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Annual Report 2014

Plain-text annual report

First Derivatives plc Directors’ report and consolidated financial statements Registered number: NI 30731 28 February 2014 First Derivatives plc Contents Chairman’s statement Chief Executive’s statement Directors and advisers Directors’ report Strategic report Report of the Remuneration Committee Corporate governance Statement of Directors’ responsibilities in respect of the Strategic report, the Directors’ report and the financial statements Independent auditor’s report to the members of First Derivatives plc Consolidated statement of comprehensive income Consolidated balance sheet Company balance sheet Consolidated statement of changes in equity Company statement of changes in equity Consolidated cash flow statement Company cash flow statement Notes forming part of the financial statements Page 2 4 8 9 12 15 17 18 19 21 22 23 24 26 28 29 30 First Derivatives plc Chairman’s statement The fiscal year to 28 February 2014 has seen the Group grow its operations across all regions and divisions in a market which continues to improve. The ongoing investment in the Group’s technology platform ensures we are in a strong position to meet clients’ needs and to deliver further strong growth. Revenue for the year ended 28 February 2014 increased by 23.8% to £69.9 million from £56.5 million in the previous year. Pre-tax profits grew 29.0% to £7.9 million compared to £6.2 million in 2013. The programme of disposals of our property portfolio has continued over the year with the sale of eleven individual properties generating a profit on sale of £0.9 million. We also raised £4.7m in a share placing at £5.64 per share in July 2013 leading to net debt of £11.2m at the year-end in comparison to £22.2m last year. The Group continues to generate positive operating cash flows and this has allowed the Board to recommend payment of a final dividend of 9.00p per share which, together with the interim dividend of 3.20p per share paid on 5 December 2013, gives a total dividend for the year of 12.20p. The final dividend, if approved at the AGM, will be paid on 25 July 2014 to those shareholders on the register on 20 June 2014. Software Growth in software sales to £19.3 million (2013: £15.0 million) represented an increase of 28.8% arising from our continued focus on three markets segments for the Delta software suite. The announcement of our win to provide surveillance software to the Australian Securities and Investment Commission at the end of the last financial year initiated numerous discussions with exchanges, brokers and regulators on a global basis. We expect to gain further market share in the area of market surveillance and monitoring in the coming months. Announcements like those made with NYSE Technologies (“NYSET”) and Thomson Reuters demonstrates we have software which is the epitome of big data software solutions for volume and velocity. Our focus on the Foreign Exchange Trading market remains. During the year we successfully launched Delta Flow in our Tokyo Data Centre linking local bank pricing engines to allow Asian brokers to source FX liquidity from a potential pool of 40 banks. We see this as a major boost as it improves our ability to gain market share of the largest segment (Japanese retail FX trading) of the largest market in the world (FX Market). We continue to invest in Delta Flow and anticipate increasing our share of the market further this year. Consulting Consulting revenues grew strongly rising by 22.0% to £50.6 million from £41.5 million in the previous year. This impressive performance demonstrates the strength of our offering in meeting the regulation, remediation and realignment needs of our customers. The market is improving and investment continues to be needed by institutions to meet regulation driven requirements. This, along with continuing remediation of existing systems to meet new requirements while realigning back and middle office to support new institution strategies to meet them efficiently, generates continuing demand for services. 2 First Derivatives plc Chairman’s statement (continued) We continue to be successful in cross selling to existing customers, whilst also adding new institutions. Confidence in our ability to do so allows us to invest in enhancing the capabilities as demonstrated by the acquisitions of Redshift Horizons Limited and Cowrie Financial Limited last year and our continued investment in recruitment and training of our staff. We are confident we are well positioned to continue our growth trajectory as we enhance and adapt our services, building upon our existing stable revenue arising from our focus on mission critical applications. Board changes At the Annual General Meeting on 18 July 2013 David Anderson stepped down as Non-executive Chairman following 12 years of unfaltering service, and David remains a Non-executive Director. I would like, on behalf of the Board, to thank David for his substantial contribution to Group over this period. I also thank Michael O’Neil who resigned from the board during the year after many years of dedicated service to First Derivatives. During the year we established an Executive Committee as we strengthened our senior management team. Two executive directors, Adrian Toner and Kevin Cunningham, resigned from the main board as they joined the Executive Committee and continue to be key members of the senior management team. Outlook The 2013/14 year has seen strong growth across the Group’s activities with total revenues up over 23.8%. The current fiscal year is set to be a pivotal year for the Group as we gain traction in our target markets for our software. We have a strong business in consulting with an expansive capability and have confidence in our ability to grow this as we have done in previous years. The pipeline across the business is strong and as the year progresses we expect to demonstrate progress in the areas we are addressing. We have invested to ensure the Group is in a strong position to capture market share in software and consulting and consequently expect to report further progress in the year to 28 February 2015. I would like to thank the staff of First Derivatives and my board colleagues for their hard work for achieving another successful year of growth for the Group. Seamus Keating Chairman 19 May 2014 3 First Derivatives plc Chief Executive’s statement The outlook for the capital markets has improved in 2014 with major economies emerging from recession and the Eurozone crisis having abated for the moment. For the first time in a number of years our customers are looking to invest to exploit new opportunities, in addition to dealing with ever more complex regulations and shoring up their capital bases by seeking to reduce costs. Amidst this I am pleased to report that First Derivatives has had another successful year. As well as growing our revenues and increasing profits, we have made a number of significant investments in research and development and our sales capacity which we believe will generate further growth in the coming years. Review of activities First Derivatives sells software products to the capital markets and provides a range of associated consulting services. Our growing customer base currently consists mainly of investment banks, brokers, exchanges, regulators and hedge funds. Whilst the majority of our customer assignments are undertaken in major financial centres such as New York, London, Toronto, Chicago, Singapore, Hong Kong, Tokyo and Sydney, we also have engagements underway in locations such as Bahrain, Mumbai, Milan and Mexico City. There are potentially thousands of customers for our products and services, many of whom spend hundreds of millions of pounds annually on technology and associated services. We differentiate ourselves from other vendors by providing a combination of domain knowledge and technical expertise. This is relatively unique in the industry, which has no dominant player and is extremely fragmented. First Derivatives has strong brand recognition and is rapidly becoming one of the industry’s leading players. We are focused on building recurring revenue from our software assets and in our consulting business we target assignments that last for many years to establish a visible revenue stream. We made a major investment in our sales capacity this year. We have established a regional hub in Singapore with supporting satellite offices in Hong Kong and Japan. In addition,we signed new partnerships with NYSE Technologies, Pivotal in California and are about to sign up a new partner in China and Taiwan. This expansion in direct and indirect sales channels has been accompanied by a significant increase in front line personnel and is indicative of our confidence in the quality of our product and consulting offerings. Delta Software Our singular focus in developing our software since we made the strategic decision to develop our own product has been data – the capture, enrichment and analysis of vast amounts of high frequency data in real-time. We have been working with Big Data, long before the term came into vogue, and are one of the few companies to have built and deployed Big Data products. We used our capital markets domain knowledge to the benefit of our customers and created disruptive applications in a number of niche areas, branded under the Delta umbrella. Furthermore, we have invested significantly in building ecosystems in the cloud to deploy Delta applications – not only does it allow our customers to share data and liquidity but it also saves them significant infrastructure, support and development costs. We secured prestigious anchor tenants for these deployments who are happy to act as reference clients. This multi-tenanted, hosted model is expensive to establish as it entails significant upfront development and infrastructure cost. However the acquisition of new cost customers is low as are ongoing incremental support costs. In the past year we have had success in a number of areas: 4 First Derivatives plc Chief Executive’s statement (continued) Delta Software (continued) Delta Stream (Surveillance) – This has been an exciting year for us as we have travelled the world to meet Exchanges, Regulators and Brokers in each continent. The catalyst for this increased interest in our Delta Stream product has been the successful deployment of a surveillance system for the Australian market – a deal we announced in December 2012. This system is being publicly heralded by the Australian Regulator as a key weapon in their mandate to discourage insider trading and to reduce systemic risk. Delta Stream analyses trades and quotes in real-time and applies algorithms to identify patterns of activity indicating insider trading, fat finger trades and other forms of market dysfunction and to take remedial action where necessary. One topical form of market dysfunction that Delta Surveillance is designed to prevent is the type of flash crash which sent the Dow Jones crashing by over 1,000 points in 10 minutes in May 2010. We have recently signed a deal in this area and we expect to be in a position to provide further news in the coming months. Delta Flow (Foreign Exchange) - Our Delta Flow product is now a relatively mature product and is in use by circa 30 banks and brokers to help them source FX liquidity from a pool of 40 banks co-located in data centres in New Jersey and Tokyo. We successfully deployed Delta Flow in Tokyo late last year and live trading started in February 2014. This initiative, which was backed by one of Japan’s largest banks, gives us a springboard for increasing our market share in the country, the world’s largest retail FX market and in Asia in general. Our customers trade billions of dollars of spot FX per day and we now also support FX forwards and swaps following the latest release of our product in March 2014. We will continue to invest heavily in Delta Flow and have a number of exciting initiatives underway (including extension of our mobile offering) in our bid to become a leading player in the world’s largest market, estimated to be worth $3 billion per annum in revenue. Delta DAAS (Data As A Service) – Our Data As A Service (DAAS) offering launched in mid 2013 has generated interest from a number of leading data providers and exchanges. DAAS is a hosted and fully managed solution targeted at consumers of data, including market and reference data, who spend vast sums building the internal global support teams and physical infrastructure (e.g., primary and secondary data centres, disk storage, hardware) required to collect and store data. The acquisition of this data does not generate any competitive advantage per se – this derives from how the data is mined and used. Our intention is to work with partners to make this data a shared utility in the same manner as water or electricity. DAAS is an example of Big Data in action – on the North American financial markets alone there are c20 million price updates a second or 113 billion per day on average, which rolls up to almost 100 trillion ( 1014 ) in 5 years, needing c21 petabytes of storage. In September 2013 we announced a partnership with NYSE Technologies to bring a revolutionary Tick As A Service (TAAS) offering to the market. This initiative is on hold pending reshuffles following the ICE takeover of NYSE but is a validation of our offering and we are working on a number of similar initiatives with data vendors and exchanges. Big Data - Our platform is designed to meet the challenges of Big Data and recent product wins allied with our data pedigree has brought us to the attention of some of the major players in the technology arena. Traditionally we have focussed on the “volume” and “velocity” challenges of Big Data but we have initiated a development stream to encompass a “veracity” dimension. This involves tagging and indexing events such as tweets, emails, documents and voice records. Work is still at a relatively early stage but will potentially open up a new frontier for us as we seek to “own the timestamp” for both structured and unstructured data in the capital markets. We are working on a number of partnerships with some leading Big Data players and our hope is that these partnerships will help bring our technology to a wider arena beyond finance. 5 First Derivatives plc Chief Executive’s statement (continued) Delta Software (continued) I am pleased to report that our recurring software revenue increased by 11% this year and the growth trend has continued into the new financial year. Commitment to establishing this annual recurring/transactional model is key to building a sustainable and profitable software business. Our partner company Kx Systems has had another successful year. As a 20% shareholder and with a seat on the Board we will continue to benefit from their success and their continuing commitment to pushing the boundaries of database technology. Their product, kdb+, is used by many of the world’s largest financial institutions and Kx Systems lists organisations such as Deutsche Bank, JP Morgan, Zurich Financial Group, Morgan Stanley, Unicredit and Total Gas & Power as customers. An exciting development this year has been the expansion into the pharmaceutical and utilities sector with the signing of Purdue Pharma and the Canadian electricity regulator, IESO. Consulting First Derivatives has established itself as one of the leading niche capital markets consulting companies in the world. 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 Group has been working in this area for eighteen years and our areas of expertise continue to broaden and deepen. We are bidding for large transformation and outsourced work against (and indeed sometimes jointly bidding with) titans such as IBM, Fujitsu and Accenture. The potential lifetime value of these innovative initiatives is measured in tens of millions of pounds. In our consulting division, our underlying philosophy remains unchanged. We provide people who understand the capital markets and who understand technology. This differentiates us from our competitors as does our flexible operating model. Our consulting engagements allow us to keep abreast of, and respond to trends in the market. This year, utilising our platform we have developed a number of products in areas such as application monitoring (Delta Monitoring), reconciliations (Delta Rec) and testing (Delta Tools for Calypso) which further differentiate us from competitors in the consulting arena. Our consultants, whilst on the bench, are deployed 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. It is important to note that this pool of available resources will allow us to scale our software business. We have developed and refined a number of consulting offerings which are designed to allow us to bid for larger projects, to lock-in recurring revenue and to cross sell products. These include a Nearshore offering and Multi-Vendor application support. Our Nearshore model is an alternative to the popular but only partially successful outsourcing model. It is a hybrid model which involves deploying a team of consultants in situ at multiple customer sites supported by a team with similar expertise at a lower cost in our headquarters. This model is designed to address many of the shortcomings of outsourcing – cultural issues, domain expertise, timezone issues and supply and sustainability. Our Multi-Vendor application support offering (often used in conjunction with the Nearshore model) involves providing a single team to support a range of third party applications such as Calypso, Murex and Summit as well as legacy in-house systems. This multi-disciplined team is also responsible for upgrades, testing, customisation and development of interfaces. The advantage to the bank is that rather than managing multiple siloed teams they have one point of contact and cumulative savings around training, recruitment fees, duplication of effort and management overhead. 6 First Derivatives plc Chief Executive’s statement (continued) Consulting (continued) The Group has had a number of notable successes this year worth highlighting:  We have been appointed as the lead consultant in a multi-year transformation project for the European arm of a Japanese bank. Delta Rec is used as part of this engagement;  We were chosen to provide outsourced application management services across a range of applications to a German bank. This is a seven year agreement. This also involves the sale of Delta Monitoring; and  A European bank has chosen First Derivatives to assist them in the disposal of non-core assets in a program expected to last five years. Management and Personnel The Group now employs over 900 people and increased recognition of the First Derivatives brand allows us to attract talented people in our locations around the world. Our renowned graduate recruitment and training programme, the Options programme, is now six years old and with our high retention rate the experience profile of our consultants continues to increase. Once again I would like to pay tribute to all First Derivatives employees who are hardworking, talented, flexible and dedicated. Financial Review Post-tax profit for the year was £6.4 million (2013: £5.1 million) on turnover of £69.9 million (2013: £56.5 million). Our balance sheet is strong with equity attributable to shareholders up to £52.1 million (2013: £39.4 million), an increase of 32%. This, and our confidence in the Group’s ability to generate cash, enables the Board to recommend a final dividend of 9.00p per share (2013: 8.40p) which means that we will have paid a total dividend of 12.20p (2013: 11.50p) per share for the full year. Outlook The increasing maturity of our products, the investment in additional sales capacity and the health of our current pipeline gives us confidence in anticipating further growth in the year to 28 February 2015. As well as organic growth the Board will continue to pursue acquisition opportunities where we see a strategic fit. We believe 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 19 May 2014 7 First Derivatives plc Directors and advisers Directors Secretary Registered Office Auditors Solicitors Bankers – Non-executive Chairman+ – Chief Executive Officer – Chief Financial Officer – Non-executive Director*+ – Non-executive Director* – Non-executive Director*+ S Keating B G Conlon R G Ferguson P Brazel K MacDonald R D Anderson JJ Kearns 3 Canal Quay Newry Co Down BT35 6BP KPMG Chartered Accountants Stokes House 17/25 College Square East Belfast BT1 6DH Mills Selig 21 Arthur Street Belfast BT1 4GA Bank of Ireland Corporate Headquarters Donegall Place Belfast BT1 5LU Nominated Advisor/EMI Advisor and Joint Brokers Charles Stanley Securities 131 Finsbury Pavement London EC2A 1NT Goodbody Corporate Finance Ballsbridge Park Ballsbridge Dublin 4 Company registration number NI 30731 Registrar and Transfer Office * Members of the audit committee + Members of the remuneration committee Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA 8 First Derivatives plc 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 28 February 2014. Results and dividend The Group’s profit after taxation attributable to the shareholders for the year to 28 February 2014 was £6,401k (2013: £5,145k). The Directors propose the payment of a final dividend of 9.00 pence per share (previous year: 8.40 pence) which, together with the interim dividend of 3.20 pence per share (2013: 3.10 pence), totals 12.20 pence per share (2013: 11.50 pence). 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 8.40 pence per share for the year ended 28 February 2013 and an interim dividend of 3.2 pence per share for the year ended 28 February 2014. Directors The Directors who held office during the year were as follows: R D Anderson B G Conlon R G Ferguson A Toner (resigned 09 May 2013) K Cunningham (resigned 09 May 2013) M G O’Neill (resigned 09 May 2013) P Brazel K MacDonald S Keating Directors and their interests The interests of the Directors in shares during the year are set out on page 15 in the report of the Remuneration Committee. Substantial shareholdings At 19 May 2014, 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 (39.7%), Standard Life Investments Limited (8.4%), Legal & General Group plc (4.00%) and Investec Asset Management (3.3%). 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 £5,987k (2013: £5,608k) 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 £1,497k (2013: £1,428k) were expensed during the year. 9 First Derivatives plc Directors’ report (continued) 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. Financial instruments 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), Australian Dollar (AUD) and Canadian Dollar (CAD). In addition, the Group has financial risk 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 on the net assets of its foreign operations. Political donations The Group and Company made no political donations during the year (2013: £Nil). Future developments As highlighted in the Chairman’s Report and the report of the Chief Executive, the Group focuses on the sale of software and consulting services to the capital markets industry. This remains the key strategy of the Group to increase its share in its target market segments. The Delta software suite is asset class agnostic and can be applied to other asset classes and markets. The Group’s focus will remain on the capital markets, though exploitation of the software assets of the Group will be pursued. Events after the reporting date No significant events have occurred between 28 February 2014 and the date of authorisation of these financial statements. 10 First Derivatives plc Directors’ report (continued) 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. By order of the board JJ Kearns Secretary 19 May 2014 11 First Derivatives plc Strategic report Strategy and business objectives The principal business of First Derivatives plc is the provision of a range of software and consulting services to the investment banking market, the derivatives technology industry, the foreign exchange market and the provision of technology sales services to the IT sector. First Derivatives objective is to increase shareholder value by increasing the Group’s sales revenue and profit before tax. Its strategy to achieve this is focused upon organic growth supported by investment in the Group’s infrastructure or selective acquisitions providing these can be demonstrated to enhance shareholder value. 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. Organic growth is driven by providing innovative services or products to its client base focused on meeting their needs and objectives. This has seen a growing demand for software and consulting services as clients look to improve business efficiencies within their operating environment while meeting the increasing regulation needs. The business model focuses servicing or providing mission critical applications for the client base. This assists in the retention of revenue streams while allowing cross selling in the future. In addition several new clients are sought to be won each year which combined with ongoing revenue retention and cross selling ensures the continued progression of the Group. In recent periods a number of investments have been made to establish subsidiary entities. 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 investments remains to be that the new services or offerings interlink and complement each other, which enables the Group to be managed on a unified basis. Development and performance The Group performed in the year with sales increasing by £13.4 million (23.8%). Growth arose from further penetration in the two key business areas with consultancy sales increasing by £9.1 million (22.0%) and software sales by £4.3 million (28.8%). The profit before tax for the year of £7.9 million (2013: £6.2 million) represented a growth of 29.0%. Position at year end The Group’s cash from operating activities increased by 153.0% to £8.1 million which resulted in a cash and cash equivalent balance of £1.5 million (2013: (£0.3 million)). Net assets at 28 February 2014 were £52.1 million compared to £39.4 million at 28 February 2014. 12 First Derivatives plc Strategic report (continued) Key performance indicators A review of the Group’s activities in the current year is detailed in the Chief Executive’s Statement with progress against the stated objectives shown in the below table: Annual Revenue Profit Before Tax Principal risks and uncertainties 2014 £’000 69,902 7,947 2013 £’000 56,469 6,160 The Group operates in a changing economic and technological environment and is exposed to a number of risks and uncertainties in the undertaking of its day to day activities. 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 its 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. It addresses these risks by focusing sales campaigns on generating assignments with long-term visibility, continuing to increase the human capital of its consultants and diversifying its software and services portfolio offerings. Technological changes Technology in the software industry can change rapidly. It is important that the Group’s products remain up to date and that its development plans are flexible. Significant ongoing investment is made in research and development to allow the identification and adaptation to any technological changes that do occur, thereby ensuring that its products continue to meet the demands of its customers. 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 perpetual OEM agreement for the use of this database within the First Derivatives product suite. A small number of customers are important to the success of the Group, though its continued expansion continues to reduce the reliance. Growth management The Group’s ability to manage its growth effectively will require it to continue to improve its operations, financial and management controls, reporting systems and procedures, and to train, motivate and manage its employees. Investment is made in each of these areas each year to improve and add to existing functions to continue to manage the Group’s growth. 13 First Derivatives plc Strategic report (continued) Principal risks and uncertainties (continued) 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 to 3 and the Chief Executive’s Statement under the heading ‘Financial Review’ on page 7 as well as further consideration of the key business risks highlighted above. 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 38. On behalf of the board JJ Kearns Secretary 14 First Derivatives plc Report of the Remuneration Committee Remuneration Committee The Remuneration Committee operates within defined terms of reference. The Remuneration Committee comprises the Chairman and two Non-Executive Directors. It is chaired by Patrick Brazel. Remuneration policy The policy of the Group is to set levels of remuneration to attract, retain and motivate Executive Directors and key staff. The packages are designed to be competitive in value to those offered to the Directors of similar sized public companies in related sectors. It is the Board’s policy to align the interests of managers with those of our shareholders in the grant of options and other equity rewards which underlying securities grantees are very much encouraged to retain over the longer term. The components of the Executive Directors’ remuneration packages are currently a basic salary, bonus, money purchase pension contributions and benefits in kind. The bonus elements are dependent on the Executive Directors achieving performance criteria set out by the Remuneration Committee. The criteria include targets for revenue, profits and earnings per share. In addition, the Group operates share option schemes for the Executive Directors. Details of the Director’s remuneration is set out in note 12 of the financial statements. Non-Executive Directors The Board, based on a recommendation by the Chairman of the Remuneration Committee or, in the case of the Chairman, the remainder of the Board, determines the remuneration of the Non-Executive Directors. The Non-Executive Directors are not eligible to join the pension scheme. Service contracts The Executive Directors have entered into service contracts with the Group that are terminable by either party on not less than three months prior notice. Directors’ interests in shares 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: R D Anderson B G Conlon R G Ferguson P Brazel K MacDonald S Keating Ordinary shares of £0.005 each 2014 number Ordinary shares of £0.005 each 2013 number 130,000 7,853,953 117,467 - 10,000 8,643 140,000 7,853,953 117,647 - 10,000 - 15 First Derivatives plc Report of the Remuneration Committee Share options The Directors believe it is important to incentivise key management and employees. Share options granted to the Directors over ordinary £0.005 shares in the Company are set out in note 12. The mid-market price of the Company’s shares at close of business on 28 February 2014 was £12.65 and the high and low share prices during the year were £15.83 and £5.55 respectively. The Company recognised total expenses of £667k (2013: £576k) related to equity-settled share-based payment transactions during the year. Expenses of £161k (2013: £257k) related to share options granted to the Directors. 70,000 share options were exercised by the Directors during the current year (2013: Nil). Transactions with Directors The Directors interests in the contracts with the Company are disclosed in note 37. 16 First Derivatives plc Corporate governance As an AIM-quoted Company, the Group is not required to comply with the requirements of the UK Corporate Governance Code and the Group has not elected to voluntarily comply with the Code. The Group has however, put in place corporate governance arrangements which reflects the Group’s size and structure. The main features of the Group’s corporate governance arrangements 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 to the financial statements). 17 First Derivatives plc Statement of Directors’ responsibilities in respect of the Strategic report, the Directors’ report and the financial statements The Directors are responsible for preparing the Strategic report, 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 the profit or loss of the Group 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. On behalf of the board JJ Kearns Secretary 19 May 2014 18 First Derivatives plc 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 28 February 2014 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 18, 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 An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group and Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion:     the financial statements give a true and fair view of the state of the Group’s and the Company's affairs as at 28 February 2014 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. 19 First Derivatives plc Independent auditor’s report to the members of First Derivatives plc (continued) Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic report and 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 19 May 2014 20 First Derivatives plc Consolidated statement of comprehensive income Year ended 28 February 2014 Note 2014 £’000 Continuing operations Revenue Cost of sales Gross profit Other operating income Administrative expenses Results from operating activities Finance income Finance expense Loss on foreign currency translation Net financing expense Share of profit of associate using the equity method, net of tax Loss on dilution in associate using the equity method Profit before tax Tax expense Profit for the year Other comprehensive income Items that are or may be reclassified to profit or loss Deferred tax on share options outstanding Net exchange (loss)/gains on net investment in foreign subsidiaries and associate Net loss on hedge of net investment in foreign subsidiaries and associate Other comprehensive income for the period, net of tax Total comprehensive income for the period attributable to equity holders’ of the Company Earnings per share Basic Diluted 5 6 7 9 9 9 18 18 11 24 27 27 15a 15a 2013 £’000 56,469 (38,951) 17,518 1,616 (11,982) 7,152 1 (661) (538) (1,198) 249 (43) 6,160 (1,015) 69,902 (50,674) 19,228 1,950 (12,890) 8,288 4 (594) (19) (609) 268 - 7,947 (1,546) 6,401 5,145 - (3,794) (227) (4,021) 2,380 Pence 34.4 32. 29.7 461 905 (214) 1,152 6,297 Pence 30.2 32. 27.9 All profits are attributable to the owners of the Company and relate to continuing activities. The notes on pages 30 to 90 form part of these financial statements. 21 First Derivatives plc Consolidated balance sheet As at 28 February 2014 Assets Property, plant and equipment Intangible assets and goodwill Investment in associate Trade and other receivables Deferred tax asset Non-current assets Trade and other receivables Cash and cash equivalents Assets held for sale Current assets Total assets Equity Share capital Share premium Share option reserve Revaluation reserve Currency translation adjustment reserve Retained earnings Equity attributable to shareholders Liabilities Loans and borrowings Trade and other payables Deferred tax liabilities Non-current liabilities Loans and borrowings Trade and other payables Current tax payable Employee benefits Contingent deferred consideration Deferred consideration Current liabilities Total liabilities Total equity and liabilities Note 2014 £’000 2013 £’000 16 17 18 19 30 19 20 21 22 23 24 26 27 28 29 30 28 29 31 32 33 34 5,358 38,025 5,233 2,554 5,855 57,025 20,571 4,393 3,146 28,110 85,135 98 22,251 6,627 167 (3,040) 25,959 52,062 9,706 2,087 4,008 15,801 5,875 8,785 430 2,182 - - 17,272 33,073 85,135 9,094 37,545 6,295 1,673 1,969 56,576 19,837 1,902 3,364 25,103 81,679 87 12,895 3,341 167 981 21,903 39,374 17,842 2,224 2,622 22,688 6,213 8,505 649 3,038 762 450 19,617 42,305 81,679 These financial statements were approved by the Board of Directors on 19 May 2014. Seamus Keating Chairman Brian Conlon Chief Executive Officer Graham Ferguson Chief Financial Officer Registered Company number: NI 30731 The notes on pages 30 to 90 form part of these financial statements. 22 First Derivatives plc Company balance sheet As at 28 February 2014 Assets Property, plant and equipment Intangible assets Investment in subsidiaries Investment in associate Trade and other receivables Deferred tax assets Non-current assets Trade and other receivables Cash and cash equivalents Assets held for sale Current assets Total assets Equity Share capital Share premium Share option reserve Fair value reserve Retained earnings Equity attributable to shareholders Liabilities Loans and borrowings Trade and other payables Deferred tax liabilities Non-current liabilities Loans and borrowings Trade and other payables Current tax payable Employee benefits Contingent deferred consideration Deferred consideration Current liabilities Total liabilities Total equity and liabilities Note 2014 £’000 2013 £’000 16 17 18 18 19 30 19 20 21 22 23 24 25 28 29 30 28 29 31 32 33 34 2,048 12,677 24,464 7,196 4,183 5,018 55,586 14,691 3,607 3,146 21,444 77,030 98 22,251 6,627 138 21,021 50,135 9,706 820 2,694 13,220 4,649 6,696 433 1,897 - - 13,675 26,895 77,030 7,738 9,383 17,864 7,196 3,369 1,379 46,929 17,514 1,397 3,364 22,275 69,204 87 12,895 3,341 133 17,615 34,071 16,812 1,010 1,473 19,295 5,762 5,756 336 2,776 758 450 15,838 35,133 69,204 These financial statements were approved by the Board of Directors on 19 May 2014. Seamus Keating Chairman Brian Conlon Chief Executive Officer Graham Ferguson Chief Financial Officer Registered Company number: NI 30731 The notes on pages 30 to 90 form part of these financial statements. 23 First Derivatives plc Consolidated statement of changes in equity Year ended 28 February 2014 Balance at 1 March 2013 Total comprehensive income for the year Profit for the year Other comprehensive income Net exchange loss 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 of the Company Contributions and distributions Income tax relating to share options Exercise of share options Buy-back and cancellation of share options Issue of shares Issue of shares for settlement of deferred consideration Share based payment charge Transfer on forfeit of share options Dividends Total contributions and distributions Balance at 28 February 2014 - - - - - - 6 - 4 1 - - - 11 98 - - - - - - 3,695 - 4,562 1,099 - - - 9,356 22,251 The notes on pages 30 to 90 form part of these financial statements. Share capital Share premium Share option reserve Revaluation reserve £000 £000 87 12,895 £000 3,341 £000 167 Currency translation adjustment £000 Retained earnings Total equity £000 £000 981 21,903 39,374 - 6,401 6,401 (3,794) (227) (4,021) (4,021) - - - - - - - - - - - - 6,401 - - (314) - - - 69 (2,100) (2,345) (3,040) 25,959 (3,794) (227) (4,021) 2,380 3,350 2,949 (314) 4,566 1,100 757 - (2,100) 10,308 52,062 - - - - - - - - - - - - - - 167 - - - - - 3,350 (752) - - - 757 (69) - 3,286 6,627 24 First Derivatives plc Consolidated statement of changes in equity Year ended 28 February 2013 Share capital Share premium Balance at 1 March 2012 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 of the Company Contributions and distributions Exercise of share options Issue of shares as purchase consideration Share based payment charge Transfer on forfeit of share options Dividends Total contributions and distributions Balance at 28 February 2013 £000 83 - - - - - - - - 3 1 - - - 4 The notes on pages 30 to 90 form part of these financial statements. 87 12,895 10,502 2,673 £000 - - - - - - - - 1,294 1,099 - - - 2,393 Share option reserve £000 - 461 - - - - 461 461 (334) - 686 (145) - 207 3,341 25 Revaluation reserve £000 167 - - 2 - - (2) - - - - - - - - 167 Currency translation adjustment £000 Retained earnings £000 Total equity £000 290 - - - 905 (214) - 691 691 - - - - - - 981 18,521 32,236 5,145 5,145 - (2) - - 2 - 5,145 - - - 145 (1,908) (1,763) 21,903 461 - 905 (214) - 1,152 6,297 963 1,100 686 - (1,908) 841 39,374 First Derivatives plc Company statement of changes in equity Year ended 28 February 2014 Balance at 1 March 2013 Total comprehensive income for the year Profit for the year Other comprehensive income Change in effective rate of deferred tax Total other comprehensive income Total comprehensive income for the year Transactions with owners of the Company Contributions and distributions Income tax relating to share options Exercise of share options Cancellation of share options Issue of shares for settlement of deferred consideration Issue of shares Share based payment charge Transfer on forfeit of share options Dividends to equity holders Total contributions and distributions Balance at 28 February 2014 Share capital Share premium £000 £000 Share option reserve £000 Fair value reserve £000 Retained earnings £000 Total equity £000 87 12,895 3,341 133 17,615 34,071 - - - - - 6 - 1 4 - - - 11 98 - - - - - 3,695 - 1,099 4,562 - - - 9,356 22,251 - - - - 3,350 (752) - - - 757 (69) - 3,286 6,627 - 5 5 5 - - - - - - - - - 138 5,751 5,751 - - 5,751 - - (314) - - - 69 (2,100) (2,345) 21,021 5 5 5,756 3,350 2,949 (314) 1,100 4,566 757 - (2,100) 10,308 50,135 The notes on pages 30 to 90 form part of these financial statements. 26 First Derivatives plc Company statement of changes in equity Year ended 28 February 2013 Balance at 1 March 2012 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 of the Company, Contributions and distributions Exercise of share options Issue of shares as purchase consideration Share based payment charge Transfer on forfeit of share options Dividends Total contributions and distributions Balance at 28 February 2013 Share capital Share premium £000 £000 Share option reserve £000 Fair value reserve £000 Retained earnings £000 Total equity £000 83 10,502 2,673 131 16,266 29,655 3,114 3,114 - - - - - 3 1 - - - 4 87 - - - - - 1,294 1,099 - - - 2,393 12,895 - - 461 461 461 (334) - 686 (145) - 207 3,341 - 2 - 2 2 - - - - - - (2) - (2) (2) - - - 145 (1,908) (1,763) 133 17,615 - 461 461 3,575 963 1,100 686 - (1,908) 841 34,071 The notes on pages 30 to 90 form part of these financial statements. 27 First Derivatives plc Consolidated cash flow statement Year ended 28 February 2014 Cashflows from operating activities Profit for the year Adjustments for: Net finance costs Share of profit of associate Share of loss on dilution in associate Depreciation of property, plant and equipment Amortisation of intangible assets Gain on sale of property, plant & equipment Equity settled share-based payment transactions Grant income Tax expense Changes in: Trade and other receivables Trade and other payables Cash generated from operating activities Taxes paid Net cash from operating activities Cash flows from investing activities Interest received Dividend received from associate Disposal of property, plant and equipment Acquisition of subsidiaries, net of cash acquired Acquisition of property, plant and equipment Acquisition of intangible assets Payment of deferred consideration Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Payment to buy-back share options Proceeds from new borrowings Repayment of borrowings Payment of finance lease liabilities Interest paid Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 March Effects of exchange rate changes on cash held Cash and cash equivalents at 28 February 2014 £’000 6,401 609 (268) - 738 3,477 (988) 667 (1,931) 1,546 10,251 (453) (793) 9,005 (915) 8,090 4 773 7,065 (148) (2,907) (6,105) (125) (1,443) 7,515 (314) 1,000 (9,829) (254) (676) (2,204) (4,762) 1,885 (322) (19) 1,544 2013 £’000 5,145 1,198 (249) 43 699 2,527 (717) 576 (1,589) 1,015 8,648 (6,058) 1,372 3,962 (765) 3,197 1 1,267 5,046 (811) (1,098) (6,054) (471) (2,120) 963 - 3,131 (1,835) (126) (565) (1,804) (236) 841 (235) (928) (322) The notes on pages 30 to 90 form part of these financial statements 28 First Derivatives plc Company cash flow statement Year ended 28 February 2014 Cashflows from operating activities Profit for the year Adjustments for: Finance expense and foreign exchange loss Depreciation of property, plant and equipment Amortisation of intangible assets Dividends from associate and subsidiary Equity settled share-based payment transactions Profit on disposal Grant income Tax expense Changes in: Trade and other receivables Trade and other payables Cash generated from operating activities Taxes paid Net cash from operating activities Cash flows from investing activities Acquisition of subsidiaries Acquisition of property, plant and equipment Disposal of property, plant and equipment Acquisition of intangible assets Dividends received from associate and subsidiary Payment of deferred consideration Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Payment to buy-back share options Proceeds from new borrowings Repayment of borrowings Interest paid Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 March Effects of exchange rate changes on cash held Cash and cash equivalents at 28 February 2014 £’000 5,751 1,105 252 1,308 (2,573) 667 (988) (1,872) 1,184 4,834 (2,029) 73 2,878 (877) 2,001 (148) (268) 7,065 (4,512) 2,573 (107) 4,603 7,515 (314) 1,000 (9,829) (611) (2,204) (4,443) 2,161 (827) (576) 758 2013 £’000 3,114 1,523 324 733 (1,267) 494 (717) (1,053) 414 3,565 (4,073) 1,160 652 (775) (123) (958) (260) 5,046 (4,076) 1,267 (158) 861 963 - 3,131 (1,835) (501) (1,804) (46) 692 (591) (928) (827) The notes on pages 30 to 90 form part of these financial statements. 29 First Derivatives plc Notes (forming part of the consolidated financial statements) 1 Significant accounting policies First Derivatives plc (“FDP” or the “Company”) is a public limited 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 banking 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 19 May 2014. (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 the 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 those approved financial statements. The Group and Company financial statements are prepared on a historical basis except for the following items which are measured at fair value or grant date fair value:  Share based payment arrangements;  Contingent deferred consideration; and  Derivative financial instruments. 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 and Company other than those detailed in changes in accounting policies. Functional and presentational currency The financial statements are presented in GBP, rounded to the nearest thousand, which is also the Company’s functional currency. Changes in accounting policies The Group has adopted the following new standards and amendment to standards, including any consequential amendments to other standards, with an initial application of 1 March 2013 unless otherwise stated:  Amendments to IFRS 7 disclosures: Offsetting assets and liabilities  Amendments to IAS 19 Employment Benefits (2011)  Amendments to IAS 1 Presentation of Financial Statements – Presentation of items of other comprehensive income  Amendments to IAS 12 Deferred Tax: Recovery of underlying assets   Annual Improvements to IFRS 2009 – 2011 cycle IFRS 13 Fair Value Measurement 30 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (a) Basis of preparation Changes in accounting policies (continued)  Amendments to IAS 36 – Recoverable amount disclosures of non-financial assets (early adopted - mandatory 1 January 2014). 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 2013 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 is likely to become mandatory (subject to EU endorsement) for the Group’s and Company’s 2018 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 IFRS10 Investment entities (mandatory for the year commencing on or after 1 January 2014).  IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in other Entities, IAS 27 Separate Financial Statements (2013) which supercedes IAS 27 (2008) and IAS 28 Investments in Associates and Joint Ventures (2013) which supercedes IAS 28 (2008) (mandatory for the year commencing on or after 1 January 2014).  Amendments to IAS 32 Financial Instruments – Offsetting financial assets and financial liabilities (mandatory for the year commencing on or after 1 January 2014).  Amendments to IAS 39 – Novation of Derivatives and Contribution of Hedge Accounting (mandatory for the year commencing on or after 1 January 2014).  IFRIC 21 Levies (Mandatory for the year commencing on or after 1 January 2014)*.  Amendments to IAS 19 Defined Benefit Plans: Employee Contributions (Mandatory for the year commencing on or after 1 July 2014)*.  Annual Improvements to IFRS’s 2010 – 2012 Cycle and 2011-2013 Cycle (Mandatory for the year commencing on or after 1 July 2014)*.   IFRS 9 Financial Instruments – 2009 and subsequent amendments in 2010 and 2013 – (likely to be mandatory for the year commencing on or after 1 January 2018)*. IFRS 14 Regulatory Deferral Accounts (Mandatory for the year commencing on or after 1 January 2016)*.  Amendments to IFRS 11: Accounting for acquisition of interests in joint ventures (Mandatory for the year commencing on or after 1 January 2016)*. *Not yet EU endorsed. The effective dates above refer to the IASB effective dates. 31 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) 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 9 to 11 and the Strategic Report on pages 12 to 14. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Chief Executive’s Statement on pages 4 to 7 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 which are due for renewal in 2015 and 2017. 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 financial statements. 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. 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 agreements.  Management have assessed the deferred tax asset as being recoverable based on forecast results. 32 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) Critical accounting estimates and judgements (continued)  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 being amortised and 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 other than those disclosed in note 38(b). Measurement of fair values IFRS 13 establishes a single framework for measuring fair value and making disclosures about fair value measurements when such measurements are required or permitted by other IFRSs. It unifies the definition of fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It replaces and expands the disclosure requirements about fair value measurements in other IFRSs, including IFRS 7. As a result, the Group has included additional disclosures in this regard (see Note 38). A number of the Group’s and Company’s accounting policies and disclosures require the measurement of fair values, both financial and non-financial assets and liabilities. Management have established a control framework with respect to the measurement of fair values and regularly review significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then management assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. 33 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) Measurement of fair values (continued) When measuring the fair value of an asset or a liability, the Group and Company uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:  Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2: inputs other than quoted prices included in Level 1 that are observables for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).  Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. Further information about the assumptions made in measuring fair values is included in the following notes:  Note 38 – financial instruments; and  Note 39 – share based payment arrangements. (b) Basis of consolidation (i) Business combinations Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The Group measures goodwill at the acquisition date as:     the fair value of the consideration transferred; plus the recognised amount of any non-controlling interests in the acquiree; plus if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Identifiable intangibles are those which can be sold separately or which arise from legal rights regardless of whether those rights are separable. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of a pre-existing relationship. Such amounts are generally recognised in profit or loss. 34 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (b) Basis of consolidation (continued) (i) Business combinations (continued) 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. Transaction costs other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred. Any deferred and contingent consideration payable is recognised at fair value at the acquisition date. If the deferred and contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of the contingent consideration are recognised in profit or loss. ii) 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. iii) 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. This includes goodwill identified on acquisition 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 net of any impairments on the investment. 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. In the Company’s financial statements, investments in associates are carried at cost less any provision made for impairment. 35 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (b) Basis of consolidation (continued) iv) 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. (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) (iii) 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 the 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 in the Group’s financial statements. Gains or losses arising on the retranslation of foreign currency deferred and contingent consideration estimated as payable at the year end on acquisitions prior to 1 March 2013 are accounted as an adjustment to goodwill. On acquisitions on or after 1 March 2013 the retranslation 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 GBP, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to GBP 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 or significant influence 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 that includes a foreign operation while retaining significant influence, the relevant proportion of the cumulative amount is reclassified to profit or loss. 36 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (c) Foreign currency (continued) ii) Foreign operations (continued) 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. iii) Hedge of net investment in foreign operation 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 in line with IAS 39 (Recognition and Measurement), is effective and are presented 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 Property, plant and equipment is reported at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the asset. 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. Any 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 directly to retained earnings. (ii) Leased assets Leases were 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. Assets held under other leases are classified as 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. 37 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (d) Property, plant and equipment (continued) (iv) Depreciation Depreciation is calculated to write down the costs of parts of items to their estimated 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. Depreciation is calculated using the following annual rates: Office furniture and equipment Plant and equipment Buildings – long leasehold and freehold - - - 25% 25-50% 2% 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. Assets held for sale (e) 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 no longer amortised or depreciated. Intangible assets and goodwill (f) i) Goodwill Goodwill that arises on the acquisition of subsidiaries is presented with intangible assets. For the measurement of goodwill at initial recognition see note 1(b). Goodwill is measured at cost less any accumulated impairment losses. In respect of equity accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment in the investee. Goodwill is allocated to cash-generating units and is tested annually for impairment. Goodwill arising on acquistions is not amortised. Negative goodwill arising on an acquisition is recognised immediately in profit or loss. 38 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (f) Intangible assets and goodwill (continued) 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 through profit and loss as an expense as incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. 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 that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. 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: Customer lists Acquired software Brands Developed software - - - - 12.5% 12.5% 12.5% 12.5% Amortisation methods, useful lives and residual values reviewed at each reporting dates and adjusted if appropriate. 39 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) Trade and other receivables (g) Trade and other receivables are initially measured at fair value plus any directly attributable transaction costs. Short-term receivables with no stated interest rate are measured at the original invoice amount if the effect of discounting is immaterial. Trade and other receivables are subsequently stated at amortised cost less impairment losses. Cash and cash equivalents (h) Cash and cash equivalents comprises of cash balances and call deposits with an original maturity of three months or less and are measured at amortised cost. 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. Trade and other payables (i) Trade and other payables are initially measured at fair value less any directly attributable transaction costs. Trade and other payables are subsequently measured at amortised cost. Where the maturity is six months or less they are not discounted and are shown at cost if the effect of discounting is immaterial. Loans and borrowings (j) 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. Impairment Non-derivative financial assets (k) (i) 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 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. 40 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (k) Impairment (continued) (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. 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. 41 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (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) 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 through profit or loss as incurred. (ii) Share-based payment transactions The share option programme allows Group employees to acquire shares of the Company. 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 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. 42 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (n) Revenue Products and Services rendered (i) Revenue from products 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. Commissions (ii) 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 as other operating income when the grant becomes receivable. Other government grant are initially recognised as deferred income at fair value 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 income statement as other income. Grants that compensate the Group for expenses incurred are recognised as other operating income through 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 the income statement as other operating income on a systematic basis over the useful life of the asset. 43 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (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 through profit or loss as it accrues, using the effective interest method. The interest expense component of finance lease payments is recognised through profit or loss using the effective interest rate method. Financing expenses comprises interest payable on borrowings calculated using the effective interest rate method, and foreign exchange gains and losses. (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 i) Current tax is the expected tax payable or receivable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. 44 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (q) Taxation (continued) Deferred tax ii) 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 issued 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: a) 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 b) 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. 45 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) 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. (u) 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. The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. Concentration of credit risk is disclosed in note 38 to the financial statements. 46 First Derivatives plc Notes (continued) 2 Financial risk management (continued) 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. 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. 47 First Derivatives plc Notes (continued) 3 Acquisitions of subsidiaries There were no acquisitions completed during the year ended 28 February 2014. Prior year acquisitions On 27 September 2012 the Company obtained control of Redshift Horizons Limited, Cowrie Financial Limited and Redshift Horizons LLP by acquiring all of the ordinary shares and membership of the entities. Acquiring the entities has enabled the Group to expand its managed services and real-time infrastructure services. In the 5 months to 28 February 2013 the subsidiaries contributed revenue of £1,900k and net profit of £187k to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2012, management estimates that revenue for the Group would have been £59,129k and net profit would have been an estimated £5,407k. In determining these amounts, Management have 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 2012. The following summarises the major classes of consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the acquisition date. Effect of acquisitions The acquisitions had the following effect on the Group’s assets and liabilities. Acquiree’s net assets at the acquisition date: Intangible assets Property, plant and equipment Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax liability Pre-acquisition carrying amounts £000 - 4 1,334 139 (1,179) - Fair value adjustments £000 1,422 - - - - (341) Net identifiable assets and liabilities 298 1,081 Goodwill on acquisition Consideration paid, satisfied as follows: Cash Deferred consideration Shares issued (232,731 shares) Contingent consideration Cash consideration paid Cash (acquired) Net cash outflow 48 Recognised values on acquisition £000 1,422 4 1,334 139 (1,179) (341) 1,379 1,919 3,298 1,098 450 1,100 650 3,298 950 (139) 811 First Derivatives plc Notes (continued) 3 Acquisitions of subsidiaries (continued) Effect of acquisitions (continued) £148k of the cash consideration was outstanding at 28 February 2013. This was settled in full during the year ended 28 February 2014. The trade and other receivables comprised gross contractual amounts of £1,094k of which no amounts were expected to be uncollectible at the acquisition date. Acquisition costs of £8k were capitalised by the Company as part of the investment and were expensed as profit and loss in the Group. Shares issued The number of ordinary shares issued (232,731 shares) was derived based on the average price of shares on the 20 days prior to 27 September 2012 (472.65 pence per share). The fair value of the ordinary shares issued based on the listed share price on the 27 September 2012, the effective date of control (472.5 pence per share) was not materially different. The impact would be to decrease goodwill by £35k. Goodwill 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 2014 and 28 February 2013 and has not identified any impairment (see note 17). None of the goodwill is expected to be deductible for tax purposes. Contingent consideration The Group had agreed to pay the selling shareholders additional consideration of £650k if the acquirer’s turnover exceeded £2,750k over the next 12 months. The turnover exceeded this amount and the £650k of contingent consideration was settled in full during the year. The Group has included £650k as contingent consideration related to the additional consideration, which represents its fair value at the acquisition date. As at 28 February 2013, the contingent consideration was recognised at £650k and was payable within 12 months. This deferred consideration was settled through the issue of ordinary shares to the value of £650k during the year ended 28 February 2014. Deferred consideration The Group has included £450k as deferred consideration which represents its fair value at the acquisition date. As at 28 February 2013, the contingent consideration was recognised at £450k and was payable within 12 months. This deferred consideration was settled through the issue of ordinary shares to the value of £450k during the year ended 28 February 2014. Acquisition related costs The Group incurred acquisition-related costs of £163k 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. 49 First Derivatives plc Notes (continued) 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 and non-current assets by geographical location. In presenting this information, segment revenue has been based on the geographic location of customers and segment assets were based on the geographic location of the assets. 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 Consulting Software Total Geographical location analysis UK Rest of Europe America Australasia Total 2014 £’000 2013 £’000 50,593 19,309 ______ 69,902 ______ 41,475 14,994 ______ 56,469 ______ Revenues 2014 £’000 2013 £’000 Non-current assets 2014 £’000 2013 £’000 19,485 8,047 23,075 5,862 ______ 56,469 ______ 17,915 11,274 20,225 1,756 ______ 51,170 ______ 20,506 10,419 21,957 1,725 ______ 54,607 ______ 26,857 9,607 26,230 7,208 ______ 69,902 ______ 50 First Derivatives plc Notes (continued) 4 Operating segments (continued) 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 one (2013: one) key customer who individually generated more than 10% of Group revenue in 2014. Revenue from this customer represents approximately £9,088k (2013: £12,165k) of the Group’s total revenue. The revenue from this customer has been derived from 34 different independent decision making business units across seven global locations with no individual unit accounting for more than 2%. 5 Revenue Sale of goods Rendering of services Commissions 6 Other operating income Government grants Other income 2014 £’000 2013 £’000 11,537 58,365 - 69,902 8,845 47,604 20 56,469 2014 £’000 1,931 19 1,950 2013 £’000 1,589 27 1,616 During the year, employment grant income of £443k (2013: £435k) was claimed from Invest Northern Ireland. 51 First Derivatives plc Notes (continued) 7 Administrative expenses Rent, rates and insurance Telephone Accountancy, audit and legal expenses Advertising and marketing Depreciation and amortisation Payroll costs Research and development credit Listing expenses Provision for impairment of trade receivables Profit on disposal of property, plant and equipment Other 2014 £’000 2013 £’000 1,841 587 841 596 4,215 4,592 (307) 193 761 (988) 559 12,890 1,305 522 725 565 3,226 4,105 (364) 242 1,334 (717) 1,039 11,982 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: Administration Technical The aggregate payroll costs of these persons were as follows: Wages and salaries Share based payments (see note 39) Social security costs Other pension costs Less capitalised development costs Disclosed as: Cost of sales Administrative expenses 52 2014 2013 Average no. Average no. 104 702 806 2014 £’000 36,916 757 4,037 1,219 (5,632) 37,297 2014 £’000 32,705 4,592 37,297 94 629 723 2013 £’000 30,310 683 2,940 860 (5,466) 29,327 2013 £’000 25,222 4,105 29,327 First Derivatives plc Notes (continued) 9 Finance income and expense Interest income on bank deposits Finance income Loss on foreign currency translation of monetary assets Interest expense on bank loans Other interest Finance expense Net finance expense recognised in profit or loss 2014 £’000 2013 £’000 4 4 (19) (594) - (594) (609) 1 1 (538) (595) (66) (661) (1,198) Exchange gains and losses on net investments in foreign subsidiaries and associates and related effective hedges are recognised in the foreign currency translation reserve. 10 Statutory and other information Depreciation on property, plant and equipment: Owned assets Provision for impairment of trade receivables Amortisation of intangibles Rents payable in respect of operating leases Research and development costs expensed Auditor’s remuneration: Audit of these financial statements Audit of the subsidiary undertakings included in the consolidation Amounts receivable by auditors and their associates in respect of: - Audit of financial statements of subsidiaries pursuant to legislation - All other services - Taxation compliance services - Other tax advisory services 53 2014 £’000 2013 £’000 738 761 3,477 535 1,497 61 15 21 3 40 76 _____ 216 _____ 699 1,334 2,527 486 1,428 59 16 16 2 40 84 _____ 217 _____ First Derivatives plc Notes (continued) 11 Tax expense Income tax recognised in the income statement Current tax expense Current year Adjustment for prior years Deferred tax expense Origination and reversal of temporary differences Adjustment for prior years Change in tax rate 2014 £’000 2013 £’000 1,084 (194) 890 709 134 (187) 656 1,289 (223) 1,066 81 (20) (112) (51) Total tax expense in income statement 1,546 1,015 Reconciliation of effective tax rate Profit excluding income tax Income tax using the Company’s domestic tax rate (23.1%) (2013: 24.2%) Tax exempt income Expenses not deductible for tax purposes Over provision in prior year Other differences Profit of associate Foreign tax rate differences Reduction in tax rates Unrelieved overseas taxes 7,947 1,834 (164) (181) (60) 63 (62) (143) (187) 446 1,546 6,160 1,489 (88) (173) (243) 154 (50) (129) (112) 167 1,015 Following the 2013 budget statement, the main rate of UK corporation tax was reduced from 24% directly to 23% with effect from the 1 April 2013. Thereafter the main rate of UK corporation tax will continue to reduce to 21% by 2014 and to 20% from 1 April 2015. It is expected that this gradual fall in the main corporation tax rate will result in a reduction of the Group’s future current tax charge. 54 First Derivatives plc Notes (continued) 12 Remuneration of Directors The remuneration paid to the Directors was: Aggregate emoluments (including benefits in kind) Company pension contributions Share option payment charge 2014 £’000 659 33 112 804 2013 £’000 915 47 257 1,219 During the period there were 3 Directors accruing benefits under a defined contribution pension scheme (28 February 2013: 4). The aggregate emoluments and company pension contributions of the highest paid Director (excluding fees paid for provision of services) amounted to £327k and £15k respectively during the year (2013: 308k and £15k respectively). The Directors are deemed to be the key management of the Group. Directors’ emoluments Salary and fees Benefits £’000 - - - - - - - - - - £’000 32 160 150 20 25 - 35 42 35 499 Share based payment Bonus £’000 £’000 - 100 60 - - - - - - 160 15 - 117 18 3 - 8 - - 161 2014 Total excluding pension £’000 47 260 327 38 28 - 43 42 35 820 2014 2013 2013 Total excluding pension Pension Pension £’000 £’000 - - 16 16 15 15 12 2 4 - - - - - - - - - 47 33 £’000 65 261 308 296 157 10 43 6 26 1,172 R D Anderson B G Conlon R G Ferguson A Toner* K Cunningham* M G O’Neill* P Brazel S Keating K MacDonald Total *Details in the above table reflects emoluments paid up to resignation on 9 May 2013. 55 First Derivatives plc Notes (continued) 12 Remuneration of Directors (continued) Directors interests Directors’ rights to subscribe for ordinary shares in the Company are indicated below: March 2013 Granted during the year Exercised during the year Resignation/ 28 February 2014 Exercise price £ Exercise period Adrian Toner* David Anderson Graham Ferguson 175,000 175,000 60,000 50,000 10,000 - - - - - - - (60,000) - (10,000) - 175,000 175,000 150,000 - - 175,000 175,000 - 50,000 - 150,000 175,000 175,000 4.80 4.15 1.79 4.80 1.79 5.65 4.15 1.77 2014-2021 2014-2020 2011-2019 2014-2021 2013-2019 2016-2023 2014-2020 2013-2019 25,000 4.80 2014-2021 - - - - Pat Brazel 25,000 - The average share price during the year was £8.24 (2013: £5.04) and the closing price at year end was £12.65 (2013: £5.88). *Details in the above table reflect the directors’ interests up to resignation on 9 May 2013. 56 First Derivatives plc Notes (continued) 13 Dividends The following dividends were: Final dividend relating to the prior year Interim dividend paid 2014 £’000 1,499 601 2,100 2013 £’000 1,370 538 1,908 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 8.40 (previous year: 8.15) pence per share and the interim dividend paid during the year amounted to 3.20 (previous year: 3.10) pence per share. The cumulative dividend paid during the year amounted to 11.60 (previous year: 11.25) 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. 2014 £’000 2013 £’000 9.00 pence per ordinary share (2013: 8.40 pence) 1,759 1,499 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 £576k (2013: loss of £928k) for the financial year of the Company as approved by the Board was £5,751k (2013: £3,114k). 15 (a) Earnings per ordinary share Basic The calculation of basic earnings per share at 28 February 2014 was based on the profit attributable to ordinary shareholders of £6,401k (2013: £5,145k), and a weighted average number of ordinary shares ranking for dividend of 18,623k (2013: 17,048k). Basic earnings per share 2014 Pence per share 2013 Pence per share 34.4 30.2 57 First Derivatives plc Notes (continued) 15 (a) Earnings per ordinary share (continued) Weighted average number of ordinary shares Issued ordinary shares at 1 March Effect of share options exercised Effect of shares issued as purchase consideration Effect of shares issued to settle deferred consideration Effect of shares issued for cash Weighted average number of ordinary shares at 28 February 2013 Number ’000 Number ’000 2014 17,484 421 - 152 566 18,623 16,633 317 98 - - 17,048 Diluted The calculation of diluted earnings per share at 28 February 2014 was based on the profit attributable to ordinary shareholders of £6,401k (2013: £5,145k) and a weighted average number of ordinary shares after adjustment for the effects of all dilutive potential ordinary shares of 21,564k (2013: 18,432k). 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 28 February 2014 Pence per share 2013 Pence per share 29.7 27.9 2014 Number ‘000 18,623 2,941 21,564 2013 Number ‘000 17,048 1,384 18,432 At 28 February 2014 552k options (2013: 1,183k) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive. 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. 58 First Derivatives plc Notes (continued) 15 (b) Earnings before tax per ordinary share Earnings before tax per share are based on profit before taxation of £7,947k (2013: £6,160k). The number of shares used in this calculation is consistent with note 15(a) above. Basic earnings before tax per ordinary share Diluted earnings before tax per ordinary share 2014 Pence per share 2013 Pence per share 42.7 36.9 36.1 33.4 Reconciliation from earnings per ordinary share to earnings before tax per ordinary 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 2014 Pence per share 2013 Pence per share 34.4 8.3 42.7 29.7 7.2 36.9 30.2 5.9 36.1 27.9 5.5 33.4 Earnings before tax per share has been presented to facilitate pre-tax comparison returns on comparable investments. 59 First Derivatives plc Notes (continued) 16 Property, plant and equipment Group Cost At 1 March 2013 Additions Disposals Reclassification to assets held for sale Exchange adjustments At 28 February 2014 Depreciation At 1 March 2013 Charge for the year Disposals Reclassification to assets held for sale Exchange adjustments At 28 February 2014 Land and buildings £’000 Plant and equipment £’000 Office furniture £’000 8,494 598 (3,811) (2,419) (70) 2,792 762 233 (259) (265) (11) 460 2,696 2,237 - - (246) 4,687 1,388 462 - - (106) 1,744 165 72 - - (2) 235 111 43 - - (2) 152 Land and buildings £’000 Plant and equipment £’000 Office furniture £’000 Cost At 1 March 2012 Additions Acquisition through business combinations Disposals Reclassification to assets held for sale Exchange adjustments At 28 February 2013 Depreciation At 1 March 2012 Charge for the year Disposals Reclassification to assets held for sale Exchange adjustments At 28 February 2013 Carrying amounts At 1 March 2012 At 28 February 2013 At 28 February 2014 14,855 134 - (2,843) (3,630) (22) 8,494 929 254 (160) (266) 5 762 13,926 7,732 2,332 1,688 928 4 - - 76 2,696 919 420 - - 49 1,388 769 1,308 2,943 128 36 - - - 1 165 85 25 - - 1 111 43 54 83 Total £’000 11,355 2,907 (3,811) (2,419) (318) 7,714 2,261 738 (259) (265) (119) 2,356 Total £’000 16,671 1,098 4 (2,843) (3,630) 55 11,355 1,933 699 (160) (266) 55 2,261 14,738 9,094 5,358 The basis by which depreciation is calculated is stated in note 1. The Group leases equipment under a number of finance lease arrangements. At 28 February 2014 the carrying amount of leased assets included in plant and equipment was £313k (2013: £Nil) and related depreciation amounted to £78k (2013: £Nil). Details of security provided for borrowing in respect of property, plant and equipment are disclosed in note 28. 60 First Derivatives plc Notes (continued) 16 Property, plant and equipment (continued) Company Land and buildings £’000 Plant and equipment £’000 Office furniture £’000 Cost At 1 March 2013 Additions Disposals Reclassification to assets held for sale At 28 February 2014 Depreciation At 1 March 2013 Charge for the year Disposals Reclassification to assets held for sale At 28 February 2014 8,284 - (3,811) (2,419) 2,054 713 146 (259) (265) 335 600 200 - - 800 443 93 - - 536 75 68 - - 143 65 13 - - 78 Land and buildings £’000 Plant and equipment £’000 Office furniture £’000 Cost At 1 March 2012 Additions Disposals Reclassification to assets held for sale At 28 February 2013 Depreciation At 1 March 2012 Charge for the year Disposals Reclassification to assets held for sale At 28 February 2013 Carrying amounts At 1 March 2012 At 28 February 2013 At 28 February 2014 14,660 97 (2,843) (3,630) 8,284 910 229 (160) (266) 713 13,750 7,571 1,719 444 156 - - 600 353 90 - - 443 91 157 264 68 7 - - 75 60 5 - - 65 8 10 65 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. 61 Total £’000 8,959 268 (3,811) (2,419) 2,997 1,221 252 (259) (265) 949 Total £’000 15,172 260 (2,843) (3,630) 8,959 1,323 324 (160) (266) 1,221 13,849 7,738 2,048 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill Group Goodwill Customer lists Acquired Software Brand name £’000 £’000 £’000 £’000 Cost Balance at 1 March 2013 Development costs Additions Adjustment to deferred consideration Exchange adjustments At 28 February 2014 Amortisation and impairment losses Balance at 1 March 2013 Amortisation for the year Exchange adjustment At 28 February 2014 14,943 - - 14 (1,431) 13,526 - - - - 3,810 - - - (263) 3,547 1,356 450 (153) 1,653 9,514 - 208 - (711) 9,011 3,653 1,084 (307) 4,430 387 - - - (26) 361 156 45 (15) 186 Internally developed software £’000 16,761 5,987 - - (354) 22,394 2,705 1,898 (58) 4,545 Total £’000 45,415 5,987 208 14 (2,785) 48,839 7,870 3,477 (533) 10,814 Goodwill Customer lists Acquired Software Brand name £’000 £’000 £’000 £’000 12,890 - - 1,919 (317) 451 2,362 - - 1,350 - 98 8,645 - 553 - - 316 304 - - 72 - 11 Internally developed software £’000 10,951 5,608 - Total £’000 35,152 5,608 553 - 3,341 202 (317) 1,078 14,943 3,810 9,514 387 16,761 45,415 - - - - 924 51 381 2,433 157 1,063 1,356 3,653 12,890 14,943 13,526 1,438 2,454 1,894 6,212 5,861 4,581 107 6 43 156 197 231 175 1,635 30 1,040 5,099 244 2,527 2,705 7,870 9,316 14,056 17,849 30,053 37,545 38,025 Cost Balance at 1 March 2012 Development costs Additions Acquisition through business combinations Adjustment to deferred consideration Exchange adjustments Balance at 28 February 2013 Amortisation and impairment losses Balance at 1 March 2012 Exchange adjustment Amortisation for the year Balance at 28 February 2013 Carrying amounts At 1 March 2012 At 28 February 2013 At 28 February 2014 Leased intangible assets The Group leases items of required software under a number of finance lease arrangements. At 28 February 2014 the carrying amount of leased assets included in acquired software was £914k (2013: £1,139k) and related amortisation amounted to £159k (2013: £166k). 62 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill (continued) The basis by which amortisation is calculated is stated in note 1. Amortisation is recognised through profit and loss in administration expenses. Included within development costs capitalised in the year is £5,632k (2013: £5,466k) of capitalised employees costs, including £90k of capitalised share option costs (2013: £107k) together with £265k of capitalised consultancy costs (2013: £35k) for the year. Developed software includes £2,922k (2013: £2,235k) of software under development at 28 February 2014 not yet commissioned. Impairment testing of goodwill The Group tests goodwill for impairment at each reporting date, 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 (which is equivalent to cash generating units) is presented below: Subsidiaries Market Resource Partners LLC Reference Data Factory LLC First Derivatives Pty Limited First Derivatives (Ireland) Limited First Derivatives Canada Inc. Cowrie Financial Limited Redshift Horizons Limited Associate Kx Systems Inc. (included in note 18) 2014 £’000 9,079 725 1,194 161 468 821 1,078 13,526 2013 £’000 10,045 788 1,483 171 537 841 1,078 14,943 3,801 4,186 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 five year period, with cash flows thereafter calculated using a terminal value methodology. A growth rate of 10% (2013: 10%) is applied for years 2 to 5, followed by a growth rate of 2% (2013: 2%) thereafter. The pre-tax discount rates applied to cash flow projections of the CGUs was 15% (2013: 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. 63 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill (continued) Sensitivity analysis There was no impairment charge for the year ended 28 February 2014 (2013: Nil). For the purposes of performing sensitivity analysis, a change in the assumption to increase the discount rate by 1% or, separately, to reduce the terminal growth by 1% would not result in any indication of impairment. No reasonable change in assumption would indicate any impairment. Company Cost Balance at 1 March 2013 Development cost Balance at 28 February 2014 Amortisation and impairment losses Balance at 1 March 2013 Amortisation for the year Balance at 28 February 2014 Cost Balance at 1 March 2012 Development cost Balance at 28 February 2013 Amortisation and impairment losses Balance at 1 March 2012 Amortisation for the year Balance at 28 February 2013 Carrying amounts At 1 March 2012 At 28 February 2013 At 28 February 2014 Internally developed software £’000 11,432 4,602 16,034 2,049 1,308 3,357 7,249 4,183 11,432 1,316 733 2,049 5,933 9,383 12,677 Included within development costs capitalised in the year is £4,512k (2013: £4,076k) of capitalised employees costs and £90k of capitalised share option costs (2013: £107k) for the year. Developed software includes £1,846k (2013: £1,490k) of software under development at 28 February 2014 not yet commissioned. 64 First Derivatives plc Notes (continued) 18 Investment in subsidiaries and associate The Group and Company have the following investments in subsidiaries: Country of incorporation Class of share held Market Resource Partners LLC First Derivatives Holdings Pty Limited First Derivatives Pty Limited1 First Derivatives (Ireland) Limited First Derivatives Holdings Inc Reference Data Factory LLC2 First Derivatives US Inc2 First Derivatives No.1 Inc First Derivatives Canada Inc (formerly Lakefront Data Ventures Inc) Market Resource Partners Limited Cowrie Financial Limited Redshift Horizons Limited Redshift Horizons LLP3 First Derivatives Pte. Limited First Derivatives (Hong Kong) Limited First Derivatives Japan Co. Limited United States Australia Australia Ireland United States United States United States United States Canada N. Ireland UK UK UK Singapore Hong Kong Japan Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ownership 2014 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2013 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% - - - 1First Derivatives Holdings Pty Limited holds 100% of the ordinary shares of First Derivatives Pty Limited. 2First Derivatives Holdings Inc. holds 100% of the ordinary shares of Reference Data Factory LLC and First Derivatives US Inc. 3First Derivatives Plc and Redshift Horizons Limited are the only members of the subsidiary Redshift Horizons LLP. Unlisted investments in subsidiaries at cost At 1 March Additions Foreign exchange movement in contingent deferred consideration At 28 February Company 2014 £’000 2013 £’000 17,864 6,600 - 14,549 3,306 9 24,464 17,864 During the year the company increased its investment in First Derivatives Ireland Limited by £6,600k following receipt of additional ordinary shares in exchange for settlement of a receivable from the subsidiary of £6,600k. 65 First Derivatives plc Notes (continued) 18 Investment in subsidiaries and associate (continued) Associate The Group has the following investment in an associate: Group and Company Kx Systems Inc Country of incorporation Class of share held Ownership 2014 2013 United States Ordinary 20.1% 20.1% The Group’s share of profit in associates for the year was £268k (2013: £249k). The associate is not publicly listed and consequently does not have a published share price. During the year, the Group received dividends of £773k (2013: £1,267k) from its associate. Summary financial information for the year to 28 February 2014 for the associate for total assets, total liabilities, revenue and net profit was £9,014k (2013: £9,984k), £6,309k (2013: £7,185k), £8,485k (2013: £8,367k) and £3,451k (2013: £3,221) respectively. Group At 1 March Dividends received Share of associate profit Loss on dilution in associate using the equity method Exchange adjustment At 28 February Company At 28 February 2013 and 28 February 2014 2014 £’000 6,295 (773) 268 - (557) 2013 £’000 7,059 (1,267) 249 (43) 297 5,233 6,295 £’000 7,196 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 in the prior year arose 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. Goodwill arising on the associate was tested for impairment, see note 17. 66 First Derivatives plc Notes (continued) 19 Trade and other receivables Current assets Trade receivables Receivables from associates Receivables from subsidiaries Sundry receivables Prepayments Grant income receivable Corporation tax receivable Non-current assets Receivables from subsidiaries Trade and other receivables Grant income receivable Group 2014 £’000 14,774 32 - 1,710 2,196 1,808 51 20,571 Group 2014 £’000 - 1,779 775 2,554 2013 £’000 14,672 43 - 2,665 1,807 650 - 19,837 2013 £’000 - 737 936 1,673 Company 2014 £’000 2013 £’000 8,906 32 1,600 376 1,869 1,632 276 14,691 7,541 43 7,803 302 1,562 263 - 17,514 Company 2014 £’000 2,404 1,779 - 4,183 2013 £’000 2,632 737 - 3,369 The repayment terms of the receivable from subsidiaries has been agreed as falling due after more than one year. At 28 February 2014 Group and Company trade receivables are shown net of an allowance for doubtful debts of £2,088k and £576k respectively (2013: Group £1,532k; Company £211k) arising from on-going invoice disputes and the risk of companies defaulting. The impairment charge in the year was £761k (2013: charge £1,334k) for Group and £365k (2013: charge £128k) 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 38. 20 Cash and cash equivalents Bank balances Group Company 2014 £’000 4,393 2013 £’000 1,902 2014 £’000 3,607 2013 £’000 1,397 See note 38 for discussion of interest rate risk and sensitivity analysis. For the purposes of the Statement of Cashflows, cash and cash equivalents compromises bank balances less the bank overdraft (see note 28). 67 First Derivatives plc Notes (continued) 21 Assets held for resale Of the six properties presented as held for sale in the prior year, four were disposed off during the current year and two properties (carried at £992k) continue to be held for sale as at 28 February 2014. Seven properties are presented as held for sale following the commitment of management to a plan to dispose of the properties. No impairment loss has been recognised as management expect to dispose of the properties at a profit. Property, plant and Equipment 3,146 3,364 Group 2014 £’000 2013 £’000 Company 2014 £’000 3,146 2013 £’000 3,364 22 Share capital In issue at 1 March Exercise of share options (Note 39) Issued in business combinations (Note 3) Issued as payment of deferred consideration Issued for cash In issue at 28 February – fully paid Ordinary shares 2014 Number 17,484,069 1,076,530 - 141,011 840,000 19,541,610 2013 Number 16,633,036 618,302 232,731 - - 17,484,069 Equity shares Issued, allotted and fully paid Ordinary shares of £0.005 each 2014 Number 2014 £’000 2013 Number 19,541,610 _________ 98 ___ 17,484,069 _________ 2013 £’000 87 ___ 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 issue of 840,000 ordinary shares (2013: nil) for cash consideration of £4,738k (2013: £nil), the exercise of 1,076,530 share options (2013: 618,302) for cash consideration of £2,949k (2013: £963k) together with an associated transfer from the share option reserve of £752k (2013: £334k), the issue of 141,011 shares (2013: nil) at £1,100k (2013: £nil) purchase consideration for outstanding deferred consideration on subsidiaries. Additionally in the prior year 232,731 ordinary shares were issued as purchase consideration of £1,100k in business combinations. Transaction costs of £172k (2013: £nil) were accounted for as a deduction from equity during the period. 68 First Derivatives plc Notes (continued) 23 Share premium account Opening balance Premium on shares issued Group 2014 £’000 12,895 9,356 Company 2013 £’000 10,502 2,393 2014 £’000 12,895 9,356 2013 £’000 10,502 2,393 Closing balance 22,251 12,895 22,251 12,895 24 Share option reserve Group 2014 £’000 Opening balance Fair value of share based payments cost (note 39) Options exercised in the period Effect of share option forfeits Income tax on share based payments 3,341 757 (752) (69) 3,350 2013 £’000 2,673 686 (334) (145) 461 Closing balance 6,627 3,341 Company 2014 £’000 3,341 757 (752) (69) 3,350 6,627 2013 £’000 2,673 686 (334) (145) 461 3,341 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 Opening balance Effect of corporation tax rate reduction on deferred tax liability Closing balance Company 2014 £’000 133 5 138 2013 £’000 131 2 133 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. 69 First Derivatives plc Notes (continued) 26 Revaluation reserve Opening balance Transfer to retained earnings on loss of interest in associate Effect of corporation tax rate reduction on deferred tax liability Closing balance Group 2014 £’000 167 - - 167 2013 £’000 167 (2) 2 167 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 Opening balance Net (loss) / gain on net investment in foreign subsidiaries Net (loss) / gain on net investment in associate Net loss on hedge of net investment in foreign subsidiaries Net loss on hedge of investment in associate Closing balance Group 2014 £’000 2013 £’000 981 (3,237) (557) (240) 13 (3,040) 290 608 297 (97) (117) 981 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 This note provides information about the contractual terms of the Group and Company’s interest-bearing loans and borrowings, which are measured at amortised cost. For more information about the Group and Company’s exposure to interest rate, foreign currency and liquidity risk arising from these loans and borrowings see note 38. Group Company Current liabilities Secured bank loans Finance lease liabilities Non-current liabilities Secured bank loans Less: Capital arrangement fee Finance lease liabilities 2013 £’000 5,762 451 6,213 16,838 (26) 1,030 17,842 2014 £’000 4,649 - 4,649 9,747 (41) - 9,706 2013 £’000 5,762 - 5,762 16,838 (26) - 16,812 2014 £’000 4,649 1,226 5,875 9,747 (41) - 9,706 70 First Derivatives plc Notes (continued) 28 Loans and borrowings (continued) Terms and repayment schedule The Group had the following loan facilities with Bank of Ireland at the end of the year: £11,500,000 multi currency loan (Facility A) £9,000,000 multi currency loan (Facility B) £4,500,000 sterling overdraft (Bank Overdraft) The terms and conditions of outstanding loans were as follows: Currency Nominal interest rate Year of maturity Multi Multi GBP GBP EUR 3.00%+LIBOR 2.50%+LIBOR* 2.00%+LIBOR 2.50%+LIBOR 4.375% 2015 2017 - - 2015 28 February 2014 Face value £000 Carrying amount £000 28 February 2013 Carrying amount £000 Face value £000 4,529 7,018 - 2,849 1,226 15,622 4,488 7,018 - 2,849 1,226 15,581 11,376 9,000 2,224 - 1,481 24,081 11,350 9,000 2,224 - 1,481 24,055 Facility A Facility B Bank overdraft Bank overdraft Finance lease liabilities Total interest-bearing * 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 2.0%+LIBOR. The bank loans are secured over property, plant and equipment including assets held for sale with a carrying amount of £5,478k (2013: £11,096k). All outstanding loans have interest charged at 2.5%, or 3% (2013: 2%, 2.50% or 3%) above LIBOR. Finance lease liabilities Finance lease liabilities are payable as follows: Group Future minimum lease payments 2014 £’000 1,249 - 1,249 Interest 2014 Principal 2014 £’000 23 - 23 £’000 1,226 - 1,226 Future minimum lease payments 2013 £’000 511 1,054 1,565 Interest 2013 Principal 2013 £’000 60 24 84 £’000 451 1,030 1,481 Less than one year Between one and five years The finance leases are secured over the leased equipment. 71 First Derivatives plc Notes (continued) 29 Trade and other payables Current liabilities Trade payables Other payables Accruals Deferred income including government grants Payables to subsidiaries Non-current liabilities Group Company 2014 £’000 2013 £’000 2014 £’000 2013 £’000 2,362 2,537 695 3,191 - 8,785 1,922 1,990 729 3,864 - 8,505 1,108 2,122 537 1,524 1,405 6,696 826 1,614 464 1,887 965 5,756 Group Company 2014 £’000 2013 £’000 2014 £’000 2013 £’000 Deferred income in respect of government grants 2,087 2,224 820 1,010 The Group and Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 38. The Group has claimed three government grants to date as follows:  Grant amounting to £7,110k (2013: £5,522k), 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 (2013: £468k), conditional on the provision of staff training. It is recognised as other income as training is provided.  Grant amounting to £1,656k (2013: £1,656k), 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. 72 First Derivatives plc Notes (continued) 30 Deferred taxation Group Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Property, plant and equipment Share based payments Trading Losses Net fair value movement on available for sale assets Intangible assets Other Tax assets/(liabilities) before set-off Set off of tax Net tax assets/(liabilities) 2014 £000 - 3,628 1,713 - - 570 5,911 (56) 5,855 2013 £000 - 1,211 323 - - 435 1,969 - 1,969 2014 £000 (2,942) - - (40) (1,082) - (4,064) 56 (4,008) 2013 £000 (1,530) - - (40) (1,052) - (2,622) - (2,622) Net 2014 £000 (2,942) 3,628 1,713 (40) (1,082) 570 1,847 - 1,847 2013 £000 (1,530) 1,211 323 (40) (1,052) 435 (653) - (653) Movement in deferred tax balances differences during the year: Property, plant and equipment Share based payments Trading losses Net fair value movement on available for sale assets Intangible assets Other Balance at 1 March 2012 £000 (1,633) Recognised in income £000 103 Recognised in equity £000 - 1,048 302 (42) (549) 400 (474) 28 21 - (136) 35 51 461 - 2 (26) - 437 Recognised on acquisition £000 - - - (341) - (341) Share options exercised £000 - Balance at 28 Feb 2013 £000 (1,530) Recognised in income £000 (1,412) Recognised in equity £000 - Share options exercised £000 Balance at 28 Feb 2014 £000 (2,942) - (326) - - - - (326) 1,211 323 (40) (1,052) 435 (653) 21 719 - (119) 135 (656) 3,324 671 - 89 - 4,084 (928) - - - - (928) 3,628 1,713 (40) (1,082) 570 1,847 The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances. 73 First Derivatives plc Notes (continued) 30 Deferred taxation (continued) Company Deferred tax assets and liabilities are attributable to the following: Assets Liabilities Net Property, plant and equipment Share based payments Net fair value movement on available for sale assets Trading losses Other Tax assets/(liabilities) before set off Set off of tax Net tax assets/(liabilities) 2014 £000 - 3,628 - 1,349 41 5,018 - 5,018 2013 £000 - 1,211 - 131 37 1,379 - 1,379 2014 £000 (2,654) - (40) - - (2,694) - (2,694) 2013 £000 (1,433) - (40) - - (1,473) - (1,473) 2014 £000 (2,654) 3,628 (40) 1,349 41 2,324 - 2,324 2013 £000 (1,433) 1,211 (40) 131 37 (94) - (94) Movement in deferred tax balances during the year: Property, plant and equipment Share based payments Net fair value movement on available for sale assets Trading losses Other Balance at 1 March 2012 Recognised in profit and loss £000 (1,497) 1,048 (42) - 36 (455) £000 64 28 - 131 1 224 Recognised in equity £000 - 461 2 Share options exercised £000 - `(326) - - - 463 - - (326) Balance at 28 Feb 2013 £000 (1,433) 1,211 (40) 131 37 (94) Recognised in profit and loss £000 (1,221) 21 - 547 4 (649) Recognised in equity £000 - 3,324 - Share options exercised £000 - (928) - 671 - 3,995 - - (928) Balance at 28 Feb 2014 £000 (2,654) 3,628 (40) 1,349 41 2,324 The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances. 74 First Derivatives plc Notes (continued) 31 Current tax payable Group 2014 £’000 2013 £’000 Company 2014 £’000 2013 £’000 Current tax payable 430 649 433 336 32 Employee benefits Accrued holiday pay Employee taxes Group 2014 £’000 824 1,358 2,182 2013 £’000 775 2,263 3,038 Company 2014 £’000 690 1,207 1,897 2013 £’000 625 2,151 2,776 33 Contingent deferred consideration Contingent deferred consideration liabilities are payable as follows: Group 2014 £’000 2013 £’000 Company 2014 £’000 2013 £’000 At 1 March Additions Increase/(decrease) in contingent deferred consideration Foreign exchange movement in contingent deferred consideration Settled in year – cash Settled in year – shares issued Settled in year – share option charge At 28 February 762 - 14 (1) (125) (650) - - 890 650 (317) 13 (471) - (3) 762 758 - - (1) (107) (650) - - 259 650 - 10 (158) - (3) 758 75 First Derivatives plc Notes (continued) 33 Contingent deferred consideration (continued) The payment of contingent deferred consideration was paid in cash and shares. As at 28 February 2014 the maximum total amount payable under the terms of the sale and purchase agreements is £Nil (2013: £762k) and the minimum total amount payable is £Nil (2013: £112k). Less than one year Group 2014 £’000 2013 £’000 Company 2014 £’000 2013 £’000 - - 762 762 - - 758 758 The amount of contingent deferred consideration was variable dependent on the future performance of the relevant subsidiary and was payable in either cash or shares. 34 Deferred consideration Deferred consideration liabilities are payable as follows: At 1 March Additions in deferred consideration Settled in the year – shares issued Group 2014 £’000 2013 £’000 Company 2014 £’000 2013 £’000 450 - (450) - - 450 - 450 450 - (450) - - 450 - 450 76 First Derivatives plc Notes (continued) 35 Commitments There was no capital or other commitments at the current or prior year end. Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years More than five years Group Company 2014 £’000 453 1,234 884 2,571 2013 £’000 447 1,376 983 2,806 2014 £’000 140 560 560 1,260 2013 £’000 140 560 700 1,400 The Group leases four premises under operating lease arrangements. Group During the year £535k was recognised as an expense in the income statement in respect of operating leases (2013: £486k). Company During the year £140k was recognised as an expense in the income statement in respect of operating leases (2013: £140k). 36 Pension contributions The Group makes contributions to the personal pension schemes of certain employees. The pension charge for the year amounted to £1,219k (2013: £860k). Contributions amounting to £153k (2013: £124k) were payable to the schemes at the year end and are included in creditors. 37 Related parties transactions Parent and ultimate controlling party There is no one party who is the ultimate controlling party of the Group and Company. 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 (2013: £53k). Rent deposits of £26k (2013: £26k) have been paid to the Brian Conlon in respect of these apartments. The balance owed to Brian Conlon at 28 February 2014 is £Nil (2013: £Nil). 77 First Derivatives plc Notes (continued) 37 Related parties transactions (continued) 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 in which B Conlon is a partner. £140k (2013: £140k) rental charge was incurred in the year. The balance owed to Oncon at 28 February 2014 is £Nil (2013: £Nil) and an amount of £143k (2013: £nil) had been prepaid. During the year the company bought back 93,334 share options (2013: none) for cash consideration of £314k from two employees. Other related party transactions Commission earned Associate Associate Company Other related party transactions Subsidiaries Associate 2014 £000 - - 2013 £000 20 20 Administrative expenses incurred from 2013 £000 2014 £000 - - - - Receivables outstanding 2013 £000 2014 £000 Payables outstanding 2013 £000 2014 £000 316 316 148 148 - - - - Revenue 2014 £000 2,822 - Administrative expenses incurred from 2013 £000 2014 £000 6,513 - 6,153 - 2013 £000 1,741 98 2,822 1,839 6,513 6,153 78 First Derivatives plc Notes (continued) 37 Related parties transactions (continued) Subsidiaries Associates Receivables outstanding 2014 £000 4,006 316 2013 £000 10,435 148 4,322 10,583 Payables outstanding 2013 £000 2014 £000 1,405 - 1,405 965 - 965 The above associate receivables balances outstanding for Group and Company includes a trade receivable balance of £32k (2013: £43k) and a prepayment of £284k (2013: £105k). All outstanding trade receivable balances with the associate are on an arm’s 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 kdb+ software. During the year development costs of £710k (2013: £Nil) were recharged from a subsidiary to the Company. Interest is charged on inter-company loans at market rates. During the year the company increased its investment in First Derivatives Ireland Limited by £6,600k following receipt of additional ordinary shares in exchange for settlement of a receivable from the subsidiary of £6,600k. 79 First Derivatives plc Notes (continued) 38 Financial instruments Fair values (a) Accounting classifications and fair values Group The following table shows the carrying amounts and fair values of financial assets and liabilities. The carrying amount of all financial assets and liabilities not measured at fair value is considered to be a reasonable approximation of fair value. 28 February 2014 Financial assets not measured at fair value Trade and other receivables Cash and cash equivalents Financial liabilities not measured at fair value Secured bank loans Finance leases Trade, accruals and other payables Employee benefits 28 February 2013 Financial assets not measured at fair value Trade and other receivables Cash and cash equivalents Financial liabilities measured at fair value (Level 2) Contingent deferred consideration* Financial liabilities not measured at fair value Secured bank loans Finance leases Trade, accruals and other payables Employee benefits Loans and receivables £’000 Carrying value Liabilities at amortised cost £’000 20,878 4,393 25,271 - - - - - - - - (14,355) (1,226) (5,594) (2,182) (23,357) Loans and receivables £’000 Carrying value Liabilities at amortised cost £’000 19,703 1,902 21,605 - - - - - - - - - - (762) (762) (22,574) (1,481) (4,641) (3,038) (31,284) Carrying amount £’000 20,878 4,393 25,271 (14,355) (1,226) (5,594) (2,182) (23,357) Carrying amount £’000 19,703 1,902 21,605 (762) (762) (22,574) (1,481) (4,641) (3,038) (31,284) *Contingent deferred consideration are level 2 fair values (see above). 80 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Company The following table shows the carrying amounts and fair values of financial assets and liabilities. The carrying amount of all financial assets and liabilities not measured at fair value is considered to be a reasonable approximation of fair value. 28 February 2014 Financial assets not measured at fair value Trade and other receivables Cash and cash equivalents Financial liabilities not measured at fair value Secured bank loans Trade, accruals and other payables Employee benefits 28 February 2013 Financial assets not measured at fair value Trade and other receivables Cash and cash equivalents Financial liabilities measured at fair value (Level 2) Contingent deferred consideration* Financial liabilities not measured at fair value Secured bank loans Trade, accruals and other payables Employee benefits Loans and receivables £’000 Carrying value Liabilities at amortised cost £’000 16,729 3,607 20,336 - - - - - - - (14,355) (5,172) (1,897) (21,424) Loans and receivables £’000 Carrying value Liabilities at amortised cost £’000 19,321 1,397 20,718 - - - - - - - - - (758) (1,208) (22,574) (3,869) (2,776) (28,769) Carrying amount £’000 16,729 3,607 20,336 (14,355) (5,172) (1,897) (21,424) Carrying amount £’000 19,321 1,397 20,718 (758) (1,208) (22,574) (3,869) (2,776) (28,769) *Contingent deferred consideration are level 2 fair values (see above). 81 First Derivatives plc Notes (continued) 38 Financial instruments (continued) (b) Measurement of fair values Licence agreement The Group continues to hold a licence agreement with a customer for the provision of software services. Upon termination or expiry of the licence, the Group has contractual right to receive a termination fee based on 30% of enterprise value of the licensee. This is considered to be a level 3 fair value instrument. The Group and the licensee both have the option to terminate the agreement after an initial contract period of five years. Should neither party exercise the option to terminate, the contract automatically extends for further two year periods. At 28 February 2014, the termination fee was fair valued at £Nil as although services had commenced, the early stage of the contract would indicate no value, due to subjectivity, volatility and the intention is to continue to extend the contract subsequent to the initial contract period. No fair value gain or loss has been recognised in the Consolidated Statement of Comprehensive Income during the period (2013: £Nil). 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 2014 £’000 2013 £’000 Company Carrying amount 2014 £’000 2013 £’000 20,878 4,393 ______ 25,271 ______ 19,703 1,902 ______ 21,605 ______ 16,729 3,607 ______ 20,336 ______ 19,321 1,397 ______ 20,718 ______ 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 Group Company 2014 £’000 5,499 8,422 6,048 909 2013 £’000 4,585 7,621 4,934 2,563 2014 £’000 2,037 8,538 5,514 640 2013 £’000 8,054 6,630 3,906 731 20,878 19,703 16,729 19,321 82 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Exposure to credit risk (continued) The maximum exposure to credit risk for trade and other receivables at the reporting date by type of counterparty was: End-user customer Other Group Company 2014 £’000 12,648 8,230 2013 £’000 14,948 4,755 2014 £’000 8,906 7,823 2013 £’000 7,585 11,736 20,878 19,703 16,729 19,321 The Group’s and Company’s most significant customer is an investment bank which accounts for £1,707k of the trade and other receivables carrying amount at 28 February 2014 (2013: £2,103k). No other customers had receivable balances in excess of 10% of the Group’s total balance at the year end. In addition £1,808k (2013: £650k) is receivable from Invest Northern Ireland in respect of grants receivable. 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 Impairment 2014 £’000 - - - 2,088 2,088 Impairment 2014 £’000 - - - 576 576 Gross 2013 £’000 7,628 1,769 1,023 5,784 16,204 Gross 2013 £’000 4,784 1,256 563 1,149 7,752 Impairment 2013 £’000 - - - 1,532 1,532 Impairment 2013 £’000 - - - 211 211 Gross 2014 £’000 6,699 2,678 2,909 4,576 16,862 Gross 2014 £’000 4,255 1,643 2,151 1,433 9,482 83 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Impairment losses (continued) The movement in the specific allowance for impairment in respect of trade receivables during the year was as follows: Group Company Balance at 1 March Impairment loss charged Foreign exchange impact Amounts written off Balance at 28 February 2014 £’000 1,532 761 (205) - 2,088 2013 £’000 379 1,334 - (181) 1,532 2014 £’000 211 365 - - 576 2013 £’000 230 128 - (147) 211 A review of debt outstanding led to the increase of £761k in the impairment provision. A specific impairment loss was incurred during the prior year with regard to concerns over the recoverability of debt various 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 £Nil (2013: £nil). The allowance for impairment for the Company is entirely specific. The Group and Company held cash and cash equivalents of £4,393k (2013: £1,902k) and £3,607k (2013: £1,397k) respectively at 28 February 2014 which represents their maximum exposure on the assets. The cash and cash equivalents are held with bank and institutional counter parties which are rated AA- to AA+ based on credit agency ratings. 84 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Liquidity risk Group The following are contractual maturities of financial liabilities, including estimated interest payments. 28 February 2014 Secured bank loans Finance leases Trade and other payables 28 February 2013 Secured bank loans Finance leases Trade and other payables Deferred consideration Carrying amount £’000 (14,355) (1,226) (5,594) (21,175) Contractual cash flows £’000 (15,702) (1,249) (5,594) (22,545) Carrying amount £’000 (22,574) (1,481) (4,641) (1,212) (29,908) Contractual cash flows £’000 (24,113) (1,565) (4,641) (1,212) (31,531) 6 mths or less £’000 (4,038) (650) (5,594) (10,282) 6 mths or less £’000 (3,517) (205) (4,641) (562) (8,925) 6-12 mths 1-2 years £’000 (1,212) (599) - (1,811) £’000 (6,817) - - (6,817) 2-5 years More than 5 years £’000 - - - - £’000 (3,635) - - (3,635) 6-12 mths 1-2 years £’000 (2,978) (306) - (650) (3,934) £’000 (4,042) (1,054) - - (5,096) 2-5 years More than 5 years £’000 - - - - - £’000 (13,576) - - - (13,576) The above contracted cash flows include interest on secured bank loans the terms of which are set out in note 28. Company The following are contractual maturities of financial liabilities, including estimated interest payments. 28 February 2014 Secured bank loans Trade and other payables 28 February 2013 Secured bank loans Trade and other payables Deferred consideration Carrying amount £’000 (14,355) (5,172) (19,527) Carrying amount £’000 (22,574) (3,869) (1,208) (27,651) Contractual cash flows £’000 (15,702) (5,172) (20,874) 6 mths or less £’000 (4,038) (5,172) (9,210) Contractual cash flows £’000 (24,113) (3,869) (1,208) (29,190) 6 mths or less £’000 (3,517) (3,869) (558) (7,944) 6-12 mths 1-2 years £’000 (1,212) - (1,212) £’000 (6,817) - (6,817) 6-12 mths 1-2 years £’000 (2,978) - (650) (3,628) £’000 (4,042) - - (4,042) 2-5 years More than 5 years £’000 - - - £’000 (3,635) - (3,635) 2-5 years More than 5 years £’000 - - - - £’000 (13,586) - - (13,576) 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. 85 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Currency risk Group The Group’s exposure to currency risk was as follows: 28 February 2014 Euro £’000 1,510 - - 1,510 CAD £000’s 164 - - 164 USD £’000 7,784 - - 7,784 28 February 2013 CAD £000’s 697 - - 697 Euro £’000 938 - - 938 USD £’000 7,527 - - 7,527 Trade receivables Secured bank loans Trade payables Gross balance sheet exposure The secured bank loan above excludes bank loans designated in a net investment hedge of £5,139k (2013: £9,356k). Company The Company’s exposure to currency risk was as follows: 28 February 2014 28 February 2013 CAD £000’s 164 - - 164 Euro £’000 784 - - 784 USD £’000 3,869 (5,139) - (1,270) CAD £000’s 697 - - 697 Euro £’000 886 - - 886 USD £’000 3,209 (9,356) - (6,147) Trade receivables Secured bank loans Trade payables Gross balance sheet exposure The following significant exchange rates applied during the year: USD 1 EUR 1 CAD 1 Average rate 2014 1.57 1.18 1.64 2013 1.57 1.23 1.57 Reporting date spot rate 2014 1.67 1.22 1.86 2013 1.51 1.15 1.55 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 £1,427k (2013: £1,407k). 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 £1,427k (2013: £1,407k). The movement on the net investment hedge would be offset by the movement in the net investment. This analysis assumes that all other variables, in particular interest rates, remain constant. 86 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Sensitivity analysis (continued) A 10% strengthening of Sterling against the above currencies at the end of the period would increase Company equity and profit or loss by approximately £80k (2013: £747k). A 10% weakening of Sterling against the above currencies at the end of the period would decrease Company equity and profit or loss by approximately £80k (2013: £747k). The movement on the net investment hedge would be offset by the movement in the net investment. 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 Group 2014 £’000 2013 £’000 Company 2014 £’000 2013 £’000 4,393 (14,396) (10,003) - (1,226) (1,226) 1,902 (22,600) (20,698) - (1,481) (1,481) 3,607 (14,396) (10,789) 1,397 (22,600) (21,203) - - - - - - A 10% reduction in interest rates at the end of the period would increase Group equity and profit and loss by approximately £81k (2013: £72k). A 10% increase in interest rates at the end of the period would decrease Group equity and profit or loss by approximately £81k (2013: £72k). This analysis assumes that all other variables remain constant. 39 Share based payments Options have been granted as set out below under the Group’s two equity-settled 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. 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. 87 First Derivatives plc Notes (continued) 39 Share based payments (continued) Reconciliation of outstanding share options The number and weighted average exercise prices of share options have been analysed into three exercise price ranges as follows: Weighted average exercise price 2014 Number of options Weighted average exercise price Number of options 2014 2013 2013 1.35 1.69 1.25 - 1.37 1.37 1,026,167 (60,000) (438,000) - 528,167 528,167 1.32 - 1.27 - 1.35 1.35 1,482,667 - (456,500) - 1,026,167 1,026,167 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 The options outstanding at 28 February 2014 above have an exercise price in the range of £0.62 to £1.785 (2013: £0.510 to £1.785) and a weighted average contractual life of 3.6 years (2013: 4.8 years). Weighted average exercise price 2014 Number of options Weighted average exercise price Number of options 2014 2013 2013 2.46 2.27 2.40 - 2.52 2.52 544,830 (48,300) (174,362) - 322,168 322,168 2.49 2.67 2.36 - 2.46 2.51 931,665 (225,033) (161,802) - 544,830 445,387 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 The options outstanding at 28 February 2014 above have an exercise price in the range of £2.27 to £2.735 (2013: £2.270 to £2.735) and a weighted average contractual life of 4.8 years (2013: 6.0 years). 88 First Derivatives plc Notes (continued) 39 Share based payments (continued) Weighted average exercise price 2014 4.50 4.61 4.30 7.05 5.48 4.45 Number of options 2014 2,264,600 (66,667) (464,168) 1,021,100 2,754,865 960,451 Weighted average exercise price 2013 4.33 4.55 - 4.74 4.50 4.30 Number of options 2013 1,361,600 (80,000) - 983,000 2,264,600 560,533 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 The options outstanding at 28 February 2014 above have an exercise price in the range of £4.15 to £8.47 (2013: £4.150 to £5.05) and a weighted average contractual life of 7.8 years (2013: 7.7 years). The weighted average share price at the date of exercise for share options exercised for the year ending 28 February 2014 was £8.99 per share (2013: £5.00). Measurement of fair values 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 during the year ended 28 February 2014 Grant date 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) 17/04/13 0.90 5.65 5.65 245,100 20% 2.5 years 0.1% 3.0% Grant of options during the year ended 28 February 2013 Grant date 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) 25/06/12 0.81 4.72 4.72 394,000 20% 2.5 years 0.1% 4.0% 01/07/13 0.91 5.75 5.75 280,000 20% 2.5 years 0.1% 3.0% 27/09/12 0.91 4.73 4.73 550,000 20% 3 years 0.1% 4.0% 06/11/13 1.65 8.475 8.475 496,000 20% 3.5 years 0.1% 3.0% 12/12/12 0.86 5.05 5.05 39,000 20% 2.5 years 0.1% 4.0% The adjustments made to the standard Black Scholes model are those required to reflect more clearly the Company’s experience relating to key assumptions. 89 First Derivatives plc Notes (continued) 39 Share based payment (continued) Employee expenses – equity settled Expense relating to: Share options granted in 2010/11 – equity settled Share options granted in 2011/12 – equity settled Share options granted in 2012/13 – equity settled Share options granted in 2013/14 – equity settled Total expense recognised as employee benefit expense Capitalised expenses – equity settled Amounts relating to: Share options granted in 2011/12- equity settled Share options granted in 2012/13- equity settled Share options granted in 2013/14- equity settled Total amount recognised as software development cost Business combinations – equity settled Amount relating to: Share options granted in 2009/10 – equity settled 2014 £’000 138 107 239 183 667 42 10 38 90 - Total amount recognised in share based payment reserve 757 2013 £’000 273 140 163 - 576 96 11 - 107 3 686 40 Contingent liabilities 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. 90 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 Walbrook Public Relations 4 Lombard Street, London EC3V 9HD Telephone:+44 (0)20 7933 8780 Email: info@walbrookpr.com Website: www.walbrookpr.com First Derivatives plc Corporate directory Nominated Adviser and Brokers Charles Stanley Securities 131 Finsbury Pavement London EC2A 1NT United Kingdom Telephone: +44 (0) 207 149 6000 Fax: +44 (0) 207 149 6777 Website: www.csysecurities.com ESM Adviser and 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 91 First Derivatives plc Global directory UK & Ireland Head Office First Derivatives plc 3 Canal Quay Newry Co. Down N.Ireland BT35 6BP Telephone: +44 28 3025 2242 Fax: +44 28 3025 2060 London Fifth Floor, 100 Cannon Street, London, EC4N 6EU UK USA & Canada New York 45 Broadway Suite 2040 New York NY 10006 USA Telephone: +1 888 290 3525 Philadelphia 1650 Arch Street Suite 2210 Philadelphia PA 19103 USA Belfast City Exchange 11-13 Gloucester Street Belfast Co. Antrim N. Ireland BT1 4LS Dublin 1st Floor Fleming Court Flemings Place Mespil Road Dublin 4 Eire New Jersey 14 Vervalen Street Closter NJ 07624 USA Toronto First Canadian Place 100 King Street West Suite 5600 Toronto M5X 1C9 Canada 92 First Derivatives plc Global directory Asia Pacific Sydney Suite 713 1C Burdett Street Hornsby NSW 2076 Australia Singapore Level 40 Ocean Financial Centre 10 Collyer Quay Singapore 049315 Tokyo Bankers Club Building 1-3-1 Marunouchi Chiyoda-ku Tokyo 100-0005 Japan Hong Kong Level 8 Two Exchange Square 8 Connaught Place Central Hong Kong 93 

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