Instem Life Science Systems plc
Annual Report
2010
Instem (AIM:INS.L) is a leading supplier of IT solutions to the early development healthcare
market. Instem’s solutions accelerate drug and chemical development by increasing productivity,
automating processes and enhancing practices that lead to safer and more effective drugs.
Instem has over 130 customers in North America, Europe, China, India and Japan, including
sixteen of the top twenty pharmaceutical and biotech companies such as GlaxoSmithKline and
AstraZeneca.
It is estimated that approximately half of the world’s pre-clinical drug safety data has been
collected over the last 20 years via Instem software.
®
The Provantis solution incorporates a comprehensive suite of modules required for managing and
recording Early Development Safety Assessment (EDSA) studies, from receipt of the compound
through to the automated assembly of statistical analyses and final reports. The software allows
scientific staff to collect, analyse and share data across the organisation and externally.
Installed on-site or using SaaS, Provantis streamlines traditional paper or spreadsheet-based
workflow with intuitive functionality enforcing best practice, reducing the potential for errors and
providing documented validation at every step.
Centrus
TM
Launched in September of 2010, the Centrus suite provides a single, secure environment to
access, harmonise and use early drug development information from a variety of sources,
including current data acquisition systems, legacy systems, warehouses, partner and contract
research applications, to meet the rapidly-expanding needs of life science organisations for data-
driven decision making.
By having the ability to access various sources and formats of data, Centrus adds value to existing
systems; collating and standardising information and distributing the results to sponsors,
regulators and partners. The suite provides powerful pre-built applications as well as the ability
to utilise a range of sophisticated business intelligence and analysis tools.
The acquisition of BioWisdom greatly enhances the Centrus product suite capabilities and adds
another compelling dimension to the Instem offering.
Our clients include these fine organisations...
Contents
HIGHLIGHTS
CHAIRMAN’S STATEMENT
OPERATIONAL REVIEW
FINANCIAL REVIEW
BOARD OF DIRECTORS
DIRECTORS’ REPORT
CORPORATE GOVERNANCE REPORT
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF INSTEM LIFE SCIENCE SYSTEMS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
COMPANY STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CASH FLOWS
COMPANY STATEMENT OF CASH FLOWS
CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY
ACCOUNTING POLICIES
NOTES TO THE FINANCIAL STATEMENTS
COMPANY STATEMENT OF COMPREHENSIVE INCOME
DIRECTORS AND ADVISERS
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Instem Life Science Systems plc Annual Report, 2010
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Instem Life Science Systems plc Annual Report, 2010
Highlights
Financial Highlights
Operational Highlights
• Revenues steady at £10.00m (2009: £9.99m)
•
Successfully admitted to AIM in October 2010 to
facilitate the growth strategy
• Won the majority of new business placed in the
Early Development Safety Assessment (EDSA)
market. Notable new customers included:
• US National Institute of Environmental Health
Sciences (NIEHS)
•
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Shin Nippon Biomedical Laboratories USA
Shanghai Institute of Materia Medica
• Customer retention rate remained at over 95%
•
Launched new product suite, Centrus™,
extending addressable market
• Completed investment in a new Chinese operation
•
Acquisition of BioWisdom Ltd, completed post
year end on 3 March 2011, augmenting the
Centrus suite
• Recurring revenues accounted for 67% of total
revenues (2009: 64%)
• Operating profi t before amortisation and
non-recurring costs increased by 2.0% to £2.23m
(2009: £2.19m)
• Closing cash balance as at 31 December 2010 of
£3.26m
We have established a profi table, cash-
generative leading business in the niche
market of early drug safety assessment.
With fi scal and regulatory pressures driving
the need for our solutions, we believe we
now have a strong platform from which to
achieve accelerated growth through the
entry into complementary markets and
geographies. Since our Admission to AIM
in October 2010 we have made progress
with both our organic and acquisitive growth
strategies, acquiring BioWisdom in March
2011. We look forward to the future with
confi dence and will build on the successful
execution of our strategy so far by continuing
to drive growth through both internal
investment and complementary acquisitions.
Phil Reason,
Chief Executive
Instem Life Science Systems plc Annual Report, 2010
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growth
“We now have a strong platform from which to
achieve growth through entry into complementary
markets and regions, as fiscal and regulatory
pressures continue to drive the need for Instem’s
solutions, and customers pursue consolidation of
the fragmented EDA supplier base.”
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Instem Life Science Systems plc Annual Report, 2010
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Chairman’s
Statement
2010 proved to be a successful year for Instem in what has clearly been
a challenging economic climate for many of our customers, prospects and
competitors.
The progress we have achieved over recent years
enabled us to consider taking the Company public,
and in October we successfully raised £9.15m, before
issue costs, from new investors and were admitted
to trading on AIM, the London Stock Exchange’s
international market for smaller, growing companies.
The transformation into a public Company has
served to strengthen our position within the Early
Development Safety Assessment (EDSA) market, and
will enable us to execute our strategy of advancing into
the broader Early Development Applications (EDA)
market.
Revenues held steady at £10.00m, while operating
profi t before amortisation and non-recurring costs
increased 2% to £2.23m.
This fi nancial performance was achieved through a
focus on the delivery of operational targets, whilst
investing in a number of initiatives aimed at the
continued long term development of Instem. In
particular these included the launch of our new product
suite, Centrus, and the completion of our investment in
a new operation in China.
We were delighted to welcome many new customers
during the year, including a division of the US
Government and SNBL, one of the largest Contract
Research Organisations in the US. We believe that
we were successful in winning the majority of new
business placed in the EDSA market in the period,
pointing to the strength of our product offering and
customer support.
Our successful admission to AIM has enabled us to
embark upon our M&A programme, which is planned
to augment our organic growth. We were delighted to
be able to announce, post period end, the acquisition
of BioWisdom Limited, which will supplement and
strengthen our Centrus product range.
We now have a strong platform from which to achieve
growth through entry into complementary markets and
regions, as fi scal and regulatory pressures continue to
drive the need for Instem’s solutions, and customers
pursue consolidation of the fragmented EDA supplier
base.
I would like to thank Instem’s dedicated staff for their
tremendous contribution in 2010 and look forward to
sharing with them the anticipation and excitement we
feel for 2011 and beyond.
David Gare
Chairman
Instem Life Science Systems plc Annual Report, 2010
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development
“We have made significant headway in the
development of the business. As planned, we have
expanded our customer base, grown our market
share, entered new geographies and launched
new products to support future growth.”
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Instem Life Science Systems plc Annual Report, 2010
Operational
Review
In these results, our fi rst since our successful IPO last year, we are pleased
to report that we have made signifi cant headway in the development of the
business. As planned, we have expanded our customer base, grown our market
share, entered new geographies and launched new products to support future
growth.
Instem continues to win the majority of new business
in the EDSA market; winning, we believe, at least
two-thirds of that placed.
Customer Wins
We have achieved some signifi cant new customer
wins during the year. These included an order for 500
users of Provantis from SNBL USA, one of the leading
Contract Research Organisations (CROs) in the United
States, replacing a competitor’s system. SNBL USA is
a wholly-owned subsidiary of Shin Nippon Biomedical
Laboratories Ltd, one of the largest CROs in Japan,
which has approximately 2,000 team members
worldwide.
Provantis was also selected by the US Government
to assist in its National Toxicology Program in August
2010. This Software-as-a-Service (SaaS) order from
the US National Institute of Environmental Health
Sciences (NIEHS) will see Instem’s software used
in studies to be carried out at contract laboratories
at various sites throughout the United States. It is a
prestigious contract win for Instem, to be completely
funded by the US federal government at a value of
over £420,000 for an initial two year period.
We were also pleased to record several successes in
our new markets of China and Japan:
•
•
The Shanghai Institute of Materia Medica (SIMM)
purchased a subscription to Provantis in October
2010, becoming the fi rst SaaS client in our
newly established Shanghai data centre. SIMM,
part of the Chinese Academy of Sciences, is
highly ranked in China for its drug discovery and
development activities with more than 70 drugs
having been developed since its establishment.
In conjunction with our Japanese distributor we
carried out a comprehensive implementation
project during 2010 for Mitsubishi Chemical
Medience Corporation (MCM), one of Japan’s
largest CROs, who purchased Provantis
in December 2009 following an extensive
competitive evaluation. The implementation was
for a wide range of Provantis modules for over
200 users across two sites, one in Kashima
and one in Kumamoto, ultimately replacing two
separate competitor systems. Such a contract
with a large and established CRO acts as a great
Instem Life Science Systems plc Annual Report, 2010
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OPERATIONAL REVIEW
endorsement for Provantis in both Japan and the
wider Asia-Pacifi c region.
•
In June 2010, we secured business from the
pharmaceutical organisation Shionogi & Co
Limited as a new client.
Recurring Revenues
It is a feature of the regulated market in which we
operate that our customers require continuous
support of their systems. Consequently the Group has
maintained support contracts with all of its ongoing
customers, and the customer retention rate remains
high at over 95%. The level of renewals strongly
underpins revenue expectations in 2011.
The Group has an average client relationship term
exceeding 10 years and with customer numbers
increasing each year, the level of these recurring
revenues is expected to continue to provide
an important contribution to our year-on-year
performance.
The introduction of the SaaS delivery alternative in
2006 has also increased recurring revenues, adding
to the visibility of future business.
Market Developments
The worldwide drug development industry accounts
for over US$65 billion of annual expenditure and
had been growing at 9.1% a year as pharmaceutical
companies (a) raced to combat a surge in patent
expiration on a number of key drugs over the next
two to three years, and (b) sought to cope with
increasingly complex regulatory requirements. There
is mounting pressure to achieve higher levels of
productivity and effi ciency along all stages of the drug
and chemical development process. 2010 has seen
a varied response by pharmaceutical companies,
with some reducing and others increasing R&D
expenditure in the face of these looming revenue
challenges. Most, though, continue to see increased
out-sourcing of EDSA studies as the preferred
strategic option.
According to studies and management estimates,
the life science industry’s expenditure on IT solutions
is estimated to have reached US$17 billion by the
end of 2010 and the EDA market is currently worth
approximately US$500 million per annum. Instem’s
core EDSA subsector is worth approximately US$60
million, giving Instem a market share of approximately
25 per cent.
Expanding Addressable Market
Through the launch of Centrus in October 2010
we have expanded our presence into the adjacent
Data Document Management & Reporting market.
The Centrus suite of products is an extension of the
development work previously carried out for Provantis
and whilst the two product suites can be seamlessly
integrated, Centrus can also stand alone, integrating
with competitor and complementary EDA systems.
The successful launch has therefore considerably
expanded our potential market.
We believe a key driver for the update of Centrus is
the emergence of SEND (Standard for the Exchange
of Non-clinical Data). SEND is a US FDA-sponsored
initiative seeking to harmonise the presentation of vast
amounts of data generated during early development,
facilitating the retrieval and utilisation of that data both
before and after regulatory submission. Centrus has
the ability to add value to existing systems, and aids in
the integration and sharing of current and historic data
between sponsors and partners in a standardised
form.
SEND completed its formal public review in February
2011. We expect the standard to progress to formal
conclusion in the second half of 2011, followed by
an indication by regulators that it is their preferred
vehicle for electronic regulatory submissions. In
anticipation, several pharmaceutical companies are
now requesting that SEND data sets are created for
current studies, resulting in new orders for Instem’s
submit™ SEND solution.
Expanding Geographical Reach
We believe that it is strategically important to
have a presence in all major markets where early
development facilities are located. Traditionally this
has been in North America, Europe and Japan.
However, increasingly these facilities are being
located in emerging economies such as the People’s
Republic of China (PRC).
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Instem Life Science Systems plc Annual Report, 2010
OPERATIONAL REVIEW
China
The preclinical development market is growing most
rapidly in emerging markets and in particular, in
China. Instem is expanding into such markets and
during 2010 a localised version of Provantis was
developed and a Wholly Foreign Owned Enterprise
(WFOE) established in Shanghai. Instem now has a
complete full-service local Chinese offering. Instem
has recruited local staff; four people in client facing
roles providing local sales, sales support, service
implementations and customer support. In a relatively
short amount of time, this offi ce has had initial
success with the securing of the fi rst fully domestic
Chinese client, the Shanghai Institute of Materia
Medica (SIMM), adding to a number of existing Instem
clients in China secured as a consequence of their
strong US relationships.
improving our hosting capabilities and switching
providers to DataPipe, whose data centre in
Summit, New Jersey is much closer to Instem’s US
headquarters in Pennsylvania.
DataPipe also offers us a single global provider
through its operations in Shanghai. This is
increasingly important to Instem due to our growth
in the Asia-Pacifi c region. The Shanghai-based data
centre meets the highest standards for reliability,
security and redundancy and is managed by
experienced staff 365 days a year. This purpose built
data centre features state-of-the-art network, power
and environmental infrastructure and is ISO 9001 and
SunTone™ certifi ed.
Technology Partners
In 2011 the Group will look to leverage the investment
made throughout 2010, cement our presence in the
region and add to the local client roster.
We continue to partner with leading technology
providers to offer augmented capabilities within our
product families.
Japan
Increasingly, Japanese preclinical organisations
are performing FDA regulated studies and they are
now demanding solutions that meet the required
international regulatory standards.
In 2006 Instem established a distributor relationship
with CTCLS to capitalise on this market. CTCLS
is one of Japan’s leading providers of integrated
R&D support systems for the life sciences sector
and they support Instem solutions through their full
service offi ces in Tokyo and Osaka. During 2010
this relationship proved very successful with the
implementation of the major MCM order from late
2009 and the winning of Shionogi & Co Limited.
Software as a Service (SaaS)
All our solutions and services are available via a
traditional on-site licensing/support route or via the
hosted SaaS model. We believe the SaaS model to
be particularly pertinent to the smaller laboratories
market, where we have historically had limited
presence. In the year we saw the number of users
choosing the SaaS subscription model rather than the
perpetual licensing model increase considerably. This
included 100 users from the NIEHS contract alone.
In the year we strengthened our internal infrastructure
so as to bolster our SaaS delivery systems by
We have worked closely with SAS® in the year, the
leader in business and clinical data analytics software,
to more cost effectively license our clients for the
SAS® technology embedded within Provantis. This
streamlines the deployment of Provantis and reduces
the total cost of ownership for Instem clients. Instem
continues to build on this relationship, which has had
a highly successful fi rst year, exceeding revenue
targets under the SAS® alliance agreement. The
partnership also provides access to SAS®’s marketing
and technical capabilities worldwide, supporting the
Company’s international growth plans.
Asta Development Limited’s Teamplan enterprise
project portfolio and resource management solution is
also integrated within the Provantis suite as part of our
Toxicology Resource Planning module, TRP™. TRP
had a strong 2010 with record sales and closed the
year with a strong prospect pipeline.
Product Development
Provantis®
Instem continues to invest in Provantis, our market-
leading EDSA product suite, to further consolidate
our position as the vendor of choice for solutions that
support the identifi cation and development of safer
drugs.
Instem Life Science Systems plc Annual Report, 2010
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ACQUISITIONS
“An important aspect of the AIM flotation was
our desire to supplement our organic growth with
acquisitions of complementary businesses. Such
acquisitions would consolidate the Group’s market
position, complement our existing products, provide
access to adjacent markets and increase efficiencies
in the vertical supply chain. An early realisation of
this objective was the acquisition, post period-end, of
Cambridge-based BioWisdom.”
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Instem Life Science Systems plc Annual Report, 2010
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Potential acquisition targets include direct competitors,
related EDA providers in the areas of workfl ow/study
management, data acquisition and analysis, modeling/
predictive technologies and administrative solutions.
In order to ensure that we are best placed to execute
this strategy we have allocated dedicated resources to
this activity.
An early realisation of this objective was the
acquisition, post period-end, of Cambridge-based
BioWisdom Limited for an initial enterprise value of
£0.90 million and a maximum total enterprise value
of £1.50 million. BioWisdom is a leading provider of
software solutions for extracting intelligence from R&D
related healthcare data. The acquisition broadens
and strengthens the Centrus product suite as well
as providing opportunities for both organisations to
cross sell solutions into complementary client bases.
News of the acquisition has been very well received in
the market and early integration of the businesses is
progressing well.
OPERATIONAL REVIEW
This year saw advances across the product suite
to improve the effectiveness and effi ciency of our
customers’ operations. Of particular note was
the delivery of our Chinese product that enables
indigenous Chinese product safety organisations to
leverage the advantages that have been available in
other geographies for a considerable period. As the
only international EDSA vendor with a local Chinese
offi ce, we have been able to leverage the experience
and knowledge of our local personnel to ensure
that our translations are accurate and appropriate
to support the Chinese user community. We were
gratifi ed to see this investment vindicated by the early
adoption of the product by local customers.
In other areas of the suite we have advanced our
sophisticated reporting capabilities by further extending
the range and complexity of analyses that the system
can handle. This means that customers have more
power to shape the required analyses as they adopt
new technologies in the search for new drugs.
Centrus™
The Centrus submit™ product has been further
developed to address the requirements of the
developing CDISC SEND standard for regulatory
submissions to the US FDA. With the approaching
publication of the fi nal version of this standard, we
believe the product is well-positioned for an anticipated
increase in interest from the non-clinical development
community.
Since the acquisition of BioWisdom, we have started to
incorporate the relevant elements of its product set into
the Centrus product suite. Early indications are that
Omniviz®, for example, provides an excellent platform
for the visualisation of SEND data sets and that other
elements of the product set will play a signifi cant
role in adding value to our customers as they move
into an increasingly electronic submissions and data
interchange environment.
Acquisition Strategy
Pharmaceutical companies are acutely focused on
productivity and are now looking to consolidate the
number of suppliers they use. An important aspect of
the AIM fl otation was our desire to supplement our
organic growth with acquisitions of complementary
businesses. Such acquisitions would consolidate the
Group’s market position, complement our existing
products, provide access to adjacent markets and
increase effi ciencies in the vertical supply chain.
Instem Life Science Systems plc Annual Report, 2010
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EXPANSION
“The business continued to expand in our
developing markets with revenue from outside
North America and Europe increasing to 6% of
revenues (2009: 3%) with significant wins in
Japan and China.”
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Instem Life Science Systems plc Annual Report, 2010
Financial
Review
Revenue
Operating Costs
The fi nancial results demonstrate a year of solid
performance. Total revenues were steady at £10.00m
(2009: £9.99m) The business continued to expand
in our developing markets with revenue from outside
North America and Europe increasing to 6% of
revenues (2009: 3%) with signifi cant wins in Japan
and China. In Instem’s more traditional markets 58% of
revenues were derived in North America (2009: 61%),
36% in Europe (2009: 36%).
Instem’s business model consists of licence fees,
annual support fees, SaaS subscription fees and
professional services fees. Our sales mix has gradually
changed in recent years. In 2009 approximately 64%
of revenue was of a recurring nature, principally from
annual renewal fees and hosting fees via SaaS and
a small proportion of professional fees. This has
increased yet further in 2010, to 67%, enhancing our
level of visibility over future revenue and allowing us to
invest confi dently in future business initiatives.
The renewal of the annual support contracts was
strong in 2010 with customer renewal rates in excess
of 95%; this includes a signifi cant multi-year deal
with one of our major customers, refl ecting their
commitment to Instem and its existing and future
products.
As a software solutions business, the majority of our
costs are employee related and typically represent
approximately two thirds of total operating costs. In
2010 employee related costs were £5.19m of total
costs of £7.77m. In 2009 these were £5.22m and
£7.80m respectively.
There was an increase in our average employee
number to 103 in 2010 (2009: 90), refl ecting our
investment in Centrus and the opening of our
Shanghai offi ce. We ended 2010 with 110 employees.
Consequently we would expect an increase in our
overall costs in 2011 as we continue to invest in these
areas.
Profit from Operations
In 2010, profi t from operations before amortisation and
non-recurring costs was £2.23m (2009: £2.19m) an
increase of 2%.
During 2010 our profi t from operations was impacted
by start up costs, including management time, of
£0.24m associated with the establishment of our
operation in China. Excluding these costs would result
in an adjusted EBITA, before fl oat costs, of £2.43m,
an 11.5% increase over 2009. £0.04m of the costs
associated with the establishment of our operation
in China are included in the non-recurring costs of
£0.39m.
Instem Life Science Systems plc Annual Report, 2010 13
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Instem Life Science Systems plc Annual Report, 2010
Outlook
2010 has been a year of substantial strategic
development for Instem. The achievement of the
successful AIM IPO in October provides the platform
to implement our ambitions for the future growth of
the business. We have successfully executed on
the strategy outlined at the time of our IPO last year
and will continue to drive growth through internal
investment and complementary acquisitions.
Importantly, we have maintained our leading position
in our niche EDSA market, expanded our addressable
market through the launch of a new product suite,
Centrus, and grown our impressive blue-chip
customer base.
With plans to launch additional products, enhance
customer relationships and increase product
penetration with existing clients, we look forward to
the future with confi dence.
Phil Reason
Chief Executive
FINANCIAL REVIEW
After taking these non-recurring costs into account,
Group profi t from operations was £1.81m (2009:
£2.14m).
The business continues to generate more than 58%
of its revenue in US dollars and therefore we continue
to closely monitor the exchange rate. In 2010 we have
not seen a signifi cant impact through exchange rate
movements with the average exchange rate in the
year of $1.5474 (2009: $1.5647).
Pension Scheme
There was an increase in the defi ned benefi ts pension
scheme liability as calculated under IAS 19 to £1.48m
(2009: £1.08m).
Cash Flow
During the year the Group generated £0.72m (2009:
£3.8m) from its operations. In addition, the Company
raised £3.44m of new money, net of expenses and
repayment of loan notes through the issue of new
shares at the IPO. In January 2010 the Group repaid
the outstanding loan note of £2.55m to Alchemy
Partners.
As a result, the Group had net cash reserves of
£3.26m as at 31 December 2010, compared with
£2.72m at 31 December 2009.
The board has not recommended the payment of a
dividend.
Admission to AIM
Instem was admitted to AIM on 13 October 2010,
following the raising of £9.15m (prior to expenses)
through a placing by Brewin Dolphin of 5,228,376
new Ordinary Shares at the placing price of 175p per
share. The funds raised have been utilised to repay
loan notes of £4.89m to existing shareholders and
the balance will be used to facilitate future strategic
acquisitions.
Share Capital and Reserves
The total issued share capital amounted to £1.17m
(2009: Nil) representing 11,714,286 shares of 10p
nominal value and the share premium account has
increased to £7.81m (2009: Nil) as a result of the
issue of the shares during the year.
Instem Life Science Systems plc Annual Report, 2010 15
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Instem Life Science Systems plc Annual Report, 2010
BOARD OF DIRECTORS
David Gare
aged 67 – Non-executive Chairman
David was a founder member of the Company’s former parent, Instem Limited and led the resulting
businesses through most of their history. David successfully achieved a succession of strategic
developments for Instem Limited, including its sale to Kratos Inc. in 1976, its MBO in 1983, its fl otation
on the USM in 1984, its fl otation on the Offi cial List in 1996, its public to private and demerger in
1998 and the buyout of Instem LSS Limited from Alchemy Partners in 2002. Throughout David has
concentrated on value creation through achievement of a strong market position.
Phil Reason
aged 49 – Chief Executive Offi cer
Phil is an experienced chief executive who has developed a number of IT businesses in the life
sciences and nuclear industries, both organically and through acquisition. Phil joined the former
parent Company, Instem Limited, in 1982 and was appointed Managing Director of the Life Sciences
division in 1995 and Chief Executive Offi cer of Instem LSS Limited on the demerger from Instem
Limited. Given the importance of the North American market to Instem’s organic and acquisitive
growth, Phil relocated from the UK to the US in 2003 and established a new headquarters in
the Philadelphia area. Phil previously ran Instem Limited’s Nuclear and Laboratory Information
Management Systems integration businesses.
Jim McLauchlan
aged 54 – Chief Financial Offi cer
Jim is a qualifi ed Chartered Accountant with wide experience in leading accounting, information
technology and other businesses. He has an MBA from Bradford University. He joined Instem LSS
Limited in 2003 and has executive responsibility for Finance & Administration, Human Resources and
IT. Jim brings considerable experience to the role and has been instrumental in enhancing systems
and practices across the business. His prior positions include four years with Touche Ross in Canada
and six years with IT outsourcing business Digica, where he was part of a VC-backed management
buyout team.
Mike McGoun
aged 63 – Non-executive Director
Mike has a wealth of management experience within the IT industry. He spent 10 years at IBM prior
to co-founding a successful ComputerLand franchise in 1984. In 1994 Mike moved to SkillsGroup plc
as a main board director, with responsibility for corporate development and later as a non-executive
director. Mike is the founder of and was appointed non-executive Chairman of Tikit Group plc in 2001.
Mike has been Chairman of Peakdale Molecular plc, a chemistry research organisation, since 2002.
David Sherwin
aged 54 – Non-executive Director
David is a qualifi ed Management Accountant and holds an MBA from Staffordshire University. He
joined Instem Limited as a trainee accountant in 1973 and was appointed Chief Financial Offi cer in
1979. He has worked closely with David Gare on all of the subsequent transactions involving Instem
Limited and Instem LSS Limited including participating in the management buyout of Instem Limited
in 1983, the fl otation on the USM in 1984, the fl otation on the Offi cial List in 1996 and the demerger of
the business in 1998.
Instem Life Science Systems plc Annual Report, 2010 17
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Instem Life Science Systems plc Annual Report, 2010
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The directors submit their report and the Group and
Company fi nancial statements on Instem Life Science
Systems plc for the 52 week period ended 31 December
2010.
Principal Activities
The principal activity of the Group is the provision of
world-class information solutions for Life Sciences
research and development. The principal activity of the
Company is that of a holding Company.
Review of the Business
3. New product orders
In 2010 the value of orders from new products developed
and new markets entered during the preceding three
years amounted to £0.90m (2009: £0.96m).
Future Developments
The directors consider that the continued investment in
product and market development will allow the business
to grow organically in its core markets. Investment in
business growth initiatives will also allow the business
to move into new product and market areas. The
combination of organic growth along with strategic
acquisitions will support the expected growth as outlined
in the Chairman’s statement and the Operational Review.
A full review of the business is given on pages 5 to 17.
Risks and Uncertainties
The Company was incorporated on 5 February 2010.
On 1 October 2010 the Company acquired the entire
issued share capital of Instem LSS Group Limited. The
acquisition of Instem LSS Group Limited does not qualify
as a business combination under IFRS 3 ‘Business
Combinations’ as Instem Life Science Systems plc does
not meet the defi nition of a business within that standard.
As a consequence the transaction is being treated as
a pooling of interests to refl ect the substance of the
transaction as described more fully in the accounting
policies.
On 13 October 2010 the Company was admitted to the
Alternative Investment Market (“AIM”) raising funds
before expenses of £9.15m. The funds raised have
been utilised to repay loan notes of £4.89m to existing
shareholders and the balance will be used to facilitate
future strategic acquisitions.
In measuring the successful development of the
business, the directors focus on three important
performance indicators which strongly underwrite the
future performance of the Group:
1. Total number of customers
In 2010 the Group had a total of 77 customers (2009: 66
customers) for continuing products.
2. Recurring revenue
The Group generates a substantial proportion of revenue
from fees in respect of annual support and routine
upgrade services. The value of these recurring fees in
2010 was £6.7m (2009: £6.4m).
The directors consider that the global pharmaceutical
market is likely to continue to provide growth
opportunities for the business. The combination of the
high level of annual support renewals and low levels
of customer attrition provides revenue visibility to
underpin the Company strategy on product and market
development.
The Group seeks to mitigate exposure to all forms of risk
through a combination of regular performance review and
a comprehensive insurance programme.
The global nature of the market means that the Group
is exposed to currency risk as a consequence of the
signifi cant proportion of its revenue being recognised in
US Dollars. The Group continually assesses the most
appropriate approach to managing its currency exposure
in line with the overall goal of achieving predictable
earnings growth.
Research and Development Activities
The Group continues its development programme of
software for the global pharmaceutical market including
the research and development of new products and
enhancement to existing products. The directors consider
the investment in research and development to be
fundamental to the success of the business in the future.
In 2010 development expenditure was £1.65m
(2009:£1.66m) before capitalised expenditure of £0.36m
(2009:£0.07m).
Instem Life Science Systems plc Annual Report, 2010 19
DIRECTORS’ REPORT
Dividends
Political and Charitable Contributions
The directors do not recommend the payment of a
dividend.
Directors
The Group made charitable contributions in the year
of £819 (2009: £900), matching contributions made by
employees to a Give As You Earn scheme. No political
donations were made in 2010 or 2009.
The following directors have held offi ce since 5
February 2010:
Policy on Payment of Suppliers
It is the Company’s policy to make payments to
suppliers in accordance with the agreed terms and
conditions of supply, provided that the supplier has
performed in accordance with the terms of supply.
Trade payables at 31 December 2010 represented 36
days purchases (2009: 39 days).
Financial Instruments
The Group’s objectives and policies on fi nancial
instruments are set out in note 18 to the fi nancial
statements.
Indemnity of Officers and Directors
Under the Company’s Articles of Association and
subject to the provisions of the Companies Act, the
Company may and has indemnifi ed all directors or
other offi cers against liability incurred in the execution
or discharge of their duties or the exercise of their
powers, including but not limited to any liability for
the costs of any legal proceedings. The Company
has purchased and maintains appropriate insurance
cover against legal action brought against directors or
offi cers.
Annual General Meeting
The Annual General Meeting of the Company
will be held on 31st May 2011 at the offi ces of
Brewin Dolphin, Manchester. The resolutions
to be proposed at the Annual General Meeting,
together with explanatory notes appear in a separate
notice of Annual General Meeting which is sent
to all shareholders. The proxy card for registered
shareholders is distributed along with the notice.
D Gare (appointed 15 September 2010)
M F McGoun (appointed 15 September 2010)
D M Sherwin (appointed 15 September 2010)
P J Reason (appointed 15 September 2010)
J McLauchlan (appointed 15 September 2010)
M S Thorne (appointed 5 February 2010, resigned 15
September 2010)
M P Harris (appointed 5 February 2010, resigned 15
September 2010)
Details of the directors’ service contracts and
their respective notice terms are detailed in the
Remuneration Committee report on page 26.
Directors and Their Interests
The interests of the directors, who held offi ce at 31st
December 2010 and up to the date of this report, were
as follows:
No. of Shares
2010
2009
David Gare
2,278,427
David Sherwin
1,580,066
Phil Reason
665,287
Jim McLauchlan
144,936
Mike McGoun
14,286
-
-
-
-
-
Directors’ interests in share options are detailed in the
Remuneration Committee report on page 26.
Employee Involvement
The general policy of the Company is to welcome
employee involvement as far as it is reasonably
practicable. Employees are kept informed of
progress by regular Company meetings and monthly
management reports.
20
Instem Life Science Systems plc Annual Report, 2010
DIRECTORS’ REPORT
Statement as to Disclosure of
Information to Auditors
The directors who were in offi ce on the date
of approval of these fi nancial statements have
confi rmed, as far as they are aware, that there is no
relevant audit information of which the auditors are
unaware. Each of the directors has confi rmed that
they have taken all the steps that they ought to have
taken as directors in order to make themselves aware
of any relevant audit information and to establish that
it has been communicated to the auditors.
Auditors
Baker Tilly UK Audit LLP, Chartered Accountants,
were appointed auditors by the Company. Pursuant to
section 487 of the Companies Act 2006, a resolution
to appoint Baker Tilly UK Audit LLP as auditors will be
put to the members at the forthcoming AGM.
On behalf of the board
Jim McLauchlan
Director
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
27 April 2011
Instem Life Science Systems plc Annual Report, 2010 21
CORPORATE GOVERNANCE REPORT
CORPORATE GOVERNANCE REPORT
The board fully supports the underlying principles of
corporate governance contained in the Corporate
Governance Code, notwithstanding that, as its
securities are not listed on the Offi cial List, it is not
required to comply with such recommendations.
It has sought to comply with the provisions of the
Corporate Governance Code, insofar as is practicable
and appropriate for a public Company of its size and
nature, taking account of the QCA guidelines for
smaller quoted companies. The board recognises its
overall responsibility for the Company’s systems of
internal control and for monitoring their effectiveness.
The main features of the Company’s corporate
governance procedures, which do not constitute full
compliance with the Corporate Governance Code, are
as follows:
Attendance at Board and Committee
Meetings
Attendances of directors at board and committee
meetings convened in the period since fl otation, along
with the number of meetings they were invited to
attend are set out below:
No of meetings
in the period
Board
meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive
directors
Phil Reason
Jim McLauchlan
Non Executive
directors
David Gare
David Sherwin
Mike McGoun
3/3
3/3
3/3
3/3
3/3
1/1
1/1
1/1
1/1
1/1
-
-
1/1
1/1
1/1
-
-
-
-
-
the board has one independent non-executive
director who takes an active role in board matters;
Audit Committee
a.
b.
the Company has an Audit Committee, a
Remuneration Committee and a Nomination
Committee, each of which consists of the
non-executive directors, and meets regularly with
executive directors in attendance by invitation.
The Audit Committee has unrestricted access
to the Group’s auditors and ensures that auditor
independence has not been compromised;
The Audit Committee comprises Mike McGoun
(Chairman), David Gare and David Sherwin, all of
whom are non-executive directors of the Company.
The board is satisfi ed that the Audit Committee has all
the recent and relevant fi nancial experience required
to fulfi l the role.
Appointments to the Audit Committee are made by the
board in consultation with the Nomination Committee
and the chairman of the Audit Committee. The Audit
Committee meets at least three times a year and any
other time as required by either the chairman of the
Audit Committee or the Chief Financial Offi cer of the
Company or the external auditors of the Company.
In addition, the Audit Committee shall meet with the
external auditors of the Company (without any of the
executives attending) at least once a year.
The Audit Committee:
a. monitors the fi nancial reporting and internal
fi nancial control principles of the Company;
b. maintains appropriate relationships with
external auditors including considering the
appointment and remuneration of external
auditors and reviews and monitors the external
auditor’s independence and objectivity and the
effectiveness of the audit process;
c. all business activity is organised within a defi ned
structure with formal lines of responsibility and
delegation of authority, including a schedule of
“matters referred to the board”; and
d.
regular monitoring of key performance indicators
and fi nancial results together with comparison of
these against expectations.
22
Instem Life Science Systems plc Annual Report, 2010
CORPORATE GOVERNANCE REPORT
reviews all fi nancial results of the Company and
fi nancial statements, including all announcements
in respect thereof before submission of the
relevant documents to the board;
Remuneration Committee meets at least once a year
and any other time as required by either the chairman
of the Remuneration Committee or the Chief Financial
Offi cer of the Company.
c.
d.
reviews and discusses (where necessary) any
issues and recommendations of the external
auditors including reviewing the external auditors’
management letter and management’s response;
e. considers all major fi ndings of internal operational
audit reviews and management’s response
to ensure co-ordination between internal and
external auditors;
f.
reviews the board’s statement on internal
reporting systems and keep the effectiveness of
such systems under review; and
g. considers all other relevant fi ndings and audit
programmes of the Company.
The Audit Committee is authorised to:
a.
investigate any activity within its terms of
reference;
b. seek any information it requires from any
employee of the Company; and
c. obtain, at the Company’s expense, outside
legal or other independent professional advice
and to secure the attendance of such persons
to meetings as it considers necessary and
appropriate.
Remuneration Committee
The Remuneration Committee comprises Mike
McGoun (Chairman), David Gare and David Sherwin,
all of whom are non-executive directors of the
Company.
The members of the Remuneration Committee are
appointed by the board on recommendation from the
Nomination Committee. The Chief Executive Offi cer
of the Company is normally invited to meetings of the
Remuneration Committee to discuss the performance
of other executive directors but is not involved in any
of the decisions. The Remuneration Committee invites
any person it thinks appropriate to join the members
of the Remuneration Committee at its meetings. The
The Remuneration Committee:
a. ensures that the executive directors are fairly
rewarded for their individual contributions to the
overall performance of the Company but also to
ensure that the Company avoids paying more
than is necessary for this purpose;
b. considers the remuneration packages of the
executive directors and any recommendations
made by the Chief Executive Offi cer for changes
to their remuneration packages including in
respect of bonuses (including associated
performance criteria), other benefi ts, pension
arrangements and other terms of their service
contracts and any other matters relating to
the remuneration of or terms of employment
applicable to the executive directors that may be
referred to the Remuneration Committee by the
board;
c. oversees and reviews all aspects of the
Company’s share option schemes including
the selection of eligible directors and other
employees and the terms of any options granted;
d. demonstrates to the Company’s shareholders that
the remuneration of the executive directors is set
by an independent committee of the board; and
e. considers and makes recommendations to the
board about the public disclosure of information
about the executive directors’ remuneration
packages and structures in addition to those
required by law or by the London Stock
Exchange.
The chairman of the Remuneration Committee
reports formally to the board on its proceedings
after each meeting on all matters within its duties
and responsibilities. The Remuneration Committee
produces an annual report which is included in the
Company’s annual report and accounts.
Instem Life Science Systems plc Annual Report, 2010 23
CORPORATE GOVERNANCE REPORT
The Remuneration Committee is authorised to:
c.
a.
investigate any activity within its terms of
reference;
b. seek any information it requires from any
employee of the Company;
c. assess the remuneration paid by other UK listed
companies of a similar size in any comparable
industry sector and to assess whether changes
to the executive directors’ remuneration
is appropriate for the purpose of making
their remuneration competitive or otherwise
comparable with the remuneration paid by such
companies; and
d. obtain, at the Company’s expense, outside
legal or other independent professional advice,
including independent remuneration consultants,
when the Remuneration Committee reasonably
believes it is necessary to do so and to secure
the attendance of such persons to meetings as it
considers necessary and appropriate.
Nomination Committee
The Nomination Committee comprises David Gare
(Chairman), Mike McGoun and David Sherwin, all of
whom are non-executive directors of the Company.
Appointments to the Nomination Committee are made
by the board, in consultation with the chairman of the
Nomination Committee.
The Nomination Committee may invite any
person it thinks appropriate to join the members
of the Nomination Committee at its meetings. The
Nomination Committee meets at least once per year.
The Nomination Committee:
a.
regularly reviews the structure, size and
composition (including skills knowledge and
experience) required of the board compared to its
current position and makes recommendations to
the board with regard to any changes;
b. gives full consideration to succession planning
for directors and other senior executives in
the course of its work, taking into account the
challenges and opportunities facing the Company,
and what skills and expertise are needed on the
board in the future;
24
Instem Life Science Systems plc Annual Report, 2010
is responsible for identifying and nominating for
the approval of the board, candidates to fi ll board
vacancies as and when they arise;
d. evaluates the balance of skills, knowledge and
experience on the board before an appointment
is made and, in light of this evaluation, prepares
a description of the role and capabilities required
for a particular appointment.
The chairman of the Nomination Committee reports
formally to the board on its proceedings after
each meeting on all matters within its duties and
responsibilities.
The Nomination Committee also makes
recommendations to the board concerning:
a.
formulating plans for succession for both
executive and non-executive directors and in
particular the key roles of Chairman of the board
and Chief Executive Offi cer;
b. membership of the Audit and Remuneration
Committees, in consultation with the chairmen of
those committees;
c.
d.
the re-appointment of any non-executive director
at the conclusion of their specifi ed term of offi ce
having given due regard to their performance and
ability to continue to contribute to the board in
the light of the knowledge, skills and experience
required;
the re-election by shareholders of any director
under the “retirement by rotation” provisions in
the Company’s articles of association having
due regard to their performance and ability to
continue to contribute to the board in the light of
the knowledge, skills, and experience required;
e. matters relating to the continuation in offi ce of
any director at any time including the suspension
or termination of service of an executive director
as an employee of the Company subject to the
provisions of the law and his/her service contract;
and
f.
the appointment of any director to executive
or other offi ce other than to the positions of
Chairman of the board and Chief Executive
Offi cer, the recommendation for which would be
considered at a meeting of the full board.
CORPORATE GOVERNANCE REPORT
The Nomination Committee is authorised to:
a.
investigate any activity within its terms of
reference;
b. seek any information it requires from any
employee;
c. obtain outside legal or other independent
professional advice at the Company’s expense
when the Nomination Committee reasonably
believes it is necessary to do so; and
d.
instruct external professional advisers to attend
any meeting at the Company’s expense if the
Nomination Committee considers this reasonably
necessary or appropriate.
Internal Controls
The directors are responsible for establishing and
maintaining the Group’s system of internal control and
reviewing its effectiveness. The system of internal
control is designed to manage rather than eliminate
the risk of failure to achieve business objectives
and can only provide reasonable but not absolute
assurance against material misstatement or loss.
The board and senior executives meet to review
both the risks facing the business and the controls
established to minimise those risks and their
effectiveness in operation on an ongoing basis.
The aim of these reviews is to provide reasonable
assurance that material risks and problems are
identifi ed and appropriate action taken at an early
stage.
Going Concern
The directors have prepared and reviewed fi nancial
forecasts. After due consideration of these forecasts
and current cash resources, the directors consider
that the Company and the Group have adequate
fi nancial resources to continue in operational
existence for the foreseeable future (being a period
of at least twelve months from the date of this report),
and for this reason the fi nancial statements have been
prepared on a going concern basis.
On behalf of the board
Jim McLauchlan
Company Secretary
Instem Life Science Systems plc Annual Report, 2010 25
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION
REPORT
Instem Life Science Systems plc is not required to
comply with Schedule 8 of the Large and Medium
Sized Companies and Groups (Accounts and Reports)
Regulations 2008 relating to directors’ remuneration
reports or the Listing Rules, as a company on AIM.
The disclosures contained within this report are,
therefore, made on a voluntary basis and in keeping
with the board’s commitment to best practice.
Remuneration Committee
The Remuneration Committee (‘the Committee’) is
composed entirely of non-executive directors. The
committee was formed upon the public listing of the
Company 13th October 2010. The Chairman of the
Committee is Mike McGoun. The terms of reference
for the committee are to determine the Company’s
policy on Executive remuneration and to consider and
approve the remuneration packages for directors and
key executives of the Company, subject to ratifi cation
by the board. During the period 13th October to 31st
December 2010, the Committee met once. Full details
of the elements of each director’s remuneration are
set out on page 27. Details of share-based payments
to directors are shown in note 6 to the fi nancial
statements.
Policy on Executive Director
Remuneration
The Company’s current and ongoing policy aims to
ensure that executive directors are rewarded fairly
for their individual contributions to the Company’s
overall performance and is designed to attract, retain
and motivate executives of the right calibre. The
Committee is responsible for recommendations on
all elements of Executive remuneration including, in
particular, basic salary, annual bonus, share options
and any other incentive awards. In implementing
the remuneration policy, the Committee has
regard to factors specifi c to the Company, such as
salary and other benefi t arrangements within the
Company and the achievement of the Company’s
strategic objectives. The Committee determines the
Company’s Policy on Executive remuneration with
reference to comparable companies of similar market
capitalisation, location and business sector.
Basic Salary
The basic salaries of Executive directors are reviewed
annually having regard to individual performance and
position within the Company and are intended to be
competitive but fair using information provided from
both internal and external sources.
Performance Related Annual Bonus
Executive directors are eligible for a performance
related bonus based on Company performance,
in particular, the achievement of profi t and cash
targets. The performance related annual bonus
forms a signifi cant part of the level of remuneration
considered appropriate by the Committee. In addition
to the formal bonus scheme, the Committee has
the discretion to recommend the payment of ad hoc
awards to refl ect exceptional performance.
Pensions
Contributions are made to the Executive directors’
personal pension schemes up to a maximum of 16.5%
of basic salary.
Benefits
Benefi ts comprise private healthcare and critical
illness cover. No director receives additional
remuneration or benefi ts in relation to being a director
of the board of the Company or any subsidiary of the
Company.
Service Contracts
The executive directors have service contracts with a
maximum notice period of 12 months.
The board determines the Company’s policy on
non-executive directors’ remuneration.
David Gare, David Sherwin and Mike McGoun each
have a 3 year contract starting October 2010 with a
notice period of 3 months during or after expiry of the
fi xed term.
26
Instem Life Science Systems plc Annual Report, 2010
DIRECTORS’ REMUNERATION REPORT
The actual emoluments paid to directors in the year ended December 31st 2010 are as follows:
Salary (inc bonus)
Benefits
Pension
2010 Total
2009 Total
Executives
P. Reason
J. McLauchlan
Non-executives
D. Gare
D.M. Sherwin
M. McGoun
Total
158
72
240
128
5
603
4
11
5
2
-
22
24
16
-
-
-
40
186
99
245
130
5
665
212
119
53
52
-
436
Directors’ and Employees’ Share Options
No of meetings
in year
Exercise
price(£)
Issue date
Held at
31/12/09
Granted
During Year
Exercised
during Year
Lapsed
during Year
Held at
31/12/2010
Phil Reason
Ordinary shares
Jim McLauchlan
Ordinary shares
Employees
Ordinary shares
Total
1.75
13/10/2010
1.75
13/10/2010
1.75
13/10/2010
-
-
-
187,428
93,714
304,569
585,711
-
-
-
-
-
-
-
-
187,428
93,714
304,569
585,711
Further detail of the terms of the option agreements is given in note 6.
Approved by the board and signed on its behalf by:
Mike McGoun
Independent non-executive director
Instem Life Science Systems plc Annual Report, 2010 27
DIRECTORS’ RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS
The directors are responsible for keeping adequate
accounting records that are suffi cient to show and
explain the Group’s and the Company’s transactions
and disclose with reasonable accuracy at any time the
fi nancial position of the Group and the Company and
enable them to ensure that the fi nancial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group
and the Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance
and integrity of the corporate and fi nancial information
included on the Instem Life Science Systems plc
website.
Legislation in the United Kingdom governing the
preparation and dissemination of fi nancial statements
may differ from legislation in other jurisdictions.
DIRECTORS’ RESPONSIBILITIES IN
THE PREPARATION OF FINANCIAL
STATEMENTS
The directors are responsible for preparing the
Directors’ Report and the fi nancial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group
and Company fi nancial statements for each fi nancial
year. The directors are required by the AIM Rules
of the London Stock Exchange to prepare Group
fi nancial statements in accordance with International
Financial Reporting Standards (“IFRS”) as adopted
by the European Union (“EU”) and have elected
under Company law to prepare the Company fi nancial
statements in accordance with IFRS as adopted by
the EU.
The fi nancial statements are required by law and
IFRS adopted by the EU to present fairly the fi nancial
position of the Group and the Company and the
fi nancial performance of the Group. The Companies
Act 2006 provides in relation to such fi nancial
statements that references in the relevant part of that
Act to fi nancial statements giving a true and fair view
are references to their achieving a fair presentation.
Under Company law the directors must not approve
the fi nancial statements unless they are satisfi ed that
they give a true and fair view of the state of affairs of
the Group and the Company and of the profi t or loss
of the Group for that period.
In preparing the Group and Company fi nancial
statements, the directors are required to:
a. select suitable accounting policies and then apply
them consistently;
b. make judgements and accounting estimates that
are reasonable and prudent;
c. state whether they have been prepared in
accordance with IFRSs adopted by the EU;
d. prepare the fi nancial statements on the going
concern basis unless it is inappropriate to
presume that the Group and the Company will
continue in business.
28
Instem Life Science Systems plc Annual Report, 2010
INDEPENDENT AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF INSTEM LIFE
SCIENCE SYSTEMS PLC
We have audited the Group and parent Company
fi nancial statements (“the fi nancial statements”) on
pages 30 to 77. The fi nancial reporting framework
that has been applied in their preparation is applicable
law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as
regards the parent Company fi nancial statements,
as applied in accordance with the provisions of the
Companies Act 2006.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s
members those matters we are required to state to
them in an 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.
Opinion on financial statements
In our opinion:
•
the fi nancial statements give a true and fair view
of the state of the Group’s and the parent’s affairs
as at 31 December 2010 and of the Group’s profi t
for the period then ended;
the Group fi nancial statements have been
properly prepared in accordance with IFRSs as
adopted by the European Union
the parent fi nancial statements have been
properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in
accordance with the Companies Act 2006; and
the fi nancial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
•
•
•
Opinion on other matter prescribed by
the Companies Act 2006
In our opinion the information given in the Directors’
Report for the fi nancial year for which the fi nancial
statements are prepared is consistent with the
fi nancial statements.
Respective responsibilities of directors
and auditor
Matters on which we are required to
report by exception
As more fully explained in the Directors’
Responsibilities Statement set out on page 28, the
directors are responsible for the preparation of the
fi nancial statements and for being satisfi ed that they
give a true and fair view. Our responsibility is to audit
and express an opinion on the fi nancial statements
in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing
Practices Board’s (APB’s) Ethical Standards for
Auditors.
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
•
adequate accounting records have not been kept
by the parent Company, or returns adequate for
our audit have not been received from branches
not visited by us; or
the parent Company fi nancial statements are not
in agreement with the accounting records and
returns; or
certain disclosures of directors’ remuneration
specifi ed by law are not made; or
•
•
Scope of the audit of the financial
statements
• we have not received all the information and
explanations we require for our audit.
A description of the scope of an audit of fi nancial
statements is provided on the APB’s website at www.
frc.org.uk/apb/scope/private.cfm.
Geoff Wightwick FCA (Senior Statutory Auditor)
For and on behalf of BAKER TILLY UK AUDIT LLP,
Statutory Auditor
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
27 April 2011
Instem Life Science Systems plc Annual Report, 2010 29
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the 52 week period ended 31 December 2010
52 week period ended
53 week period ended
Note
31 December 2010
31 December 2009
REVENUE
Operating expenses
PROFIT FROM OPERATIONS BEFORE AMORTISATION AND
EXCEPTIONAL COSTS
Amortisation of intangibles
PROFIT BEFORE EXCEPTIONAL COSTS
Non-recurring costs
PROFIT FROM OPERATIONS
Non-recurring flotation costs
Finance income
Finance costs
PROFIT BEFORE TAXATION
Income tax expense
1
2
2
2
3
4
8
PROFIT FOR THE FINANCIAL PERIOD
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Actuarial gain/(loss) on retirement benefit obligations
21
Deferred tax on actuarial gain
Currency translation differences on foreign currency net investment
OTHER COMPREHENSIVE INCOME/(EXPENSE)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Profit attributable to Equity Holders of the Parent Company
Total comprehensive income attributable to Equity Holders of the
Parent Company
Earnings per share Basic
Diluted
23
23
£000
10,001
(7,768)
2,233
(34)
2,199
(388)
1,811
(295)
263
(364)
1,415
(514)
901
(576)
147
18
(411)
490
901
490
11.7p
11.7p
£000
9,989
(7,802)
2,187
(47)
2,140
-
2,140
-
735
(407)
2,468
(762)
1,706
(158)
44
(266)
(380)
1,326
1,706
1,326
26.3p
26.3p
30
Instem Life Science Systems plc Annual Report, 2010
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2010
Note
31 December 2010
31 December 2009
31 December 2008
ASSETS
£000
£000
£000
£000
£000
£000
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Deferred taxation
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and cash equivalents
Current taxation
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Current taxation
Financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Retirement benefit obligations
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Translation reserve
Retained earnings
9
11
20
12
13
14
15
16
17
15
21
22
24
24
24
24
6,417
166
321
137
1,595
3,263
-
5,536
85
253
-
-
1,477
1,171
7,813
(932)
377
(3,881)
6,090
127
297
6,072
154
345
6,904
6,514
6,571
4,995
11,899
62
1,832
2,716
-
6,310
300
2,552
4,610
11,124
61
2,900
-
30
5,659
-
558
2,991
9,562
5,874
9,162
6,217
1,477
7,351
29
-
1,081
649
-
4,218
359
(4,374)
1,110
10,272
93
2,577
1,149
649
-
4,218
625
(5,966)
3,819
10,036
TOTAL EQUITY ATTRIBUTABLE TO
EQUITY HOLDERS OF THE PARENT
4,548
852
474
TOTAL EQUITY AND LIABILITIES
11,899
11.124
9,562
The fi nancial statements on pages 30 to 77 were approved by the board of directors and authorised for issue on 27 April 2011 and are
signed on its behalf by:
Phil Reason
Director
Jim McLauchlan
Director and Company Secretary
Instem Life Science Systems plc Annual Report, 2010 31
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2010
Note
31 December 2010
ASSETS
£000
£000
NON-CURRENT ASSETS
Investments
10
16,500
TOTAL NON-CURRENT ASSETS
16,500
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
TOTAL CURRENT LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Retained earnings
13
14
15
17
22
24
24
24
64
3,100
66
253
1,171
7,813
10,702
(341)
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
3,164
19,664
319
19,345
19,664
32
Instem Life Science Systems plc Annual Report, 2010
CONSOLIDATED STATEMENT OF CASH FLOWS For the 52 week period ended 31 December 2010
Note
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Result before taxation
1,415
Adjustments for:
Depreciation
Amortisation of intangibles
Share based payments
Retirement benefit obligations
Finance income
Finance costs
CASH FLOWS FROM OPERATIONS BEFORE CHANGES
IN WORKING CAPITAL
Changes in working capital:
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
CASH GENERATED FROM OPERATIONS
Finance costs
Income tax paid
NET CASH (USED IN)/GENERATED FROM OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income received
Income tax paid
Purchase of intangible assets
Purchase of property, plant and equipment
75
34
21
(206)
(263)
364
263
(95)
(361)
(111)
1,440
(75)
266
(915)
716
(296)
(510)
(90)
2,468
66
47
-
(316)
(735)
407
322
(237)
(65)
(47)
1,937
(1)
1,090
790
3,816
(317)
(103)
3,396
NET CASH USED IN INVESTING ACTIVITIES
(304)
(27)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of ordinary shares
Share issue costs
Stamp duty
Series A Loan notes repaid
Payment of finance lease liabilities
Alchemy loan note repayment
9,150
(731)
(83)
(4,897)
(3)
(2,550)
-
-
-
-
(9)
-
NET CASH GENERATED FROM/(USED IN) FINANCING
ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of period
Effect of exchange rates on cash and cash equivalents
CASH AND CASH EQUIVALENTS AT END OF PERIOD
14
886
492
2,716
55
3,263
(9)
3,360
(549)
(95)
2,716
Instem Life Science Systems plc Annual Report, 2010 33
COMPANY STATEMENT OF CASH FLOWS for the 52 week period ended 31 December 2010
Note
52 week period ended
31 December 2010
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Result before taxation
Finance income
Finance cost
CASH FLOWS FROM OPERATIONS BEFORE
CHANGES IN WORKING CAPITAL
Changes in working capital:
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables
CASH USED IN OPERATIONS
Finance costs
NET CASH USED IN OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income
Purchase of property, plant and equipment
NET CASH GENERATED FROM INVESTING
ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Share issue proceeds
Share issue costs
Stamp duty
Loan note repayment
NET CASH GENERATED FROM FINANCING
ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of period
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
14
(6)
3
(64)
66
-
6
-
9,150
(731)
(83)
(4,897)
(341)
(344)
(342)
(3)
(345)
6
3,439
3,100
-
3,100
34
Instem Life Science Systems plc Annual Report, 2010
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
Share
Premium
Merger
Reserve
Translation
Reserve
Retained
Earnings
Total
Equity
£000
649
-
-
-
-
649
522
-
-
-
-
-
-
£000
-
-
-
-
-
-
8,628
(815)
-
-
-
-
-
£000
4,218
-
-
-
-
4,218
-
-
(5,150)
-
-
-
-
£000
625
-
(266)
(266)
-
359
-
-
-
-
18
18
-
£000
(5,966)
1,706
(114)
1,592
-
(4,374)
-
-
-
901
(429)
472
21
£000
(474)
1,706
(380)
1,326
-
852
9,150
(815)
(5,150)
901
(411)
490
21
Balance as at 31 December 2008
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income for the year
Share based payments
Balance as at 31 December 2009
New share capital
Costs of issue
Loan notes issued on acquisition
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income for the year
Share based payments
Balance as at 31 December 2010
1,171
7,813
(932)
377
(3,881)
4,548
COMPANY STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
Share
Premium
Merger
Reserve
Translation
Reserve
Retained
Earnings
Total
Equity
£000
£000
£000
£000
£000
£000
Balance as at 31 December 2008
New share capital
Total comprehensive income
Balance as at 31 December 2009
-
-
New share capital
1,171
Cost of issue
Merger relief
Loss and total comprehensive income for
the year
-
-
-
-
-
8,628
(815)
-
-
-
-
-
-
10,702
-
Balance as at 31 December 2010
1,171
7,813
10,702
-
-
-
-
-
-
-
-
-
-
-
-
-
-
9,799
(815)
10,702
(341)
(341)
(341)
19,345
Instem Life Science Systems plc Annual Report, 2010 35
accounting policies
General Information
The principal activity of the Group is the provision of world class
information solutions for life sciences research and development.
Instem Life Science Systems Plc is a Company incorporated
in England and Wales under the Companies Act 2006 and
domiciled in the UK. The registered offi ce is Diamond Way,
Stone Business Park, Stone, Staffordshire, ST15 0SD.
Basis of Accounting
The fi nancial statements have been prepared in accordance
with International Financial Reporting Standards and IFRIC
interpretations as endorsed by the EU (“IFRS”) and the
requirements of the Companies Act applicable to companies
reporting under IFRS.
The Group’s accounting reference date is 31 December.
The acquisition of the Instem LSS Group does not qualify as a
business combination under IFRS 3 ‘Business Combinations’ as
Instem Life Science Systems Plc does not meet the defi nition
of a business within that standard. As a consequence the
transaction is being treated as a pooling of interests to refl ect the
substance of the transaction which is that of the continuation of
the existing Instem LSS Group.
Under the pooling of interests basis the legal shares and share
premium of Instem Life Science Systems plc are shown in
the current year and comparative year as if they had existed
throughout the periods shown. The comparative trading results
and retained earnings, together with the full year trade to 31
December 2010, are those of the Instem LSS Group as if that
trade had continued throughout. The difference between the
consideration given on the acquisition and the share capital
and share premium of the Instem LSS Group at that date
has been recognised in the merger reserve, together with the
merger relief taken by the Company. The loan notes issued in
exchange for the shares in Instem LSS Group Limited have been
treated as a distribution. The liability for those loan notes has
been recognised in the current period when the company was
contractually obligated to pay it and the cost of the distribution
has been recognised directly in equity.
The fi nancial statements have been prepared on the historical
cost basis except for the revaluation of certain fi nancial
instruments.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all years presented in these
consolidated fi nancial statements.
Basis of Consolidation
The consolidated fi nancial statements incorporate those of the
parent Company, Instem Life Science Systems Plc, and its
subsidiary undertakings made up to 31 December 2010 and 31
December 2009.
In preparing the consolidated fi nancial statements, any intra-
group balances, unrealised gains and losses or income and
expenses arising from intra-group trading are eliminated. Where
accounting policies used in individual fi nancial statements of a
subsidiary Company differ from Group policies, adjustments are
made to bring these policies in line with Group policies.
Subsidiaries
Subsidiaries are entities over which the Group has the power
to govern the fi nancial and operating policies so as to obtain
economic benefi ts from their activities. Subsidiaries are
consolidated from the date on which control is transferred to the
Group up until the date that control ceases.
The purchase method of accounting is used to account for
the acquisition of subsidiaries by the Group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange. Costs directly attributable to the acquisition
are recognised in profi t or loss as they are incurred. Identifi able
assets acquired and liabilities and contingent liabilities assumed
in a business combination are initially measured at fair
value at the acquisition date irrespective of the extent of any
non-controlling interest.
In accordance with Section 408 of the Companies Act 2006
the company has elected not to present its own profi t and
loss account. The loss for the period of the parent company is
£341,000.
Going Concern
Having made appropriate enquiries, the directors consider that
the Group has adequate resources to enable it to continue in
operation for the foreseeable future. The Group has a signifi cant
proportion of recurring revenue from a well established global
customer base, supported by a largely fi xed cost base. A Group
working capital facility has been put in place to support the
working capital needs in 2011.
The fi nancial position of the Group, its cash fl ows and liquidity
position are set out in the primary statements of these fi nancial
statements. Detailed projections have been made for the 12
months following the approval of the fi nancial statements and
sensitivity analysis undertaken. This work gives the directors
confi dence as to the future trading performance of the Group.
Accordingly the directors continue to adopt the going concern
basis for the preparation of the fi nancial statements.
Revenue Recognition
The Group follows the principles of IAS 18 ‘Revenue
Recognition’, in determining appropriate revenue recognition
principles. In principle revenue is recognised to the extent that
it is probable that the economic benefi ts associated with the
transaction will fl ow to the Group.
Revenue comprises the value of software licence sales,
installation, training, maintenance and support services.
Revenue is recognised when (i) persuasive evidence of an
arrangement exists; (ii) delivery has occurred or services have
been rendered; (iii) the sales price is fi xed and determinable and
(iv) collectability is reasonably assured.
For software arrangements with multiple elements revenue is
recognised dependent on whether vendor-specifi c objective
evidence (‘VSOE’) of fair value exists for each of the elements.
VSOE is determined by reference to sales made to customers
on a stand-alone basis. Where there is no VSOE revenue is
recognised over the full term of each contract.
36
Instem Life Science Systems plc Annual Report, 2010
accounting policies
Revenue Recognition (continued)
Revenue from licence based products is recognised when the
risks and rewards of ownership of the product are transferred to
the customer.
Revenue from software maintenance and other time based
contracts are recognised over the invoiced contract period.
Revenue from installation and training is recognised on a
percentage completion basis on fi xed price contracts or as
services are provided in respect of time and materials contracts.
The excess of amounts invoiced over revenue is included
in accruals and deferred income. If the amount of revenue
recognised exceeds the amounts invoiced the excess amount is
included within prepayments and accrued income.
Profit from Operations Before Amortisation
Profi t from operations before amortisation is profi t arising from
the Group’s normal trading activities stated before amortisation of
intangible assets and non-recurring items, interest and taxation.
Profit from Operations
Profi t from operations is profi t from the Group’s ordinary activities
stated before costs of admission to AIM, fi nance costs and
income, and income taxes.
Segmental Reporting
IFRS 8 ‘Operating Segments’ provides segmental information for
the Group on the basis of information reported internally to the
chief operating decision-maker for decision-making purposes.
The Group considers that the role of chief operating decision-
maker is performed by the Group’s board of directors.
Since the Group is primarily providing goods and services to the
global life sciences market there is only one operating segment
which is monitored by the business.
Foreign Currencies
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are translated at the foreign exchange rate ruling
at that date. Foreign exchange differences arising on translation
are recognised in the statement of comprehensive income.
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary
assets and liabilities denominated in foreign currencies that are
stated at fair value are translated at foreign exchange rates ruling
at the date the fair value was determined.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated at foreign exchange rates ruling at the reporting date.
The revenue and expenses of foreign operations are translated
at an average rate for the year where this rate approximates to
the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from the translation of foreign
operations are taken directly to the translation reserve. They are
released into profi t or loss upon disposal of the foreign operation.
The presentational currency adopted by the Group is Sterling (£).
The functional currencies of the principal companies in the Group
are as follows:
Instem LSS Group limited - Sterling (£)
Instem LSS Limited - Sterling (£)
Instem LSS (North America) Limited - US Dollars ($)
Instem LSS Asia Limited - Sterling (£)
Instem Information Systems (Shanghai) Limited - Renminbi
The exchange rates used to translate the fi nancial statements
into Sterling (£) are as follows:
US Dollar ($)
Average rate for period ended 31 December 2008:
1.8032
Closing rate at 31 December 2008:
1.4709
Average rate for period ended 31 December 2009:
1.5647
Closing rate at 31 December 2009:
1.6147
Average rate for period ended 31 December 2010:
1.5474
Closing rate at 31 December 2010:
1.5657
Finance Income
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate applicable,
which is the rate that exactly discounts estimated future cash
receipts through the expected life of the fi nancial asset to that
asset’s net carrying amount. Finance income includes exchange
gains on the translation of intra group funding balances.
Finance Costs
Net fi nance costs comprise interest payable, exchange losses on
the translation of intra group funding balances, fi nance charges
on fi nance leases and interest on pension scheme liabilities.
Interest payable is recognised in the statement of comprehensive
income as it accrues, using the effective interest method.
Leasing
Where assets are fi nanced by leasing agreements that give
rights approximating to ownership (“fi nance leases”), the assets
are treated as if they had been purchased outright. The amount
capitalised is the fair value or, if lower, the present value of the
minimum lease payments payable during the lease term. The
corresponding leasing commitments are shown as fi nance lease
obligations to the lessor.
Lease payments are apportioned between fi nance charges and
reduction of lease obligations so as to achieve a constant rate
of interest on the remaining balance of the liability. Finance
charges are charged to fi nance costs in the Statement of
Consolidated Income.
All other leases are “operating leases” and the annual rentals are
charged to the statement of comprehensive income on a straight
line basis over the lease term.
Instem Life Science Systems plc Annual Report, 2010 37
accounting policies
Share-Based Payment Transactions
to the period when the asset is realised or the liability is settled.
The Group has applied the requirements of IFRS 2 Share-Based
Payment. In accordance with the transitional provisions, IFRS
2 has been applied to all grants of equity instruments after 7
November 2002 that were unvested as of 31 December 2006.
The Group issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments
are measured at fair value at the date of grant by reference
to the fair value of the equity instruments granted. The fair
value determined at the grant date of equity-settled share-
based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of the number
of instruments that will eventually vest with a corresponding
adjustment to equity. Fair values are measured by use of
the Black-Scholes and the Monte-Carlo simulation models
depending on the existence of market based vesting conditions.
The expected life used in the model has been adjusted, based on
management’s best estimate, for the effect of non-transferability,
exercise restrictions, and behavioural considerations.
Non-vesting and market vesting conditions are taken into
account when estimating the fair value of the option at grant
date. Service and non-market vesting conditions are taken into
account by adjusting the number of options expected to vest at
each reporting date.
Intangible Assets
Intangible assets purchased separately from a business are
capitalised at their cost.
The Group makes an assessment of the fair value of intangible
assets arising on acquisitions. An intangible asset will be
recognised as long as the asset is identifi able and its fair value
can be measured reliably. An intangible asset is identifi able if
it is separable or if it was obtained through contractual or legal
rights. Amortisation is provided on the fair value of the asset and
is calculated on a straight line basis over its useful life.
Goodwill
Goodwill on acquisitions, being the excess of the fair value of the
cost of acquisition over the Group’s interest in the fair value of
the identifi able assets and liabilities acquired, is capitalised and
tested for impairment on an annual basis.
Any impairment is recognised immediately in profi t or loss and
is not subsequently reversed. For the purpose of impairment
testing goodwill is allocated to cost generating units of Instem
LSS, which represent the smallest identifi able group of assets
that generates cash infl ows that are largely independent of the
cash infl ows from other assets of groups of assets.
Options over the Company’s shares granted to employees of
subsidiaries are recognised as a capital contribution by the
Company to the subsidiaries.
Computer Software
Taxation
Taxation expense includes the amount of current income tax
payable and the charge for the year in respect of deferred
taxation.
The income tax payable is based on an estimation of the
amount due on the taxable profi t for the year. Taxable profi t is
different from profi t before tax as reported in the statement of
comprehensive income because it excludes items of income or
expenditure which are not taxable or deductible in the year as a
result of either the nature of the item or the fact that it is taxable
or deductible in another year. The Group’s liability for current
tax is calculated by using tax rates that have been enacted or
substantially enacted by the balance sheet date.
Deferred tax is accounted for on the basis of temporary
differences arising from the differences between the tax base
and accounting base of assets and liabilities.
Deferred tax is recognised for all taxable temporary differences,
except to the extent where it arises from the initial recognition
of an asset or liability in a transaction that is not a business
combination. Deferred tax assets are recognised only to
the extent that it is probable that future taxable profi ts will be
available against which temporary differences can be utilised.
Deferred tax is charged or credited to the statement of
comprehensive income, except when it relates to items charged
or credited directly to equity, in which case it is dealt with within
equity. It is calculated at the tax rates that are expected to apply
Computer software is carried at cost less accumulated
amortisation and any impairment loss. Externally acquired
computer software and software licences are capitalised and
amortised on a straight line basis over their useful economic lives
of 3 years. Costs relating to development of computer software
for internal use are capitalised once the recognition criteria of IAS
38 “Intangible Assets” are met. When the software is available
for its use, these costs are amortised over the estimated useful
life of the software.
Other intangible assets
Internally generated intangible assets
Expenditure on research activities is recognised in profi t or loss
as incurred.
Expenditure arising from the Group’s development of software
for sale to third parties is recognised only if all of the following
conditions are met:
•
•
•
•
•
•
an asset is created that can be identifi ed;
it is probable that the asset created will generate future
economic benefi ts;
the development cost of the asset can be measured
reliably;
the Group has the intention to complete the asset and the
ability and intention to use or sell it;
the product or process is technically and commercially
feasible; and
suffi cient resources are available to complete the
development and to either sell or use the asset.
38
Instem Life Science Systems plc Annual Report, 2010
accounting policies
Intangible Assets (continued)
Where these criteria have not been achieved, development
expenditure is recognised in profi t or loss in the period in which it
is incurred.
Internally-generated intangible assets are amortised, once the
product is available for use, on a straight-line basis over their
useful lives (fi ve to eight years)
to its recoverable amount. An impairment loss is recognised as
an expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the assets is increased to the revised estimate of
its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for
the asset in prior years. A reversal of an impairment loss is
recognised in profi t or loss immediately.
Property, Plant and Equipment
Inventory
Property, plant and equipment are stated in the statement of
fi nancial position at cost less accumulated depreciation and
provision for impairments.
Depreciation is provided on all assets so as to write off the cost
less estimated residual value on the following basis:
Short leasehold property - Over term of lease
Plant and equipment - 12½% - 25% per annum
Motor vehicles - 25% per annum
The expected useful lives of property, plant and equipment are
reviewed on an annual basis and, if necessary, changes in useful
lives are accounted for prospectively.
The carrying value of property, plant and equipment is reviewed
for impairment whenever events or changes in circumstances
indicate the carrying value may not be recoverable.
The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds and
the carrying amount of the asset and is recognised in profi t or
loss.
Impairment of Assets Excluding Goodwill
At each reporting date the Group reviews the carrying value of its
property, plant and equipment and intangible assets to determine
whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss.
Where the asset does not generate cash fl ows that are
independent from other assets the Group estimates the
recoverable amount of the cash generating unit to which the
asset belongs. A cash generating unit is the smallest identifi able
group of assets that generates cash infl ows that are largely
independent of the cash infl ows from other assets or groups of
assets.
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use the estimated future
cash fl ows are discounted to their present value using a pre-tax
discount rate that refl ects current market assessments of the
time value of money and the risks specifi c to the asset, for which
the estimates of future cash fl ows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than
its carrying amount, the carrying amount of the asset is reduced
Inventory is stated at the lower of cost and net realisable value.
Provision is made where necessary for obsolete and slow
moving inventory.
Financial Instruments
Classifi cation of fi nancial instruments
Financial instruments are classifi ed as fi nancial assets, fi nancial
liabilities or equity instruments.
Recognition and valuation of fi nancial assets
Financial assets are initially recorded at their fair value net of
transaction costs. At each reporting date, the Group reviews
the carrying value of its fi nancial assets to determine whether
there is objective evidence of an indication of impairment. If any
such indication exists the recoverable amount is estimated and
any identifi ed impairment loss is recognised in the statement of
comprehensive income.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and cash
deposits which are readily convertible to a known amount of
cash. For the purposes of the cash fl ow statement, cash and
cash equivalents include bank overdrafts which are repayable
on demand as these form an integral part of Group cash
management.
Trade receivables
Trade receivables are classifi ed as loans and receivables and
are initially recognised at fair value. They are subsequently
measured at their amortised cost using the effective interest
method less any provision for impairment. A provision for
impairment is made where there is objective evidence that
amounts will not be recovered in accordance with original terms
of the agreement. A provision for impairment is established when
the carrying value of the receivable exceeds the present value
of the future cash fl ows discounted using the original effective
interest rate. The carrying value of the receivable is reduced
through the use of an impairment provision account and any
impairment loss is recognised in the statement of comprehensive
income.
Instem Life Science Systems plc Annual Report, 2010 39
accounting policies
Financial Instruments (continued)
Defi ned benefi t schemes
Financial liabilities and equity
Financial liabilities and equity instruments are classifi ed
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences
a residual interest in the assets of the Group after deducting all
of its liabilities.
Bank borrowings and loan notes
A defi ned benefi t scheme is a pension plan under which the
Group pays contributions in order to fund a defi ned amount of
pension that the employees under the scheme will receive on
retirement. The cost of providing the benefi ts is determined
using the projected unit credit method with actuarial valuations
being carried out regularly.
An asset or liability is recognised equal to the present value of
the defi ned benefi t obligation, adjusted for unrecognised past
service costs and reduced by the fair value of plan assets.
Interest-bearing loan notes and bank overdrafts are recorded
initially at their fair value, net of direct transaction costs.
Such instruments are subsequently carried at their amortised
cost and fi nance charges are recognised in the statement of
comprehensive income over the term of the instrument using an
effective rate of interest. Finance charges are accounted for on
an accruals basis to the statement of comprehensive income.
Overdrafts are offset against cash and cash equivalents when
the Company has a legal right of off-set.
Actuarial gains and losses are recognised in the statement of
other comprehensive income in the year in which they occur,
whilst expected returns on plan assets, servicing costs and
fi nancing costs are recognised in profi t and loss.
The rate used to discount the benefi t obligations is based on
market yields for high quality corporate bonds with terms and
currencies consistent with those of the benefi t obligations.
Trade payables
Provisions
Trade payables are not interest bearing and are stated at their
cost.
Ordinary share capital
Provisions are recognised when the Group has a present
obligation as a result of a past event which it is probable will
result in an outfl ow of economic benefi ts that can be reliably
estimated.
For ordinary share capital, the par value is recognised in share
capital and the premium in the share premium reserve.
The time value of money is not expected to be material and
therefore future outfl ows have not been discounted.
Derivative fi nancial instruments
First Time Adoption of IFRS
The Group’s activities expose it primarily to foreign currency
risk. The Group uses forward contracts to hedge this exposure.
The Group does not use derivative fi nancial instruments for
speculative purposes.
The Group and Company fi nancial statements have been
prepared in accordance with IFRS, IASs and International
Financial Reporting Interpretations Committee (IFRICs) effective
as at the 31 December 2010. The Group and Company have not
chosen to adopt any amendments or revised standards early.
The Group has not applied IFRS 1 First-time Adoption of IFRS
in the current year as it is in substance a continuation of the
Group headed by Instem LSS Group Limited. Instem LSS Group
Limited’s fi nancial statements for the period ended 31 December
2009 were converted from UK GAAP to EU-adopted IFRS for
the purposes of the Company’s admission to AIM in October
2010 along with its comparatives for 2008 and 2007. The Group
considers its fi rst fi nancial statements prepared under IFRS to
be those for the period ended 31 December 2009. The date of
transition is considered to be the beginning of the earliest period
presented ie 1 January 2007. For information purposes, the
reconciliations of equity and profi t for 2009, 2008 and 2007 in
respect of Instem LSS Group Limited have been provided in note
30 along with the equity position as at the date of transition.
The Group does not adopt the hedge accounting provisions and
as such, these derivatives are classifi ed as fi nancial instruments
held for trading in accordance with IAS 39. They are initially
and subsequently measured at fair value with gains and losses
recognised in the statement of comprehensive income.
Retirement Benefits
Defi ned contribution schemes
A defi ned contribution scheme is a pension plan under which
the Group pays a fi xed contribution to a scheme with an
external provider. The amount charged to the statement of
comprehensive income in respect of pension costs and other
post retirement benefi ts is the contributions payable in the year.
Differences between contributions payable in the year and
contributions actually paid are shown as either other payables
or other receivables in the statement of fi nancial position. The
Group has no further payment obligations once the contributions
have been paid.
40
Instem Life Science Systems plc Annual Report, 2010
accounting policies
IFRSs Issued but Not Yet Effective
The following IFRSs, IASs and IFRICs have been issued, are
not yet effective, and have not been adopted by the Group or
the Company in these fi nancial statements. The directors do not
believe the adoption will have a material impact on the business.
•
•
•
•
•
•
•
•
•
•
IFRS 1 ‘First-time Adoption of IFRS - Amendment; Limited
Exemption from Comparative IFRS 7 Disclosures for First-
time Adopters’ effective for periods commencing on or after
1 July 2010.
IFRS 1 ‘First-time Adoption of IFRS - Amendment; Severe
Hyper Infl ation and Removal of Fixed Dates for fi rst time
adopters’ effective for periods commencing on or after 1
July 2011 (not yet EU endorsed).
IFRS 7 ‘Financial Instruments: Disclosures - Amendment;
Transfer of Financial Assets’ effective for periods
commencing on or after 1 July 2011 (not yet EU endorsed).
IAS 12 ‘Income Taxes - Amendment; Deferred Tax Recovery
of Underlying Assets’ effective for periods commencing on
or after 1 January 2012 (not yet EU endorsed).
IAS 24 ‘Revised IAS 24 Related Party Disclosures’ was
issued on 4 November 2009 and is effective for periods
commencing on or after 1 January 2011.
IAS 32 ‘Financial Instruments: Presentation – Amendment;
Classifi cation of Rights Issues’ was issued on 8 October
2009 and is effective for periods commencing on or after 1
February 2010.
IFRIC 14 ‘Amendment – Prepayments of a Minimum
Funding Requirement’ was issued on 26 November 2009
and is effective for periods commencing on or after 1
January 2011.
IFRIC 19 ‘Extinguishing Financial Liabilities With Equity
Instruments’ effective for periods commencing on or after 1
July 2010.
IFRS 9 ‘Financial Instruments’ was issued on 12 November
2009 and is effective for periods commencing on or after 1
January 2013 (not yet EU endorsed).
Improvements to IFRS (May 2010) – Amendments to
standards effective for periods commencing on or after 1
January 2011.
Instem Life Science Systems plc Annual Report, 2010 41
NOTES TO THE FINANCIAL STATEMENTS
1. Segmental Reporting
For management purposes, the Group is currently organised into one operating segment – Global Life Sciences.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
THIRD PARTY REVENUE
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
1,953
5,933
789
1,203
123
10,001
£000
2,085
5,803
502
992
607
9,989
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
1,339
2,231
5,822
609
10,001
£000
1,131
2,438
6,125
295
9,989
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
6,353
-
205
25
6,583
£000
6,004
-
213
-
6,217
INFORMATION BY PRODUCT TYPE
Licence fees
Annual support fees
SaaS subscription fees
Professional services
Funded development initiatives
THIRD PARTY REVENUE
INFORMATION BY GEOGRAPHICAL LOCATION
UK
Rest of Europe
USA and Canada
Rest of World
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION
INFORMATION BY GEOGRAPHICAL LOCATION
UK
Rest of Europe
USA and Canada
Rest of World
42
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
Significant Customers
The Group generates external revenue from one customer which individually amounts to more than 10% of the Group revenue.
Revenue in respect of this customer for the period ending 31 December 2010 amounted to £1.46m (2009: £2.06m) and is refl ected
across all of the reportable locations.
2. Profit from Operations
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
£000
Profit from operations includes the following significant items:
Depreciation and amounts written off property, plant and
equipment:
Charge for the year:
Owned assets
Leased assets
Amortisation of intangible assets
Research and development costs
Foreign exchange (gains)/losses recognised in operating expenses
Operating lease rentals:
Plant and machinery
Land and buildings
Amounts payable to Baker Tilly UK Audit LLP and their associates
in respect of both audit and non-audit services:
Audit services:
Statutory audit of parent and consolidated financial information
Other services:
Audit of subsidiaries where such services are provided by Baker
Tilly UK Audit LLP or its associates
67
8
34
1,287
37
136
310
4
29
Taxation services
36
Services pursuant to companies legislation
Corporate finance services
Other services
4
67
17
157
58
8
47
1,595
110
187
271
7
22
5
-
-
-
34
Instem Life Science Systems plc Annual Report, 2010 43
NOTES TO THE FINANCIAL STATEMENTS
2. Profit from Operations (continued)
The following table analyses the nature of expenses:-
Depreciation, amortisation and impairments (see notes 9 and 10)
Staff costs (see note 5)
Premises costs
Marketing expenses
Professional fees
Other expenses
Total operating expenses
2010
£’000
5,190
75
417
141
82
1,863
7,768
2009
£’000
5,219
66
378
51
77
2,011
7,802
Non-Recurring Costs
During the year the Group paid a non-recurring bonus of £0.35m (2009: Nil) to the directors of Instem LSS Group Limited in respect of
past service.
The Group incurred costs of £0.30m in respect of professional advice received in connection with the fl otation of the business.
In addition the Group paid £0.04m in respect of non-recurring third party legal and professional expenses for the incorporation of Instem
Information Systems (Shanghai) Limited in China.
44
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
3.
FINANCE INCOME
Bank interest
Foreign exchange gains
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
263
-
263
£000
322
413
735
4.
FINANCE COSTS
5.
EMPLOYEES
Bank loans and overdrafts
Foreign exchange losses
Expected returns on pension scheme assets
Interest on pension scheme liabilities
Other
Average monthly number (including executive directors)
By role:
Directors, administration, and supervision
Software design, sales and customer service
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
297
37
(326)
356
-
364
£000
309
-
(237)
327
8
407
52 week period ended
53 week period ended
31 December 2010
31 December 2009
Number
Number
28
75
103
21
69
90
52 week period ended
53 week period ended
31 December 2010
31 December 2009
Employment costs:
Wages and salaries
Social security costs
Retirement benefits
£000
4,297
414
479
5,190
£000
4,285
403
531
5,219
In 2010 an additional non-recurring payment to shareholder/directors of £0.35m was made, which is not included in the above table.
A charge of £0.02m (2009: £nil) arises in respect of share based payments.
Instem Life Science Systems plc Annual Report, 2010 45
NOTES TO THE FINANCIAL STATEMENTS
6. Share-Based Payments
Equity-Settled Share Option Plan
Under the approved and unapproved option schemes, the Remuneration Committee can grant options to employees of the Group.
Options are granted with a fi xed exercise price which is equal to the market price at the date of grant. The contractual life is generally
ten years from the date of grant. Options become exercisable after three years. Certain options issued to directors and senior
employees carry market based performance conditions.
Outstanding at the beginning of the period
Granted
Outstanding at end of the period
Exercisable at 31 December
Options
-
585,711
585,711
-
2010
Weighted average exercise price (£)
-
1.75
-
1.75
The options outstanding at December 2010 had an exercise price of £1.75 and a weighted average remaining contractual life of 9.75
years.
Options are valued using the Black-Scholes and Monte-Carlo option-pricing models and the fair market value has been estimated using
the following key assumptions:
Average exercise price
£1.75
Average market price
£1.75
Total number of options under grant
585,711
Average vesting period (years)
3
Expected volatility
22%-26%
Option life (years)
Expected life
10
6
Risk free rate
1.9%
Expected dividend yield
Expected lapse rate
0%
0%
Fair value of options
£0.38-£0.51
Expected volatility was determined by calculating the historical volatility of a comparable business, prior to the period when the
Company’s shares were listed on the AIM market. Volatility since listing has been calculated using the daily mid market share price. The
expected life used in the model has been adjusted, based upon the management’s best estimate for the effects of non-transferability,
exercise restrictions, and behavioural considerations.
Options over 351,426 shares incorporate a market performance condition based on the Company’s share price.
46
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
7. DIRECTORS’ EMOLUMENTS
Amounts payable by Instem Life Science Systems plc:
Emoluments
Amounts payable by subsidiary companies:
Emoluments
Money purchase pension contributions
Total emoluments
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
£000
23
602
40
665
-
395
41
436
52 week period ended
53 week period ended
31 December 2010
31 December 2009
Number
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
2
2
The highest paid director is shown in the Directors’ Remuneration Report on page 27.
Instem Life Science Systems plc Annual Report, 2010 47
NOTES TO THE FINANCIAL STATEMENTS
8. Taxation
Current tax:
UK corporation tax on profits of the period
Double tax relief
Foreign tax
Adjustments in respect of previous periods
Total current tax
Deferred tax:
Origination and reversal of timing differences
Adjustments in respect of previous periods
Pension scheme
Total deferred tax
Income tax charge
52 week period ended
53 week period ended
31 December 2010
31 December 2009
£000
379
(212)
274
(50)
391
73
-
50
123
514
£000
604
(189)
330
(75)
670
31
(2)
63
92
762
Factors affecting tax charge for the period:
£000
£000
52 week period ended
53 week period ended
31 December 2010
31 December 2009
The tax assessed for the period is higher than the
standard rate of corporation tax in the UK 28%. The
differences are explained below:
Profit before tax
1,415
2,468
Profit before tax multiplied by standard rate of
corporation tax in the UK 28%
Effects of:
Expenses not deductible for tax purposes
Differences in overseas tax rates
Prior period adjustments
Total income tax charge for the period
396
84
84
(50)
514
691
6
140
(75)
762
48
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
9.
Intangible Assets
Group
31 December 2009
Cost at beginning of year
Additions
Cost at end of period
Amounts written off
At beginning of year
Charged in the year
Amortisation at end of period
Group
31 December 2010
Cost at beginning of year
Additions
Cost at end of period
Amounts written off
At beginning of year
Charged in the period
Amortisation at end of period
Goodwill
£000
Software
£000
5,858
-
5,858
-
-
-
5,858
-
5,858
-
-
-
362
65
427
148
47
195
232
427
361
788
195
34
229
559
Total
£000
6,220
65
6,285
148
47
195
6,090
Total
£000
6,285
361
6,646
195
34
229
6,417
Net book value at end of period
5,858
Goodwill
£000
Software
£000
Net book value at end of period
5,858
Impairment of goodwill
All the goodwill, amounting to £5.86m, relates to a single cash generating unit, being the Instem business acquired on the management
buyout of Instem LSS Limited on 27 March 2002. During the period, goodwill was tested for impairment in accordance with IAS
36 “Impairment of Assets”. The recoverable amounts for the cash generating unit exceeded the carrying amount of goodwill. The
recoverable amount for the cash generating unit has been measured on a value in use calculation.
The key assumptions used, which are based on management’s past experience, for the value in use calculations are those regarding
the discount rates, growth rates and direct costs during the period. The value in use calculations are based on the future cashfl ows
from approved forecasts for one year which has then been extrapolated to cover a period of fi ve years, being the maximum period
which management considers can reliably be forecast. At 31 December 2010 a pre tax discount rate of 8.33% was used in the value in
use calculation based on the Company’s cost of capital. In determining the value in use, cashfl ows have not been increased to refl ect
potential growth.
Projected cashfl ows were based on detailed Company profi t and cashfl ow projections through to 2012 with no assumption of growth
beyond 2012. The projections were based on reasonable assumptions in respect of business growth rates, payroll and other cost
increases and related cashfl ow impacts.Based on the expected value in use compared to the carrying value of goodwill the directors did
not consider that a sensitivity analysis was necessary at the reporting date.
Instem Life Science Systems plc Annual Report, 2010 49
NOTES TO THE FINANCIAL STATEMENTS
10. Investments
Company-cost and net book value
£000’s
At 31 December 2009
-
Investment in Instem LSS Group Limited
16,500
At 31 December 2010
16,500
On 1 October 2010 the Company acquired the entire issued share capital of Instem LSS Group Limited.
The Company has one wholly-owned subsidiary and four wholly-owned sub-subsidiaries, details of which are as follows:
Company
Activity
Ownership
Instem LSS Group Limited
(Company number 04339129)
Holding Company
England and Wales
100% by Instem Life Science
Systems plc
Instem LSS Limited
Software development, sales,
(Company number 03548215)
sales support and administrative
England and Wales
support
100% by Instem LSS Group
Limited
Instem LSS (North America) Limited
(Company number 02126697)
England and Wales
Instem LSS (Asia) Limited
Sales, sales support and
administrative support
100% by Instem LSS Limited
(Company number 1371107)
Holding Company
100% by Instem LSS Limited
Hong Kong
Instem Information Systems (Shanghai) Limited
(Company number 310115400257075)
Sales, sales support and service
Shanghai, PRC
100% by Instem LSS (Asia)
Limited
50
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
11. Property, Plant and Equipment
Group
Short leasehold
Plant and
31 December 2009
property
equipment
Cost
At beginning of year
Additions
Exchange adjustment
Cost at end of period
Depreciation
At beginning of year
Charged in the year
Exchange adjustment
Depreciation at end of period
Net book value at end of period
£000
30
-
-
30
17
1
-
18
12
£000
2,980
47
(38)
2,989
2,840
64
(30)
2,874
115
Motor vehicles
£000
13
-
(1)
12
12
1
(1)
12
-
Group
Short leasehold
Plant and
31 December 2010
property
equipment
Motor vehicles
Cost
Additions
Exchange adjustment
Disposals
Cost at end of period
Depreciation
Charged in the period
Exchange adjustment
Disposals
Depreciation at end of period
Net book value at end of period
£000
30
15
-
-
45
18
2
-
-
20
25
£000
2,989
96
13
(251)
2,847
2,874
73
10
(251)
2,706
141
£000
12
-
-
-
12
12
-
-
-
12
-
Total
£000
3,023
47
(39)
3,031
2,869
66
(31)
2,904
127
Total
£000
3,031
111
13
(251)
2,904
2,904
75
10
(251)
2,738
166
The net book value of plant and equipment includes £Nil in respect of assets held under fi nance leases. Depreciation for the period on
these assets was £8,000 (2009:£8,000)
Instem Life Science Systems plc Annual Report, 2010 51
NOTES TO THE FINANCIAL STATEMENTS
12. Inventories
Group
Work in progress
Total gross inventories
Inventory impairment
Inventory impairment:
At beginning and end of period
13. Trade and Other Receivables
Group
Trade receivables
Other receivables
Prepayments and accrued income
Company
Other receivables
31 December 2010
31 December 2009
£000
137
£000
62
31 December 2010
31 December 2009
£000
137
-
137
£000
75
(13)
62
31 December 2010
31 December 2009
£000
-
£000
13
31 December 2010
31 December 2009
£000
959
32
604
1,595
64
64
£000
1,104
4
724
1,832
-
-
An allowance has been made for estimated irrecoverable amounts from the sale of goods and services as shown below. This allowance
has been based on the knowledge of the fi nancial circumstances of individual customers at the period end.
A provision for impairment is made where there is objective evidence of impairment which is usually indicated by a delay in the expected
cash fl ows or non payment from customers.
An analysis of the provision for impairment of
31 December 2010
31 December 2009
receivables is as follows:
£000
£000
At beginning of year
(Credit)/charge for the period
At end of period
2
-
2
-
2
2
The average credit period taken on sale of goods is 33 days (31 December 2009: 37 days).
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
52
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
13. Trade and Other Receivables (continued)
The age profi le of the net trade receivables for the Group at the year-end was as follows:
31 December 2009
Current
Debt age – “days overdue”
0-30
days
31-60
days
Over 60
days
Trade receivables
Value (£000)
%
923
84
152
14
27
2
2
-
Debt age – “days overdue”
Total
1,104
100
31 December 2010
Current
0-30
days
31-60
days
Over 60
days
Total
Trade receivables
Value (£000)
%
834
87
98
10
16
2
11
1
959
100
An analysis of trade and other receivables by currency is as follows:
Sterling
Euro
US Dollar
Renminbi
31 December 2010
31 December 2009
£000
714
31
838
12
1,595
£000
885
5
942
-
1,832
Instem Life Science Systems plc Annual Report, 2010 53
NOTES TO THE FINANCIAL STATEMENTS
14. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
31 December 2010
31 December 2009
£000
£000
12,085
(8,822)
3,263
11,479
(8,763)
2,716
3,100
-
The Group overdraft facility has a net limit of £1,200,000 and gross facility of £9,000,000. Interest is charged on the bank overdraft
at 3% above base rate up to the above limit and 6% above base rate on any remainder. The bank overdraft is secured by fi xed and
fl oating charges over certain of the Group’s assets. All balances are denominated in Sterling.
The overdraft facility is renewable annually in March.
An analysis of cash and cash equivalents by currency is as follows:
Sterling
Euro
US Dollar
Other
The carrying amount of these assets approximate to their fair value.
15. Trade and Other Payables
Group
Current
Trade payables
Other taxation and social security costs
Other payables
Accruals and deferred income
Non Current
Other payables
Company
Trade payables
Group payables
54
Instem Life Science Systems plc Annual Report, 2010
31 December 2010
31 December 2009
£000
2,654
136
394
79
3,263
£000
1,208
142
1,362
4
2,716
31 December 2010
31 December 2009
£000
£000
257
123
29
5,127
5,536
-
37
29
66
291
171
72
5,776
6,310
29
-
-
-
NOTES TO THE FINANCIAL STATEMENTS
15. Trade and Other Payables (continued)
An analysis of trade and other payables by currency is as follows:
Sterling
US Dollar
Renminbi
31 December 2010
31 December 2009
£000
2,444
3,022
70
5,536
£000
3,042
3,297
-
6,339
The directors consider that the carrying amount of trade and other payables approximate to fair value due to their short maturities.
Trade payables are mainly due to be paid within one month.
16. Current Taxation
The current tax payable of £85,000 (31 December 2009: £300,000) represents the amount of income taxes payable in respect of current
and prior periods.
17. Financial Liabilities
31 December 2009
Total
Less than
One to
one year
two years
Two to
three
years
Three to
Four to
More than
four years
five years
five years
£000
£000
£000
£000
£000
Group
Loan notes
£000
2,549
Finance leases
3
2,552
£000
2,549
3
2,552
-
-
-
31 December 2010
Total
Less than
One to
one year
two years
-
-
-
Two to
three
years
-
-
-
-
-
-
-
-
-
Three to
Four to
More than
four years
five years
five years
Group and Company
£000
Series B Loan notes
253
253
£000
253
253
£000
£000
£000
£000
£000
-
-
-
-
-
-
-
-
-
-
Instem Life Science Systems plc Annual Report, 2010 55
NOTES TO THE FINANCIAL STATEMENTS
17. Financial Liabilities (continued)
Loan notes
The loan note obligations can be analysed as below:
12.5% Fixed Rate Loan Notes
Discounted value
Accrued interest
The loan notes were redeemed in full on 26 January 2010.
Series B Loan Notes
31 December 2010
31 December 2009
£000
-
-
-
£000
1,300
1,249
2,549
The Series B Loan Notes were issued on October 5th 2010. The note is unsecured and bears interest at the rate of 1.75% above bank
base rate. The loan note plus accrued interest is repayable in full on 13th October 2011.
Due to the short maturity the directors believe the carrying value approximates to fair value.
Obligations under finance leases
Amounts payable under finance leases
Within 1 year
Within 2-5 years inclusive
After 5 years
Less: future finance charges
Present value of lease obligations
Disclosed as:
Current
Non-current
Minimum lease
payments
31 December
2010
£000
-
-
-
-
-
-
-
-
-
Present value of
minimum lease
payments
31 December
2010
£000
-
--
--
-
Minimum lease
payments
31 December
2009
£000
3
-
-
-
3
3
-
3
Present value of
minimum lease
payments
31 December
2009
£000
3
3
56
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
18. Financial Instruments
All fi nancial instruments held by the Group, as detailed in this note, are classifi ed as “Loans and Receivables” (trade and other
receivables, excluding prepayments, and cash and cash equivalents), “Financial Liabilities Measured at Amortised Cost” (trade and
other payables, excluding statutory liabilities, and fi nancial liabilities) and “Fair value through profi t and loss” (other fi nancial liabilities
which refl ect derivative contracts) under IAS 39 ‘Financial Instruments: Recognition and Measurement’.
Financial Risk Management
The Group’s activities expose it to a variety of fi nancial risks including market risk, credit risk and liquidity risk. Market risk includes
interest rate risk, foreign exchange rate risk and price risk. The main fi nancial risks managed by the Group, under policies approved by
the board, are interest rate risk, foreign currency risk, liquidity risk and credit risk.
The Group has in place risk management policies that seek to limit the adverse effects on the fi nancial performance of the Group by
using various instruments and techniques. Derivative fi nancial statements are only used to hedge exposures arising in respect of
underlying business requirements and not for any speculative purpose.
Foreign exchange risk
The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the
functional currency and on the translation of the statement of fi nancial position and statement of comprehensive income of foreign
operations into sterling. The currencies giving rise to this risk are primarily US dollars. The Group has both cash infl ows and outfl ows in
this currency that create a natural hedge.
In managing currency risks the Group aims to reduce the impact of short-term fl uctuations on the Group’s cash infl ows and outfl ows in
a foreign currency. The Group also hedges any material foreign currency transaction exposure. During the year the Group entered into
US dollar hedging arrangements with fi xed forward contracts which all expired prior to the reporting date and an American Ratio forward
accrual contract.
Over the longer term, changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. The
assumption in 2010 was based on a forecast that the US Dollar to sterling rate would be 1.60. A 10% decrease in the value of sterling
against the US dollar would result in an increase in the Group’s profi t before tax by approximately £0.30m.
Interest rate risk
The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported earnings.
The Group bank facility does not allow the US Dollar cash balances to generate interest therefore the Group transfers funds from the
US dollar account into the sterling account. This is achieved using currency swaps which maximise the interest gains whilst minimising
foreign exchange risks.
As at 31 December 2010 indications are that the UK bank rate will increase by 0.5% over the next 12 months. On the basis of the
fl oating net cash position at 31 December 2010 and assuming no other changes occur (such as changes in currency exchange rates)
and that no further interest rate management action is taken, an increase in interest rates of 0.5% would increase pre-tax net interest
income by £14,000.
Instem Life Science Systems plc Annual Report, 2010 57
NOTES TO THE FINANCIAL STATEMENTS
18. Financial Instruments (continued)
31 December 2009
Trade and other receivables
Cash and cash equivalents
Trade payables
Fixed
rate
£000
-
-
-
Loan notes
(2,549)
Obligations under finance leases
-
Floating
Non-interest
rate
£000
-
1,207
-
-
-
bearing
£000
1,385
1,509
(1,417)
-
(3)
(2,549)
1,207
1,474
31 December 2010
Trade and other receivables
Cash and cash equivalents
Trade payables
Loan notes
Obligations under finance leases
Fixed
rate
£000
-
-
-
-
-
-
Floating
Non-interest
rate
£000
-
3,067
-
(253)
-
2,814
bearing
£000
1,250
196
(908)
-
-
538
Total
£000
1,385
2,716
(1,417)
(2,549)
(3)
132
Total
£000
1,250
3,263
(908)
(253)
-
3,352
Credit risk
Management aim to minimise the risk of credit losses.
The Group’s fi nancial assets are bank balances and cash and trade and other receivables, which represent the Group’s maximum
exposure to credit risk in relation to fi nancial assets.
The Group’s credit risk is primarily attributable to its trade receivables and the Group has policies in place to ensure that sales of
products and services are made to customers with appropriate creditworthiness.
The amounts presented in the Statement of Financial Position are net of impairment provisions, estimated by the Group’s management
based on prior experience and their assessment of the present value of estimated future cash fl ows. An allowance for impairment is
made where there is an identifi ed loss event which, based on previous experience, is evidence of a reduction in the recoverability of the
cash fl ows. The Group has signifi cant concentration of credit risk, with signifi cant exposure relating to a number of counterparties:
31 December 2009
Customer A - £190,814 (17%)
31 December 2010
Customer A - £ 223,220 (23%)
The Group’s exposure to losses from defaults on trade receivables is reduced due to contractual terms which require support fees to be
invoiced and paid annually in advance.
58
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
18. Financial Instruments (continued)
Note 13 sets out the impairment provision for credit losses on trade receivables and the ageing analysis of overdue trade receivables.
There are no impairment losses recognised on other fi nancial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its fi nancial commitments as they fall due.
The Group’s objective is to ensure that adequate facilities are available through use of bank overdrafts and fi nance leases. The Group
manages liquidity risk through regular cash fl ow forecasting and monitoring of cash fl ows, management review and regular review of
working capital and costs.
The Group regularly monitors its available headroom under its borrowing facilities. At 31 December 2010 £1.2m of undrawn facilities
was available (31 December 2009: £0.24m).
In respect of the Group’s interest-bearing fi nancial liabilities, the table in note 17 includes details at the reporting date of the periods in
which they mature.
Instem Life Science Systems plc Annual Report, 2010 59
NOTES TO THE FINANCIAL STATEMENTS
19. Derivative Financial Instruments
The Group utilises derivatives to hedge its foreign currency exposure arising from future transactions and cash fl ows. During the year
the Group entered in to an accrual forward contract to exchange $25,000 per month at an agreed rate of $1.456/£ for a 19 month
period. If the exchange rate rises above $1.635, the contract terminates and if the exchange rate falls below $1.395/£1, the Company is
committed to exchange a further $25,000 at $1.395/£.
The fair value of the derivative at 31 December 2010 is £488 which has been calculated using option pricing models that take into
account historical USD/GBP volatility. It falls under level 2 of the fair value hierarchy as its valuation has been based on observable
inputs. The derivative and the fair value gain have not been recognised in the fi nancial statements on the grounds of immateriality.
At the reporting date, the total notional amount outstanding on foreign exchange forward contracts that the Group has committed to are
as follows:
31 December 2010
31 December 2009
$000
$000
US Dollars
275
-
20. Deferred Tax
Deferred tax assets
- amounts due to be recovered within 12 months
- amounts due to be recovered after 12 months
Deferred tax liabilities
- amounts due to be settled within 12 months
- amounts due to be settled after 12 months
Net position
The movement in the period in the Group’s net deferred tax position was as follows:
At beginning of the period
Charge/(Credit) to income for the year
(Charge)/credit to other comprehensive income for the period
Effect of change in tax rate – equity
At end of the period
31 December 2010
31 December 2009
£000
-
431
-
(110)
321
£000
-
362
-
(65)
297
31 December 2010
31 December 2009
£000
297
(123)
157
(10)
321
£000
345
(92)
44
-
297
60
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
20. Deferred Tax (continued)
The following are the major deferred tax assets and liabilities recognised by the Group and the movements thereon during the period:
Deferred tax asset/(liabilities)
depreciation
Accelerated tax
At 31 December 2008
Charge to profit or loss for the period
Charge to equity for the period
At 31 December 2009
Charge to profit or loss for the period
Charge to equity for the period
£000
(30)
(20)
-
(50)
(54)
-
At 31 December 2010
(104)
Tax losses
£000
Retirement
benefit
obligations
£000
54
(9)
-
45
(19)
-
26
321
(63)
44
302
(50)
147
399
Total
£000
345
(92)
44
297
(123)
147
321
Instem Life Science Systems plc Annual Report, 2010 61
NOTES TO THE FINANCIAL STATEMENTS
21. Retirement Benefit Obligations
Defi ned contribution pension scheme
The Company has 3 active defi ned contribution schemes and a closed defi ned contribution scheme:
Group Personal Pension Plan- the scheme was created on 31 December 2008. The Scheme is a contributory money purchase
scheme with the employer matching employee contributions to a maximum of 5%. The employer also contributes to the Scheme for
former members of the Instem LSS Pension Scheme at rates varying from 5% to 18%. Employer contributions for the period ended 31
December 2010 were £0.37m (31 December 2009: £0.37m).
Contracted In Money Purchase Scheme (CIMP) - the Scheme was created on 31 December 2008. The Scheme is a non-contributory
scheme created for former members of the Instem LSS Pension Scheme who are US residents. Employer contributions for the year
ended 31 December 2010 were £0.03m (31 December 2009: £0.04m).
Instem LSS (North America) Limited 401k Plan - the scheme was created for the benefi t of employees of Instem LSS (North America)
Limited in the USA. The Scheme is a contributory money purchase scheme with the employer matching contributions to the scheme to
a maximum of 4.8%.
Instem LSS Stakeholder Scheme - the Scheme was a contributory money purchase scheme which closed on 31 December 2008.
Employer contributions for the year ended 31 December 2010 were £ Nil (31 December 2009: £3,000).
Defi ned benefi t pension scheme
The Group also operates a pension scheme providing benefi ts based on fi nal pensionable pay. This scheme was closed to new
members with effect from 8 October 2001 and the rate of future benefi t accrual reduced from 1/60th of fi nal pensionable pay per year of
service to 1/80th with effect from 6 April 2003. The scheme closed to future accrual on 31 December 2008.
The latest full actuarial valuation was carried out at 5 April 2008 and was updated to 31 December 2010 by a qualifi ed independent
actuary.
62
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
21. Retirement Benefit Obligations (continued)
The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current
investment portfolio. Expected yields on bonds are based on gross redemption yields at the balance sheet date whilst the expected
returns on the equity and property investments refl ect the long-term real rates of return experienced in the respective markets.
Discount rate
Expected return on plan assets
Inflation
Rate of increase in salaries
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
31 December 2010
31 December 2009
%
5.8
6.1
3.6
N/A
3.6
3.6
%
6.1
6.7
3.4
N/A
3.4
3.4
ANALYSIS OF AMOUNT CHARGED TO THE STATEMENT OF
31 December 2010
31 December 2009
COMPREHENSIVE INCOME
£000
£000
Current service cost
Past service cost
Total operating charge
-
-
-
-
-
-
ANALYSIS OF AMOUNT CREDITED TO OTHER FINANCE
31 December 2010
31 December 2009
COSTS
Expected returns on pension scheme assets
Interest on pension scheme liabilities
Net finance charge
£000
326
(356)
(30)
£000
237
(327)
(90)
ANALYSIS OF AMOUNT RECOGNISED IN OTHER
31 December 2010
31 December 2009
COMPREHENSIVE INCOME
Actual return less expected return on pension scheme
assets
Experience losses arising on scheme liabilities
Changes in assumptions underlying the present value of
the scheme liabilities
Actuarial gain/(loss) recognised in other comprehensive
income
£000
235
(77)
(734)
(576)
£000
557
(18)
(697)
(158)
Instem Life Science Systems plc Annual Report, 2010 63
NOTES TO THE FINANCIAL STATEMENTS
21. Retirement Benefit Obligations (continued)
CHANGES IN THE PRESENT VALUE OF THE DEFINED
31 December 2010
31 December 2009
BENEFIT OBLIGATION
Opening defined benefit obligation
Service cost
Interest cost
Actuarial (gain)/loss
Benefits paid
Closing defined benefit obligation
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
Opening plan assets
Expected return
Actuarial (loss)/gain
Contributions by employer
Benefits paid
Closing plan assets
Present value of funded obligations
Fair value of plan assets
Deficit
Related deferred tax asset
Net pension liability
£000
5,893
-
356
811
(104)
6,956
£000
4,901
-
327
715
(50)
5,893
31 December 2010
31 December 2009
£000
4,812
326
235
210
(104)
5,479
£000
3,752
237
557
316
(50)
4,812
31 December 2010
31 December 2009
£000
(6,956)
5,479
(1,477)
399
(1,078)
£000
(5,893)
4,812
(1,081)
302
(779)
64
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
21. Retirement Benefit Obligations (continued)
ANALYSIS OF CUMULATIVE AMOUNT RECOGNISED IN
OTHER COMPREHENSIVE INCOME
Actual return less expected return on pension scheme
assets
Experience gains and losses arising on scheme liabilities
Changes in assumptions underlying the present value of
the scheme liabilities
Cumulative actuarial (loss)/gain recognised in other
comprehensive income
Cumulative
Cumulative
31 December 2010
31 December 2009
£000
(51)
(910)
590
(371)
£000
(286)
(833)
1,324
205
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
31 December 2010
31 December 2009
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
4,054
110
438
219
603
55
%
74
2
8
4
11
1
The fi ve year history of experience adjustments are as follows:
5,479
100
£000
3,512
100
473
525
202
-
4,812
%
73
2
10
11
4
-
100
31 December
31 December
31 December
31 December
31 December
2010
£000
2009
£000
2008
£000
2007
£000
2006
£000
Present value of defined
benefit obligation
(6,956)
(5,893)
(4,901)
(6,303)
(6,078)
Fair value of plan assets
5,479
Deficit
(1,477)
Experience adjustments on
plan liabilities
Experience adjustments on
plan assets
(77)
235
4,812
(1,081)
(18)
557
3,752
(1,149)
(431)
(1,390)
4,335
(1,968)
(31)
(7)
3,646
(2,432)
(71)
176
The Company expects to contribute £310,500 to its defi ned benefi t plans in the next fi nancial year (31 December 2010: £210,000).
Instem Life Science Systems plc Annual Report, 2010 65
NOTES TO THE FINANCIAL STATEMENTS
22. Share Capital
31 December 2010
31 December 2009
£000
£000
Allotted, called up and fully paid
11,714,286 ordinary shares of 10p each
1,171
-
The following share capital movements occurred in the period:
•
•
•
•
On incorporation one ordinary share of £1 was incurred at par.
On 5 October 2010 the one ordinary share of £1 was sub-divided into 10 ordinary shares of 10p each.
On 5 October 2010 6,485,900 ordinary shares of 10p each were issued at a premium of £10,701,735.
On 13 October 2010 5,228,376 ordinary shares of 10p each were issued at a premium of £8,626,820.
Under the pooling of interests basis the share capital as at 5 October 2010 is deemed to have been in existence throughout the periods
presented.
23. Earnings Per Share
Basic earnings per share is calculated by dividing the profi t attributable to ordinary shareholders by the weighted average number of
ordinary shares in issue during the year . Diluted earnings per share is calculated by adjusting the weighted number of ordinary shares
outstanding to assume conversion of all dilutive potential shares arising from the share option scheme. The dilutive impact of the share
options is calculated by determining the number of shares that could have been acquired at fair value (determined as the average
market share price of the Company’s shares) based on the monetary value of the subscription rights attached to the outstanding share
options.
Profit after tax
(£000’s)
2010
Weighted
average
number of
shares (000’s)
Earnings per
Profit after tax
2009
Weighted
average
Earnings per
share (pence)
(£000’s)
number of
share (pence)
shares (000’s)
Earnings per share-
basic
Potentially dilutive
shares
Earnings per share-
diluted
901
7,698
23
901
7,721
11.7
-
11.7
1,706
6,486
-
-
1,706
6,486
26.3
-
26.3
66
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
23. Earnings Per Share (continued)
Adjusted earnings per share
2010
Weighted
average
Profit after tax
Earnings per
Profit after tax
2009
Weighted
average
Earnings per
(£000’s)
number of
share (pence)
(£000’s)
number of
share (pence)
shares (000’s)
shares (000’s)
901
21
683
(191)
1,414
7,698
11.7
1,706
6,486
26.3
-
-
-
-
23
0.3
8.9
(2.5)
18.4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,414
7,721
18.4
1,706
6,486
26.3
Earnings per share-
basic
Effect of share-based
payments
Effect of non-recurring
items
Effect of tax on non-
recurring items
Adjusted earnings per
share
Potentially dilutive
shares
Adjusted earnings per
share-diluted
24. Reserves
Called up share capital
The share capital account includes the par value for all shares issued and outstanding.
Share premium account
The share premium account is used to record amounts received in excess of the nominal value of shares on issue of new shares less
the costs of new share issues.
Translation reserve
The translation reserve incorporates the cumulative net exchange gains and losses recognised on the translation of subsidiary
Company fi nancial information to the presentational currency of Sterling (£). Under IFRS 1 the translation reserve was deemed to be
£nil at the date of transition.
Retained earnings
The retained earnings reserve includes the accumulated profi ts and losses arising from the consolidated ‘Statement of Comprehensive
Income’ and certain items from ‘Other Comprehensive Income’ attributable to equity shareholders net of distributions to shareholders.
Merger reserve
The merger reserve represents the difference between the consideration payable at the date of acquisition, net of merger relief, and the
share capital and share premium of Instem LSS Group Limited.
Capital management
The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade
profi tably in the foreseeable future. The Group also aims to maximise its capital structure of debt and equity so as to minimise its cost of
capital.
Instem Life Science Systems plc Annual Report, 2010 67
NOTES TO THE FINANCIAL STATEMENTS
24. Reserves (continued)
The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its
gearing ratio on a regular basis.
The Group considers its capital to include share capital, share premium, translation reserve, retained earnings, and net debt as noted
below.
Net debt includes short and long-term borrowings (including overdrafts, redeemable preference shares and lease obligations) net of
cash and cash equivalents.
The Group has not made any changes to its capital management during the year.
25. Capital Commitments
There were no capital commitments at the end of the fi nancial period.
26. Operating Leases Payable
Minimum lease payments under operating leases recognised as
an expense in the period
At the balance sheet date, the Group has outstanding
commitments under operating leases, which fall due as follows:
Land and buildings
Within one year
In the second to fifth year inclusive
After five years
Plant and machinery
Within one year
In the second to fifth year inclusive
After five years
31 December
31 December
2010
£000
446
2009
£000
458
31 December
31 December
2010
£000
334
1,220
1,411
119
65
-
2009
£000
271
952
1,396
142
207
17
3,149
2,985
Operating lease payments represent rentals payable by the Group for certain equipment. Leases have varying terms and renewal
rights. The above leasing arrangements do not contain any restrictive covenants, contingent rents or purchase options.
The operating leases in relation to the properties at Stone and Liverpool contain dilapidation clauses whereby Instem LSS Group
Limited must make good any damage to the demised premises on expiration of the leases. The directors estimate that the current
liability is not material to warrant provision at the period end.
68
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
27. Related Party Transactions
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation of the fi nancial
information. During the year the Company has traded in its normal course of business with shareholders and consultancy businesses in
which directors have a material interest as follows;
Key management compensation:
2010
£000
Fees for services provided as non-executive directors
Salaries and short term benefits
380
Executive directors
Salaries and short term benefits
285
Other key management
Salaries and short term employee benefits
227
2009
£000
105
331
321
In addition the Company paid £0.02m (2009: Nil) to Instem Ventures, a company owned by Adrian Gare, a shareholder. The balance
outstanding at the end of the year was £Nil (2009: Nil)
Key management are considered to be the directors together with the Senior Vice-President of Client Services and the Senior Vice-
President of Product Development
28. Accounting Estimates and Judgements
Some asset and liability amounts reported in the fi nancial information are based on management estimates and assumptions. There
is therefore a risk of signifi cant changes to the carrying amounts for these assets and liabilities within the next fi nancial year. The
estimates and assumptions are made on the basis of information and conditions that exist at the time of the valuation.
Inventory impairment provisions
The Group makes provision for work in progress deemed to be irrecoverable. This provision is established on a specifi c contract by
contract basis based on management’s prior experience and their assessment of the present value of estimated future cash fl ows.
Receivables impairment provisions
The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management
based on prior experience and their assessment of the present value of estimated future cash fl ows.
Pension valuation assumptions
Assumptions are used in the actuarial valuation of the Group’s defi ned benefi t pension schemes. Details of these assumptions are
disclosed in note 21.
Goodwill impairment
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash fl ows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Instem Life Science Systems plc Annual Report, 2010 69
NOTES TO THE FINANCIAL STATEMENTS
29. Post Balance Sheet Events
On March 4th 2011 the Company acquired BioWisdom Ltd (“BioWisdom”), a leading provider of software solutions for extracting
intelligence from R&D related healthcare data, for an initial enterprise value of £0.90 million and a maximum total enterprise value of
£1.50 million, subject to certain performance criteria. Initial cash consideration paid was £0.2m plus £0.7m of unsecured creditors which
were taken on. The additional performance related consideration will be paid equally in cash and by the issue of shares.
At the date of approval of the fi nancial statements, the initial accounting for this acquisition is incomplete and therefore full information
required by IFRS 3 (revised) relating to the acquisition cannot be disclosed.
30. Reconciliation to IFRS
The effects of the transition from UK GAAP to IFRS are shown in the reconciliation statements on the following pages.
The UK GAAP columns included in the reconciliations represent the numbers previously reported. However the presentation has been
amended to comply with IAS 1 (Revised). There were no material adjustments to the statement of cash fl ows.
The adjustments relate to the following:
Intangible assets
Under IFRS 3, goodwill is not amortised on a straight line basis but instead is subject to annual impairment testing. Consequently the
goodwill balances were reviewed for impairment at 31 December 2007, 26 December 2008 and 31 December 2009 and no impairment
adjustments were identifi ed.
The Company has elected not to apply IFRS 3 Business Combinations retrospectively to business combinations prior to date of
transition. Amortisation expensed under UK GAAP since the date of transition has been added back to the carrying value of goodwill in
the statement of fi nancial position and amortisation of intangibles for the period reduced.
Purchase software and licences
Under UK GAAP, purchased software and licences were included within tangible fi xed assets on the Balance Sheet. Under IAS 38
‘Intangible Assets’ such items are disclosed as intangible assets and are amortised over their remaining useful lives. A reclassifi cation
from property, plant and equipment to intangible assets has been accounted for.
Internal Development Costs
Development costs under UK GAAP have been expensed. Development costs meeting the criteria of IAS 38 for capitalisation have
been capitalised and amortised over their useful lives with a corresponding adjustment to operating expenses.
Financial liabilities
A number of leases have been reclassifi ed between operating and fi nance leases. Although the fi nance lease test under UK GAAP is
broadly similar to IFRS, on review of the lease contracts, a number of leases met the criteria under IAS 17 for capitalisation as fi nance
leases which were previously recognised as operating leases under UK GAAP. These have therefore been capitalised within the
statement of fi nancial position within property, plant and equipment with their relevant liability being included in fi nancial liabilities. The
assets are being depreciated over their remaining useful lives.
Deferred tax (IAS 12)
In accordance with IAS 12 the deferred taxation relating to the defi ned benefi t pension scheme obligation has been reclassifi ed to be
shown separately from the retirement benefi t obligation at the end of each period. In addition, deferred tax has been re-presented and
shown as non-current on the face of the statement of fi nancial position in accordance with IAS 1 (Revised) Presentation of fi nancial
statements.
The effects of changes in foreign exchange rates (IAS 21)
UK GAAP permitted exchange differences arising on retranslation of overseas operations to be recognised against retained earnings.
IAS 23 requires a separate translation reserve to be created within equity. Under IFRS 1 the translation reserve was deemed to be £nil
at the date of transition.
70
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
30 a) Reconciliation of consolidated statement of fi nancial position as at 1 January 2007
As previously
reported UK
Adjustments
GAAP
£000
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
5,858
Property, plant and equipment
Deferred tax
132
-
TOTAL NON-CURRENT ASSETS
5,990
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax
TOTAL CURRENT ASSETS
276
1,212
7,339
202
9,029
TOTAL ASSETS
15,019
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Current taxation
Financial liabilities
4,634
370
8,126
TOTAL CURRENT LIABILITIES
13,130
NON-CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Retirement benefit obligations
TOTAL NON-CURRENT LIABILITIES
211
1,951
1,702
3,864
-
-
-
-
-
-
(7,339)
-
(7,339)
(7,339)
17
-
(7,339)
(7,322)
-
-
-
-
TOTAL LIABILITIES
16,994
(7,322)
EQUITY
Share capital
Share premium
Translation reserve
1
4,866
-
Retained earnings
(6,842)
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
(1,975)
-
-
-
(17)
(17)
As restated UK
GAAP
£000
5,858
132
-
5,990
276
1,212
-
202
1,690
7,680
4,651
370
787
5,808
211
1,951
1,702
3,864
9,672
1
4,866
-
(6,859)
(1,992)
Effect of
transition to
IFRS
£000
43
(17)
923
949
-
-
-
(202)
(202)
747
-
-
1
1
-
1
730
731
732
-
-
-
15
15
Restated under
IFRS
£000
5,901
115
923
6,939
276
1,212
-
-
1,488
8,427
4,651
370
788
5,809
211
1,952
2,432
4,595
10,404
1
4,866
-
(6,844)
(1,977)
TOTAL EQUITY AND LIABILITIES
15,019
(7,339)
7,680
747
8,427
Instem Life Science Systems plc Annual Report, 2010 71
NOTES TO THE FINANCIAL STATEMENTS
30 b) Reconciliation of consolidated statement of comprehensive income for the 52 weeks ended 31 December 2007
As previously
IAS 19
reported UK
Holiday pay
GAAP
£000
7,990
REVENUE
Operating expenses
(6,219)
PROFIT FROM OPERATIONS BEFORE
AMORTISATION
1,771
Amortisation of intangibles
(1,116)
PROFIT FROM OPERATIONS
Finance income
Finance costs
PROFIT BEFORE TAXATION
Income tax expense
(LOSS)/PROFIT FOR THE FINANCIAL YEAR
Other comprehensive income
Actuarial gain on retirement benefit
obligations
655
563
(992)
226
(638)
(412)
208
Deferred tax on actuarial gain
(103)
Currency translation differences on
foreign currency net investment
OTHER COMPREHENSIVE INCOME
(36)
69
provision
£000
-
(2)
(2)
-
(2)
-
-
(2)
-
(2)
-
-
-
-
As restated
UK GAAP
£000
7,990
(6,221)
1,769
(1,116)
653
563
(992)
224
(638)
(414)
208
(103)
(36)
69
Effect of
transition to
IFRS
£000
-
24
24
1,092
1,116
-
-
1,116
1
1,117
-
-
-
-
TOTAL COMPREHENSIVE (EXPENSE) /
INCOME FOR THE YEAR
(343)
(2)
(345)
1,117
Restated
under IFRS
£000
7,990
(6,197)
1,793
(24)
1,769
563
(992)
1,340
(637)
703
208
(103)
(36)
69
772
72
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
30 c) Reconciliation of consolidated statement of fi nancial position as at 31 December 2007
As previously
reported UK
Adjustments
As restated
UK GAAP
£000
£000
GAAP
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
4,742
Property, plant and equipment
Deferred tax
116
-
TOTAL NON-CURRENT ASSETS
4,858
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax
148
2,093
8,242
168
TOTAL CURRENT ASSETS
10,651
-
-
-
-
-
-
(8,242)
-
-
TOTAL ASSETS
15,509
(8,242)
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Current taxation
Financial liabilities
5,351
81
8,604
TOTAL CURRENT LIABILITIES
14,036
NON-CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Retirement benefit obligations
TOTAL NON-CURRENT LIABILITIES
173
2,201
1,417
3,791
19
-
(8,242)
(8,223)
-
-
-
-
TOTAL LIABILITIES
17,827
(8,223)
EQUITY
Share capital
1
Share premium
4,866
Translation reserve
-
Retained earnings
(7,185)
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
(2,318)
-
-
-
(19)
(19)
Effect of
transition to
IFRS
£000
1,171
3
711
1,885
(12)
-
(168)
(180)
1,705
-
-
10
10
-
12
551
563
573
-
-
(36)
1,168
Restated
under IFRS
£000
5,913
119
711
6,743
136
2,093
-
-
2,229
8,972
5,370
81
372
5,823
173
2,213
1,968
4,354
10,177
1
4,866
(36)
(6,036)
4,742
116
-
4,858
148
2,093
-
168
2,409
7,267
5,370
81
362
5,813
173
2,201
1,417
3,791
9,604
1
4,866
-
(7,204)
(2,337)
1,132
(1,205)
TOTAL EQUITY AND LIABILITIES
15,509
(8,242)
7,267
1,705
8,972
Instem Life Science Systems plc Annual Report, 2010 73
NOTES TO THE FINANCIAL STATEMENTS
30 d) Reconciliation of consolidated statement of comprehensive income for the 52 weeks ended 31 December 2008
As previously
IAS 19
reported UK
Holiday pay
GAAP
£000
8,808
REVENUE
Operating expenses
(7,030)
PROFIT FROM OPERATIONS BEFORE
AMORTISATION
1,778
Amortisation of intangibles
(1,116)
PROFIT FROM OPERATIONS
Finance income
Finance costs
(LOSS)/PROFIT BEFORE TAXATION
Income tax expense
662
522
(2,287)
(1,103)
(464)
(LOSS) FOR THE FINANCIAL YEAR
(1,567)
Other comprehensive income
Actuarial gain on retirement benefit
obligations
588
Deferred tax on actuarial gain
(165)
Currency translation differences on
foreign currency net investment
661
OTHER COMPREHENSIVE INCOME
1,084
provision
£000
-
(2)
(2)
-
(2)
-
-
(2)
-
(2)
-
-
-
-
As restated
UK GAAP
£000
8,808
(7,032)
1,776
(1,116)
660
522
(2,287)
(1,105)
(464)
(1,569)
588
(165)
661
1,084
Effect of
transition to
IFRS
£000
-
163
163
1,090
1,253
-
-
1,253
(37)
1,216
-
-
-
-
Restated
under IFRS
£000
8,808
(6,869)
1,939
(26)
1,913
522
(2,287)
148
(501)
(353)
588
(165)
661
1,084
TOTAL COMPREHENSIVE INCOME FOR
THE YEAR
(483)
(2)
(485)
1,216
731
74
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
30 e) Reconciliation of consolidated statement of fi nancial position as at 31 December 2008
As previously
reported UK
Adjustments
As restated
UK GAAP
IFRS 3
business
combinations
Restated
under IFRS
£000
£000
£000
£000
GAAP
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
3,626
Property, plant and equipment
Deferred tax
195
-
TOTAL NON-CURRENT ASSETS
3,821
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and cash equivalents
Current taxation
Deferred tax
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
61
2,900
8,163
30
96
11,250
15,071
Trade and other payables
5,638
Current taxation
Financial liabilities
Deferred tax
-
8,712
27
-
-
-
-
-
-
(8,163)
-
-
(8,163)
(8,163)
21
-
(8,163)
-
3,626
195
-
3,821
61
2,900
-
30
96
3,087
6,908
5,659
-
549
27
TOTAL CURRENT LIABILITIES
14,377
(8,142)
6,235
NON-CURRENT LIABILITIES
Trade and other payables
Financial liabilities
Retirement benefit obligations
TOTAL NON-CURRENT LIABILITIES
93
2,574
828
3,495
-
-
-
-
TOTAL LIABILITIES
17,872
(8,142)
EQUITY
Share capital
1
Share premium
4,866
Translation reserve
-
Retained earnings
(7,668)
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
(2,801)
-
-
-
(21)
(21)
93
2,574
828
3,495
9,730
1
4,866
-
(7,689)
2,446
(41)
345
2,750
-
-
-
-
(96)
(96)
2,654
-
-
9
(27)
(18)
-
3
321
324
306
-
-
625
1,723
6,072
154
345
6,571
61
2,900
-
30
-
2,991
9,562
5,659
-
558
-
6,217
93
2,577
1,149
3,819
10,036
1
4,866
625
(5,966)
(2,822)
2,348
(474)
TOTAL EQUITY AND LIABILITIES
15,071
(8,163)
6,908
2,654
9,562
Instem Life Science Systems plc Annual Report, 2010 75
NOTES TO THE FINANCIAL STATEMENTS
30 f)
Reconciliation of consolidated statement of comprehensive income for the 53 weeks ended 31 December 2009
As previously
IAS 19
reported UK
Holiday pay
GAAP
£000
9,815
REVENUE
Operating expenses
(7,692)
PROFIT FROM OPERATIONS BEFORE
AMORTISATION
2,123
Amortisation of intangibles
(1,116)
PROFIT FROM OPERATIONS
Finance income
Finance costs
PROFIT BEFORE TAXATION
Income tax expense
PROFIT FOR THE FINANCIAL YEAR
Other comprehensive income
Actuarial loss on retirement benefit
obligations
1,007
735
(407)
1,335
(757)
578
(158)
Deferred tax on actuarial loss
44
Currency translation differences on foreign
currency net investment
(266)
OTHER COMPREHENSIVE EXPENSE
(380)
provision
£000
-
(2)
(2)
-
(2)
-
-
(2)
-
(2)
-
-
-
-
TOTAL COMPRENSIVE INCOME FOR THE YEAR
198
(2)
As restated
Transition to
UK GAAP
£000
9,815
(7,694)
2,121
(1,116)
1,005
735
(407)
1,333
(757)
576
(158)
44
(266)
(380)
196
IFRS
£000
-
66
66
1,069
1,135
-
-
1,135
(5)
1,130
-
-
-
-
1,130
Restated
under IFRS
£000
9,815
(7,628)
2,187
(47)
2,140
735
(407)
2,468
(762)
1,706
(158)
44
(266)
(380)
1,326
76
Instem Life Science Systems plc Annual Report, 2010
NOTES TO THE FINANCIAL STATEMENTS
30 g) Reconciliation of consolidated statement of fi nancial position for the 53 weeks ended 31 December 2009
As previously
reported UK
Adjustments
As restated
UK GAAP
£000
£000
GAAP
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
2,510
Property, plant and equipment
Deferred tax
176
-
TOTAL NON-CURRENT ASSETS
2,686
CURRENT ASSETS
Inventories
Trade and other receivables
28
1,866
-
-
-
-
34
(34)
Cash and cash equivalents
11,479
(8,763)
Current taxation
Deferred tax
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Current taxation
-
72
13,445
16,131
6,287
300
-
-
(8,763)
(8,763)
23
-
Financial liabilities
11,312
(8,763)
Deferred tax
27
-
TOTAL CURRENT LIABILITIES
17,926
(8,740)
NON-CURRENT LIABILITIES
Trade and other payables
Retirement benefit obligations
TOTAL NON-CURRENT LIABILITIES
29
779
808
-
-
-
2,510
176
-
2,686
62
1,832
2,716
-
72
4,682
7,368
6,310
300
2,549
27
9,186
29
779
808
TOTAL LIABILITIES
18,734
(8,740)
9,994
EQUITY
Share capital
1
Share premium
4,866
Translation reserve
-
Retained earnings
(7,470)
EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
(2,603)
-
-
-
(23)
(23)
1
4,866
-
(7,493)
(2,626)
Effect of
transition to
IFRS
£000
3,580
(49)
297
3,828
-
-
-
(72)
(72)
3,756
-
-
3
(27)
(24)
-
302
302
278
-
-
359
3,119
3,478
Restated
under IFRS
£000
6,090
127
297
6,514
62
1,832
2,716
-
-
4,610
11,124
6,310
300
2,552
-
9,162
29
1,081
1,110
10,272
1
4,866
359
(4,374)
852
TOTAL EQUITY AND LIABILITIES
16,131
(8,763)
7,368
3,756
11,124
The equity structure above represents that of the trading subsidiary Group prior to the reconstruction. Since the consolidated fi nancial
statements have been prepared using the pooling of interests basis, the share capital and related share premium at acquisition have
deemed to have been in existence throughout the periods presented. This has created a difference in the equity capital structure of the
Group shown in the comparative period to that presented above.
Instem Life Science Systems plc Annual Report, 2010 77
Company Statement of Comprehensive Income
52 week period ended 31
Note
December 2010
REVENUE
1
Operating expenses
LOSS FROM OPERATIONS BEFORE AMORTISATION
Amortisation of intangibles
LOSS FROM OPERATIONS
Finance income
Finance costs
3
4
LOSS BEFORE TAXATION
Income tax expense
LOSS FOR THE FINANCIAL YEAR
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Actuarial gain/(loss) on retirement benefit obligations
Deferred tax on actuarial gain/(loss)
Currency translation differences on foreign currency net investment
OTHER COMPREHENSIVE INCOME/(EXPENSE)
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR
(LOSS)/PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE (EXPENSE)/INCOME ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT COMPANY
This page does not form part of the statutory fi nancial statements.
£000
-
(344)
(344)
-
(344)
6
(3)
(341)
-
(341)
-
-
-
-
(341)
(341)
(341)
78
Instem Life Science Systems plc Annual Report, 2010
NOTES
Instem Life Science Systems plc Annual Report, 2010 79
NOTES
80
Instem Life Science Systems plc Annual Report, 2010
Directors and Advisers
DIRECTORS
D Gare (Non-executive Chairman)
MF McGoun (Independent Non-executive)
DM Sherwin (Non-executive)
PJ Reason
J McLauchlan
SECRETARY
J McLauchlan
REGISTERED OFFICE
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
Tel: +44 1785 825600
Fax: +44 1785 825633
www.instem.com
Company No: 07148099
AUDITORS
Baker Tilly UK Audit LLP
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
SOLICITORS
DWF LLP
1 Scott Place,
2 Hardman Street,
Manchester
M3 3AA
BANKERS
Nat West Bank
1 Spinningfields Square
Manchester
M2 3AP
NOMINATED ADVISER AND BROKER
Brewin Dolphin
12 Smithfield Street,
London
EC1A 9BD
REGISTRARS
Computershare
The Pavilions,
Bridgwater Road,
Bristol
BS13 8AE
FINANCIAL PUBLIC RELATIONS
Threadneedle Communications
3rd Floor, Aldermary House
10-15 Queen Street
London
EC4N 1TX
Our clients include these fine organisations...
UK
Global Headquarters -
UK & European Operations
Diamond Way
Stone Business Park
Stone
Staffordshire, ST15 0SD
United Kingdom
Tel: +44 (0) 1785 825600
USA
North American Headquarters
Eight Tower Bridge
161 Washington Street
Suite 1550, 15th Floor
Conshohocken, PA 19428
United States
Tel: (610) 941 0990
China
Asia-Pacific Headquarters
Room 205, Building 16
88 Darwin Road
Zhangjiang High-Tech Park, Pudong District
Shanghai
China, 201203
Tel: +86 (0) 21 5131 2080
The Company employs over 110 people in six offices in the US,
UK, and China; with additional resource locations in India and a
full service distributor in Japan.
e-mail
investors@instem.com
instem.com