Fresh Del Monte Produce
Annual Report 2015

Plain-text annual report

First Derivatives plc Annual report and accounts Registered number: NI 30731 28 February 2015 First Derivatives plc Contents Strategic report Chairman’s statement Chief Executive’s statement Strategic report Governance Directors’ report Report of the Remuneration Committee Corporate governance Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements Independent auditor’s report to the members of First Derivatives plc Financials 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 Directors and advisers Global directory Page 2 5 9 13 16 18 19 20 22 24 25 26 28 30 31 32 100 101 First Derivatives plc Chairman’s statement The financial year to 28 February 2015 was a very successful year for First Derivatives. We made significant progress in implementing our strategy with a number of key acquisitions and delivered strong financial performance. Revenue for the year increased by 19.0% to £83.2m, while adjusted EBITDA rose by 24.1% to £15.5m. Net debt (loans and borrowings less cash and cash equivalents) at the period end was £15.7m (2014: £11.2m), the servicing of which is underpinned by the Group’s cash generation and performance over recent years. The Board has recommended payment of a final dividend of 10.20p per share (2014: 9.00p per share) which, together with the interim dividend of 3.30p per share paid in December 2014, gives a total dividend for the year of 13.50p per share, an increase of 10.7% compared to the prior year. The final dividend, if approved at the AGM on 25 June 2015, will be paid on 17 July 2015 to those shareholders on the register on 19 June 2015. Software Software revenue increased by 28.9% to £24.9m (2014: £19.3m) with customer wins across our entire product portfolio. The size of the market opportunity in capital markets is significant and we continue to make progress positioning ourselves to capture a meaningful share of that opportunity. Our clients have challenges around balance sheet optimisation, regulation, transparency and risk management which can be met through real- time data analytics, which is the fundamental strength of our product suite. Outside capital markets, we are engaged in discussions with a number of potential customers that are attracted by the capabilities of our flagship kdb+ and Delta products, reaffirming our view that our software is ideally suited to Big Fast Data opportunities across multiple sectors. Consulting Consulting revenues continued to grow strongly, rising by 15.3% to £58.3m (2014: £50.6m). This is the twelfth consecutive year of double-digit percentage growth in consultancy and reflects the strength of customer relationships, the skills of our consultancy staff and the recurring nature of our revenues. During the year we were pleased to sign Master Service Agreements with a number of new high profile clients, adding to the strong relationships we have developed over the years. At a time when clients are typically reducing the number of vendors to enable them to manage these relationships more effectively, it represents a vote of confidence in the Group that the number of clients we engage with continues to increase. We see good potential to grow strongly within our existing client base, while continuing to target new clients. We have continued our recruitment of both graduates and experienced consultants as we seek to provide our clients with the high quality service they expect and to allow us to widen our service offering. We are pleased with the continued support from Invest Northern Ireland, in the form of future grant assistance of up to £3.9m, announced in June 2014, to support the creation of 484 new high quality jobs within the Group over the next few years. 2 First Derivatives plc Chairman’s statement (continued) Corporate Development The most significant acquisition activity was the increase in our stake in Kx Systems Inc. (“Kx”) to 65.2% in October 2014 opening further opportunities within capital markets and the ability to penetrate other sectors with our software. Kx’s principal product kdb+ is widely acknowledged as the world’s pre- eminent time-series database. The Group initiated a successful placing to raise £12.7m in February 2015 (an additional £2.6m was placed in March 2015 following shareholder approval) while also increasing our bank facilities to £36.5m in October 2014. This allowed us to complete three acquisitions in addition to the increase in our shareholding in Kx. In February 2015 we acquired Prelytix LLC, a Massachusetts-based provider of predictive analytics software operating within the marketing technology sector for an initial consideration of £4.9m which by the achievement of performance targets could increase to £8.1m over a three year period. Subsequent to the year end, in March 2015, we acquired Ontario based Affinity Systems Limited (a Kx Systems Inc. partner) for an initial consideration of £3.7m which, on the achievement of demanding future targets, could grow to £7.7m. Affinity is a software development consultancy specialising in utility, retail and healthcare data management. We also acquired ActivateClients Limited, a software business with important HTML5 capabilities targeting financial markets and based in Dublin, for an initial consideration of £3.3m, potentially increasing to £4.8m. These acquisitions position us well to continue delivering strong growth in our software businesses within Capital Markets and the expertise to leverage our core software infrastructure assets across other important market sectors. Board Changes There were no changes to the Board during the financial year. On 3 March 2015, Virginia Gambale was appointed a Non-Executive Director of the Group. A U.S. citizen, Ms Gambale has extensive experience as an enterprise technology buyer in capital markets, a technology venture capital partner and an independent director across diverse industry sectors. On 24 March 2015, Pat Brazel resigned as a Non- Executive Director to join the Group in an executive role, as Global Head of Software Sales. On behalf of the Board I would like to thank Pat for his contribution to the Group and wish him success in his new role. 3 First Derivatives plc Chairman’s statement (continued) Current Trading and Outlook The current financial year has started positively, with good growth in consultancy and a number of contract wins in software. The investment in the Group’s sales capability in recent years is evident in the healthy pipeline of opportunities, while the high levels of visibility in both consultancy and software provides confidence that we will report another year of strong growth. This will be supplemented by a positive impact from the Group’s recent acquisitions. Overall, the Group expects performance to be moderately ahead of current market forecasts. I would like to thank the staff of First Derivatives and my Board colleagues for their hard work in achieving another successful year of growth for the Group. Seamus Keating Chairman 1 June 2015 4 First Derivatives plc Chief Executive’s statement Within the capital markets sector, market conditions improved over the past year with the drivers consistent with those of the prior year – firmer underlying economies providing opportunities for our clients to invest for growth; complex and widespread increases in and changes to regulation; and pressure to reduce costs, through the use of new technology or changes to the way that technology is delivered. In addition to the solid market conditions, we have started to see the benefits of investment within our business in prior years. Our acquisition of Kx Systems (“Kx”) in October 2014 has positioned the Group as a technology leader in the field of Big Fast Data and to maximise the commercial opportunities available to us we have invested both internally, in development, sales and marketing, as well as through acquisition as detailed in the Chairman’s statement. Review of activities First Derivatives (“FD”) provides software products that enable the world’s largest finance, technology and energy institutions to meet the most demanding data management challenges they face. The Group also provides a range of associated consulting services within capital markets, where our customer base includes investment banks, brokers, exchanges, regulators and hedge funds. The most significant development during the year was the increase in our investment in Kx Systems in October 2014. Kx is one of the world’s leading Big Data vendors and its principal product, kdb+, is widely acknowledged as the pre-eminent time series database. FD and Kx have been partners for more than a decade - together we provide a market leading solution that allows organisations to capture, analyse and store large volumes of data, including streaming data. In recent years we have made significant investments in sales and marketing across the business, which has assisted our growth rates and is reflected in the depth of our pipeline. Since we announced our acquisition of Kx, we have invested further to enable us to sell our software products to additional vertical markets and this is beginning to generate a number of interesting opportunities. I would caution that many of these opportunities are still at an early stage, but we are encouraged by our engagement with potential customers in respect of our ability to solve significant data challenges. Software Software sales during the period increased by 28.9% to £24.9m (2014: £19.3m). Our software provides a clear and, we believe, compelling client proposition. While the term Big Data has become associated with a number of software and services vendors analysing unstructured data, typically using Hadoop, our software addresses a related but more challenging problem, namely the rapid analysis of large datasets and/or streaming, structured data, increasingly termed Big Fast Data. We excel in this through the use of kdb+, which has been independently benchmarked as the world’s leading time series database. Our software is therefore complementary to the unstructured Big Data companies, with whom we see opportunities to partner and collaborate. 5 First Derivatives plc Chief Executive’s statement (continued) Capital Markets Software The technical capabilities of our software have helped us carve out a significant market share within capital markets, with kdb+ being the timeseries database of choice for 9 of the 10 top investment banks in the world as well as widespread usage of our Delta products – a suite of applications built on top of kdb+. Our products are used in areas such as market surveillance, trading, regulatory reporting, transaction cost analysis and algorithmic testing. Our software addresses a market opportunity valued at billions of dollars or more per annum. It is offered as a hosted, multi-tenanted solution so the incremental cost of signing new customers can be minimal. Our software applications share a common technology platform, which means that our software is easier to support, deploy and upgrade. Our approach fosters rapid prototyping and innovation and allows us to convert ideas to products very quickly. From its conception we made a conscious decision to deploy applications in the cloud and on mobile platforms - this decision has been validated by recent technology trends. Through the recent acquisition of ActivateClients we now have strengthened our HTML5 capabilities, and we are confident that we will not only have the fastest back end technology in the market but also slick front end visualisation. Key wins over the past year have included: - kdb+: Is now used by over 90 organisations and there were nearly 30 new deals signed this year across hedge funds, banks and technology suppliers. - Market Surveillance: During the period, the Group won two contracts to implement Surveillance at IEX, a high-growth equity trading venue based in New York and Yieldbroker Pty Limited, an electronic marketplace designed for institutional investors and banking participants trading in Australian and New Zealand debt securities and derivatives. These contracts built on the momentum generated by the go live in November 2013 of the Group’s flagship surveillance contract with the Australian Securities and Investment Commission. Our Surveillance product was also voted Market Surveillance Product of the Year at the Futures and Options World Awards in Singapore in September 2014. - Energy Markets: After the period end, we secured our first customer within energy trading surveillance – a leading European oil and gas company is using our product to monitor trading activity in the futures market as regulators tighten controls within the industry. - Exchanges: We signed the Shenzhen Stock Exchange earlier in the year as well as deploying an innovative algo trading testing platform at another large Asian Exchange. - Foreign Exchange: Our Delta Flow platform had a positive year, with performance weighted to the second half, providing good momentum into the current year. We also signed a significant global player, EBS, ICAP’s market leading electronic FX business, who are using our software for streaming analytics. - Operations: During the year our Delta Operations Network has been successfully deployed at six banks in Europe and is offered as a managed service. These tools cover areas such as application monitoring, regulatory reporting, single customer views, reconciliations and testing. 6 First Derivatives plc Chief Executive’s statement (continued) Additional vertical markets We have outlined in previous statements that while our software platform’s heritage is within capital markets, we believe its competitive advantages in dealing with Big Fast Data are equally applicable to a number of additional vertical markets. In particular, given our nanosecond time stamping and geolocation capabilities, we see the structured data flowing from connected sensors, known as the Internet of Things, presenting an attractive opportunity. During the year we secured significant deals with the Ontario Regulator (IESO), Purdue Pharma in the US and a leading oil and gas company in South America. This has confirmed our belief that we have a software product which is applicable across multiple industries globally. We are in discussions with a number of prospects in areas such as: - Telecoms: customer profile monitoring/analysis; customer marketing; sensor data monitoring; network optimisation. - Utilities: smart meter data retrieval and analysis; network monitoring; sensor data storage and analysis. - Pharma: drug trial data capture, analysis and simulation; gene sequencing and analysis; regulatory reporting. - Others: automotive plant monitoring; proximity marketing; preventative maintenance in manufacturing, web analytics. We have accelerated our product roadmap and our entry to certain verticals by recent acquisitions; our acquisition of Prelytix, which specialises in predictive analytics generated by analysing real-time advertising data, website traffic and social media; and Affinity, which has developed a Sensor Data Management platform, which is currently applied to smart meter data but which can be adapted to handle data from any connected device. While these market opportunities are still evolving, we are encouraged by the initial interactions with potential customers. Consulting The Group has continued to build on its growing reputation as one of the leading niche capital markets consulting companies in the world. We have ongoing contracts with many of the leading global banks, providing implementation, support and development 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 nineteen years and our areas of expertise and delivery capability continue to broaden and deepen as we grow. This means we are able to bid for a wider range of assignments, many of which are larger than those FD has typically undertaken. As a result of this increased activity, consulting recorded another solid period of growth, with revenues increasing by 15.3% to £58.3m (2014: £50.6m) in the year to 28 February 2015. We have continued to grow the number of chargeable consultants since the end of the period reflecting the continuing opportunity we see within our capital markets niche and we continue to enjoy excellent revenue visibility. 7 First Derivatives plc Chief Executive’s statement (continued) Consulting (continued) Our growth is built on a number of differentiators, which include the strength of our internal training programme, which emphasises both capital markets and technology skills and capabilities; the ability to operate a hybrid on-site and near shore support model for our clients; and a flexible pricing model allied with a global footprint. These differentiators have ensured that, at a time when many customers are rationalising their supplier lists, FD is growing its client base, as evidenced by an increase in the number of Master Service Agreements (MSAs) under which we operate with larger clients. In the past year, we have added six new MSAs taking the total to 80, and we have a number of potential new MSAs under discussion. Our underlying philosophy remains unchanged. We provide people who understand the Capital Markets and who understand technology, differentiating ourselves from our competitors. To meet our clients’ demands, 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 hybrid Nearshore offering, which combines deploying a team of consultants in situ at the client, supported by a team with similar expertise at a lower cost in our headquarters in Newry. This approach addresses many of the concerns expressed around Nearshoring, such as cultural fit, time zone issues and consistency of service standards. Our Multi-Vendor application support provides 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 at the client. Management and Personnel The Group now employs over 1,200 people, up from over 900 people at the same time last year. Our increased brand recognition and the opportunity to work on cutting edge technologies in locations around the world continue to help us secure new talent and achieve high retention rates. Once again I would like to pay tribute to all FD employees for their hard work, talent, flexibility and dedication. Summary We have had a great start to the year and our pipeline is very strong. We have invested heavily in our sales function and in buying new businesses to accelerate our product roadmap and to address new vertical markets. We believe that the growing strength of our brand, the quality of our consultants and the superiority of our products leaves us ideally placed to continue our historical growth trajectory in Capital Markets. Whilst challenges remain our initial entry into other verticals has been very encouraging and we believe that the solid foundation we have laid and the huge addressable size of these markets gives us a significant opportunity to deliver further growth for shareholders. Brian Conlon Chief Executive Officer 1 June 2015 8 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 finance, technology and energy organisations. During the year under review, the Company widened its scope of activities, principally as a result of increasing its stake in Palo-Alto based Kx Systems to 65.2%. This has enabled the Company to move beyond its capital markets customer base and target customers in a range of new sectors. 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. Financial Review The Group performed well in the year with sales increasing by £13.3 million (19.0%). Growth arose from further penetration in the two key business areas with consultancy sales increasing by £7.7 million (15.3%) and software sales by £5.6 million (28.9%). The profit before tax for the year of £17.5 million (2014: £7.9 million) represented a growth of 119.9%. The Board considers that the key performance indicators (KPIs) for the Group are growth in revenue, adjusted EBITDA, together with adjusted EBITDA margins and profit before tax. KPI performance over the year to 28 February is provided below. Revenue Growth 2015 £’000 83,216 19.0% 2014 £’000 69,902 23.8% Revenue from continuing operations increased by 19.0% over the prior year. Consulting revenues increased by 15.3% (2014: 22.0%) and software revenues increased by 28.9% (2014: 28.8%). Software revenue represented 29.9% of Group revenue for the year (2014: 27.6%) and on a pro forma basis, assuming Kx Systems had been consolidated for the entire year, software revenue would have been 34.9% of Group revenue. 9 First Derivatives plc Strategic report (continued) Financial Review (continued) The Board considers that adjusted EBITDA is an important KPI. Adjusted EBITDA grew by 24.1% to £15.5m from £12.4m reflecting continued profitable sales growth. EBITDA margins increased during the year due to a greater percentage of higher margin software revenue in the Group along with ongoing operational efficiencies in the consulting business. The Group receives grants from Invest NI to incentivise the recruitment and training of staff. During the year £1.0m (2014: £1.9m) was recognised within other income. Grant income varies depending on the number of staff recruited and the point at which they are recruited within the life of the grant programme. In June 2014 we announced continued support from Invest Northern Ireland in the form of an additional £3.9m in grant assistance to support the creation of 484 high quality jobs within the Group over the next three years. The Group increased its stake in Kx Systems to 65.2% at the end of October 2014. Since then its performance has been in line with management expectations and consolidated into the Group results. Kx Systems will continue to be fully consolidated going forward. The Company also issued a put for the remaining non-controlling interest (NCI) of 34.8% under which the holders can require the Company to purchase the remaining interest at a fixed price for a period of seven years for cash. Changes in the fair value of the NCI put is accounted for directly in equity. At year end, a long term liability of £27.1m was recognised for the put option. The increased investment within Kx Systems has resulted in a gain of £9.6m in the Income Statement relating to the revaluation of the Group’s existing interest. This has been treated as an exceptional gain for adjusted EBITDA purposes along with the associated costs of the transaction. To finance this increased investment the Group renewed and increased its debt facility. As a result, finance expense increased to £0.7m (2014: £0.6m) as a result of increased borrowings in the second half of the year. The Group’s reported effective tax rate was 8.9% (2014: 19.5%). The effective rate has reduced as there is no deferred tax recognised on the gain arising on the deemed disposal of associate. Excluding the deemed disposal results in an effective tax rate of 19.8% which is in line with prior periods. The adjusted profit before and after tax is detailed below and excludes the amortisation of acquired intangibles, share based payments, gain on disposal of property, finance translation income/charges, net gain on disposal of investment in associate, acquisition costs along with associated taxation impact of these adjustments. Reported profit for the year Adjustments for: Amortisation of acquired intangibles Share based payment and related costs Gain on disposal of property Acquisition related costs (Gain)/loss on foreign currency translation Effects of investment in associate Tax effect of the above Adjusted profit after tax EPS (fully diluted) 2015 £’000 15,915 2,205 1,495 (1,669) 984 (138) (9,582) (465) 8,745 38.8p 10 2014 £’000 6,401 1,579 932 (988) - 19 (268) (304) 7,371 34.2p First Derivatives plc Strategic report (continued) Financial Review (continued) Adjusted profit before tax rose by 18.2%, again reflecting profitable growth with adjusted earnings per share increasing by 13.4%. Fully diluted earnings per share growth was slightly lower due to the increase in the weighted average number of shares in issue to 22.6m (2014: 21.6m). The increase in shares was as a result of share options exercised, shares issued to increase our investment in Kx and a placing to institutional shareholders in February 2015. The Group generated £11.2m of cash from operating activities (2014: £8.1m), representing 131.6% of result from operating activities (2014: 97.6%). At the year end, net debt was £15.7m. During the year the Group disposed of 7 properties which had been utilised in the business. This generated a gain on disposal of £1.7m (2014: £1.0m) and proceeds of £5.0m (2014: £7.1m). This disposal programme is now complete. Net assets at 28 February 2015 were £98.3m compared to £52.1m at 28 February 2014. Principal risks and uncertainties 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 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 Inc and several key customers. Its relationship with Kx Systems Inc. changed in the year with it becoming a 65.2% owned subsidiary of First Derivatives. The trading contractual relationship between the two companies 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. 11 First Derivatives plc Strategic report (continued) Principal risks and uncertainties (continued) 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. 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 4 and the Chief Executive’s Statement on pages 5 to 8 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 1 June 2015 12 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 2015. Results and dividend The Group’s profit after taxation attributable to the shareholders for the year to 28 February 2015 was £15,915k (2014: £6,401k). The Directors propose the payment of a final dividend of 10.20 pence per share (previous year: 9.00 pence) which, together with the interim dividend of 3.30 pence per share (2014: 3.20 pence), totals 13.50 pence per share (2014: 12.20 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 9.00 pence per share for the year ended 28 February 2014 and an interim dividend of 3.30 pence per share for the year ended 28 February 2015. Directors The Directors who held office during the year and subsequent to year end were as follows: R D Anderson B G Conlon R G Ferguson P Brazel (resigned 24 March 2015) K MacDonald S Keating V Gambale (appointed 3 March 2015) The interests of the Directors in shares during the year are set out on page 16 in the report of the Remuneration Committee. Substantial shareholdings At 1 June 2015, 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 (33.9%), Standard Life Investments Limited (8.4%), Legal & General Group plc (10.8%) and A Whitney (4.1%). Research and development The Group’s policy is to invest in product innovation and engage in research and development activities geared toward the development of products primarily for the use of the financial services industry. During the year costs of £6,594k (2014: £5,987k) were capitalised in respect of activities which were deemed to be development activities in accordance with the Group’s accounting policies. Other research and development costs of £1,574k (2014: £1,497k) not meeting the criteria for capitalisation were expensed during the year. 13 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 Kx Systems Inc. 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 (2014: £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. 14 First Derivatives plc Directors’ report (continued) Events after the reporting date On 23 March 2015, the Company acquired the entire share capital of ActivateClients Limited, an Irish based software firm targeting financial markets and specialising in delivering applications and trading systems, for initial consideration £3.3m and contingent deferred consideration of up to £1.4m. On 31 March 2015, the Company acquired the entire share capital of Affinity Systems Limited, a Canadian based provider of software development and consultancy services, for initial consideration of £3.7m and contingent deferred consideration of up to £4.0m. 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 KPMG have expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. By order of the board JJ Kearns Secretary 1 June 2015 15 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 was chaired by Patrick Brazel until 24 March 2015 after which Seamus Keating became the Chairman. 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 through 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 Number of ordinary shares 28 February 2015 28 February 2014 130,000 7,853,953 212,647 - 10,000 15,314 130,000 7,853,953 117,467 - 10,000 8,643 16 First Derivatives plc Report of the Remuneration Committee (continued) Share options The Directors believe it is important to incentivise key management and employees. Share options granted to the Directors over ordinary shares of the Company are set out in note 12. The mid-market price of the Company’s shares at close of business on 28 February 2015 was £13.10 and the high and low share prices during the year were £13.25 and £8.60 respectively. The Company recognised total expenses of £721k (2014: £667k) related to equity-settled share-based payment transactions during the year. Expenses of £56k (2014: £161k) related to share options granted to the Directors. 350,000 share options were exercised by the Directors during the current year (2014: 70,000). Transactions with Directors The Directors interests in the contracts with the Company are disclosed in note 37. 17 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 Group 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). 18 First Derivatives plc Statement of Directors’ responsibilities in respect of the Annual Report and the financial statements The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare Group 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 also prepare the Company financial statements on the same basis of IFRSs as adopted by the EU and as applied in accordance with the Companies Act 2006. 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 Group 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 1 June 2015 19 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 2015 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 19, 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 Financial Reporting Council’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 and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. 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 of the Company's affairs as at 28 February 2015 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. 20 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. John Poole (Senior Statutory Auditor) For and on behalf of KPMG, Statutory Auditor Chartered Accountants Stokes House 17/25 College Square East Belfast BT1 6DH 1 June 2015 21 First Derivatives plc Consolidated statement of comprehensive income Year ended 28 February 2015 Revenue Cost of sales Gross profit Other operating income Administrative expenses Results from operating activities Acquisition and associate disposal costs Share-based payment and related costs Gain on disposal of property, plant and equipment Depreciation and amortisation Amortisation of acquired intangible assets (IFRS3) Adjusted EBITDA Finance income Finance expense Gain/(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 Gain on disposal of investment in associate and settlement of pre- existing relationships Profit before taxation Taxation Profit for the year Note 5 6 7 9 9 9 18 18 3 11 2015 £’000 83,216 (59,497) 23,719 1,045 (16,288) 8,476 984 1111,495 1,495 (1,669) 3,959 2,205 15,450 3 (723) 138 (582) 57 (60) 9,585 17,476 (1,561) 15,915 2014 £’000 69,902 (50,674) 19,228 1,950 (12,890) 8,288 - 1111,49 932 (988) 2,636 1,579 12,447 4 (594) (19) (609) 268 - - 7,947 (1,546) 6,401 22 First Derivatives plc Consolidated statement of comprehensive income (continued) Year ended 28 February 2015 Note 2015 £’000 2014 £’000 Profit for the year 15,915 6,401 Other comprehensive income Items that will or may be reclassified subsequently to profit or loss Net exchange gain/(loss) on net investment in foreign subsidiaries and associate Net loss on hedge of net investment in foreign subsidiaries and associate Reclassification of loss on net investment in associate Reclassification of gain on hedge of investment in associate Reclassification of associate revaluation reserve Other comprehensive income for the period, net of tax Total comprehensive income for the period attributable to owners of the parent Earnings per share Basic Diluted 27 27 27 27 26 2,334 (3,794) (1,099) (227) (59) 174 (167) 1,183 - - - (4,021) 17,098x 2,380 15a 15a Pence 77.2 70.6 Pence 34.4 32. 29.7 All profits are attributable to the owners of the Company and relate to continuing activities. The notes on pages 32 to 99 form part of these financial statements. 23 First Derivatives plc Consolidated balance sheet As at 28 February 2015 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 owners of the Company Liabilities Loans and borrowings Trade and other payables Deferred tax liabilities Contingent deferred consideration Non-current liabilities Loans and borrowings Trade and other payables Current tax payable Employee benefits Current liabilities Total liabilities Total equity and liabilities Note 16 17 18 19 30 19 20 21 22 23 24 26 27 28 29 30 33 28 29 31 32 2015 £’000 5,948 134,293 - 2,634 6,450 149,325 29,952 14,705 - 44,657 193,982 114 55,286 6,262 - (1,690) 38,352 98,324 27,025 29,490 11,284 1,132 68,931 3,429 18,936 490 3,872 26,727 95,658 193,982 2014 £’000 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 These financial statements were approved by the Board of Directors on 1 June 2015. Seamus Keating Chairman Brian Conlon Chief Executive Officer Graham Ferguson Chief Financial Officer Registered Company number: NI 30731 The notes on pages 32 to 99 form part of these financial statements. 24 First Derivatives plc Company balance sheet As at 28 February 2015 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 Current liabilities Total liabilities Total equity and liabilities Note 16 17 18 18 19 30 19 20 21 22 23 24 25 28 29 30 28 29 31 32 2015 £’000 2,600 15,320 71,942 - 4,522 5,134 99,518 25,594 7,858 - 33,452 132,970 114 55,286 6,262 140 22,490 84,292 26,927 1,009 3,101 31,037 3,339 10,784 120 3,398 17,641 48,678 132,970 2014 £’000 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 These financial statements were approved by the Board of Directors on 1 June 2015. Seamus Keating Chairman Brian Conlon Chief Executive Officer Graham Ferguson Chief Financial Officer Registered Company number: NI 30731 The notes on pages 32 to 99 form part of these financial statements. 25 First Derivatives plc Consolidated statement of changes in equity Year ended 28 February 2015 Balance at 1 March 2014 Total comprehensive income for the year Profit for the year Other comprehensive income Net exchange gain on net investment in foreign subsidiaries and associate Net exchange loss on hedge of net investment in foreign subsidiaries and associate Reclassification of loss on net investment in associate Reclassification of gain on hedge of investment in associate Reclassification of associate revaluation reserve Total comprehensive income for the year Transactions with owners of the Company Income tax relating to share options Exercise of share options Change in fair value of NCI put Issue of shares Issue of shares as purchase consideration Share based payment charge Transfer on forfeit of share options Dividends Balance at 28 February 2015 - - - - - - - - 4 - 5 7 - - - 114 - - - - - - - - 4,243 - 12,102 16,690 - - - 55,286 The notes on pages 32 to 99 form part of these financial statements. Share capital Share premium Share option reserve Revaluation reserve £000 £000 98 22,251 £000 6,627 £000 167 Currency translation adjustment £000 Retained earnings Total equity £000 £000 (3,040) 25,959 52,062 - 15,915 15,915 2,334 (1,099) (59) 174 - - - - - - 2,334 (1,099) (59) 174 (167) 1,350 15,915 17,098 - - - - - - - - (1,690) - - (1,017) - - - 20 (2,525) 38,352 (199) 3,380 (1,017) 12,107 16,697 721 - (2,525) 98,324 - - - - - (167) (167) - - - - - - - - - - - - - - - - (199) (867) - - - 721 (20) - 6,262 26 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 comprehensive income for the year Transactions with owners of the Company 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 Balance at 28 February 2014 Share capital Share premium Share option reserve Revaluation reserve £000 £000 87 12,895 £000 3,341 £000 167 - - - - - 6 - 4 1 - - - - - - - - 3,695 - 4,562 1,099 - - - - - - - 3,350 (752) - - - 757 (69) - 98 22,251 6,627 - - - - - - - - - - - - 167 Currency translation adjustment £000 Retained earnings £000 Total equity £000 981 - (3,794) (227) (4,021) - - - - - - - - (3,040) 21,903 39,374 6,401 6,401 - - 6,401 - - (314) - - - 69 (2,100) 25,959 (3,794) (227) 2,380 3,350 2,949 (314) 4,566 1,100 757 - (2,100) 52,062 The notes on pages 32 to 99 form part of these financial statements. 27 First Derivatives plc Company statement of changes in equity Year ended 28 February 2015 Balance at 1 March 2014 Total comprehensive income for the year Profit for the year Other comprehensive income Change in effective rate of deferred tax Total comprehensive income for the year Transactions with owners of the Company Income tax relating to share options Exercise of share options Issue of shares as purchase consideration Issue of shares Share based payment charge Transfer on forfeit of share options Dividends to equity holders Balance at 28 February 2015 Share capital Share premium £000 £000 Share option reserve £000 Fair value reserve £000 Retained earnings £000 Total equity £000 98 22,251 6,627 138 21,021 50,135 - - - - 4 7 5 - - - 114 - - - - 4,243 16,690 12,102 - - - 55,286 - - - (199) (867) - - 721 (20) - 6,262 - 2 2 - - - - - - - 140 3,974 3,974 - 3,974 - - - - - 20 (2,525) 22,490 2 3,976 (199) 3,380 16,697 12,107 721 - (2,525) 84,292 The notes on pages 32 to 99 form part of these financial statements. 28 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 comprehensive income for the year Transactions with owners of the Company, 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 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 - - - - - - - 3,695 - 1,099 4,562 - - - 98 22,251 - - - 3,350 (752) - - - 757 (69) - 6,627 - 5 5 - - - - - - - - 138 5,751 5,751 - 5,751 5 5,756 - - (314) - - - 69 (2,100) 21,021 3,350 2,949 (314) 1,100 4,566 757 - (2,100) 50,135 The notes on pages 32 to 99 form part of these financial statements. 29 First Derivatives plc Consolidated cash flow statement Year ended 28 February 2015 Cash flows 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 Gain on sale of investment in associate 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 2015 £’000 15,915 582 (57) 60 1,193 4,971 (1,669) (9,585) 721 (1,045) 1,561 12,647 (5,538) 4,430 11,539 (382) 11,157 3 896 5,035 (23,302) (2,228) (7,145) - (26,741) 15,487 - 29,152 (11,747) (1,038) (722) (2,525) 28,607 13,023 1,544 138 14,705 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 The notes on pages 32 to 99 form part of these financial statements 30 First Derivatives plc Company cash flow statement Year ended 28 February 2015 Cash flows 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 2015 £’000 3,974 1,589 243 1,941 (896) 721 (1,669) (972) 578 5,509 (9,120) 5,285 1,674 (89) 1,585 (24,553) (1,016) 5,035 (4,584) 896 - (24,222) 15,487 - 29,152 (11,747) (688) (2,525) 29,679 7,042 758 58 7,858 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 The notes on pages 32 to 99 form part of these financial statements. 31 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 1 June 2015. (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”) and with the Companies Act 2006. 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 cost 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 There were no additional standards, amendments and interpretations that had a material impact of the Group and Company’s financial statements during the year. The following standards, amendments and interpretations were effective for accounting periods beginning on or after 1 March 2014 and these have been adopted in the Group and Company financial statements:  Amendments to IFRS10 Investment entities. 32 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (a) Basis of preparation Changes in accounting policies (continued)  IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interest in other Entities, IAS 27 Separate Financial Statements (2014) which supercedes IAS 27 (2008) and IAS 28 Investments in Associates and Joint Ventures (2014) which supercedes IAS 28 (2008).  Amendments to IAS 32 Financial Instruments – Offsetting financial assets and financial liabilities.  Amendments to IAS 39 – Novation of Derivatives and Contribution of Hedge Accounting.  IFRIC 21 Levies. 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 2014 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 2019 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 IAS 19 Defined Benefit Plans: Employee Contributions (Mandatory for the year commencing on or after 1 February 2015)  Annual Improvements to IFRS’s 2010 – 2012 Cycle and 2011-2013 Cycle (Mandatory for the year commencing on or after 1 February 2015)  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)*  Amendments to IAS 16 and IAS 38 clarification of acceptable methods of depreciation and amortisation (Mandatory for year commencing 1 January 2016)*  Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Bearer Plants (Mandatory for year commencing 1 January 2016)* 33 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) New standards and interpretations not adopted (continued)  Amendments to IAS 27 Equity method in Separate Financial Statements (Mandatory for year commencing 1 January 2016)*  Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate or joint venture (Mandatory for year commencing 1 January 2016)*  Amendments to IAS 1: Disclosure Initiative (Mandatory for year commencing 1 January 2016)*  Amendments to IFRS 10, IFRS 11 and IAS 28: Investment Entities: Applying the consolidation exemption (Mandatory for year commencing 1 January 2016)*  Annual Improvements to IFRSs 2012-2014 Cycle (Mandatory for year commencing 1 January 2016)*   IFRS 15 Revenue from contracts with customers (Mandatory for year commencing 1 January 2018)* 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)* *Not yet EU endorsed. The effective dates above refer to the EU effective dates to the extent they have been amended and otherwise as IASB effective dates. Going concern The Group meets its day to day working capital requirements through generated cash flows and loan facilities which are due for renewal in 2019. 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. 34 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) 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 best estimates of the fair value of contingent deferred consideration payable based on the relevant share purchase agreements.  Management have assessed the deferred tax asset as being recoverable based on forecast results.  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). 35 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) Measurement of fair values A number of the Group’s and Company’s accounting policies and disclosures require the measurement at fair values of 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. 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. 36 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (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. 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 contractual or 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. 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 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. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases. 37 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (b) Basis of consolidation (continued) iii) Non-controlling interests (NCI) NCI are measured at their proportionate share of the acquiree’s identifiable net assets at the date of acquisition. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The Group accounts for any put option on the shares of its subsidiary held by a NCI shareholder that obliges the Group to purchase the shares for cash or another financial instrument (NCI put) at fair value on initial recognition. Subsequent changes in the fair value of the NCI put are recognised directly in equity. iv) 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). 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 impairment 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. v) 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. 38 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (c) Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currency of the Group entities at the exchange rate ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. Monetary liabilities designated as a hedge of net investments are treated as set out in note 1(c) (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 denominated 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 separately for deferred consideration and as part of the fair value movement on contingent deferred consideration. 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. 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. 39 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (c) Foreign currency (continued) 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 where 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. 40 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. (e) Assets held for sale 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. 41 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (f) Intangible assets and goodwill i) Goodwill Goodwill that arises on the acquisition of subsidiaries is 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 acquisitions is not amortised. Negative goodwill arising on an acquisition is recognised immediately in profit or loss. ii) Research and development Expenditure on research activities undertaken with the prospect of gaining new technical knowledge and understanding, is recognised in profit or loss as an expense as incurred. Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised in respect of software assets includes the cost of materials, direct labour and an appropriate proportion of overheads that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised 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. 42 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (f) Intangible assets and goodwill (continued) 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% - 20.0% Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. (g) Trade and other receivables 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. (h) Cash and cash equivalents 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. (i) Trade and other payables 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. (j) Loans and borrowings Loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, loans and borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis. 43 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (k) Impairment (i) Non-derivative financial assets A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the assets and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets 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. Loans and receivables (ii) 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 reporting 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’s. 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. 44 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (k) Impairment (continued) (iii) Non-financial assets (continued) 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. (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. Share-based payment transactions (ii) 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. 45 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (m) Employee benefits (continued) (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. (n) Revenue (i) Products and Services rendered 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 reporting 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 when the collection of the resulting receivable is considered probable.  In respect of customisation of software, revenue is recognised upon acceptance by the customer and when the collection of the resulting receivable is considered probable.  Revenue from data management hosting, other hosting and transactional activities is 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; the remaining balance is recognised following delivery and when the resulting receivable is considered probable. 46 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (n) Revenue (continued) (ii) Government grants An unconditional government grant is recognised as other operating income when the grant becomes receivable. Other government grants are initially recognised in the balance sheet as deferred income if there is reasonable assurance that they will be received and that the Group has complied with the conditions attaching to it; they are released to the income statement as other income on a systematic basis over the performance condition period. 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. (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. 47 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (q) Taxation Tax expense on the profit or loss for the period presented comprises current and deferred tax. Current and deferred tax is recognised in profit or loss except to the extent that it relates to a business combination or items recognised directly in equity or in other comprehensive income. Current tax 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. ii) Deferred tax Deferred tax is provided using the 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. 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. 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. 48 First Derivatives plc Notes (continued) 1 Significant accounting policies (continued) (r) Classification of financial instruments issued by the Group 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. (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. (v) Adjusted EBITDA Adjusted EBITDA is defined as results from operating activities before acquisition and associate disposal costs, share-based payments and related costs, gain on disposal of property, plant and equipment, depreciation and amortisation; and amortisation of acquired intangible assets (IFRS3). 49 First Derivatives plc Notes (continued) 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. 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 in respect of foreign subsidiaries 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. 50 First Derivatives plc Notes (continued) 2 Financial risk management (continued) 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 note 39 to the financial statements and as purchase consideration in business combinations. The Board seeks to maintain a balance between the higher returns that might be possible with higher level of borrowings and the advantages and security afforded by a sound capital position. 3 Acquisitions of subsidiaries During the year ended 28 February 2015, the Group and Company completed the following two acquisitions. On 31 October 2014, the Group and Company acquired a further 46.5% interest in the issued share capital of Kx Systems Inc. to increase its total interest to 65.2%. On 25 February 2015, the Group acquired the entire share capital of Prelytix LLC, specialist in predictive analytics, based in Massachusetts, USA. Kx Systems Inc. On 31 October 2014 the Company obtained control of Kx Systems Inc. Acquiring the controlling interest has enabled the Group to expand its managed services and real-time infrastructure services. The Company also issued a put for the remaining non-controlling interest (NCI) of 34.8% under which the holders can require the Company to purchase the remaining interest at a fixed price for a period of seven years for cash. The acquisition and the put are accounted for under the anticipated acquisition method. In the four months to 28 February 2015, the subsidiary contributed revenue of £2,632k and net profit of £753k to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2014, management estimates that revenue for the Group would have been £89,540k and net profit for the year would have been an estimated £17,109k. 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 2014. The following summarises the major classes of consideration transferred and the recognised amounts of assets acquired and liabilities assumed at the acquisition date. 51 First Derivatives plc Notes (continued) 3 Acquisitions of subsidiaries (continued) 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 Deferred tax asset Trade and other receivables Cash and cash equivalents Trade and other payables Deferred tax liability Net identifiable assets and liabilities Goodwill on acquisition Consideration paid, satisfied as follows: Cash Shares issued (1,247,308 shares) NCI put Fair value of existing investment Consideration paid, satisfied as follows (continued): Cash consideration paid Cash (acquired) Net cash outflow Pre-acquisition carrying amounts £000 - 25 74 3,183 4,470 (6,099) (8) 1,645 Fair value adjustments £000 17,233 - - - - (6,634) 10,599 Recognised values on acquisition £000 17,233 25 74 3,183 4,470 (6,099) (6,642) 12,244 68,719 80,963 23,936 15,729 26,101 15,197 80,963 23,936 (4,470) 19,466 ___ The trade and other receivables includes gross contractual amounts of £1,684k of which no amounts were expected to be uncollectable at the acquisition date. Shares issued The fair value of the ordinary shares issued was based on the listed share price on 31 October 2014, the effective date of control (1,261.00 pence per share). 52 First Derivatives plc Notes (continued) 3 Acquisitions of subsidiaries (continued) Effect of acquisitions (continued) 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. The Group has carried out an impairment review of goodwill as at 28 February 2015 and has not identified any impairment (see note 17). None of the goodwill is expected to be deductible for tax purposes. Acquisition related costs The Group incurred acquisition-related costs of £840k related to external legal fees, due diligence costs and other acquisition costs which have been included in the Group’s consolidated statement of comprehensive income. £618k of these costs have been capitalised by the Company as part of the cost of the investment. Gain on disposal of investment in associate On obtaining control of Kx Systems Inc, the Group is deemed to have disposed of its investment in the associate and subsequently repurchased same at the acquisition date with the effect that the carrying value of the interest before obtaining control is remeasured to fair value at the acquisition date. The following gain arises which is recognised in profit and loss: Fair value of existing equity interest Carrying value of existing investment in associate (note 18) Transfer from foreign exchange reserve (note 27) - Net loss on net investment in associate - Net gain on hedge of investment in associate Transfer from revaluation reserve (note 26) Settlement of pre-existing relationship Other related costs Gain on disposal of investment in associate and settlement of pre-existing relationship £000 15,197 (4,532) 59 (174) 167 (669) (463) 9,585 53 First Derivatives plc Notes (continued) 3 Acquisitions of subsidiaries (continued) Effect of acquisitions (continued) Prelytix On 25 February 2015 the Group obtained control of Prelytix LLC. Acquiring the controlling interest will enable the Group to penetrate additional sectors, beyond its core capital markets, using the capabilities of the Delta platform and kdb+. In the three days to 28 February 2015 the subsidiary contributed revenue of £Nil and net profit of £Nil to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2014, management estimates that revenue for the Group would have been £84,452k and net profit for the year would have been an estimated £15,994k. 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 2014. 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 Trade and other receivables Cash and cash equivalents Trade and other payables Net identifiable assets and liabilities Goodwill on acquisition Consideration paid, satisfied as follows: Cash Shares issued (74,572 shares) Contingent deferred consideration Cash consideration paid Cash (acquired) Net cash outflow Pre-acquisition carrying amounts £000 - 197 52 (230) 19 Fair value adjustments £000 952 - - - 952 Recognised values on acquisition £000 952 197 52 (230) 971 5,017 5,988 3,888 968 1,132 5,988 3,888 (52) 3,836 ___ 54 First Derivatives plc Notes (continued) 3 Acquisitions of subsidiaries (continued) Effect of acquisitions (continued) The trade and other receivables includes gross contractual amounts of £197k of which no amounts were expected to be uncollectible at the acquisition date. Shares issued The number of ordinary shares issued (74,572 shares) was derived based on the average price of shares on the 10 days prior to 25 February 2015 (1,297.80 pence per share). The fair value of the ordinary shares issued based on the listed share price on 25 February 2015, the effective date of control (1,287.50 pence per share), was not materially different. The impact would be to decrease goodwill by £7k. 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. The Group has carried out an impairment review of goodwill as at 28 February 2015 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 £8,117k if the acquirer’s turnover exceeds £33,768k over the next 36 months. The Group has included £1,132k as contingent deferred consideration related to the additional consideration, which represents its fair value at the date of acquisition. The balance of £6,985k is additional consideration in respect of vendors which is also conditional on future service conditions and has been assessed as being post-acquisition remuneration. Acquisition related costs The Group incurred acquisition-related costs of £144k 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. Prior year acquisition There were no acquisitions completed during the year ended 28 February 2014. 55 First Derivatives plc Notes (continued) 4 Operating segments Business segments The Group’s board of Directors is considered to be the Chief Operating Decision Maker of the Group and 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. Business segments 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 2015 £’000 2014 £’000 58,320 24,896 ______ 83,216 ______ 50,593 19,309 ______ 69,902 ______ Revenues 2015 £’000 2014 £’000 Non-current assets 2015 £’000 2014 £’000 26,857 9,607 26,230 7,208 ______ 69,902 ______ 20,983 10,160 110,091 1,641 ______ 142,875 ______ 17,915 11,274 20,225 1,756 ______ 51,170 ______ 35,182 13,231 28,531 6,272 ______ 83,216 ______ 56 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 two key customers (2014: one) who individually generated more than 10% of Group revenue in 2015. Revenue from these customers represents approximately 15% (2014: 13%) and 11% (2014: 7%) of the Group’s total revenue. The revenue from these customers has been derived from 39 different independent decision making business units across seven global locations with no individual unit accounting for more than 6%. 5 Revenue Sale of goods Rendering of services 6 Other operating income Government grants Other income 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 Acquisition related costs Other 57 2015 £’000 2014 £’000 12,835 70,381 83,216 11,537 58,365 69,902 2015 £’000 1,045 - 1,045 2014 £’000 1,931 19 1,950 2015 £’000 2014 £’000 2,071 567 681 606 6,164 4,673 (328) 176 1,723 (1,669) 984 640 16,288 1,841 587 841 596 4,215 4,592 (307) 193 761 (988) - 559 12,890 First Derivatives plc Notes (continued) 8 Personnel expenses and numbers The average weekly number of persons (including the Directors) employed by the Group during the year is set out below: Administration Technical The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs Share based payments (see note 39) Less capitalised development costs Disclosed as: Cost of sales Administrative expenses 9 Finance income and expense Interest income on bank deposits Finance income Gain/(loss) on foreign currency translation of monetary assets Interest expense on bank loans Finance expense Net finance expense recognised in profit or loss 2015 2014 Average no. Average no. 128 871 999 2015 £’000 43,701 6,737 1,548 721 (6,268) 46,439 2015 £’000 41,766 4,673 46,439 104 702 806 2014 £’000 36,916 4,037 1,219 757 (5,632) 37,297 2014 £’000 32,705 4,592 37,297 2015 £’000 2014 £’000 3 3 138 (723) (723) (582) 4 4 (19) (594) (594) (609) Exchange gains and losses on net investments in foreign subsidiaries and associates and related effective hedges are recognised in the foreign currency translation reserve. 58 First Derivatives plc Notes (continued) 10 Statutory and other information Depreciation on property, plant and equipment: Owned assets Leased 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 - Corporate finance services 2015 £’000 2014 £’000 1,088 105 1,723 4,971 920 1,574 68 21 22 8 55 70 58 _____ 302 _____ 660 78 761 3,477 535 1,497 61 15 21 3 40 76 - _____ 216 _____ 59 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 2015 £’000 2014 £’000 1,828 (10) 1,818 44 (319) 18 (257) 1,084 (194) 890 709 134 (187) 656 Total tax expense in income statement 1,561 1,546 Reconciliation of effective tax rate Profit excluding income tax Income tax using the Company’s domestic tax rate (21.2%) (2014: 23.1%) Tax exempt income Expenses not deductible for tax purposes Adjustments for prior years Other differences Profit of associate Gain on disposal of investment in associate Foreign tax rate differences Reduction in tax rates Unrelieved overseas taxes 17,476 3,700 (64) (453) (329) (106) (12) (1,820) 504 18 123 1,561 7,947 1,834 (164) (181) (60) 63 (62) - (143) (187) 446 1,546 Following the 2014 budget statement, the main rate of UK corporation tax was reduced from 23% directly to 21% with effect from the 1 April 2014. Thereafter the main rate of UK corporation tax will reduce to 21% 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. 60 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 2015 £’000 515 30 56 601 2014 £’000 659 33 161 853 During the period there were 2 Directors accruing benefits under a defined contribution pension scheme (28 February 2014: 3). The aggregate emoluments and company pension contributions of the highest paid Director (excluding fees paid for provision of services) amounted to £245k and £15k respectively during the year (2014: £327k and £15k respectively). The Directors are deemed to be the key management of the Group. Directors’ emoluments Salary and fees Benefits £’000 - - - - - - - - - £’000 35 150 150 - - 35 50 35 455 Bonus £’000 - - 60 - - - - - 60 Share based payment £’000 14 - 35 - - 7 - - 56 2015 Total excluding pension £’000 49 150 245 - - 42 50 35 571 2015 2014 2014 Total excluding pension Pension £’000 - 15 15 - - - - - 30 £’000 47 260 327 38 28 43 42 35 820 Pension £’000 - 16 15 2 - - - - 33 R D Anderson B G Conlon R G Ferguson A Toner* K Cunningham* P Brazel S Keating K MacDonald Total *Details in the above table reflects emoluments paid up to resignation on 9 May 2013. 61 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 2014 Granted during the year Exercised during the year 28 February 2015 Exercise price £ Exercise period David Anderson 50,000 Graham Ferguson Pat Brazel 150,000 175,000 175,000 25,000 - - - - - - 50,000 4.80 2014-2021 - 175,000 175,000 150,000 - - 5.65 4.15 1.77 2016-2023 2014-2020 2013-2019 - 25,000 4.80 2014-2021 The average share price during the year was £11.08 (2014: £8.24) and the closing price at year end was £13.10 (2014: £12.65). 13 Dividends The following dividends were: Final dividend relating to the prior year Interim dividend paid 2015 £’000 1,813 712 2,525 2014 £’000 1,499 601 2,100 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 9.0 (previous year: 8.4) pence per share and the interim dividend paid during the year amounted to 3.3 (previous year: 3.2) pence per share. The cumulative dividend paid during the year amounted to 12.30 (previous year: 11.60) 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. 10.20 pence per ordinary share (2014: 9.0 pence) 2,323 1,813 2015 £’000 2014 £’000 62 First Derivatives plc Notes (continued) 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 £900k (2014: loss of £576k) for the financial year of the Company as approved by the Board was £3,974k (2014: £5,751k). 15 (a) Earnings per ordinary share Basic The calculation of basic earnings per share at 28 February 2015 was based on the profit attributable to ordinary shareholders of £15,915k (2014: £6,401k), and a weighted average number of ordinary shares ranking for dividend of 20,605k (2014: 18,623k). Basic earnings per share 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 2015 Pence per share 2014 Pence per Share 77.2 34.4 2014 Number ’000 Number ’000 2015 19,542 604 414 - 45 20,605 17,484 421 - 152 566 18,623 Diluted The calculation of diluted earnings per share at 28 February 2015 was based on the profit attributable to ordinary shareholders of £15,915k (2014: £6,401k) and a weighted average number of ordinary shares after adjustment for the effects of all dilutive potential ordinary shares of 22,554k (2014: 21,564k). 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 2015 Pence per share 2014 Pence per share 70.6 29.7 2015 Number ‘000 20,605 1,949 22,554 2014 Number ‘000 18,623 2,941 21,564 At 28 February 2015 nil options (2014: 552k) 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 the purposes of calculating the dilutive effect of share options was based on quoted market prices for the year during which the options were outstanding. 63 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 £17,476k (2014: £7,947k). 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 2015 Pence per share 2014 Pence per share 84.8 77.5 42.7 36.9 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 2015 Pence per share 2014 Pence per share 77.2 7.6 84.8 70.6 6.9 77.5 34.4 8.3 42.7 29.7 7.2 36.9 Earnings before tax per share has been presented to facilitate pre-tax comparison returns on comparable investments. (c) Normalised earnings after tax per ordinary share Normalised earnings after tax per share are based on profit after taxation of £8,745k (2014: £7,371k). The adjusted profit after tax has been calculated by adjusting for the amortisation of acquired intangibles after tax effect £1,764k (2014: £1,247k), share based payment and related charges after tax effect £1,196k (2014: £736k), profit on disposal of property, plant and equipment after tax effect £1,316k (2014: £760k), acquisition and associate disposal costs after tax effect £787k (2014: £Nil), gain on foreign currency translation after tax effect £109k (2014: loss of £15k) and for the gain on disposal of investment £9,492k (2014: £268k). The number of shares used in this calculation is consistent with note 15(a) above. Basic earnings after tax per ordinary share Diluted earnings after tax per ordinary share 42.4 38.8 39.6 34.2 2015 Pence per share 2014 Pence per share 64 First Derivatives plc Notes (continued) 16 Property, plant and equipment Group Cost At 1 March 2014 Additions Acquisition through business combinations Disposals Exchange adjustments At 28 February 2015 Depreciation At 1 March 2014 Charge for the year Disposals Exchange adjustments At 28 February 2015 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 Carrying amounts At 1 March 2013 At 28 February 2014 At 28 February 2015 Land and buildings £’000 Plant and equipment £’000 Office furniture £’000 2,792 32 - (241) (3) 2,580 460 221 (20) (5) 656 4,687 1,960 25 - (350) 6,322 1,744 936 - (97) 2,583 235 236 - - (4) 467 152 36 - (6) 182 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 7,732 2,332 1,924 2,696 2,237 - - (246) 4,687 1,388 462 - - (106) 1,744 1,308 2,943 3,739 165 72 - - (2) 235 111 43 - - (2) 152 54 83 285 Total £’000 7,714 2,228 25 (241) (357) 9,369 2,356 1,193 (20) (108) 3,421 Total £’000 11,355 2,907 (3,811) (2,419) (318) 7,714 2,261 738 (259) (265) (119) 2,356 9,094 5,358 5,948 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 2015 the carrying amount of leased assets included in plant and equipment was £155k (2014: £313k) and related depreciation amounted to £183k (2014: £78k). Details of security provided for borrowing in respect of property, plant and equipment are disclosed in note 28. 65 First Derivatives plc Notes (continued) 16 Property, plant and equipment (continued) Company Cost At 1 March 2014 Additions Disposals At 28 February 2015 Depreciation At 1 March 2014 Charge for the year Disposals At 28 February 2015 Land and buildings £’000 Plant and equipment £’000 Office furniture £’000 2,054 32 (241) 1,845 335 86 (20) 401 800 888 - 1,688 536 134 - 670 143 96 - 239 78 23 - 101 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 Carrying amounts At 1 March 2013 At 28 February 2014 At 28 February 2015 8,284 - (3,811) (2,419) 2,054 713 146 (259) (265) 335 7,571 1,719 1,444 600 200 - - 800 443 93 - - 536 157 264 1,018 75 68 - - 143 65 13 - - 78 10 65 138 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. Total £’000 2,997 1,016 (241) 3,772 949 243 (20) 1,172 Total £’000 8,959 268 (3,811) (2,419) 2,997 1,221 252 (259) (265) 949 7,738 2,048 2,600 66 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill Group Goodwill Customer lists Acquired Software Brand name £’000 £’000 £’000 £’000 13,526 - 73,736 - - 3,161 90,423 - - - - 3,547 - 5,659 - - 319 9,525 1,653 644 124 2,421 9,011 - 12,332 551 (785) 73 21,182 4,430 1,509 (136) 5,803 361 - 194 - - 5 560 186 52 1 239 Goodwill Customer lists Acquired Software Brand name £’000 £’000 £’000 £’000 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 22,394 6,594 - - - (809) 28,179 4,545 2,766 (198) 7,113 Internally developed software £’000 16,761 5,987 - - (354) 22,394 2,705 1,898 (58) 4,545 Total £’000 48,839 6,594 91,921 551 (785) 2,749 149,869 10,814 4,971 (209) 15,576 Total £’000 45,415 5,987 208 14 (2,785) 48,839 7,870 3,477 (533) 10,814 14,943 13,526 90,423 2,454 1,894 7,104 5,861 4,581 15,379 231 175 321 14,056 17,849 21,066 37,545 38,025 134,293 Cost Balance at 1 March 2014 Development costs Acquisitions Additions Disposals Exchange adjustments At 28 February 2015 Amortisation and impairment losses Balance at 1 March 2014 Amortisation for the year Exchange adjustment At 28 February 2015 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 Carrying amounts At 1 March 2013 At 28 February 2014 At 28 February 2015 Leased intangible assets No assets are held under finance leases. In the prior year, the Group leased 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 and related amortisation amounted to £159k. The basis by which amortisation is calculated is stated in note 1. Amortisation is recognised through profit or loss in administration expenses. 67 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill (continued) Leased intangible assets (continued) Included within development costs capitalised in the year is £6,268k (2014: £5,632k) of capitalised employees costs, including £Nil of capitalised share option costs (2014: £90k) together with £326k of capitalised consultancy costs (2014: £265k) for the year. Developed software includes £2,914k (2014: £2,922k) of software under development at 28 February 2015 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 (‘CGU’s’)) is presented as follows: 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 Prelytix LLC Kx Systems Inc. Associate Kx Systems Inc. (included in note 18) 2015 £’000 9,848 787 1,129 143 455 821 1,078 5,023 71,139 90,423 2014 £’000 9,079 725 1,194 161 468 821 1,078 - - 13,526 - 3,801 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 7-10% (2014: 10%) is applied for years 2 to 5, followed by a growth rate of 2% (2014: 2%) thereafter. The pre-tax discount rates applied to cash flow projections of the CGUs was 15% (2014: 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. 68 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill (continued) Impairment testing of goodwill (continued) The value in use and excess value in use over the carrying amount inclusive of acquired intangible assets of the above CGUs are as follows: Value in use 2015 £’000 12,657 1,691 3,842 18,992 1,456 3,461 3,325 6,255 88,617 140,296 2014 £’000 11,729 1,880 3,581 17,972 1,282 3,601 2,789 - - 42,834 Excess over carrying amount 2015 £’000 2,265 298 2,643 11,557 848 1,807 2,090 277 1,165 22,950 2014 £’000 1,806 386 2,274 9,557 609 1,796 1,527 - - 17,955 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 Prelytix LLC Kx Systems Inc. Sensitivity analysis There was no impairment charge for the year ended 28 February 2015 (2014: £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 2% would not result in any indication of impairment. Applying these assumptions did not indicate any impairment. 69 First Derivatives plc Notes (continued) 17 Intangible assets and goodwill (continued) Company Cost Balance at 1 March 2014 Development cost Balance at 28 February 2015 Amortisation and impairment losses Balance at 1 March 2014 Amortisation for the year Balance at 28 February 2015 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 Carrying amounts At 1 March 2013 At 28 February 2014 At 28 February 2015 Internally developed software £’000 16,034 4,584 20,618 3,357 1,941 5,298 11,432 4,602 16,034 2,049 1,308 3,357 9,383 12,677 15,320 Included within development costs capitalised in the year is £4,584k (2014: £4,512k) of capitalised employees costs and £Nil of capitalised share option costs (2014: £90k) for the year. Developed software includes £1,895k (2014: £1,846k) of software under development at 28 February 2015 not yet commissioned. 70 First Derivatives plc Notes (continued) 18 Investment in subsidiaries and associate The significant subsidiaries of Group and Company are detailed as follows: Country of incorporation Class of share held United States Australia Ireland United States Canada N. Ireland UK UK United States United States Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ownership 2015 100% 100% 100% 100% 100% 100% 100% 100% 65.2% 100% 2014 100% 100% 100% 100% 100% 100% 100% 100% - 100% Market Resource Partners LLC* First Derivatives Pty Limited First Derivatives (Ireland) Limited* Reference Data Factory LLC First Derivatives Canada Inc.* Market Resource Partners Limited* Cowrie Financial Limited* Redshift Horizons Limited* Kx Systems Inc.* Prelytix LLC *Owned directly by First Derivatives plc. Unlisted investments in subsidiaries at cost At 1 March Additions Transfer from investment in associate At 28 February Company 2015 £’000 2014 £’000 24,464 40,282 7,196 17,864 6,600 - 71,942 24,464 Additions comprises cash consideration (£23,936k), shares issued (£15,729k) and acquisition related expenses (£618k). During the prior 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. 71 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. Group Country of incorporation Class of share held Ownership 2015 2014 United States Ordinary - 20.1% At 1 March Dividends received Share of associate profit Loss on dilution in associate using the equity method Exchange adjustment Disposal (see note 3) At 28 February Company At 1 March Transfer to investment in subsidiary At 28 February 2015 £’000 5,233 (896) 57 (60) 198 (4,532) 2014 £’000 6,295 (773) 268 - (557) - - 5,233 2015 £’000 7,196 (7,196) 2014 £’000 7,196 - - 7,196 On 31 October 2014, the Group and Company increased their interest in Kx Systems Inc. from 20.1% to 65.2% and Kx Systems Inc. became a subsidiary. The results of Kx Systems Inc. have been consolidated from that date. The Group’s share of profit in associates for the period to 31 October 2014 was £57k (year ended 28 February 2014: £268k). The associate is not publicly listed and consequently does not have a published share price. During the period to 31 October 2014, the Group received dividends of £896k (year ended 28 February 2014: £773k) from its associate. 72 First Derivatives plc Notes (continued) 18 Investment in subsidiaries and associate (continued) Associate (continued) The following table summarises the financial information of Kx Systems as included in its own financial statements, adjusted for fair value adjustments at acquisition and differences in accounting policies. The table also reconciles the summarised financial information to the carrying amount of the Group’s interest in Kx Systems. The information for the current period presented in the table includes the results of Kx Systems only for the period from 1 March 2014 to 31 October 2014, because Kx Systems became a subsidiary on 31 October 2014. Percentage ownership interest Non-current assets Current assets Non-current liabilities Current liabilities Net assets (100%) Group’s share of net assets (20.1%) Elimination of unrealised profit on downstream sales Carrying amount of interest in associate Revenue Profit from continuing operations (100%) Other comprehensive income (100%) Total comprehensive income (100%) Total comprehensive income (20.1%) 2015 20.1% - - - - - - - - 6,324 284 - 284 57 2014 20.1% 23,378 8,966 - (6,309) 26,035 5,233 - 5,233 8,485 1,333 - 1,333 268 Group’s share of profit and total comprehensive income 57 268 73 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 2015 £’000 22,258 - - 2,743 2,723 1,131 1,097 29,952 Group 2015 £’000 - 1,922 712 2,634 2014 £’000 14,774 32 - 1,710 2,196 1,808 51 20,571 2014 £’000 - 1,779 775 2,554 Company 2015 £’000 2014 £’000 11,790 - 10,056 632 2,272 844 - 25,594 8,906 32 1,600 376 1,869 1,632 276 14,691 Company 2015 £’000 2,600 1,922 - 4,522 2014 £’000 2,404 1,779 - 4,183 The repayment terms of the receivable from subsidiaries has been agreed as falling due after more than one year. At 28 February 2015 Group and Company trade receivables are shown net of an allowance for doubtful debts of £2,681k and £1,163k respectively (2014: Group £2,088k; Company £576k) arising from on- going invoice disputes and the risk of companies defaulting. The impairment charge in the year was £1,723k (2014: £761k) for Group and £587k (2014: charge £365k) 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. 74 First Derivatives plc Notes (continued) 20 Cash and cash equivalents Bank balances Group Company 2015 £’000 14,705 2014 £’000 4,393 2015 £’000 7,858 2014 £’000 3,607 See note 38 for discussion of interest rate risk and sensitivity analysis. For the purposes of the Statement of Cashflows, cash and cash equivalents comprises bank balances less the bank overdraft (see note 28). 21 Assets held for resale All seven properties held for sale in the prior year were disposed of during the current year and no properties are held for sale as at 28 February 2015. Property, plant and equipment - 3,146 Group 2015 £’000 2014 £’000 Company 2015 £’000 - 2014 £’000 3,146 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 2015 Number 19,541,610 936,283 1,321,880 - 977,000 22,776,773 2014 Number 17,484,069 1,076,530 - 141,011 840,000 19,541,610 Prelytix LLC was acquired on 25 February 2015. As part of the purchase consideration 74,572 shares were issued, allotted and fully paid. These were admitted to trading on AIM and ESM on 4 March 2015. 75 First Derivatives plc Notes (continued) 22 Share capital (continued) Equity shares Issued, allotted and fully paid Ordinary shares of £0.005 each 2015 Number 2015 £’000 2014 Number 22,776,773 _________ 114 ___ 19,541,610 _________ 2014 £’000 98 ___ 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 977,000 ordinary shares (2014: 840,000) for cash consideration of £12,701k (2014: £4,738k), the exercise of 936,283 share options (2014: 1,076,530) for cash consideration of £3,380k (2014: £2,949k) together with an associated transfer from the share option reserve of £867k (2014: £752k), the issue of 1,321,880 shares (2014: Nil) at £16,697k (2014: £Nil) as purchase consideration and nil shares (2014: 141,011) at £Nil (2014: £1,100k) as purchase consideration for outstanding deferred consideration on subsidiaries. Transaction costs of £594k (2014: £172k) were accounted for as a deduction from equity during the period. 23 Share premium account Opening balance Premium on shares issued Group 2015 £’000 22,251 33,035 Company 2014 £’000 12,895 9,356 2015 £’000 22,251 33,035 2014 £’000 12,895 9,356 Closing balance 55,286 22,251 55,286 22,251 76 First Derivatives plc Notes (continued) 24 Share option reserve 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 Group 2015 £’000 2014 £’000 6,627 721 (867) (20) (199) 3,341 757 (752) (69) 3,350 Company 2015 £’000 6,627 721 (867) (20) (199) 2014 £’000 3,341 757 (752) (69) 3,350 6,627 Closing balance 6,262 6,627 6,262 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 2015 £’000 138 2 140 2014 £’000 133 5 138 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. 26 Revaluation reserve Opening balance Transfer to profit and loss Closing balance Group 2015 £’000 167 (167) - 2014 £’000 167 - 167 For the purposes of the Group, the revaluation of the available for sale asset prior to its reclassification as an associate was transferred to the revaluation reserve. On reclassification of the associate as a subsidiary, the revaluation reserve has been transferred to profit and loss. 77 First Derivatives plc Notes (continued) 27 Currency translation adjustment reserve Opening balance Net gain / (loss) on net investment in foreign subsidiaries Net gain / (loss) on net investment in associate Net loss on hedge of net investment in foreign subsidiaries Net (loss) / gain on hedge of investment in associate Transfer to profit and loss on disposal of associate Accumulated loss on net investment in associate Accumulated gain on hedge of investment in associate Group 2015 £’000 2014 £’000 (3,040) 2,136 198 (1,041) (58) (59) 174 981 (3,237) (557) (240) 13 - - Closing balance (1,690) (3,040) 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 2014 £’000 4,649 1,226 5,875 9,747 (41) - 9,706 2015 £’000 3,339 - 3,339 26,950 (23) - 26,927 2014 £’000 4,649 - 4,649 9,747 (41) - 9,706 2015 £’000 3,339 90 3,429 26,950 (23) 98 27,025 78 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: £2,375k loan (Facility 1) £29,625k multi-currency loan (Facility 2) £4,500k sterling overdraft (Bank Overdraft) The terms and conditions of outstanding loans were as follows: Currency Nominal interest rate Year of maturity GBP Multi Multi Multi GBP EUR 3.50%+LIBOR 3.50%+LIBOR* 3.00%+LIBOR 2.50%+LIBOR* 2.50%+LIBOR 4.375% 2015 2019 2015 2017 - 2015 28 February 2015 Face value £000 Carrying amount £000 28 February 2014 Carrying amount £000 Face value £000 339 29,950 - - - 188 30,477 339 29,927 - - - 188 30,454 - - 4,529 7,018 2,849 1,226 15,622 - - 4,488 7,018 2,849 1,226 15,581 Facility 1 Facility 2 Facility A Facility B 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 2.25%+LIBOR. The facility 1 loan is secured over property, plant and equipment including assets held for sale with a carrying amount of £1,924k (2014: £5,478k). The facility 2 loan is secured by a fixed charge over the Group’s property and a debenture over the trading assets in Group companies. All outstanding loans have interest charged at 3.5% (2014: 2.50% or 3%) above LIBOR. Finance lease liabilities Finance lease liabilities are payable as follows: Group Future minimum lease payments 2015 £’000 108 127 235 Interest 2015 Principal 2015 £’000 18 29 47 £’000 90 98 188 Future minimum lease payments 2014 £’000 1,249 - 1,249 Interest 2014 Principal 2014 £’000 23 - 23 £’000 1,226 - 1,226 Less than one year Between one and five years The finance leases are secured over the leased equipment. 79 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 NCI put Deferred income in respect of government grants Group Company 2015 £’000 2014 £’000 2015 £’000 2014 £’000 2,785 4,171 1,225 10,755 - 18,936 2,362 2,537 695 3,191 - 1,691 2,882 395 2,126 3,690 8,785 10,784 1,108 2,122 537 1,524 1,405 6,696 Group Company 2015 £’000 2014 £’000 2015 £’000 2014 £’000 27,118 2,372 29,490 - 2,087 2,087 - 1,009 1,009 - 820 820 The NCI put is the exercise price of the put for the remaining NCI of 34.8% of Kx Systems Inc. under which the holders can require the Company to purchase the remaining interest at a fixed price. 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 been awarded government grants as follows:  Grant amounting to £4,308k awarded in December 2010, conditional on recruitment of additional staff for the period to October 2013. The grant is recognised as deferred income as additional staff are recruited and is being amortised as the performance conditions are satisfied.  Grant amounting to £848k awarded in October 2010, conditional on recruitment of additional staff for the period to February 2013. The grant is recognised as deferred income as additional staff are recruited and is being amortised as the performance conditions are satisfied.  Grant amounting to £468k awarded in January 2009, conditional on the provision of staff training. It is recognised as other income as training is provided.  Grant amounting to £1,656k, awarded in February 2010 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.  Grant amounting to £3,880k, awarded in June 2014, conditional on recruitment of additional staff for the period to 31st August 2017. The grant is recognised as deferred income as additional staff are recruited and are being amortised as the performance conditions are satisfied.  During the year, employment grant income of £2,348k (2014: £443k) was claimed from Invest Northern Ireland. 80 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) 2015 £000 - 2,683 3,260 - - - 522 6,465 (15) 6,450 2014 £000 - 3,628 1,713 - - 570 5,911 (56) 5,855 2015 £000 (3,411) - - - (38) (7,850) - (11,299) 15 (11,284) 2014 £000 (2,942) - - (40) (1,082) - (4,064) 56 (4,008) Net 2015 £000 (3,411) 2,683 3,260 - (38) (7,850) 522 (4,834) - (4,834) 2014 £000 (2,942) 3,628 1,713 (40) (1,082) 570 1,847 - 1,847 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 2013 £000 (1,530) Recognised in income £000 (1,412) Recognised in equity £000 - 1,211 323 (40) (1,052) 435 (653) 21 719 - (119) 135 (656) 3,324 671 - 89 - 4,084 Share options exercised £000 - (928) - - - - (928) Balance at 28 Feb 2014 £000 (2,942) 3,628 1,713 (40) (1,082) 570 1,847 Recognised in income £000 (492) Recognised in equity £000 31 (66) 821 - 174 (180) 257 251 726 2 (308) 58 760 Recognised on Acquisition £’000 (8) - - - (6,634) 74 (6,568) Share options exercised £000 - Balance at 28 Feb 2015 £000 (3,411) (1,130) - - - - (1,130) 2,683 3,260 (38) (7,850) 522 (4,834) The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances. 81 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) 2015 £000 - 2,683 - 2,416 35 5,134 - 5,134 2014 £000 - 3,628 - 1,349 41 5,018 - 5,018 2015 £000 (3,063) - (38) - - (3,101) - (3,101) 2014 £000 (2,654) - (40) - - (2,694) - (2,694) 2015 £000 (3,063) 2,683 (38) 2,416 35 2,033 - 2,033 2014 £000 (2,654) 3,628 (40) 1,349 41 2,324 - 2,324 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 2013 Recognised in profit and loss £000 (1,433) 1,211 (40) 131 37 (94) £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 Recognised in profit and loss £000 (409) (66) - 387 (6) (94) Recognised in equity £000 - 251 2 Share options exercised £000 - (1,130) - 680 - 933 - - (1,130) Balance at 28 Feb 2015 £000 (3,063) 2,683 (38) 2,416 35 2,033 The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances. 82 First Derivatives plc Notes (continued) 31 Current tax payable Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 Current tax payable 490 430 120 433 32 Employee benefits Accrued holiday pay Employee taxes Group 2015 £’000 1,064 2,808 3,872 2014 £’000 824 1,358 2,182 Company 2015 £’000 816 2,582 3,398 2014 £’000 690 1,207 1,897 33 Contingent deferred consideration Contingent deferred consideration liabilities are payable as follows: Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 At 1 March Additions Increase in contingent deferred consideration Foreign exchange movement in contingent deferred consideration Settled in year – cash Settled in year – shares issued At 28 February - 1,132 - - - - 1,132 762 - 14 (1) (125) (650) - - - - - - - - 758 - - (1) (107) (650) - 83 First Derivatives plc Notes (continued) 33 Contingent deferred consideration (continued) The payment of contingent deferred consideration is payable in cash and shares. As at 28 February 2015 the maximum total amount payable under the terms of the sale and purchase agreements is £1,132k (2014: £Nil) and the minimum total amount payable is £Nil (2014: £Nil). More than one year Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 1,132 1,132 - - - - - - The amount of contingent deferred consideration was variable dependent on the future performance of the relevant subsidiary meeting specified turnover targets which are expected to be fully achieved and is payable in cash (48%) and shares (52%). 34 Deferred consideration Deferred consideration liabilities are payable as follows: At 1 March Settled in the year – shares issued Group 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 - - - 450 (450) - - - - 450 (450) - 84 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 2015 £’000 800 2,582 852 4,234 2014 £’000 453 1,234 884 2,571 2015 £’000 275 1,008 420 1,703 2014 £’000 140 560 560 1,260 The Group leases four premises under operating lease arrangements. Group During the year £920k was recognised as an expense in the income statement in respect of operating leases (2014: £535k). Company During the year £275k was recognised as an expense in the income statement in respect of operating leases (2014: £140k). 36 Pension contributions The Group makes contributions to the personal pension schemes of certain employees. The pension charge for the year amounted to £1,548k (2014: £1,219k). Contributions amounting to £184k (2014: £153k) 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 (2014: £53k). Rent deposits of £26k (2014: £26k) have been paid to Brian Conlon in respect of these apartments. The balance owed to Brian Conlon at 28 February 2015 is £Nil (2014: £Nil). 85 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 (2014: £140k) rental charge was incurred in the year. The balance owed to Oncon at 28 February 2015 is £Nil (2014: £Nil) and an amount of £126k (2014: £143k) had been prepaid. In the prior year the company bought back 93,334 share options for cash consideration of £314k from two employees. There was no buy back in the current financial year. Other related party transactions Associate Company Other related party transactions Subsidiaries Receivables outstanding 2014 £000 2015 £000 Payables outstanding 2014 £000 2015 £000 - - 316 316 - - - - Revenue 2015 £000 5,369 2014 £000 2,822 5,369 2,822 Administrative expenses incurred from 2014 £000 2015 £000 9,230 9,230 6,513 6,513 86 First Derivatives plc Notes (continued) 37 Related parties transactions (continued) Subsidiaries Associates Receivables outstanding 2015 £000 12,656 - 2014 £000 4,006 316 Payables outstanding 2014 £000 2015 £000 3,690 - 1,405 - 12,656 4,322 3,690 1,405 In the prior year, the receivable balance outstanding from the associate comprised of a trade receivable balance of £32k and a prepayment of £284k. During the year development costs of £837k (2014: £710k) were recharged from a subsidiary to the Company. Interest is charged on inter-company loans at market rates. During the prior 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. On 23 March 2015 First Derivatives acquired ActivateClients Limited, of which Pat Brazel and Keith MacDonald were Executive Directors. As purchase consideration Pat Brazel received 97,417 £0.005 ordinary shares of the Company and Keith MacDonald received 35,877 £0.005 ordinary shares of the Company. The consideration shares were admitted to trading on AIM and ESM on 27 March 2015. Dividends paid by the Company to the Directors during the period were as follows: 2015 £000 12 966 26 - 1 2 1,007 2014 £000 12 911 14 - 1 1 939 R D Anderson B G Conlon R G Ferguson P Brazel K MacDonald S Keating 87 First Derivatives plc Directors and advisers 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 2015 Carrying value Loans and receivables £’000 Liabilities at amortised cost £’000 Financial assets not measured at fair value Trade and other receivables Cash and cash equivalents Financial liabilities measured at fair value Contingent deferred consideration* Financial liabilities not measured at fair value Secured bank loans Finance leases Trade, accruals and other payables Employee benefits 28,874 14,705 43,579 - - - - - - - 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 21,025 4,393 25,418 - - - - - - - - - - - - - Fair value £’000 28,766 14,705 43,471 Carrying amount £’000 28,766 14,705 43,471 (1,132) (1,132) (1,132) (1,132) (30,266) (188) (35,407) (3,872) (69,733) (30,266) (188) (35,299) (3,872) (69,625) Fair value £’000 20,878 4,393 25,271 (14,355) (1,226) (5,741) (2,182) (23,504) (14,355) (1,226) (5,594) (2,182) (23,357) (30,266) (188) (35,299) (3,872) (69,625) Carrying amount £’000 20,878 4,393 25,271 (14,355) (1,226) (5,594) (2,182) (23,357) 28 February 2014 Carrying value Loans and receivables £’000 Liabilities at amortised cost £’000 *Contingent deferred consideration is a level 3 fair value (see above) 88 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 2015 Carrying value Loans and receivables £’000 Liabilities at amortised cost £’000 Financial assets not measured at fair value Trade and other receivables Cash and cash equivalents Financial liabilities measured at fair value Derivatives* Financial liabilities not measured at fair value Secured bank loans Trade, accruals and other payables Employee benefits 27,859 7,858 35,717 - - - - - - Fair value £’000 27,844 7,858 35,702 Carrying amount £’000 27,844 7,858 35,702 - - - - - - - - - (30,266) (8,665) (3,398) (42,329) (30,266) (8,658) (3,398) (42,322) (30,266) (8,658) (3,398) (42,322) 28 February 2014 Carrying value 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 Loans and receivables £’000 Liabilities at amortised cost £’000 16,744 3,607 20,351 - - - - - - - (14,355) (5,178) (1,897) (21,430) Fair value £’000 16,729 3,607 20,336 (14,355) (5,172) (1,897) (21,424) Carrying amount £’000 16,729 3,607 20,336 (14,355) (5,172) (1,897) (21,424) * Balance relates to NCI put over the Group’s subsidiary which is currently recognised at immaterial value. 89 First Derivatives plc Directors and advisers 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 a contractual right to receive a termination fee based on 30% of the 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 a further two year period. At 28 February 2015, 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 (2014: £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 2015 £’000 2014 £’000 Company Carrying amount 2015 £’000 2014 £’000 28,766 14,705 ______ 43,471 ______ 20,878 4,393 ______ 25,271 ______ 27,844 7,858 ______ 35,702 ______ 16,729 3,607 ______ 20,336 ______ 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 2015 £’000 6,375 14,126 6,521 1,744 2014 £’000 5,499 8,422 6,048 909 2015 £’000 4,766 15,444 6,484 1,150 2014 £’000 2,037 8,538 5,514 640 28,766 20,878 27,844 16,729 90 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 2015 £’000 21,789 6,977 2014 £’000 12,648 8,230 2015 £’000 11,618 16,226 2014 £’000 8,906 7,823 28,766 20,878 27,844 16,729 The Group’s and Company’s most significant customer is an investment bank which for £3,288k of the trade and other receivables carrying amount at 28 February 2015 (2014: £1,707k). No other customers had receivable balances in excess of 10% of the Group’s total balance at the year end. In addition £1,131k (2014: £1,808k) 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 2015 £’000 - - - 2,681 2,681 Impairment 2015 £’000 - - - 1,163 1,163 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 Impairment 2014 £’000 - - - 2,088 2,088 Impairment 2014 £’000 - - - 576 576 Gross 2015 £’000 12,183 3,317 2,583 6,856 24,939 Gross 2015 £’000 5,197 2,395 1,808 3,553 12,953 91 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 2015 £’000 2,088 1,723 (414) (716) 2,681 2014 £’000 1,532 761 (205) - 2,088 2015 £’000 576 587 - - 1,163 2014 £’000 211 365 - - 576 A review of debt outstanding led to the increase of £593k in the Group impairment provision. A specific impairment loss was incurred during the prior year with regard to concerns over the recoverability of debt from 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 allowance for impairment for the Group and Company is entirely specific. The Group and Company held cash and cash equivalents of £14,705k (2014: £4,393k) and £7,858k (2014: £3,607k) respectively at 28 February 2015 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. 92 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 2015 Secured bank loans Finance leases Trade and other payables Contingent deferred consideration 28 February 2014 Secured bank loans Finance leases Trade and other payables Carrying amount £’000 (30,266) (188) (35,299) (1,132) Contractual cash flows £’000 (34,207) (235) (35,299) (1,132) 6 mths or less £’000 (2,325) (54) (8,181) - 6-12 mths 1-2 years £’000 (2,389) (54) - - £’000 (4,010) (127) (27,118) (1,132) 2-5 years More than 5 years £’000 - - - - £’000 (25,483) - - - (66,885) (70,873) (10,560) (2,443) (32,387) (25,483) - Carrying amount £’000 (14,355) (1,226) (5,594) (21,175) Contractual cash flows £’000 (15,702) (1,249) (5,594) (22,545) 6 mths or less £’000 (4,038) (650) (5,594) (10,282) 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) The above contracted cash flows include interest on secured bank loans the terms of which are set out in note 28. The contractual maturity of the £27,118k included in trade and other payables is up to seven years, but has an exercise notice period of 366 days. Company The following are contractual maturities of financial liabilities, including estimated interest payments. 28 February 2015 Secured bank loans Trade and other payables 28 February 2014 Secured bank loans Trade and other payables Carrying amount £’000 (30,266) (8,658) (38,924) Carrying amount £’000 (14,355) (5,172) (19,527) Contractual cash flows £’000 (34,207) (8,658) (42,865) Contractual cash flows £’000 (15,702) (5,172) (20,874) 6 mths or less £’000 (2,325) (8,658) (10,983) 6 mths or less £’000 (4,038) (5,172) (9,210) 6-12 mths 1-2 years £’000 (2,389) - (2,389) £’000 (4,010) - (4,010) 6-12 mths 1-2 years £’000 (1,212) - (1,212) £’000 (6,817) - (6,817) 2-5 years More than 5 years £’000 - - - £’000 (25,483) - (25,483) 2-5 years More than 5 years £’000 - - - £’000 (3,635) - (3,635) 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. 93 First Derivatives plc Notes (continued) 38 Financial instruments (continued) Currency risk Group The Group’s exposure to currency risk was as follows: 28 February 2015 EUR £’000 1,813 - (449) USD £’000 8,773 - (27,666) CAD £000’s 33 - - 28 February 2014 CAD £000’s 164 - - EUR £’000 1,510 - - USD £’000 7,784 - - 33 1,364 (18,893) 164 1,510 7,784 Trade receivables Secured bank loans Trade and other payables Gross balance sheet exposure The secured bank loan above excludes bank loans designated in a net investment hedge of £29,396k (2014: £5,139k). Company The Company’s exposure to currency risk was as follows: 28 February 2015 28 February 2014 CAD £000’s 33 - - EUR £’000 1,746 - (189) USD £’000 4,940 (29,396) (131) CAD £000’s 164 - - EUR £’000 784 - - USD £’000 3,869 (5,139) - 33 1,557 (24,587) 164 784 (1,270) Trade receivables Secured bank loans Trade and other payables Gross balance sheet exposure The following significant exchange rates applied during the year: USD 1 EUR 1 CAD 1 Average rate Reporting date spot rate 2015 1.63 1.26 1.83 2014 1.57 1.18 1.64 2015 1.54 1.38 1.93 2014 1.67 1.22 1.86 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 £4,461k (2014: £1,427k) and £1,750k (2014: £1,427k) respectively. 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 £4,015k (2014: £1,427k) and £1,575k (2014: £1,427k) respectively. 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. 94 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 £2,300k (2014: £80k). 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 £2,070k (2014: £80k). 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 2015 £’000 2014 £’000 Company 2015 £’000 2014 £’000 14,705 (30,289) (15,584) - (188) (188) 4,393 (14,396) (10,003) - (1,226) (1,226) 7,858 (30,289) (22,431) 3,607 (14,396) (10,789) - - - - - - A 10% reduction in interest rates at the end of the period would increase Group equity and profit and loss by approximately £135k (2014: £81k). A 10% increase in interest rates at the end of the period would decrease Group equity and profit or loss by approximately £125k (2014: £81k). 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 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 to 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 or four 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. 95 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 2015 Number of options Weighted average exercise price Number of options 2015 2014 2014 1.37 - 1.51 - 1.24 1.24 528,167 - (258,917) - 269,250 269,250 1.35 1.69 1.25 - 1.37 1.37 1,026,167 (60,000) (438,000) - 528,167 528,167 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 2015 above have an exercise price in the range of £1.02 to £1.21 (2014: £0.62 to £1.785) and a weighted average contractual life of 2.3 years (2014: 3.6 years). Weighted average exercise price 2015 2.52 2.27 2.53 - 2.52 2.52 Number of options Weighted average exercise price Number of options 2015 2014 2014 327,168 (1,667) (57,000) - 268,501 268,501 2.46 2.27 2.40 - 2.52 2.52 544,830 (43,300) (174,362) - 327,168 327,168 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 2015 above have an exercise price in the range of £2.27 to £2.735 (2014: £2.27 to £2.735) and a weighted average contractual life of 3.8 years (2014: 4.8 years). 96 First Derivatives plc Notes (continued) 39 Share based payments (continued) Weighted average exercise price 2015 5.48 4.45 4.59 9.00 4.65 4.64 Number of options 2015 2,754,865 (41,000) (620,366) 500,000 2,593,499 528,819 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 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 2015 above have an exercise price in the range of £4.15 to £9.00 (2014: £4.15 to £8.47) and a weighted average contractual life of 7.6 years (2014: 7.8 years). The weighted average share price at the date of exercise for share options exercised for the year ending 28 February 2015 was £11.15 per share (2014: £8.99). 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 2015 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) 01/09/14 1.76 9.00 9.00 500,000 20% 3.5 years 0.1% 3.0% 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% 01/07/13 0.91 5.75 5.75 280,000 20% 2.5 years 0.1% 3.0% 06/11/13 1.65 8.475 8.475 496,000 20% 3.5 years 0.1% 3.0% The adjustments made to the standard Black Scholes model are those required to reflect more clearly the Company’s experience relating to key assumptions. 97 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 Share options granted in 2014/15 – 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 2015 £’000 2014 £’000 3 229 121 254 114 721 - - - - 138 107 239 183 - 667 42 10 38 90 Total amount recognised in share based payment reserve 721 757 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 October 2018 and September 2022 in relation to the respective grants. 98 First Derivatives plc Notes (continued) 41 Subsequent events A General Meeting was held on 3 March 2015 for approval of the placing of 200,003 ordinary shares to raise £2,600k in cash. Approval was granted and the shares were allotted on 4 March 2015. Since the financial year end, the Group has made two acquisitions. At the time of signing of the financial statements the pre-acquisition carrying amounts for both acquisitions were in the process of being finalised. As a result the Group is unable to provide fair value amounts or goodwill recognised on acquisition. The available information of the acquisitions is outlined below. ActivateClients Limited On 23 March 2015 the Company gained control of ActivateClients Limited. Acquiring the controlling interest will enable the Group to accelerate its product development roadmap by utilising acquired agile software development methods and to through wider use of their HTML5 capability. Consideration paid, satisfied as follows: Cash Shares issued (183,185 shares) Affinity Systems Limited 1,078 2,209 3,287 On 31 March 2015 the Company gained control of Affinity Systems Limited. Acquiring the controlling interest will enable the Group to expands the Company's software and consulting services within the Internet of Things, particularly in industries such as utilities, healthcare and finance and supports the Group’s strategy to penetrate additional vertical sectors using the capabilities of its Delta platform and kdb+ to capture and analyse large volumes of data, including streaming data Consideration paid, satisfied as follows: Cash Shares issued (78,190 shares) 2,794 878 3,672 99 First Derivatives plc Directors and advisers Directors Secretary Registered Office Auditors Solicitors Bankers Nominated Advisor/EMI Advisor and Joint Brokers – 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 K MacDonald R D Anderson V Gambale 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 Investec Bank Plc 2 Gresham Street London EC2V 7QP 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 100 First Derivatives plc Global directory UK & Ireland Head Office First Derivatives plc 3 Canal Quay Newry Co. Down N.Ireland BT35 6BP Telephone: +44 28 3025 2242 Fax: +44 28 3025 2060 London Fifth Floor, 100 Cannon Street, London, EC4N 6EU UK USA & Canada New York 45 Broadway Suite 2040 New York NY 10006 USA Telephone: +1 888 290 3525 Philadelphia 1650 Arch Street Suite 2210 Philadelphia PA 19103 USA Belfast City Exchange 11-13 Gloucester Street Belfast Co. Antrim N. Ireland BT1 4LS Dublin 1st Floor Fleming Court Flemings Place Mespil Road Dublin 4 Eire New Jersey 14 Vervalen Street Closter NJ 07624 USA Toronto First Canadian Place 100 King Street West Suite 5600 Toronto M5X 1C9 Canada 101 First Derivatives plc Global directory Asia Pacific Sydney Suite 201 22 Pitt Street Sydney NSW 2000 Australia Singapore Unit 12-01 55 Market Street Singapore 048941 Tokyo Roppongi Hills North Tower 6-2-31 Roppongi Minato-ku Tokyo 160-0032 Japan Hong Kong Level 8 Two Exchange Square 8 Connaught Place Central Hong Kong 102 

Continue reading text version or see original annual report in PDF format above