First Derivatives plc
Annual report and accounts
Registered number: NI 30731
Year ended 28 February 2018
First Derivatives plc
Contents
Strategic report
Results at a glance
About FD
Business Model
Chairman’s Review
Chief Executive’s Review
Financial Review
Principal Risks and Uncertainties
Governance
Board of Directors
Directors’ Report
Corporate Governance
Report of the Remuneration Committee
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
Strategic Report
Results at a glance
Highlights for the year
Operational highlights:
• Group revenue up 23%
• Strong growth in software revenue, up 27% as a result of new contract wins and continued penetration
of the existing customer base
• Strategic progression in our managed services and consulting activities resulting in revenue growth of
17%
• The implementation and ongoing support of a third-party system for a New York-based bank,
representing one of the largest contracts in our history
• FinTech revenue up 22% to £142.9m (2017: £117.4m), driven by growth in recurring software revenue
and an expansion of services provided to clients
• MarTech revenue up 24% to £38.2m (2017: £30.7m), driven by growth in subscriptions for our
Marketing Cloud platform, powered by our Kx technology
• High-profile client including with a Fortune 500 manufacturing company, a FTSE 100 gaming
company and Aston Martin-Red Bull Racing leading to inbound interest across a range of markets
• Continued investment across the Group, including machine learning and AI initiatives, to further
penetrate our addressable market in software
• Boosted capabilities in telco, a key target market, through the acquisition of Telconomics
• Accelerated recruitment to 390 graduates during the year, up 94% on prior year and reflecting
confidence in the continued demand for the Group’s software and consulting services
Financial highlights:
Year ended 28 February
2018
2017
Change
Revenue
Adjusted* EBITDA
Profit before tax
Adjusted** profit after tax
Adjusted** fully diluted EPS
Full year dividend per share
Net debt
£186.0m
£34.1m
£12.1m
£19.5m
72.2p
24.0p
£16.2m
£151.7m
£28.8m
£12.5m
£16.1m
61.3p
20.0p
£13.5m
23%
19%
-3%
21%
18%
20%
* Adjusted for share-based payments and acquisition costs
** Adjusted for amortisation of acquired intangibles, share-based payment charge, acquisition costs, foreign currency translation
effect, share of loss of associate and exceptional taxation
2
First Derivatives plc
Strategic Report (continued)
About FD
FD is a multinational software and consulting Group, engaged particularly with finance, technology,
retail, pharma, manufacturing and energy institutions. The Group’s roots are in the capital markets
industry, where its work on supporting mission-critical systems led to the development of Kx technology
which addresses the most demanding data challenges its clients face. Although these activities remain a
key focus and driver of growth, the Group has also expanded its scope of activities to target a range of
other markets where Kx provides a competitive advantage.
The Group’s strategic objectives are:
• To grow its managed service and consulting activities, enabling the Group to become a leading global
capital markets practice
In its Managed Services and Consulting division, the Group leverages its consultants’ combination of
capital markets domain expertise and technical skills. These skill sets are developed using proprietary
training programmes which distinguish FD staff from those of competitors. The Group believes that its
increasing scale and reputation for delivery, combined with the ability to deliver from near-shore
locations, will enable it to achieve its strategic objective.
• To exploit the technological leadership it has established in finance through the development of Kx
technology
Kx technology was developed for use cases involving market data within capital markets. It has
established a market-leading position, reflected both in its client base (which includes the global top 20
investment banks) and its dominance of industry benchmarks as published by STAC, an independent
technology evaluation body. The Group continues to see multiple growth opportunities within finance,
both from winning new clients and increasing the range of solutions in use at existing clients. In
particular, the Group expects to benefit from the growing trend towards the use of public Cloud services
to store and process market data.
• To use the performance advantages Kx enjoys through its ability to handle large volumes of data,
particularly real-time or streaming data, to penetrate other markets.
Although originally developed for use in capital markets, Kx is data agnostic. The Group has a long-held
belief that Kx’s performance advantages make it attractive within new markets facing data challenges
involving volume and/or velocity of data. In recent years FD has begun to enter those markets it considers
to be the most attractive by virtue of the size of the addressable opportunity and the competitive advantage
Kx provides. While the underlying Kx platform does not require customisation for each new market,
domain expertise is required to ensure the Group addresses and solves the most applicable data
challenges. This domain knowledge has been obtained through a number of approaches, including
financially-disciplined acquisitions, partnerships, OEM relationships and direct recruitment. While still in
the early stages of its strategy for new markets, the Group is encouraged by the performance advantages
Kx has demonstrated and early client wins across a number of industries.
In setting its strategic objectives, the Group’s overall aim is to increase shareholder value by consistently
growing revenue and profits while also continuing to invest to take advantage of opportunities to increase
its total addressable market. The strategy to achieve this expansion is a combination of organic growth
supported by investment in the Group’s infrastructure supplemented by selective acquisitions that create
opportunities for further development.
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First Derivatives plc
Strategic Report (continued)
Organic growth is driven by providing innovative products and services to clients. These products and
services are typically focused on delivering additional revenue opportunities, increasing cost efficiency
and/or overcoming operational challenges within the clients’ businesses. The Group’s capability to deliver
these benefits has resulted in growing demand for its software and consulting services. The Group has a
track record of identifying, acquiring and integrating businesses that provide strategic benefits, such as
domain expertise within target markets, to complement its organic growth.
4
First Derivatives plc
Strategic Report (continued)
Business Model
Headquartered in Newry, Northern Ireland and with fourteen offices across four continents, the Group
operates on a global basis. Its products and services are interlinked and complement each other,
simplifying the management of Group operations.
The Group operates common systems and applies common policies, with central support functions
including finance, training, internal IT systems management, accounting and human resources delivered
primarily from its headquarters. In addition to these core activities, each of the Group’s business units has
its own staff charged with delivering the Group’s strategy, directed by an executive leadership team.
In managed services and consulting, 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 its
clients achieve and maintain regulatory compliance. This can be delivered by operating either from the
client site or on a near-shore basis (or adopting a hybrid approach). The Group’s managed services and
consulting activities are well-established, with more than 20 years of expertise. Clients include many of
the world’s leading banks and the Group supports their activities across a range of activities including
credit, interest rate, foreign exchange, equity, cash and derivatives markets.
The underlying philosophy in this business remains unchanged since inception; to provide data scientists
who understand both the capital markets sector itself and the best-of-breed technologies that meet its
needs. The Group seeks to undertake both the implementation of this technology and its ongoing support
once it has been installed; this increases the level of repeat revenue, since these implementations typically
last for many years. The Group operates a direct sales model through more than eighty Master Service
Agreements with leading banks globally.
Within the Group’s software activities, it provides both core Kx technology solutions comprising database
and platform technologies as well as applications based on Kx. Its proprietary database, kdb+, is the
world’s best performing in-memory, time-series database, as independently evaluated by the Securities
Technology Analysis Center (STAC). Together with the enterprise platform which supports it, Kx is
designed for rapid and efficient analysis of enormous volumes of data, particularly streaming data.
The compact nature of Kx code enables the technology to compete both on performance (many times
faster than other solutions) and on total cost of ownership (significantly lower computing infrastructure
required). These advantages have long been recognised within capital markets, where Kx has been utilised
for a range of use cases, particularly based on the capture and analysis of market data. In recent years the
Group has developed a broad range of capital markets applications, including market and trading
surveillance, pre-trade decision making, post-trade reporting and liquidity management.
The Group operates a predominantly direct sales model across its software activities within finance. The
Group’s strategy on software sales is to sign annual recurring licenses with clients, which underpins
Group revenues for future periods.
The Group also sees opportunities for its Kx technology, and applications built on the platform, in new
markets outside finance. Whereas historically the volume and velocity challenges confronting capital
markets were not as widespread elsewhere, the explosion of data in recent years, particularly from
connected machines and sensors, has created opportunities across a number of industries.
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First Derivatives plc
Strategic Report (continued)
The Group has identified digital marketing (MarTech), telecoms, utilities, retail, pharma and the Industrial
Internet of Things as markets that are particularly attractive. It has therefore invested in sales, engineering
and R&D to target these markets, as well as forming partnerships and making acquisitions where
appropriate.
The Group employs a range of strategies to penetrate new markets. These include both cross-sector lead
generation and direct sales teams, partnerships and OEM agreements, and revenue share agreements with
organisations using the Kx platform to deliver applications targeted at specific market segments. This
flexible and adaptive approach provides the Group with a wide range of opportunities, both in terms of
markets and geographies.
Business Environment and Market Potential
As noted above, the Group operates in a number of large addressable markets and is involved in many of
the leading developments within the technology sector.
In managed services and consulting, industry analysts Gartner estimates the total spend on IT services in
banking in 2018 to be $218 billion, providing vast potential for the Group to grow its revenues. Neither is
the Group’s potential to exploit this opportunity constrained by its ability to recruit and train suitable staff
– for every graduate recruited by the Group in 2017, there were in excess of 25 suitably-qualified
applicants.
With regard to the opportunity for Kx, estimates derived from working with industry analysts Gartner
indicate the Group’s addressable market within finance to be $11 billion in 2018, rising to $15 billion in
2020. When aggregated with opportunities in other sectors, the total addressable market of the Group’s
software is estimated to be $63 billion in 2018, rising to $83 billion in 2020.
The size and growth of these addressable markets results from the increasing level 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). All indicators are that this trend will continue unabated, particularly as
Cloud Computing facilitates access to immense processing capabilities.
IDC estimates that the amount of data which can be usefully analysed will grow by a factor of 100 to 57
trillion gigabytes by 2025, with a particular focus from embedded systems and the Internet of Things, both
areas where Kx technology has a competitive advantage. In addition, real-time data is forecast to account
for almost 30% of all data by 2025, compared to less than 20% currently, again driven by growth in the
Internet of Things.
Given the growth in its markets, the Group devotes considerable resources to ensuring its software
remains at the forefront of emerging technology trends. In addition to its central R&D teams and feedback
from existing and potential clients, the Group’s research facility, Kx Labs, is charged with ensuring Kx
benefits from changes in the technology landscape. This has led to some impressive tangible results.
Given the vast addressable markets for both its managed services and consulting propositions and its
world-leading technology, the Group believes it is still in the early phase of commercial exploitation of
these opportunities. It remains committed to a financially-disciplined approach to expansion which
provides the optimum balance between risk and reward for shareholders.
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First Derivatives plc
Strategic Report (continued)
Chairman’s Review
The Board is pleased to report another year of strong growth and progress against our strategic objectives.
The Group has made further progress in its journey to become a global leader in ultra-high performance
analytics and in doing so has undergone significant change and delivered substantial growth. While much
remains to be done if the Board’s ambitious growth plans are to be met, I am encouraged by the progress
so far and confident both in the capabilities of our technology and in the ability and determination of
management and staff to deliver.
The Group’s strategy has remained consistent since the acquisition of Kx Systems in October 2014, which
enabled us to take control of our entire technology stack and increased the total size of the market we are
able to address by a factor of more than ten to in excess of $60bn. To summarise, our strategy is:
• To become a leading global capital markets practice
• To capitalise on the leading position of our Kx technology in capital markets; and
• To use Kx’s performance advantages to penetrate new markets
We continue to make progress on each of these objectives, as detailed in this annual report, and a measure
of that success is that even though our FinTech business has continued to grow strongly in recent years,
nearly a quarter of Group revenue now comes from other markets.
The year in review
Group revenue increased by 23% to £186.0m and adjusted earnings per share increased by 18% to 72.2p
(2017: 61.3p). The Group also strengthened its operational capabilities to support its increasing scale.
During the year we accelerated our recruitment and training, reflecting strong demand for our software
and services. This was driven by increased activity within our client base to maximise the value they
obtain from data and by our increased capacity to meet that demand through the breadth and depth of our
skills and proprietary methodologies.
Balancing growth and investment
In recent years the Board has been careful to balance growth with the necessary investment to enable the
Group to achieve its strategic objectives. Adjusted EBITDA margins were slightly lower at 18%,
reflecting this investment, yet the Group delivered growth in adjusted EBITDA of 19%. Over the last
three years, the Group has delivered a compound annual growth rate (CAGR) of 31% in revenue and 30%
in adjusted EBITDA. The Board will continue to evaluate the level of investment required to optimise
returns for shareholders over the medium term.
Meeting the needs of all stakeholders
In addition to shareholders, the Board acts in the interests of all stakeholders, including creditors,
suppliers, employees and the local community and has detailed policies in place to ensure this continues to
be the case. Within the past year, the Group has reported on its Gender Pay Gap and published the results
on its web site. While performing better than its peers, more remains to be done, particularly to increase
the proportion of women in senior management positions. The Group has a strategy in place to achieve
this objective.
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First Derivatives plc
Strategic Report (continued)
Corporate development
No substantial acquisitions were made during the year, however in December 2017 the Group acquired
Telconomics, a provider of telco analytics software, for consideration of up to €2.5m (excluding working
capital adjustment), as part of its strategy to penetrate the telco market. Based in Madrid, Spain,
Telconomics has developed products to assist telcos in areas such as network development strategy,
network planning and network optimisation. These products are being integrated into the Kx Telco
Solutions suite, and will assist the Group in conversations with existing and potential telco clients.
Board Changes
Donna Troy, who is U.S.-based and has extensive sales leadership experience within multinational
technology companies, was appointed as a Non-Executive Director in January 2018. Jon Robson, who
joined the Group as a Non-Executive Director in 2015, took up an executive role as senior vice-president
and consequently stepped down from the Board in May 2017. I welcome Donna to the Board and thank
Jon for his contribution.
The Board recognises the talent and hard work of all employees who have helped deliver another
successful year. The focus across the Group is on driving further growth, in line with our strategic
objectives, for the benefit of all our clients, partners, colleagues and shareholders.
Seamus Keating
Chairman
21 May 2018
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First Derivatives plc
Strategic Report (continued)
Chief Executive’s Review
This year has seen exciting progress in our ambitious growth plans, with important new contract wins
across all our markets, the strengthening of our technology lead and an expansion of our routes to market.
Revenue increased by 23% to £186.0m and, following our investment to target new opportunities,
adjusted EBITDA increased by 19% to £34.1m.
Our software revenue grew by 27% with the highlight being our continued progress in penetrating our
vast addressable market. In FinTech, revenue was up 22% as our strong market presence translated into
further market share gains. In MarTech, increasing awareness of the high return on investment that our
solutions deliver, combined with the release of additional functionality, drove revenue growth of 24%. In
other markets we remain in ‘launch mode’ with revenue growth of 41% representing a scratch on the
surface of the market opportunity.
We reported our 21st consecutive year of double-digit revenue growth in managed services and consulting.
This was achieved despite a reallocation of some resource to deliver implementations in our software
division and underlines the strong demand for our services, which was reflected in our decision to
accelerate graduate recruitment during the year, up by 94% to 390 people.
The combination of our technology lead and large addressable market fuels our confidence in the outlook
for FD and the associated continuing investment to unlock this potential. While the technology landscape
continues to evolve rapidly, our core strength of ultra-high performance data analytics is an important
enabler in areas such as machine learning, industrial IoT and blockchain. Our technology is applicable all
the way from the chip, to the edge, to the Cloud and, as data volumes and velocity trend higher and faster,
we are excited by the potential to enable the next generation of analytics.
Software
Our proprietary Kx technology leads the market in its ability to capture and analyse vast quantities of data,
both real-time and historic. Kx comprises the kdb+ database, with its highly-efficient 500kb footprint, and
an enterprise layer providing vital functions such as control and visualisation. Together they provide a
platform that enables organisations to meet the most demanding data challenges they face, with an
efficient design ensuring it can run on a fraction of the hardware required by competing solutions. These
core capabilities, along with the capacity to operate on the chip, edge or cloud delivers a compelling
solution for our clients. This was evidenced in the year with our software being deployed for edge
computing to public environments such as AWS, Azure and the Google cloud.
Our efficiency also extends to internal development. Since our solutions are based on a common
technology platform, we run single R&D and support teams, providing significant economies of scale and
reduced development time for new products.
These technology and commercial advantages are being increasingly recognised across industries and
creating significant opportunities for the Group. Clients have flexibility to develop bespoke analytics for
their particular requirements or can implement applications developed by ourselves or a growing number
of OEM partners who use their own domain expertise to provide solutions targeting a particular market.
The market opportunity for our platform and applications is enormous. During the year, working with
industry analysts Gartner, we assessed its value, based on annual licenses alone, at least $63 billion in
2018 rising to $83 billion in 2020. The market for professional services associated with these licenses was
estimated at a further $23bn for 2018.
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First Derivatives plc
Strategic Report (continued)
We continued to expand our routes to market during the year, in line with our strategy, to help address this
opportunity. In addition to direct sales, we offer our software through OEM partners such as Thomson
Reuters and via revenue share agreements with companies that have specific domain expertise. We signed
agreements with companies such as Quantile, Cobalt, Rx Data Science Inc., AuditComply and Brainwave
Bank that entitle us to a share of their revenue in return for the use of Kx to power their solutions. We
continue, in conjunction with our strategic financial partners such as the Business Growth Fund (BGF), to
identify and work with companies that wish to use Kx to disrupt markets and have a pipeline of exciting
opportunities.
FinTech
Revenue from our most mature market, FinTech, increased by 22% to £142.9m. A key driver of growth in
FinTech is the imperative for our clients, particularly investment banks, to maximise the value of the data
they generate. As a result of our technology’s ability to meet this challenge, we are increasingly involved
in strategic discussions in which our Kx platform is an enabling technology to achieve desired benefits.
The platform not only provides world leading data analytics capability, but also manages the ingestion,
cleansing and normalising of vast quantities of market, reference and client data, removing manual effort
and improving accuracy and data accessibility.
Once implemented, we are able to provide a further range of applications that use Kx to help our clients
achieve regulatory compliance and deliver operational efficiencies. An example is our surveillance
solution, which continues to win market share driven by its cross-asset capabilities, out-of-the-box alerts,
flexible configuration and real-time operation. Regulation, including MiFID II, continues to drive contract
wins, with planning for the Securities Financing Transactions Regulation (SFTR) and Consolidated Audit
Trail (CAT) requirements, among others, driving demand for our applications.
Our liquidity management platform also delivered good growth during the year and has a strong pipeline
of opportunities, with its comprehensive analytics capability complementing an efficient trading platform.
Overall, we continue to develop our solutions within FinTech and see strong growth potential from
machine learning, with many of our existing clients initiating discussions around the capability of our
technology to improve the efficiency of their business.
MarTech
Revenue from MarTech increased by 24% to £38.2m. In this market we leverage the power of Kx to
deliver a full B2B account-based marketing platform, with an emphasis on predictive analytics using
intent data from internet search. In other words, we help our clients predict and convert their next
customer using a range and depth of data that is so vast other technologies cannot compete. The return on
investment for our clients is compelling and, despite its short history, we are seeing impressive growth in
the platform’s subscription revenue.
We continue to develop this platform, branded as MRP Prelytix, particularly to increase its intuitiveness
and ability to integrate into a wide range of our clients’ systems. During the year we launched an upgraded
version of the platform, which has been well received and resulted in an acceleration of growth in the
second half of our financial year with good momentum in the current financial year.
While to date the majority of our MarTech clients have been technology companies, MRP Prelytix is
applicable to a wide range of industries and we are actively promoting it into new areas. For example, we
have signed significant deals with companies operating in the banking, financial services, healthcare, food
services and industrial markets.
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First Derivatives plc
Strategic Report (continued)
Looking forward we aim to increase both the functionality and ease of use of our platform to increase its
applicability to businesses of all sizes and industries. We believe the macro trends in marketing are
playing to our strengths, particularly the desire among organisations to roll out systems across their
operations, which our global footprint enables us to achieve. MarTech represents a large addressable
market in which we are clearly differentiated.
Other Markets
While FinTech and MarTech are the markets in which we have achieved the greatest commercial progress
to date, a key element of our strategy is to establish Kx in other markets which are challenged by data
volumes and velocity. During the year, revenue from these other markets increased by 41% to £5.0m,
representing encouraging initial traction across a range of high-value opportunities. In particular:
• Sensor analytics – we secured an important contract win with a Fortune 500 engineering solutions
company for the use of Kx as the high-performance data historian and analytics engine in the client's
fault detection product range. Initial implementations, which started after the year-end and have
progressed well, should contribute to our growth in the current year. This is a high-value contract
where Kx's superior analytics performance, handling millions of sensor readings per second, enabled
us to displace the incumbent solution.
• Automotive – we announced that Aston Martin-Red Bull Racing had selected Kx for analytics on data
from its Formula 1 cars. This reinforces the cutting-edge performance of Kx for sensor analytics within
automotive, where a wider opportunity to provide analytics for mass produced cars represents a target
for the Group.
• Gaming – we announced a contract win with a FTSE 100 gaming company for the use of Kx to
provide data analytics for its operations.
These contract wins with high profile companies are helping to establish our presence in these new target
markets. Each of them has led to further inbound interest in our capabilities, helping to boost our pipeline
and giving us confidence in the outlook for our software business in these markets.
A further key target market is telco, where we consider Kx to be ideally suited to providing operational
intelligence. To boost our presence in this market we acquired Telconomics in December 2017, which
provides several software products in areas including network development strategy, network planning
and network optimisation.
We are also exploring a number of cutting-edge technology themes that have the potential to produce
significant commercial returns. These include blockchain, where Kx is embedded in solutions provided by
Cobalt DL as it seeks to reduce post-trade risk and cost for financial market participants; dynamic pricing,
where Kx can analyse multiple variables in real-time to maximise revenue for gaming companies; and
machine learning, where we are involved in a number of projects where Kx is being evaluated as a core
element of potential solutions.
Research and development
We have made significant progress in both the performance and the capabilities of our technology stack
over the past year, protecting our technology lead and expanding the use of our platform. In particular we:
• Released new versions of our kdb+ database and enterprise platform, which set new benchmarks as
measured by the Securities Technology Analysis Center, an independent body. We currently hold 34 of
the 41 STAC benchmarks, reinforcing our credentials as the world’s best performing time-series
database.
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First Derivatives plc
Strategic Report (continued)
• Announced a range of measures to put machine learning capabilities at the heart of our platform, in
response to customer demand, including improving access to the power of kdb+ for Python
programmers.
• Released, after the year end, an on-demand service for our software for use on-premises as well as in
the Cloud. We also announced that the latest version of Kx supports rapid access to unstructured data,
broadening our addressable market.
In addition to technical enhancements we have developed our platform to ensure it is optimised for certain
use cases such as sensor data analytics and developed analytics which are applicable to a number of the
new markets we are targeting. This development work represents a significant element of our ongoing
investment to target opportunities in new markets.
Managed Services and Consulting
Our managed services and consulting activities delivered another solid performance, with growth
accelerating through the year as a result of our increased recruitment and training efforts. Our activities
focus on the support of mission-critical systems within banks, ranging from those developed by our clients
in-house to those supplied by a range of third parties such as Murex and Calypso. We have more than 20
years of experience working with these systems, which has enabled us to gain deep insights into our
clients’ systems and respond rapidly to changing themes and priorities.
Revenue increased by 17% to £74.1m, driven by growth in the U.S. and Europe as our clients sought our
assistance with digital transformation projects, complementing our core support activities. Our increasing
scale enables us to present teams of diverse experience levels across the landscape of business and
technology and to widen the range of services we provide. In particular, over the past year we have
successfully introduced proprietary methodologies for testing and migration, which are key areas for
banks as they seek to modernise their IT architecture.
A key focus for the Group in recent years has been assisting our clients with their regulatory compliance
initiatives. This has now broadened into wider conversations about data governance, involving systems
spanning operations, legal and compliance within banks. FD is able to assist through both consulting and
software solutions around data quality, streamlined processing and global standardisation of processes.
The quality of our relationships with major banks and the increasingly strategic nature of our engagements
is encouraging for future growth prospects. We continue to grow the proportion of our revenues that are
performed remotely, from our near-shore centres and particularly our headquarters in Newry.
A selection of our new contract wins during the year included:
• The implementation and support of a third-party system for a New York-based bank, representing one
of the largest contracts in our history.
• A major upgrade to a third-party system deployed in the U.S. by a European financial institution.
• The development, implementation and support of robotic process automation (RPA) software for a
major client, delivering significant operational efficiencies through the elimination of manual
processes.
Our reputation for delivery and client satisfaction, coupled with the repeat nature of the majority of our
support engagements with clients, provides a solid revenue base in managed services and consulting. Our
growth is driven by our increasing scale and the growing breadth of our capabilities, as referenced in the
contract wins above.
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First Derivatives plc
Strategic Report (continued)
Management and Personnel
The Group now employs more than 2,200 people, up from over 1,750 at the same time last year. FD is a
dynamic organisation, providing high quality training and development and offering opportunities for
rapid career development in some of the most exciting technology markets in the world. As a result, roles
within the Group are in high demand and we enjoy strong retention rates.
Our record growth in graduate recruitment is a statement of confidence both in the talent we are able to
attract and our growth prospects. We operate a comprehensive training programme for our graduates
spanning data science and capital markets, which differentiates us from our competitors and provides the
flexibility to direct our people to those areas where they can generate the most value for the Group.
During the year we won two awards, namely Company of the Year at the UK Tech Awards and FinTech
Company of the Year at the QCA Awards. In large part this was recognition of the efforts of our staff and
I would like to thank all FD employees for the contribution they have made to our success through their
hard work, talent and flexibility.
Current Trading and Outlook
The new financial year has started well, with a healthy pipeline of new business opportunities and strong
demand generated by our increasing strategic importance to clients. In particular, we continue to capitalise
on the investments we have made in recent years in R&D, sales and marketing and expanding our
channels to market. The scale of our addressable markets in FinTech, MarTech and elsewhere for our Kx
technology provides the potential for the Group to continue growing strongly.
Our solid base of repeat and recurring revenue coupled with the strength of our pipeline provides
confidence in our outlook and we remain confident that we are on track to deliver further for shareholders.
Brian Conlon
Chief Executive Officer
21 May 2018
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First Derivatives plc
Strategic Report (continued)
Financial Review
Group revenue increased by 23% to £186.0m (2017: £151.7m), which was predominantly organic. An
analysis of revenue is provided in the table below.
2018
£’000
2017
£’000
Change
Group Revenue
186,042
151,697
23%
FinTech
Managed services and consulting
Software: Recurring
Perpetual licenses
Implementation and support
MarTech
Software: Recurring
Services
Other Markets
Software: Recurring
Perpetual licenses
Implementation and support
142,857
74,130
24,660
7,016
37,051
38,154
15,454
22,700
5,031
1,088
270
3,673
117,449
63,494
20,492
7,187
26,275
30,668
10,178
20,490
3,589
855
-
2,725
22%
17%
20%
-2%
41%
24%
52%
11%
41%
27%
-
35%
Managed services and consulting revenue increased by 17% to £74.1m and represents 40% of Group
revenue (2017: 42%). Software revenue increased by 27% to £111.9m, with recurring software revenue
increasing by 31% to £41.2m.
Adjusted EBITDA as detailed on page 36 increased by 19% to £34.1m (2017: £28.8m), with an adjusted
EBITDA margin of 18% for the period (2017: 19%), a strong performance given the ongoing investment
to deliver future growth. We have continued to grow our sales and marketing capability, in addition to
adding domain expertise to assist our move into new markets, building out our software solutions delivery
teams and investing in recruitment and training across the Group.
The Group continued to invest in R&D to maintain its technology lead, albeit with a greater proportion of
spend amortised such that the net benefit to the profit and loss 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
2018
£’000
7,486
(6,214)
1,272
1%
2017
£’000
7,085
(4,944)
2,141
2%
14
First Derivatives plc
Strategic Report (continued)
The adjusted profit after tax for the year of £19.5m (2017: £16.1m) represented growth of 21%. The
Group's effective tax rate was 16% (2017: 28%), the reduction being predominantly attributable to a tax
credit of £1,431k as a result of the revaluation of our U.S. deferred tax balances following the U.S. tax
reforms. The adjusted tax rate was 20% (2017: 23%) with the decrease resulting from the reduction in the
U.K. main rate of corporation tax and an increase in expenses deductible in the U.S. for tax purposes.
The fully diluted average number of shares in issue increased to 27.0m (2017: 26.2m). This resulted in
adjusted fully diluted earnings per share of 72.2p, representing growth of 18% for the year (2017: 61.3p).
The calculation of adjusted profit after tax is detailed below.
Reported profit after tax
Adjustments for:
Amortisation of acquired intangibles
Share-based payment and related costs
Acquisition costs and changes in contingent purchase consideration
Loss/(gain) on foreign currency translation
Share of loss of associate
Tax effect of the above and U.S. tax reform
2018
£'000
10,208
4,684
2,710
3,570
1,386
70
(3,123)
2017
£'000
9,012
4,759
2,056
2,953
(1,475)
24
(1,252)
Adjusted profit after tax
19,505
16,077
Weighted average number of ordinary shares (diluted)
Adjusted EPS (fully diluted)
27.0m
72.2p
26.2m
61.3p
The Group generated £25.3m of cash from operating activities before taxation payments (2017: £30.3m),
representing a 74% conversion of adjusted EBITDA (2017: 105%). The factors affecting conversion
include the impact of strong trade debtor conversion at the end of the prior year and increased working
capital absorption in line with the strong revenue growth in the second half of the year.
The Board has recommended payment of a final dividend of 17.00p per share (2017: 14.00p per share)
which, together with the interim dividend of 7.00p per share paid in December 2017, gives a total
dividend for the year of 24.00p per share, an increase of 20% compared to the prior year. The final
dividend, if approved at the AGM on 27 June 2018, will be paid on 20 July 2018 to those shareholders on
the register on 22 June 2018.
Total assets at 28 February 2018 were £254.6m compared to £253.2m at 28 February 2017.
15
First Derivatives plc
Strategic Report (continued)
Principal Risks and Uncertainties
The Group operates in a changing economic and technological environment and as a result is exposed to a
number of risks and uncertainties. Risks are formally reviewed by the Board and appropriate processes put
in place to monitor and mitigate them. These risks, their potential impact on the Group and the measures
in place to mitigate them are discussed below.
Attracting and retaining talent in a competitive environment
As a software and consultancy provider, FD is dependent on the skill, experience and commitment of its
employees and particularly on the recruitment and retention of key staff. The performance of the Group
would be adversely affected if the required staffing levels are not maintained and it seeks to mitigate this
risk by offering a rewarding work environment geared towards continuing development. This includes
competitive reward packages and a strong commitment to training and career progression.
Market risk
The Group operates in a competitive and cyclical market environment which make it more difficult to
forecast future demand from clients. It addresses these risks by targeting consulting assignments with
long-term visibility, by continuing the professional development of its consultants to increase their skills
and experience, by seeking annual license agreements for software contracts and by expanding and
diversifying its portfolio of software and services offerings. In addition, the Group’s expansion into new
industries reduces its exposure to sector-specific impacts.
Technological changes
Technology in the software industry can change rapidly. In order to remain competitive, 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 clients. In addition to its central R&D team, the Company formed Kx Labs in 2015, which is tasked
with identifying technology trends and new software product opportunities to further mitigate this risk.
Retention of key client relationships
Through its superior products and services coupled with high-calibre implementation and support, FD
strives to maintain successful relationships with all its clients. Events outside of its control such as
changes in ownership or business priorities could adversely affect revenues from these relationships. This
risk is mitigated in several ways including increasing the number of clients, diversification into new
industry verticals, a growing presence in geographic regions outside of the UK and US plus long-term
contracts wherever possible. A low level of client attrition is evidence of the Group’s success in reducing
this risk.
Growth management
The Group has experienced several years of strong growth and expects this to continue. It needs to
manage this growth effectively or there is a risk that the quality of its client offering will drop and/or cost
control and operational effectiveness will deteriorate. This requires continual improvement in operational,
financial and management controls, in reporting systems and procedures, and in training programmes to
motivate, manage and develop employees. Increasing levels of investment are made in each of these areas
every year to improve and augment existing functions that will continue to manage the Group’s growth.
On behalf of the Board
JJ Kearns
Secretary
16
21 May 2018
First Derivatives plc
Board of Directors
Seamus Keating, Chairman
Seamus was appointed as an independent non-executive director of the Company on 10 December 2012
and was appointed Non-Executive chairman on 18 July 2013. He has over 20 years’ experience in the
global technology sector in finance and operational roles and was a main Board director of Logica plc
from 2002 until April 2012. He was Chief Financial Officer of Logica plc from 2002 until 2010 when he
became Chief Operating Officer and head of its Benelux operations. Prior to his role at Logica plc, he
worked for the Olivetti Group from in senior finance roles in the UK and Italy. He served as non-
executive director and Chairman of the audit committee of Mouchel plc from November 2010 to
September 2012. He is currently Chairman of Sionnach Ltd, the holding company of Version1 Ltd, a
technology services Group, a non-executive director of BGL Group Limited, a non-executive director of
Callcredit Limited, a non- executive director of Mediclinic International plc and a non-executive director
of Mi-pay Group plc.
Brian Conlon, Chief Executive Officer
Brian founded First Derivatives in 1996 and has led its development ever since. His background is in the
capital markets sector where, following training with KPMG, he joined the risk management team in
Morgan Stanley International, London. He then joined SunGard, a major global derivatives software
house, as a capital markets consultant, during which time 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 September 2008 and has responsibility for the
Group’s financial operations. He formerly held senior roles with KPMG, Bank of Ireland and Silverwood
Property Developments Limited and is a Qualified Chartered Accountant. During his career he has
worked on numerous corporate acquisitions and restructuring projects and has experience in business and
acquisition finance.
Virginia Gambale, Non-Executive Director
Virginia joined the Board of First Derivatives plc in March 2015. A U.S. citizen, she is managing partner
of Azimuth Partners LLC, which assists in the development of strategies for growth, innovation and
international expansion. Prior to forming Azimuth, Virginia was a partner at Deutsche Bank Capital
Partners and has also held senior management positions such as CIO at Merrill Lynch, Bankers Trust,
Deutsche Bank and Marsh & McLennan Companies, Inc. Virginia is currently a Director of JetBlue
Airways Corporation, the public company Regis Corporation, and is a member of the Advisory Board for
Chicago Trading Company and Nutanix (leading Cloud Computing Provider).
Keith MacDonald, Non-Executive Director
Keith is a Chartered Director, a fellow of the Institute of Chartered Accountants in Ireland and a director
of several companies with significant international operations. Keith was formerly the Global Head of
Structured Corporate Finance for Lloyds Banking Group and 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 being Asia-Pacific Head of
Structured Corporate Finance. He has been a director of First Derivatives plc since June 2011.
Donna Troy, Non-Executive Director (Appointed 15 January 2018)
Donna has extensive experience in both senior executive and non-executive roles within multi-national
technology companies. She has held division general management and sales leadership roles in
organisations including IBM, McAfee, SAP, Dell and Epicor, delivering revenue and margin growth and
implementing global go-to-market strategies. She currently holds non-executive roles at Pivot3 and
TIBCO and is based in Austin, Texas.
17
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 2018.
Results and dividend
The Group’s profit after taxation attributable to shareholders for the year to 28 February 2018 was
£10,208k (2017: £9,012k).
The Directors propose the payment of a final dividend of 17.00 pence per share (2017: 14.00 pence)
which, together with the interim dividend of 7.00 pence per share (2017: 6.00 pence), totals 24.00 pence
per share (2017: 20.00 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 14.00 pence per share for the year ended 28
February 2017 and an interim dividend of 7.00 pence per share for the year ended 28 February 2018.
Directors
The Directors who held office during the year were as follows:
B Conlon
G Ferguson
V Gambale
S Keating
K MacDonald
J Robson (Resigned 15 May 2017)
D Troy (Appointed 15 January 2018)
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 25 to 27 and the information is incorporated into the Directors’ Report by reference.
Substantial shareholdings
At 21 May 2018, the Group had received notification of interests in 3% or more of the ordinary share
capital from B Conlon (30.6%), Standard Life Aberdeen (9.7%), Polar Capital Holdings (4.5%), T Rowe
Price (3.8%), Octopus Investments (3.7%), Legal & General Group plc (3.6%), Slater Investments (3.2%)
and Oppenheimer Funds (3.1%).
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 £7,486k (2017: £7,085k)
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 £1,807k (2017: £1,721k) were
expensed during the year.
Employee Opportunities
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.
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.
18
First Derivatives plc
Directors Report (continued)
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 risks. The main cash flow, credit and liquidity
risks are those associated with selling on credit. However, the vast majority of the Group’s clients are
substantial enterprises so there is little or no default risk. 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).
However, because it has both income and expenses denominated in foreign currency, its net exposures are
substantially lower than the gross balances.
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. Furthermore, by funding
in U.S. dollars the acquisitions of Market Resource Partners LLC (MRP), Reference Data Factory Inc
(RDF), Prelytix Inc. and the investment in Kx Systems, the Group achieved a net investment hedge
against a significant portion of its translation exposure on the net assets of its foreign operations.
Political donations
The Group and Company made no political donations during the year (2017: £nil).
Future developments
As highlighted in the Chairman’s Review and the Chief Executive Review, the Group focuses on the sale
of software and consulting services. It remains the key strategy of the Group to increase its share in its
expanding range of target market segments through a combination of organic growth and selective
acquisitions. No material change to this approach is currently contemplated.
It is likely that the Group’s consultancy focus will remain primarily on capital markets, although
exploitation of the Group’s software assets is being pursued across a number of other sectors.
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 become aware of any
relevant audit information and to establish that the Company’s auditor is aware of that information.
Auditors
KPMG have expressed their willingness to continue in office as auditor and a resolution to reappoint them
will be proposed at the forthcoming Annual General Meeting.
By order of the Board
JJ Kearns
Secretary
21 May 2018
19
First Derivatives plc
Corporate Governance
The Company is listed on the Alternative Investment Market (AIM) and is required to comply with the
requirements of “AIM Rules for Companies – January 2018”, issued by the London Stock Exchange. The
Board is committed to ensuring the high standards of corporate governance and, in recognition of best
practice, goes beyond these rules to meet the provisions of the UK Corporate Governance Code (‘the
Code’) in a number of areas.
The Board
Led by the Chairman, the Board’s principal responsibilities are:
•
•
•
•
to establish the vision, mission and values of the Group;
to set strategic objective and provide the leadership to put them into effect;
to monitor and assess financial performance;
to embed a framework of controls which allow for the identification, assessment and management of
risk;
•
to ensure the Group fulfils its obligations to shareholders, employees, clients and other stakeholders.
• The effective discharge of these responsibilities is intended to achieve high standards of governance
within the Group.
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; material acquisitions;
significant contracts; annual reports and interim statements; and any significant funding and capital
expenditure plans.
The Board meets regularly to discuss 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 to the Board meetings, 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. In addition, the Chairman meets separately with the Non-Executive Directors
to assess the effectiveness of the Board in discharge of its priorities.
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 Chairmanship 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. FD satisfies these
requirements in full, the Chairman being fully independent with no connection to the Group prior to
becoming a Director and subsequently Chairman of the Board.
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.
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.
20
First Derivatives plc
Corporate Governance (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
page 17.
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 the requisite 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 capabilities, 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 effort 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
Both at its periodic meetings and in separate briefing sessions between Non-Executive Directors and
senior management (including Executive Directors), the Board are kept fully appraised of all material
commercial and technological developments likely to affect the Group’s performance and prospects.
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 regularly. These packs,
together with annual budgets, enable the Board to monitor the operational performance and cash position
each month and allocate the Group’s resources.
Adherence to high standards in the areas of Health & Safety and Corporate Social Responsibility are also
monitored by the Board on a regular basis.
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. Going forward, all Directors will offer themselves for re-election annually.
During the period under review, there was one new appointment to the Board and one resignation.
• Jon Robson resigned as a Non-Executive Director on 15 May 2017 as he assumed an executive
position within the Group.
• Donna Troy was appointed to the Board on 15 January 2018.
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.
21
First Derivatives plc
Corporate Governance (continued)
The Audit Committee’s role is to assist the Board with the discharge of its responsibilities in relation to
internal controls and external audits particularly with respect to the integrity, reliability and transparency
of published financial information. The Audit Committee has formal meetings prior to the publication of
the interim and final results and additional meetings on an ad hoc basis. The auditors attend the Audit
Committee meeting prior to the publication of the final results. All members of the Audit Committee have
directorship experience of other publicly-quoted companies either currently or in the recent past.
The Remuneration Committee determines the remuneration of senior executives. Levels of remuneration
are set in order to attract and retain the senior executives needed to run the Company based on objective
comparable market data. In addition, the Remuneration Committee provides guidance and direction into
all major compensation-related policy decisions by the Group.
Internal Control
The Board has overall responsibility to ensure that the Group’s internal control system is comprehensive,
coherent and responsive to the evolving environment in which the Group operates.
Recognising that no system of internal control can provide absolute assurance against the risk of
misstatement or loss, the Group’s systems are nevertheless designed to meet its business objectives whilst
effectively reducing risks to an acceptable level. The Group has built a robust framework of internal
control around risk identification, impact assessment, probability of occurrence and mitigation strategies.
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 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 Group’s brokers and NOMAD, external advisers and other relevant parties.
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.
The mid-market price of the Company’s shares at close of business on 28 February 2018 was £38.00
(2017: £22.95) and the high and low share prices during the year were £43.80 (2017: £23.30) and £22.88
(2017: £14.62) respectively. The average share price during the year was £31.70 (2017: £19.36).
22
First Derivatives plc
Corporate Governance (continued)
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;
• 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 of
publication;
• 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 talent within its 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 or 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 there are ample opportunities for career progression,
determined solely by ability and achievement. A number of employees participate in the growth of the
business through the ownership of share options, with a wider pool of 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 clients, 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.
Clients
The Group treats all of its clients with respect and is committed to achieving the highest levels of client
service and satisfaction in line with delivering high quality products and services. It seeks to be honest and
fair in all relationships with clients.
23
First Derivatives plc
Corporate Governance (continued)
Other Stakeholders
The Group recognises that it plays an important role in relation to many other stakeholders including
suppliers, local communities, Governmental agencies and the wider public who benefit directly or
indirectly from its products and services. As one of the largest private sector enterprises headquartered in
Northern Ireland, it is particularly aware of its responsibilities to maintain high standards in all aspects of
its business and the Board pays close attention to this imperative.
24
First Derivatives plc
Report of the Remuneration Committee
Although not required to comply with the Code, the Remuneration Committee operates within defined
terms of reference substantially similar to the Code and consistent with the interests of shareholders. The
Remuneration Committee comprises the Non-Executive Chairman, Seamus Keating and Non-Executive
Director Virginia Gambale.
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. A key element of the Group’s policy is to align the
interests of managers with those of shareholders through the grant of options and other equity rewards.
These incentives are structured to encourage retention over the longer term.
The components of the Executive Directors’ remuneration packages are currently a basic salary, bonus,
money purchase pension contributions, share-based payment 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 together with changes in comparable market remuneration.
Pension
The Group operates a defined contribution scheme for Executive Directors which entitles participants 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, adjusted EBITDA
and adjusted earnings per share.
The bonus scheme for the Executive Directors includes an on-target bonus of 50% of basic salary with up
to a maximum of 100% being achievable.
Share Option Plan
The Executive Directors may also participate in the Company’s 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 Group’s pension scheme nor do they
receive share options.
Details of each Director’s remuneration is set out in the table below. Non-Executive Directors Virginia
Gambale and Donna Troy, 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 Ms Troy are additionally entitled to receive payment of approximately £20,000 in FD
shares, issued and allotted on the business day following publication of the Group’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 Group’s preliminary results.
25
First Derivatives plc
Report of the Remuneration Committee (continued)
Directors’ remuneration (audited)
Salary
and fees
£’000
Benefits
£’000
Bonus
£’000
Share
based
payment
£’000
2018
Total
excluding
pension
£’000
2017
Total
excluding
pension
£’000
2018
2017
Pension Pension
£’000
£’000
R D Anderson*
B G Conlon
R G Ferguson
V Gambale
S Keating
K MacDonald
J Robson**
D Troy
Total
-
330
200
50
100
45
73
6
804
-
-
-
-
-
-
-
-
-
-
330
150
-
-
-
-
-
-
-
135
28
-
-
-
-
-
660
485
78
100
45
73
6
18
626
453
76
100
45
367
-
480
163
1,447
1,685
-
33
20
-
-
-
-
-
53
-
31
20
-
-
-
7
-
58
*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 15 May 2017
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 (audited)
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
S Keating
K MacDonald
J Robson**
D Troy
Number of ordinary shares
28 February 2018
28 February 2017
-
7,853,953
100,000
10,053
25,314
45,741
1,643
-
120,000
7,853,953
122,647
8,913
25,314
55,741
1,643
-
*Details in the above table reflect the director’s interests at the date of resignation on 13 May 2016
**Details in the above table reflect the director’s interests at the date of resignation on 15 May 2017
26
First Derivatives plc
Report of the Remuneration Committee (continued)
Share options
The Directors believe it is important to incentivise key management and employees.
The movement during the year in share options held by the Directors over ordinary £0.005 shares in the
Company are set out in the table below.
1 March
2017
Granted
during the
year
Exercised
during the
year
28 February
2018
Exercise
price
£
Exercise
period
Graham Ferguson
200,000
-
-
200,000
17.25
2019-2026
The Remuneration Committee has set total shareholder return (TSR) performance conditions for the share
options granted to Graham Ferguson on 18 July 2016. These vest on a sliding scale based on achieving a
minimum of 50% and up to 100% TSR over the three year period from grant.
The Company recognised total expenses of £1,586k (2017:£1,392k) related to equity-settled share-based
payment transactions during the year. Expenses of £163k (2017: £161k) related to share options granted to
the Directors. There were no share options exercised by the Directors during the year (2017: 150,000).
Transactions with Directors
The Directors interests in contracts with the Company are disclosed in note 31.
27
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 and substantially adheres to all of these in respect of its Audit Committee.
Composition
The Audit Committee is chaired by Virginia Gambale, who has previously a partner at Deutsche Bank 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 qualified 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 page 17.
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 although 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
As would be expected for a Group of its size, scale and nature of activities, the financial statements
include items where judgement must be exercised to determine the most appropriate accounting treatment
and associated disclosure. 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
disaggregated, 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 client
acceptance that non-refundable milestones have been achieved.
Goodwill & 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 during the year ended 28
February 2018. 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.
28
First Derivatives plc
Report of the Audit Committee (continued)
Acquisitions and Deferred Consideration
The Audit Committee monitors the ongoing performance of acquisitions made by the Group to measure
and assess progress against milestones for any contingent deferred consideration, including the potential
mix of shares and cash involved.
Investments
During the period the Group has invested in a number of start-up businesses who are seeking to use Kx
technology as a platform for their software solutions. Under IFRS, reporting investments are to be carried
at fair value with any movements going to other comprehensive income. A fair value review was
performed as at 28 February 2018 and no impairment has arisen.
Share Based Payments
The value of options issued by the Group is required to be calculated and is prepared using the adjusted
Black-Scholes model which is subjective in nature. Following a detailed review during the year no
material changes to assumptions utilised in the prior year are deemed to be required.
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 remain 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.
Pro-active self-assessment to assist in early-stage identification of potential risks and threats is a key
element of the Group’s approach to risk control. Where appropriate, the Group seeks to insure itself
against the risks it faces.
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.
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
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.
the Committee considers
these recommendations
29
First Derivatives plc
Statement of Directors’ responsibilities in respect of the Annual Report and the
financial statements
The directors are responsible for preparing the Annual Report and the Group and Company 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 as adopted by the
European Union (IFRSs as adopted by the EU) and applicable law and have elected to prepare the
Company financial statements on the same basis.
Under company law the directors must not approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group and Company and of their profit or loss
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 judgements and estimates that are reasonable, relevant and reliable;
• state whether they have been prepared in accordance with IFRSs as adopted by the EU;
• assess the Group and Company’s ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and
• use the going concern basis of accounting unless they either intend to liquidate the Group or the
Company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that its financial statements comply with the
Companies Act 2006. They are responsible for such internal control as they determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error, and 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 and regulations, the directors are also responsible for preparing a Strategic Report
and a Directors’ Report that complies with that law and those regulations.
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
21 May 2018
30
Independent auditor’s report to the members of First Derivatives plc
1 Our opinion is unmodified
We have audited the financial statements of First Derivatives plc (“the Company”) for the year ended 28
February 2018 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, including the accounting policies in note 1. The
financial reporting framework that has been applied in their preparation is UK Law and International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and, as regards the
Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
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 2018 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with International Financial
Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU);
the Company financial statements have been properly prepared in accordance with IFRSs as adopted
by the EU and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and
applicable law. Our responsibilities are further described in the Auditor’s Responsibilities section of our
report. We have fulfilled our ethical responsibilities under, and we remained independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical Standard as applied to listed entities.
We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
2 Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the
audit of the financial statements and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
In arriving at our audit opinion above, the key audit matters, in decreasing order of audit significance,
were as follows:
Revenue recognition - £186.0m (2017: £151.7m)
Refer to page 59 (accounting policy) and page 67 (financial disclosures)
The risk
The Group and Company have a range of revenue streams across their components, including software
sales, consulting services, data management, hosting and transactional activities. There is a risk that
revenue may be recorded on an inconsistent basis with the contractual terms agreed with the customer or
not in accordance with the Group and Company’s accounting policy regarding revenue recognition or
revenue may not be recognised in the correct year.
31
Independent auditor’s report to the members of First Derivatives plc (continued)
Our response
Our procedures in this area included, amongst others, we tested the operating effectiveness of internal
controls regarding the recognition of revenue and examined a sample of contracts to assess revenue
recognition in accordance with the terms of the contracts and the Group and Company’s accounting policy
on revenue recognition. We assessed customer relationships and contracts to determine if any goods or
services were bundled in respect of contracts comprising software sales and consulting services, including
assessing the appropriateness of the allocation of contract revenue to multiple element deliverables. We
performed testing for a sample of revenue items booked either side of the year end to ensure that revenue
was recognised in the correct period. We assessed the level of deferred revenue and accrued revenue
recognised at the year end and performed testing on a sample of deferred revenue and accrued revenue
items to ensure it is in accordance with the Group and Company’s accounting policy in respect of revenue
recognition.
The results of our testing were satisfactory and we found the amount of revenue recognised to be
acceptable (2017: acceptable).
Valuation of goodwill and intangible assets – Goodwill £103.9m (2017: £113.4m) and intangible
assets £45.8m (2017: £50.0m)
Refer to pages 51 and 54 to 58 (accounting policy) and pages 78 to 81 (financial disclosures)
The risk
The Group carries significant amounts of goodwill and intangible assets, resulting from business
acquisitions across several geographic locations. There is a risk that the carrying value of goodwill and
intangible assets is not supported by performance of the Group if global and local economic conditions
have negatively affected profitability, or where there are poor trading conditions. Management test the
Group’s goodwill for impairment annually and definite life intangible assets if there is an indication of
impairment. There is significant judgement involved in preparing forecasts and discounted cash flow
projections for this purpose in relation to the various assumptions used as set out in the note on goodwill
on page 79.
Our response
In this area, our procedures included, amongst others, evaluating the assumptions and methodologies used
in the Group’s goodwill impairment model. In particular those relating to future growth assumptions, the
discount rate and terminal growth rate applied to the forecasted cash flows in the model. We evaluated the
historical accuracy of the Group’s forecasts by comparing actual to budgeted results. We examined
sensitivity analysis over key assumptions and discount rates used to assess the impact on recoverability of
the assets.
We compared the Group’s market capitalisation to the book value of the Group’s net assets which
indicated that the market capitalisation exceeded the book value by £836.3m as 28 February 2018.
We found the resulting estimate of the recoverable amount of goodwill and intangible assets to be
acceptable (2017: acceptable).
32
Independent auditor’s report to the members of First Derivatives plc (continued)
Assessment of fair value and accounting of investments – Group £3.4m (2017: £3.1m); Company
£3.3m (2017: 3.1m)
Refer to page 54 (accounting policy) and pages 84 and 102 (financial disclosures)
The risk
The Group and Company has a number of equity investments in unlisted companies, which are measured
at fair value. Where investments are not publicly traded this involves valuation techniques using
unobservable inputs, which can have a significant effect on the asset’s valuation. We have identified a risk
in the assessment of the valuation of these investments and the ongoing judgement that the investments
should be accounted for as investments rather than an associate on the basis that the Group and Company
does not have significant influence.
Our response
Our procedures included, evaluating the process and models used by management in its assessment of the
fair value of investments. We assessed the appropriateness of assumptions adopted to determine the fair
value of investments including involving valuation specialists. We considered financial and other
information made available to the directors and whether this provides objective evidence of impairment
such as forecasts prepared by the investee, recent management accounts and presentations to investors on
updates in the business, such as access to funding and development of the investee’s technology. We also
assessed the accounting categorisation of each interest as an investment or an associate based on ability to
exert significant influence and considered the adequacy of the Group and Company’s disclosures in
respect of investments.
The results of our testing were satisfactory and we found that the assessed fair value and accounting of
investments to be acceptable (2017: acceptable).
3 Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £650k (2017: £675k), determined with
reference to a benchmark of Group profit before tax of which it represents 5% (2017: 5%).
Materiality for the Company financial statements as a whole was set at £375k (2017: £540k), determined
with reference to a benchmark of profit before tax of which it represents 5% (2017: 5% of pre-tax profit
adjusted for foreign exchange loss on loans and borrowings of £3,208k and net intercompany recharged
costs of £4,050k).
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements
exceeding £33k, in addition to other identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s 23 (2017: 20) components, we subjected 8 (2017: 11), which represent the principal
activities of the Group, to full scope audits for Group purposes and 2 (2017: 1) to review to component
materiality by the same audit team. The latter was not individually financially significant enough to
require a full scope audit for Group purposes, but did present specific individual risks that needed to be
addressed. Audits for Group reporting purposes were performed for the majority of reporting components
in the following countries: UK, Ireland and US. The combination of this work covered 99% (2017: 94%)
of total Group revenue; 95% (2017: 90%) of the total profits and losses that make up Group profit before
tax and 98% (2017: 99%) of total Group assets.
33
Independent auditor’s report to the members of First Derivatives plc (continued)
For the remaining components, we performed analysis at an aggregated Group level to re-examine our
assessment that there were no significant risks of material misstatement within them.
For each component in our audit scope, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was between £3k and £390k.
4 We have nothing to report on going concern
We are required to report to you if we have concluded that the use of the going concern basis of
accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt
over the use of that basis for a period of at least twelve months from the date of approval of the financial
statements. We have nothing to report in these respects.
5 We have nothing to report on the other information in the Annual Report
The directors are responsible for the other information presented in the Annual Report together with the
financial statements. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether, based on our
financial statements audit work, the information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that work we have not identified material
misstatements in the other information.
Strategic Report and Directors’ Report
Based solely on our work on the other information:
• we have not identified material misstatements in the Strategic Report and the Directors’ Report;
•
in our opinion the information given in those reports for the financial year is consistent with the
financial statements; and
in our opinion those reports have been prepared in accordance with the Companies Act 2006.
•
6 We have nothing to report on the other matters on which we are required to report by exception
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 these respects.
34
Independent auditor’s report to the members of First Derivatives plc (continued)
7 Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 30, the directors are responsible for: the
preparation of the financial statements including being satisfied that they give a true and fair view; such
internal control as they determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error; assessing the Group and Company’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
using the going concern basis of accounting unless they either intend to liquidate the Group or the
Company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor’s
report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted
in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of the financial
statements.
A
fuller description of our
www.frc.org.uk/auditorsresponsibilities.
responsibilities
is provided on
the FRC’s website
at
8 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16
of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s
members those matters we are required to state to them in an 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
The Soloist
1 Lanyon Place
Belfast
BT1 3LP
21 May 2018
35
First Derivatives plc
Consolidated statement of comprehensive income
Year ended 28 February 2018
Revenue
Cost of sales
Gross profit
Other income
Administrative expenses
Operating profit
Note
5
6
7
Acquisition costs and changes in contingent purchase
consideration
Share-based payment and related costs
Depreciation and amortisation
Amortisation of acquired intangible assets
Adjusted EBITDA
16 & 17
17
Finance income
Finance expense
(Loss)/gain on foreign currency translation
Net finance (costs)/income
Share of loss of associate using the equity method, net of
tax
Profit before taxation
Income tax expense
Profit for the year
10
10
10
18
11
2018
£’000
186,042
(134,402)
51,640
1,382
(38,320)
14,702
3,570
2,710
8,460
4,684
34,126
1
(1,150)
(1,386)
(2,535)
(70)
12,097
(1,889)
10,208
2017
£’000
151,697
(110,121)
41,576
2,148
(31,485)
12,239
2,953
2,056
6,750
4,759
28,757
1
(1,193)
1,475
283
(24)
12,498
(3,486)
9,012
36
First Derivatives plc
Consolidated statement of comprehensive income (continued)
Year ended 28 February 2018
Profit for the year
Other comprehensive income
Items that will or may be reclassified subsequently to
profit or loss
Net exchange (loss)/gain on net investment in foreign
subsidiaries
Net gain/(loss) on hedge of net investment in foreign
subsidiaries
Other comprehensive income for the period, net of tax
Note
2018
£’000
10,208
(16,779)
1,570
(15,209)
2017
£’000
9,012
10,836
(2,871)
7,965
Total comprehensive income for the period
attributable to owners of the parent
(5,001)
16,977
Earnings per share
Basic
Diluted
Pence
40.4
37.8
Pence
36.7
34.4
15a
15a
All profits are attributable to the owners of the Company and relate to continuing activities.
The notes on pages 46 to 114 form part of these financial statements.
37
First Derivatives plc
Consolidated balance sheet
As at 28 February 2018
Assets
Property, plant and equipment
Intangible assets and goodwill
Trade and other receivables
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
2018
£’000
2017
£’000
16
17
20
18
19
25
20
21
22
23
24
25
28
23
24
26
27
28
7,714
149,744
6,594
2,631
3,433
18,353
188,469
53,718
12,365
66,083
254,552
128
81,286
14,341
(6,874)
49,218
138,099
25,205
32,127
9,811
-
67,143
3,346
34,070
1,195
5,011
5,688
49,310
116,453
254,552
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
These financial statements were approved by the Board of Directors on 21 May 2018.
Seamus Keating
Chairman
Brian Conlon
Chief Executive Officer
Graham Ferguson
Chief Financial Officer
Registered Company number: NI 30731
The notes on pages 46 to 114 form part of these financial statements.
38
First Derivatives plc
Company balance sheet
As at 28 February 2018
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
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
2018
£’000
2017
£’000
16
17
18
19
20
25
20
21
22
23
24
25
23
24
26
28
27
3,764
20,629
95,329
3,308
13,579
12,268
148,877
44,119
4,013
48,132
197,009
128
81,286
14,070
146
26,052
121,682
25,205
1,071
3,358
29,634
3,339
37,017
-
1,038
4,299
45,693
75,327
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
197,009
179,985
The Company’s profit for the year ended 28 February 2018 was £7,289k (2017: £3,647k).
These financial statements were approved by the Board of Directors on 21 May 2018.
Seamus Keating
Chairman
Brian Conlon
Chief Executive Officer
Graham Ferguson
Chief Financial Officer
Registered Company number: NI 30731
The notes on pages 46 to 114 form part of these financial statements.
39
First Derivatives plc
Consolidated statement of changes in equity
Year ended 28 February 2018
Balance at 1 March 2017
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Net exchange loss on net investment in foreign subsidiaries
Net exchange gain on hedge of net investment in foreign
subsidiaries
Total comprehensive income for the year
Transactions with owners of the Company
Tax relating to share options
Exercise of share options
Change in fair value of NCI put
Issue of shares
Issue of shares as purchase consideration
Share based payment charge
Transfer on forfeit of share options
Dividends
Balance at 28 February 2018
The notes on pages 46 to 114 form part of these financial statements.
Share
capital
Share
premium
Share option
reserve
£’000
£’000
£’000
Currency
translation
adjustment
£’000
Retained
earnings
Total equity
£’000
£’000
124
72,275
10,225
8,335
40,772
131,731
-
-
-
-
-
8,542
-
28
441
-
-
-
81,286
-
-
-
-
3,910
(1,427)
-
-
-
1,586
47
-
14,341
-
10,208
10,208
(16,779)
1,570
(15,209)
-
-
-
-
-
-
-
-
(6,874)
-
(16,779)
-
10,208
-
-
3,557
-
-
-
(47)
(5,272)
49,218
1,570
(5,001)
3,910
7,119
3,557
28
441
1,586
-
(5,272)
138,099
-
-
-
-
-
4
-
-
-
-
-
-
128
40
First Derivatives plc
Consolidated statement of changes in equity
Year ended 28 February 2017
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
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
The notes on pages 46 to 114 form part of these financial statements.
Share
capital
Share
premium
Share option
reserve
£’000
£’000
120
65,903
£’000
7,217
-
-
-
-
-
5,190
-
57
1,125
-
-
-
72,275
-
-
-
-
2,561
(877)
-
-
-
1,334
(10)
-
10,225
-
-
-
-
-
4
-
-
-
-
-
-
124
41
Currency
translation
adjustment
£’000
Retained
earnings
Total equity
£’000
£’000
370
39,654
113,264
-
9,012
9,012
10,836
(2,871)
7,965
-
-
-
-
-
-
-
-
8,335
-
10,836
-
9,012
-
-
(3,504)
-
-
-
10
(4,400)
40,772
(2,871)
16,977
2,561
4,317
(3,504)
57
1,125
1,334
-
(4,400)
131,731
First Derivatives plc
Company statement of changes in equity
Year ended 28 February 2018
Balance at 1 March 2017
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Change in effective rate of deferred tax
Total comprehensive income for the year
Transactions with owners of the Company
Income tax relating to share options
Exercise of share options
Issue of shares as purchase consideration
Issue of shares
Share based payment charge
Transfer on forfeit of share options
Dividends
Balance at 28 February 2018
Share
capital
£’000
Share
premium
£’000
Share option
reserve
£’000
Fair value
reserve
£’000
Retained
earnings
£’000
Total equity
£’000
124
72,275
9,713
146
24,082
106,340
-
-
-
-
4
-
-
-
-
-
128
-
-
-
-
8,542
441
28
-
-
-
81,286
-
-
-
4,151
(1,427)
-
-
1,586
47
-
14,070
-
-
-
-
-
-
-
-
-
-
146
7,289
-
7,289
-
-
-
-
-
(47)
(5,272)
26,052
7,289
-
7,289
4,151
7,119
441
28
1,586
-
(5,272)
121,682
The notes on pages 46 to 114 form part of these financial statements.
42
First Derivatives plc
Company statement of changes in equity
Year ended 28 February 2017
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
Share
capital
£’000
Share
premium
£’000
Share option
reserve
£’000
Fair value
reserve
£’000
Retained
earnings
£’000
Total equity
£’000
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
-
-
-
-
-
10
(4,400)
24,082
3,647
2
3,649
2,049
4,317
1,125
57
1,334
-
(4,400)
106,340
The notes on pages 46 to 114 form part of these financial statements.
43
First Derivatives plc
Consolidated cash flow statement
Year ended 28 February 2018
Cash flows from operating activities
Profit for the year
Adjustments for:
Net finance costs/(income)
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
Net increase in loans to other investments
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
Drawdown of new facility
Repayment of borrowings
Payment of finance lease liabilities
Interest paid
Dividends paid
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 March
Effects of exchange rate changes on cash held
Cash and cash equivalents at 28 February
The notes on pages 46 to 114 form part of these financial statements.
44
2018
£’000
10,208
2,535
2,246
10,898
2,980
1,586
(1,382)
70
1,889
31,030
(8,711)
2,992
25,311
(5,733)
19,578
1
(5,805)
(114)
(1,865)
(3,443)
(8,246)
(897)
(20,369)
7,119
5,300
(3,750)
(62)
(1,143)
(8,310)
(846)
(1,637)
16,250
(2,248)
12,365
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)
873
15,100
277
16,250
First Derivatives plc
Company cash flow statement
Year ended 28 February 2018
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 generated/(used) in investing activities
Cash flows from financing activities
Proceeds from issue of share capital
Drawdown of new facility
Repayment of borrowings
Interest paid
Dividends paid
Net cash generated/(used) in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at 1 March
Effects of exchange rate changes on cash held
Cash and cash equivalents at 28 February
The notes on pages 46 to 114 form part of these financial statements.
45
2018
£’000
7,289
843
906
4,328
(5,411)
1,586
(1,242)
397
8,696
(12,176)
502
(2,978)
(263)
(3,241)
(645)
(187)
(1,475)
(5,914)
(500)
5,411
(3,310)
7,119
5,300
(3,750)
(1,521)
(5,272)
1,876
(4,675)
9,499
(811)
4,013
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
First Derivatives plc
Notes (forming part of the 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 finance, technology, retail, pharma, manufacturing and energy institutions.
The financial statements were authorised by the Board of Directors for issuance on 21 May 2018.
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 as its cost base is predominately in this 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 2017 and these have
been adopted in the Group and Company financial statements where relevant:
• Amendments to IAS 7: Disclosure Initiative
• Amendments to IAS 12: Recognition of deferred tax assets for unrealised losses
46
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
a) Basis of preparation (continued)
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 2017 and have not been applied in preparing these financial statements. The
standards and interpretations not adopted are outlined below:
• IFRS 15 Revenue from contracts with customers including amendments to IFRS 15: Effective date of
IFRS 15 (Mandatory for the year commencing on or after 1 January 2018)
• IFRS 9 Financial Instruments (Mandatory for the year commencing on or after 1 January 2018)
• Clarifications to IFRS 15 Revenue from Contracts with Customers (Mandatory for the year
commencing on or after 1 January 2018)
• Amendments to IFRS 4: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
(Mandatory for year commencing 1 January 2018)
• IFRS 16: Leases (Mandatory for the year commencing on or after 1 January 2019)
• IFRS 17 Insurance Contracts (Mandatory for the year commencing on or after 1 January 2021)
• IFRIC 22 Foreign Currency Transactions and Advance Consideration (Mandatory for the year
commencing on or after 1 January 2018)
• IFRS 23 Uncertainty over Insurance Tax Treatments (Mandatory for the year commencing on or after 1
January 2019)
• Amendments to IFRS2 Classification and measurement of share based payment transactions
(Mandatory for year commencing 1 January 2018)
• Annual Improvements to IFRS Standards 2014-2016 Cycle (Mandatory for the year commencing on or
after 1 January 2018)
• Amendments to IAS 40: Transfers of Investment Properties (Mandatory for year commencing 1 January
2018)
• Amendments to IFRS 9 Prepayment Features with Negative Compensation (Mandatory for the year
commencing on or after 1 January 2019)
• Amendments to IAS 28 Long-term interests in Associates and Joint Ventures (Mandatory for the year
commencing on or after 1 January 2019)
• Annual Improvements to IFRS Standards 2015-2017 Cycle (Mandatory for the year commencing on or
after 1 January 2019)
With the exception of IFRS 9, IFRS 15 and IFRS 16, the directors do not expect that the adoption of the
standards and interpretations listed above will have material impact on the Group and Company financial
statements.
IFRS 9 will be effective for the Group starting 1 March 2018 and will replace the current requirements of
IAS 39 ‘Financial Instruments: Recognition and Measurement’. The main changes introduced by the new
standard are new classification and measurement requirements for certain financial assets, a new expected
loss model for the impairment of financial assets, revisions to the hedge accounting model and
amendments to disclosures. The changes are generally to be applied retrospectively. The Group and
Company expects limited impact on the financial statements.
47
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
a) Basis of preparation (continued)
New standards and interpretations not adopted (continued)
IFRS 15 will be effective for the Group and Company starting 1 March 2018. The standard permits a
choice of two possible transition methods for the initial application of the requirements of the new
standard: (1) retrospectively to each prior reporting period presented in accordance with IAS 8
(Accounting Policies, Changes in Accounting Estimates and Errors), or (2) retrospectively with the
cumulative effect of initially applying the standard recognised on the date of initial application, being 1
March 2018 for the Group and Company (the “cumulative catch-up” approach). The Group and Company
will adopt IFRS15 for the first time in the year ending 28 February 2019 and will adopt the retrospective
transition method with the cumulative effect of initially applying the standard reflected as an adjustment
to the opening balance of retained earnings as of 1 March 2018.
Accounting for revenue
Revenue earned from contracts with customers will be recognised based on a five-step model which
requires the transaction price for each identified contract to be apportioned to separate performance
obligations arising under the contract and recognised either when the performance obligation in the contract
has been performed (point in time recognition) or over time as control of the performance obligation is
transferred to the customer. Overall, the Group and Company expects that adoption of IFRS15 will not
impact on how revenue is currently accounted for.
Accounting for costs
Costs incurred on the commission paid to employees relating to software sales are currently expensed in the
year in which the sale is made. Under IFRS15, these costs will be recognised as an expense consistent with
the transfer of the related goods or services to the customer and will be amortised over the life of the initial
term of the contract.
Key judgement:
Annual licenses and upgrades
Recurring revenue is derived from the provision of software either as a hosted service or as a licensed
deployed product. Software products provided as an annual license including the right to regular upgrades.
Under IFRS15, judgement is required when assessing whether the annual license is a separate performance
obligation from the provision of upgrades to the customer. The Group and Company has assessed that the
ongoing updates and upgrades to the software are fundamental to the value of the software and that without
these updates the value of the software will substantially deteriorate over time. Therefore, the annual
license and the updates and upgrades will be combined as one performance obligation and revenue will be
recognised over the life of the license as the service is delivered resulting in no change to the current
revenue recognition.
IFRS 16 will change lease accounting mainly for lessees, and will replace the existing standard IAS 17. An
asset for the right to use the leased item and a liability for future lease payments will be recognised for all
leases, subject to limited exemptions for short-term leases and low-value lease assets. The costs of leases
will be recognised in profit or loss split between depreciation of the lease asset and a finance charge on the
lease liability. This is similar to the existing accounting for finance leases, but substantively different to the
existing accounting treatment for operating leases under which no lease asset or lease liability is recognised
and rentals payable.
48
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
a) Basis of preparation (continued)
Going concern
The Group has considerable financial resources and 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. As a result the Directors
believe that the Group is well placed to manage its business risks successfully.
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.
Further investigations regarding the Group and Company’s loan facilities are discussed in note 23.
Additionally note 2 to the financial statements include the Group and Company’s objectives, policies and
processes for managing its capital, its financial risk management objectives and its exposure to credit risk
and liquidity risk.
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 assessed that in respect of the available for sale investments, the Group does not hold
significant influence over the investees’ financial and operating policies.
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a
material adjustment to the carrying amounts of assets and liabilities are as follows:
• 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.
• 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.
49
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
a) Basis of preparation (continued)
Critical accounting estimates and judgements (continued)
• 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 management’s estimate of the life over
which revenue can be generated and taking cognisance of the useful economic life of similar competitor
products.
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
50
First Derivatives plc
Notes (continued)
• Note 33 – share based payment arrangements.
51
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, contingent consideration is remeasured at fair value at each reporting date and
subsequent changes in 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.
52
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.
53
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 monetary items 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.
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.
54
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
d) Property, plant and equipment (continued)
ii) Leased assets (continued)
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 Group’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 Other
Comprehensive Income (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.
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).
55
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
f) Intangible assets and goodwill (continued)
i) Goodwill (continued)
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.
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%
56
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
f) Intangible assets and goodwill (continued)
v) Amortisation (continued)
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.
l) Impairment
i) Financial assets
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to
determine whether there is any objective evidence that it is impaired. A financial asset is considered to be
impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the
assets and that the loss event had a negative effect on the estimated future cash flows of that asset that can
be estimated reliably.
57
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
l) Impairment (continued)
i) Financial assets (continued)
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.
ii) Loans and receivables
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.
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.
58
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
l) Impairment (continued)
iii) Non-financial assets (continued)
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) Employee benefits
i) Defined contribution plans
The Group operates a defined contribution (pension) plan for employees. A defined contribution plan is a
post-employment benefit plan under which the Group pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution pension plans are recognised as an expense through profit or loss as incurred.
ii) Share-based payment transactions
The 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.
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.
59
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
n) Revenue
i) Products and Services rendered
Revenue from products and services rendered is measured at the fair value of the consideration received or
receivable and is recognised in profit or loss in proportion to the stage of completion of the transaction at
the reporting date. No revenue is recognised if there are significant uncertainties regarding recovery of the
consideration due. The Group does not have contracts involving a combination of products and services.
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.
o) Lease payments
i) Operating lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term
of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease
expense, over the terms of the lease.
ii) Finance lease payments
Minimum lease payments made under finance leases are apportioned between the finance charge and the
reduction of the outstanding liability. The finance expense is allocated to each period during the lease term
so as to produce a constant periodic rate of interest on the remaining balance of the liability.
60
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
o) Lease payments (continued)
iii) Determining whether an arrangement contains a lease
At inception of an arrangement, the Group determines whether such an arrangement is or contains a lease.
A specific asset is the subject of a lease if fulfilment of the arrangement is dependent on the use of that
specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Group
the right to control the use of the underlying asset.
At inception or upon reassessment of the arrangement, the Group separates payments and other
consideration required by such an arrangement into those for the lease and those for other elements on the
basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to
separate the payments reliably, then an asset and a liability are recognised at an amount equal to the fair
value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed
finance charge on the liability is recognised using the Group’s incremental borrowing rate.
p) Finance income and expenses
Finance income comprises interest receivable on funds invested and dividend income. Interest income is
recognised through profit or loss as it accrues, using the effective interest method.
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.
Finance income and expenses included the foreign currency gain or loss on financial assets and liabilities.
q) Taxation
Tax expense on the profit or loss for the period presented comprises current and deferred tax. Current and
deferred tax is recognised in profit or loss except to the extent that it relates to a business combination or
items recognised directly in equity or in other comprehensive income.
i) Current tax
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.
61
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
q) Taxation (continued)
ii) Deferred tax (continued)
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.
r) Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the
following two conditions:
a) they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash
or other financial assets or to exchange financial assets or financial liabilities with another party under
conditions that are potentially unfavourable to the Company (or Group); and
b) where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-
derivative that includes no obligation to deliver a variable number of the Company’s own equity
instruments or is a derivative that will be settled by the Company’s exchanging a fixed amount of cash
or other financial asset for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability.
Where the instrument so classified takes the legal form of the Company’s own shares, the amounts
presented in these financial statements for called up share capital and share premium account exclude
amounts in relation to those shares.
s) Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares are recognised as a deduction from equity, net of any tax effects. The nominal value of shares issued
is recognised as share capital. The value of the consideration received in excess of the nominal value is
recognised as share premium.
62
First Derivatives plc
Notes (continued)
1. Significant accounting policies (continued)
t) Earnings per share
The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is
calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted
average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting
the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares
outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to
employees, Executive Directors and as part of business combinations.
u) Segmental reporting
An operating segment is a component of the Group that engages in business activities from which it may
earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of
the Group’s other components. The operating results are regularly reviewed by the board and comprise one
segment; however, the information provided contains revenue split between the various consulting and
software activities along with contribution figures. The Group makes substantial investment in developing
highly technical training which is provided to all staff so they may work in both areas of the business.
v) Adjusted EBITDA
Adjusted EBITDA is defined as results from operating activities before acquisition costs, changes in
contingent deferred consideration assessed as remuneration, share-based payments and related costs,
depreciation of property, plant and equipment; and amortisation of intangible assets. The Group uses
adjusted EDITDA as an underlying measure of its performance.
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.
63
First Derivatives plc
Notes (continued)
2. Financial risk management (continued)
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 strong capital position.
3. Acquisitions of subsidiary and associate
Acquisition of subsidiary
On 7 December 2017, the Group and Company acquired the entire share capital of Telconomics09 S.L,
based in Madrid, Spain. The acquisition will enable the Group and Company to accelerate its growth into
the telecoms vertical.
In the 2.5 months to 28 February 2018, the subsidiary contributed revenue of £115k and net profit of £22k
to the consolidated net profit for the year. If the acquisition had occurred on 1 March 2017, management
estimates that revenue for the Group would have been £186,613k and net profit for the year would have
been an estimated £10,304k. 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 2017.
64
First Derivatives plc
Notes (continued)
3. Acquisitions of subsidiary and associate (continued)
Acquisition of subsidiary (continued)
The following summarises the major classes of consideration transferred and the recognised fair value
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
Deferred tax asset
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred tax liability
Net identifiable assets and liabilities
Goodwill on acquisition
Consideration paid, satisfied as follows:
Cash
Shares issued (12,199 shares)
Consideration paid, satisfied as follows (continued):
Cash consideration paid
Cash (acquired)
Net cash outflow
Recognised
values on
acquisition
£’000
234
6
296
327
485
(139)
(58)
1,151
480
1,631
1,190
441
1,631
599
(485)
114
Of the cash consideration £591k was outstanding at year end and is payable post 28 February 2018.
65
First Derivatives plc
Notes (continued)
3. Acquisitions of subsidiary and associate (continued)
Acquisition of subsidiary (continued)
Shares issued
The fair value of the ordinary shares issued was based on the listed share price on 7 December 2017, the
effective date of control (3,611 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 2018 and has not identified any impairment (see note
17).
Contingent deferred purchase consideration
The Group and Company has agreed to pay an additional consideration of up to €1,600k (£1,400k) on the
achievement of certain performance targets over the three year period post acquisition. This consideration
is conditional on future service conditions and has been assessed as being post-acquisition remuneration.
An expense of £nil has been recognised in the current year.
Acquisition related costs
The Group incurred acquisition-related costs of £46k 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.
Acquisition of associate
On 30 June 2016, the Group acquired a 15.30% interest in RxDataScience Inc. (RxD) and subsequently
increased this to 26.49% as at 28 February 2017. RxD is not a publicly listed company.
During the year ended 28 February 2018 the Group increased its interest to 36.66% as certain milestones
were met and continues to account for its interest as an associate.
Recognised value at date of becoming an associate
Additions during year ended 28 February 2018
Goodwill on
acquisition
£’000
1,508
972
Share of
identifiable
net assets
£’000
40
181
Total cash
paid
£’000
1,548
1,153
66
First Derivatives plc
Notes (continued)
4. Operating segments
Business segments
The Group’s board of Directors is considered to be the Chief Operating Decision Maker of the Group and
reviews internal management reports on a regular 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 client engagement consulting and software sales and contribution figures
throughout the Group. 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.
The Group has disclosed below certain information regarding 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.
Revenue by division
Managed services and consulting
Software
2018
£’000
74,130
111,912
2017
£’000
63,495
88,202
Total
186,042
151,697
Geographical location analysis
UK
Rest of Europe
North America
Australasia
Revenues
Non-current assets
2018
£’000
58,054
29,824
79,673
18,491
2017
£’000
55,821
23,413
60,578
11,885
2018
£’000
34,783
13,340
120,529
1,464
2017
£’000
32,155
16,620
127,958
1,585
Total
186,042
151,697
170,116
178,318
67
First Derivatives plc
Notes (continued)
4. Operating segments (continued)
Revenue by industry
FinTech
MarTech
Other
Total
2018
£’000
142,857
38,154
5,031
2017
£’000
117,449
30,668
3,580
186,042
151,697
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 2018 or 2017.
5. Revenue
Sale of goods
Rendering of services
6. Other income
Government grants
2018
£’000
48,488
137,554
2017
£’000
38,712
112,985
186,042
151,697
2018
£’000
1,382
2017
£’000
2,148
The Group is in receipt of a government grant amounting to £3,880k, awarded in June 2014. The first
element was conditional on the recruitment of additional staff for the period to 31 August 2017. The
second is conditional on the recruitment of additional staff for the period to 31 December 2019. The grant
is recognised as deferred income as additional staff are recruited and is being amortised as the performance
conditions are satisfied.
68
First Derivatives plc
Notes (continued)
7. Administrative expenses
Rent, rates and insurance
Telephone
Accountancy, audit and legal expenses
Advertising and marketing
Depreciation and amortisation
Payroll costs
Research and development credit
Listing expenses
Provision for impairment of trade receivables
Travel and subsistence
IT expenses
Acquisition related costs and changes to contingent deferred
consideration
Other
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
Amounts receivable by auditors and their associates in respect of:
Audit of the subsidiary undertakings included in the consolidation
All other services
Taxation compliance services
Other tax advisory services
Expenses recharged
69
2018
£’000
4,381
795
1,081
2,475
13,144
10,075
(821)
265
1,380
604
775
3,570
596
2017
£’000
3,787
727
1,198
1,682
11,509
6,541
(345)
263
1,550
477
622
2,953
521
38,320
31,485
2018
£’000
1,380
2,556
1,807
76
55
4
79
90
10
314
2017
£’000
1,550
1,865
1,721
64
56
6
75
187
8
396
First Derivatives plc
Notes (continued)
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
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
2018
Average no.
2017
Average no.
219
1,690
209
1,386
1,909
1,595
2018
£’000
103,180
9,784
3,401
1,586
(7,486)
2017
£’000
82,249
8,685
2,939
1,392
(7,085)
110,465
88,180
2018
£’000
100,390
10,075
2017
£’000
81,639
6,541
110,465
88,180
70
First Derivatives plc
Notes (continued)
10. Finance income and expense
Interest income on bank deposits
Finance income
2018
£’000
1
1
2017
£’000
1
1
(Loss)/gain on foreign currency translation of monetary assets
(1,386)
1,475
Interest expense on bank loans
(1,150)
(1,193)
Finance expense
(1,150)
(1,193)
Net finance expense recognised in profit or loss
(2,535)
283
Exchange gains and losses on net investments in foreign subsidiaries and related effective hedges are
recognised in the foreign currency translation reserve.
71
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
2018
£’000
4,450
(275)
2017
£’000
6,734
(6)
4,175
6,728
(188)
(667)
(1,431)
(2,756)
(531)
45
(2,286)
(3,242)
Total tax expense
1,889
3,486
Reconciliation of effective tax rate
Profit excluding income tax
Income tax using the Company’s domestic tax rate (19.0849%)
(2017: 20.0%)
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
2018
£’000
2017
£’000
12,097
12,498
2,309
218
(34)
(942)
763
673
(1,431)
333
2,500
-
93
(537)
(314)
1,430
45
269
Total tax expense
1,889
3,486
72
First Derivatives plc
Notes (continued)
11. Tax expense (continued)
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 Act 2016 further reduced the 18% rate
to 17% from 1 April 2020.
On 22 December 2017, the U.S. Tax Cuts and Jobs Act (U.S. Tax Act), was signed into law. The
legislation significantly changes U.S tax law by, among other things, lowering corporate income tax
rates. The U.S. Tax Act reduces the U.S. corporate income tax rate from a maximum of 35% to a flat 21%
rate, effective from 1 January 2018. The impact of the change in tax rate in the income statement is
£1,431k.
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.
12. Remuneration of Directors
The remuneration paid to the Directors was:
Aggregate emoluments (including benefits in kind)
Company pension contributions
Share option expense
2018
£’000
1,284
53
163
2017
£’000
1,524
58
161
1,500
1,743
During the period there were 2 Directors accruing benefits under a defined contribution pension scheme
(2017: 2).
The aggregate emoluments and company pension contributions of the highest paid Director (excluding fees
paid for provision of services) amounted to £660k and £33k respectively during the year (2017: £626k and
£31k 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 25 to 27.
73
First Derivatives plc
Notes (continued)
13. Dividends
The following dividends were:
Final dividend relating to the prior year
Interim dividend paid
2018
£’000
3,499
1,773
2017
£’000
2,918
1,482
5,272
4,400
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 14.00 (previous year: 12.00) pence per share and
the interim dividend paid during the year amounted to 7.00 (previous year: 6.00) pence per share. The
cumulative dividend paid during the year amounted to 21.00 (previous year: 18.00) 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.
17.00 pence per ordinary share (2017: 14.00 pence)
14. Company result
2018
£’000
4,359
2017
£’000
3,482
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 £7,289k (2017: £3,647k).
15. a) Earnings per ordinary share
Basic
The calculation of basic earnings per share at 28 February 2018 was based on the profit attributable to
ordinary shareholders of £10,208k (2017: £9,012k), and a weighted average number of ordinary shares in
issue of 25,239k (2017: 24,542k).
Basic earnings per share
2018
Pence per
share
2017
Pence per
share
40.4
36.7
74
First Derivatives plc
Notes (continued)
15. a) Earnings per ordinary share (continued)
Weighted average number of ordinary shares
Issued ordinary shares at 1 March
Effect of share options exercised
Effect of shares issued as purchase consideration
Effect of shares issued as remuneration
2018
Number ’000
2017
Number ’000
24,868
367
3
1
24,009
513
19
1
Weighted average number of ordinary shares at 28 February
25,239
24,542
Diluted
The calculation of diluted earnings per share at 28 February 2018 was based on the profit attributable to
ordinary shareholders of £10,208k (2017: £9,012k) and a weighted average number of ordinary shares after
adjustment for the effects of all dilutive potential ordinary shares of 27,017k (2017: 26,212k).
Diluted earnings per share
Weighted average number of ordinary shares (diluted)
2018
Pence
per share
2017
Pence
per share
37.8
34.4
2018
Number ’000
2017
Number ’000
Weighted average number of ordinary shares (basic)
Effect of dilutive share options in issue
25,239
1,778
24,542
1,670
Weighted average number of ordinary shares (diluted) at 28 February
27,017
26,212
At 28 February 2018 no options (2017: 90,000) were excluded from the diluted weighted average number
of ordinary shares calculation as their effect would have been anti-dilutive and 200,000 (2017: 250,000)
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.
15. b) Earnings before tax per ordinary share
Earnings before tax per share are based on profit before taxation of £12,097k (2017: £12,498k). The
number of shares used in this calculation is consistent with note 15(a) above.
75
First Derivatives plc
Notes (continued)
15. b) Earnings before tax per ordinary share (continued)
Basic earnings before tax per ordinary share
Diluted earnings before tax per ordinary share
2018
Pence per
share
47.9
44.8
2017
Pence per
share
50.9
47.7
Reconciliation from earnings per ordinary share to earnings before tax per ordinary share.
Basic earnings per share
Impact of taxation charge
Basic earnings before tax per share
Diluted earnings per share
Impact of taxation charge
Diluted earnings before tax per share
2018
Pence per
share
2017
Pence per
share
40.4
7.5
47.9
37.8
7.0
44.8
36.7
14.2
50.9
34.4
13.3
47.7
Earnings before tax per share has been presented to facilitate pre-tax comparison returns on comparable
investments.
15. c) Adjusted earnings after tax per ordinary share
Adjusted earnings after tax per share are based on an adjusted profit after taxation of £19,505k (2017:
£16,077k). The adjusted profit after tax has been calculated by adjusting for the amortisation of acquired
intangibles after tax effect £4,266k (2017: £3,955k), share based payment and related charges after tax
effect £2,430k (2017: £1,853k), acquisition costs after tax effect £2,852k (2017: £2,412k), share of loss of
associate after tax effect £70k (2017: £24k), and for the loss on foreign currency translation after tax effect
£1,110k (2017: gain of £1,179k) and the deferred tax credit following the U.S. Tax Reform of £1,431k.
The number of shares used in this calculation is consistent with note 15(a) above.
Adjusted basic earnings after tax per ordinary share
Adjusted diluted earnings after tax per ordinary share
76
2018
Pence per
share
77.3
72.2
2017
Pence per
share
65.5
61.3
First Derivatives plc
Notes (continued)
16. Property, plant and equipment
Group
Cost
At 1 March 2017
Additions
Acquired in business combinations
Exchange adjustments
At 28 February 2018
Depreciation
At 1 March 2017
Charge for the year
Exchange adjustments
At 28 February 2018
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
Carrying amounts
At 1 March 2016
At 28 February 2017
At 28 February 2018
Leasehold
improvements
£’000
Plant and
equipment
£’000
Office
furniture
£’000
2,893
819
-
(90)
3,622
1,239
516
(59)
1,696
10,582
2,426
6
(174)
12,840
5,862
1,585
(90)
7,357
676
198
-
(5)
869
422
145
(3)
564
Leasehold
improvements
£’000
Plant and
equipment
£’000
Office
furniture
£’000
2,757
19
117
2,893
868
299
72
1,239
1,889
1,654
1,926
8,288
1,666
628
10,582
4,099
1,418
345
5,862
4,189
4,720
5,483
543
115
18
676
320
89
13
422
223
254
305
Total
£’000
14,151
3,443
6
(269)
17,331
7,523
2,246
(152)
9,617
Total
£’000
11,588
1,800
763
14,151
5,287
1,806
430
7,523
6,301
6,628
7,714
The basis by which depreciation is calculated is stated in note 1.
Details of security provided for borrowing in respect of property, plant and equipment are disclosed in note
23.
77
First Derivatives plc
Notes (continued)
16. Property, plant and equipment (continued)
Company
Cost
At 1 March 2017
Additions
At 28 February 2018
Depreciation
At 1 March 2017
Charge for the year
At 28 February 2018
Cost
At 1 March 2016
Additions
At 28 February 2017
Depreciation
At 1 March 2016
Charge for the year
At 28 February 2017
Carrying amounts
At 1 March 2016
At 28 February 2017
At 28 February 2018
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
1,984
478
2,462
652
306
958
3,119
799
3,918
1,480
489
1,969
419
198
617
195
111
306
Land and
buildings
£’000
Plant and
equipment
£’000
Office
furniture
£’000
1,984
-
1,984
484
168
652
1,500
1,332
1,504
2,239
880
3,119
1,038
442
1,480
1,201
1,639
1,949
304
115
419
139
56
195
165
224
311
Total
£’000
5,522
1,475
6,997
2,327
906
3,233
Total
£’000
4,527
995
5,522
1,661
666
2,327
2,866
3,195
3,764
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.
78
First Derivatives plc
Notes (continued)
17. Intangible assets and goodwill
Group
Cost
Balance at 1 March 2017
Development costs
Additions
Acquired in business combinations
Exchange adjustments
At 28 February 2018
Amortisation
Balance at 1 March 2017
Amortisation for the year
Exchange adjustment
At 28 February 2018
Cost
Balance at 1 March 2016
Development costs
Additions
Exchange adjustments
At 28 February 2017
Amortisation
Balance at 1 March 2016
Amortisation for the year
Exchange adjustment
At 28 February 2017
Carrying amounts
At 1 March 2016
At 28 February 2017
At 28 February 2018
Goodwill
Customer
lists
Acquired
software
Brand
name
£’000
£’000
£’000
£’000
113,436
-
-
480
(10,013)
103,903
-
-
-
-
13,613
-
-
44
(1,118)
12,539
6,008
1,344
(569)
6,783
28,567
-
760
182
(2,134)
27,375
13,829
3,269
(912)
16,186
777
-
-
8
(47)
738
463
71
(29)
505
Goodwill
Customer
lists
Acquired
Software
Brand
name
£’000
£’000
£’000
£’000
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
Internally
developed
software
£’000
43,578
7,486
-
-
229
51,293
16,280
6,214
136
22,630
Internally
developed
software
£’000
35,665
7,085
-
828
43,578
11,049
4,944
287
16,280
Total
£’000
199,971
7,486
760
714
(13,083)
195,848
36,580
10,898
(1,374)
46,104
Total
£’000
176,218
7,085
863
15,805
199,971
24,880
9,703
1,997
36,580
102,603
113,436
103,903
8,313
7,605
5,756
15,443
14,738
11,189
363
314
233
24,616
27,298
28,663
151,338
163,391
149,744
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.
79
First Derivatives plc
Notes (continued)
17. Intangible assets and goodwill (continued)
Included within development costs capitalised in the year is £7,486k (2017: £7,085k) of capitalised
employee costs for the year. Developed software includes £4,917k (2017: £4,008k) of software under
development at 28 February 2018 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
2018
£’000
10,899
5,575
71,194
87,668
16,235
103,903
2017
£’000
12,181
6,234
78,821
97,236
16,200
113,436
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% (2017: 7%-10%) is applied for years 2 to 5,
followed by a growth rate of 2% (2017: 2%) thereafter. The pre-tax discount rates applied to cash flow
projections of the CGUs was 12%-20% (2017: 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%
2018
Prelytix
LLC
17%
2%
7%
Kx
Systems
Inc
15%
2%
9%
Market
Resource
Partners
LLC
15%
2%
8%
2017
Prelytix
LLC
17%
2%
7%
Kx
Systems
Inc
15%
2%
9%
Discount rate
Terminal value growth rate
Early 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.
80
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:
Subsidiaries
Market Resource Partners LLC
Prelytix LLC
Kx Systems Inc.
Value in use
2018
£’000
2017
£’000
26,479
33,186
103,607
22,639
13,738
108,840
Excess over carrying
amount
2018
£’000
14,094
24,280
19,960
2017
£’000
10,458
6,617
14,309
Sensitivity analysis
There was no impairment charge for the year ended 28 February 2018 (2017: 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.
81
First Derivatives plc
Notes (continued)
17. Intangible assets and goodwill (continued)
Company
Cost
Balance at 1 March 2017
Development cost
Balance at 28 February 2018
Amortisation and impairment losses
Balance at 1 March 2017
Amortisation for the year
Balance at 28 February 2018
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
Carrying amounts
At 1 March 2016
At 28 February 2017
At 28 February 2018
Acquired
software
£’000
Internally
developed
software
£’000
Total
£’000
30,606
5,914
36,520
11,563
4,328
15,891
26,616
5,128
(1,138)
30,606
8,062
3,501
11,563
30,124
5,914
36,038
11,473
4,267
15,740
26,134
5,128
(1,138)
30,124
8,032
3,441
11,473
18,102
18,651
20,298
18,554
19,043
20,629
482
-
482
90
61
151
482
-
-
482
30
60
90
452
392
331
Included within development costs capitalised in the year is £5,914k (2017: £5,128k) of capitalised
employee costs. Developed software includes £2,774k (2017: £2,801k) of software under development at
28 February 2018 not yet commissioned.
82
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 Limited
First Derivatives No. 1 Inc.
First Derivatives Pte Limited*
First Derivatives Pty Limited
First Derivatives Services 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
Telconomics09 S.L
Address of
registered office
Ireland
Canada
United Kingdom
Ireland
Hong Kong
Ireland
Canada
United States
Australia
United Kingdom
United Kingdom
Japan
Mexico
United States
Singapore
Australia
United Kingdom
South Africa
United States
United States
N. Ireland
United States
United States
United States
Hong Kong
United Kingdom
United Kingdom
United States
Spain
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
Ordinary
Ordinary
Ownership
2018
2017
100%
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%
100%
100%
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%
-
*Owned directly by First Derivatives plc.
+This company has been amalgamated with First Derivatives Canada Inc.
Unlisted investments in subsidiaries at cost
At 1 March
Additions
Company
2018
£’000
83,023
12,306
2017
£’000
83,023
-
At end of period
95,329
83,023
83
First Derivatives plc
Notes (continued)
18. Investment in subsidiaries and associate (continued)
During the year the Company increased its investment in First Derivatives Canada Inc., First Derivatives
Pty Limited and Market Resource Partners LLC by £2,490k, £3,576k and £4,563k respectively following
receipt of additional ordinary share in exchange for settlement of a receivable from the subsidiaries of
£2,490k, £3,576k and £4,563k respectively.
Associate
Group
Investment in associate
2018
£’000
2,631
2017
£’000
1,548
At 28 February 2018, the Group had the following investment in an associate:
RxDataScience Inc.
Country of
incorporation
United States
Class of share held
Ordinary
Ownership
at 28 February 2018
36.66%
During the year the Group increased its interest in RxData Science Inc. (RxD) to 31.00% on 20 April 2017,
35.00% on 12 October 2017 and then to 36.66% on 19 January 2018. RxD is not publicly listed.
The Group’s share of loss in associates for the period to 28 February 2018 was £70k (2017: £24k).
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.
Percentage ownership interest
Non-current assets
Current assets
Non-current liabilities
Current liabilities
2018
36.66%
£’000
1,768
801
-
(10)
2017
26.49%
£’000
458
1,325
-
(4)
Net assets (100%)
2,559
1,779
Group’s share of net assets (36.66%) (2017: 26.49%)
938
471
84
First Derivatives plc
Notes (continued)
18. Investment in subsidiaries and associate (continued)
Associate (continued)
Group (continued)
Revenue
Loss from continuing operations (100%)
Other comprehensive income (100%)
Total comprehensive income (100%)
Total comprehensive income (36.66%) (2017: 26.49%)
2018
£’000
197
(221)
-
(221)
(70)
2017
£’000
-
(91)
-
(91)
(24)
At the year end the Group holds 56,142 (2017: 32,594) warrants which are exercisable on the occurrence
of an exit event at an exercise price of $0.01 per warrant.
19. Other financial assets – Available for sale
Group
Unlisted equity investments
At 1 March
Acquisitions
At end of period
Company
Unlisted equity investments
At 1 March
Acquisitions
2018
£’000
3,121
312
2017
£’000
-
3,121
3,433
3,121
2018
£’000
3,121
187
2017
£’000
-
3,121
At end of period
3,308
3,121
Information about the Group and Company’s exposure to market risk and fair value measurement is
disclosed in note 32b.
85
First Derivatives plc
Notes (continued)
20. Trade and other receivables
Current assets
Trade receivables
Receivables from
subsidiaries
Other receivables
Accrued income
Prepayments
Grant income receivable
Corporation tax receivable
Group
2018
£’000
2017
£’000
37,929
36,721
-
3,301
6,187
4,419
1,010
872
-
-
2,262
3,011
1,744
-
Company
2018
£’000
22,835
11,245
2,744
2,133
4,239
51
872
2017
£’000
21,523
22,578
-
218
3,082
965
-
53,718
43,738
44,119
48,366
Non-current assets
Receivables from
subsidiaries1
Trade and other receivables
Grant income receivable
2018
£’000
-
6,279
315
2017
£’000
-
2,830
800
2018
£’000
8,920
4,659
-
2017
£’000
3,227
2,470
-
6,594
3,630
13,579
5,697
1 The repayment terms of the receivable from certain subsidiaries has been agreed as falling due after more
than one year.
At 28 February 2018 Group and Company trade receivables are shown net of an allowance for doubtful
debts of £2,982k and £1,916k respectively (2017: Group £3,061k; Company £1,045k) arising from on-
going invoice disputes and the risk of companies defaulting. The impairment charge in the year was
£1,380k (2017: £1,550k) for Group and £1,412k (2017: charge £780k) 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.
86
First Derivatives plc
Notes (continued)
21. Cash and cash equivalents
Group
2018
£’000
2017
£’000
Bank balances
12,365
16,250
See note 32 for discussion of interest rate risk and sensitivity analysis.
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
Company
2018
£’000
4,013
2017
£’000
9,499
Ordinary shares
2018
Number
2017
Number
24,868,379
759,297
12,199
-
1,140
24,008,972
799,818
-
56,383
3,206
In issue at year end – fully paid
25,641,015
24,868,379
2018
Number
2018
£’000
2017
Number
2017
£’000
Equity shares
Issued, allotted and fully
paid
Ordinary shares of £0.005
each
25,641,015
128
24,868,379
124
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 759,297 share options (2017: 799,818) for cash
consideration of £7,119k (2017: £4,317k) together with an associated transfer from the share option reserve
of £1,427k (2017: £877k), the issue of 12,199 shares (2017: nil) at £441k as purchase consideration and the
issue of 1,140 shares (2017: 3,206) as remuneration of £28k (2017: £57k). Additionally in a prior year
56,383 ordinary shares were issued as settlement of contingent deferred purchase consideration at £1,125k.
Nature 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.
87
First Derivatives plc
Notes (continued)
22. Share capital (continued)
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.
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.
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
Group
Company
2018
£’000
3,339
7
2017
£’000
3,339
65
2018
£’000
3,339
-
2017
£’000
3,339
-
3,346
3,404
3,339
3,339
Non-current liabilities
Secured bank loans
Finance lease liabilities
25,205
-
26,353
4
25,205
-
26,353
-
25,205
26,357
25,205
26,353
Terms and repayment schedule
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)
£15,000k revolving cash facility (Facility 3)
£4,500k sterling overdraft (Bank Overdraft)
88
First Derivatives plc
Notes (continued)
23. Loans and borrowings (continued)
Terms and repayment schedule (continued)
The terms and conditions of outstanding loans were as follows:
Currency Nominal
interest
rate
2018
2017
Year of
maturity
Face
value
Carrying
amount
Face
value
Carrying
amount
Facility 1
Facility 2
Facility 3
GBP
Multi
GBP
Bank overdraft
GBP
USD
Finance lease
liabilities
Total interest-
bearing
2.25%
+LIBOR
2.25%
+LIBOR*
2.25%
+LIBOR*
2.25%
+LIBOR
4.375%
2019
2020
2019
2019
2018
£’000
£’000
£’000
£’000
339
339
339
339
22,905
22,905
29,353
29,353
5,300
5,300
-
7
-
7
-
-
69
-
-
69
28,551
28,551
29,761
29,761
* 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 facilities are secured by a fixed charge over the Group’s property with a carrying amount of £1,926k
(2017: £1,654k) and a debenture over the trading assets in Group companies. All outstanding loans have
interest charged at 2.25% (2017: 2.25%) above LIBOR.
89
First Derivatives plc
Notes (continued)
23. Loans and borrowings (continued)
Finance lease liabilities
Finance lease liabilities are payable as follows:
Group
2018
2017
Minimum
lease
payments
£’000
Interest Principal Minimum
lease
payments
£’000
£’000
£’000
Interest Principal
£’000
£’000
Less than one year
Between one and five years
8
-
8
1
-
1
7
-
7
80
5
85
15
1
16
65
4
69
The finance leases are secured over the leased equipment.
Reconciliation of movements of liabilities to cash flows arising from financing activities
Group
Secured bank loans
Lease liabilities
2017
Cash flows
£’000
29,692
69
£’000
1,550
(62)
Non-cash
Foreign
exchange
movment
£’000
(2,698)
-
2018
£’000
28,544
7
Total liabilities from financing activities
29,761
1,488
(2,698)
28,551
Company
2017
Cash flows
£’000
£’000
Non-cash
Foreign
exchange
movment
£’000
2018
£’000
Secured bank loans
29,692
1,550
(2,698)
28,544
Total liabilities from financing activities
29,692
1,550
(2,698)
28,544
90
First Derivatives plc
Notes (continued)
24. Trade and other payables
Current liabilities
Group
Company
Trade payables
Other payables
Accruals
Deferred income
Government grants
Payables to subsidiaries
2018
£’000
6,444
10,445
1,967
14,928
286
-
2017
£’000
4,218
9,494
1,619
16,500
1,850
-
2018
£’000
4,611
8,248
1,775
4,450
147
17,786
2017
£’000
4,349
5,657
1,267
3,990
1,531
18,270
34,070
33,681
37,017
35,064
Non-current liabilities
Group
Company
NCI put
Government grants
2018
£’000
30,036
2,091
2017
£’000
33,593
1,521
2018
£’000
-
1,071
32,127
35,114
1,071
2017
£’000
-
256
256
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
Intangible assets
Short term timing
differences
Other
Tax assets/(liabilities)
before set-off
Set off of tax
2018
£’000
-
7,269
9,022
341
1,461
260
2017
£’000
-
4,204
6,177
368
3,906
204
18,353
-
14,859
-
2018
£’000
(4,545)
-
-
(5,266)
-
-
(9,811)
-
2017
£’000
(4,234)
-
-
(8,698)
-
-
(12,932)
-
Net tax assets/(liabilities)
18,353
14,859
(9,811)
(12,932)
Movement in deferred tax balances differences during the year:
Balance at
1 March
2017
£’000
Recognised
in income
Recognised
in equity
£’000
£’000
Recognised
on
Acquisition
£’000
Share
options
exercised
£’000
Balance at
28 February
2018
£’000
Property, plant and
equipment
Share based
payments
Trading losses
Intangible assets
Short term timing
differences
Other
(4,234)
4,204
6,177
(8,330)
3,906
204
(324)
(23)
1,204
1,678
(722)
473
13
4,913
1,345
1,785
(1,723)
(417)
-
-
296
(58)
-
-
-
(4,545)
(1,825)
-
-
-
-
7,269
9,022
(4,925)
1,461
260
1,927
2,286
5,916
238
(1,825)
8,542
92
First Derivatives plc
Notes (continued)
25. Deferred taxation (continued)
Group (continued)
Property, plant and
equipment
Share based
payments
Trading losses
Intangible assets
Short term timing
differences
Other
Balance at
1 March
2016
£’000
Recognised
in income
Recognised
in equity
£’000
£’000
Recognised
on
Acquisition
£’000
Share
options
exercised
£’000
Balance at
28 February
2017
£’000
(3,822)
(283)
2,909
4,556
(8,274)
1,308
64
(18)
284
741
2,344
174
(129)
2,785
1,337
(797)
254
(34)
(3,259)
3,242
3,416
-
-
-
-
-
-
-
-
(4,234)
(1,472)
-
-
-
-
4,204
6,177
(8,330)
3,906
204
(1,472)
1,927
The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised
deferred tax balances.
As at 28 February 2018, the Group had tax losses carried forward in the United States (Federal and State),
in the United Kingdom, Ireland, Canada and Australia. U.S. Federal and State tax losses will expire, if not
utilised, in the tax years 2030 – 2038. Tax losses generated in the United Kingdom, Ireland, Canada and
Australia have no expiration period.
93
First Derivatives plc
Notes (continued)
25. Deferred taxation (continued)
Company
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
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
2018
£’000
-
6,888
-
5,072
308
12,268
-
2017
£’000
-
3,649
-
4,268
124
8,041
-
2018
£’000
(3,326)
-
(32)
-
-
(3,358)
-
2017
£’000
(3,126)
-
(32)
-
-
(3,158)
-
Net tax assets/(liabilities)
12,268
8,041
(3,358)
(3,158)
Movement in deferred tax balances during the year:
Property, plant and equipment
Share based payments
Net fair value movement on
available for sale assets
Trading losses
Other
Balance at
1 March
2017
£’000
Recognised
in profit
and loss
£’000
(3,126)
3,649
(32)
4,268
124
(200)
(23)
-
-
184
Recognised
in equity
£’000
-
5,087
-
804
-
Share
options
exercised
£’000
Balance at
28 February
2018
£’000
-
(1,825)
(3,326)
6,888
-
-
-
(32)
5,072
308
4,883
(39)
5,891
(1,825)
8,910
94
First Derivatives plc
Notes (continued)
25. Deferred taxation (continued)
Company (continued)
Property, plant and equipment
Share based payments
Net fair value movement on
available for sale assets
Trading losses
Other
Balance at
1 March
2016
£’000
Recognised
in profit
and loss
£’000
(3,307)
2,909
(34)
3,089
36
181
(61)
-
15
93
Recognised
in equity
£’000
-
2,273
2
1,164
(5)
Share
options
exercised
£’000
Balance at
28 February
2017
£’000
-
(1,472)
-
-
-
(3,126)
3,649
(32)
4,268
124
2,693
228
3,434
(1,472)
4,883
The basis by which taxation is calculated is stated in note 1. There is no unprovided or unrecognised
deferred tax balances.
26. Current tax payable
Group
Company
Current tax payable
27. Employee benefits
Accrued holiday pay
Employee taxes
2018
£’000
1,195
2018
£’000
1,832
3,179
2017
£’000
426
2017
£’000
1,554
3,938
2018
£’000
-
2018
£’000
1,448
2,851
2017
£’000
53
2017
£’000
1,208
3,714
5,011
5,492
4,299
4,922
95
First Derivatives plc
Notes (continued)
28. Contingent deferred consideration
Contingent deferred consideration liabilities are payable as follows:
At 1 March
Increase in contingent
deferred consideration
Settled in year
Foreign exchange impact
Group
Company
2018
£’000
4,028
2,980
(897)
(423)
2017
£’000
3,895
2,125
(2,400)
408
2018
£’000
500
1,038
(500)
-
2017
£’000
1,951
-
(1,451)
-
At end of period
5,688
4,028
1,038
500
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 2018 the maximum total amount payable under the terms of the sale
and purchase agreements is £5,688k (2017: £4,028k) and the minimum total amount payable is £nil (2017:
£nil).
Within one year
More than one year
Group
Company
2018
£’000
5,688
-
2017
£’000
859
3,169
2018
£’000
1,038
-
5,688
4,028
1,038
2017
£’000
500
-
500
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 55% (2017: 49%) and shares 45% (2017: 51%).
96
First Derivatives plc
Notes (continued)
29. Commitments
In the prior year the Group 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 – the commitment to acquire the
further shares was completed during the year. 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
2018
£’000
3,063
10,072
11,864
2017
£’000
1,632
4,721
2,405
2018
£’000
1,183
4,446
6,456
2017
£’000
609
2,348
2,006
24,999
8,758
12,085
4,963
The Group leases 20 premises under operating lease arrangements.
Group
During the year £2,556k was recognised as an expense in the income statement in respect of operating
leases (2017: £1,865k).
Company
During the year £944k was recognised as an expense in the income statement in respect of operating leases
(2017: £609k).
30. Pension contributions
The Group makes contributions to the personal pension schemes of certain employees. The pension charge
for the year amounted to £3,401k (2017: £2,939k). Contributions amounting to £411k (2017: £428k) 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.
97
First Derivatives plc
Notes (continued)
31. Related parties transactions (continued)
Group (continued)
Key management personnel compensation (continued)
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 (2017: £55k). Rent deposits of
£26k (2017: £26k) have been paid to Brian Conlon in respect of these apartments. The balance owed to
Brian Conlon at 28 February 2018 is £nil (2017: £nil).
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 (2017: £140k) rental charge was
incurred in the year. The balance owed to Oncon Properties at 28 February 2018 is £nil (2017: £nil) and an
amount of £168k (2017: £207k) 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
Administrative expenses incurred
from
2018
£’000
8,488
2017
£’000
12,408
2018
£’000
22,976
2017
£’000
17,862
Receivables outstanding
Payables outstanding
2018
£’000
20,165
2017
£’000
25,805
2018
£’000
17,786
2017
£’000
18,270
Subsidiaries
Subsidiaries
Development costs of £281k (2017: £218k) 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
2018
£’000
1,649
24
10
5
2
2017
£’000
1,414
28
9
5
1
1,690
1,457
98
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 2018
Loans and
receivables
Carrying value
Liabilities at
amortised
cost
£’000
Carrying
amount
£’000
3,433
-
3,433
55,893
12,365
68,258
(5,688)
-
(5,688)
-
-
-
-
-
-
-
-
-
(28,544)
(7)
(48,892)
(5,011)
(82,454)
(28,544)
(7)
(48,892)
(5,011)
(82,454)
Fair
value
£’000
3
1
1
1
(5,688)
1
1
1
(48,892)
1
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
Financial liabilities not measured at fair value
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
£’000
-
-
-
55,893
12,365
68,258
-
-
-
-
-
-
-
-
99
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Fair values (continued)
a) Accounting classifications and fair values (continued)
Group (continued)
28 February 2017
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
Financial liabilities not measured at fair value
Secured bank loans
Finance leases
Trade, accruals and other payables
Employee benefits
£’000
-
-
-
44,357
16,250
60,607
-
-
-
-
-
-
-
-
Loans and
receivables
Carrying value
Liabilities at
amortised
cost
£’000
Carrying
amount
£’000
3,121
-
3,121
44,357
16,250
60,607
(4,028)
-
(4,028)
-
-
-
-
-
-
-
-
-
(29,692)
(69)
(48,924)
(5,492)
(84,177)
(29,692)
(69)
(48,924)
(5,492)
(84,177)
Fair
value
£’000
3
1
1
1
(4,028)
1
1
1
(48,924)
1
1 Fair value not disclosed as the carrying amounts are considered to be a reasonable approximation of fair value
2 Contingent deferred consideration is a level 3 fair value
3 Equity securities available for sale are a level 3 fair value
4 Derivatives assessed as having minimal value
100
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Fair values (continued)
a) Accounting classifications and fair values (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 2018
Loans and
receivables
Carrying value
Liabilities at
amortised
cost
£’000
Carrying
amount
£’000
3,308
53,459
4,013
57,472
-
(1,038)
(1,038)
-
-
-
-
-
-
-
(28,544)
(32,420)
(4,299)
(65,263)
(28,544)
(32,420)
(4,299)
(65,263)
Fair
value
£’000
1
1
1
-
(1,038)
1
(32,420)
1
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
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
£’000
-
53,459
4,013
57,472
-
-
-
-
-
-
-
101
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Fair values (continued)
a) Accounting classifications and fair values (continued)
Company (continued)
28 February 2017
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
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
£’000
-
50,981
9,499
60,480
-
-
-
-
-
-
-
Loans and
receivables
Carrying value
Liabilities at
amortised
cost
£’000
Carrying
amount
£’000
3,121
50,981
9,499
60,480
-
(500)
(500)
-
-
-
-
-
(500)
(500)
(29,692)
(29,543)
(4,922)
(64,157)
(29,692)
(29,543)
(4,922)
(64,157)
Fair
value
£’000
1
1
1
-
(500)
1
(29,543)
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
102
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Fair values (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 - The Group and Company has invested in a number of investments in unlisted companies
and a venture capital fund. The Group and Company has applied a discounted cash flow valuation
technique to assess the fair value of the investments as at year end.
The valuation model calculates the equity value considering the forecast revenue and EBITDA, together
with forecast exit value applying market multiples, discounted using a risk-adjusted discount rate.
Significant inputs:
- Forecast annual revenue and cost growth beyond the company’s forecast period: 10%
- Forecast EBTIDA margin: 25-56%
- Risk-adjusted discount rate: 40-45%
- Adjusted market multiple: 11-13.5
- Time period to exit: 5-7 years
The estimated fair value change would increase/(decrease) if the adjusted market multiple was higher
/(lower); the annual growth rates were higher/(lower); the EBITDA margin was higher/(lower); the risk-
adjusted discount rate was lower/(higher). Generally a change in the annual growth rate is accompanied by
a directionally similar change in the EBITDA margin.
Warrants - The Group holds warrants in the associate. These were considered at 28 February 2018 and 28
February 2017 to have a minimal fair value due to the contingent nature.
103
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Fair values (continued)
b) Measurement of fair values (continued)
Reconciliation of Level 3 fair value:
Balance at 1 March 2016
Purchases
Settlements
Loss included in administrative expenses
-
Foreign exchange loss
Net change in fair value (unrealised)
Unquoted
equities
£’000
Contingent
consideration
£’000
-
3,121
-
-
-
(3,895)
-
2,400
(2,125)
(408)
Balance at 28 February 2017
3,121
(4,028)
Purchases
Settlements
Loss included in administrative expenses
-
Foreign exchange gain
Net change in fair value (unrealised)
312
-
-
-
-
897
(2,980)
423
Balance at 28 February 2018
3,433
(5,688)
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:
Group
Carrying amount
2018
£’000
Trade and other receivables
Cash and cash equivalents
55,893
12,365
2017
£’000
44,357
16,250
Company
Carrying amount
2018
£’000
53,459
4,013
2017
£’000
50,981
9,499
68,258
60,607
57,472
60,480
All financial assets which are subject to credit risk are held at amortised cost.
104
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 geographical
region was:
Group
Company
Europe
America
United Kingdom
Australasia
2018
£’000
8,653
23,867
21,182
2,191
2017
£’000
5,685
24,823
11,251
2,598
2018
£’000
4,868
23,831
22,022
2,738
2017
£’000
2,710
31,103
11,790
5,378
55,893
44,357
53,459
50,981
The maximum exposure to credit risk for trade and other receivables at the reporting date by type of
counterparty was:
Group
Company
End-user customer
Other
2018
£’000
47,136
8,757
2017
£’000
39,615
4,742
2018
£’000
32,042
21,417
2017
£’000
22,178
28,803
55,893
44,357
53,459
50,981
No customers had receivable balances in excess of 10% of the Group’s total balance at the year end. In
addition £164k (2017: £1,023k) is receivable from Invest Northern Ireland in respect of grants receivable.
105
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Exposure to credit risk (continued)
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 +
Gross
2018
£’000
20,706
4,576
7,670
4,894
3,065
Impairment
2018
£’000
-
-
-
152
2,830
Gross
2017
£’000
14,165
9,133
8,729
3,979
3,776
Impairment
2017
£’000
-
-
-
149
2,912
Total
40,911
2,982
39,782
3,061
Company
Not past due
Past due 0-30 days
Past due 31-120 days
Past due 121-365 days
Past due 366 days +
Gross
2018
£’000
10,915
2,351
5,820
3,901
1,764
Impairment
2018
£’000
-
-
-
152
1,764
Gross
2017
£’000
8,000
5,413
6,692
1,567
896
Impairment
2017
£’000
-
-
-
149
896
Total
24,751
1,916
22,568
1,045
106
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Exposure to credit risk (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
2018
£’000
3,061
1,380
23
(1,482)
2017
£’000
4,342
1,550
388
(3,219)
2018
£’000
1,045
1,412
-
(541)
2017
£’000
981
780
-
(716)
Closing balance
2,982
3,061
1,916
1,045
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 £12,365k (2017: £16,250k) and £4,013k (2017:
£9,449k) respectively at 28 February 2018 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.
107
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 2018
Carrying
amount
Contractual
cash flows
6 mths
or less
6-12
mths
1-2
years
2-5
years
£’000
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Finance leases
Trade and other
payables
Contingent deferred
consideration
Commitment to
associate
(28,544)
(7)
(29,881)
(8)
(1,958)
(8)
(2,272)
-
(25,651)
-
(48,892)
(48,892)
(18,856)
-
(30,036)
(5,688)
(5,688)
-
(5,688)
-
(1,007)
(560)
(447)
-
-
(83,131)
(85,476)
(21,382)
(8,407)
(55,687)
-
-
-
-
-
-
28 February 2017
Carrying
amount
Contractual
cash flows
6 mths
or less
6-12
mths
1-2
years
2-5
years
£’000
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Finance leases
Trade and other
payables
Contingent deferred
consideration
Commitment to
associate
(29,692)
(69)
(31,803)
(85)
(1,971)
(40)
(2,286)
(40)
(3,820)
(5)
(23,726)
-
(48,924)
(48,924)
(15,331)
(4,028)
(4,028)
(859)
-
-
(33,593)
(3,169)
-
(2,347)
(1,820)
(526)
-
-
-
-
(82,713)
(87,187)
(20,021)
(2,852)
(40,587)
(23,726)
More
than 5
years
£’000
-
-
-
-
-
-
More
than 5
years
£’000
-
-
-
-
-
-
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 £30,036k (2017: £33,593k) included in trade and other payables is
up to seven years, but has an exercise notice period of 366 days.
108
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Liquidity risk (continued)
Company
The following are contractual maturities of financial liabilities, including estimated interest payments.
28 February 2018
Carrying
amount
Contractual
cash flows
6 mths
or less
6-12
mths
1-2 years 2-5 years
£’000
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Trade and other
payables
Contingent deferred
consideration
(28,544)
(29,881)
(1,958)
(2,272)
(25,651)
(32,420)
(32,420)
(32,420)
-
(1,038)
(1,038)
-
(1,038)
-
-
(62,002)
(63,339)
(34,378)
(3,310)
(25,651)
-
-
-
-
28 February 2017
Carrying
amount
Contractual
cash flows
6 mths
or less
6-12
mths
1-2 years 2-5 years
£’000
£’000
£’000
£’000
£’000
£’000
Secured bank loans
Trade and other
payables
Contingent deferred
consideration
(29,692)
(31,803)
(1,971)
(2,286)
(3,820)
(23,726)
(29,543)
(29,543)
(29,543)
(500)
(500)
(500)
-
-
-
-
-
-
(59,735)
(61,846)
(32,014)
(2,386)
(3,820)
(23,726)
More
than 5
years
£’000
-
-
-
-
More
than 5
years
£’000
-
-
-
-
The above contracted cash flows include interest on secured bank loans the terms of which are set out in
note 23.
109
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Currency risk
Group
The Group’s exposure to currency risk was as follows:
Trade receivables
Trade and other payables
28 February 2018
28 February 2017
CAD
£’000
230
(14)
EUR
£’000
USD
£’000
CAD
£’000
EUR
£’000
USD
£’000
3,483
(329)
10,079
(31,154)
42
(2)
2,117
(239)
12,953
(35,352)
Net balance sheet exposure
216
3,154
(21,075)
40
1,878
(22,399)
The above excludes bank loans designated in a net investment hedge of £22,354k (2017: £28,802k).
Company
The Company’s exposure to currency risk was as follows:
28 February 2018
28 February 2017
CAD
£’000
EUR
£’000
USD
£’000
CAD
£’000
Trade receivables
Secured bank loans
Trade and other payables
230
-
(14)
3,483
-
(250)
9,824
(22,354)
(997)
42
-
(2)
EUR
£’000
2,117
-
(186)
USD
£’000
11,740
(28,802)
(1,555)
Net balance sheet exposure
216
3,233
(13,527)
40
1,931
(18,617)
The following significant exchange rates applied during the year:
USD 1
EUR 1
CAD 1
Average rate
Reporting date spot rate
2018
1.31
1.14
1.69
2017
1.32
1.20
1.73
2018
1.39
1.13
1.77
2017
1.24
1.17
1.64
110
First Derivatives plc
Notes (continued)
32. Financial instruments (continued)
Currency risk (continued)
Sensitivity analysis
A 10% strengthening of Sterling against the above currencies at the end of the period would decrease
Group equity by £3,004k (2017: £3,359k) and profit or loss by £1,771k (2017: £2,048k). A 10%
weakening of Sterling against the above currencies at the end of the period would increase Group equity by
£2,703k (2017: £3,023k) and profit or loss by £1,594k (2017: £1,844k). 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.
A 10% strengthening of Sterling against the above currencies at the end of the period would decrease
Company profit or loss by approximately £1,008k (2017: £1,370k). A 10% weakening of Sterling against
the above currencies at the end of the period would increase Company profit or loss by approximately
£907k (2017: £1,233k). 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:
Group
2018
£’000
2017
£’000
Company
2018
£’000
2017
£’000
Variable rate instruments
- Financial assets
- Financial liabilities
12,365
(28,544)
16,250
(29,692)
4,013
(28,544)
9,499
(29,692)
(16,179)
(13,442)
(24,531)
(20,193)
Fixed rate instruments
- Financial assets
- Financial liabilities
1,944
(7)
1,937
-
(69)
(69)
323
-
323
-
-
-
A 10% reduction in interest rates at the end of the period would increase Group equity and profit and loss
by approximately £84k (2017: £88k). A 10% increase in interest rates at the end of the period would
decrease Group equity and profit or loss by approximately £93k (2017: £96k). This analysis assumes that
all other variables remain constant.
111
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. Options that vest at annual intervals over
a three or four year period are deemed to consist of three separate options for valuation purposes. Options
with TSR conditions vesting at the end of a three year period are deemed to be a single option for
valuation. 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:
Range of exercise price: £1.21
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
Weighted
average
exercise price
2018
Number
of options
2018
Weighted
average
exercise price
2017
1.21
-
1.21
-
1.21
1.21
105,500
-
(11,000)
-
94,500
94,500
1.35
-
1.59
-
1.21
1.21
Number
of options
2017
169,500
-
(64,000)
-
105,500
105,500
The options outstanding at 28 February 2018 above have an exercise price of £1.21 (2017: £1.21) and a
weighted average contractual life of 1.0 years (2017: 2.0 years).
Range of exercise price: £2.27 – £2.67
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
Weighted
average
exercise price
2018
Number
of options
2018
Weighted
average
exercise price
2017
2.50
-
2.63
-
2.27
2.27
120,334
-
(75,750)
-
44,584
44,584
2.55
-
2.63
-
2.50
2.50
Number
of options
2017
199,334
-
(79,000)
-
120,334
120,334
The options outstanding at 28 February 2018 above have an exercise price of £2.27 (2017: in the range of
£2.27 to £2.735) and a weighted average contractual life of 2.0 years (2017: 1.3 years).
112
First Derivatives plc
Notes (continued)
33. Share based payments (continued)
Range of exercise price: £4.15 – £9.00
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
Weighted
average
exercise
price
2018
6.77
8.68
6.93
-
6.77
6.51
Number
of options
2018
1,226,550
31,000
(347,883)
-
909,667
813,088
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
The options outstanding at 28 February 2018 above have an exercise price in the range of £4.27 to £9.00
(2017: £4.27 to £9.00) and a weighted average contractual life of 4.7 years (2017: 5.7 years).
Range of exercise price: £12.28 – £25.37
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
Weighted
average
exercise
price
2018
14.70
14.69
13.84
21.76
16.70
14.67
Number
of options
2018
1,603,500
(1,500)
(324,664)
450,000
1,727,336
270,825
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
-
The options outstanding at 28 February 2018 above have an exercise price in the range of £12.28 to £25.37
(2017: £12.28 to £21.10) and a weighted average contractual life of 8.0 years (2017: 8.5).
The weighted average share price at the date of exercise for share options exercised for the year ending
28 February 2018 was £31.89 per share (2017: £17.85).
113
First Derivatives plc
Notes (continued)
33. Share based payments (continued)
Measurement of fair values
The fair value of services received in return for share options granted is based on the fair value of share
options granted, measured using an adjusted Black Scholes model, with the following inputs:
Grant of options during the year ended 28 February 2018
Grant date
Fair value at grant date
Share price at grant date
Exercise price
Number of options
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
17/05/17
4.53
25.37
25.37
250,000
17.5%
3.5 years
0.1%
3.0%
17/05/17
3.10
25.37
17.25
200,000
17.5%
3.5 years
0.1%
3.0%
The share option award on 17 May 2017 with an exercise price of £17.25 was due to commitments as part
of contractual employment arrangements that were subject to criteria being satisfied prior to the award of
the options.
Measurement of fair values
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 options1
Expected volatility (weighted average volatility)
Option life (expected weighted average life)
Expected dividends
Risk-free interest rate (based on government bonds)
08/03/16
3.07
14.69
14.69
553,000
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%
1The share option award on 08 March 2016 has been updated to include an additional 34,000 options which
were included in this tranche.
The adjustments made to the standard Black Scholes model are those required to reflect more clearly the
Company’s experience relating to key assumptions.
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First Derivatives plc
Notes (continued)
33. Share based payments (continued)
Employee expenses
Expense relating to:
Share options granted in 2012/13
Share options granted in 2013/14
Share options granted in 2014/15
Share options granted in 2015/16
Share options granted in 2016/17
Share options granted in 2017/18
Total expense recognised as employee benefit expense
Total amount recognised as software development costs
2018
£’000
-
74
195
399
560
358
1,586
-
2017
£’000
58
147
211
284
400
-
1,100
292
Total amount recognised in share based payment reserve
1,586
1,392
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 March 2020 and
September 2022 in relation to the respective grants.
115
First Derivatives plc
Directors and advisors
Directors
Secretary
Registered Office
Auditors
Solicitors
Bankers
– Non-Executive Chairman*+
– Chief Executive Officer
– Chief Financial Officer
– Non-Executive Director*
– Non-Executive Director*+
– Non-Executive Director+
(Resigned 15 May 2017)
– Non-Executive Director
(Appointed 15 January 2018)
S Keating
B G Conlon
R G Ferguson
K MacDonald
V Gambale
J Robson
D Troy
JJ Kearns
3 Canal Quay
Newry
Co Down
BT35 6BP
KPMG
Chartered Accountants
The Soloist Building
1 Lanyon Place
Belfast
BT1 3LP
Mills Selig
21 Arthur Street
Belfast
BT1 4GA
Bank of Ireland
Corporate Headquarters
Donegall Place
Belfast
BT1 5LU
Nominated Advisor/EMI Advisor and
Joint Brokers
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
116
First Derivatives plc
Global directory
Europe, Middle East & Africa
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
Cannon Green Building
27 Bush Lane
London
EC4R 0AN
UK
Munich Office
Mindspace
Viktualienmarkt 8
80331 Munich
Germany
USA & Canada
New York
45 Broadway
Twentieth Floor
New York
NY 10006
USA
Telephone: +1 212 447 6700
Toronto
36 King Street East
Fourth Floor
Toronto
Ontario
M5C 1E5
Canada
Belfast
Seventh Floor
11-13 Gloucester Street
Belfast
Co. Antrim
N.Ireland
BT1 4LS
Dublin
First Floor
Fleming Court
Flemings Place
Mespil Road
Dublin 4
D04 N4X9
Ireland
Dubai Office
Creative Tower
Dubai
PO BOX 4422
UAE
Philadelphia
1650 Arch Street
Suite 2210
Philadelphia
PA 19103
USA
31 Lakeshore Road East
Suite 201
Mississauga
Ontario
L5G 4V5
Canada
117
First Derivatives plc
Global directory
Asia Pacific
Sydney
Suite 201
22 Pitt Street
Sydney
NSW 2000
Australia
Hong Kong
Level 8
Two Exchange Square
8 Connaught Place
Central
Hong Kong
Singapore
One Raffles Quay
North Tower
#30-03
Singapore
048583
Tokyo
Sanno Park Tower 3F
2-11-1 Nagata-cho
Chiyoda-ku
Tokyo, 100-6162
Japan
118