exercise price
ranges as follows:
Weighted average
exercise price
2012
Number Weighted average
exercise price
2011
of options
2012
Maximum options outstanding
at beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding
at end of period
Exercisable at end of period
1.31
1.14
1.30
-
1.33
1.24
1,790,375
(194,875)
(227,833)
-
1,367,667
630,000
1.28
1.41
1.03
-
1.31
1.24
Number
of options
2011
2,076,000
(45,500)
(240,125)
-
1,790,375
780,000
The options outstanding at 29 February 2012 above have an exercise price in the range of £0.510 to £1.785
(2011: £0.510 to £1.785) and a weighted average contractual life of 5.6 years (2011: 6.7 years).
Weighted average
exercise price
2012
Number Weighted average
exercise price
2011
of options
2012
Maximum options outstanding
at beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding
at end of period
Exercisable at end of period
2.51
2.64
2.50
-
2.49
2.69
1,087,000
(125,000)
(30,335)
-
931,665
195,120
2.71
2.53
2.67
2.27
2.51
2.67
Number
of options
2011
676,000
(69,500)
(30,500)
511,000
1,087,000
200,000
The options outstanding at 29 February 2012 above have an exercise price in the range of £2.270 to £2.735
(2011: £2.270 to £2.735) and a weighted average contractual life of 7.1 years (2011: 8.1 years).
NOTES • 71
Notes
(continued)
41 Share based payments (continued)
Weighted average
exercise price
2012
Number Weighted average
exercise price
2011
of options
2012
Number
of options
2011
Maximum options outstanding
at beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding
at end of period
Exercisable at end of period
4.15
-
-
4.40
4.33
-
350,000
-
-
1,011,600
1,361,600
-
-
-
-
4.15
4.15
-
-
-
-
350,000
350,000
-
The options outstanding at 29 February 2012 above have an exercise price in the range of £4.150 to £4.800
(2011:£4.150) and a weighted average contractual life of 9.7 years (2011: 9 years).
The weighted average share price at the date of exercise for share options exercised for the year ending 29
February 2012 was £4.95 per share (2011: £3.310).
The fair value of services received in return for share options granted is based on the fair value of share options
granted, measured using an adjusted Black Scholes model, with the following inputs:
Grant of options on 20 December 2011
Fair value of share options and assumptions
Fair value at grant date
Share price at grant date
Exercise price
Number of options
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
Grant of options on 3 March 2011
Fair value of share options and assumptions
Fair value at grant date
Share price at grant date
Exercise price
Number of options
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
2012
1.22
4.80
4.80
250,000
30%
3 years
0.1%
4.0%
2012
1.19
4.27
4.27
90,000
30%
3.5 years
0.1%
4.0%
72 • FIRST DERIVATIVES PLC
Notes
(continued)
41 Share based payments (continued)
Grant of options on 3 March 2011
Fair value of share options and assumptions
Fair value at grant date
Share price at grant date
Exercise price
Number of options
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
Grant of options on 21 November 2010
Fair value of share options and assumptions
Fair value at grant date
Share price at grant date
Exercise price
Number of options
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
Grant of options on 3 March 2010
Fair value of share options and assumptions
Fair value at grant date
Share price at grant date
Exercise price
Number of options
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
2012
0.98
4.27
4.27
671,600
30%
2.5 years
0.1%
4.0%
2011
1.52
4.15
4.15
350,000
40%
4 years
0%
4%
2011
0.83
2.27
2.27
511,000
40%
4 years
0%
4%
The adjustments made to the standard Black Scholes model are those required to reflect more clearly the
company’s experience relating to key assumptions.
NOTES • 73
Notes
(continued)
41 Share based payments (continued)
Employee expenses
2012 2011
£’000 £’000
Expense relating to:
Share options granted in 2007/08 – equity settled - 7
Share options granted in 2009/10 – equity settled 64 145
Share options granted in 2010/11 – equity settled 296 188
Share options granted in 2011/12 – equity settled 126 -
Total expense recognised as employee benefit expense 486 340
Capitalised expenses
Amounts relating to:
Share options granted in 2011/12- equity settled 183 -
Total amount recognised as software development cost 183 -
Business combinations
Amount relating to:
Share options granted in 2009/10 – equity settled 56 198
Total amount recognised in share based payment reserve 725 538
42 Contingencies
Government grants
A portion of grants may become repayable should the conditions of offer cease to be met. The repayment of the
employment grant is contingent on the maintenance of employment levels to May 2014, February 2016 and
October 2016 in relation to the respective grants.
74 • FIRST DERIVATIVES PLC
About Delta
Launched in 2008, Delta is a comprehensive suite of
high performance real-time trading, CEP, market
data and risk management applications. Flagship
trading products include Delta Flow, Delta Algo,
Delta Margin and Delta Stream which are used in
high volume, low latency environments.
NOTES • 75
Notes
76 • FIRST DERIVATIVES PLC
Notes
NOTES • 76
Notes
78 • FIRST DERIVATIVES PLC
Notes
NOTES • 79
Notes
80 (cid:129) FIRST DERIVATIVES PLC
Corporate Directory
UK & Ireland
Registrars
Neville Registrars Ltd.
Neville House
18 Laurel Lane
Halesowen
West Midlands
B63 3DA
Telephone: +44 121-585 1131
Fax: +44 121 585 1132
PR
Stakeholder Communications
2 Donegal Square East,
Belfast
BT1 5HB
Northern Ireland
Telephone: +44 (0)28 9033 9949
Email: info@stakeholdergroup.com
Website: www.stakeholdergroup.com
Walbrook Public Relations
4 Lombard Street,
London
EC3V 9HD
Telephone:+44 (0)20 7933 8780
Email: info@walbrookpr.com
Website: www.walbrookpr.com
Brokers
Charles Stanley Securities
25 Luke Street
London
EC2A 4AR
United Kingdom
Telephone: +44 (0) 207 149 6000
Fax: +44 (0) 207 149 6777
Website: www.csysecurities.com
IEX Brokers
Goodbody Stockbrokers
Ballsbridge Park
Ballsbridge
Dublin
Ireland
Telephone: +353 1 614 0600
Fax: +353 1 667 2111
Email: support@goodbody.ie
Website: www.goodbody.ie
Solicitors
Mills Selig
21 Arthur Street
Belfast
BT1 4GA
Northern Ireland
Telephone: +44 28 9024 3878
Fax: +44 28 9023 1956
Email: info@nilaw.com
Website: www.millselig.com
Auditors
KPMG
Stokes House
17-25 College Square East
Belfast
BT1 6DH
Telephone: +44 (0)28 90243377
Fax: +44 (0)28 90893893
Website: www.kpmg.ie
Global Directory
UK & Ireland
Head Office
First Derivatives plc
3 Canal Quay
Newry
Co. Down
N. Ireland
BT35 6BP
Telephone: +44 28 3025 2242
London
Fifth Floor
9 Devonshire Square
London
EC2M 4YF
UK
USA & Canada
New York
45 Broadway
Suite 2040
New York
NY 10006
USA
Telephone: +1 (212) 447-6700
Philadelphia
1880 JFK Boulevard
19th Floor
Philadelphia
PA19103
USA
Asia Pacific
Sydney
Suite 713
1C Burdett Street
Hornsby
NSW 2076
Australia
Belfast
Suite B
First Floor
11-13 Gloucester Street
Belfast
Co. Antrim
N. Ireland
BT1 4LS
Dublin
1st Floor
Fleming Court
Flemings Place
Mespil Road
Dublin 4
Ireland
New Jersey
14 Vervalen Street
Closter
NJ 07624
USA
Toronto
First Canadian Place
100 King Street West
Suite 5600
Toronto
M5X 1C9
Canada
Adelaide
Rose Park House
30 Kensington Road
Rose Park
SA 5067
Australia
First Derivatives PLC
info@firstderivatives.com
www.firstderivatives.com