First Derivatives plc
Annual report and accounts
Registered number: NI 30731
Year ended 28 February 2017
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
Report of the Audit Committee
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
Other information
Directors and advisers
Global directory
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First Derivatives plc
Chairman’s Statement
We are pleased to report another year of strong growth and progress against our strategic objectives.
Group reported revenue increased by 30% to £151.7m, reported profit before tax increased by 20% to
£12.5m and adjusted EBITDA increased by 24% to £28.8m, while we continued our investment to
address new vertical markets with our software.
In addition to delivering revenue, profit before tax and EBITDA growth, we increased adjusted earnings
per share by 19% to 61.3p (2016: 51.7p). Net debt (loans and borrowings less cash and cash equivalents)
at the period end was £13.5m (2016: £15.1m). The Board has recommended payment of a final dividend
of 14.00p per share (2016: 12.00p per share) which, together with the interim dividend of 6.00p per share
paid in December 2016, gives a total dividend for the year of 20.00p per share, an increase of 18%
compared to the prior year. The final dividend, if approved at the AGM on 23 June 2017, will be paid on
15 July 2017 to those shareholders on the register on 16 June 2017.
Our software platform, branded under Kx technology (“Kx”) is the established market leader in real-time
capture and analysis of market data in high volume environments. Clients include financial regulators,
stock exchanges and 19 of the top 20 global investment banks. Our competitive advantage is the ability to
manage large volumes of data in real-time which is utilised for such purposes as risk management,
balance sheet optimisation and regulatory compliance.
Our strategy is to build on the technology leadership developed in our core market of FinTech to establish
Kx in other high value industries where its performance capabilities on large, fast, streaming data sets can
deliver compelling business solutions.
In addition, First Derivatives (“FD”) is a leading provider of professional services to the capital markets
industry, supporting business critical systems for our global banking clients. Our strategy in this area is to
be the provider of choice within capital markets for the support and transformation of mission critical
systems across asset classes, through front, middle and back office environments.
We made significant progress during the year against these strategies, thereby increasing our ability to
deliver sustainable, long-term growth. Within this set of results, we report revenue by key market sector,
evidencing the progress we are achieving.
Our revenue from finance (FinTech) increased by 28% to £117.4m (2016: £91.9m), driven by demand
from clients for our solutions. In the year we have invested in software development, pre-sales and bid
costs, sales and marketing, implementation and support teams to allow us to deliver current levels of
revenue in addition to managing our expected growth. We also secured a number of multi-year consulting
support contracts, delivered from our near shore centre in Northern Ireland.
A strong example of our strategic progress is our marketing technology (MarTech) business which
increased revenue by 39% to £30.7m (2016: £22.1m). We are very encouraged by our market penetration
which has been assisted by the acquisition of Prelytix LLC in 2015. Applying Kx has allowed us to
develop an end-to-end predictive analytics and lead management service platform with clients such as
Cisco, HP and Fujitsu.
As we broaden our vertical market reach, we continue to build partnerships and evaluate strategic
acquisitions. During the year we agreed an important partnership with the UK based Business Growth
Fund, to identify and support early stage businesses operating in sectors where our Kx technology can
offer significant advantage. We are pleased with the pipeline of opportunities across the Group which
should support our growth potential in future years.
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First Derivatives plc
Chairman’s Statement (continued)
Post year end we announced another important strategic success in a new vertical with a Fortune 500
engineering solutions corporation to use Kx to provide fault detection solutions to its precision
manufacturing client base.
In executing our strategy we are committed to the delivery of sustainable, long term growth across our
activities. During the last five years the Group has more than trebled its revenues and achieved broadly the
same uplift in operating profit while undertaking significant investment for future growth and doubling
the workforce, which is now approaching 2,000 people.
Board Change
Jon Robson, who joined our board as a Non-Executive Director in 2015, has joined the executive team as
executive vice-president and consequently stepped down from the board. I thank Jon for his contribution
as a Non-Executive Director and I am sure he will be a strong addition to the executive team.
Current Trading and Outlook
FD has made an encouraging start to the current financial year. We benefit from high revenue visibility as
a result of our software subscription model along with high levels of repeat and contracted revenue on the
services we provide. We are engaged in numerous discussions across industries and believe our products
and services are well placed competitively. Consequently we anticipate another year of strong growth.
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
15 May 2017
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First Derivatives plc
Chief Executive’s Statement
This has been another monumental year for FD, with revenue growth of 30%, reported profit before tax
growth of 20% and adjusted EBITDA growth of 24% being delivered alongside an investment programme
designed to bring our technology to new markets such as pharma, Internet of Things (“IoT”) and space.
Our Software division, branded as Kx technology (“Kx”), grew by 47% powered by 55% growth in
FinTech and 39% growth in MarTech, where our offering is delivering on early potential. We are making
substantial investments in R&D, marketing and direct and indirect sales channels in order to bring our
technology to new markets. Recent announcements relating to strategic partnerships and contract wins are
evidence that the power of Kx has applications beyond its Capital Market beginnings.
In our Managed Services and Consulting division we delivered a 20th successive year of double digit
growth. Our core philosophy is to combine domain knowledge with best in breed technology to provide
premium services to our customers with the aim of locking in recurring revenue streams. Our growth in
this division is increasingly derived from nearshore managed service engagements as we drive toward this
goal.
Software
FD’s software, Kx, allows organisations to meet the most demanding data challenges they face. In recent
years, Kx has established a leading position within banks for market data capture and analytics with the
Group now targeting a range of other markets and industries where it believes Kx will provide compelling
return on investment. Our brand awareness has been significantly raised with a website revamp
(www.kx.com) and our alignment with Porsche as a result of a 2 year sponsorship deal. Kx and Porsche
are both premium brands associated with power, speed and precision engineering.
Our software solutions, for all end use cases, are based on a common technology platform, driven by a
single R&D team and pooled 24/7 global support. This approach generates significant economies of scale,
reduces time to market for new products and provides operational leverage given the low incremental cost
of acquiring and supporting new customers. Our two key strategic goals for software are firstly to increase
the use of Kx within financial services, building on the successful deployments of the technology to date;
and secondly, use the Kx platform to enter additional markets where data challenges are increasing and
existing solutions are unable to cope effectively.
We have a significant market opportunity - estimates from independent industry analysts such as IDC and
ABI Research show a total addressable target market in the sectors we are targeting in excess of $60
billion per annum.
The technology landscape continues to evolve rapidly with innovations in areas such as machine learning,
blockchain, IoT, cyber security, Augmented Reality and Virtual Reality all generating column inches and
attracting significant investment dollars. These themes have applications across multiple vertical markets
and by focussing much of our R&D efforts on these areas we can gain further operational leverage. We
are working closely with chip providers such as Intel to optimise our technology for their new products
and are working on a number of joint marketing initiatives. At the other end of the scale our solutions
have been deployed on the cloud with AWS and Google. These investments help us to maintain our
technology lead against the competition, as evidenced by the fact that we hold 32 of the 41 independent
STAC benchmark records.
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First Derivatives plc
Chief Executive’s Statement (continued)
FinTech
Software in FinTech recorded another solid period of growth, with revenues increasing by 55% to £54.0m
(2016: £34.9m). The Group continues to grow Kx’s established presence, building on the successes of our
reference clients for existing applications and finding new applications for our technology; either through
internal development, partnership, OEM or acquisition. Our successes included but were not limited to,
extensions and new deployments of our core database technology within investment banks and hedge
funds; new customer wins for our market surveillance application with regulators, exchanges and global
investment banks; and the use of our technology within investment banks for the purposes of regulatory
reporting and transaction cost analysis.
We also increased the routes to market for our software in financial services. We signed a landmark deal
with Thomson Reuters as a channel to market for Kx as the analytics engine for its Velocity Analytics
Data product. We also signed technology licensing agreements with Quantile Technologies, a provider of
counterparty risk products, and Cobalt, which uses blockchain technology to reduce post-trade cost and
risk for financial market participants.
MarTech
In MarTech our success has led us to break out our revenue from this activity for the first time; it was up
39% to £30.7m (2016: £22.1m). During the year we launched our subscription-based self-service
Marketing Cloud platform, with Kx at its core, which applies sophisticated predictive analytics to data
including internet searches, customer web site traffic, CRM data and other sources to determine buying
intent globally and to identify potential purchasers. This data can then be used for various marketing
tactics such as display advertising where a real-time bidding engine can be used for serving creative ads
and optimising digital marketing spend. We provide a premium concierge service to operate the platform
and convert clicks to meetings. We believe that this end-to-end marketing platform is a unique offering.
While initial customers are mostly from the technology industry, we believe the power of our solution to
uncover potential buyers of products and services is of interest to companies in all sectors. Return on
investment is high for our solution and we expect it to continue to deliver strong growth.
Other Markets
The Group has invested heavily in raising brand awareness in other markets. Revenue in other markets
rose by 20% to £3.6m (2016: £3.0m). Customers using our software include the Ontario electricity
regulator, IESO (Utilities), Purdue (Pharma) and Wireless Republic (Telco), with Airbus (Space) and a
Fortune 500 company (Industrial Internet of Things) contracts signed recently. These deals plus our
current pipeline give us confidence that the performance advantages we enjoy in FinTech translate into
similar outperformance against established technologies in other markets. This adds to our belief in the
commercial potential of our software within these markets.
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First Derivatives plc
Chief Executive’s Statement (continued)
Other Markets (continued)
We have various routes to market in the sectors we target which are not necessarily mutually exclusive;
Building our own teams - during the year we entered the retail analytics market by hiring a team
of retail technology specialists and committing to the development of solutions based on Kx. We
are currently evaluating the most pressing use cases for our technology, in conjunction with a
number of potential clients who are attracted by the ability of our software to deliver meaningful
and actionable insights on the very large data sets generated across the retail environment.
Supporting entrepreneurs/domain specialists with the help of investment partners - in January we
signed a strategic alliance agreement with the Business Growth Fund (“BGF”) under which BGF
will provide finance and support to entrepreneurial companies seeking to use Kx technology as a
platform to disrupt markets, with use cases ranging from areas such as personal medicine to
robotics. Together, FD and BGF are currently working through a number of opportunities to
support exciting companies with ambitious growth plans.
Signing OEM deals - after the period end we announced a contract win with a Fortune 500
engineering solutions company for the use of Kx to analyse sensor data for the purpose of fault
detection. This deal is a flagship win for FD both for its expected value outside finance as well as
the potential it provides for Kx to establish itself as a leading technology for sensor analytics in
the Industrial Internet of Things. This market alone is expected to reach $80–120 billion by 2018,
according to ABI Research.
Going to market jointly with established players in a sector - also after the year end we announced
a partnership with Airbus Defence and Space, for the large-scale processing of geospatial data
using Kx, a market opportunity which is expected to reach $6.5 billion per annum by 2023. Work
is currently underway to establish the priority commercial use cases.
Whilst the scale of the opportunity is immense, we are competing against heavily funded software
companies, many based in Silicon Valley, with an operating model based on gaining market share rather
than delivering profitability in the short-term. Nevertheless, the contract wins and new initiatives put in
place set the Group up for another successful year in software.
Managed Services and Consulting
Managed Services and Consulting recorded another solid period of growth, with revenues increasing by
11% to £63.5m (2016: £57.0m). Our service activities focus on the support of mission critical systems
within global investment banks. We have more than 20 years of experience working with software from
third party providers such as Murex, Calypso and Summit as well as a range of legacy and in-house
systems. In addition to implementation, development and support services we have developed a number of
complementary offerings such as managing regulatory and compliance initiatives. This enables us to
assemble multi-disciplined teams to provide upgrades, testing, customisation and development of
interfaces for our clients.
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First Derivatives plc
Chief Executive’s Statement (continued)
Managed Services and Consulting (continued)
FD’s services are provided both at the client’s site and remotely from near shore centres including our
headquarters in Newry. We operate a comprehensive training programme to provide our consultants with
expertise in data science and domain knowledge in capital markets. This investment in our data science
professionals differentiates FD from our competitors and allows us to utilise our consultants not only for
third party products but also divert them to provide professional services relating to our own software.
This was particularly beneficial in the second half of this financial year as resource was diverted to assist
in the delivery of new software client implementations.
Our reputation for both delivery and client satisfaction and the growing breadth and depth of our skills
base allows us to bid for increasingly larger projects, to lock-in recurring revenue and to cross-sell
software products. This has been evidenced by some of the more significant new contracts during the year
including:
An initial five year deal with the European operations of a Japanese investment bank which
involves the management of a number of the bank’s applications on a managed service basis.
A multi-location support programme for regulatory change within a large US investment bank,
which also has a managed services component.
An initial five year deal with a Scandinavian asset manager to support its Murex platform,
delivered through a hybrid near shore and on-site model.
Our service activities already benefited from a high level of visibility due to the repeat nature of the
majority of our engagements with clients. The contract wins referenced above, while requiring initial
investment, provide increased levels of contracted and recurring revenue, further enhancing our ability to
plan for growth.
Recent regulatory and compliance requirements, including MiFID II and the Market Abuse Regulation
(MAR), are providing opportunities for FD. For example, in areas of data management, transaction cost
analysis and order book reconstruction capabilities, as well as monitoring and visualisation solutions, to
enable our clients to meet the challenges of the legislation, including proving best execution.
We have a strong pipeline of potential new engagements with existing and new clients and remain
confident that we can deliver good growth in our Managed Services and Consulting business in the
coming years.
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First Derivatives plc
Chief Executive’s Statement (continued)
Management and Personnel
The Group now employs over 1,750 people, up from over 1,600 people at the same time last year. Our
growing reputation as a technology leader combined with the opportunity to work in premier locations
around the world continues to help us secure new talent and achieve high retention rates. The emphasis
and resource we place on developing talent is another key driver of our continued strong employee
retention rates.
The Group continues to grow rapidly, providing a dynamic work environment with considerable
opportunities for career development. This was reflected in FD being named by Glassdoor in the top 10
Best Places to Work in the UK during the year. Once again I would like to thank all FD employees for the
contribution they have made to our growth through their hard work, talent and flexibility.
Summary
It has been another year of strong progress towards our strategic objectives. In services we have increased
the scale of our operations as well as the breadth of capabilities we provide while adding significantly to
our recurring revenue base. In software we have continued to add new clients and expand within existing
clients within both FinTech and MarTech, while expanding our channels to market in new industries
through partnerships, internal development and OEM agreements. At the year end we also signed a
significant new client in the Industrial Internet of Things, which continues to justify the potential we see
to expand our software into other verticals.
Our addressable market is very large, our Kx technology is world class and, while maintaining our
financial discipline, we remain confident that we are on course to provide significant returns for
shareholders by executing our strategy.
Brian Conlon
Chief Executive Officer
15 May 2017
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First Derivatives plc
Financial Review
Group revenue increased by 30% to £151.7m (2016: £117.0m), which was predominantly organic. An
analysis of revenue is provided in the table below.
Managed services and
consulting
Software:
Recurring revenue
Implementation and support
Perpetual
Software total
Total
2017
£000
2016
£000
Increase
63,495
57,014
11%
21,402
31,525
35,257
49,490
3,360
7,187
88,202
60,019
151,697 117,033
47%
40%
114%
47%
30%
Software revenue increased to 58% of Group revenue (2016: 51%). Revenue from FinTech was £117.4m
(2016: £91.9m) representing an increase of 28% while revenue from MarTech was £30.7m (2016:
£22.1m), an increase of 39%.
Reported profit before tax increased by 20% to £12.5m (2016: £10.4m). Adjusted EBITDA increased by
24% to £28.8m (2016: £23.3m), with an adjusted EBITDA margin of 19% for the period (2016: 20%), a
strong performance given the ongoing investment to deliver future growth in FinTech, MarTech and other
markets. We have continued to add sales and marketing capability across the Group, in presales software
teams and concept teams to break into new markets, to add to our software solutions delivery teams while
incurring set-up and bid costs in regard to new managed services contracts. The adjusted profit after tax
for the year of £16.1m (2016: £12.9m) represented growth of 24%.
While we do not operate a hedging policy on trading activities, the current structure of the Group results
in natural hedging against trading currency movements by matching foreign denominated revenues with a
corresponding cost base. The impact of currency movements overall during the year after the reported
gain of £1.5m (2016: £0.8m) was broadly neutral to the Group’s earnings, with benefits to revenue and
adjusted EBITDA balanced by an increase in dollar denominated interest payments and translation of
overseas tax.
The Group continued to invest in R&D to maintain its technology lead, albeit with a greater proportion of
spend written off such that the net benefit to the Income Statement fell during the period, as detailed in the
table below.
Capitalisation of R&D costs
Amortisation of R&D
Net capitalisation
Proportion of software revenue
2017
£000
7,085
(4,944)
2,141
2%
2016
£000
6,840
(3,681)
3,159
5%
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First Derivatives plc
Financial Review (continued)
The Group's effective tax rate was 28% (2016: 25%) with this movement predominantly being attributable
to an increase in overseas profits which are subject to higher tax rates than profits in the UK. An
additional factor was the implementation of the new Research and Development Expenditure Credit
(RDEC) tax legislation which the Group adopted from 1 March 2016. The introduction of RDEC reduced
the Group’s profit after tax by £0.1m.
The fully diluted average number of shares in issue increased to 26.2m (2016: 25.0m). This resulted in
adjusted fully diluted earnings per share of 61.3p, representing growth of 19% for the year (2016: 51.7p).
The calculation of adjusted profit after tax is detailed below.
2017
£'000
9,012
Reported profit after tax
2016
£'000
7,831
Adjustments for:
Amortisation of acquired intangibles
Share based payment and related costs
Acquisition costs, associate disposal costs and
changes in contingent purchase consideration
Gain on foreign currency translation
Share of loss of associate
Tax effect of the above
Adjusted profit after tax
Adjusted EPS (fully diluted)
4,759
2,056
4,198
1,405
2,953
(1,475)
24
(1,252)
1,547
(779)
-
(1,256)
16,077
12,946
61.3p
51.7p
The Group generated £30.3m of cash from operating activities before taxation payments (2016: £17.0m),
representing a 105% conversion of adjusted EBITDA (2016: 73%). At the year end, net debt was £13.5m
(2016: £15.1m).
Net debt was negatively impacted by £3.2m of foreign exchange differences on the Group’s debt, which is
principally dollar-denominated. Total assets at 28 February 2017 were £253.2m compared to £222.9m at
29 February 2016.
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First Derivatives plc
Strategic Report
Business strategy and objectives
FD is engaged in the provision of a range of software services, particularly to finance, technology, energy
and industrial organisations. The focus of the Group was on Capital Markets until the acquisition of a
controlling interest in Palo-Alto based Kx Systems Inc. in October 2014, since when it has widened its
scope of activities to target a range of markets where its Kx technology has a competitive advantage.
In the year under review the Group has entered the retail, manufacturing and satellite imagery markets
through a combination of internal development and partnerships. This is in addition to the entry into
digital marketing and utilities markets in the prior year. These moves result in a significant increase in the
Group’s addressable market. FD continues to source opportunities to extend its technology into new
markets such as pharmaceuticals and telecoms where the capability of Kx to analyse large volumes of
streaming and historical data is unrivalled.
FD’s objective is to increase shareholder value by increasing the Group’s revenue and adjusted profit
before tax, while continuing to invest to take advantage of opportunities to increase its addressable
market. The strategy to achieve this is focused upon organic growth supported by investment in the
Group’s infrastructure, in combination with selective acquisitions and/or establishing partnerships or other
channels to market, providing these can be demonstrated to enhance shareholder value.
Organic growth is driven by providing innovative products or services which are focused on delivering
additional revenue opportunities, increasing cost efficiency and/or overcoming operational challenges
within the clients’ business. The capability of our software products and service delivery model to deliver
these benefits has resulted in growing demand for our software services.
The Group operates on a global basis, from 13 offices across four continents. Its products and services are
interlinked and complement each other, simplifying the management of Group operations.
Business Model
The Group provides a range of 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 provide actionable insights through the
analysis of both streaming data and large sets of historical data, across a range of sectors. These products,
collectively known as Kx technology, are built on kdb+, a world leading time series database developed
by the Group. Independent analysis by the Securities Technology Analysis Center (‘STAC’) and other
organisations confirms that kdb+ is the highest performing database dealing with time series data.
The Group’s service activities are well established, with more than 20 years of expertise. 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 remains unchanged since inception; we provide data scientists 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
Business Model (continued)
In prior years, this support was provided mostly at the client site; increasingly we are providing our clients
with support through a near shore model from our headquarters in Newry, Northern Ireland. This provides
benefits to FD through longer term contracts and greater revenue visibility, while the client benefits from
lower overall cost.
We further differentiate ourselves through the use of proprietary tools, for monitoring, reconciliation and
testing of system performance as well as for particular niche opportunities within Capital Markets. The
Group operates a predominantly direct sales model across its consulting activities.
The Group’s Kx technology is designed for rapid and efficient analysis of large volumes of data,
particularly streaming data. While historically it has addressed challenges and opportunities within the
Capital Markets sector, in recent years the Group has expanded into additional markets where it believes
its software has a competitive advantage. In particular, within the Chief Executive Officer’s report the
Group has detailed its revenue from the marketing technology sector for the first time. Revenues derived
from other markets will be detailed in future years when they contribute materially to the Group’s
financial performance.
The Group’s strategy on software sales is to seek to sign annual recurring licenses with customers, which
increases the visibility of Group revenues for future periods.
While in prior years the Group has made investments in subsidiary entities, in the period under review no
acquisitions were made although a number of non controlling investments were entered in the period. FD
will continue to seek to identify acquisitions or investments to expand its range of services and offerings,
with a focus on acquisitions or investments that expand the Group’s addressable market or strengthen its
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.
FD’s Kx technology is dominant within Capital Markets where it forms the basis of solutions that capture
and analyse high volumes of streaming market data on behalf of the world’s leading financial regulators,
stock exchanges and investment banks. Crucially, Kx is data agnostic, meaning it can be applied to data
challenges across multiple vertical markets. Since FD acquired a controlling stake in Kx Systems Inc. in
October 2014 it has accelerated its entry into these additional markets.
Spending on Big Data software and services was expected to reach $130 billion in 2016, according to
industry analysts IDC, with growth of 12% per annum to reach more than $200 billion by 2020. 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.
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First Derivatives plc
Strategic Report
Business Environment (continued)
Outside of Capital Markets, FD has established a presence in markets such as digital marketing, utilities,
retail, manufacturing and satellite imagery. Other markets that represent opportunities for the Group
include oil and gas, telecoms, pharma and healthcare. A key area of focus is collecting and analysing data
from connected sensors, also known as the Industrial Internet of Things (‘IIoT’), a market which industry
analysts ABI Research estimate is expected to reach at $80-120 billion per annum by 2018. Just after the
period end the Group signed its first major customer in this space, to analyse data from sensors for fault
detection purposes within high precision manufacturing.
Regulation
Regulatory change is a key driver of both our software and services revenue. We have been engaged by a
number of existing and new clients to assist in their preparations for major regulatory changes such as
MiFID II, among other new and forthcoming regulatory requirements. We expect regulatory change to
continue to be a driver for growth 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. Our surveillance solution 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. FD has also won contracts from major investment banks for
surveillance solutions, enabling them to monitor activity across their trading platforms.
Key Performance Indicators
The Board considers that the key performance indicators (KPIs) for the Group are growth in revenue and
adjusted EBITDA. KPI performance over the year to end February is provided below.
Year ending February
2017
2016
Revenue
Growth
£151.7m
£117.0m
+30%
+41%
Adjusted Profit before tax
£20.8m
£16.8m
Growth
+24%
+56%
Revenue from continuing operations increased by 30% over the prior year. Consulting revenues increased
by 11% (2016: 29%) and Software revenues increased by 47% (2016: 69%). Software revenue
represented 58% of Group revenue for the year (2016: 51%).
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First Derivatives plc
Strategic Report
Key Performance Indicators (continued)
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
2017
£'000
12,239
2016
£'000
10,829
Adjustments for:
Amortisation of acquired intangibles
Share based payment and related costs
Acquisition costs, associate disposal costs and
changes in contingent purchase consideration
Depreciation and amortisation
4,759
2,056
4,198
1,405
2,953
6,750
1,547
5,277
Adjusted EBITDA
28,757
23,256
The Group generated £30.3m of cash from operating activities before taxation payments (2016: £17.0m),
representing 105% of adjusted EBITDA (2016: 73%). At the year end, net debt was £13.5m (2016:
£15.1m).
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First Derivatives plc
Strategic Report
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 service 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. The Group 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 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 2016
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 has progressively 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.
15
First Derivatives plc
Strategic Report
Principal risks and uncertainties (continued)
Brexit
On 29 March 2017, the UK Government invoked Article 50 of the Treaty of Lisbon, notifying the
European Council of its intention to withdraw from the European Union (the ‘EU’). There is significant
uncertainty about the withdrawal process; its timeframe; and the outcome of the negotiations about the
future arrangements between the UK and the EU. The Group has considered and whilst it is recognised
there is uncertainy it is continuously monitoring the potential impacts to operations and taking steps to
mitigate when appropriate.
IT and cyber security
As a provider of software to Tier 1 banks, FD is required to operate stringent IT and cyber security
practices. The Group has extensive documented policies to mitigate risk in these areas covering areas such
as access control, environmental controls, IT system architecture, remote access policies, password
protection policies, data communication protocols, back up policies, quality assurance, application change
controls and system support.
To provide assurance on the effectiveness of these polices, the Group has adopted SSAE 16, a Standard
from the American Institute of Certified Public Accountants, on the effectiveness of the Group's IT
security policies. The latest SSAE 16 audit report covering the year to March 2017 found the Group was
fully compliant with 28 separate IT security policies in place.
Other information
The other information required to be disclosed in respect of the review of the Group’s business as required
under Section 417 of the Companies Act 2006 is given in the Chairman’s Statement on pages 2 to 3 and
the Financial Report on pages 9 to 10 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 the Group’s financial position or profit. Further information is set out in note 32.
On behalf of the board.
JJ Kearns
Secretary
15 May 2017
16
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 2016. 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 2013 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 Asia-Pacific Head of
Structured Corporate Finance. Keith is a Chartered Accountant and a director of several other companies
with significant international operations.
Jon Robson, Non-Executive Director (Resigned 15 May 2017)
Jon joined the Board of First Derivatives plc in August 2016. 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.
17
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.
18
First Derivatives plc
Directors’ Report
The Directors have pleasure in submitting to the shareholders their annual report and the audited financial
statements of the Group and Company for the year ended 28 February 2017.
Results and dividend
The Group’s profit after taxation attributable to the shareholders for the year to 28 February 2017 was
£9,012k (2016: £7,831k).
The Directors propose the payment of a final dividend of 14.00 pence per share (2016: 12.00 pence)
which, together with the interim dividend of 6.00 pence per share (2016: 5.00 pence), totals 20.00 pence
per share (2016: 17.00 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 12.00 pence per share for the year ended
29 February 2016 and an interim dividend of 6.00 pence per share for the year ended 28 February 2017.
Directors
The Directors who held office during the year were as follows:
S Keating
B G Conlon
R G Ferguson
V Gambale
K MacDonald
J Robson (resigned 15 May 2017)
R D Anderson (resigned 13 May 2016)
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 22 to 24 and the information is incorporated into the Directors’ Report by reference.
Substantial shareholdings
At 16 May 2017, 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 (31.6%), Standard Life Investments Limited
(10.0%) Legal & General Group plc (5.8%), Slater Investments (4.9%) and A Whitney (3.8%).
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 £7,085k (2016:
£6,840k) 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 £1,721k (2016:
£1,645k) were expensed during the year.
19
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) 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 LLC,
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 with US Dollar functional
currencies.
Political donations
The Group and Company made no political donations during the year (2016: £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 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.
20
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
15 May 2017
21
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 Non-Executive Director, 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 other equity rewards which underlying securities
grantees are very much encouraged to retain over the longer term.
The components of the Executive Directors’ remuneration packages are currently a basic salary, bonus,
money purchase pension contributions, share options 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 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.
22
First Derivatives plc
Report of the Remuneration Committee (continued)
Non-Executive Directors (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 £26,000 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
Share
based
payment
£’000
-
-
103
29
-
-
29
-
2017
Total
excluding
pension
£’000
18
626
453
76
100
45
367
-
2017
2016
2016
Total
excluding
pension Pension Pension
£’000
£’000
-
-
15
31
15
20
-
-
-
-
-
-
-
-
-
-
£’000
38
296
228
45
50
35
26
2
Bonus
£’000 £’000
-
313
150
-
-
-
119
-
-
-
-
-
-
-
-
-
-
582
161
1,685
720
51
30
R D Anderson*
B G Conlon
R G Ferguson
V Gambale
S Keating
K MacDonald
J Robson
P Brazel**
Total
£’000
18
313
200
47
100
45
219
-
942
*Details of the above table reflect the directors’ remuneration up to the date of resignation on 13 May 2016
**Details of the above table reflect the directors’ 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
V Gambale
J Robson
S Keating
K MacDonald
Number of ordinary shares
28 February 2017
29 February 2016
120,000
7,853,953
122,647
8,913
1,643
25,314
55,741
120,000
7,853,953
172,647
4,400
-
25,314
45,877
*Details in the above table reflect the director’s interests at the date of resignation on 13 May 2016
23
First Derivatives plc
Report of the Remuneration Committee (continued)
Share options
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 28 February 2017 was £22.95 and
the high and low share prices during the year were £23.30 and £14.62 respectively.
1 March
2016
Granted
during the
year
Exercised
during the
year
28 February
2017
Exercise
price
£
Exercise
period
David Anderson*
50,000
-
-
50,000
4.80
2014-2021
Graham Ferguson
Graham Ferguson
150,000
-
-
200,000
150,000
-
-
200,000
5.65
17.25
N/A
2019-2026
*Details in the above table reflect the director’s interests up to resignation on 13 May 2016
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 absolute Total
Shareholder Return scale between 50% - 100%.
The average share price during the year was £19.36 (2016: £13.95) and the closing price at year end was
£22.95 (2016: £15.08).
The Company recognised total expenses of £1,392k (2016: £815k) related to equity-settled share-based
payment transactions during the year. Expenses of £161k (2016: £21k) related to shares and share options
granted to the Directors. 150,000 share options were exercised by the Directors during the year (2016:
nil).
Transactions with Directors
The Directors interests in contracts with the Company are disclosed in note 31.
24
First Derivatives plc
Corporate Governance
The Company is listed on the Alternative Investment Market (AIM) 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 Company’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.
25
First Derivatives plc
Corporate Governance (continued)
Composition of the Board (continued)
At the period end, the Board comprised a Non-Executive Chairman, Chief Executive Officer, Chief
Financial Officer and three Non-Executive Directors. Biographical details of the directors are provided on
pages 17 to 18.
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 no new appointments to the Board and one resignation.
David Anderson resigned as a Non-Executive Director on 13 May 2016. Mr Anderson joined the
Board as Chairman in 2002.
Jon Robson resigned as a Non-Executive Director on 15 May 2017. Mr Robson joined the Board
as Non-Executive Director in 2015.
26
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
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;
27
First Derivatives plc
Corporate Governance (continued)
AIM Rule Compliance Report (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.
28
First Derivatives plc
Report of the Audit Committee
This report is intended to provide an insight into the role and responsibilities of the Committee and to
demonstrate how it has carried out this work. The Committee is appointed by, and reports to, the Board
with its principal role being oversight of financial reporting and internal control and risk monitoring.
While the Group is not required to comply with the UK Corporate Governance Code, it has considered the
Code’s recommendations.
Composition
The Audit Committee is chaired by Virginia Gambale, who was previously a partner at Deutsche Bank
Capital Partners and held senior management positions at firms including Merrill Lynch. The other
members of the Committee are Keith MacDonald and Seamus Keating, both of whom are Chartered
Accountants. Each member of the Committee has significant experience of financial matters through their
past and present business careers. Full biographical details of the members of the Committee can be found
on pages 17 to 18.
Role and Activities
The Committee is responsible for reviewing the Group’s financial reporting, including monitoring
changes to reporting requirements to assess their applicability and impact on the Group. It is also
responsible for ensuring there are appropriate internal control and risk management procedures in place
and for overseeing the relationship with the external auditors and making recommendations to the Board
on their appointment. The Committee meets regularly to consider the matters under its remit, including
before both the interim and full year financial reports
Governance
The Committee sets its own agenda and while only the members of the Committee have the right to attend
its meetings, the Committee may from time to time invite third parties to attend. During the year the
Committee has met with the external auditors to review matters under its remit. The composition of the
Committee is reviewed on an annual basis.
Business during the year
The issues considered by the Committee during the year that are considered to be significant include:
Revenue recognition
Revenue recognition is considered formally by the Committee and it was found to be in line with the
Group’s stated accounting policies. New software contracts are carefully reviewed and elements are
broken down, where necessary, to separate implementation and license revenues. On larger contracts
revenue is invoiced in line with the terms of the contract with revenue recognition occurring on
acceptance of non-refundable milestones being achieved.
Goodwill and intangible assets
Amortisation of intangible assets has been recorded in accordance with the Group’s accounting policies.
There have been no events which would indicate any impairment to goodwill. The Group continues to
capitalise internal software development costs in accordance with IAS 38 with amortisation policies
continuing to be deemed appropriate on the basis of the Group’s sales pipeline. No indication of
impairment has been identified.
29
First Derivatives plc
Report of the Audit Committee (continued)
Business during the year (continued)
Taxation
The consolidated tax charge for the period is £3.5m on a consolidated profit before tax of £12.5m. This
equates to a consolidated effective tax rate of 28% (2016: 25%) which is above the expected effective
corporation tax rate of 20% (being the headline rate of UK corporation tax applicable during the period).
This increase in the effective tax rate was anticipated due to the changing profit profile of the Group,
given the differing taxation rates effective in the Group’s main areas of geographic activity. A further
drive for the increase was the impact of the research and development tax relief regime in the UK. A new
scheme, the Research & Development Expenditure Credit (RDEC) provides a cash refund to all
companies, unlike the previous scheme which was only open to small companies. As a result, large
companies no longer receive a 30% enhanced expenditure deduction which flows through to the taxation
charge in the Income Statement. The introduction of RDEC increased the reported tax charge by £0.2m.
Investments and associate
During the period the Group has invested in a number of start-up businesses who are seeking to use Kx
technology in verticals outside of capital markets. Under IFRS reporting investments are carried as
available for sale investment at fair value with any movements going to other comprehensive income,
unless impaired. A fair value review was performed for the 28 February 2017 reporting period and no
impairment provision has arisen. Additionaly the Group also invested in an associate during the year.
Associates are accounted for using the equity method and are initially recognised at cost.
Review of effectiveness
The Board, through the Audit Committee, has reviewed the effectiveness of the risk management and
internal control systems operated by the Group. It was considered that the procedures in place to identify
and manage risk were still relevant and that the Group’s plans to mitigate these risks remains effective.
The Committee noted that the Group addresses the management of risk explicitly through a number of
formal policies. For example, regular management meetings have a standing agenda item where managers
and staff are encouraged to report and discuss any risk-related items. There are detailed policies in place
around business continuity, client engagement and cyber security. Where possible, the Group seeks to
insure itself against the risks it faces.
During the year the Committee considered a report on the Group’s enterprise risk management strategy
which reviewed Group policy against the principles underpinning ISO 31000 on Risk Management. It was
noted that the Group demonstrated compliance with the eleven principles contained in ISO 31000 and also
had suitable policies and procedures in place that demonstrated compliance with the governance and
stakeholder communication recommendations within ISO 9000.
Anti-bribery and corruption policy
The Group operates an Ethics Code of Conduct which includes, inter alia, requirements relating to anti-
bribery and corruption. This policy is supplied to all employees.
30
First Derivatives plc
Report of the Audit Committee (continued)
Whistle blowing
The Group has a whistle blowing policy that enables employees to confidentially report matters of
concern to an independent third party. The details of any such reports are communicated to the Non-
Executive Directors.
External auditor appointment
The Committee reviews and makes recommendations regarding the appointment of external auditors. In
making these recommendations the Committee reviews the performance, effectiveness and independence
of the external auditors. The Committee holds regular meetings with the external auditor and based on
these and the above factors has recommended to the Board that a resolution to reappoint KPMG be
proposed at the next Annual General Meeting.
31
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 (IFRS) as
adopted by the European Union and applicable law and have elected to also prepare the Company
financial statements on the same basis of IFRSs as adopted by the European Union 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 European Union;
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 which disclose with reasonable
accuracy at any time the assets, liabilities, financial position and profit or loss of the Company and
which enable them to ensure that the financial statements of the Group are prepared in accordance with
applicable IFRS, as adopted by the EU and comply with the provisions of 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. Under applicable law, the
directors are also responsible for preparing a Directors’ Report that complies with the Companies Act
2006.
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
15 May 2017
32
Independent auditor’s report to the members of First Derivatives plc
We have audited the Group and Company financial statements (“financial statements”) of First
Derivatives plc for the year ended 28 February 2017 which comprise the consolidated statement 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 (IFRS) 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.
Our audit was conducted in accordance with International Standards on Auditing (ISAs) (UK & Ireland).
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 28 February 2017 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRS as adopted
by the European Union;
the Company financial statements have been properly prepared in accordance with IFRS as
adopted by the European Union 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 Directors' Report for the financial year is
consistent with the financial statements.
Based solely on the work required to be undertaken in the course of the audit of the financial statements
and from reading the Strategic report and the Directors’ report:
we have not identified material misstatements in those reports; and
in our opinion, those reports have been prepared in accordance with the Companies Act 2006.
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.
33
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 32, 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
34
15 May 2017
First Derivatives plc
Consolidated statement of comprehensive income
Year ended 28 February 2017
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Operating profit
Acquisition costs, associate disposal costs and changes in
contingent purchase consideration
Share-based payment and related costs
Depreciation and amortisation
Amortisation of acquired intangible assets
Adjusted EBITDA
Finance income
Finance expense
Gain on foreign currency translation
Net finance income/(costs)
Share of loss of associate using the equity method, net of tax
Profit before taxation
Income tax expense
Profit for the year
2017
Note
£’000
5
6
7
151,697
(110,121)
41,576
2,148
(31,485)
2016
£’000
117,033
(84,397)
32,636
1,042
(22,849)
12,239
10,829
16 & 17
17
10
10
10
18
2,953
2,056
6,750
4,759
28,757
1
(1,193)
1,475
283
(24)
12,498
11
(3,486)
9,012
1,547
1,405
5,277
4,198
23,256
1
(1,225)
779
(445)
-
10,384
(2,553)
7,831
35
First Derivatives plc
Consolidated statement of comprehensive income (continued)
Year ended 28 February 2017
Profit for the year
Other comprehensive income
Items that will or may be reclassified subsequently to profit or loss
Net exchange gain on net investment in foreign subsidiaries
Net loss on hedge of net investment in foreign subsidiaries
Other comprehensive income for the period, net of tax
2017
Note
£’000
9,012
10,836
(2,871)
7,965
2016
£’000
7,831
4,764
(2,704)
2,060
Total comprehensive income for the period attributable to
owners of the parent
16,977
9,891
Earnings per share
Basic
Diluted
15a
15a
Pence
36.7
34.4
Pence
33.3
31.3
All profits are attributable to the owners of the Company and relate to continuing activities.
The notes on pages 45 to 108 form part of these financial statements.
36
First Derivatives plc
Consolidated balance sheet
As at 28 February 2017
Assets
Property, plant and equipment
Intangible assets and goodwill
Trade and other receivables
Investments in equity – accounted investees
Other financial assets
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
2017
£’000
2016
£’000
16
17
20
18
19
25
20
21
22
23
24
25
28
23
24
26
27
28
6,628
163,391
3,630
1,548
3,121
14,859
193,177
43,738
16,250
59,988
253,165
124
72,275
10,225
8,335
40,772
131,731
26,357
35,114
12,932
3,169
77,572
3,404
33,681
426
5,492
859
43,862
121,434
253,165
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
These financial statements were approved by the Board of Directors on 15 May 2017.
Seamus Keating
Chairman
Brian Conlon
Chief Executive Officer
Graham Ferguson
Chief Financial Officer
Registered Company number: NI 30731
The notes on pages 45 to 108 form part of these financial statements.
37
First Derivatives plc
Company balance sheet
As at 28 February 2017
Assets
Property, plant and equipment
Intangible assets
Investment in subsidiaries
Other financial assets
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
Contingent deferred consideration
Employee benefits
Current liabilities
Total liabilities
Total equity and liabilities
Note
16
17
18
19
20
25
20
21
22
23
24
25
28
23
24
26
28
27
2017
£’000
3,195
19,043
83,023
3,121
5,697
8,041
122,120
48,366
9,499
57,865
179,985
124
72,275
9,713
146
24,082
106,340
26,353
256
3,158
-
29,767
3,339
35,064
53
500
4,922
43,878
73,645
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
179,985
163,192
These financial statements were approved by the Board of Directors on 15 May 2017.
Seamus Keating
Chairman
Brian Conlon
Chief Executive Officer
Graham Ferguson
Chief Financial Officer
Registered Company number: NI 30731
The notes on pages 45 to 108 form part of these financial statements.
38
First Derivatives plc
Consolidated statement of changes in equity
Year ended 28 February 2017
Share
capital
Share
premium
Share option
reserve
Fair value
reserve
£000
120
£000
65,903
£000
7,217
Balance at 1 March 2016
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 contingent deferred
consideration
Share based payment charge
Transfer on forfeit of share options
Dividends
Balance at 28 February 2017
-
-
-
-
-
4
-
-
-
-
-
-
124
-
-
-
-
-
5,190
-
57
1,125
-
-
-
72,275
The notes on pages 45 to 108 form part of these financial statements.
Currency
translation
adjustment
£000
370
-
10,836
(2,871)
7,965
-
-
-
-
-
-
-
-
8,335
Retained
earnings
Total equity
£000
£000
39,654
113,264
9,012
9,012
-
-
9,012
-
-
(3,504)
-
-
-
10
(4,400)
40,772
10,836
(2,871)
16,977
2,561
4,317
(3,504)
57
1,125
1,334
-
(4,400)
131,731
£000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,561
(877)
-
-
-
1,334
(10)
-
10,225
39
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 and associate
Net exchange loss on hedge of net investment
in foreign subsidiaries and associate
Total comprehensive income for the year
Transactions with owners of the Company
Income tax relating to share options
Exercise of share options
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
Currency
translation
adjustment
£000
Retained
earnings
£000
Total equity
£000
(1,690)
38,352
98,324
-
-
-
-
-
3
-
1
2
-
-
-
-
-
-
-
-
3,812
-
2,599
4,206
-
-
-
120
65,903
-
-
-
-
827
(698)
-
-
-
815
11
-
7,217
-
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 45 to 108 form part of these financial statements.
40
First Derivatives plc
Company statement of changes in equity
Year ended 28 February 2017
Share capital
Share premium
£000
£000
Share option
reserve
£000
Fair value
reserve
£000
Retained
earnings
£000
Total equity
£000
Balance at 1 March 2016
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 contingent deferred consideration
Issue of shares
Share based payment charge
Transfer on forfeit of share options
Dividends
Balance at 28 February 2017
120
65,903
7,217
144
24,825
98,209
-
-
-
-
4
-
-
-
-
-
-
-
-
-
5,190
1,125
57
-
-
-
124
72,275
-
-
-
2,049
(877)
-
-
1,334
(10)
-
9,713
-
2
2
-
-
-
-
-
-
-
146
3,647
3,647
-
3,647
-
-
-
-
-
10
(4,400)
24,082
2
3,649
2,049
4,317
1,125
57
1,334
-
(4,400)
106,340
The notes on pages 45 to 108 form part of these financial statements.
41
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 45 to 108 form part of these financial statements.
42
First Derivatives plc
Consolidated cash flow statement
Year ended 28 February 2017
Cash flows from operating activities
Profit for the year
Adjustments for:
Net finance (income)/costs
Depreciation of property, plant and equipment
Amortisation of intangible assets
Increase in deferred consideration
Equity settled share-based payment transactions
Grant income
Share of loss of associate
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
Disposal of investment, net of tax
Acquisition of subsidiaries, net of cash acquired
Acquisition of other investments and associates
Acquisition of property, plant and equipment
Acquisition of intangible assets
Deferred consideration paid
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Repayment of borrowings
Payment of finance lease liabilities
Interest paid
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 March
Effects of exchange rate changes on cash held
Cash and cash equivalents at 28/29 February
2017
£’000
9,012
(283)
1,806
9,703
2,125
1,100
(2,148)
24
3,486
24,825
(2,536)
7,970
30,259
(6,592)
23,667
1
-
-
(4,269)
(1,800)
(7,656)
(1,275)
(14,999)
4,317
(3,585)
(58)
(1,216)
(7,253)
(7,795)
872
15,100
278
16,250
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
The notes on pages 45 to 108 form part of these financial statements.
43
First Derivatives plc
Company cash flow statement
Year ended 28 February 2017
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
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 other investments
Acquisition of property, plant and equipment
Acquisition of intangible assets
Deferred consideration paid
Dividends received from associate and subsidiary
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Repayment of borrowings
Interest paid
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at 1 March
Effects of exchange rate changes on cash held
Cash and cash equivalents at 28/29 February
2017
£’000
3,647
2,080
666
3,501
(5,375)
1,100
(1,949)
282
3,952
(8,398)
12,076
7,630
(296)
7,334
-
(2,721)
(995)
(4,836)
(326)
5,375
(3,503)
4,317
(3,585)
(1,436)
(4,400)
(5,104)
(1,273)
10,568
204
9,499
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
The notes on pages 45 to 108 form part of these financial statements.
44
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 Company’s registered office is 3 Canal Quay, Newry, BT35 6BP. 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 associate. The Company
financial statements present information about the Company as a separate entity and not about the Group.
The Group is primarily involved in the provision of a range of software and consulting services,
particularly to the finance, technology, energy, marketing and industrial markets.
The financial statements were authorised by the Board of Directors for issuance on 15 May 2017.
(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 (“IFRS”) 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;
Derivative financial instruments; and
Available for sale investments.
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 on
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
2016 and these have been adopted in the Group and Company financial statements where relevant:
Amendments to IFRS 11 Accounting for acquisition of interests in joint ventures
Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and
amortisation
Amendments to IAS 16 Property, Plant and Equipment and IAS 41 Bearer Plants
45
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(a) Basis of preparation (continued)
Amendments to IAS 27 Equity method in Separate Financial Statements
Amendments to IAS 1: Disclosure Initiative
Annual Improvements to IFRSs 2012-2014 Cycle
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the consolidation
exemption
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 2016 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 mandatory 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 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)*
Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its
associate or joint venture (Deferred indefinitely)*
IFRS 14 Regulatory Deferral Accounts (deferred)*
Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance
Contracts (Mandatory for year commencing 1 January 2018)*
Annual improvements to IFRSs 2014-2016 Cycle (Mandatory for year commencing 1 January
2018)*
IFRIC 26 Interpretation 22 Foreign Currency Transactions and Advanced Consideration
(Mandatory for year commencing 1 January 2018)*
Amendments to IAS 40: Transfers of Investment Properties (Mandatory for year commencing
1 January 2018)*
Amendments to IFRS2 Classification and measurement of share based payment transactions
(Mandatory for year commencing 1 January 2018)*
Clarifications to IFRS15 Revenue from contracts with customers (Mandatory for year
commencing 1 January 2018)*
*Not yet EU endorsed. The effective dates above refer to the IASB effective date or alternatively, the
EU effective dates to the extent they have been amended.
46
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
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 Financial Year 2020. 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 economic life of similar competitor products.
47
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 in respect of the available for sale investments, the Group does
not hold significant influence over the investees financial and operating policies.
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 32(b) in respect of the measurement of fair values for level
3 financial instruments.
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 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 are 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 32 – financial instruments; and
Note 33 – share based payment arrangements.
48
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.
49
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). 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.
50
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 administrative expenses in profit or loss.
51
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 unquoted equity instruments are classified as available for sale financial
assets. These assets are initially measured at fair value plus any directly attributable transaction costs.
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 in OCI and accumulated in the fair value reserve. 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.
52
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.
53
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.
(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.
(k) Derivative financial instruments
The Group holds derivatives financial instruments in respect of warrants held over an interest in an
associate, together with loan commitments and other derivative liabilities. Derivatives are initially
measured at fair value; any directly attributable transaction costs are recognised in profit or loss as
incurred. Subsequent to initial recognition, derivatives are measured at fair value and changes
therein are generally recognised in profit or loss.
54
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(l)
Impairment
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 a specific asset 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 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 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 CGUs. Goodwill acquired in a
business combination, is allocated to the legal entity or business that has been acquired in a business
combination, which reflects the lowest level at which goodwill is monitored for internal reporting
purposes.
55
First Derivatives plc
Notes (continued)
1 Significant accounting policies (continued)
(l)
Impairment (continued)
(iii) Non-financial assets (continued)
Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs
are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to
reduce the carrying amount of the other assets in the CGU 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.
(m) 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.
(n) 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 grant date fair value of equity share-based payment arrangements granted to employees is
generally recognised as an expense with a corresponding increase in equity over the vesting period.
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.
56
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(n) 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.
(o) 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. 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.
57
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(p) 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.
(q) 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.
Financing expenses comprises interest payable on borrowings calculated using the effective interest
rate method, and foreign exchange gains and losses. The interest expense component of finance lease
payments is recognised through profit or loss using the effective interest rate method.
58
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(r) 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.
59
First Derivatives plc
Notes (continued)
1
Significant accounting policies (continued)
(s) 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.
(t) 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.
(u) 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.
(v) 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.
(w) Adjusted EBITDA
Adjusted EBITDA is defined as results from operating activities before acquisition and associate
disposal costs, changes in 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.
60
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 32 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 23 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 Group holds derivatives in respect of warrants over an interest in an associate together
with loan commitments which provides exposure to market risk.
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 33 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.
61
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate
Acquisition of associate
On 30 June 2016, the Group acquired a 15.3% interest in RxDataScience Inc. (RxD). and subsequently
increased this to 26.49% as at 28 February 2017. RxD is not a publicly listed company.
Share of net assets acquired
Fair value of intangible assets
Net identifiable assets and liabilities
Goodwill on acquisition
Comprised of
Cash paid for shares acquired during the year
Recognised
values at date of
becoming
associate
£000
40
-
40
1,508
1,548
1,548
1,548
Acquisitions made during the year ended 29 February 2016
On 23 March 2015, the Group and Company acquired the entire share capital of Activate Clients
Limited, based in Republic of 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
Group’s consulting expertise to support the growth of its Kx business.
62
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate (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.
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
___
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
63
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate (continued)
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).
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 2017 and has not identified any
impairment. 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. During the
current year this has been settled.
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.
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.
64
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate (continued)
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).
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. 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. No expense has been
incurred in the current year due to conditions not yet being achieved.
65
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate (continued)
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.
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.
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
Recognised
values
on acquisition
£000
788
8
27
(1,008)
235
_______
50
907
957
957
957
957
957
___
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 2017 and has not identified any
impairment (see note 17).
66
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate (continued)
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. An expense of £373k
(2016: £190k) has been recognised in the current year.
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.
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 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
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
67
Recognised values
on acquisition
£000
882
106
417
(281)
(159)
_______
965
1,244
2,209
609
1,100
500
2,209
609
(417)
192
___
First Derivatives plc
Notes (continued)
3 Acquisitions of subsidiaries and associate (continued)
QuantumKDB Limited (continued)
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).
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. 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, which continues
to be recognised as at 28 February 2017.
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.
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.
The Group’s two revenue streams are separated as follows:
Consulting activities involves providing services to Capital Markets; and
Software activities which includes the license of intellectual property and related services.
68
First Derivatives plc
Notes (continued)
4 Operating segments (continued)
Revenue by division
Managed services and consulting
Software
Total
Geographical location analysis
UK
Rest of Europe
America
Australasia
Total
Revenue by industry
FinTech
MarTech
Other
Total
2017
£’000
2016
£’000
63,495
88,202
______
151,697
______
57,014
60,019
______
117,033
______
Revenues
2017
£’000
2016
£’000
Non-current assets
2017
£’000
2016
£’000
55,821
23,413
60,578
11,885
______
151,697
______
42,502
17,245
50,886
6,400
______
117,033
______
32,155
16,620
127,958
1,585
______
178,318
______
26,016
16,534
116,115
1,478
______
160,143
______
2017
£’000
2016
£’000
117,449
30,668
3,580
______
151,697
______
91,930
22,112
2,991
______
117,033
______
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 no key customers who generated more than 10% of Group revenue in 2017. In 2016, the
Group had one key customer and revenue from this customer represented approximately 14% of the
Group’s total revenue.
69
First Derivatives plc
Notes (continued)
5 Revenue
Sale of goods
Rendering of services
6 Other income
Government grants
2017
£’000
2016
£’000
38,712
112,985
_______
151,697
_______
24,762
92,271
_______
117,033
_______
2017
£’000
2016
£’000
2,148
_______
1,042
_______
The Group is in receipt of a government grant amounting to £3,880k, awarded in June 2014 which is
conditional on the recruitment of additional staff for the period to 31 August 2017. The grant is
recognised as deferred income as additional staff are recruited and is being amortised as the performance
conditions are satisfied.
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
Acquisition related costs and contingent deferred consideration
Other
2017
£’000
2016
£’000
3,787
727
1,198
1,682
11,509
6,541
(345)
263
1,550
477
622
2,953
521
_______
31,485
_______
2,561
655
740
916
9,475
4,547
(244)
213
1,635
416
418
861
656
_______
22,849
_______
70
First Derivatives plc
Notes (continued)
8 Expenses and auditors’ remuneration
Included in profit/loss are the following:
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
2017
£’000
2016
£’000
1,550
1,865
1,721
______
1,635
1,059
1,645
______
64
27
29
6
75
187
-
8
_____
396
_____
66
22
36
17
53
67
92
7
_____
360
_____
9 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
2017
2016
Average no. Average no.
209
1,386
_______
1,595
_______
171
1,135
_______
1,306
_______
71
First Derivatives plc
Notes (continued)
9 Personnel expenses and numbers (continued)
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Other pension costs
Share based payments (see note 33)
Less capitalised development costs
Disclosed as:
Cost of sales
Administrative expenses
10 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
2017
£’000
2016
£’000
82,249
8,685
2,939
1,392
(7,085)
_______
88,180
_______
62,490
6,596
2,014
815
(6,185)
_______
65,730
_______
2017
£’000
2016
£’000
81,639
6,541
_______
88,180
_______
2017
£’000
1
_______
1
_______
1,475
_______
(1,193)
_______
(1,193)
_______
283
_______
61,183
4,547
_______
65,730
_______
2016
£’000
1
_______
1
_______
779
_______
(1,225)
_______
(1,225)
_______
(445)
_______
Exchange gains and losses on net investments in foreign subsidiaries and related effective hedges are
recognised in the foreign currency translation reserve.
72
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
Total tax expense
2017
£’000
2016
£’000
6,734
(6)
6,861
(8)
_______
6,728
_______
6,853
_______
(2,756)
(531)
45
_______
(4,158)
(140)
(2)
_______
(3,242)
_______
(4,300)
_______
3,486
_______
2,553
_______
73
First Derivatives plc
Notes (continued)
11 Tax expense (continued)
Reconciliation of effective tax rate
Profit excluding income tax
Income tax using the Company’s domestic tax rate (20.0%)
(2016: 20.1%)
Tax exempt income
Expenses not deductible for tax purposes
Adjustments for prior years
Other differences
Foreign tax rate differences
Impact of change in tax rates
Unrelieved overseas taxes
Total tax expense
2017
£’000
2016
£’000
12,498
_______
2,500
-
93
(537)
(314)
1,430
45
269
_______
3,486
_______
10,384
_______
2,085
(49)
89
(148)
(574)
882
(2)
270
_______
2,553
_______
Reductions in the main rate of UK corporation tax rate to 19% (effective from 1 April 2017) and to 18%
(effective 1 April 2020) were enacted on 26 October 2015. Finance Bill 2016 further reduced the 18%
rate to 17% from 1 April 2020, following substantial enactment on 6 September 2016.
On 29 March 2017, the UK Government invoked Article 50 of the Treaty of Lisbon, notifying the
European Council of its intention to withdraw from the European Union (the ‘EU’). There is an initial
two-year timeframe for the UK and the EU to reach an agreement on the withdrawal and the future UK
and EU relationship although this timeframe can be extended. At this stage, there is significant
uncertainty about the withdrawal process; its timeframe; and the outcome of the negotiations about the
future arrangements between the UK and the EU. As a result, there is significant uncertainty as to the
period for which the existing EU laws for member states will continue to apply to the UK and which
laws will apply to the UK after an exit. Following the negotiations between the UK and the EU, the
UK’s tax status may change and this may impact the Group. However, at this stage the level of
uncertainty is such that it is impossible to determine if, how and when that tax status will change.
74
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
2017
£’000
1,524
58
161
______
1,743
______
2016
£’000
699
30
21
______
750
______
During the period there were 2 Directors accruing benefits under a defined contribution pension scheme
(2016: 3).
The aggregate emoluments and company pension contributions of the highest paid Director (excluding
fees paid for provision of services) amounted to £626k and £31k respectively during the year (2016:
£296k and £15k respectively).
The Directors are deemed to be the key management of the Group.
Disclosure in respect of Directors’ emoluments as required by AIM rules, Directors’ interest in shares
and Directors’ share options are set out in the Report of the Remuneration Committee on pages 22 to 24.
13 Dividends
The following dividends were:
Final dividend relating to the prior year
Interim dividend paid
2017
£’000
2016
£’000
2,918
1,482
_______
4,400
_______
2,323
1,224
_______
3,547
_______
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 12.00 (previous year: 10.20) pence per share
and the interim dividend paid during the year amounted to 6.00 (previous year: 5.00) pence per share.
The cumulative dividend paid during the year amounted to 18.00 (previous year: 15.20) 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.
14.00 pence per ordinary share (2016: 12.00 pence)
75
2017
£’000
2016
£’000
3,482
______
2,881
______
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 £3,647k (2016: £5,893k).
15
(a)
Earnings per ordinary share
Basic
The calculation of basic earnings per share at 28 February 2017 was based on the profit attributable to
ordinary shareholders of £9,012k (2016: £7,831k), and a weighted average number of ordinary shares in
issue of 24,542k (2016: 23,512k).
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
Effect of shares issued as remuneration
Weighted average number of ordinary shares at 28/29 February
2017
Pence per
share
2016
Pence per
Share
36.7
______
33.3
______
2016
Number ’000 Number ’000
2017
24,009
513
19
-
1
______
24,542
______
22,777
283
254
198
-
______
23,512
______
76
First Derivatives plc
Notes (continued)
15
(a)
Earnings per ordinary share (continued)
Diluted
The calculation of diluted earnings per share at 28 February 2017 was based on the profit attributable to
ordinary shareholders of £9,012k (2016: £7,831k) and a weighted average number of ordinary shares
after adjustment for the effects of all dilutive potential ordinary shares of 26,212k (2016: 25,047k).
Diluted earnings per share
Weighted average number of ordinary shares (diluted)
Weighted average number of ordinary shares (basic)
Effect of dilutive share options in issue
Weighted average number of ordinary shares (diluted) at 28/29
February
2017
Pence
per share
34.4
______
2016
Pence
per share
31.3
______
2016
Number ’000 Number ’000
2017
24,542
1,670
______
26,212
______
23,512
1,535
______
25,047
______
At 28 February 2017 90,000 options (2016: 250,000) were excluded from the diluted weighted average
number of ordinary shares calculation as their effect would have been anti-dilutive and 250,000 (2016:
nil) were excluded as the related conditions had not been satisfied. 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.
77
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 £12,498k (2016: £10,384k). 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
2017
Pence per
share
2016
Pence per
share
50.9
_____
47.7
_____
44.2
_____
41.5
_____
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
2017
Pence per
share
2016
Pence per
share
36.7
14.2
_____
50.9
_____
34.4
13.3
_____
47.7
_____
33.3
10.9
_____
44.2
_____
31.3
10.2
_____
41.5
_____
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 an adjusted profit after taxation of £16,077k (2016:
£12,946k). The adjusted profit after tax has been calculated by adjusting for the amortisation of
acquired intangibles after tax effect £3,955k (2016: £3,395k), share based payment and related charges
after tax effect £1,853k (2016: £1,124k), acquisition and associate disposal costs after tax effect £2,412k
(2016: £1,219k), share of loss of associate after tax effect £24k (2016: £Nil), and for the gain on foreign
currency translation after tax effect £1,179k (2016: gain of £623k). 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
78
2017
Pence per
share
2016
Pence per
share
65.5
61.3
_____
55.1
51.7
_____
First Derivatives plc
Notes (continued)
16 Property, plant and equipment
Group
Cost
At 1 March 2016
Additions
Exchange adjustments
At 28 February 2017
Depreciation
At 1 March 2016
Charge for the year
Exchange adjustments
At 28 February 2017
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
Carrying amounts
At 1 March 2015
At 29 February 2016
At 28 February 2017
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
2,757
19
117
2,893
868
299
72
1,239
8,288
1,666
628
10,582
4,099
1,418
345
5,862
543
115
18
676
320
89
13
422
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
2,580
140
-
37
2,757
656
195
17
868
1,924
1,889
1,654
6,322
1,389
71
506
8,288
2,583
1,271
245
4,099
3,739
4,189
4,720
467
65
-
11
543
182
130
8
320
285
223
254
Total
£’000
11,588
1,800
763
14,151
5,287
1,806
430
7,523
Total
£’000
9,369
1,594
71
554
11,588
3,421
1,596
270
5,287
5,948
6,301
6,628
The basis by which depreciation is calculated is stated in note 1.
The Group leases equipment under a number of finance lease arrangements. At 28 February 2017 the
carrying amount of leased assets included in plant and equipment was £nil (2016: £75k) and related
depreciation amounted to £338k (2016: £263k).
Details of security provided for borrowing in respect of property, plant and equipment are disclosed in
note 23.
79
First Derivatives plc
Notes (continued)
16 Property, plant and equipment (continued)
Company
Cost
At 1 March 2016
Additions
At 28 February 2017
Depreciation
At 1 March 2016
Charge for the year
At 28 February 2017
Cost
At 1 March 2015
Additions
At 29 February 2016
Depreciation
At 1 March 2015
Charge for the year
At 29 February 2016
Carrying amounts
At 1 March 2015
At 29 February 2016
At 28 February 2017
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
1,984
-
1,984
484
168
652
2,239
880
3,119
1,038
442
1,480
304
115
419
139
56
195
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
1,845
139
1,984
401
83
484
1,444
1,500
1,332
1,688
551
2,239
670
368
1,038
1,018
1,201
1,639
239
65
304
101
38
139
138
165
224
Total
£’000
4,527
995
5,522
1,661
666
2,327
Total
£’000
3,772
755
4,527
1,172
489
1,661
2,600
2,866
3,195
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 23.
80
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 2016
Development costs
Additions
Exchange adjustments
At 28 February 2017
Amortisation and
impairment losses
Balance at 1 March 2016
Amortisation for the year
Exchange adjustment
At 28 February 2017
102,603
-
-
10,833
113,436
-
-
-
-
12,364
-
-
1,249
13,613
4,051
1,475
482
6,008
24,878
-
863
2,826
28,567
9,435
3,203
1,191
13,829
708
-
-
69
777
345
81
37
463
Goodwill
Customer
lists
Acquired
Software
Brand name
£’000
£’000
£’000
£’000
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
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
Carrying amounts
At 1 March 2015
At 29 February 2016
At 28 February 2017
Internally
developed
software
£’000
35,665
7,085
-
828
43,578
11,049
4,944
287
16,280
Internally
developed
software
£’000
28,179
6,840
-
-
646
35,665
7,113
3,681
255
11,049
Total
£’000
176,218
7,085
863
15,805
199,971
24,880
9,703
1,997
36,580
Total
£’000
146,180
6,840
13,301
112
9,785
176,218
15,576
7,879
1,425
24,880
86,734
102,603
113,436
7,104
8,313
7,605
15,379
15,443
14,738
321
363
314
21,066
24,616
27,298
130,604
151,338
163,391
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.
81
First Derivatives plc
Notes (continued)
17 Intangible assets and goodwill (continued)
Included within development costs capitalised in the year is £7,085k (2016: £6,185k) of capitalised
employee costs together with £Nil of capitalised consultancy costs (2016: £655k) for the year.
Developed software includes £4,008k (2016: £2,579k) of software under development at 28 February
2017 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 companies which represent the lowest level within the Group at which goodwill is
monitored. A summary of the significant CGUs is presented as follows:
Subsidiaries
Market Resource Partners LLC
Prelytix LLC
Kx Systems Inc.
Multiple units without significant goodwill
2017
£’000
12,181
6,234
78,821
97,236
16,200
113,436
2016
£’000
10,915
5,583
71,290
87,788
14,815
102,603
The recoverable amount of each CGU has been determined based on a value-in-use 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% (2016: 7%-10%) is applied for
years 2 to 5, followed by a growth rate of 2% (2016: 2%) thereafter. The pre-tax discount rates applied
to cash flow projections of the CGUs was 12%-17% (2016: 12%-17%).
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%
2017
Prelytix
LLC
17%
2%
7%
Kx
Systems
Inc
15%
2%
9%
Market
Resource
Partners
LLC
15%
2%
8%
2016
Prelytix
LLC
Kx
Systems
Inc
17%
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.
82
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 current 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:
Value in use
2017
£’000
22,639
13,738
108,840
2016
£’000
14,827
8,083
96,607
Excess over carrying
amount
2017
£’000
2016
£’000
10,458
6,617
14,309
3,754
1,573
8,762
Subsidiaries
Market Resource Partners LLC
Prelytix LLC
Kx Systems Inc.
Sensitivity analysis
There was no impairment charge for the year ended 28 February 2017 (2016: 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.
83
First Derivatives plc
Notes (continued)
17
Intangible assets and goodwill (continued)
Company
Cost
Balance at 1 March 2016
Development cost
Transfers to subsidiaries
Balance at 28 February 2017
Amortisation and impairment losses
Balance at 1 March 2016
Amortisation for the year
Balance at 28 February 2017
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
Carrying amounts
At 1 March 2015
At 29 February 2016
At 28 February 2017
Acquired
software
£’000
Internally
developed
software
£’000
482
-
-
482
30
60
90
-
-
482
482
-
30
30
-
452
392
26,134
5,128
(1,138)
30,124
8,032
3,441
11,473
20,618
5,516
-
26,134
5,298
2,734
8,032
15,320
18,102
18,651
Total
£’000
26,616
5,128
(1,138)
30,606
8,062
3,501
11,563
20,618
5,516
482
26,616
5,298
2,764
8,062
15,320
18,554
19,043
Included within development costs capitalised in the year is £5,128k (2016: £5,161k) of capitalised
employee costs. Developed software includes £2,801k (2016: £1,149k) of software under development
at 28 February 2017 not yet commissioned.
84
First Derivatives plc
Notes (continued)
18
Investment in subsidiaries and associate
The subsidiaries of the Group and Company are detailed as follows:
Activate Clients Limited*
Affinity Systems Limited*
Cowrie Financial Limited*
First Derivatives (Exchange) Limited*
First Derivatives (Hong Kong) Limited*
First Derivatives (Ireland) Limited*
First Derivatives Canada Inc.*
First Derivatives Holdings Inc.*
First Derivatives Holdings Pty Limited*
First Derivatives I Limited
First Derivatives Investments LLP
First Derivatives Japan Co. Limited
First Derivatives Mexico Limted
First Derivatives No. 1 Inc.
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*
Prelytix LLC
QuantumKDB Inc
QuantumKDB Limited
QuantumKDB Limited*
Redshift Horizons Limited*
Reference Data Factory LLC
*Owned directly by First Derivatives plc.
Country of
incorporation
Ireland
Canada
UK
Ireland
Hong Kong
Ireland
Canada
United States
Australia
UK
United Kingdom
Japan
Mexico
United States
Singapore
Australia
South Africa
United States
United States
N. Ireland
United States
United States
United States
Hong Kong
UK
UK
United States
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
Ordinary
Ordinary
Ownership
2017
100%
100%
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%
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%
Unlisted investments in subsidiaries at cost
At 1 March
Additions
At end of period
Company
2017
£’000
2016
£’000
83,023
-
71,942
11,081
83,023
83,023
85
First Derivatives plc
Notes (continued)
18
Investment in subsidiaries and associate (continued)
Associate
Group
Investment in associate
2017
£’000
1,548
2016
£’000
-
At 28 February 2017, the Group had the following investment in an associate:
RxDataScience Inc.
Country of
incorporation
United States
Class of
Ownership
share held At 28 February 2017
26.49%
Ordinary
On 30 June 2016, the Group acquired a 15.3% interest in RxDataScience Inc. (RxD). and subsequently
increased this to 26.49% as at 28 February 2017. RxD is not publicly listed.
The Group’s share of loss in associates for the period to 28 February 2017 was £24k (2016: £nil).
The following tables summarise the financial information of RxD as included in its own financial
statements, adjusted for fair value adjustments at acquisition and differences in accounting policies. The
information for 2016 is not presented as no interest was held in RxD in the prior year.
Percentage ownership interest
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets (100%)
Group’s share of net assets (26.49%)
Carrying amount of interest in associate
Revenue
Profit/(loss) from continuing operations (100%)
Other comprehensive income (100%)
Total comprehensive income (100%)
Total comprehensive income (26.49%)
2017
26.49%
£’000
458
1,325
-
(4)
_______
1,779
_______
471
_______
-
(91)
-
(91)
(24)
_______
In addition to the investment the Group has a contingent obligation to acquire further shares (currently equivalent
to a further interst of 11.81%) at the original investment value and to provide a loan of up to £1.1m. The Group
also holds 32,594 warrants which are exercisable on the occurrence of an exit event at a exercise price of $0.01 per
warrant
86
First Derivatives plc
Notes (continued)
19
Other financial assets – Available for sale
Group
Unlisted equity investments
At 1 March
Acquisitions
Change in fair value
Disposal
At end of period
Company
Unlisted equity investments
At 1 March
Acquisitions
Change in fair value
At end of period
2017
£’000
-
3,121
-
-
______
3,121
______
2017
£’000
-
3,121
-
______
3,121
______
2016
£’000
6,234
-
-
(6,234)
______
-
______
2016
£’000
-
-
-
______
-
______
Information about the Group and Company’s exposure to market risk and fair value measurement is
disclosed in note 32b.
87
First Derivatives plc
Notes (continued)
20 Trade and other receivables
Current assets
Trade receivables
Receivables from subsidiaries
Other receivables and accrued
income
Prepayments
Grant income receivable
Corporation tax receivable
Non-current assets
Receivables from subsidiaries1
Trade and other receivables
Grant income receivable
Group
2017
£’000
36,721
-
2,262
3,011
1,744
-
_______
43,738
_______
Group
2017
£’000
-
2,830
800
_____
3,630
_____
2016
£’000
31,636
-
1,248
2,853
2,928
-
_______
38,665
_______
2016
£’000
-
1,253
1,251
_____
2,504
_____
Company
2017
£’000
21,523
22,578
2016
£’000
18,383
13,653
218
3,082
965
-
_______
48,366
_______
141
3,237
2,590
-
_______
38,004
_______
Company
2017
£’000
3,227
2,470
-
_____
5,697
_____
2016
£’000
2,890
1,253
-
_____
4,143
_____
1 The repayment terms of the receivable from subsidiaries has been agreed as falling due after more
than one year.
At 28 February 2017 Group and Company trade receivables are shown net of an allowance for doubtful
debts of £3,061k and £1,045k respectively (2016: Group £4,342k; Company £981k) arising from on-
going invoice disputes and the risk of companies defaulting. The impairment charge in the year was
£1,550k (2016: £1,635k) for Group and £780k (2016: charge £441k) 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 32.
21 Cash and cash equivalents
Bank balances
Group
Company
2017
£’000
16,250
______
2016
£’000
15,100
______
2017
£’000
9,499
______
2016
£’000
10,568
______
See note 32 for discussion of interest rate risk and sensitivity analysis.
88
First Derivatives plc
Notes (continued)
22
Share capital
In issue at 1 March
Exercise of share options (Note 33)
Issued in business combinations (Note 3)
Issued for settlement of contingent deferred consideration
Issued as remuneration
Issued for cash
In issue at year end – fully paid
Ordinary shares
2017
Number
24,008,972
799,818
-
56,383
3,206
-
24,868,379
2016
Number
22,776,773
697,881
334,315
-
-
200,003
24,008,972
Equity shares
Issued, allotted and fully paid
Ordinary shares of £0.005 each
2017
Number
2017
£’000
2016
Number
24,868,379
_________
124
___
24,008,972
_________
2016
£’000
120
___
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 exercise of 799,818 share options (2016: 697,881) for cash
consideration of £4,317k (2016: £3,117k) together with an associated transfer from the share option
reserve of £877k (2016: £698k), the issue of 56,383 shares (2016: nil) at £1,125k as settlement of
contingent deferred purchase consideration and the issue of 3,206 shares (2016: nil) as remuneration of
£57k. Additionally in the prior year 200,003 ordinary shares were issued for cash consideration of
£2,600k and 334,315 shares were issued as purchase consideration at £4,208k.
Natue and purpose of reserves
Share option reserve- 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.
Fair value reserve- The fair value reserve of the Company relates to the revaluation reserve which arose
on revaluation of an available for sale investment at fair value relating to Kx Systems Inc. prior to
significant influence being obtained. The balance is continued to be retained as the Company continues
to retain this original investment.
Revaluation reserve- 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.
Currency translation adjustment reserve- The currency translation adjustment 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.
89
First Derivatives plc
Notes (continued)
23 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 32.
Current liabilities
Secured bank loans
Finance lease liabilities
Non-current liabilities
Secured bank loans
Finance lease liabilities
Terms and repayment schedule
Group
Company
2017
£’000
3,339
65
3,404
2016
£’000
3,339
89
3,428
2017
£’000
3,339
-
3,339
2016
£’000
3,339
-
3,339
26,353
4
26,357
26,757
38
26,795
26,353
-
26,353
26,757
-
26,757
The Group had the following loan facilities with Bank of Ireland at the end of the year:
£339k 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
2.25%+LIBOR
2.25%+LIBOR*
2.25%+LIBOR
4.375%
2019
2020
2018
2019
28 February 2017
Carrying
Face
amount
value
£000
£000
29 February 2016
Carrying
amount
£000
Face
value
£000
339
29,353
-
69
29,761
339
29,353
-
69
29,761
339
29,757
-
127
30,223
339
29,757
-
127
30,223
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 with a carrying amount of £1,654k
(2016: £1,889k). 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
2.25% (2016: 3.5%) above LIBOR.
90
First Derivatives plc
Notes (continued)
23 Loans and borrowings (continued)
Finance lease liabilities
Finance lease liabilities are payable as follows:
Group
Minimum
lease
payments
2017
£’000
80
5
85
Interest
2017
Principal
2017
£’000
15
1
16
£’000
65
4
69
Minimum
lease
payments
2016
£’000
109
53
162
Interest
2016
Principal
2016
£’000
20
15
35
£’000
89
38
127
Less than one year
Between one and
five years
The finance leases are secured over the leased equipment.
24 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
2017
£’000
2016
£’000
2017
£’000
2016
£’000
4,218
9,494
1,619
16,500
1,850
-
2,606
6,822
2,723
13,255
1,856
-
4,349
5,657
1,267
3,990
1,531
18,270
1,688
5,010
1,247
2,562
1,856
13,944
33,681
27,262
35,064
26,307
Group
Company
2017
£’000
33,593
1,521
2016
£’000
30,089
1,874
35,114
31,963
2017
£’000
2016
£’000
-
256
256
-
444
444
The NCI put is the exercise price of the put (denominated in US dollars) 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 32.
91
First Derivatives plc
Notes (continued)
25 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
Short term timing differences
Other
Tax assets/(liabilities) before set-off
Set off of tax
Net tax assets/(liabilities)
2017
£000
-
4,204
6,177
-
368
3,906
204
14,859
-
14,859
2016
£000
-
2,909
4,556
-
209
1,308
64
9,046
(16)
9,030
2017
£000
(4,234)
-
-
-
(8,698)
-
-
(12,932)
-
(12,932)
Share options
exercised
2016
£000
(3,822)
-
-
-
(8,483)
-
-
(12,305)
16
(12,289)
Balance at
28 February
2017
£000
(4,234)
Movement in deferred tax balances differences during the year:
Balance at
1 March
2016
£000
(3,822)
Recognised
in income
Recognised
in equity
£000
(283)
£000
(129)
Recognised on
Acquisition
Property, plant and
equipment
Share based payments
Trading losses
Intangible assets
Short term timing differences
Other
2,909
4,556
(8,274)
1,308
64
(3,259)
(18)
284
741
2,344
174
3,242
2,785
1,337
(797)
254
(34)
3,416
£’000
-
-
-
-
-
-
-
£000
-
(1,472)
-
-
-
-
(1,472)
Property, plant and
equipment
Share based payments
Trading losses
Net fair value movement on
available for sale assets
Intangible assets
Other financial assets
Other
Balance at
1 March 2015
Recognised
in income
Recognised
in equity
Recognised on
Acquisition
Share options
exercised
£000
(3,411)
£000
(295)
2,683
3,260
(38)
(7,850)
(2,545)
522
(7,379)
39
452
38
803
2,545
718
4,300
£000
(116)
1,019
733
-
(982)
-
132
786
£’000
-
-
111
-
(245)
-
-
(134)
£000
-
(832)
-
-
-
-
-
(832)
4,204
6,177
(8,330)
3,906
204
1,927
Balance at
29 February
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.
92
First Derivatives plc
Notes (continued)
25 Deferred taxation (continued)
Company
Deferred tax assets and liabilities are attributable to the following:
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)
Assets
Liabilities
2017
£000
-
3,649
-
4,268
124
8,041
-
8,041
2016
£000
-
2,909
-
3,089
36
6,034
-
6,034
2017
£000
(3,126)
-
(32)
-
-
(3,158)
-
(3,158)
2016
£000
(3,307)
-
(34)
-
-
(3,341)
-
(3,341)
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
Property, plant and equipment
Share based payments
Net fair value movement on
available for sale assets
Trading losses
Other
Balance at
1 March 2016
Recognised in
profit and loss
Recognised in
equity
Share options
exercised
£000
(3,307)
2,909
(34)
3,089
36
2,693
£000
181
(61)
-
15
93
228
£000
-
2,273
2
1,164
(5)
3,434
£000
-
(1,472)
-
-
-
(1,472)
Balance at
1 March 2015
Recognised in
profit and loss
Recognised in
equity
Share options
exercised
£000
(3,063)
2,683
(38)
2,416
35
2,033
£000
(244)
39
-
53
1
(151)
£000
-
1,019
4
620
-
1,643
£000
-
(832)
-
-
-
(832)
Balance at
28 February
2017
£000
(3,126)
3,649
(32)
4,268
124
4,883
Balance at
29 February
2016
£000
(3,307)
2,909
(34)
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.
93
First Derivatives plc
Notes (continued)
26 Current tax payable
Group
2017
£’000
2016
£’000
Company
2017
£’000
2016
£’000
Current tax payable
426
1,488
53
744
27 Employee benefits
Accrued holiday pay
Employee taxes
Group
2017
£’000
2016
£’000
1,554
3,938
5,492
1,162
1,392
2,554
Company
2017
£’000
1,208
3,714
4,922
2016
£’000
918
1,182
2,100
28 Contingent deferred consideration
Contingent deferred consideration liabilities are payable as follows:
At 1 March
Additions
Increase in contingent deferred consideration
Settled in year
Foreign exchange impact
At end of period
Group
2017
£’000
2016
£’000
Company
2017
£’000
2016
£’000
3,895
-
2,125
(2,400)
408
4,028
1,132
1,951
812
-
-
3,895
1,951
-
-
(1,451)
-
500
-
1,951
-
-
-
1,951
The movement in contingent deferred consideration relates to the charge for the year for amounts
conditional on future service conditions, assessed as being post-acquisition remuneration, and is payable
in cash and shares. As at 28 February 2017 the maximum total amount payable under the terms of the
sale and purchase agreements is £4,028k (2016: £3,895k) and the minimum total amount payable is £Nil
(2016: £Nil).
Within one year
More than one year
Group
2017
£’000
2016
£’000
Company
2017
£’000
2016
£’000
859
3,169
2,719
1,176
500
-
-
1,951
4,028
3,895
500
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 49% (2016: 51%) and shares 51% (2016: 49%).
94
First Derivatives plc
Notes (continued)
29 Commitments
The Group has entered into a contingent loan commitment with an associate of up to £1.1m and a
contingent obligation to acquire further shares for up to £1.2m. There were 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
2017
£’000
1,632
4,721
2,405
8,758
2016
£’000
943
2,802
754
4,499
2017
£’000
609
2,348
2,006
4,963
2016
£’000
275
873
280
1,428
The Group leases 12 premises under operating lease arrangements.
Group
During the year £1,865k was recognised as an expense in the income statement in respect of operating
leases (2016: £1,059k).
Company
During the year £609k was recognised as an expense in the income statement in respect of operating
leases (2016: £275k).
30 Pension contributions
The Group makes contributions to the personal pension schemes of certain employees. The pension
charge for the year amounted to £2,939k (2016: £2,014k). Contributions amounting to £428k (2016:
£333k) were payable to the schemes at the year end and are included in creditors.
31 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 business use of apartments located in London owned by Brian
Conlon. The charge incurred during the financial year amounted to £55k (2016: £55k). Rent deposits of
£26k (2016: £26k) have been paid to Brian Conlon in respect of these apartments. The balance owed to
Brian Conlon at 28 February 2017 is £Nil (2016: £Nil).
95
First Derivatives plc
Notes (continued)
31 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 Brian Conlon is a partner. £140k (2016: £140k) rental charge
was incurred in the year. The balance owed to Oncon Properties at 28 February 2017 is £Nil (2016: £Nil)
and an amount of £207k (2016: £168k) had been prepaid.
The Group holds an interest in an associate, together with other instruments as disclosed in note 18.
Company
Other related party transactions
Revenue
2017
£000
2016
£000
Administrative expenses
incurred from
2016
£000
2017
£000
Subsidiaries
12,408
5,009
17,862
11,591
12,408
5,009
17,862
11,591
Receivables outstanding
2016
£000
2017
£000
Payables outstanding
2016
£000
2017
£000
Subsidiaries
25,805
16,543
18,270
13,944
During the year development costs of £218k (2016: £321k) were recharged from a subsidiary to the
Company.
Interest is charged on inter-company loans at market rates.
Dividends paid by the Company to the Directors during the period were as follows:
B G Conlon
R G Ferguson
K MacDonald
S Keating
V Gambale
D Anderson
2017
£000
1,414
28
9
5
1
-
______
1,457
______
2016
£000
1,194
26
7
2
-
19
______
1,248
______
96
First Derivatives plc
Notes (continued)
32 Financial instruments
Fair values
(a) Accounting classifications and fair values
Group
The following table shows the carrying amounts and fair values of financial assets and liabilities.
The carrying amount of all financial assets and liabilities not measured at fair value is considered to
be a reasonable approximation of fair value.
28 February 2017
Loans and
receivables
£’000
Carrying value
Liabilities at
amortised cost
£’000
Carrying
amount
£’000
Fair
value
£’000
Financial assets measured at fair value
Equity securities - Available for sale3
Warrants in associate4
Financial assets not measured at fair value
Trade and other receivables
Cash and cash equivalents
Financial liabilities measured at fair value
Contingent deferred consideration2
Other derivatives4
-
-
-
44,357
16,250
60,607
Financial liabilities not measured at fair value
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
-
-
-
-
-
-
-
-
29 February 2016
Financial assets not measured at fair value
Trade and other receivables
Cash and cash equivalents
38,316
15,100
53,416
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(29,692)
(69)
(48,924)
(5,492)
(84,177)
£’000
-
-
-
-
(30,096)
(127)
(42,240)
(2,554)
(75,017)
3,121
-
3,121
44,357
16,250
60,607
(4,028)
-
(4,028)
(29,692)
(69)
(48,924)
(5,492)
(84,177)
Carrying
amount
£’000
38,316
15,100
53,416
3
1
1
1
(4,028)
1
1
1
(48,924)
1
Fair
value
£’000
1
1
(3,895)
(3,895)
(30,096)
(127)
(42,240)
(2,554)
(75,017)
1
1
(42,349)
1
Carrying value
Liabilities at
amortised cost
Loans and
receivables
£’000
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
3 Equity securities available for sale are a level 3 fair value
4 Derivatives assessed as having minimal value
97
First Derivatives plc
Notes (continued)
32 Financial instruments (continued)
Company
The following table shows the carrying amounts and fair values of financial assets and liabilities.
The carrying amount of all financial assets and liabilities not measured at fair value is considered to
be a reasonable approximation of fair value.
28 February 2017
Carrying value
Loans and
receivables
£’000
Liabilities at
amortised cost
£’000
Carrying
amount
£’000
Financial assets measured at fair value
Equity securities available for sale3
Financial assets not measured at fair value
Trade and other receivables
Cash and cash equivalents
50,981
9,499
60,480
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
-
-
-
-
-
-
3,121
50,981
9,499
60,480
-
(500)
-
-
-
-
(500)
(29,692)
(29,543)
(4,922)
(64,157)
(29,692)
(29,543)
(4,922)
(64,157)
29 February 2016
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
38,910
10,568
49,478
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
-
-
-
-
-
-
-
-
-
-
-
(30,096)
(21,889)
(2,100)
(54,085)
38,910
10,568
49,478
-
(1,951)
(30,096)
(21,889)
(2,100)
(54,085)
Fair
value
£’000
1
1
1
-
(500)
1
(29,543)
1
Fair
value
£’000
1
1
-
(1,951)
1
(21,904)
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 immaterial value as the agreed price
was equal to the fair value of the underlying investment on initial recognition
3 Equity securities available for sale is level 3 fair value
98
First Derivatives plc
Notes (continued)
32 Financial instruments (continued)
(b) Measurement of fair values
The following techniques have been applied in measuring level 3 fair values, together with the significant
unobservable inputs used.
Financial instruments at fair value
Equity securities- During the year the group invested in a number of investments The fair value of these
investments have been valued to be consistent with the initial cost as there has been no material change in
the businesses since investment.
Warrants - The Group holds warrants in the associate. These were considered at 28 February 2017 to
have a minimal fair value due to the contingent nature.
Reconciliation of Level 3 fair value:
Balance at 1 March 2015
Assumed in business combination
Disposal
Loss included in administrative expenses
-
Net change in fair value (unrealised)
Unquoted
equities
£’000
Contingent
consideration
£’000
6,234
-
(6,234)
-
______
(1,132)
(1,951)
-
(812)
______
Balance at 29 February 2016
-
(3,895)
Purchases
Settlements
Loss included in administrative expenses
-
Foreign exchange loss
Net change in fair value (unrealised)
Balance at 28 February 2017
3,121
-
-
-
______
3,121
______
-
2,400
(2,125)
(408)
______
(4,028)
______
99
First Derivatives plc
Notes (continued)
32 Financial instruments (continued)
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
2017
£’000
2016
£’000
Company
Carrying amount
2017
£’000
2016
£’000
44,357
16,250
______
60,607
______
38,316
15,100
______
53,416
______
50,981
9,499
______
60,480
______
38,910
10,568
______
49,478
______
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
2017
£’000
5,685
24,823
11,251
2,598
2016
£’000
6,528
19,348
9,769
2,671
2017
£’000
2,710
31,103
11,790
5,378
2016
£’000
4,037
18,980
12,900
2,993
44,357
38,316
50,981
38,910
100
First Derivatives plc
Notes (continued)
32 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
2017
£’000
39,615
4,742
2016
£’000
31,496
6,820
2017
£’000
22,178
28,803
2016
£’000
18,235
20,675
44,357
38,316
50,981
38,910
No customers had receivable balances in excess of 10% of the Group’s total balance at the year end. In
addition £1,023k (2016: £2,928k) 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 121-365 days
Past due 366 days +
Total
Company
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 121-365 days
Past due 366 days +
Gross
2017
£’000
14,165
9,133
8,729
3,979
3,776
39,782
Gross
2017
£’000
8,000
5,413
6,692
1,567
896
Impairment
2017
£’000
-
-
-
149
2,912
3,061
Impairment
2017
£’000
-
-
-
149
896
Gross
2016
£’000
10,243
10,085
8,602
2,337
4,711
35,978
Gross
2016
£’000
6,304
5,509
5,446
941
1,164
Total
22,568
1,045
19,364
Impairment
2016
£’000
-
-
-
479
3,863
4,342
Impairment
2016
£’000
-
-
-
-
981
981
101
First Derivatives plc
Notes (continued)
32 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
2017
£’000
4,342
1,550
388
(3,219)
3,061
2016
£’000
2,681
1,635
681
(655)
4,342
2017
£’000
981
780
-
(716)
1,045
2016
£’000
1,163
441
-
(623)
981
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 those
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 £16,250k (2016: £15,100k) and £9,449k
(2016: £10,568k) respectively at 28 February 2017 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.
102
First Derivatives plc
Notes (continued)
32 Financial instruments (continued)
Liquidity risk
Group
The following are contractual maturities of financial liabilities, including estimated interest payments.
28 February 2017
Secured bank loans
Finance leases
Trade and other payables
Contingent deferred
consideration
Commitment to
associate
29 February 2016
Secured bank loans
Finance leases
Trade and other payables
Contingent deferred
consideration
Carrying
amount
£’000
(29,692)
(69)
(48,924)
Contractual
cash flows
£’000
(31,803)
(85)
(48,924)
6 mths or
less
£’000
(1,971)
(40)
(15,331)
6-12 mths
1-2 years
£’000
(2,286)
(40)
-
£’000
(3,820)
(5)
(33,593)
2-5 years More than
5 years
£’000
-
-
-
£’000
(23,726)
-
-
(4,028)
(4,028)
(859)
-
(3,169)
-
-
(82,713)
(2,347)
(87,187)
Carrying
amount
£’000
(30,096)
(127)
(42,240)
(3,895)
Contractual
cash flows
£’000
(33,527)
(162)
(42,240)
(3,895)
(1,820)
(20,021)
6 mths
or less
£’000
(2,087)
(59)
(12,151)
(1,451)
(526)
(2,852)
-
(40,587)
-
(23,726)
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)
-
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 23. The contractual maturity of the £33,586k (2016: £30,089k) included in trade and other payables
is up to seven years, but has an exercise notice period of 366 days.
Company
The following are contractual maturities of financial liabilities, including estimated interest payments.
28 February 2017
Secured bank loans
Trade and other payables
Contingent deferred
consideration
29 February 2016
Secured bank loans
Trade and other payables
Contingent deferred
consideration
Carrying
amount
£’000
(29,692)
(29,543)
(500)
Contractual
cash flows
£’000
(31,803)
(29,543)
(500)
6 mths
or less
£’000
(1,971)
(29,543)
(500)
6-12 mths
1-2 years
£’000
(2,286)
-
-
£’000
(3,820)
-
-
2-5 years More than
5 years
£’000
-
-
-
£’000
(23,726)
-
-
(59,735)
(61,846)
(32,014)
(2,386)
(3,820)
(23,726)
-
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)
-
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 23.
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or
at significantly different amounts.
103
First Derivatives plc
Notes (continued)
32 Financial instruments (continued)
Currency risk
Group
The Group’s exposure to currency risk was as follows:
28 February 2017
EUR
£’000
2,117
-
(239)
USD
£’000
12,953
-
(35,352)
CAD
£000’s
42
-
(2)
29 February 2016
CAD
£000’s
54
-
-
EUR
£’000
1,301
-
(42)
USD
£’000
7,510
-
(30,427)
40
1,878
(22,399)
54
1,259
(22,917)
Trade receivables
Secured bank loans
Trade and other
payables
Net balance sheet
exposure
The above excludes bank loans designated in a net investment hedge of £28,802k (2016: £29,206k).
Company
The Company’s exposure to currency risk was as follows:
28 February 2017
29 February 2016
CAD
£000’s
42
-
(2)
EUR
£’000
2,117
-
(186)
USD
£’000
11,740
(28,802)
(1,555)
CAD
£000’s
54
-
-
EUR
£’000
1,301
-
(30)
USD
£’000
6,252
(29,206)
(274)
40
1,931
(18,617)
54
1,271
(23,228)
Trade receivables
Secured bank loans
Trade and other
payables
Net balance sheet
exposure
The following significant exchange rates applied during the year:
USD 1
EUR 1
CAD 1
Average rate
Reporting date
spot rate
2017
1.32
1.20
1.73
2016
1.51
1.37
1.98
2017
1.24
1.17
1.64
2016
1.39
1.27
1.88
Sensitivity analysis
A 10% strengthening of Sterling against the above currencies at the end of the period would decrease
Group equity by £3,359k (2016: £3,008k) and profit or loss by £2,048k (2016: £2,160k). A 10%
weakening of Sterling against the above currencies at the end of the period would increase Group equity
by £3,023k (2016: £2,708k) and profit or loss by £1,844k (2016: £1,944k). 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.
104
First Derivatives plc
Notes (continued)
32 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 £1,370k (2016: £2,190k). A 10% weakening of Sterling against
the above currencies at the end of the period would increase Company profit or loss by approximately
£1,233k (2016: £1,971k). 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
2017
£’000
16,250
(29,692)
(13,442)
-
(69)
(69)
2016
£’000
15,100
(30,096)
(14,996)
-
(127)
(127)
Company
2017
£’000
2016
£’000
9,499
(29,692)
(20,193)
10,568
(30,096)
(19,528)
-
-
-
-
-
-
A 10% reduction in interest rates at the end of the period would increase Group equity and profit and
loss by approximately £88k (2016: £135k). A 10% increase in interest rates at the end of the period
would decrease Group equity and profit or loss by approximately £96k (2016: £123k). This analysis
assumes that all other variables remain constant.
105
First Derivatives plc
Notes (continued)
33 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.
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
2017
1.35
-
1.59
-
1.21
1.21
Number
of options
Weighted
average
exercise price
Number
of options
2017
2016
2016
169,500
-
(64,000)
-
105,500
105,500
1.24
-
1.05
-
1.35
1.35
269,250
-
(99,750)
-
169,500
169,500
Maximum options outstanding at
beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding at
end of period
Exercisable at end of period
The options outstanding at 28 February 2017 above have an exercise price of £1.21 (2016: £1.21 to
£1.61) and a weighted average contractual life of 2.0 years (2016: 1.9 years).
Weighted
average
exercise
price
2017
2.55
-
2.63
-
2.50
2.50
Number
of options
Weighted
average
exercise price
Number
of options
2017
2016
2016
199,334
-
(79,000)
-
120,334
120,334
2.52
2.22
2.46
-
2.55
2.55
268,501
(7,500)
(61,667)
-
199,334
199,334
Maximum options outstanding at
beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding at
end of period
Exercisable at end of period
The options outstanding at 28 February 2017 above have an exercise price in the range of £2.27 to £2.735
(2016: £2.27 to £2.735) and a weighted average contractual life of 1.3 years (2016: 2.5 years).
106
First Derivatives plc
Notes (continued)
33 Share based payments (continued)
Weighted
average
exercise
price
2017
6.56
8.33
6.06
-
6.77
5.97
Number
of options
2017
1,909,868
(30,500)
(652,818)
-
1,226,550
889,480
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
Maximum options outstanding at
beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding at
end of period
Exercisable at end of period
The options outstanding at 28 February 2017 above have an exercise price in the range of £4.27 to £9.00
(2016: £4.15 to £9.00) and a weighted average contractual life of 5.7 years (2016: 6.6 years).
Weighted
average
exercise
price
2017
12.99
12.28
12.28
16.11
14.70
-
Number
of options
2017
734,500
(20,000)
(4,000)
859,000
1,569,500
-
Weighted
average
exercise
price
2016
-
-
-
12.99
12.99
-
Number
of options
2016
-
-
-
734,500
734,500
-
Maximum options outstanding at
beginning of period
Lapsed during the period
Exercised during the period
Granted during the period
Maximum options outstanding at
end of period
Exercisable at end of period
The options outstanding at 28 February 2017 above have an exercise price in the range of £12.28 to
£21.10 (2016: £12.28 to £14.37) and a weighted average contractual life of 8.5 years (2016: 9.3).
The weighted average share price at the date of exercise for share options exercised for the year ending
28 February 2017 was £17.85 per share (2016: £14.42).
Measurement of fair values
The fair value of services received in return for share options granted is based on the fair value of share
options granted, measured using an adjusted Black Scholes model, with the following inputs:
Grant of options during the year ended 28 February 2017
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)
107
08/03/16
3.07
14.69
14.69
519,000
17.5%
4.5 years
0.1%
3.0%
18/07/16
2.36
17.25
17.25
250,000
17.5%
3.5 years
0.1%
3.0%
01/12/16
3.04
21.10
21.10
90,000
17.5%
2.5 years
0.1%
3.0%
First Derivatives plc
Notes (continued)
33 Share based payments (continued)
Measurement of fair values
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%
14/08/15
2.28
14.37
14.37
250,000
20%
2.5 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
Share options granted in 2016/17– equity settled
Total expense recognised as employee benefit expense
Total amount recognised as software development costs
Total amount recognised in share based payment reserve
2017
£’000
-
-
58
147
211
284
400
1,100
292
1,392
2016
£’000
1
27
55
199
227
306
-
815
-
815
34 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.
108
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+
(Resigned 15 May 2017)
S Keating
B G Conlon
R G Ferguson
K MacDonald
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
* Member of the audit committee
+ Member of the remuneration committee
Neville Registrars Limited
Neville House
18 Laurel Lane
Halesowen
West Midlands
B63 3DA
109
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
Ireland
New Jersey
14 Vervalen Street
Closter
NJ 07624
USA
Toronto
First Canadian Place
100 King Street West
Suite 5600
Toronto
M5X 1C9
Canada
110
First Derivatives plc
Global directory
Asia Pacific
Sydney
Suite 201
22 Pitt Street
Sydney
NSW 2000
Australia
Singapore
Unit 12-01
55 Market Street
Singapore
048941
Tokyo
Roppongi Hills North Tower
6-2-31 Roppongi
Minato-ku
Tokyo 160-0032
Japan
Hong Kong
Level 8
Two Exchange Square
8 Connaught Place
Central
Hong Kong
111