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
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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.
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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
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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:
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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.
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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.
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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
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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
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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.
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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.
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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
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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.
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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.
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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
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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
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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
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Level 8
Two Exchange Square
8 Connaught Place
Central
Hong Kong
93