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
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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.
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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.
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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
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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.
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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.
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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.
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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
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First Derivatives plc
Strategic report
Strategy and business objectives
The principal business of First Derivatives plc is the provision of a range of software and consulting
services to 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.
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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.
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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
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First Derivatives plc
Directors’ report
The Directors have pleasure in submitting to the shareholders their annual report and the audited financial
statements of the Group and Company for the year ended 28 February 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.
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First Derivatives plc
Directors’ report (continued)
Employees
It is the Group’s policy to ensure that equal opportunity is given for the employment, training and career
development of disabled persons, including persons who become disabled whilst in the Group’s
employment.
The Group is committed to keeping employees as fully informed as possible, on matters which affect them
as employees. The Group’s policy on employees remains to adopt a very open management style, keeping
employees informed of all matters affecting them as employees including key financial and economic
factors affecting the Group’s performance. This is achieved through meetings and informal consultation at
all levels.
Financial instruments
The Group’s financial risk management objective is broadly to seek to make neither a profit nor loss from
exposure to currency or interest rate risk. The policy is to finance working capital and the acquisitions of
property, plant and equipment through retained earnings and through borrowings at prevailing market
interest rates.
The Group does not use derivatives to manage its financial risk investment. The Group’s main cash flow,
credit and liquidity risks are those associated with selling on credit. This is managed through credit
control procedures. The Group is also exposed to the impact of fluctuations in exchange rates as it
generates income and incurs expenses in currencies other than Sterling (GBP). The Group has exposure
to the US Dollar (USD), Euro (EUR), Australian Dollar (AUD) and Canadian Dollar (CAD).
In addition, the Group has financial risk exposure as a result of mortgage financing apartment purchases,
trade receivables and activities carried on by subsidiary undertakings. The Group’s financial position is
structured to take advantage of a natural foreign currency hedge using excess cash generated from
operations to repay the associated capital and interest on US Dollar borrowings. In addition, by funding
the acquisitions of Market Resource Partners LLC (MRP), Reference Data Factory Inc. (RDF) and 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