First Derivatives plc
Annual report and accounts
Registered number: NI 30731
29 February 2016
First Derivatives plc
Contents
Strategic report
Chairman’s statement
Chief Executive’s statement
Financial review
Strategic report
Governance
Board of Directors
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
We are pleased to report another year of strong progress against our objective of delivering sustainable,
long term growth across our activities. Our increasing scale as a technology and consulting provider
enables us to play an important role supporting the major changes underway in global capital markets.
Our software applications enable the real-time capture and analysis of market data and our clients include
the top 10 global investment banks, financial regulators and stock exchanges, demonstrating the market-
leading performance capabilities of our technology. Our range and depth of consulting services has
expanded significantly in recent years, helping us assume the role of trusted adviser to our clients.
While significant potential remains to expand within financial services across all our activities, the Group
is also capitalising on its software capabilities by expanding into other markets which face similar data
management and analysis challenges in a manner consistent with our drive to deliver sustainable growth.
Revenue for the year increased by 40.6% to £117.0m (2015: £83.2m), while adjusted EBITDA rose by
50.5% to £23.3m (2015: £15.5m) and adjusted earnings per share increased by 33.2% to 51.7p (2015:
38.8p).
Net debt (loans and borrowings less cash and cash equivalents) at the period end was £15.1m (2015:
£15.7m). The Board has recommended payment of a final dividend of 12.00p per share (2015: 10.20p per
share) which, together with the interim dividend of 5.00p per share paid in December 2015, gives a total
dividend for the year of 17.00p per share, an increase of 25.9% compared to the prior year. The final
dividend, if approved at the AGM on 23 June 2016, will be paid on 15 July 2016 to those shareholders on
the register on 17 June 2016.
Software
We experienced an acceleration of contract wins through the year within Capital Markets, driven by
demand from clients. Our capability to service that demand increased following investment both during
the year and in prior years in software development, pre-sales support, sales and marketing,
implementation and support.
Despite our success during the year, we still remain at the early stages of commercial exploitation of our
software products within financial services and believe we have significant room for growth. FD’s core
competitive advantage is our capability to address client challenges around the management of large
volumes of data in real time for the purposes of risk management, balance sheet optimisation and for
regulatory and compliance purposes, all of which resonate strongly with existing and potential clients. The
success of deployments of our software to date is driving further growth in our pipeline as satisfied
customers report the benefits it is delivering to their business.
Outside financial services, we are making strong progress in digital marketing and utilities, where the
acquisitions of Prelytix LLC and Affinity Systems Limited respectively have accelerated our growth. We
continue to work to position ourselves in additional markets and have developed a pipeline of direct sales
opportunities across them. We are also exploring opportunities to partner with companies with domain
expertise in these areas to accelerate our growth.
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First Derivatives plc
Chairman’s Statement (continued)
Consulting
Consulting performed strongly, driven by a combination of the formation of deeper and more strategic
relationships with clients as the Group’s scale of operations and mix of skills grows together with
increased demand for the Group’s consulting expertise, particularly in compliance and regulation. During
the year the Group won a number of client engagements on strategic change management projects with
large investment banks that are expected to be multi-year in nature. These types of project wins are
testimony to the growing scale and reputation of the Group.
Corporate Development
Following the transformational acquisition of Kx Systems in 2014, the Group continues to make selective
strategic acquisitions to enhance its competitive position and accelerate its growth in new target markets.
In March 2015 the Group acquired Ontario-based Affinity Systems Limited (‘Affinity’), a software
development consultancy specialising in utility, retail and healthcare data management. Since acquisition,
Affinity has boosted our market presence in utilities and sensor data management and driven partnership
discussions with Utilismart for the provision of analytics using FD’s Kx technology platform combined
with Utilismart’s suite of smart grid applications.
Additionally we acquired Dublin-based ActivateClients Limited in March 2015, a software business with
important HTML5 capabilities targeting financial markets. This has significantly enhanced our
capabilities to visualise real-time data and has increased the competitiveness of our solutions across the
product range.
These acquisitions enable the Group to continue to meet the growing demand in our software businesses
within capital markets as well as providing the expertise to leverage our core software infrastructure assets
across other important market sectors. The Group will continue to evaluate opportunities that meet its
strict acquisition criteria.
Board Changes
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 both as a Non-Executive Director and in the growth of our software business
over the past year. After the year end, Non-Executive Director David Anderson stepped down from his
position after 14 years, including 11 years as Chairman of the Group, from the time of its IPO on AIM in
2002. His contribution to the success of the business has been invaluable and on behalf of my Board
colleagues I thank him and wish him a happy retirement.
Virginia Gambale was appointed a Non-Executive Director of the Group on 3 March 2015. 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 3 August 2015,
Jon Robson joined the Board as a Non-Executive Director. Jon has significant experience in global
capital markets, as former CEO of NYSE Technologies Inc, and previously as a senior executive in
Thompson Reuters. I welcome both Virginia and Jon to the Board and thank them for the contribution
they are making.
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First Derivatives plc
Chairman’s Statement (continued)
Current Trading and Outlook
The current financial year has started positively, with continuing high levels of growth in consulting and
further progress in software. We are confident that our high level of repeat and recurring revenue provides
the foundation for another year of strong, profitable growth. In software, the full-year impact of deals
signed during the past year, coupled with a strong pipeline, provides confidence that we can again
generate good growth at high margins. We also expect to make further progress in positioning our
software in sectors beyond financial services. In summary, we expect another year of strong growth, at
least in line with market forecasts and to continue to invest for growth in later years.
I would like to thank the staff of FD and my Board colleagues for their hard work in achieving another
successful year of growth for the Group.
Seamus Keating
Chairman
16 May 2016
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First Derivatives plc
Chief Executive’s Statement
Market conditions within the Capital Markets sector remained positive over the past year with the most
consistent themes being complex and widespread increases in and changes to regulation and pressure
within investment banks to reduce costs, through the use of new technology or changes to the way that
technology is delivered. Both of these trends play to FD’s strengths and consequently the Group enjoyed
another successful year.
In addition to the further progress made within financial services, we have started to see the benefits of
investment within our business in prior years as we seek to extend our Kx technology products and
services into other markets. We made three acquisitions during the year to accelerate this process and
made significant progress, particularly within digital marketing and utilities, as we seek to exploit our
leadership position in the field of Big Fast Data. We have continued to invest internally to exploit the wide
range of opportunities available to the Group in these markets and others such as pharma, telecoms and
sensor analytics.
It is important to note that we are delivering solutions to different markets using a common technology
platform, a common technical infrastructure, a single sales team, a pooled 24/7 global support team and a
single R&D team. This produces significant economies of scale, reduces time to market for new products
and the operational leverage and the low incremental cost of acquiring and supporting new customers
should continue to deliver increased margins.
Review of activities
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. In particular, this includes enabling
decisions to be taken in real-time based on the analysis of events as they happen – in Capital Markets this
may trigger the removal of a “fat-finger” trade before it can impact on trading on an Exchange, while in
other markets it could alter the steering of a driverless vehicle or change the routing on a telephone call.
Our software also enables very large quantities of data to be sifted to provide insights, for example in drug
discovery for pharmaceutical companies and lead generation in digital marketing, opening up ways for
organisations to turn data into better informed decisions.
The Group also provides consulting services within Capital Markets, where our customer base includes
investment banks, brokers, exchanges, regulators and hedge funds. The year under review has seen further
strong growth - as the Group increases the scale and depth of its offerings it is seeing growing client
demand, particularly for larger, more strategic assignments. This augurs well for growth in future years.
Software
Software sales during the period increased by 68.7% to £42.0m (2015: £24.9m). Our software products
are based on Kx technology, an enterprise platform that incorporates the world’s highest performing time
series database. Our software has a number of features that mark it out as ideal for the increasing number
of applications that require streaming analytics – it provides high-performance in-memory capabilities,
time stamps data to the nanosecond for true real-time applications and incorporates geolocation to allow
analytics to be performed on devices in motion. It also has a small footprint, lowering the total cost of
ownership and increasing the competitiveness of our software.
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First Derivatives plc
Chief Executive’s Statement (continued)
We have also developed a number of software applications which sit on top of our Kx 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. Our HTML5-based visualisation solution,
launched during the year, has been well received by potential clients and is helping us demonstrate the
power of our Kx platform to potential clients.
A key driver of our market opportunity is the growth in data, particularly from connected sensors, also
known as the Internet of Things (‘IoT’). Industry analysts Gartner estimate that by 2018 the addressable
market for IoT analytics will be $15 billion per annum, with nine billion connected devices requiring
support. Gartner further believes that real-time latency in processing is key, again playing to our
technology’s strength. Finally, Gartner believes that technology providers delivering the entire solution
for streaming analytics will flourish, as businesses reject the experimental approach of combining various
open source components in favour of proven and supported technologies such as Kx.
To ensure we retain our technology lead and build on its capabilities, we formed Kx Labs during the year.
Its remit includes monitoring industry developments and ensuring our technology reacts quickly, as well
as ensuring it can be deployed wherever it is required, whether that is on the device, across the enterprise
or in the Cloud.
With this combination of existing clients and growing demand within Capital Markets and investment in
other markets, delivered on an annually recurring license basis, we believe we have the potential to deliver
many years of growth in our software business.
Capital Markets Software
Our software was designed from inception to tackle the most demanding data management challenges in
Capital Markets and its leading capabilities are evidenced by the fact that all of the top 10 global
investment banks use our Kx technology. In recent years we have extended the addressable market for our
software by building applications, targeting areas such as liquidity management, surveillance and
algorithmic testing. The combined addressable market for these products is valued at billions of dollars
per annum and our products are offered as a hosted, multi-tenanted solution so the incremental cost of
signing new customers can be minimal.
In the year under review we accelerated the commercialisation of our software. In prior years our focus
has been on winning reference clients and ensuring our products are robust, scalable and functionally rich.
Having achieved those goals, our emphasis has progressed to growing our customer base, backed by
investment in recent years in sales and pre-sales capability. We have enjoyed significant success in this
regard over the past twelve months.
Our key wins in the past year have been with some of the world’s largest financial institutions and across
our product sets. As a result, we can now reference the Securities and Exchanges Commission, Deutsche
Borse, the National Stock Exchange of India, IEX (a high-growth equity trading venue based in New
York), Thomson Reuters, the Singapore Exchange and EBS as clients. A number of large buy and sell
side clients have signed significant multi-year deals with us in the last year.
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First Derivatives plc
Chief Executive’s Statement (continued)
Our product range continues to evolve with significant investment in our offerings. These innovative and
strategically important solutions address an increasing number of market regulations, including MiFID II
that comes into effect in 2017. For example, we have developed an Algo Testing facility that allows
market participants to test their algorithms before they go live. In April 2016 we signed a significant deal
with a large bank in Singapore to address their obligations under MiFID II and MAR across all asset
classes.
Digital Marketing
Our Kx for Digital Marketing platform uses predictive analytics to provide commercial organisations with
unique sales intelligence. The platform analyses various internet data sources to identify leads based on
key word searches. These leads are nurtured, using voice and electronic content, until they are fully
qualified, at which point they are passed on to the client’s sales operation for action. We are also able to
monitor the subsequent performance of sales against the leads generated to prove the return on investment
to our clients.
Kx technology provides a differentiator in this situation by virtue of the amount of data that needs to be
analysed to generate this market intelligence. Our business model is subscription based, adding to the
Group’s recurring revenues and clients won during the year include Cisco, Netsuite and Citrix. This
business generated strong growth over the course of the past year and we believe it has considerable
potential in its market.
Utilities
In addition to our developing relationship with a major North American Independent System Operator
(ISO), as it evaluates the use of our sensor data platform, we are working in partnership with Utilismart
Corporation for the use of Kx technology for sensor analytics. As a result, FD will provide its Kx
technology and related infrastructure to complement Utilismart’s suite of smart grid software applications.
This will be targeted at more than 3,000 utilities in the U.S. alone for the purposes of data collection,
processing and analytic services for meter and sensor data. Utilismart already has more than 100 clients
and FD will be remunerated on a monthly recurring revenue share basis for additional meters installed.
Additional vertical markets
Since taking a controlling stake in Kx Systems in October 2014, we have been convinced of the
opportunity for our technology beyond Capital Markets. This has been proven by our progress in digital
marketing and utilities and we are excited by the potential for growth in a number of other markets.
During the year we have advanced on a number of fronts in markets such as pharmaceutical, telecoms and
sensor analytics. We are building a pipeline of opportunities and in certain of these, we are in the process
of arranging proofs of concept to demonstrate our technology’s capabilities. The typical feedback from
our discussions is that Kx technology is considerably higher performing than competing solutions and that
potential clients appreciate the robustness of the solution and the competitive total cost of ownership. We
are also in discussions with a number of organisations that have domain expertise in these markets to act
as potential partners to further accelerate our route to market.
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First Derivatives plc
Chief Executive’s Statement (continued)
Consulting
Consulting recorded another solid period of growth, with revenues increasing by 28.6% to £75.0m (2015:
£58.3m) in the year to 29 February 2016.
Over the twenty years since its inception, the Group’s consulting business has built a reputation as one of
the leading niche Capital Markets consulting companies in the world. Throughout this period, our
underlying philosophy of providing highly trained consultants who understand both Capital Markets and
the technology it employs, has remained unchanged. We have added to this foundation by developing a
number of offerings, including multi-vendor application and support, regulation and compliance, which
allow us to bid for larger projects, to lock-in recurring revenue and to cross-sell software products.
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.
In addition, our regulatory and compliance practice is growing strongly, helping our clients meet the
requirements of legislation around the world. We are currently tracking 65 different policy and regulation
initiatives impacting our global client base and FD provides practical solutions that accelerates our clients’
own compliance initiatives. This also frequently includes use of our internally developed software tools
such as DART, which automates much of the work around know your client regulations.
Our differentiators, which include the strength of our internal training programme, the ability to operate
on a hybrid on-site and near shore model and a relentless focus on client satisfaction, have enhanced our
reputation and enabled us to grow our areas of expertise. We are committed to helping our clients reduce
the total cost of their mission critical systems by providing lower cost, high quality solutions that meet our
clients’ key requirements.
As a result, 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.
In recent years we have added scale to our activities, which has enabled us to win larger and more
strategic assignments. Some examples of those won during the past year include:
A contract with a major investment bank to lead a strategic transformation programme, using our
global experience to advise across the bank’s operations.
A multi-year agreement for the support of mission critical applications with a major investment
bank. The contract includes near shore support across the bank’s applications.
Since the year end we have continued to grow the number of chargeable consultants in response to
continued strong demand. We continue to enjoy excellent revenue visibility and look forward to another
year of strong growth.
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First Derivatives plc
Chief Executive’s Statement (continued)
Management and Personnel
The Group now employs over 1,600 people, up from over 1,200 people at the same time last year. The
increasing competitiveness of our products and services together with 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.
This year the Company celebrates 20 years since it was founded. It is a tribute to the hard work, talent,
flexibility and dedication of all FD employees that the Company not only continues to grow, but that its
growth rate has accelerated. It is also fitting that the quality of the training and opportunities we provide to
staff has been recognised through our inclusion, for the first time, in the Times Top 100 Graduate
Employers. This is an influential publication that will assist our ongoing mission to recruit leading talent
from around the world.
Summary
Our commercial success over the past year provides a strong platform for continued profitable growth. In
Capital Markets our focus on growing our customer base has led to a substantial increase in our recurring
revenues and provided significant returns for shareholders. Our success in Capital Markets is a great
calling card as we seek to penetrate new markets. Our investments in building a position in additional
markets is progressing to plan and we remain excited by the potential of our Kx technology to disrupt a
number of markets. Our building success in digital marketing and utilities reinforces that confidence and
the Group will continue to accelerate the expansion of its addressable market while maintaining its
financial discipline.
Brian Conlon
Chief Executive Officer
16 May 2016
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First Derivatives plc
Financial Review
The Group performed well in the year with revenue increasing by £33.8 million (40.6%) to £117.0m, with
organic growth of 27% and the remainder attributable to the strategic acquisitions made during the year.
Consulting revenue increased by £16.7m (28.6%) and software revenue by £17.1m (68.7%). Software
revenue represented 35.9% of Group revenue for the year (2015: 29.9%). Within our software revenue,
£21.4m (51% of the total) was recurring, up from £12.0m (48%) in 2015. The remainder was split
between perpetual license sales (£3.4m, compared with £0.9m in 2015) and the implementation and
support of our software (£17.2m, compared with £12.0m in 2015).
The Group's EBITDA margin increased to 19.9% for the period (2015: 18.6%) the principal driver being
the greater proportion of higher margin software sales achieved in the period against consulting sales. The
Group continued to invest for future growth but kept tight control of costs, with administrative expenses
(before depreciation, amortisation and profit on disposal of property) up just 13.4% to £13.4m. The
adjusted profit after tax for the year of £12.9m (2015: £8.7m) represented growth of 48.0%.
The Group continued to invest in R&D to maintain its technology lead, with £6.8m (2015: £6.6m) of
R&D spend capitalised during the year. The amortisation of our capitalised software for the year was
£3.7m, up from £2.8m a year ago making net capitalisation of £3.2m (2015: £3.8m), excluding foreign
exchange adjustments.
The calculation of adjusted profit after tax is detailed below.
Year ending end February
Reported profit for the year
Adjustments for:
Amortisation of acquired intangibles
Share based payment and related costs
Gain on disposal of property
Acquisition costs, associate disposal costs
and contingent purchase consideration
Gain on foreign currency translation
Effects of investment in associate
Tax effect of the above
Adjusted profit after tax
Adjusted EPS (fully diluted)
2016
£'000
7,831
2015
£'000
15,915
4,198
1,405
-
1,547
(779)
-
(1,256)
2,205
1,495
(1,669)
984
(138)
(9,582)
(465)
12,946
51.7p
8,745
38.8p
The Group’s effective tax rate was 22.7% (2015: 18.8%), while the fully diluted average number of shares
in issue increased to 25.1m (2015: 22.6m). This resulted in fully diluted earnings per share of 51.7p,
representing growth of 33.2% for the year (2015: 38.8p).
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First Derivatives plc
Financial Review (continued)
The Group generated £15.0m of cash from operating activities (2015: £11.2m), representing 138.2% of
result from operating activities (2015: 131.6%). At the year end, net debt was £15.1m (2015: £15.7m).
Net debt was negatively impacted by £2.9m of foreign exchange differences on the Group’s debt, which is
principally dollar-denominated. Net assets at 29 February 2016 were £113.3m compared to £98.3m at 28
February 2015.
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First Derivatives plc
Strategic Report
Business strategy and objectives
The principal business of First Derivatives plc (‘FD’) is the provision of a range of software and
consulting services, particularly to finance, technology and energy organisations. Historically the Group
focused on Capital Markets but, following the acquisition of a controlling interest in Palo-Alto based Kx
Systems in October 2014, has widened its scope of activities to target all markets where its Kx technology
has a competitive advantage.
This has enabled the Group to move beyond its Capital Markets customer base and target customers in a
range of new sectors, with a consequent increase in the size of its addressable market. During the year
under review the Group has entered the digital marketing and utilities sectors and is seeking to enter
additional vertical markets such as pharmaceutical and telecoms.
FD’s objective is to increase shareholder value by increasing the Group’s revenue and adjusted profit
before tax. The strategy to achieve this is focused upon organic growth supported by investment in the
Group’s infrastructure combined with selective acquisitions, providing these can be demonstrated to
enhance shareholder value.
Organic growth is driven by providing innovative services or products to the client base which are focused
on driving additional revenue or overcoming challenges within the clients’ business. The capability of our
software products to deliver these benefits has resulted in growing demand for our software and
consulting services as clients look to improve business efficiencies, increase the competitiveness of their
own products and meet increasing regulatory demands.
Business Model
The Group provides a range of consultancy services to its clients in the Capital Markets sector across the
world, focused on supporting mission critical systems as well as helping our clients achieve and maintain
regulatory compliance. It also provides software solutions that address data challenges, particularly those
involving large data volumes and streaming data, across a range of sectors. These products are built on
kdb+, a world leading time series database developed by the Group. Independent analysis by Securities
Technology Analysis Center (‘STAC’) and other organisations confirms that kdb+ is the most performant
database for dealing with time series data.
The Group’s consultancy activities are well established, with 20 years of expertise, and FD has established
itself as one of the leading Capital Markets consultancies in the world. Our customers include many of the
leading global investment banks and we support their activities across a range of asset classes including
credit, interest rate, foreign exchange, equity, cash and derivatives markets.
Our underlying philosophy in consultancy remains unchanged since inception; we provide people who
understand both the Capital Markets sector and the best-of-breed third party technology it employs. We
seek to undertake both the implementation of this technology and its mission critical support once it has
been installed; this increases the visibility of our revenue, since these implementations typically last for
many years.
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First Derivatives plc
Strategic Report (continued)
Business Model (continued)
We further differentiate ourselves through the use of proprietary tools, for monitoring, reconciliation and
testing of system performance as well as particular niche opportunities within Capital Markets. The Group
operates a direct sales model across its consulting activities, although from time to time it bids for larger
consultancy projects with more general IT services vendors such as IBM and Fujitsu.
The Group’s principal software products are branded as Kx technology and are designed to handle large
volumes of data, particularly streaming data. While historically they have addressed challenges and
opportunities within the Capital Markets sector, the Group is also looking at additional sectors which face
similar data challenges for its future growth. Details of the progress the Group has made in this regard
during the period under review are contained within the Chief Executive Officer’s report.
The Group’s strategy on software sales is to sign annual recurring licenses with customers, which
increases the visibility of Group revenues in future periods.
Since inception, the Company has made a number of investments in subsidiary entities. During the period
under review, the Group completed the acquisitions of ActivateClients Ltd, which accelerated the
development of real time data visualisation, in March 2015; Affinity Systems Ltd, a software development
company, in March 2015; and QuantumKDB, a Kx consulting provider, in January 2016.
The acquisition of Affinity Systems accelerated the Group’s entry into the utilities market and provided
sensor data management capabilities. This market opportunity, also known as the Internet of Things, is
predicted to experience rapid growth and the Group believes that its Kx technology is well placed to
benefit.
The aggregate initial consideration of the transactions detailed above was £8.7m, of which £4.5m was
paid in cash and £4.2m in new FD ordinary shares.
FD will seek to continue to identify acquisitions or investments to expand its range of services and
offerings. The focus of these acquisitions or investments remains to be that the new services or offerings
strengthen the Group’s competitive position within its chosen markets.
Business Environment
The major external factors expected to influence the Group’s performance in the short to medium term are
growth in the amount of data generated globally and the use of analytics software to generate insight and
action from large and/or real time data (also known as Big Fast Data). Increasing regulation, particularly
within Capital Markets, is another key external factor.
Big Data
Big Data solutions have evolved to meet the challenges of dealing with large and complex data sets, in
situations where prior technologies have been unable to handle the velocity, variety and volume associated
with the data. FD’s software products are well positioned to deal with the subset of these issues
surrounding volume and velocity, known as Big Fast Data, as evidenced by their performance within
Capital Markets where they form the basis of solutions that capture and analyse high volumes of
streaming market data on behalf of the world’s leading investment banks.
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First Derivatives plc
Strategic Report (continued)
Big Data (continued)
Spending on Big Data software and services is estimated to have grown by 26% per annum to reach $41
billion in 2015, according to industry analysts IDC. FD expects to benefit from this growth, which will be
driven by clients across a number of key vertical markets developing use cases that rely on capturing and
analysing large volumes of data.
The performance of kdb+, a key component of our Kx technology platform, has been independently
audited by STAC as the highest performing time series database it has tested. Crucially, kdb+ is data
agnostic, meaning it is able to deal with all forms of structured data and can therefore be applied across
vertical markets. Since FD acquired a controlling stake in Kx Systems in October 2014 it has accelerated
its entry into these additional markets.
Outside of Capital Markets, our initial target markets are utilities and digital marketing, oil and gas,
telecoms, digital marketing and pharmaceuticals. In addition, a key area of focus will be collecting and
analysing data from connected sensors, also known as the Internet of Things (‘IoT’), a market which
industry analysts BI Intelligence estimate is currently valued at $44 billion per annum.
Initial success has centred on those markets in which we have acquired to accelerate our growth, namely
digital marketing and utilities. In digital marketing we have signed a number of new customers for our
Software as a Service product, the Delta Marketing Cloud, which applies predictive analytics to internet
data to generate buying intent signals.
Within utilities, we continue to work with a flagship North American Independent System Operator to
provide real time supply and demand data across their electricity grid. We are working in partnership with
Utilismart, a meter data management and analytics company with more than 100 clients in the utility
industry. It is expected that the combination of Utilismart’s software products that provide utilities with
actionable insights from their installed base of smart meters, powered by the ability of Kx technology to
handle large volumes of streaming data, will drive significant demand from new clients, from which FD
will receive a monthly recurring revenue share.
Regulation
Regulatory changes are a key driver of both our software and consulting revenues. In consulting we have
been engaged by a number of existing and new clients to assist in their preparations for MiFID II and the
European Market Infrastructure Regulation, among other new and forthcoming regulatory requirements.
We expect regulatory change to continue to be a driver for growth within our consulting business for the
foreseeable future.
A key driver of software sales within Capital Markets are requirements from regulatory bodies to monitor
markets and trading to ensure integrity and fairness. For example, our surveillance product provides the
ability for regulators and compliance authorities to match the speed and sophistication of traders and
thereby ensure they are able to monitor markets effectively.
In recent years FD has won a number of surveillance contracts, including a flagship deal with the
Australian Securities and Investment Commission; Yieldbroker, an electronic platform for trading in
Australian and New Zealand debt and derivatives; and IEX, a high-growth trading venue based in New
York. FD has also won contracts from major investment banks for surveillance solutions, providing a
reference client for an important global market. There is a pipeline of further opportunities for
surveillance of markets across a number of asset classes.
14
First Derivatives plc
Strategic Report (continued)
Regulation (continued)
Additional regulatory-driven opportunities are emerging for the Company’s software products. For
example, algorithmic trading and particularly High Frequency Trading are attracting the attention of
regulators with a growing acceptance that testing algorithms prior to their use within markets should be a
requirement. A key contract was secured during the period with the National Stock Exchange of India to
enable its market participants to have their algorithms independently tested, using a test facility developed
by FD.
Key Performance Indicators
The Board considers that the key performance indicators (KPIs) for the Group are growth in revenue and
adjusted EBITDA, together with adjusted EBITDA margins. KPI performance over the year to end
February is provided below.
Year ending end February
2016
2015
Revenue
Growth
£117.0m
£83.2m
+41%
+19%
Adjusted Profit before tax
£16.8m
£10.8m
Revenue from continuing operations increased by 27% over the prior year. Consulting revenues increased
by 29% (2015: 15%) and Software revenues increased by 69% (2015: 29%). Organically, software
revenue grew by 27% to £28.3m and Group revenue by 27%. Software revenue represented 36% of Group
revenue for the year (2015: 30%).
The Board considers that adjusted EBITDA is an important KPI. A reconciliation of reported operating
performance to adjusted EBITDA is provided below.
Year ending end February
Results from operating activities
Adjustments for:
Amortisation of acquired intangibles
Share based payment and related costs
Gain on disposal of property
Acquisition costs, associate disposal costs
and contingent purchase consideration
Depreciation and amortisation
2016
£'000
10,829
2015
£'000
8,476
4,198
1,405
-
2,205
1,495
(1,669)
1,547
5,277
984
3,959
Adjusted EBITDA
23,256
15,450
Adjusted profit before tax margins increased during the year to 14.3% (2015: 12.9%) due to a greater
percentage of higher margin software revenue in the Group.
The Group generated £15.0m of cash from operating activities (2015: £11.2m), representing 138.2% of
result from operating activities (2015: 131.6%). At the year end, net debt was £15.1m (2015: £15.7m).
15
First Derivatives plc
Strategic Report (continued)
Principal risks and uncertainties
The Group operates in a changing economic and technological environment and as a result is exposed to a
number of risks and uncertainties. Risks are formally reviewed by the board and appropriate processes put
in place to monitor and mitigate them. These risks, their potential impact on the Group and the measures
in place to mitigate them are discussed below.
Personnel
As a software and consultancy provider, FD is dependent on the skill, experience and commitment of its
employees, particularly on the recruitment and retention of key staff. The performance of the Group could
be adversely affected if the required staffing levels are not maintained and seeks to achieve this by
offering a rewarding work environment geared to continuing development. This includes competitive
reward packages and a strong commitment to training and career opportunities.
Market risk
The Group operates in a competitive and often cyclical market environment. It addresses these risks by
targeting consulting assignments with long-term visibility, continuing to increase the human capital of its
consultants, seeking annual license agreements for software contracts 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 of, and adaptation to, any technological changes that do occur,
thereby ensuring that its products continue to meet the demands of its customers. The formation in 2015
of FD Labs, which is tasked with identifying technology trends and developing new software product
opportunities, further seeks to mitigate this risk.
Key relationships with customers
FD strives to maintain successful relationships with its customers. A small number of customers are
important to the success of the Group, although our continued expansion continues to reduce this reliance.
Our low level of customer attrition is evidence of our ability to provide the level of service required.
Growth management
The Group has experienced several years of strong growth and expects this growth to continue. As a
consequence it needs to manage this growth effectively, which requires continual improvement in
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.
16
First Derivatives plc
Strategic Report (continued)
Principal risks and uncertainties (continued)
Other information
The other information required to be disclosed in respect of the review of the Group’s business as required
under Section 417 of the Companies Act 2006 is given in the Chairman’s Statement on pages 2 to 4 and
the Financial Report on page 10 to 11 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 36.
On behalf of the board.
JJ Kearns
Secretary
17
First Derivatives plc
Board of Directors
Seamus Keating, Chairman
Seamus has over twenty years of experience in the global technology sector in both finance and
operational roles and was a main board director of Logica plc from 2002 until April 2012. He was Logica
Group CFO until 2010 when he became COO and head of its Benelux operations. Prior to his role at
Logica, he worked for the Olivetti Group in finance roles in the UK and Italy. Seamus's wealth of
experience and expertise are instrumental in leading the board in the strategic development of the Group.
Brian Conlon, Chief Executive Officer
Brian has worked in the Capital Markets sector since 1990. Brian trained with KPMG before joining the
risk management team in Morgan Stanley International, London. He joined SunGard the NASDAQ-
quoted derivatives software house as a Capital Markets consultant. During his time with SunGard, he
worked with more than 60 financial institutions worldwide. He left in 1996 to set up First Derivatives.
Graham Ferguson, Chief Financial Officer
Graham joined the Board of First Derivatives plc in August 2008 and has responsibility for the financial
operations of the Group. He formerly held senior roles with KPMG, Bank of Ireland and Silverwood
Property Developments Limited and is a Qualified Chartered Accountant. During his career he has
worked on numerous corporate acquisitions and restructuring projects and has experience in business and
acquisition finance.
Virginia Gambale, Non-Executive Director
Virginia joined the Board of First Derivatives plc in March 2015. A U.S. citizen, she is managing partner
of Azimuth Partners LLC, which assists in the development of strategies for growth, innovation and
international expansion. Prior to forming Azimuth, Virginia was a partner at Deutsche Bank Capital
Partners and has also held senior management positions at Merrill Lynch, Bankers Trust, Deutsche Bank
and Marsh & McLennan Companies, Inc. Virginia is currently a Director of JetBlue Airways Corporation
and Dundee Global Corporation.
Keith MacDonald, Non-Executive Director
Until recently Keith was Managing Director of Structured Corporate Finance for Lloyds Banking Group
with responsibility for operations in Europe and North America. He possesses a wealth of knowledge of
Capital Markets. Prior to joining Lloyds Bank Group, Keith had a 16 year career with Citigroup during
which time he held a variety of senior positions in Europe and Asia including the position of Asia-Pacific
Head of Structured Corporate Finance. Keith is a member of the Institute of Chartered Accountants in
Ireland and is a director of several other companies with significant international operations.
Jon Robson, Non-Executive Director
Jon joined the Board of First Derivatives plc in August 2015. A U.S. citizen, Jon has extensive experience
within the Capital Markets industry. He is currently Chief Executive of Relationship Science Inc, an early-
stage data-driven corporate relationship development organisation. Previously, he was CEO of NYSE
Technologies, a business incorporating all the technology divisions of NYSE Euronext prior to its sale to
Intercontinental Exchange. Between 2003 and 2012 he was an executive at Thomson Reuters Inc. where
he served as President of the Enterprise Division and CEO of Reuters Americas.
18
First Derivatives plc
Board of Directors (Continued)
David Anderson, Non-Executive Director (Resigned 13 May 2016)
David joined the Board of First Derivatives plc as Non-Executive Chairman in November 2001 ahead of
the Company's admission to AIM in March 2002. He has been a director of two other AIM listed
companies and is currently also a Non-Executive Chairman of a private property development company
and Non-Executive Director of a property related corporate finance house. He has over 20 years of
experience in corporate advisory work. He stepped down from the Board on 13 May 2016.
19
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 29 February 2016.
Results and dividend
The Group’s profit after taxation attributable to the shareholders for the year to 29 February 2016 was
£7,831k (2015: £15,915k).
The Directors propose the payment of a final dividend of 12.00 pence per share (2015: 10.20 pence)
which, together with the interim dividend of 5.00 pence per share (2015: 3.30 pence), totals 17.00 pence
per share (2015: 13.50 pence). The final dividend has not been included in payables as it was not
approved before the year end.
Dividends paid during the year comprised a final dividend of 10.20 pence per share for the year ended 28
February 2015 and an interim dividend of 5.00 pence per share for the year ended 29 February 2016.
Directors
The Directors who held office during the year were as follows:
R D Anderson (resigned 13 May 2016)
P Brazel (resigned 24 March 2015)
B G Conlon
R G Ferguson
V Gambale (appointed 3 March 2015)
K MacDonald
J Robson (appointed 3 August 2015)
S Keating
Directors and their interests
The interests of the Directors in shares during the year are set out in the report of the Remuneration
Committee on pages 23 to 25 and the information is incorporated into the Directors’ Report by reference.
Substantial shareholdings
At 16 May 2016, 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 (32.4%), Standard Life Investments Limited
(9.5%) Legal & General Group plc (7.3%), Slater Investments (5.1%) and A Whitney (3.9%).
Research and development
The Group’s policy is to invest in product innovation and engage in research and development activities
geared toward the enhancement of its software products. During the year costs of £6,840k (2015:
£6,594k) were capitalised in respect of activities which were deemed to be development activities in
accordance with the Group’s accounting policies. Research and development costs of £1,645k (2015:
£1,574k) were expensed during the year.
20
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’s main exposure is 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 debt financing for asset 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, Reference Data Factory Inc, Prelytix Inc. 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 (2015: £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. It remains the key strategy of the Group to increase its share in
its target market segments.
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.
21
First Derivatives plc
Directors’ Report (Continued)
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
16 May 2016
22
First Derivatives plc
Report of the Remuneration Committee
The Remuneration Committee operates within defined terms of reference. The Remuneration Committee
comprises the Chairman, Seamus Keating and two Non-Executive Directors, David Anderson and Jon
Robson.
Remuneration policy
The policy of the Group is to set levels of remuneration to attract, retain and motivate Executive Directors
and key staff. The packages are designed to be competitive in value to those offered to the Directors of
similar sized public companies in related sectors. It is the Board’s policy to align the interests of managers
with those of our shareholders in the grant of options and 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.
Basic Salary
Basic salary is set by the Committee and reviewed annually, taking into account an individual’s
performance and experience.
Pension
The Executive Directors are entitled to a Company pension contribution equal to 10% of their base salary.
Cash bonus
Bonus awards, which are not pensionable, are made to the Executive Directors based on achieving
performance criteria set out by the Committee. The criteria include targets for revenue, profits, cash and
earnings per share.
The bonus scheme for the Executive Directors for the coming year will include an on target bonus of 50%
with up to a maximum of 100% being achievable.
The Executive Directors may also participate in the Company share option plan.
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.
23
First Derivatives plc
Report of the Remuneration Committee (continued)
Details of each Director’s remuneration is set out in the table below. Non-Executive Directors Virginia
Gambale and Jon Robson, both U.S citizens, are remunerated in U.S. dollars and the salary and fees
detailed in the table reflect the Sterling translation of payments made during the period. Ms Gambale and
Mr Robson are additionally entitled to receive payment of approximately £20,000 in FD shares, issued
and allotted on the business day following publication of the Company’s annual report. The number of
shares to be issued will be based on the average closing mid-market share price over the 90 business days
prior to the release of the Company’s preliminary results.
Salary
and
fees Benefits
R D Anderson
B G Conlon
R G Ferguson
P Brazel*
S Keating
K MacDonald
V Gambale
J Robson
Total
£’000
35
150
150
2
50
35
45
26
493
Bonus
£’000 £’000
-
146
60
-
-
-
-
-
206
-
-
-
-
-
-
-
-
-
Share
based
payment
£’000
3
-
18
-
-
-
-
-
21
2016
Total
excluding
pension
£’000
38
296
228
2
50
35
45
26
720
2016
2015
2015
Total
excluding
pension Pension Pension
£’000
£’000
-
-
15
15
15
15
-
-
-
-
-
-
-
-
-
-
30
£’000
49
150
245
42
50
35
-
-
571
30
*Details in the above table reflect the director’s remuneration up to the date of resignation on 24 March
2015
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
V Gambale
Number of ordinary shares
29 February 2016
28 February 2015
120,000
7,853,953
172,647
97,417
45,877
25,314
4,400
130,000
7,853,953
212,647
-
10,000
15,314
-
*Details in the above table reflect the director’s interests at the date of resignation on 24 March 2015
24
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 £0.005 shares in the Company are set out in the table
below. Share options awarded to Executive Directors are subject to financial performance targets based on
growth in earnings per share.
The mid-market price of the Company’s shares at close of business on 29 February 2016 was £15.08 and
the high and low share prices during the year were £15.78 and £10.94 respectively.
1 March
2015
Granted
during the
year
Exercised
during the
year
29 February
2016
Exercise
price
£
Exercise
period
David Anderson
50,000
Graham Ferguson
150,000
Pat Brazel*
25,000
-
-
-
-
-
-
50,000
4.80
2014-2021
150,000
5.65
2016-2023
25,000
4.80
2014-2021
*Details in the above table reflect the directors’ interests up to resignation on 24 March 2015
The Remuneration Committee has set earnings per share (EPS) performance conditions for the share
options granted to Graham Ferguson with these vesting on the achievement of an EPS target of 37 pence,
41 pence and 45 pence.
The average share price during the year was £13.95 (2015: £11.08) and the closing price at year end was
£15.08 (2015: £13.10).
The Company recognised total expenses of £815k (2015: £721k) related to equity-settled share-based
payment transactions during the year. Expenses of £21k (2015: £56k) related to share options granted to
the Directors. There were no share options exercised by the Directors during the year (2015: 350,000).
Transactions with Directors
The Directors interests in contracts with the Company are disclosed in note 35.
25
First Derivatives plc
Corporate governance
The Company is listed on the Alternative Investment Market and therefore is not required to comply with
the provisions of the UK Corporate Governance Code (the “Code”). However, the Board is committed to
ensuring the operation of proper standards of corporate governance and has put in place governance
procedures and policies that are considered appropriate to its size and structure to achieve this aim.
The Board considers that at this stage in the Company’s development, the expense of full compliance with
the Code is not appropriate. Instead, we have reported on our Corporate Governance arrangements by
drawing upon best practice available including those aspects of the Code we consider to be relevant to the
Company.
The Board
The Board’s principal responsibilities are to set strategic aims and provide the leadership to put them into
effect, as well as ensuring a framework of controls exist which allow for the identification, assessment and
management of risk. Led by the Chairman, the Board sets the Group’s strategic goals and ensures
obligations to shareholders are met.
Matters reserved for a decision of the Board include, inter alia, approval of the Group’s commercial
strategy; annual operating and capital expenditure budgets; business plans; acquisitions; significant
contracts; annual reports and interim statements; and any significant funding and capital expenditure
plans.
The Board meets regularly to discuss and agree on the various matters brought before it, including the
trading results. FD has a highly committed and experienced Board, supported by the senior management
team, with the qualifications and experience necessary for the running of the Group.
In addition, there is regular communication between Executive and Non-Executive Directors, where
appropriate, to update the Non-Executive Directors on matters requiring attention prior to the next Board
meeting.
Responsibilities of the Chairman and Chief Executive Officer
The Code requires that there should be a clear division of responsibilities at the head of the Company
between the running of the Board and the executive responsible for the running of the Company’s
business, so as to ensure that no one person has unrestricted powers of decision. The Chairman is
responsible for the leadership of the Board, ensuring its efficient operation. The Chief Executive Officer is
responsible for implementing the Group’s strategy.
To achieve this, the Group operates within a defined structure with formal lines of responsibility and
delegation of authority. The Group produces regular information packs which are distributed to Directors
to enable the Board to monitor operational performance and the cash position and as a result allocate the
Group’s resources.
Composition of the Board
The Code requires that the Board should contain a balance of skills, experience, independence and
knowledge of the company. It should also include an appropriate combination of Executive and Non-
Executive Directors and that there should be a formal, rigorous and transparent procedure when
appointing new Directors to the Board.
26
First Derivatives plc
Corporate governance (continued)
At the period end, the Board comprised a Non-Executive Chairman, Chief Executive Officer, Chief
Financial Officer and four Non-Executive Directors. Biographical details of the directors are provided on
pages 18 to 19.
The Board considers that its composition, including the balance between Executive and Non-Executive
Directors, is appropriate in view of the size and requirements of the Group’s business and the need to
maintain a practical balance between Executive and Non-Executive Directors.
Board composition is kept under review to ensure an appropriate mix of skills and business experience is
maintained and to ensure the proper functioning of the Board. When a new appointment to the Board is
made, consideration is given to the particular skills, knowledge and experience that a potential new
member could add to the existing Board composition.
Before the appointment of a Non-Executive Director is confirmed, the Chairman establishes that the
prospective Director can commit the time and commitment necessary to fulfil their duties, in terms of
availability both to prepare for and attend meetings and to discuss matters at other times.
Board Information and Development
The Code states that information of a sufficient quality should be supplied to the Board in a timely
manner.
Updates dealing with changes in legislation and regulation relevant to the Group’s business are provided
to the Board by the Company Secretary/Chief Financial Officer and through the Board Committees.
The Board 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.
Re-election
Under the Code, Directors should offer themselves for re-election at regular intervals. Under the
Company’s articles of Association, one third of the Directors retire at each Annual General Meeting of the
Company.
During the period under review, there were two new appointments to the Board and one resignation.
Virginia Gambale was appointed as a Non-Executive Director on 3 March 2015. 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.
Jon Robson was appointed as a Non-Executive Director on 3 August 2015. Mr Robson has
extensive experience as an executive and an independent director in the Capital Markets industry.
Mr Robson was an executive at Thomson Reuters Inc. between 2003 and 2012 where he served
as President of the Enterprise Division which generated annual revenues of $1.4bn. During his
time at Thomson Reuters, he also served as CEO of Reuters Americas.
Pat Brazel resigned as a Non-Executive Director on 24 March 2015. Mr Brazel accepted an
executive position within the Group as Global Head of Software Sales.
27
First Derivatives plc
Corporate governance (continued)
Board Committees
The Group has an Audit Committee and a Remuneration Committee. These committees consist of Non-
Executive Directors. They have written constitutions and terms of reference.
The Audit Committee’s role is to assist the Board with the discharge of its responsibilities in relation to
the internal controls and external audits. The Audit Committee meets twice each year, prior to the
publication of the interim and final results. The auditors attend the Audit Committee meeting prior to
the publication of the final results.
The Remuneration Committee meets annually to determine the remuneration of the senior executives.
Levels of remuneration are set in order to attract and retain the senior executives needed to run
the Company without paying more than is necessary for this purpose.
Internal Control
The Board has overall responsibility to ensure that the Group maintains a system of internal control that
ensures that an appropriate level of control and oversight is maintained.
The Group’s systems of internal control are designed to help the Company meet its business objectives by
appropriately managing, rather than eliminating, the risks to those objectives. The risk management
process and system of internal control can only provide reasonable and not absolute assurance against the
risk of misstatement or loss.
The Board confirms that it is not aware of any significant failings or weaknesses in the Group’s system of
internal controls.
Relations with Shareholders
The Chief Executive Officer and Chief Financial Officer have, where appropriate, had regular dialogue
with shareholders and analysts to discuss strategic and other issues including the Group’s financial results.
The Group also employs a head of investor relations who is tasked with ensuring effective communication
with shareholders.
The Company engages in full and open communication with both institutional and private investors and
responds promptly to all queries received. In conjunction with the Company’s brokers and other financial
advisers all relevant news is distributed in a timely fashion through appropriate channels to ensure
shareholders are able to access material information on the Company’s progress. The Company’s website
has a section for investors, which contains all publicly available financial information and news on the
Company.
AIM Rule Compliance Report
First Derivatives plc is quoted on AIM and as a result the Company has complied with AIM Rule 31
which requires the following:
• Have in place sufficient procedures, resources and controls to enable its compliance with the AIM Rules;
• Seek advice from its Nominated Advisor regarding its compliance with the Rules whenever appropriate
and take that advice into account;
28
First Derivatives plc
Corporate governance (continued)
• Provide its Nominated Adviser with any information it reasonably requests in order for the nominated
adviser to carry out its responsibilities under the AIM Rules for Nominated Advisors, including any
proposed changes to the board of Directors and provision of draft notifications in advance;
• Ensure that each of the Company’s Directors accepts full responsibility, collectively and individually,
for compliance with the AIM rules; and
• Ensure that each Director discloses without delay all information which the Company needs in order to
comply with AIM Rule 17 (Disclosure of Miscellaneous Information) insofar as that information is known
to the director or could with reasonable diligence be ascertained by the Director.
In addition the Company maintains compliance with AIM Rule 26, which lists a range of information that
the Company is required to make available.
Employees
The Group is committed to attracting and retaining the highest level of personnel. It is an Equal
Opportunities Employer, with a policy to ensure that no job applicant or employee receives less
favourable treatment on the grounds of gender, race, disability, ethnic or national origin, marital status,
sexuality, religion or belief, trade union activity and age.
The Group applies high standards in recruitment and is aware of the importance of good communication
in relationships with its staff.
The importance of staff retention to the performance of the Group is recognised through the provision of
training and development and by ensuring that career progression is determined solely by ability and
achievement. A number of employees participate in the growth of the business through the ownership of
share options with employees also participating in the Group bonus scheme.
Business Ethics
The Board recognises that the Company is accountable to its shareholders and, at the same time, seeks to
take into account the interests of all its stakeholders including customers, suppliers and subcontractors,
employees, as well as the local community and the environment in which it operates.
The Group maintains core values of honesty, integrity, hard work, service and quality and actively
promotes these values in all activities undertaken on behalf of the Group.
Customers
The Group treats all of its customers with the utmost respect and is committed to achieving the highest
levels of customer service and satisfaction in line with delivering high quality products and services. It
seeks to be honest and fair in all relationships with customers.
29
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
16 May 2016
30
Independent auditor’s report to the members of First Derivatives plc
We have audited the financial statements of First Derivatives plc for the year ended 29 February 2016
which comprise the consolidated statements of comprehensive income, the consolidated and Company
balance sheets, the consolidated and Company statement 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 European Union and, as regards the Company financial statements, as applied in
accordance with the provisions of the Companies Act 2006.
Opinions and conclusions arising from our audit
1 Our opinion on the financial statements is unmodified
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the Company’s
affairs as at 29 February 2016 and of the Group’s profit for the year then ended;
the Group 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.
2 Our conclusions on other matters on which we are required to report by the Companies Act 2006 are
set out below
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.
3 We have nothing to report in respect of matters on which we are required to report by exception
ISAs (UK & Ireland) require that we report to you if, based on the knowledge we acquired during our
audit, we have identified information in the annual report that contains a material inconsistency with
either that knowledge or the financial statements, a material misstatement of fact, or that is otherwise
misleading.
Under the Companies Act 2006 we are required 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.
We have nothing to report in respect of the above responsibilities.
31
Independent auditor’s report to the members of First Derivatives plc (continued)
Basis of our report, responsibilities and restrictions on use
As explained more fully in the Statement of Directors’ Responsibilities set out on page 30, the Directors
are responsible for the preparation of the financial statements and for being satisfied that they give a true
and fair view and otherwise comply with the Companies Act 2006. Our responsibility is to audit and
express an opinion on 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.
An audit undertaken in accordance with ISAs (UK & Ireland) 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.
Whilst an audit conducted in accordance with ISAs (UK & Ireland) is designed to provide reasonable
assurance of identifying material misstatements or omissions it is not guaranteed to do so. Rather the
auditor plans the audit to determine the extent of testing needed to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected misstatements does not exceed materiality for
the financial statements as a whole. This testing requires us to conduct significant audit work on a broad
range of assets, liabilities, income and expense as well as devoting significant time of the most
experienced members of the audit team, in particular the engagement partner responsible for the audit, to
subjective areas of the accounting and reporting.
Our 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 auditor’s 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.
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
32
16 May 2016
First Derivatives plc
Consolidated statement of comprehensive income
Year ended 29 February 2016
Revenue
Cost of sales
Gross profit
Other operating income
Administrative expenses
Results from operating activities
Acquisition costs, associate disposal costs and contingent
purchase consideration
Share-based payment and related costs
Gain on disposal of property, plant and equipment
Depreciation and amortisation
Amortisation of acquired intangible assets (IFRS 3)
Adjusted EBITDA
Finance income
Finance expense
Gain 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
2016
£’000
117,033
(84,397)
32,636
1,042
(22,849)
10,829
1,547
1,405
-
5,277
4,198
23,256
1
(1,225)
779
(445)
-
-
-
9
9
9
18
18
3
10,384
11
(2,553)
7,831
2015
£’000
83,216
(59,497)
23,719
1,045
(16,288)
8,476
984
1,495
(1,669)
3,959
2,205
15,450
3
(723)
138
(582)
57
(60)
9,585
17,476
(1,561)
15,915
33
First Derivatives plc
Consolidated statement of comprehensive income (continued)
Year ended 29 February 2016
Note
2016
£’000
2015
£’000
Profit for the year
7,831
15,915
Other comprehensive income
Items that will or may be reclassified subsequently to profit or loss
Net exchange gain 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
26
26
26
26
25
15a
15a
4,764
2,334
(2,704)
(1,099)
-
-
-
2,060
9,891
Pence
33.3
31.3
(59)
174
(167)
1,183
17,098
Pence
77.2
70.6
All profits are attributable to the owners of the Company and relate to continuing activities.
The notes on pages 43 to 112 form part of these financial statements.
34
First Derivatives plc
Consolidated balance sheet
As at 29 February 2016
Assets
Property, plant and equipment
Intangible assets and goodwill
Trade and other receivables
Asset held for sale
Deferred tax asset
Non-current assets
Trade and other receivables
Cash and cash equivalents
Current assets
Total assets
Equity
Share capital
Share premium
Share option 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
Contingent deferred consideration
Current liabilities
Total liabilities
Total equity and liabilities
Note
2016
£’000
2015
Restated*
£’000
16
17
19
18
29
19
20
21
22
23
26
27
28
29
32
27
28
30
31
32
6,301
151,338
2,504
-
9,030
169,173
38,665
15,100
53,765
222,938
120
65,903
7,217
370
39,654
113,264
26,795
31,963
12,289
1,176
72,223
3,428
27,262
1,488
2,554
2,719
37,451
109,674
222,938
5,948
130,604
2,634
6,234
6,450
151,870
29,952
14,705
44,657
196,527
114
55,286
6,262
(1,690)
38,352
98,324
27,025
29,490
13,829
1,132
71,476
3,429
18,936
490
3,872
-
26,727
98,203
196,527
These financial statements were approved by the Board of Directors on 16 May 2016.
Seamus Keating
Chairman
Brian Conlon
Chief Executive Officer
Graham Ferguson
Chief Financial Officer
Registered Company number: NI 30731
The notes on pages 43 to 112 form part of these financial statements.
*Restatement relating to measurement period adjustment – refer to page 70 for further details.
35
First Derivatives plc
Company balance sheet
As at 29 February 2016
Assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Trade and other receivables
Deferred tax assets
Non-current assets
Trade and other receivables
Cash and cash equivalents
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
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
29
19
20
21
22
23
24
27
28
29
32
27
28
30
31
2016
£’000
2,866
18,554
83,023
4,143
6,034
114,620
38,004
10,568
48,572
163,192
120
65,903
7,217
144
24,825
98,209
26,757
444
3,341
1,951
32,493
3,339
26,307
744
2,100
32,490
64,983
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
163,192
132,970
These financial statements were approved by the Board of Directors on 16 May 2016.
Seamus Keating
Chairman
Brian Conlon
Chief Executive Officer
Graham Ferguson
Chief Financial Officer
Registered Company number: NI 30731
The notes on pages 43 to 112 form part of these financial statements.
36
First Derivatives plc
Consolidated statement of changes in equity
Year ended 29 February 2016
Balance at 1 March 2015
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Net exchange gain on net investment in
foreign subsidiaries
Net exchange loss on hedge of net investment
in foreign subsidiaries
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 29 February 2016
Share
capital
Share
premium
Share option
reserve
£000
114
£000
55,286
£000
6,262
-
-
-
-
-
3
-
1
2
-
-
-
120
-
-
-
-
-
3,812
-
2,599
4,206
-
-
-
65,903
-
-
-
-
827
(698)
-
-
-
815
11
-
7,217
Currency
translation
adjustment
£000
Retained
earnings
Total equity
£000
£000
(1,690)
38,352
98,324
-
7,831
7,831
4,764
(2,704)
2,060
-
-
-
-
-
-
-
-
370
-
-
7,831
-
-
(2,971)
-
-
-
(11)
(3,547)
39,654
4,764
(2,704)
9,891
827
3,117
(2,971)
2,600
4,208
815
-
(3,547)
113,264
The notes on pages 43 to 112 form part of these financial statements.
37
First Derivatives plc
Consolidated statement of changes in equity
Year ended 28 February 2015
Share
capital
Share
premium
Share option
reserve
Revaluation
reserve
£000
£000
98
22,251
£000
6,627
£000
167
Balance at 1 March 2014
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
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 43 to 112 form part of these financial statements.
-
-
-
-
-
(167)
(167)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(199)
(867)
-
-
-
721
(20)
-
6,262
38
Currency
translation
adjustment
£000
Retained
earnings
£000
Total equity
£000
(3,040)
25,959
52,062
-
15,915
15,915
2,334
(1,099)
(59)
174
-
1,350
-
-
-
-
-
-
-
-
(1,690)
-
-
-
-
-
15,915
-
-
(1,017)
-
-
-
20
(2,525)
38,352
2,334
(1,099)
(59)
174
(167)
17,098
(199)
3,380
(1,017)
12,107
16,697
721
-
(2,525)
98,324
First Derivatives plc
Company statement of changes in equity
Year ended 29 February 2016
Balance at 1 March 2015
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
Balance at 29 February 2016
Share capital
Share premium
£000
£000
Share option
reserve
£000
Fair value reserve
£000
Retained
earnings
£000
Total equity
£000
114
55,286
6,262
140
22,490
84,292
-
-
-
3
2
1
-
-
-
-
-
-
3,812
4,206
2,599
-
-
-
120
65,903
-
-
827
(698)
-
-
815
11
-
7,217
-
4
4
-
-
-
-
-
-
-
144
5,893
5,893
-
5,893
-
-
-
-
-
(11)
(3,547)
24,825
4
5,897
827
3,117
4,208
2,600
815
-
(3,547)
98,209
The notes on pages 43 to 112 form part of these financial statements.
39
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
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 43 to 112 form part of these financial statements.
40
First Derivatives plc
Consolidated cash flow statement
Year ended 29 February 2016
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
Disposal of investment net of tax
Acquisition of subsidiaries, net of cash acquired
Acquisition of property, plant and equipment
Acquisition of intangible assets
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
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 29/28 February
2016
£’000
7,831
445
-
-
1,596
7,879
-
-
815
(1,042)
2,553
20,077
(6,540)
3,476
17,013
(2,044)
14,969
1
-
-
3,973
(4,934)
(1,594)
(6,952)
(9,506)
5,717
-
(3,157)
(61)
(1,214)
(6,244)
(4,959)
504
14,705
(109)
15,100
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
The notes on pages 43 to 112 form part of these financial statements.
41
First Derivatives plc
Company cash flow statement
Year ended 29 February 2016
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
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
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 29/28 February
2016
£’000
5,893
3,526
489
2,764
(5,096)
815
-
(939)
362
7,814
(9,663)
12,739
10,890
428
11,318
(4,833)
(755)
-
(5,998)
5,096
(6,490)
5,717
-
(3,157)
(1,214)
(3,547)
(2,201)
2,627
7,858
83
10,568
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
The notes on pages 43 to 112 form part of these financial statements.
42
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 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.
The financial statements were authorised by the Board of Directors for issuance on 16 May 2016.
(a) Basis of preparation
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
2015 and these have been adopted in the Group and Company financial statements:
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions
Annual Improvements to IFRS’s 2010 – 2012 Cycle and 2011-2013 Cycle
43
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(a) Basis of preparation
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 2015 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 and Company’s 2019 financial statements and could change the classification and
measurement of financial assets and IFRS 16 Leases, which is likely to become mandatory (subject
to EU endorsement) for the Group and Company’s 2020 financial statements. The Group does not
plan to adopt these standards early and the extent of this impact has not yet been determined. The
standards and interpretations not adopted are outlined below:
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)
Amendments to IAS 27 Equity method in Separate Financial Statements (Mandatory for year
commencing 1 January 2016)
Amendments to IAS 1: Disclosure Initiative (Mandatory for year commencing 1 January 2016)
Annual Improvements to IFRSs 2012-2014 Cycle (Mandatory for year commencing 1 January
2016)
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the consolidation
exemption (Mandatory for year commencing 1 January 2016)*
IFRS 14 Regulatory Deferral Accounts (Mandatory for the year commencing on or after
1 January 2016)*
Amendments to IAS 7: Disclosure Initiative (Mandatory for year commencing on or after 1
January 2017)*
Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses (Mandatory for
year commencing on or after 1 January 2017)*
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 –
(Mandatory for the year commencing on or after 1 January 2018)*
IFRS 16: Leases (Mandatory for the year commencing on or after 1 January 2019)*
44
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
New standards and interpretations not adopted (continued)
Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its
associate or joint venture (Deferred indefinitely)*
*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.
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 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 customer relationships acquired in a business
combination by applying 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. The
useful economic life of the intangible assets are assessed as being critical and are based on
managements estimate of the life over which revenue can be generated and taking cognisance of
the useful econcomic life of similar competitor products.
45
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
Critical accounting estimates and judgements (continued)
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 36(b).
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 observable 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 36 – financial instruments; and
Note 37 – share based payment arrangements.
46
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.
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.
47
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(b) Basis of consolidation (continued)
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.
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.
(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.
48
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(c) Foreign currency (continued)
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. 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.
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.
49
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(d) Property, plant and equipment (continued)
(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.
(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) Available for sale financial assets
The Groups’s investments in in unquoted equity instruments are classified as available for sale
financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein,
other than impairment losses and foreign exchange gains and losses on available for sale monetary
items are recognised directly in equity. When an investment is sold, the cumulative gain or loss in
equity is transferred to profit or loss. Investments in unquoted equity instruments held by the
company are classified as being available-for-sale and are held at fair value unless the fair value of
these assets cannot be measured reliably, in which case they are measured at cost, subject to
impairment testing.
50
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.
51
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(f) Intangible assets and goodwill
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.
52
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(k) Impairment
Non-derivative financial assets
(i)
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to
determine whether there is any objective evidence that it is impaired. A financial asset is considered
to be impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the assets and that the loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Group on terms that the Group would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of
borrowers or issuers in the Group, economic conditions that correlate with defaults or the
disappearance of an active market for a security. In addition, for an investment in an equity security,
a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.
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.
53
First Derivatives plc
Notes (continued)
1 Significant accounting policies (continued)
(k) Impairment (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.
54
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.
(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.
55
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(o) Lease payments
(i) Operating lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over
the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of
the total lease expense, over the terms of the lease.
(ii) Finance lease payments
Minimum lease payments made under finance leases are apportioned between the finance charge and
the reduction of the outstanding liability. The finance expense is allocated to each period during the
lease term so as to produce a constant periodic rate of interest on the remaining balance of the
liability.
(iii) Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether such an arrangement is or contains a
lease. A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the
use of that specified asset. An arrangement conveys the right to use the asset if the arrangement
conveys to the Group the right to control the use of the underlying asset.
At inception or upon reassessment of the arrangement, the Group separates payments and other
consideration required by such an arrangement into those for the lease and those for other elements
on the basis of their relative fair values. If the Group concludes for a finance lease that it is
impracticable to separate the payments reliably, then an asset and a liability are recognised at an
amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as
payments are made and an imputed finance charge on the liability is recognised using the Group’s
incremental borrowing rate.
(p) Finance income and expenses
Finance income comprises interest receivable on funds invested and dividend income. Interest
income is recognised through profit or loss as it accrues, using the effective interest method. The
interest expense component of finance lease payments is recognised through profit or loss using the
effective interest rate method.
Financing expenses comprises interest payable on borrowings calculated using the effective interest
rate method, and foreign exchange gains and losses.
56
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.
57
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, contingent deferred consideration assessed as remuneration, share-based payments
and related costs, gain on disposal of property, plant and equipment, depreciation and amortisation;
and amortisation of acquired intangible assets (IFRS3).
58
First Derivatives plc
Notes (continued)
2
Financial risk management
Overview
The Group’s activities expose it to a variety of financial risks; market risk (principally foreign exchange
risk and interest rate risk), credit risk and liquidity risk.
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 36 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 27 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.
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 37 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.
59
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries
On 23 March 2015, the Group and Company acquired the entire share capital of Activate Clients
Limited, based in Ireland. The acquisition will enable the Group and Company to accelerate its product
development through use of their HTML5 capability. On 31 March 2015, the Group and Company
acquired the entire share capital of Affinity Systems Limited, based in Canada to assist the Group to
expand the Company’s software and consulting services in other vertical markets. On 14 August 2015,
the Group acquired the trade and assets of Bedarra Research Incorporated, a company based in Canada
to assist in development activities namely embedded software, Cloud/SaaS environments, machine
learning and predictive analytics. On 12 January 2016, the Group and Company acquired the entire share
capital of QuantumKDB Limited, based in the United Kingdom expanding the Groups consulting
expertise to support the growth of its Kx business.
60
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (continued)
Activate Clients Limited
In the 11 months to 29 February 2016, the subsidiary contributed revenue of £256k and net profit of £1k
to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2015, management
estimates that revenue for the Group would have been £117,056k and net profit for the year would have
been an estimated £7,832k. 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 2015.
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 acquisition
The acquisition had the following effect on the Group’s assets and liabilities.
Acquiree’s net assets at the acquisition date:
Intangible assets
Property, plant and equipment
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liability
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied as follows:
Cash
Shares issued (183,185 shares)
Contingent deferred purchase consideration
Consideration paid, satisfied as follows (continued):
Cash consideration paid
Cash (acquired)
Net cash outflow
Recognised
values
on acquisition
£000
899
7
177
88
(483)
(112)
_______
576
4,536
5,112
1,452
2,209
1,451
5,112
1,452
(88)
1,364
___
The trade and other receivables includes gross contractual amounts of £31k 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 23 March 2015, the
effective date of control (1,206 pence per share).
61
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (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 29 February 2016 and has not identified any
impairment (see note 17). None of the goodwill is expected to be deductible for tax purposes.
Contingent deferred purchase consideration
The Group and Company has included £1,451k as contingent deferred consideration which represents
the fair value at the date of acquisition which will be paid out based on future performance.
Acquisition related costs
The Group incurred acquisition-related costs of £116k 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.
62
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (continued)
Affinity Systems Limited
In the 11 months to 29 February 2016, the subsidiary contributed revenue of £2,264k and net loss of
£221k to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2015,
management estimates that revenue for the Group would have been £117,241k and net profit for the
year would have been an estimated £7,811k. 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 2015.
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 acquisition
The acquisition had the following effect on the Group’s assets and liabilities.
Acquiree’s net assets at the acquisition date:
Intangible assets
Property, plant and equipment
Trade and other receivables
Deferred tax asset
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 (78,190 shares)
Contingent deferred purchase consideration
Consideration paid, satisfied as follows (continued):
Cash consideration paid
Cash (acquired)
Net cash outflow
Recognised
values
on acquisition
£000
787
56
504
111
2
(1,189)
(209)
_______
62
3,258
3,320
2,423
897
-
3,320
2,423
(2)
2,421
___
The trade and other receivables includes gross contractual amounts of £364k 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 March 2015, the
effective date of control (1,150 pence per share).
63
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (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 29 February 2016 and has not identified any
impairment (see note 17). None of the goodwill is expected to be deductible for tax purposes.
Contingent deferred purchase consideration
The Group and Company has agreed to pay an additional consideration of up to £3,989k based on
software revenue growth metrics over the next 36 months. This consideration is conditional on future
service conditions and has been assessed as being post-acquisition remuneration.
Acquisition related costs
The Group incurred acquisition-related costs of £103k 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.
64
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (continued)
Bedarra Research Incorporated
In the 6 months to 29 February 2016, the subsidiary contributed revenue of £41k and net profit of £9k to
the consolidated net profit for the year. If the acquisition had occurred on 1 March 2015, management
estimates that revenue for the Group would have been £117,076k and net profit for the year would have
been an estimated £7,848k. 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 2015.
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 acquisition
The acquisition had the following effect on the Group’s assets and liabilities.
Recognised
values
on acquisition
£000
788
8
27
(1,008)
235
_______
50
907
957
957
957
957
957
___
Acquiree’s net assets at the acquisition date:
Intangible assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Deferred tax asset
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied as follows:
Cash
Consideration paid, satisfied as follows (continued):
Cash consideration paid
Net cash outflow
65
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (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 29 February 2016 and has not identified any
impairment (see note 17). None of the goodwill is expected to be deductible for tax purposes.
Contingent deferred purchase consideration
The Group and Company has agreed to pay an additional consideration of up to £894k based on
software revenue growth metrics over the next 36 months. This consideration is conditional on future
service conditions and has been assessed as being post-acquisition remuneration.
Acquisition related costs
The Group incurred acquisition-related costs of £65k 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.
66
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (continued)
QuantumKDB Limited
In the 2 months to 29 February 2016, the subsidiary contributed revenue of £172k and net profit of £29k
to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2015, management
estimates that revenue for the Group would have been £117,998k and net profit for the year would have
been an estimated £7,888k. 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 acquisition
The acquisition 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
Deferred tax liability
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied as follows:
Cash
Shares issued (72,940 shares)
Contingent deferred purchase consideration
Consideration paid, satisfied as follows (continued):
Cash consideration paid
Cash (acquired)
Net cash outflow
Recognised
values
on acquisition
£000
882
106
417
(281)
(159)
_______
965
1,244
2,209
609
1,100
500
2,209
609
(417)
192
___
The trade and other receivables includes gross contractual amounts of £90k 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 12 January 2016, the
effective date of control (1,508 pence per share).
67
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (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 29 February 2016 and has not identified any
impairment (see note 17). None of the goodwill is expected to be deductible for tax purposes.
Contingent deferred purchase consideration
The Group and Company has included £500k as contingent deferred consideration which represents the
fair value at the date of acquisition which will be paid out based on workforce stability.
Acquisition related costs
The Group incurred acquisition-related costs of £65k 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.
Year ended 28 February 2015
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 up to 31
October 2021 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.
68
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (continued)
Effect of acquisition
The acquisition had the following effect on the Group’s assets and liabilities.
Recognised
values on initial
acquisition
£000
Measurement
period
adjustment
£000
Recognised
values
on acquisition
£000
Acquiree’s net assets at the acquisition date:
Intangible assets
Investments
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
17,233
-
25
74
3,183
4,470
(6,099)
(6,642)
12,244
-
6,000
-
-
-
-
(2,545)
3,455
17,233
6,000
25
74
3,183
4,470
(6,099)
(9,187)
15,699
65,264
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).
69
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (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 was 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 arose which was recognised in profit and loss in the prior year:
Fair value of existing equity interest
Carrying value of existing investment in associate (note 18)
Transfer from foreign exchange reserve (note 26)
- Net loss on net investment in associate
- Net gain on hedge of investment in associate
Transfer from revaluation reserve (note 25)
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
Measurement period adjustment
During the current year, the Group obtained further information in respect of the identifiable assets and
liabilities during the measurement period relating to the value of an investment held by Kx Systems in
an unquoted entity.
The adjustment results in a decrease of goodwill recognised of £3,455k, following receipt of additional
information of the fair value of an investment held by Kx Systems. The measurement period adjustment
was made to reflect facts and circumstances existing as of the acquisition date and does not result from
intervening events subsequent to the acquisition date.
70
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (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 acquisition
The acquisition 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
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
___
The trade and other receivables includes gross contractual amounts of £197k of which no amounts were
expected to be uncollectible at the acquisition date.
71
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries (continued)
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.
72
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 licence of intellectual property and related services.
Revenue by division
Consulting
Software
Total
Geographical location analysis
UK
Rest of Europe
America
Australasia
Total
2016
£’000
2015
£’000
75,025
42,008
______
117,033
______
58,320
24,896
______
83,216
______
Non-current assets
2015
£’000
2016
£’000
35,182
13,231
28,531
6,272
______
83,216
______
26,016
16,534
116,115
1,478
______
160,143
______
2015
£’000
Restated
20,983
10,160
112,636
1,641
______
145,420
______
Revenues
2016
£’000
42,502
17,245
50,886
6,400
______
117,033
______
73
First Derivatives plc
Notes (continued)
4 Operating segments (continued)
Revenue generated and non-current assets located in Northern Ireland, the Group’s country of domicile
are not material and as such, have not been separately disclosed for either the current or prior year.
Major customers
The Group has one key customer (2015: two) who generated more than 10% of Group revenue in 2016.
Revenue from this customer represents approximately 14% (2015: 15%) of the Group’s total revenue.
The revenue from this customer has been derived from 33 different independent decision making
business units across seven global locations with no individual unit accounting for more than 3%.
5 Revenue
Sale of goods
Rendering of services
6 Other operating income
Government grants
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
Travel and subsistence
IT expenses
Profit on disposal of property, plant and equipment
Acquisition related costs
Other
74
2016
£’000
2015
£’000
14,696
102,337
117,033
12,835
70,381
83,216
2016
£’000
2015
£’000
1,042
1,045
2016
£’000
2015
£’000
2,561
655
740
916
9,475
4,547
(244)
213
1,635
416
418
-
861
656
22,849
2,071
567
681
606
6,164
4,673
(328)
176
1,723
196
298
(1,669)
984
146
16,288
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 37)
Less capitalised development costs
Disclosed as:
Cost of sales
Administrative expenses
9
Finance income and expense
Interest income on bank deposits
Finance income
Gain on foreign currency translation of monetary assets
Interest expense on bank loans
Finance expense
Net finance expense recognised in profit or loss
2016
2015
Average no. Average no.
171
1,135
1,306
2016
£’000
62,490
6,596
2,014
815
(6,185)
65,730
2016
£’000
61,183
4,547
65,730
128
871
999
2015
£’000
43,701
6,737
1,548
721
(6,268)
46,439
2015
£’000
41,766
4,673
46,439
2016
£’000
2015
£’000
1
1
779
(1,225)
(1,225)
(445)
3
3
138
(723)
(723)
(582)
Exchange gains and losses on net investments in foreign subsidiaries and associates and related effective
hedges are recognised in the foreign currency translation reserve.
75
First Derivatives plc
Notes (continued)
10 Statutory and other information
Depreciation on property, plant and equipment:
Owned assets
Leased assets
Amortisation of intangibles
Provision for impairment of trade receivables
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
- Expenses recharged
2016
£’000
2015
£’000
1,516
80
7,879
1,635
1,059
1,645
______
66
22
36
17
53
67
92
7
_____
360
_____
1,088
105
4,971
1,723
920
1,574
______
68
21
32
8
55
70
58
6
_____
318
_____
76
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
2016
£’000
2015
£’000
6,861
(8)
6,853
(4,158)
(140)
(2)
(4,300)
1,828
(10)
1,818
44
(319)
18
(257)
Total tax expense in income statement
2,553
1,561
Reconciliation of effective tax rate
Profit excluding income tax
Income tax using the Company’s domestic tax rate (20.1%) (2015:
21.2%)
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
10,384
17,476
2,085
(49)
89
(148)
(574)
-
-
882
(2)
270
2,553
3,700
(64)
(453)
(329)
(106)
(12)
(1,820)
504
18
123
1,561
Following the 2015 budget statement, the main rate of UK corporation tax was reduced from 20% to 19%
from 1 April 2017 and to 17% from 1 April 2020. 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.
77
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
2016
£’000
553
30
21
604
2015
£’000
515
30
56
601
During the period there were 2 Directors accruing benefits under a defined contribution pension scheme
(28 February 2015: 2).
The aggregate emoluments and company pension contributions of the highest paid Director (excluding
fees paid for provision of services) amounted to £228k and £15k respectively during the year (2015:
£245k and £15k respectively).
The Directors are deemed to be the key management of the Group.
Disclosure in respect of Directors’ emoluments, Directors’ interest in shares and Directors’ share
options are set out in the Report of the Remuneration Committee on pages 23 to 25.
13 Dividends
The following dividends were:
Final dividend relating to the prior year
Interim dividend paid
2016
£’000
2,323
1,224
3,547
2015
£’000
1,813
712
2,525
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 10.20 (previous year: 9.00) pence per share and
the interim dividend paid during the year amounted to 5.00 (previous year: 3.30) pence per share. The
cumulative dividend paid during the year amounted to 15.20 (previous year: 12.30) 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.
12.00 pence per ordinary share (2015: 10.20 pence)
2,881
2,323
2016
£’000
2015
£’000
78
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 for the financial year of the Company as approved by the
Board was £5,893k (2015: £3,974k).
15
(a) Earnings per ordinary share
Basic
The calculation of basic earnings per share at 29 February 2016 was based on the profit attributable to
ordinary shareholders of £7,831k (2015: £15,915k), and a weighted average number of ordinary shares
in issue of 23,512k (2015: 20,605k).
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 for cash
Weighted average number of ordinary shares at 29/28 February
2016
Pence per
share
2015
Pence per
Share
33.3
77.2
2015
Number ’000 Number ’000
2016
22,777
283
254
198
23,512
19,542
604
414
45
20,605
Diluted
The calculation of diluted earnings per share at 29 February 2016 was based on the profit attributable to
ordinary shareholders of £7,831k (2015: £15,915k) and a weighted average number of ordinary shares
after adjustment for the effects of all dilutive potential ordinary shares of 25,047k (2015: 22,554k).
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 29/28
February
2016
Pence
per share
2015
Pence
per share
31.3
70.6
2016
Number
‘000
23,512
1,535
25,047
2015
Number
‘000
20,605
1,949
22,554
At 29 February 2016 72,940 options (2015: Nil) 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.
79
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 £10,384k (2015: £17,476k). 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
2016
Pence per
share
2015
Pence per
share
44.2
41.5
84.8
77.5
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
2016
Pence per
share
2015
Pence per
share
33.3
10.9
44.2
31.3
10.2
41.5
77.2
7.6
84.8
70.6
6.9
77.5
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 £12,946k (2015: £8,745k).
The adjusted profit after tax has been calculated by adjusting for the amortisation of acquired intangibles
after tax effect £3,395k (2015: £1,764k), share based payment and related charges after tax effect
£1,124k (2015: £1,196k), profit on disposal of property, plant and equipment after tax effect £nil (2015:
£1,316k), acquisition and associate disposal costs after tax effect £1,219k (2015: £787k), gain on foreign
currency translation after tax effect £623k (2015: gain of £109k) and for the gain on disposal of
investment £nil (2015: £9,492k). 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
55.1
51.7
42.4
38.8
2016
Pence per
share
2015
Pence per
share
80
First Derivatives plc
Notes (continued)
16 Property, plant and equipment
Group
Land and
buildings
£’000
Plant
and
equipment
£’000
Office
furniture
£’000
Cost
At 1 March 2015
Additions
Acquisition through business combinations
Exchange adjustments
At 29 February 2016
Depreciation
At 1 March 2015
Charge for the year
Exchange adjustments
At 29 February 2016
2,580
140
-
37
2,757
656
195
17
868
6,322
1,389
71
506
8,288
2,583
1,271
245
4,099
467
65
-
11
543
182
130
8
320
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
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
Carrying amounts
At 1 March 2014
At 28 February 2015
At 29 February 2016
2,792
32
-
(241)
(3)
2,580
460
221
(20)
(5)
656
2,332
1,924
1,889
4,687
1,960
25
-
(350)
6,322
1,744
936
-
(97)
2,583
2,943
3,739
4,189
235
236
-
-
(4)
467
152
36
-
(6)
182
83
285
223
Total
£’000
9,369
1,594
71
554
11,588
3,421
1,596
270
5,287
Total
£’000
7,714
2,228
25
(241)
(357)
9,369
2,356
1,193
(20)
(108)
3,421
5,358
5,948
6,301
The basis by which depreciation is calculated is stated in note 1.
The Group leases equipment under a number of finance lease arrangements. At 29 February 2016 the
carrying amount of leased assets included in plant and equipment was £75k (2015: £155k) and related
depreciation amounted to £263k (2015: £183k).
Details of security provided for borrowing in respect of property, plant and equipment are disclosed in
note 27.
81
First Derivatives plc
Notes (continued)
16 Property, plant and equipment (continued)
Company
Cost
At 1 March 2015
Additions
At 29 February 2016
Depreciation
At 1 March 2015
Charge for the year
At 29 February 2016
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
Carrying amounts
At 1 March 2014
At 28 February 2015
At 29 February 2016
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
1,845
139
1,984
401
83
484
1,688
551
2,239
670
368
1,038
239
65
304
101
38
139
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
2,054
32
(241)
1,845
335
86
(20)
401
1,719
1,444
1,500
800
888
-
1,688
536
134
-
670
264
1,018
1,201
143
96
-
239
78
23
-
101
65
138
165
Total
£’000
3,772
755
4,527
1,172
489
1,661
Total
£’000
2,997
1,016
(241)
3,772
949
243
(20)
1,172
2,048
2,600
2,866
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 27.
82
Total
£’000
146,180
6,840
13,301
112
9,785
176,218
15,576
7,879
1,425
24,880
Total
Restated
£’000
48,839
6,594
88,466
551
(785)
2,515
146,180
First Derivatives plc
Notes (continued)
17
Intangible assets and goodwill
Group
Goodwill
Customer
lists
Acquired
Software
Brand name
£’000
£’000
£’000
£’000
Cost
Balance at 1 March 2015
Development costs
Acquisitions
Additions
Exchange adjustments
At 29 February 2016
Amortisation and
impairment losses
Balance at 1 March 2015
Amortisation for the year
Exchange adjustment
At 29 February 2016
86,734
-
9,945
-
5,924
102,603
-
-
-
-
9,525
-
1,946
-
893
12,364
2,421
1,323
307
4,051
21,182
-
1,313
112
2,271
24,878
5,803
2,796
836
9,435
560
-
97
-
51
708
239
79
27
345
Goodwill
Customer
lists
Acquired
Software
Brand name
Internally
developed
software
£’000
28,179
6,840
-
-
646
35,665
7,113
3,681
255
11,049
Internally
developed
software
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
Carrying amounts
At 1 March 2014
At 28 February 2015
At 29 February 2016
Restated
£’000
13,526
-
70,281
-
-
2,927
86,734
-
-
-
-
£’000
£’000
£’000
£’000
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
22,394
6,594
-
-
-
(809)
28,179
4,545
2,766
(198)
7,113
10,814
4,971
(209)
15,576
13,526
86,734
102,603
1,894
7,104
8,313
4,581
15,379
15,443
175
321
363
17,849
21,066
24,616
38,025
130,604
151,338
Leased intangible assets
No assets are held under finance leases.
The basis by which amortisation is calculated is stated in note 1. Amortisation is recognised through
profit or loss in administration expenses.
83
First Derivatives plc
Notes (continued)
17 Intangible assets and goodwill (continued)
Leased intangible assets (continued)
Included within development costs capitalised in the year is £6,185k (2015: £6,268k) of capitalised
employees costs together with £655k of capitalised consultancy costs (2015: £326k) for the year.
Developed software includes £2,579k (2015: £2,914k) of software under development at 29 February
2016 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
Prelytix LLC
Kx Systems Inc.
Multiple units without significant goodwill
2016
£’000
10,915
5,583
71,290
87,888
14,815
102,603
2015
£’000
9,848
5,023
67,450
82,321
4,413
86,734
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 covering a five year period, with
cash flows thereafter calculated using a terminal value methodology. A growth rate of 7%-10% (2015:
7%-10%) is applied for years 2 to 5, followed by a growth rate of 2% (2015: 2%) thereafter. The pre-tax
discount rates applied to cash flow projections of the CGUs was 12%-17% (2015: 15%).
The key assumptions used in the estimation of the recoverable amount for significant CGU’s are
summarised as follows:
Market
Resource
Partners
LLC
15%
2%
8%
2016
Prelytix
LLC
17%
2%
7%
Kx
Systems
Inc
15%
2%
9%
Market
Resource
Partners
LLC
15%
2%
8%
2015
Prelytix
LLC
Kx
Systems
Inc
15%
2%
7%
15%
2%
9%
Discount rate
Terminal value growth rate
Budgeted EBITDA growth rate
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.
84
First Derivatives plc
Notes (continued)
17
Intangible assets and goodwill (continued)
Impairment testing of goodwill (continued)
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.
The value in use and excess value in use over the carrying amount inclusive of significant acquired
intangible assets of the above CGUs are as follows:
Subsidiaries
Market Resource Partners LLC
Prelytix LLC
Kx Systems Inc.
Sensitivity analysis
Value in use
2016
£’000
14,827
8,083
96,607
2015
£’000
12,657
6,255
88,617
Excess over carrying
amount
2016
£’000
3,754
1,573
8,762
2015
£’000
2,265
277
1,165
There was no impairment charge for the year ended 29 February 2016 (2015: £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.
85
First Derivatives plc
Notes (continued)
17
Intangible assets and goodwill (continued)
Company
Cost
Balance at 1 March 2015
Development cost
Additions
Balance at 29 February 2016
Amortisation and impairment losses
Balance at 1 March 2015
Amortisation for the year
Balance at 29 February 2016
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
Carrying amounts
At 1 March 2014
At 28 February 2015
At 29 February 2016
Acquired
software
£’000
Internally
developed
software
£’000
-
-
482
482
-
30
30
-
-
-
-
-
-
-
-
452
20,618
5,516
-
26,134
5,298
2,734
8,032
16,034
4,584
20,618
3,357
1,941
5,298
12,677
15,320
18,102
Total
£’000
20,618
5,516
482
26,616
5,298
2,764
8,062
16,034
4,584
20,618
3,357
1,941
5,298
12,677
15,320
18,554
Included within development costs capitalised in the year is £5,161k (2015: £4,584k) of capitalised
employees costs. Developed software includes £1,149k (2015: £1,895k) of software under
development at 29 February 2016 not yet commissioned.
86
First Derivatives plc
Notes (continued)
18
Investment in subsidiaries and associate
The subsidiaries of Group and Company are detailed as follows:
Activate Clients Limited*
Affinity Systems Limited*
Cowrie Financial Limited*
First Derivatives Canada Inc.*
First Derivatives (Exchange) Limited*
First Derivatives Holdings Inc.*
First Derivatives Holdings Pty Limited*
First Derivatives (Hong Kong) Limited*
First Derivatives Japan Co. Limited
First Derivatives No. 1 Inc.
First Derivatives Investments LLP
First Derivatives (Ireland) Limited*
First Derivatives Pte Limited*
First Derivatives Pty Limited
First Derivatives South Africa (Pty)
Limited*
First Derivatives US Inc
Kx Systems Inc.*
Market Resource Partners Limited*
Market Resource Partners LLC*
QuantumKDB Limited*
QuantumKDB Limited
QuantumKDB Inc
Prelytix LLC
Reference Data Factory LLC
Redshift Horizons Limited*
*Owned directly by First Derivatives plc.
Country of
incorporation
Ireland
Canada
UK
Canada
Ireland
United States
Australia
Hong Kong
Japan
United States
United Kingdom
Ireland
Singapore
Australia
South Africa
United States
United States
N. Ireland
United States
UK
Hong Kong
United States
United States
United States
UK
Class of
share held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ownership
2016
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
65.2%
100%
100%
100%
100%
100%
100%
100%
100%
2015
-
-
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-
100%
65.2%
100%
100%
-
-
-
100%
100%
100%
Unlisted investments in subsidiaries at cost
At 1 March
Additions
Transfer from investment in associate
At end of period
Company
2016
£’000
2015
£’000
71,942
11,081
-
24,464
40,282
7,196
83,023
71,942
87
First Derivatives plc
Notes (continued)
18
Investment in subsidiaries and associate (continued)
Associate
At 1 March 2014, the Group had the following investment in an associate:
Group and Company
Kx Systems Inc.
Country of
incorporation
Class of
share held
Ownership
At 1 March 2014
United States
Ordinary
20.1%
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. The associate
was not publicly listed and consequently did not have a published share price. During the period to 31
October 2014, the Group received dividends of £896k from its associate.
Group
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 2015
Company
At 1 March
Transfer to investment in subsidiary
At 28 February 2015
2015
£’000
5,233
(896)
57
(60)
198
(4,532)
-
2015
£’000
7,196
(7,196)
-
88
First Derivatives plc
Notes (continued)
18 Investment in subsidiaries and associate (continued)
Associate (continued)
The following table summarises 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
Revenue
Profit from continuing operations (100%)
Other comprehensive income (100%)
Total comprehensive income (100%)
Total comprehensive income (20.1%)
Group’s share of profit and total comprehensive income
Other financial assets – Available for sale assets
Group
Unlisted equity investments
At 1 March
Acquired through business combinations
Exchange adjustment
Disposal
At end of period
2015
20.1%
6,324
284
-
284
57
57
2016
£’000
6,234
-
-
(6,234)
2015
£’000
-
6,000
234
-
-
6,234
On 3 August 2015 the Group disposed of its interest in the investment.
89
First Derivatives plc
Notes (continued)
19 Trade and other receivables
Current assets
Trade receivables
Receivables from subsidiaries
Sundry receivables and accrued
income
Prepayments
Grant income receivable
Corporation tax receivable
Non-current assets
Receivables from subsidiaries
Trade and other receivables
Grant income receivable
Group
2016
£’000
31,636
-
1,248
2,853
2,928
-
38,665
Group
2016
£’000
-
1,253
1,251
2,504
2015
£’000
22,258
-
2,743
2,723
1,131
1,097
29,952
2015
£’000
-
1,922
712
2,634
Company
2016
£’000
2015
£’000
18,383
13,653
141
3,237
2,590
-
38,004
11,790
10,056
632
2,272
844
-
25,594
Company
2016
£’000
2,890
1,253
-
4,143
2015
£’000
2,600
1,922
-
4,522
The repayment terms of the receivable from subsidiaries has been agreed as falling due after more than
one year.
At 29 February 2016 Group and Company trade receivables are shown net of an allowance for doubtful
debts of £4,342k and £981k respectively (2015: Group £2,681k; Company £1,163k) arising from on-
going invoice disputes and the risk of companies defaulting. The impairment charge in the year was
£1,635k (2015: £1,723k) for Group and £441k (2015: charge £587k) 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 36.
20 Cash and cash equivalents
Group
Company
2016
£’000
2015
£’000
2016
£’000
Bank balances
15,100
14,705
10,568
See note 36 for discussion of interest rate risk and sensitivity analysis.
2015
£’000
7,858
90
First Derivatives plc
Notes (continued)
21
Share capital
In issue at 1 March
Exercise of share options (Note 37)
Issued in business combinations (Note 3)
Issued for cash
In issue at year end – fully paid
Ordinary shares
2016
Number
22,776,773
697,881
334,315
200,003
24,008,972
2015
Number
19,541,610
936,283
1,321,880
977,000
22,776,773
Equity shares
Issued, allotted and fully paid
Ordinary shares of £0.005 each
2016
Number
2016
£’000
2015
Number
24,008,972
_________
120
___
22,776,773
_________
2015
£’000
114
___
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 200,003 ordinary shares (2015: 977,000) for cash
consideration of £2,600k (2015: £12,701k), the exercise of 697,881 share options (2015: 936,283) for
cash consideration of £3,117k (2015: £3,380k) together with an associated transfer from the share option
reserve of £698k (2015: £867k) and the issue of 334,315 shares (2015: 1,321,880) at £4,208k (2015:
£16,697k) as purchase consideration
Transaction costs of £nil (2015: £594k) were accounted for as a deduction from equity during the period.
22 Share premium account
Opening balance
Premium on shares issued
Group
2016
£’000
55,286
10,617
2015
£’000
22,251
33,035
Company
2016
£’000
55,286
10,617
2015
£’000
22,251
33,035
Closing balance
65,903
55,286
65,903
55,286
91
First Derivatives plc
Notes (continued)
23
Share option reserve
Group
2016
£’000
2015
£’000
Company
2016
£’000
2015
£’000
Opening balance
Fair value of share based
payments cost (note 37)
Options exercised in the period
Effect of share option forfeits
Income tax on share based payments
6,262
6,627
6,262
6,627
815
(698)
11
827
721
(867)
(20)
(199)
815
(698)
11
827
721
(867)
(20)
(199)
Closing balance
7,217
6,262
7,217
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.
24 Fair value reserve
Opening balance
Effect of corporation tax rate reduction on deferred tax liability
Closing balance
Company
2016
£’000
140
4
144
2015
£’000
138
2
140
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.
25 Revaluation reserve
Opening balance
Transfer to profit and loss
Closing balance
Group
2016
£’000
-
-
-
2015
£’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 was transferred to profit and loss.
92
First Derivatives plc
Notes (continued)
26 Currency translation adjustment reserve
Opening balance
Net gain on net investment in foreign subsidiaries
Net gain on net investment in associate
Net loss on hedge of net investment in foreign subsidiaries
Net loss 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
2016
£’000
2015
£’000
(1,690)
4,764
-
(2,704)
-
-
-
(3,040)
2,136
198
(1,041)
(58)
(59)
174
Closing balance
370
(1,690)
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.
27 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 36.
Current liabilities
Secured bank loans
Finance lease liabilities
Non-current liabilities
Secured bank loans
Less: Capital arrangement fee
Finance lease liabilities
Group
Company
2016
£’000
3,339
89
3,428
26,757
-
38
26,795
2015
£’000
3,339
90
3,429
26,950
(23)
98
27,025
2016
£’000
3,339
-
3,339
26,757
-
-
26,757
2015
£’000
3,339
-
3,339
26,950
(23)
-
26,927
93
First Derivatives plc
Notes (continued)
27 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
GBP
EUR
3.50%+LIBOR
3.50%+LIBOR*
2.50%+LIBOR
4.375%
2016
2019
-
2016
29 February 2016
Face
value
£000
Carrying
amount
£000
28 February 2015
Carrying
amount
£000
Face
value
£000
339
29,757
-
127
30,223
339
29,757
-
127
30,223
339
29,950
-
188
30,477
339
29,927
-
188
30,454
Facility 1
Facility 2
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 £1,889k (2015: £1,924k). 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% (2015: 3.5%) above LIBOR.
Finance lease liabilities
Finance lease liabilities are payable as follows:
Group
Future
minimum
lease
payments
2016
£’000
109
53
162
Interest
2016
Principal
2016
£’000
20
15
35
£’000
89
38
127
Future
minimum
lease
payments
2015
£’000
108
127
235
Interest
2015
Principal
2015
£’000
18
29
47
£’000
90
98
188
Less than one year
Between one and
five years
The finance leases are secured over the leased equipment.
94
First Derivatives plc
Notes (continued)
28 Trade and other payables
Current liabilities
Trade payables
Other payables
Accruals
Deferred income
Government grants
Payables to subsidiaries
Non-current liabilities
NCI put
Government grants
Group
Company
2016
£’000
2015
£’000
2016
£’000
2015
£’000
2,606
6,822
2,723
13,255
1,856
-
2,785
4,171
1,225
9,939
816
-
1,688
5,010
1,247
2,562
1,856
13,944
1,691
2,882
395
1,310
816
3,690
27,262
18,936
26,307
10,784
Group
Company
2016
£’000
30,089
1,874
2015
£’000
27,118
2,372
31,963
29,490
2016
£’000
-
444
444
2015
£’000
-
1,009
1,009
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 up to 31
October 2021 for cash. The put is exercisable with a notice period of 366 days.
The Group and Company’s exposure to currency and liquidity risk related to trade and other payables is
disclosed in note 36.
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 £64k (2015: £2,348k) was claimed from Invest
Northern Ireland.
95
First Derivatives plc
Notes (continued)
29 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 financial assets
Other
Tax assets/(liabilities) before set-off
Set off of tax
Net tax assets/(liabilities)
2016
£000
-
2,909
4,556
-
209
-
1,372
9,046
(16)
9,030
2015
£000
-
2,683
3,260
-
-
-
522
6,465
(15)
6,450
2016
£000
(3,822)
-
-
-
(8,483)
-
-
(12,305)
16
(12,289)
2015
£000
(3,411)
-
-
(38)
(7,850)
(2,545)
-
(13,844)
15
(13,829)
Net
2016
£000
(3,822)
2,909
4,556
-
(8,274)
-
1,372
(3,259)
-
(3,259)
2015
£000
(3,411)
2,683
3,260
-
(38)
(7,850)
(2,545)
522
(7,379)
-
(7,379)
Movement in deferred tax balances differences during the year:
Recognised
in equity
£000
31
251
726
Recognised in
income
£000
(492)
(66)
821
Balance at
1 March 2014
£000
(2,942)
3,628
1,713
Property, plant and equipment
Share based payments
Trading losses
Net fair value movement on
available for sale assets
Intangible assets
Other financial assets
Other
(40)
(1,082)
-
570
1,847
-
174
-
(180)
257
2
(308)
-
58
760
Recognised on
Acquisition
£’000
Share options
exercised
£000
(8)
-
-
-
(6,634)
(2,545)
74
(9,113)
-
(1,130)
-
-
-
-
-
(1,130)
Balance at
28 Feb 2015
£000
(3,411)
2,683
3,260
Recognised in
income
£000
(295)
39
452
Recognised in
equity
£000
(116)
1,019
733
(38)
(7,850)
(2,545)
522
(7,379)
38
803
2,545
718
4,300
-
(982)
-
132
786
Recognised on
Acquisition
£’000
-
-
111
-
(245)
-
-
(134)
Share options
exercised
£000
-
(832)
-
-
-
-
-
(832)
Balance at
29 Feb 2016
£000
(3,822)
2,909
4,556
-
(8,274)
-
1,372
(3,259)
The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances.
96
First Derivatives plc
Notes (continued)
29 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)
2016
£000
-
2,909
-
3,089
36
6,034
-
6,034
2015
£000
-
2,683
-
2,416
35
5,134
-
5,134
2016
£000
(3,307)
-
(34)
-
-
(3,341)
-
(3,341)
2015
£000
(3,063)
-
(38)
-
-
(3,101)
-
(3,101)
2016
£000
(3,303)
2,909
(38)
3,089
36
2,693
-
2,693
2015
£000
(3,063)
2,683
(38)
2,416
35
2,033
-
2,033
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 2014
Recognised in
profit and loss
£000
(2,654)
3,628
(40)
1,349
41
2,324
£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
Recognised in
profit and loss
£000
(244)
39
-
53
1
(151)
Recognised in
equity
£000
-
1,019
4
Share options
exercised
£000
-
(832)
-
Balance at
29 Feb 2016
£000
(3,307)
2,909
(34)
620
-
1,643
-
-
(832)
3,089
36
2,693
The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised deferred tax balances.
97
First Derivatives plc
Notes (continued)
30 Current tax payable
Group
2016
£’000
2015
£’000
Company
2016
£’000
2015
£’000
Current tax payable
1,488
490
744
120
31 Employee benefits
Accrued holiday pay
Employee taxes
Group
2016
£’000
1,162
1,392
2,554
2015
£’000
1,064
2,808
3,872
Company
2016
£’000
918
1,182
2,100
2015
£’000
816
2,582
3,398
32 Contingent deferred consideration
Contingent deferred consideration liabilities are payable as follows:
Group
2016
£’000
2015
£’000
Company
2016
£’000
2015
£’000
At 1 March
Additions
Increase in contingent deferred consideration
At end of period
1,132
1,951
812
3,895
-
1,132
-
1,132
-
1,951
-
1,951
-
-
-
-
The payment of contingent deferred consideration is payable in cash and shares. As at 29 February 2016
the maximum total amount payable under the terms of the sale and purchase agreements is £3,895k
(2015: £1,132k) and the minimum total amount payable is £Nil (2015: £Nil).
Within one year
More than one year
Group
2016
£’000
2015
£’000
Company
2016
£’000
2015
£’000
2,719
1,176
-
1,132
-
1,951
3,895
1,132
1,951
-
-
-
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 51% (2015: 48%) and shares 49% (2015: 52%).
98
First Derivatives plc
Notes (continued)
33 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
2016
£’000
943
2,802
754
4,499
2015
£’000
800
2,582
852
4,234
2016
£’000
275
873
280
1,428
2015
£’000
275
1,008
420
1,703
The Group leases four premises under operating lease arrangements.
Group
During the year £1,059k was recognised as an expense in the income statement in respect of operating
leases (2015: £920k).
Company
During the year £275k was recognised as an expense in the income statement in respect of operating
leases (2015: £275k).
34 Pension contributions
The Group makes contributions to the personal pension schemes of certain employees. The pension
charge for the year amounted to £2,014k (2015: £1,548k). Contributions amounting to £333k (2015:
£184k) were payable to the schemes at the year end and are included in creditors.
35 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
Key management personnel have been deemed to be the Directors of the Company. The remuneration of
the Directors is set out in note 12.
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 £55k (2015: £53k). Rent deposits of £26k
(2015: £26k) have been paid to Brian Conlon in respect of these apartments. The balance owed to Brian
Conlon at 29 February 2016 is £Nil (2015: £Nil).
99
First Derivatives plc
Notes (continued)
35 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 (2015: £140k) rental charge was
incurred in the year. The balance owed to Oncon at 29 February 2016 is £Nil (2015: £Nil) and an amount
of £168k (2015: £126k) had been prepaid.
Company
Other related party transactions
Subsidiaries
Revenue
2016
£000
5,009
Administrative expenses
incurred from
2015
£000
2016
£000
11,591
9,230
2015
£000
5,369
5,009
5,369
11,591
9,230
Receivables outstanding
2015
£000
2016
£000
Payables outstanding
2015
£000
2016
£000
Subsidiaries
16,543
12,656
13,944
3,690
During the year development costs of £321k (2015: £837k) were recharged from a subsidiary to the
Company.
Interest is charged on inter-company loans at market rates.
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:
R D Anderson
B G Conlon
R G Ferguson
K MacDonald
S Keating
2016
£000
19
1,194
26
7
2
______
1,248
______
2015
£000
12
966
26
1
2
______
1,007
______
100
First Derivatives plc
Notes (continued)
36 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.
29 February 2016
Financial assets not
measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities
measured at fair value
Contingent deferred consideration2
Financial liabilities not
measured at fair value
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
28 February 2015
Financial assets not
measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities
measured at fair value
Contingent deferred consideration2
Financial liabilities not measured
at fair value
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
Loans and
receivables
£’000
Carrying value
Liabilities at
amortised cost
£’000
Carrying
amount
£’000
38,316
15,100
53,416
-
-
-
-
-
-
-
-
-
-
-
-
(30,096)
(127)
(42,240)
(2,554)
(75,017)
Carrying value
Liabilities at
amortised cost
Loans and
receivables
£’000
£’000
-
-
-
-
-
(30,266)
(188)
(35,299)
(3,872)
(69,625)
28,766
14,705
43,471
-
-
-
-
-
-
-
38,316
15,100
53,416
(3,895)
(3,895)
(30,096)
(127)
(42,240)
(2,554)
(75,017)
Carrying
amount
£’000
28,766
14,705
43,471
(1,132)
(1,132)
(30,266)
(188)
(35,299)
(3,872)
(69,625)
Fair
value
£’000
1
1
(3,895)
1
1
(42,349)
1
Fair
value
£’000
1
1
(1,132)
1
1
(35,407)
1
1 Fair value not disclosed as the carrying amounts are considered to be a reasonable approximation of fair value
2 Contingent deferred consideration is a level 3 fair value (see above)
101
First Derivatives plc
Notes (continued)
36 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.
29 February 2016
Carrying value
Financial assets not
measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities
measured at fair value
Derivatives2
Contingent deferred consideration
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
Carrying
amount
£’000
38,910
10,568
49,478
-
-
-
-
-
-
-
-
-
-
-
-
-
38,910
10,568
49,478
-
(1,951)
(1,951)
(30,096)
(21,889)
(2,100)
(54,085)
(30,096)
(21,889)
(2,100)
(54,085)
28 February 2015
Carrying value
Loans and
receivables
£’000
Liabilities at
amortised cost
£’000
Carrying
amount
£’000
Financial assets not
measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial assets measured
at fair value
Equity securities available for sale3
Financial liabilities
measured at fair value
Derivatives2
Financial liabilities not measured
at fair value
Secured bank loans
Trade, accruals and other payables
Employee benefits
27,844
7,858
35,702
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
27,844
7,858
35,702
6,234
6,234
-
-
(30,266)
(8,658)
(3,398)
(42,322)
(30,266)
(8,658)
(3,398)
(42,322)
Fair
value
£’000
1
1
-
(1,951)
1
(21,904)
1
Fair
value
£’000
1
1
6,234
-
1
(8,665)
1
1 Fair value not disclosed as the carrying amounts are considered to be a reasonable approximation of fair value
2 Balance relates to NCI put over the Group’s subsidiary which is currently recognised at immaterialvalue as the agreed price
was equal to the fair value of the underlying investment on initial recognition
3 Equity securities held for sale is level 3 fair value
102
First Derivatives plc
Notes (continued)
36 Financial instruments (continued)
(b) Measurement of fair values
Licence agreement
The Group previously held a licence agreement with a customer for the provision of software services.
Upon termination or expiry of the licence, the Group had a contractual right to receive a termination fee
based on 30% of the enterprise value of the licensee. This was considered to be a level 3 fair value
instrument. 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.
During the current year, Group and the customer amended the licence agreement and the termination fee
no longer applies. The termination fee has therefore been derecognised. No fair value gain or loss has
been recognised in the Consolidated Statement of Comprehensive Income during the year (2015: £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
2016
£’000
2015
£’000
Company
Carrying amount
2016
£’000
2015
£’000
38,316
15,100
______
53,416
______
28,766
14,705
______
43,471
______
38,910
10,568
______
49,478
______
27,844
7,858
______
35,702
______
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
2016
£’000
6,528
19,348
9,769
2,671
2015
£’000
6,375
14,126
6,521
1,744
2016
£’000
4,037
18,980
12,900
2,993
2015
£’000
4,766
15,444
6,484
1,150
38,316
28,766
38,910
27,844
103
First Derivatives plc
Notes (continued)
36 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
2016
£’000
31,496
6,820
2015
£’000
21,789
6,977
2016
£’000
18,235
20,675
2015
£’000
11,618
16,226
38,316
28,766
38,910
27,844
The Group’s and Company’s most significant customer is an investment bank which accounts for
£3,904k of the trade and other receivables carrying amount at 29 February 2016 (2015: £3,288k). No
other customers had receivable balances in excess of 10% of the Group’s total balance at the year end. In
addition £2,928k (2015: £1,131k) 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
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
Impairment
2015
£’000
-
-
-
2,681
2,681
Impairment
2015
£’000
-
-
-
1,163
1,163
Impairment
2016
£’000
-
-
-
4,342
4,342
Impairment
2016
£’000
-
-
-
981
981
Gross
2016
£’000
10,243
10,085
8,602
7,048
35,978
Gross
2016
£’000
6,304
5,509
5,446
2,105
19,364
104
First Derivatives plc
Notes (continued)
36 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
Closing balance
2016
£’000
2,681
1,635
681
(655)
4,342
2015
£’000
2,088
1,723
(414)
(716)
2,681
2016
£’000
1,163
441
-
(623)
981
2015
£’000
576
587
-
-
1,163
A review of debt outstanding led to the increase of £1,661k 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 £15,100k (2015: £14,705k) and £10,568k
(2015: £7,858k) respectively at 29 February 2016 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.
105
First Derivatives plc
Notes (continued)
36 Financial instruments (continued)
Liquidity risk
Group
The following are contractual maturities of financial liabilities, including estimated interest payments.
29 February 2016
Secured bank loans
Finance leases
Trade and other payables
Contingent deferred
consideration
28 February 2015
Secured bank loans
Finance leases
Trade and other payables
Contingent deferred
consideration
Carrying
amount
£’000
(30,096)
(127)
(42,240)
(3,895)
Contractual
cash flows
£’000
(33,527)
(162)
(42,240)
(3,895)
6 mths or
less
£’000
(2,087)
(59)
(12,151)
(1,451)
6-12 mths
1-2 years
£’000
(2,396)
(50)
-
(1,268)
£’000
(4,023)
(53)
(30,089)
(1,176)
2-5 years More than
5 years
£’000
-
-
-
-
£’000
(25,021)
-
-
-
(76,358)
(79,824)
(15,748)
(3,714)
(35,341)
(25,021)
-
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)
-
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 27. The contractual maturity of the £30,089 (2015: £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.
29 February 2016
Secured bank loans
Trade and other payables
Contingent deferred
consideration
28 February 2015
Secured bank loans
Trade and other payables
Carrying
amount
£’000
(30,096)
(21,889)
(1,951)
Contractual
cash flows
£’000
(33,527)
(21,889)
(1,951)
6 mths
or less
£’000
(2,087)
(21,889)
(1,451)
6-12 mths
1-2 years
£’000
(2,396)
-
(500)
£’000
(4,023)
-
-
2-5 years More than
5 years
£’000
-
-
-
£’000
(25,021)
-
-
(53,936)
(57,367)
(25,427)
(2,896)
(4,023)
(25,021)
-
Carrying
amount
£’000
(30,266)
(8,658)
(38,924)
Contractual
cash flows
£’000
(34,207)
(8,658)
(42,865)
6 mths
or less
£’000
(2,325)
(8,658)
(10,983)
6-12 mths
1-2 years
£’000
(2,389)
-
(2,389)
£’000
(4,010)
-
(4,010)
2-5 years More than
5 years
£’000
-
-
-
£’000
(25,483)
-
(25,483)
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 27.
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or
at significantly different amounts.
106
First Derivatives plc
Notes (continued)
36 Financial instruments (continued)
Currency risk
Group
The Group’s exposure to currency risk was as follows:
29 February 2016
EUR
£’000
1,301
-
(42)
USD
£’000
7,510
-
(30,427)
CAD
£000’s
54
-
-
28 February 2015
CAD
£000’s
33
-
-
EUR
£’000
1,813
-
(449)
USD
£’000
8,773
-
(27,666)
54
1,259
(22,917)
33
1,364
(18,893)
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 £29,206k
(2015: £29,396k).
Company
The Company’s exposure to currency risk was as follows:
29 February 2016
28 February 2015
CAD
£000’s
54
-
-
EUR
£’000
1,301
-
(30)
USD
£’000
6,252
(29,206)
(274)
CAD
£000’s
33
-
-
EUR
£’000
1,746
-
(189)
USD
£’000
4,940
(29,396)
(131)
54
1,271
(23,228)
33
1,557
(24,587)
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
2016
1.51
1.37
1.98
2015
1.63
1.26
1.83
2016
1.39
1.27
1.88
2015
1.54
1.38
1.93
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 £3,008k (2015: £4,461k) and £2,160k (2015: £1,750k)
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 £2,708k (2015: £4,015k) and £1,944k (2015:
£1,575k) 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.
107
First Derivatives plc
Notes (continued)
36 Financial instruments (continued)
Sensitivity analysis (continued)
A 10% strengthening of Sterling against the above currencies at the end of the period would decrease
Company profit or loss by approximately £2,190k (2015: £2,300k). A 10% weakening of Sterling against
the above currencies at the end of the period would increase Company profit or loss by approximately
£1,971k (2015: £2,070k). 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
2016
£’000
15,100
(30,096)
(14,996)
-
(127)
(127)
2015
£’000
14,705
(30,289)
(15,584)
-
(188)
(188)
Company
2016
£’000
2015
£’000
10,568
(30,096)
(19,528)
7,858
(30,289)
(22,431)
-
-
-
-
-
-
A 10% reduction in interest rates at the end of the period would increase Group equity and profit and
loss by approximately £135k (2015: £135k). A 10% increase in interest rates at the end of the period
would decrease Group equity and profit or loss by approximately £123k (2015: £125k). This analysis
assumes that all other variables remain constant.
37 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 Executive 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.
108
First Derivatives plc
Notes (continued)
37 Share based payments (continued)
Reconciliation of outstanding share options
The number and weighted average exercise prices of share options have been analysed into four exercise
price ranges as follows:
Weighted
average
exercise
price
2016
1.24
-
1.05
-
1.35
1.35
Number
of options
Weighted
average
exercise price
Number
of options
2016
2015
2015
269,250
-
(99,750)
-
169,500
169,500
1.37
-
1.51
-
1.24
1.24
528,167
-
(258,917)
-
269,250
269,250
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 29 February 2016 above have an exercise price in the range of £1.21 to £1.61
(2015: £1.02 to £1.61) and a weighted average contractual life of 1.9 years (2015: 2.3 years).
Weighted
average
exercise
price
2016
2.52
2.22
2.46
-
2.55
2.55
Number
of options
Weighted
average
exercise price
Number
of options
2016
2015
2015
268,501
(7,500)
(61,667)
-
199,334
199,334
2.52
2.27
2.53
-
2.52
2.52
327,168
(1,667)
(57,000)
-
268,501
268,501
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 29 February 2016 above have an exercise price in the range of £2.27 to £2.735
(2015: £2.27 to £2.735) and a weighted average contractual life of 2.5 years (2015: 3.8 years).
109
First Derivatives plc
Notes (continued)
37 Share based payments (continued)
Weighted
average
exercise
price
2016
6.38
7.60
5.38
-
6.56
5.25
Number
of options
2016
2,593,499
(156,167)
(527,464)
-
1,909,868
1,113,639
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
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 29 February 2016 above have an exercise price in the range of £4.15 to £9.00
(2015: £4.15 to £8.47) and a weighted average contractual life of 6.6 years (2015: 7.6 years).
Weighted
average
exercise
price
2016
-
-
-
12.99
12.99
-
Number
of options
2016
-
-
-
734,500
734,500
-
Weighted
average
exercise
price
2015
-
Number
of options
2015
-
-
-
-
-
-
-
-
-
-
-
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 29 February 2016 above have an exercise price in the range of £12.28 to
£14.37 (2015: £nil) and a weighted average contractual life of 9.3 years (2015: nil).
The weighted average share price at the date of exercise for share options exercised for the year ending
29 February 2016 was £14.42 per share (2015: £11.15).
110
First Derivatives plc
Notes (continued)
37 Share based payments (continued)
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:
14/08/15
2.28
14.37
14.37
250,000
20%
2.5 years
0.1%
3.0%
Grant of options during the year ended 29 February 2016
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)
02/06/15
2.39
12.275
12.275
484,500
20%
3.5 years
0.1%
3.0%
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%
The adjustments made to the standard Black Scholes model are those required to reflect more clearly the
Company’s experience relating to key assumptions.
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
Share options granted in 2015/16 – equity settled
Total expense recognised as employee benefit expense
Total amount recognised in share based payment reserve
2016
£’000
2015
£’000
1
27
55
199
227
306
815
815
3
229
121
254
114
-
721
721
111
First Derivatives plc
Notes (continued)
38 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.
112
First Derivatives plc
Directors and advisors
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*
– Non-executive Director+
S Keating
B G Conlon
R G Ferguson
K MacDonald
R D Anderson
V Gambale
J Robson
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
113
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
114
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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
115