Instem plc (formerly Instem Life Science Systems plc)
Annual Report
2011
Instem (AIM:INS.L) is a leading supplier of IT solutions to the early development healthcare
market. Instem's pre-clinical study management solutions accelerate drug and chemical
development by increasing productivity, automating processes and enhancing practices that lead
to safer and more effective drugs.
In March 2011 Instem acquired BioWisdom Limited, subsequently renamed Instem Scientific
Limited (“Instem Scientific”), a leading provider of software solutions for extracting intelligence
from R&D related healthcare data. The acquisition broadened and strengthened Instem's
Centrus™ product suite, accelerating the product development roadmap.
Instem has over 130 customers in North America, Europe, China, India, Japan and Singapore,
including sixteen of the top twenty pharmaceutical and biotech companies such as
GlaxoSmithKline and AstraZeneca. The Group employs over 110 people in seven offices in the
US, UK, China and India; with a full service distributor in Japan. 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.
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 AUDITOR’S REPORT TO THE MEMBERS OF INSTEM PLC (FORMERLY 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 plc Annual Report, 2011
Highlights
Financial Highlights
Operational Highlights
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Strong level of Provantis customer wins, with nearly
half being secured in the final quarter of the year.
New customers included:
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Battelle, the world’s largest independent
research and development organisation
National Center for Safety Evaluation of Drugs
(NCSED), a subsidiary of the Chinese State Food
& Drug Administration (SFDA)
Champions Oncology, the first deployment of
Provantis in a drug efficacy rather than safety
application
The Jackson Laboratory, one of the world’s
largest not-for-profit, biomedical research
institutions
SRI International, a renowned independent,
non-profit research institute
Provantis customer retention rate remained high at
over 95%
Increased presence in emerging markets:
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Further Asia Pacific market expansion with
six new clients in China, Japan, Singapore and
Australia
Instem India established post-period end
to provide flexible software development
capability
Strong performance from BioWisdom, which was
acquired in March 2011 (now renamed Instem
Scientific)
Centrus product fully compliant with the recently
released US government sponsored Standard for the
Exchange of Non-clinical Data (SEND)
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* Operating profit before amortisation, share based payment and
non-recurring items.
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Revenues increased 7.9% to £10.8m (2010:
£10.0m)
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Recurring revenues accounted for 70% of total
revenues (2010: 67%)
SaaS revenue for 2011 up 29% to £1.02m
(2010: £0.79m)
Adjusted operating profit* £2.0m (2010: £2.3m)
Reported profit before tax £1.5m (2010: £1.4m)
Basic earnings per share 8.6p (2010 adjusted: 7.7p)
Cash generated from operations £1.4m (2010:
£0.7m)
Closing cash balance as at 31 December 2011 of
£3.4m (2010: £3.3m)
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While revenues for the year were lower than
originally anticipated, this was a strong
performance in a difficult market and the outturn
is marginally ahead of revised expectations.
Our pre-clinical product, Provantis, increased
its market leading position, benefiting from our
investments into SaaS deployment and increased
geographic coverage. We saw signs, particularly
towards the end of the year, that the Contract
Research Organisation sector of our market is
starting to recover from a difficult few years and
we expect this to continue slowly in 2012. Two of
the contracts which were delayed from the second
half of 2011 have now been signed in the first
quarter of 2012.
The Group remains highly profitable, cash
generative and has a strong pipeline of
opportunities for the current year. While the
Board is conscious of market conditions, our high
level of renewals and a substantial contracted
order book, combined with a full year’s
contribution from Instem Scientific underpin
our confidence in the year ahead. We continue
to pursue additional acquisition opportunities
to extend our product offering, new customer
relationships and market coverage.
Phil Reason,
Chief Executive
Instem plc Annual Report, 2011 3
growth
“The Group grew its client roster in its core
markets, expanded further into international
markets, most notably China, Singapore and
Japan, and developed a strong pipeline of sales
opportunities for Centrus.”
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Instem plc Annual Report, 2011
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Chairman’s
Statement
Against a difficult market backdrop, 2011 was a year of steady progress for Instem.
Whilst we did not achieve the level of growth originally
anticipated, we are pleased to report that the Group
consolidated its leading position in its core market
and saw a significant increase in its customer base.
In addition, we were particularly encouraged by the
strong contribution made by Instem Scientific (formerly
BioWisdom Limited), which we acquired in March
2011. This acquisition was part of the next step in
our long term strategy to consolidate the fragmented
pharmaceutical software supplier base and we are
therefore delighted that it is proving to be such a
success. The Board continues to actively pursue similar
opportunities.
The results for the year were impacted by the continued
uncertainty and budgetary restraints within the broader
pharmaceutical market and the Contract Research
Organisation (CRO) sub-sector, with conditions in the EU
being particularly challenging. Nonetheless, we won the
overwhelming majority of new Early Development Safety
Assessment (EDSA) business placed worldwide, securing
a record level of new customers for Provantis, our core
study management software. We believe this success
is due to the quality of the suite of products, our ability
to deliver this software as both an on-premise and SaaS
solution, enabling a greater flexibility of pricing, and our
global geographic presence.
We continued to invest in the capabilities of our
product sets and will be launching a major new version
of Provantis in 2012, for which we are already seeing
a good level of interest from current and prospective
customers. While sales of Centrus in 2011 were not as
high as anticipated, the long-awaited formal adoption
of the Standard for the Exchange of Non-clinical Data
(SEND) by the FDA in June 2011 is expected to be a key
driver for future business.
As anticipated at the time of the Interim Results, the final
quarter of the year was particularly strong, suggesting a
degree of confidence returning to the market. The timing
of these contracts means the Group has entered 2012
with a strong opening order book.
We were saddened by the sudden death of our much
respected and well-liked Chief Financial Officer, Jim
McLauchlan, in August 2011. He provided invaluable
services to the Company, particularly through the IPO
process and he continues to be missed by us all. David
Sherwin, a Non-executive Director of the Company,
temporarily fulfilled the role while we sought a full-time
replacement and we thank him for his efforts during that
difficult time. We were pleased to secure the services of
Nigel Goldsmith in November 2011, joining the Board
as Chief Financial Officer. Nigel brings a high level of
public company experience and pharmaceutical industry
knowledge from his previous positions, including three
years as Finance Director at IS Pharma plc (now Sinclair
IS Pharma plc), during which he oversaw two equity
fundraisings and completed two corporate acquisitions.
Nigel is a welcome addition to the Board.
We believe that the dynamics of the global R&D market
provide Instem with good organic growth prospects,
particularly in the US and emerging markets, with
indications that study volumes in these regions are
slowly starting to increase. Additionally, the strength
of Instem’s product portfolio and geographic reach
provides a strong position in what is a fragmented
software supplier marketplace and we continue to assess
opportunities for further market consolidation. We
therefore view the future with confidence.
I would like to take this opportunity to thank all our staff,
customers and partners for their ongoing support.
David Gare
Chairman
Instem plc Annual Report, 2011 5
strength
“The strength of Instem’s product portfolio and
geographic reach provides a strong position
in what is a fragmented software supplier
marketplace and we continue to assess
opportunities for further market consolidation.”
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Instem plc Annual Report, 2011
Operational
Review
We are pleased to report that during the year, in spite of difficult global
economic conditions which resulted in a lower outturn than originally
anticipated, the Group has made significant progress in all areas of its business,
reporting results marginally ahead of revised expectations.
During 2011, as in 2010, Instem won the majority of
new business placed in the EDSA market worldwide,
testament to both the competitive strengths of Provantis
and the Group’s ability to offer global services and
support. The Group grew its client roster in its core
markets, expanded further into international markets,
most notably China, Singapore and Japan, and developed
a strong pipeline of sales opportunities for Centrus.
In addition, in March 2011, the Company acquired
BioWisdom Limited (now called Instem Scientific
Limited). This acquisition is proving extremely beneficial
to Instem, delivering strong results while adding
functionality to our Centrus suite and increasing our
addressable market.
Customer Wins and Renewals
Instem maintained its high level of Provantis renewals
in the year, with the rate once again above 95%. As
anticipated at the time of the Interim Results, the second
half of the year saw a significant increase in the amount
of new business secured, with the final quarter of 2011
being the strongest. We believe this is an indication
that the workflow pattern experienced earlier in 2011 is
now normalising and that the CRO sector is beginning to
slowly recover from a difficult few years.
Traditional perpetual licensees for on-premise
deployment signed during the year include: US-based
Battelle, one of the world’s largest independent research
and development organisations; Japan-based ASKA
Pharmaceutical, a pharmaceuticals manufacturing
company; Beijing-based NCSED, a subsidiary of the
Chinese State Food & Drug Administration (SFDA); and
Genius Pharmaceutical Technology Ltd (Beijing Union), a
CRO formed by the commercial offshoot of the Chinese
Academy of Medical Sciences and Peking Union Medical
College.
As well as securing customers for traditional licences,
Instem also saw a good uptake of its software deployed
via the SaaS business model both within the smaller
laboratory market, for which SaaS provides a lower cost
of entry, and for the first time into larger organisations.
One such example was Roche, a long-standing client
of Instem, who signed a four-year SaaS agreement in
October 2011 which extends their use of Provantis, by
consolidating several key application areas, harmonising
their sites worldwide and replacing several incumbent
suppliers.
Total SaaS revenue for 2011 was up 29% to £1.02m
(2010: £0.79m). Other new SaaS customers during the
year include Chicago-based Experimur, a full-service
toxicology testing and research laboratory; Australia-
based TetraQ, a highly skilled pre-clinical contract
research organisation; a US-based multinational
biopharmaceutical company; Shanghai-based Medicilon
Inc (“Medicilon”), a widely recognised drug discovery
contract research organisation; and US-based Jackson
Laboratory, one of the world’s largest not-for-profit,
biomedical research institutions.
Instem plc Annual Report, 2011 7
OPERATIONAL REVIEW
Instem Scientific
There is a growing need for sophisticated, shared
access to information to improve both the scientific
and economic efficiency of R&D. The acquisition of
BioWisdom significantly strengthened Instem’s position
in this data mining and data sharing market. We believe
Instem Scientific’s innovative intelligence solutions
for the extraction, integration and analysis of medical
knowledge is particularly well suited to our market
and we have been pleased with the response from
customers to this addition to our capabilities.
Instem Scientific had a strong year, maintaining its
significant customer relationships. It secured sales of
its market leading SRS data integration product and
powerful visual analytics platform Omniviz, as well as
delivering solutions based on its newer technologies
such as MetaWise.
In the twelve months since the acquisition, BioWisdom
has been integrated successfully into the Group. Back
office processes have been harmonised across the Group
and the re-branding to “Instem Scientific” is largely
complete. Instem’s sales force has been trained on the
full range of products now available and processes
are in place to facilitate lead generation to the Instem
Scientific team. Furthermore, we are now able to
showcase new product capabilities to potential new
customers, based on Instem Scientific’s powerful core
competencies.
Increased Presence in Emerging Markets
In 2011 Instem continued to widen its presence beyond
the more traditional markets of North America, Europe
and Japan to the emerging economies, signing five
orders in the emerging Asia Pacific markets. These
economies have become strategically important due to
their increasing number of early development facilities
and the move towards a greater level of automation
within established facilities. As the de facto standard
in western facilities, Provantis offers compliance
to national and western standards, dual language
operation and proven protocol-driven automation that
produces high quality study output in greatly reduced
timescales.
We were pleased with our performance in this market
and have made particular headway in the People’s
Republic of China, where our local presence has proven
to be a significant differentiator, as well as in Singapore,
Australia and India, where we have subsequently
announced the establishment of a new technical
support operation.
In June 2011, Shanghai Medicilon purchased a SaaS
subscription to the Provantis pre-clinical software
solution suite. The purchase incorporates a range
of Provantis modules across the areas of general
toxicology, clinical pathology and pathology.
In December 2011, the influential NCSED, purchased
the Integrated General Toxicology, Clinical Pathology
and Pathology modules. NCSED is a subsidiary of the
Chinese State Food & Drug Administration (SFDA), which
manages and sponsors government and commercial
contract research studies throughout China. Also
in December, Genius Pharmaceutical Technology
Ltd (Beijing Union), based in Beijing, purchased the
Provantis preclinical software solution following a
comprehensive competitive evaluation of domestic and
western products.
Other new customers signed during the year in this
region included TetraQ in Australia and a leading multi-
national organisation with a research and development
facility located in Singapore. Both signed contracts for
the Provantis pre-clinical software solution suite. They
are being supported by Instem from its operations
based in Shanghai, China, underpinning the strategic
investment into a localised version of Provantis and
the establishment of a full-service offering, complete
with local sales support, service implementation and
customer support staff – with the ability to also provide
support to the broader Asia-Pacific region.
Launch of Indian Office
The Company has for a number of years employed two
full time contractors in India. However, based on its
initial success in the region, the Board has now approved
the launch of local operations, as announced on 26
March 2012. Instem India is expected to be launched in
the first half of 2012 and will provide the Group with
the ability to scale-up development resources flexibly in
response to demand. In the longer term this operation
will also enable the Group to provide sales and services
locally in the region.
Product Development
Provantis®
Instem is the vendor of choice for solutions that support
the identification and development of safer drugs
through its market-leading Provantis software suite.
This study management product continues to generate
significant revenues and is the lead product, both in
Instem’s core North American and European markets, as
well as the emerging international markets in the Asia-
Pacific region.
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Instem plc Annual Report, 2011
OPERATIONAL REVIEW
Development of the suite continued in 2011 building
towards the next major product release, Provantis
9, scheduled for the second half of 2012. An area of
advancement will be the increased power and flexibility
in reporting data (which will also be enhanced in the
Centrus suite). The next evolution of the Protocol &
Report Assembly module will maintain customers’
efficiency and compliance, and can be supplemented by
Instem’s market-leading SEND solutions for electronic
submissions and data exchange. Another area of
advancement will be the extension of the capabilities of
the Clinical Pathology module to work with Bioanalytical
instruments.
Early demonstrations of the Clinical Pathology module
to customers have been extremely positive and directly
contributed to the winning of several of the new
customers in 2011.
Centrus™
Development work during the year has focused on
further functionality for creating, managing and using
the Standard for the Exchange of Non-clinical Data
(SEND), which was formally adopted by the FDA in June
2011 following several years of discussions. This is the
first time that the FDA has formally defined a preferred
standard. With the data that will form the basis of many
future submissions already being collected, it will soon
become imperative for pharmaceutical organisations
and CROs to ensure this data can be submitted in
the correct format. Our Centrus product is compliant
with this standard and a strong pipeline of sales
opportunities across the Instem customer base has been
identified.
Instem Scientific™
Development work has been undertaken in 2011 to
integrate BioWisdom’s products with the Instem product
suite.
Instem Scientific will continue to focus on translational
informatics, harnessing the Group’s expertise in
developing solutions across pharmaceutical R&D, but
with a particular focus in the early development market.
Market Developments
We believe that the dynamics of the global R&D market
continue to be favourable for Instem, particularly in the
US and emerging markets, the latter of which accounted
for over 40% of new customer wins in 2011. We are
seeing indications amongst our customer base in these
regions that study volumes are beginning to slowly
increase. As anticipated, Europe has been particularly
impacted by cuts to R&D expenditure, with significant
reduction or closure of several large pharmaceutical
R&D sites, and we anticipate little improvement in
that trend in 2012. Where pharmaceutical R&D has
continued, technology solutions are being sought to
help reduce development time, cut costs and improve
operating efficiency - particularly in emerging markets
where little automation of processes has taken place to
date.
We expect this to continue to drive demand for our
Provantis suite and, in particular, we have seen growing
interest in our Toxicology Resource Planning (TRP™)
module. This module maximises resource utilisation and
minimises study execution times through sophisticated
graphical scheduling tools and powerful “what if”
scenarios. TRP was a key component of both the Jackson
and Battelle orders in the first half of 2011 and our
largest ever TRP order for a US-based CRO in the fourth
quarter of 2011.
Combined with this need to increase efficiencies
and reduce costs is a growing tendency in the
pharmaceutical industry to partner with external
service providers, such as CROs, in order to share risk.
We expect this, combined with the release of the SEND
standard by the FDA, to create demand for high integrity
data sharing solutions. We address this need through
our Centrus and broader Instem Scientific suite of
products.
Acquisition Strategy
Instem operates within the highly fragmented
pharmaceutical software supplier base. A significant
part of Instem’s growth strategy is to acquire businesses
within this market, consolidating the number of
software suppliers to the pharmaceutical industry and
enhancing our competitive positioning. This is a strategy
very much supported by Instem’s customer base which
has indicated its preference to purchase software from
a smaller number of core suppliers. Such acquisitions
would consolidate the Group’s market position,
complement its existing products, provide access
to adjacent markets and increase clients’ operating
efficiency.
Instem continues to pursue actively a number of
acquisition opportunities.
Instem plc Annual Report, 2011 9
outlook
“The Group remains highly profitable, cash
generative and has a strong pipeline of
opportunities for the current year.”
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Instem plc Annual Report, 2011
Financial
Review
The financial results demonstrate a solid performance
in the year with total revenues steadily increasing by
7.9% to £10.8m, (2010: £10.0m) including the impact
of the revenue acquired with Instem Scientific. While a
record number of new customers was secured during
the year, revenue from our core business was lower than
in the prior year due, in large part, to a high number of
these contracts being secured in the final quarter of
the year. This resulted in only minimal 2011 revenue
recognition for implementation services and annual
support and maintenance contracts for these late orders,
with the remainder of the implementation services to be
recognised in 2012.
The business continued to expand in developing
markets with revenue from outside North America and
Europe increasing to £0.9m (2010: £0.6m), being 9% of
Group revenue (2010: 6%) with notable wins in Japan,
Singapore and China.
Instem’s business model consists of fees for perpetual
licences, annual support, SaaS subscriptions and
professional services. In 2011 approximately
70% of revenue was of a recurring nature (2010:
67%), principally from annual support fees and
SaaS subscriptions, with a small contribution from
professional fees.
The business continues to generate the majority of its
revenue in US dollars and therefore we continue to
hedge against its decline. In the period the average
exchange rate was $1.6014/£1.00 compared with an
average exchange rate in 2010 of $1.5474/£1.00.
The profit from operations before amortisation, share
based payment and non-recurring costs for the year was
£2.0m (2010: £2.3m).
and a further £0.2m of working capital funding. A further
contingent consideration of up to £0.6m will be payable
in equal proportions of cash and shares dependent on
achieving turnover targets in the two calendar years
2011 and 2012. As announced on 8 March 2012, post
the end of the 2011 financial year, we issued 50,371
ordinary shares and paid contingent cash consideration
of £0.084m in respect of the performance of Instem
Scientific in 2011.
Cash generated from operations increased to £1.3m
(2010: £0.7m). The Group had cash reserves of £3.4m
as at 31 December 2011, compared with £3.3m as at 31
December 2010.
In line with previous periods, and our current policy
of retaining cash within the business to capitalise on
the available growth opportunities, the Board has not
recommended the payment of a dividend.
Outlook
We saw signs, particularly towards the end of the year,
that the Contract Research Organisation sector of our
market is starting to recover from a difficult few years
and we expect this to continue slowly in 2012. Two of
the contracts which were delayed for the second half
of 2011 have now been signed in the first quarter of
2012 and there is a strong pipeline of opportunities for
the remainder of the year. The Group remains highly
profitable and cash generative, and the new contracts
secured in the final quarter provide a substantial level of
contracted revenue expected to be recognised in 2012.
Therefore, while the Board remains conscious of market
conditions, these factors, combined with a full year’s
contribution from Instem Scientific and our high level of
renewals, underpin our confidence in the year ahead.
In March 2011 Instem completed its first acquisition
since IPO, acquiring BioWisdom Limited (now Instem
Scientific Limited) for an initial consideration of £0.2m in
cash, with a further £0.5m of unsecured debt assumed,
Phil Reason
Chief Executive
Instem plc Annual Report, 2011 11
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Instem plc Annual Report, 2011
BOARD OF DIRECTORS
David Gare
aged 68 – 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 flotation on
the USM in 1984, its flotation on the Official 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 50 – Chief Executive Officer
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 Officer 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.
Nigel Goldsmith
aged 50 – Chief Financial Officer
Nigel, who joined Instem in November 2011, has a wealth of experience in senior financial roles, at
both public and private companies within the pharmaceutical industry. After qualifying as a Chartered
Accountant, Nigel spent over nine years at KPMG prior to moving into industry. Nigel was Finance Director
for three years at AIM listed, pharmaceutical and medical devices company, IS Pharma plc. He also spent a
seven-year tenure as CFO at Almedica International Inc, a privately held supplier of clinical trial materials
to the pharmaceutical and biotech industry in Europe and the US and two years as European Controller for
the sales and marketing division of laboratory equipment manufacturer, Life Sciences International plc.
Mike McGoun
aged 64 – 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 55 – Non-executive Director
David is a qualified Management Accountant and holds an MBA from Staffordshire University. He joined
Instem Limited as a trainee accountant in 1973 and was appointed Chief Financial Officer 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 flotation on
the USM in 1984, the flotation on the Official List in 1996 and the demerger of the business in 1998.
Instem plc Annual Report, 2011 13
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Instem plc Annual Report, 2011
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Research and Development Activities
The directors submit their report and the Group and
Company financial statements of Instem plc (formerly
Instem Life Science Systems plc) for the year ended 31
December 2011.
Instem plc is a public listed company, incorporated and
domiciled in England, and quoted on the Alternative
Investment Market (AIM).
Principal 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 2011 development expenditure was £1.86m (2010:
£1.65m) before capitalised expenditure of £0.26m (2010:
£0.36m).
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
On 13 January 2012 the company changed its name from
Instem Life Science Systems plc to Instem plc.
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.
Risks and Uncertainties
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 significant
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.
Dividends
The directors do not recommend the payment of a dividend.
Directors
The following directors held office during the year:
D Gare
M F McGoun
D M Sherwin
P J Reason
N J Goldsmith (appointed 29 November 2011)
J McLauchlan (deceased 8 August 2011)
Details of the directors’ service contracts and their
respective notice terms are detailed in the Remuneration
Committee report on page 20.
Directors and Their Interests
The interests of the directors who held office at 31
December 2011 and up to the date of this report were as
follows:
No. of Shares
2011
2010
David Gare
2,278,427
2,278,427
David Sherwin
1,580,066
1,580,066
Phil Reason
665,287
665,287
Mike McGoun
14,286
14,286
Directors’ interests in share options are detailed in the
Remuneration Committee report on page 20/21.
Instem plc Annual Report, 2011 15
in order to make themselves aware of any relevant
audit information and to establish that it has been
communicated to the auditor.
Auditors
Pursuant to s487 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
Nigel Goldsmith
Director
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
26 April 2012
DIRECTORS’ REPORT
Employee Involvement
The general policy of the Group 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.
Policy on Payment of Suppliers
It is the Group’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 2011 represented 61 days of purchases
(2010: 36 days).
Financial Instruments
The Group’s objectives and policies on financial
instruments are set out in note 19 to the financial
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 indemnified all directors and other officers
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 officers.
Annual General Meeting
The Annual General Meeting of the Company will
be held on 22 May 2012 at the offices of Baker Tilly,
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.
Statement as to Disclosure of Information
to Auditors
The directors who were in office on the date of approval
of these financial statements have confirmed, as
far as they are aware, that there is no relevant audit
information of which the auditors are unaware. Each
of the directors has confirmed that they have taken all
the steps that they ought to have taken as directors
16
Instem plc Annual Report, 2011
CORPORATE GOVERNANCE REPORT
CORPORATE GOVERNANCE REPORT
Audit Committee
The Board fully supports the underlying principles of
corporate governance contained in the UK Corporate
Governance Code, notwithstanding that, as its securities
are not listed on the Official 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
and taking account of the QCA guidelines for smaller
quoted companies. The Board recognises its overall
responsibility for the Group’s systems of internal control
and for monitoring their effectiveness.
The main features of the Group’s corporate governance
procedures, which do not constitute full compliance
with the UK Corporate Governance Code, are as follows:
a.
b.
c.
d.
the Board has one independent non-executive
director who takes an active role in Board matters;
the Group 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;
all business activity is organised within a defined
structure with formal lines of responsibility and
delegation of authority, including a schedule of
“matters referred to the Board”; and
regular monitoring of key performance indicators
and financial results together with comparison of
these against expectations.
Attendance at Board and Committee
Meetings
Attendances of directors at Board and Committee
meetings convened in the period, along with the
number of meetings they were invited to attend, are set
out below:
The Audit Committee comprises MF McGoun (Chairman),
D Gare and DM Sherwin, all of whom are non-executive
directors of the Company. The Board is satisfied that
the Audit Committee has all the recent and relevant
financial experience required to fulfil 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 twice a year and any other
time as required by either the chairman of the Audit
Committee, the Chief Financial Officer of the Group or
the external auditors of the Group. In addition, the Audit
Committee shall meet with the external auditors of the
Group (without any of the executives attending) at any
time during the year as it deems fit.
The Audit Committee:
a. monitors the financial reporting and internal
financial control principles of the Group;
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;
reviews all financial results of the Group and
financial statements, including all announcements
in respect thereof before submission of the
relevant documents to the Board;
reviews and discusses (where necessary) any
issues and recommendations of the external
auditors including reviewing the external auditors’
management letter and management’s response;
considers all major findings of internal operational
audit reviews and management’s response to
ensure co-ordination between internal and external
auditors;
reviews the Board’s statement on internal reporting
systems and keeps the effectiveness of such
systems under review; and
considers all other relevant findings and audit
programmes of the Group.
c.
d.
e.
f.
g.
No of meetings in the period/
No invited to attend
Board meetings
Audit
Committee
Remuneration Committee
Nomination
Committee
Executive directors
P.J. Reason
N.J. Goldsmith
J. McLauchlan
Non Executive directors
D. Gare
D.M. Sherwin
M.F. McGoun
6/6
1/1
4/4
6/6
6/6
6/6
2/2
1/1
1/1
2/2
2/2
2/2
2/2
-
-
2/2
2/2
2/2
1/1
-
-
1/1
1/1
1/1
Instem plc Annual Report, 2011 17
e.
remuneration of the executive directors is set by an
independent committee of the Board; and
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 responsibili-
ties. The Remuneration Committee produces an annual
report which is included in the Company’s annual report
and accounts.
The Remuneration Committee is authorised to:
a.
b.
c.
investigate any activity within its terms of
reference;
seek any information it requires from any employee
of the Group;
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 Group’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 D Gare
(Chairman), MF McGoun and DM 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.
CORPORATE GOVERNANCE REPORT
Audit Committee (continued)
The Audit Committee is authorised to:
a.
b.
c.
investigate any activity within its terms of
reference;
seek any information it requires from any employee
of the Company; and
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 MF McGoun
(Chairman), D Gare and DM 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 Officer
of the Group 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
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 Officer
of the Group.
The Remuneration Committee:
a.
b.
c.
ensures that the executive directors are fairly
rewarded for their individual contributions to
the overall performance of the Group but also
ensures that the Group avoids paying more than is
necessary for this purpose;
considers the remuneration packages of the
executive directors and any recommendations
made by the Chief Executive Officer for changes to
their remuneration packages including in respect
of bonuses (including associated performance
criteria), other benefits, 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;
oversees and reviews all aspects of the Group’s
share option schemes including the selection of
eligible directors and other employees and the
terms of any options granted;
d. demonstrates to the Group’s shareholders that the
18
Instem plc Annual Report, 2011
CORPORATE GOVERNANCE REPORT
Nomination Committee (continued)
recommendation for which would be considered at
a meeting of the full Board.
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 Group, and what skills and
expertise are needed on the Board in the future;
is responsible for identifying and nominating for
the approval of the Board, candidates to fill Board
vacancies as and when they arise;
c.
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 for-
mally to the Board on its proceedings after each meet-
ing on all matters within its duties and responsibilities.
The Nomination Committee also makes recommenda-
tions 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 Officer;
b. membership of the Audit and Remuneration
c.
d.
Committees, in consultation with the chairmen of
those committees;
the re-appointment of any non-executive director
at the conclusion of their specified term of office
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 office of any
director at any time including the suspension or
termination of service of an executive director as
an employee of the Group subject to the provisions
of the law and his/her service contract; and
the appointment of any director to executive or
other office other than to the positions of Chairman
of the Board and Chief Executive Officer, the
f.
The Nomination Committee is authorised to:
a.
b.
c.
d.
investigate any activity within its terms of
reference;
seek any information it requires from any
employee;
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
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 identified and
appropriate action taken at an early stage.
Going Concern
The directors have prepared and reviewed financial
forecasts. After due consideration of these forecasts
and current cash resources, the directors consider that
the Company and the Group have adequate financial
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 financial statements have been prepared on a going
concern basis.
On behalf of the Board
Nigel Goldsmith
Company Secretary
26 April 2012
Instem plc Annual Report, 2011 19
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
Performance Related Annual Bonus
Executive directors are eligible for a performance
related bonus based on Group performance, in
particular, the achievement of profit and cash targets.
The performance related annual bonus forms a
significant 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 reflect
exceptional performance.
Pensions
Contributions are made to the executive directors’
personal pension schemes up to a maximum of 16.5%
of basic salary.
Benefits
Benefits comprise private healthcare and critical illness
cover. No director receives additional remuneration or
benefits in relation to being a director of the Board of
the Company or any subsidiary of the Company.
Service Contracts
The Executive directors have contracts of up to 12
months duration with a maximum notice period of 12
months.
The Board determines the Company’s Policy on
non-executive directors’ remuneration.
D Gare, DM Sherwin and MF McGoun each have a 3 year
contract starting October 2010 with a notice period of 3
months during or after expiry of the fixed term.
Instem 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 on 13 October 2010. The Chairman of the
Committee is MF McGoun. The terms of reference for
the Committee are to determine the Group’s policy on
executive remuneration and to consider and approve the
remuneration packages for directors and key executives
of the Group, subject to ratification by the Board. During
the year, the Committee met twice. Full details of the
elements of each director’s remuneration are set out on
page 21. Details of share-based payments to directors
are shown in note 6 to the financial statements.
Policy on Executive Director
Remuneration
The Group’s current and ongoing policy aims to
ensure that executive directors are rewarded fairly
for their individual contributions to the Group’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 specific to the Group, such as salary and
other benefit arrangements within the Group and the
achievement of the Group’s strategic objectives. The
Committee determines the Group’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 Group and are intended to be
competitive but fair using information provided from
both internal and external sources.
20
Instem plc Annual Report, 2011
DIRECTORS’ REMUNERATION REPORT
The actual emoluments paid to directors in the year ended December 31st 2011 are as follows:
Salary (inc bonus)
Benefits
Pension
2011 Total
2010 Total
Executives
P.J. Reason
N.J. Goldsmith
J. McLauchlan
Non-executives
D. Gare
D.M. Sherwin
M.F. McGoun
£000
148
18
45
44
49
24
£000
4
-
6
-
-
-
£000
23
-
7
-
-
-
£000
175
18
58
44
49
24
Total
328
10
30
368
£000
186
-
99
245
130
5
665
Directors’ and Employees’ Share Options
Exercise
price(£)
Issue date
Held at
31/12/2010
Granted
During Year
Exercised
during Year
Lapsed
during Year
Held at
31/12/2011
Phil Reason
Ordinary shares
N.J. Goldsmith
Ordinary shares
J. McLauchlan & Estate
Ordinary shares
Employees
Ordinary shares
1.750
13/10/2010
187,428
-
2.215
29/11/2011
-
60,000
1.750
13/10/2010
93,714
1.750
13/10/2010
304,569
-
-
Ordinary shares
2.220
17/10/2011
-
123,351
Total
585,711
183,351
-
-
-
-
-
-
-
-
187,428
60,000
(31,238)
62,476
-
-
304,569
123,351
(31,238)
737,824
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 Chairman
Instem plc Annual Report, 2011 21
DIRECTORS’ RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS
irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the Instem plc website.
Legislation in the United Kingdom governing the
preparation and dissemination of financial 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 financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare Group
and Company financial statements for each financial
year. The directors are required by the AIM Rules of
the London Stock Exchange to prepare Group financial
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 financial statements in
accordance with IFRS as adopted by the EU.
The financial statements are required by law and
IFRS adopted by the EU to present fairly the financial
position of the Group and the Company and the financial
performance of the Group. The Companies Act 2006
provides in relation to such financial statements that
references in the relevant part of that Act to financial
statements giving a true and fair view are references to
their achieving a fair presentation.
Under Company law the directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Group and the Company and of the profit or loss of the
Group for that period.
In preparing the Group and Company financial
statements, the directors are required to:
a.
select suitable accounting policies and then apply
them consistently;
b. make judgements and accounting estimates that
c.
are reasonable and prudent;
state whether they have been prepared in
accordance with IFRSs adopted by the EU;
d. prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the Group and the Company will continue in
business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and the Company’s transactions
and disclose with reasonable accuracy at any time the
financial position of the Group and the Company and
enable them to ensure that the financial 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
22
Instem plc Annual Report, 2011
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF INSTEM PLC
(FORMERLY INSTEM LIFE SCIENCE
SYSTEMS PLC)
We have audited the Group and parent Company
financial statements (“the financial statements”) on
pages 24 to 64. The financial reporting framework that
has been applied in their preparation is applicable law
and International Financial Reporting Standards (IFRSs)
as adopted by the European Union and, as regards the
parent Company financial statements, as applied in
accordance with the provisions of the Companies Act
2006.
This report is made solely to the Company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s
members those matters we are required to state to
them in an 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.
Respective responsibilities of directors
and auditor
As more fully explained in the Directors’ Responsibilities
Statement set out on page 22, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance
with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s (APB’s)
Ethical Standards for Auditors.
Scope of the audit of the financial
statements
•
•
prepared in accordance with IFRSs as adopted by
the European Union
the parent Company’s financial 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 financial 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 financial year for which the financial
statements are prepared is consistent with the financial
statements.
Matters on which we are required to
report by exception
We have nothing to report in respect of the following
matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
•
adequate accounting records have not been kept
by the parent Company, or returns adequate for our
audit have not been received from branches not
visited by us; or
the parent Company financial statements are not in
agreement with the accounting records and returns;
or
certain disclosures of directors’ remuneration
specified by law are not made; or
•
•
• we have not received all the information and
explanations we require for our audit.
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
A description of the scope of an audit of financial
statements is provided on the APB’s website at www.frc.
org.uk/apb/scope/private.cfm.
26 April 2012
Opinion on financial statements
In our opinion:
•
the financial statements give a true and fair view of
the state of the Group’s and the parent Company’s
affairs as at 31 December 2011 and of the Group’s
profit for the year then ended;
the Group financial statements have been properly
•
Instem plc Annual Report, 2011 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2011
Year ended
Year ended
Note
31 December 2011
31 December 2010
REVENUE
Operating expenses
PROFIT FROM OPERATIONS BEFORE AMORTISATION, SHARE BASED
PAYMENT AND NON-RECURRING COSTS
Amortisation of intangibles
Share based payment
PROFIT BEFORE NON-RECURRING COSTS
Non-recurring costs
PROFIT FROM OPERATIONS
Non-recurring flotation costs
Finance income
Finance costs
PROFIT BEFORE TAXATION
Income tax expense
PROFIT FOR THE YEAR
1
2
2
2
3
4
8
£000
10,793
(8,791)
2,002
(347)
(88)
1,567
(21)
1,546
-
422
(456)
1,512
(506)
1,006
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Actuarial loss on retirement benefit obligations
22
(392)
Deferred tax on actuarial loss
Exchange differences on translating foreign operations
OTHER COMPREHENSIVE EXPENSE FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
Profit attributable to Equity Holders of the Parent Company
Total comprehensive income attributable to Equity Holders of the
Parent Company
Earnings per share from continuing operations Basic
Diluted
24
24
68
96
(228)
778
1,006
778
8.6p
8.5p
24
Instem plc Annual Report, 2011
£000
10,001
(7,747)
2,254
(34)
(21)
2,199
(388)
1,811
(295)
263
(364)
1,415
(514)
901
(576)
147
18
(411)
490
901
490
11.7p
11.7p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2011
Note
31 December 2011
31 December 2010
ASSETS
£000
£000
£000
£000
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Deferred tax assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Current tax liabilities
Financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities
Retirement benefit obligations
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Translation reserve
Retained earnings
9
12
21
13
14
17
15
16
17
18
18
22
23
25
25
25
25
25
6,904
4,995
11,899
5,874
1,477
7,351
8,570
6,554
15,124
7,844
1,866
9,710
8,103
188
279
93
3,029
64
3,368
7,594
-
250
250
1,616
1,171
7,813
(932)
88
473
(3,199)
6,417
166
321
137
1,595
-
3,263
5,536
85
253
-
1,477
1,171
7,813
(932)
-
377
(3,881)
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
5,414
4,548
TOTAL EQUITY AND LIABILITIES
15,124
11,899
The financial statements on pages 24 to 64 were approved by the board of directors and authorised for issue on 26 April 2012 and are
signed on its behalf by:
Phil Reason
Director
Nigel Goldsmith
Director
Instem plc Annual Report, 2011 25
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2011
Note
31 December 2011
31 December 2010
ASSETS
£000
£000
£000
£000
NON-CURRENT ASSETS
Investments
10
17,109
16,500
TOTAL NON-CURRENT ASSETS
17,109
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
NON CURRENT LIABILITIES
14
15
16
18
753
2,102
573
250
Financial liabilities
18
250
TOTAL NON CURRENT LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained earnings
23
25
25
25
25
1,171
7,813
10,702
88
(883)
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
64
3,100
66
253
-
1,171
7,813
10,702
-
(341)
3,164
19,664
319
-
19,345
19,664
2,855
19,964
823
250
18,891
19,964
The financial statements on pages 24 to 64 were approved by the board of directors and authorised for issue on 26 April 2012 and are
signed on its behalf by:
Phil Reason
Director
Nigel Goldsmith
Director
26
Instem plc Annual Report, 2011
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2011
Note
Year ended
31 December 2011
Year ended
31 December 2010
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Result before taxation
1,512
Adjustments for:
Depreciation
Amortisation of intangibles
Profit on disposal of property, plant and equipment
Adjustment to consideration
Share based payments and shares to be issued
Retirement benefit obligations
Net foreign exchange gains
Finance income
Finance costs
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
Movements in working capital:
Decrease/(Increase) 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 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
Disposal of property, plant and equipment
Acquisition of subsidiary
Cash acquired with subsidiary
NET CASH USED IN INVESTING ACTIVITIES
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
116
347
(14)
(80)
88
(245)
(88)
(422)
456
300
-
(291)
(152)
30
(200)
141
-
-
-
(253)
-
-
1,415
75
34
-
-
21
(206)
-
(263)
364
263
(95)
(361)
(111)
-
-
-
1,440
(75)
266
(915)
716
(296)
(510)
(90)
1,846
47
(1,230)
679
1,342
(362)
(478)
502
(172)
(304)
9,150
(731)
(83)
(4,897)
(3)
(2,550)
NET CASH USED IN FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of year
Effects of exchange rate changes on the balance of cash held in
foreign currencies
CASH AND CASH EQUIVALENTS AT END OF YEAR
15
(253)
77
3,263
28
3,368
886
492
2,716
55
3,263
Instem plc Annual Report, 2011 27
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2011
Note
Year ended
Year ended
31 December 2011
31 December 2010
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Result before taxation
(542)
Adjustments for:
Share based payment
Finance income
Finance cost
88
(42)
48
CASH FLOWS USED IN OPERATIONS BEFORE
CHANGES IN WORKING CAPITAL
Movements in working capital:
Increase in trade and other receivables
Increase in trade and other payables
CASH USED IN OPERATIONS
Finance costs
NET CASH USED IN OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income
Acquisition of subsidiary
42
(200)
(341)
-
(6)
3
6
-
(344)
(64)
66
(342)
(3)
(345)
(448)
(189)
98
(539)
(48)
(587)
NET CASH USED IN INVESTING ACTIVITIES
(158)
6
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of ordinary shares
Share issue costs
Stamp duty
-
-
-
Series A Loan notes repaid
(253)
9,150
(731)
(83)
(4,897)
NET CASH USED IN FINANCING ACTIVITIES
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents at start of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
15
(253)
(998)
3,100
2,102
3,439
3,100
-
3,100
28
Instem plc Annual Report, 2011
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
Share
Premium
Merger
Reserve
Shares to
Translation
be issued
Reserve
Retained
Earnings
Total
Equity
Balance as at 1 January
2010
New share capital
Costs of issue
Loan notes issued on
acquisition
Profit for the year
Other comprehensive
expense for the year
Share based payment
Balance as at 31
December 2010
Profit for the year
Other comprehensive
expense for the year
Share based payment
Balance as at 31
December 2011
£000
£000
649
522
-
-
-
-
-
-
8,628
(815)
-
-
-
-
£000
4,218
-
-
(5,150)
-
-
-
1,171
7,813
(932)
-
-
-
-
-
-
-
-
-
1,171
7,813
(932)
£000
-
-
-
-
-
-
-
-
-
-
88
88
£000
359
-
-
-
-
18
-
£000
(4,374)
-
-
-
901
(429)
21
377
(3,881)
-
96
-
1,006
(324)
-
£000
852
9,150
(815)
(5,150)
901
(411)
21
4,548
1,006
(228)
88
473
(3,199)
5,414
COMPANY STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
Share
Premium
Merger
Reserve
Shares to
Translation
be issued
Reserve
Retained
Earnings
Total
Equity
£000
£000
£000
£000
£000
£000
£000
Balance as at 1 January
2010
-
-
New share capital
1,171
7,813
-
-
10,702
-
-
-
-
-
1,171
7,813
10,702
-
-
-
-
-
-
1,171
7,813
10,702
Merger relief
Total comprehensive
income for the year
Balance as at 31
December 2010
Total comprehensive
income for the year
Share based payment
Balance as at 31
December 2011
-
-
-
-
-
-
88
88
-
-
-
-
-
-
-
-
-
-
-
-
8,984
10,702
(341)
(341)
(341)
19,345
(542)
(542)
-
88
(883)
18,891
Instem plc Annual Report, 2011 29
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 plc (formerly 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 office is Diamond Way, Stone Business Park, Stone,
Staffordshire, ST15 0SD.
Statement of Compliance
The financial 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 2006 applicable to
companies reporting under IFRS.
Basis of Preparation
The Group’s accounting reference date is 31 December.
The acquisition of the Instem LSS Group in the prior year did
not qualify as a business combination under IFRS 3 ‘Business
Combinations’ as Instem plc did not meet the definition of a
business within that standard. As a consequence the transaction
was treated as a pooling of interests to reflect the substance of
the transaction which was that of the continuation of the existing
Instem LSS Group.
Under the pooling of interests basis the legal shares and
share premium of Instem plc are shown 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 2011, 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 Life Science Systems Limited (formerly
Instem LSS Group Limited) have been treated as a distribution.
The liability for those loan notes has been recognised in the prior
period when the company was contractually obligated to pay it
and the cost of the distribution has been recognised directly in
equity.
The financial statements have been prepared on the historical
cost basis except for the revaluation of certain financial
instruments.
In accordance with Section 408 of the Companies Act 2006 the
company has elected not to present its own income statement.
The loss for the year of the parent company is £542,000 (2010:
£341,000).
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all years presented in these
consolidated financial statements.
Basis of Consolidation
The consolidated financial statements incorporate those of
the parent Company, Instem plc (formerly Instem Life Science
Systems plc), and its subsidiary undertakings made up to 31
December 2011 and 31 December 2010.
In preparing the consolidated financial 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 financial 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 financial and operating policies so as to obtain
economic benefits from their activities. Subsidiaries are
consolidated from the date on which control is transferred to the
Group up until the date that control ceases.
Business Combinations
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition date fair values of the assets transferred
by the Group, liabilities incurred by the Group to the former
owners of the acquiree and the equity interests issued by the
Group in exchange for control of the acquiree. Acquisition
related costs are generally recognised in profit or loss as
incurred.
At the acquisition date, the identifiable assets acquired and the
liabilities assumed are recognised at their fair value, except that
deferred tax assets or liabilities are recognised and measured in
accordance with IAS 12 ‘Income taxes’.
Contingent consideration is measured at its acquisition-date fair
value and is included as part of the consideration transferred.
Changes in the fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as
equity is not re-measured at subsequent reporting dates
and its subsequent settlement is accounted for within equity.
Contingent consideration that is classified as an asset or a
liability is re-measured at subsequent reporting dates with the
corresponding gain or loss being recognised in profit or loss.
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 significant
proportion of recurring revenue from a well established global
customer base, supported by a largely fixed cost base. A Group
working capital facility has been put in place to support the
working capital needs in 2012.
The financial position of the Group, its cash flows and liquidity
position are set out in the primary statements of these financial
statements. Detailed projections have been made for the 12
months following the approval of the financial statements and
sensitivity analysis undertaken. This work gives the directors
confidence as to the future trading performance of the Group.
Accordingly the directors continue to adopt the going concern
basis for the preparation of the financial statements.
30
Instem plc Annual Report, 2011
accounting policies
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 benefits associated with the
transaction will flow 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 fixed and determinable and
(iv) collectability is reasonably assured.
For software arrangements with multiple elements revenue is
recognised dependent on whether vendor-specific 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.
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 profit or loss. 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 profit or loss upon disposal of the foreign operation.
Revenue from licence based products is recognised when the
risks and rewards of ownership of the product are transferred to
the customer.
The presentational currency adopted by the Group is Sterling (£).
The functional currencies of the principal companies in the Group
are as follows:
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 fixed 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
Instem Life Science Systems Limited
Sterling (£)
Instem LSS Limited
Sterling (£)
Instem LSS (North America) Limited
US Dollars ($)
Instem LSS Asia Limited
Instem Information Systems (Shanghai) Limited
Hong Kong
Dollars (HK$)
Chinese
Yuan (¥)
Instem Scientific Limited
Sterling (£)
Instem Scientific Solutions Limited
Sterling (£)
Instem Scientific Inc
US Dollars ($)
Profit from operations before amortisation is profit arising from
the Group’s normal trading activities stated before amortisation of
intangible assets and non-recurring items, interest and taxation.
The exchange rates used to translate the financial statements
into Sterling (£) are as follows:
Profit From Operations
Profit from operations is profit from the Group’s ordinary activities
stated before costs of admission to AIM, finance 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
US Dollar
($)
Hong Kong
Dollar
(HK$)
Chinese
Yuan
(¥)
1.5647
1.6147
-
-
-
-
1.5474
11.9528
10.4560
1.5657
12.2665
10.3172
1.6014
12.4623
10.3447
1.5541
12.0701
9.7815
Average rate for year
ended 31 December 2009
Closing rate at 31
December 2009
Average rate for year
ended 31 December 2010
Closing rate at 31
December 2010
Average rate for year
ended 31 December 2011
Closing rate at 31
December 2011
Instem plc Annual Report, 2011 31
accounting policies
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 financial asset to that
asset’s net carrying amount. Finance income includes exchange
gains on the translation of intra-group funding balances.
Finance Costs
Finance costs comprise interest payable, exchange losses on
the translation of intra-group funding balances and interest on
pension scheme liabilities, less expected return on Pension
assets. Interest payable is recognised in profit or loss as it
accrues, using the effective interest method.
Leasing
Where assets are financed by leasing agreements that give
rights approximating to ownership (“finance 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 finance lease
obligations to the lessor.
Lease payments are apportioned between finance 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 finance costs in profit or loss.
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.
Share-Based Payment Transactions
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 1 January 2007.
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 model and for options with a performance
condition, Binomial or Monte Carlo models are used. 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.
Cancelled or settled options are accounted for as an acceleration
of vesting. The unrecognised grant date fair value is recognised
in profit or loss in the year that the options are cancelled or
settled. Where the terms of the options are modified and
the modification increases the fair value or number of equity
instruments granted, measured immediately before and after
the modification, the incremental fair value is spread over the
remaining vesting period.
Options over the Company’s shares granted to employees of
subsidiaries are recognised as a capital contribution by the
Company to the subsidiaries.
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 profit for the year. Taxable profit is
different from profit 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
substantively enacted by the reporting 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 liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and
associates, and interests in joint ventures, except where the
Group is able to control the reversal of the temporary difference
and it is probable that the temporary difference will not reverse in
the foreseeable future.
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 profits 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
to the period when the asset is realised or the liability is settled.
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. These include Intellectual
Property, Customer Relationships and Patents. An intangible
asset will be recognised as long as the asset is identifiable and
its fair value can be measured reliably. An intangible asset is
identifiable if it is separable or if it was obtained through
32
Instem plc Annual Report, 2011
accounting policies
Intangible Assets (continued)
Property, Plant & Equipment
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. The useful life for Intellectual Property,
Customer Relationships and Patents is five years. Amortisation
is recognised within operating expenses. All intangible assets
except Goodwill are amortised.
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 identifiable assets and liabilities acquired, is capitalised and
tested for impairment on an annual basis.
Any impairment is recognised immediately in profit or loss and
is not subsequently reversed. For the purpose of impairment
testing goodwill is allocated to cash generating units, which
represent the smallest identifiable Group of assets that generates
cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Computer Software
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 profit 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 identified;
it is probable that the asset created will generate future
economic benefits;
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
sufficient resources are available to complete the
development and to either sell or use the asset.
Property, plant and equipment are stated in the statement of
financial 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
Plant and equipment
Motor vehicles
- Over term of lease
- 12½% - 25% per annum
- 25% per annum
Depreciation is recognised within operating expenses.
The expected useful lives and residual values 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 profit 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 flows 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 identifiable
Group of assets that generates cash inflows that are largely
independent of the cash inflows 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 flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset, for which
the estimates of future cash flows have not been adjusted.
Where these criteria have not been achieved, development
expenditure is recognised in profit or loss in the period in which it
is incurred.
If the recoverable amount of an asset is estimated to be less than
its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised as
an expense immediately.
Internally-generated intangible assets are amortised, once the
product is available for use, on a straight-line basis over their
useful lives (five to eight years).
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
Instem plc Annual Report, 2011 33
accounting policies
Impairment of Assets Excluding Goodwill (continued)
of its liabilities.
the asset in prior years. A reversal of an impairment loss is
recognised in profit or loss immediately.
Inventory
Inventory is stated at the lower of cost and net realisable value.
Inventory includes billable employee expenses and hosting
costs. These are stated at the lower of amortised cost and net
realisable value.
Provision is made where necessary for non-chargeable items.
Financial Instruments
Classification of financial instruments
Financial instruments are classified as financial assets, financial
liabilities or equity instruments.
Recognition and valuation of financial 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 financial 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 identified impairment loss is recognised in the statement of
comprehensive income.
Investments
Investments in subsidiaries, associates and joint ventures are
recorded at cost in the Statement of Financial Position. They
are tested for impairment when there is objective evidence of
impairment. Any impairment losses are recognised in profit or
loss in the period they occur.
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 flow 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 classified 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 flows 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.
Bank borrowings and loan notes
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 finance 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.
Trade payables
Trade payables are not interest bearing and are initially
recognised at fair value and subsequently at amortised cost.
Ordinary share capital
For ordinary share capital, the par value is recognised in share
capital and the premium in the share premium reserve.
Derivative financial instruments
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 financial instruments for
speculative purposes.
The Group does not adopt the hedge accounting provisions and
as such, these derivatives are classified as financial 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
Defined contribution schemes
A defined contribution scheme is a pension plan under which
the Group pays a fixed 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 benefits 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 financial position. The
Group has no further payment obligations once the contributions
have been paid.
Defined benefit schemes
A defined benefit scheme is a pension plan under which the
Group pays contributions in order to fund a defined amount of
pension that the employees under the scheme will receive on
retirement. The cost of providing the benefits 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 defined benefit obligation, adjusted for unrecognised past
service costs and reduced by the fair value of plan assets.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
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
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
financing costs are recognised in profit and loss.
34
Instem plc Annual Report, 2011
accounting policies
Retirement Benefits (continued)
The rate used to discount the benefit obligations is based on
market yields for high quality corporate bonds with terms and
currencies consistent with those of the benefit obligations.
Provisions
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 outflow of economic benefits that can be reliably
estimated.
The time value of money is not expected to be material and
therefore future outflows have not been discounted.
Adoption of IFRS
The Group and Company financial statements have been
prepared in accordance with IFRS, IASs and International
Financial Reporting Interpretations Committee (IFRICs) effective
as at the 31 December 2011. The Group and Company have not
chosen to adopt any amendments or revised standards early.
The Group did not apply IFRS 1 First-time Adoption of IFRS in
the prior year as it was in substance a continuation of the group
headed by Instem Life Science Systems Limited (formerly Instem
LSS Group Limited). Instem Life Science Systems Limited’s
financial 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 first financial 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 i.e. 1 January 2007.
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 financial statements. The directors do not
believe the adoption will have a material impact on the business.
•
•
•
•
•
IFRS 1 ‘First-time Adoption of IFRS –Amendment; Severe
Hyper Inflation and Removal of Fixed Dates for first 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 1 ‘Presentation of Other Comprehensive Income’ –
Amendments effective for periods commencing on or after 1
July 2012 (not yet EU endorsed).
IFRS 7 ‘Financial Instruments – Disclosure – Amendment:
Offsetting Financial Assets and Financial Liabilities’ was
•
•
•
•
•
•
•
•
•
•
issued in December 2011 and is effective for periods
commencing on or after 1 January 2013 (not yet EU
endorsed).
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).
IFRS 10 ‘Consolidated Financial Statements’ was issued
in May 2011 and is effective for periods commencing on or
after 1 January 2013 (not yet EU endorsed).
IFRS 11 ‘Joint Arrangements’ was issued in May 2011 and
is effective for periods commencing on or after 1 January
2013 (not yet EU endorsed).
IFRS 12 ‘Disclosure of Interests in Other Entities’ was
issued in May 2011 and is effective for periods commencing
on or after 1 January 2013 (not yet EU endorsed).
IAS 27 ‘Separate Financial Statements’ - Amendment was
issued in May 2011 and is effective for periods commencing
on or after 1 January 2013 (not yet EU endorsed).
IAS 28 ‘Interests in Associates and Joint Ventures’ -
Amendment was issued in May 2011 and is effective for
periods commencing on or after 1 January 2013 (not yet EU
endorsed).
IFRS 13 ‘Fair Value Measurement’ was issued in May
2011 and is effective for periods commencing on or after 1
January 2013 (not yet EU endorsed).
IAS 19 ‘Employee Benefits’ – Amendment was issued in
June 2011 and is effective for periods commencing on or
after 1 January 2013 (not yet EU endorsed).
IFRIC 20 ‘Stripping costs in the Production Phase of a
Surface Mine’ effective for periods commencing on or after
1 January 2013 (not yet EU endorsed).
IAS 32 ‘Financial Instruments – Presentation – Amendment:
Offsetting Financial Assets and Financial Liabilities’ was
issued in December 2011 and is effective for periods
commencing on or after 1 January 2014 (not yet EU
endorsed).
IFRSs Adopted in the Year
The following IFRSs, IASs and IFRICs have been adopted for
the first time in the year:
•
•
•
•
IAS 24 ‘Related Party Disclosures – Revised’
IAS 32 ‘Financial Instruments: Presentation – Amendment:
Classification of Rights Issues’.
IFRIC 14 ‘Prepayments of a minimum Funding
Requirement’
IFRIC 19 ‘Extinguishing Financial Liabilities with Equity
Instruments’
Instem plc Annual Report, 2011 35
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
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
USA and Canada
Rest of World
Major Customers
2011
£000
2,336
5,961
1,016
1,338
142
2010
£000
1,953
5,933
789
1,203
123
10,793
10,001
2011
£000
1,342
2,518
5,989
944
2010
£000
1,339
2,231
5,822
609
10,793
10,001
2011
£000
8,163
48
80
8,291
2010
£000
6,353
205
25
6,583
In the prior year the Group generated external revenues of £1.456m from one customer which individually amounted to more than 10%
of the Group revenue. In the current year there were no individual customers accounting for 10% or more of total revenue.
36
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
2. Profit from Operations
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
Profit on disposal of property, plant and equipment
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
Audit of subsidiaries where such services are provided by Baker
Tilly UK Audit LLP or its associates
Other services:
2011
£000
116
-
347
(14)
1,384
(88)
149
330
16
60
Taxation services
12
Services pursuant to companies legislation
Corporate finance services
Other services
-
31
-
119
2010
£000
67
8
34
-
1,287
37
136
310
4
29
36
4
67
17
157
Instem plc Annual Report, 2011 37
NOTES TO THE FINANCIAL STATEMENTS
2. Profit from Operations (continued)
The following table analyses the nature of expenses:-
Staff costs (see note 5)
Depreciation (see note 12)
Operating lease rentals
Software maintenance charges
Other expenses
Total operating expenses
2011
£’000
5,761
116
479
309
2,126
8,791
2010
£’000
5,190
75
446
273
1,763
7,747
Non-Recurring Costs
During the year the Group paid a non-recurring bonus of £nil (2010: £0.35m) to the directors of Instem Life Science Systems Limited
(formerly Instem LSS Group Limited) in respect of past service.
The Group incurred costs of £nil (2010: £0.30m) in respect of professional advice received in connection with the flotation of the
business. The Group incurred costs of £0.10m (2010: £nil) in connection with the acquisition of subsidiaries. In addition the Group
recognised a credit of £0.08m (2010: £nil) in relation to the re-assessment of contingent consideration.
In addition the Group paid £nil (2010: £0.04m) in respect of non-recurring third party legal and professional expenses for the
incorporation of Instem Information Systems (Shanghai) Limited in China.
38
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
3.
FINANCE INCOME
Bank interest
Foreign exchange gains
4.
FINANCE COSTS
5.
EMPLOYEES
Bank loans and overdrafts
Foreign exchange losses
Expected returns on pension scheme assets
Interest on pension scheme liabilities
Other
2011
£000
300
122
422
2011
£000
306
34
(334)
394
56
456
2010
£000
263
-
263
2010
£000
297
37
(326)
356
-
364
Average monthly number (including executive directors)
By role:
Directors, administration, and supervision
Software design, sales and customer service
Employment costs:
Wages and salaries
Social security costs
Retirement benefits
2011
Number
2010
Number
34
82
116
2011
£000
4,769
470
522
5,761
28
75
103
2010
£000
4,297
414
479
5,190
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 £0.088m (2010: £0.021m) arises in respect of share based payments.
Instem plc Annual Report, 2011 39
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 fixed 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
Options
585,711
183,351
Lapsed
(31,238)
Outstanding at end of the period
737,824
Exercisable at 31 December
-
2011
2010
Weighted
average
exercise price
(£)
1.75
2.22
-
1.81
-
Options
-
585,711
-
585,711
-
Weighted
average
exercise price
(£)
-
1.75
-
1.75
-
The options outstanding at 31 December 2011 had exercise prices of £1.75, £2.22 and £2.215 (2010: £1.75) and a weighted average
remaining contractual life of 8.90 years (2010: 9.75 years).
Options are valued using the Black-Scholes option-pricing model and for performance conditions, the Binomial or Monte Carlo models.
The fair value has been estimated using the following key assumptions:
Average exercise price
Average market price
Average vesting period (years)
2011
£2.22
£2.22
3
2010
£1.75
£1.75
3
Expected volatility
19.1%-20.7%
22%-26%
Option life (years)
Expected life (years)
10
6
Risk free rate
1.27%-1.60%
Expected dividend yield
Expected lapse rate
0%
0%
10
6
1.9%
0%
0%
Fair value of options
£0.51-£0.53
£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 433,426 shares (2010: 351,426 shares) incorporate a market performance condition based on the Company’s share price.
The fair value of options granted in the year is £0.11m.
40
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
7. DIRECTORS’ EMOLUMENTS
Amounts payable by Instem plc:
Emoluments
Money purchase pension contributions
Amounts payable by subsidiary companies:
Emoluments
Money purchase pension contributions
Total emoluments
2011
£000
92
-
246
30
368
2010
£000
23
-
602
40
665
2011
Number
2010
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
1
2
The highest paid director is shown in the Directors’ Remuneration Report.
Instem plc Annual Report, 2011 41
NOTES TO THE FINANCIAL STATEMENTS
8.
Income Taxes
Income taxes recognised in profit or loss
Current tax:
UK corporation tax on profits for the period
Double tax relief
Foreign tax
Adjustments in respect of previous periods
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of previous years
Retirement benefit obligation
Total deferred tax
Total income tax expense recognised in the current year
The income tax expense can be reconciled to the
accounting profit as follows:
Profit before tax
Profit before tax multiplied by standard rate of
corporation tax in the UK 26.5% (2010: 28%)
Effects of:
Expenses not deductible for tax purposes
Differences in overseas tax rates
Prior period adjustments
Total income tax expense recognised in profit or loss
42
Instem plc Annual Report, 2011
2011
£000
167
-
240
(78)
329
150
(36)
63
177
506
2011
£000
1,512
401
67
152
(114)
506
2010
£000
379
(212)
274
(50)
391
73
-
50
123
514
2010
£000
1,415
396
84
84
(50)
514
NOTES TO THE FINANCIAL STATEMENTS
9.
Intangible Assets
Group
Cost
Goodwill
Software
£000
£000
Intellectual
Customer
property
Relations
£000
£000
Patents
£000
At 1 January 2010
5,858
Additions from continuing
operations
-
At 31 December 2010
5,858
Additions from continuing
operations
Additions from acquisitions in
the period
-
498
427
361
788
291
79
At 31 December 2011
6,356
1,158
Amounts written off
At 1 January 2010
Amortisation expense
At 31 December 2010
Amortisation expense
At 31 December 2011
Net book value
At 31 December 2010
-
-
-
-
-
5,858
At 31 December 2011
6,356
195
34
229
153
382
559
776
-
-
-
-
819
819
-
-
-
137
137
-
682
-
-
-
-
325
325
-
-
-
54
54
-
-
-
-
-
21
21
-
-
-
3
3
-
Total
£000
6,285
361
6,646
291
1,742
8,679
195
34
229
347
576
6,417
271
18
8,103
Impairment of goodwill
Goodwill, amounting to £5.858m (2010: £5.858m), relates to a cash generating unit, being the Instem business acquired on the
management buyout of Instem LSS Limited on 27 March 2002. Goodwill, amounting to £0.498m (2010: £nil), relates to a cash
generating unit, being the BioWisdom business acquired on 3 March 2011. During the period, goodwill was tested for impairment in
accordance with IAS 36 “Impairment of Assets”. The recoverable amount 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 cashflows
from approved forecasts for one year which has then been extrapolated to cover a period of five years, being the maximum period which
management considers can reliably be forecast. At 31 December 2011 a pre tax discount rate of 12% (2010: 8.33%) was used in the
value in use calculation based on the Group’s cost of capital. In determining the value in use, cashflows have not been increased to
reflect potential growth.
Projected cashflows were based on detailed Group profit and cashflow projections through to 2013 with no assumption of growth
beyond 2013. The projections were based on reasonable assumptions in respect of business growth rates, payroll and other cost
increases and related cashflow impacts.
The directors consider the discount rate to be the most sensitive assumption used in the impairment review. A 1% increase in the
discount rate to 13% would reduce the value in use estimate by £0.2m. However, the revised value in use figure would still exceed the
carrying value of goodwill.
Instem plc Annual Report, 2011 43
NOTES TO THE FINANCIAL STATEMENTS
10. Investments
Company-cost and net book value
£000’s
At 1 January 2010
-
Investment in Instem Life Science Systems Limited (formerly Instem LSS Group Limited)
At 31 December 2010
16,500
16,500
Investment in Instem Scientific Limited (formerly BioWisdom Limited) (see note 11)
609
At 31 December 2011
17,109
On 1 October 2010 the Company acquired the entire issued share capital of Instem Life Science Systems Limited (formerly Instem
LSS Group Limited). On 3 March 2011 the Company acquired the entire issued share capital of Instem Scientific Limited (formerly
BioWisdom Limited).
The company has two wholly-owned subsidiaries and six wholly-owned sub-subsidiaries, details of which are as follows:
Company
Activity
Ownership
Instem Life Science Systems Limited
(formerly Instem LSS Group Limited)
(company number 04339129)
England and Wales
Instem LSS Limited
(company number 03548215)
England and Wales
Instem LSS (North America) Limited
(company number 02126697)
England and Wales
Instem LSS (Asia) Limited
(company number 1371107)
Hong Kong
Holding Company
100% by Instem plc
Software development,
sales, sales support and
administrative support
Sales, sales support and
administrative support
100% by Instem Life Science
Systems Limited
100% by Instem LSS Limited
Holding Company
100% by Instem LSS Limited
Instem Information Systems (Shanghai) Limited
(company number 310115400257075)
Sales, sales support and service
Shanghai, PRC
100% by Instem LSS (Asia)
Limited
Instem Scientific Limited (formerly BioWisdom
Leading provider of software
Limited)
(company number 03861669)
England and Wales
solutions for extracting
intelligence from R&D related
healthcare data
100% by Instem plc
Instem Scientific Solutions Limited (formerly
Leading provider of software
BioWisdom SRS Limited)
(company number 03598020)
England and Wales
Instem Scientific Inc (formerly OmniViz Inc)
(company number 03173151)
USA
solutions for extracting
100% by Instem Scientific
intelligence from R&D related
Limited
healthcare data
Leading provider of software
solutions for extracting
100% by Instem Scientific
intelligence from R&D related
Limited
healthcare data
44
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
11. Business Combinations
Subsidiary acquired
Principal activity
Date of
acquisition
Proportion of
voting equity
Consideration
interests
acquired
transferred
%
£000
2011
Instem Scientific
Leading provider of software
Limited (formerly
solutions for extracting intelligence
3 March 2011
100
609
BioWisdom Limited)
from R&D related healthcare data
Instem Scientific Limited was acquired to continue the expansion and development of the Group’s capabilities in the Global Life
Sciences sector.
Consideration transferred
Cash
Contingent consideration – Payable in cash
Contingent consideration – To be settled in shares
Total consideration estimate at acquisition
Adjustment to estimate of contingent consideration recognised in Consolidated
Statement of Comprehensive Income
Contingent consideration – Payable in cash
Contingent consideration – To be settled in shares
Total consideration estimate at 31 December 2011
Instem Scientific Limited
£000
200
244
245
689
(40)
(40)
609
The contingent consideration is based on certain cumulative performance related conditions over two years as follows:
• Where FY2011 Revenue is equal to or greater than £1,304,000 the first deferred consideration shall be £100,000 plus £1,000 for
every £1,000 of Revenue in excess of £1,304,000 subject to a maximum payment of £300,000.
• Where FY2011 and FY2012 Revenue is equal to or greater than £2,815,000 the second deferred consideration shall be £100,000
plus £1,000 for every £1,000 of Revenue in excess of £2,815,000 subject to a maximum payment of £600,000.
Acquisition related costs amounting to £101,000 have been excluded from the consideration transferred and have been recognised as
an expense in the current year, within the ‘Non-recurring costs’ line item in the consolidated statement of comprehensive income.
In addition to the consideration above, Instem plc has advanced £200,000 to Instem Scientific Limited in the form of working capital and
assumed £500,000 of debt from Instem Scientific. This is included within trade and other receivables.
Instem plc Annual Report, 2011 45
NOTES TO THE FINANCIAL STATEMENTS
11. Business Combinations (continued)
Fair value of assets acquired and liabilities recognised at the date of acquisition
Instem Scientific Limited
£000
Non-Current Assets
Intellectual property
Customer Related Assets
Software
Patents
Property, plant and equipment
Deferred Tax on losses brought forward
Current Assets
Trade and other receivables
Cash and cash equivalents
Current Liabilities
Trade and other payables
Financial liabilities
Non-Current Liabilities
Deferred Tax on acquisition
819
325
79
21
1
405
131
141
(851)
(544)
(336)
191
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets acquired
Goodwill arising on acquisition
Instem Scientific Limited
£000
689
(191)
498
Goodwill arose on the acquisition of Instem Scientific Limited because the premium paid by the Company reflects the expected benefit
of synergies, revenue growth and future market development. Instem Scientific Limited was acquired to expand and enhance the
Group’s product and service offering within the Global Life Sciences operating segment. These benefits have not been recognised
separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
Net cash outflow on acquisition
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow
Instem Scientific Limited
£000
(200)
141
(59)
46
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
11. Business Combinations (continued)
Impact of acquisition on the results of the Group
Included in the profit for the year is £224,000 attributable to the additional business generated by Instem Scientific Limited. Revenue for
the year includes £1,157,000 in respect of Instem Scientific Limited.
Had this business combination been effected at 1 January 2011, the revenue of the Group from continuing operations would have been
£11,009,000, and the profit for the year from continuing operations would have been £1,056,000. The directors consider these numbers
to represent an approximate measure of the performance of the combined Group on an annualised basis and to provide a reference
point for comparison in future years.
12. Property, Plant and Equipment
Group
Short leasehold
Plant and
property
equipment
Motor vehicles
£000
£000
£000
Cost
At 1 January 2010
Additions
Disposals
Exchange adjustment
At 31 December 2010
Additions
Disposals
Acquisitions through business
combinations
Exchange adjustment
At 31 December 2011
Depreciation
At 1 January 2010
Depreciation expense
Eliminated on disposals
Exchange adjustment
At 31 December 2010
Depreciation expense
Eliminated on disposals
Exchange adjustment
At 31 December 2011
Net book value
At 31 December 2010
At 31 December 2011
30
15
-
-
45
8
2,989
96
(251)
13
2,847
144
(48)
(1,495)
-
-
5
18
2
-
-
20
15
(35)
-
-
25
5
1
4
1,501
2,874
73
(251)
10
2,706
101
(1,492)
3
1,318
141
183
12
-
-
-
12
-
-
-
-
12
12
-
-
-
12
-
-
-
12
-
-
Total
£000
3,031
111
(251)
13
2,904
152
(1,543)
1
4
1,518
2,904
75
(251)
10
2,738
116
(1,527)
3
1,330
166
188
The net book value of plant and equipment includes £nil (2010: £nil) in respect of assets held under finance leases. Depreciation for the
period on these assets was £nil (2010: £8,000).
Instem plc Annual Report, 2011 47
NOTES TO THE FINANCIAL STATEMENTS
13. Inventories
Group
Work in progress
Total gross inventories
Inventory impairment
14. Trade and Other Receivables
Group
Trade receivables
Amount recoverable on contracts
Other receivables
Prepayments and accrued income
Company
Amounts owed by group companies
Other receivables
2011
£000
93
93
-
93
2011
£000
2,008
590
15
416
3,029
700
53
2010
£000
137
137
-
137
2010
£000
668
291
32
604
1,595
-
64
A provision for impairment is made where there is objective evidence of impairment which is usually indicated by a delay in the expected
cash flows or non-payment from customers.
An analysis of the provision for impairment of
receivables is as follows:
At beginning of year
Charge for the year
At end of year
2011
£000
2
4
6
2010
£000
2
-
2
The average credit period taken on sale of goods is 48 days (2010: 33 days). No interest is charged on overdue receivables.
Before accepting any new customer, the Group obtains relevant credit references to assess the potential customer’s credit quality.
Credit limits are defined by customer.
The directors consider that the carrying amount of trade and other receivables approximates to their fair value.
48
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
14. Trade and Other Receivables (continued)
The age profile of the net trade receivables for the Group at the year-end was as follows:
Group
2010
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables
Value (£000)
%
Group
2011
Trade receivables
Value (£000)
%
834
87
98
10
16
2
11
1
959
100
Debt age
Current
0-30
days
31-60
days
Over 60
days
1,896
73
440
17
246
9
16
1
Total
2,598
100
An analysis of trade and other receivables by currency is as follows:
Sterling
Euro
US Dollar
Renminbi
Hong Kong Dollar
2011
£000
1,544
186
1,150
148
1
3,029
2010
£000
714
31
838
12
-
1,595
Instem plc Annual Report, 2011 49
NOTES TO THE FINANCIAL STATEMENTS
15. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
2011
£000
12,280
(8,912)
3,368
2010
£000
12,085
(8,822)
3,263
2,102
3,100
The Group overdraft facility has a net limit of £2,000,000 and gross facility of £9,000,000. Interest is charged on the bank overdraft at
2.75% above base rate up to the above limit and 6% above base rate on any remainder. The bank overdraft is secured by fixed and
floating charges over certain of the Group’s assets. All balances are denominated in Sterling. The overdraft facility is renewable in June
2012.
An analysis of cash and cash equivalents by currency is as follows:
Group
Sterling
Euro
US Dollar
Other
Company
Sterling
The carrying amount of these assets approximates to their fair value.
16. Trade and Other Payables
Group - Current
Trade payables
Other taxation and social security costs
Other payables
Accruals and deferred income
Company - Current
Trade payables
Group payables
Other payables
Accruals and deferred income
50
Instem plc Annual Report, 2011
2011
£000
2,032
100
1,114
122
3,368
2,102
2011
£000
404
163
152
6,875
7,594
40
103
411
19
573
2010
£000
2,654
136
394
79
3,263
3,100
2010
£000
257
123
29
5,127
5,536
37
29
-
-
66
NOTES TO THE FINANCIAL STATEMENTS
16. Trade and Other Payables (continued)
An analysis of trade and other payables by currency is as follows:
Group
Sterling
US Dollar
Renminbi
Hong Kong Dollar
Company
Sterling
2011
£000
3,878
3,590
124
2
7,594
573
2010
£000
2,444
3,022
70
-
5,536
66
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their short maturities.
Trade payables are mainly due to be paid within one month.
17. Current Taxation
The Group current tax receivable of £64,000 (2010: payable £85,000) represents the amount of income taxes receivable/(payable) in
respect of current and prior years.
18. Financial Liabilities
Group and Company
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
2010
£000
£000
£000
£000
£000
£000
£000
Series B Loan Notes
Loan Note
253
-
253
253
-
253
-
-
-
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
2011
£000
£000
£000
£000
£000
£000
£000
Series B Loan Notes
Loan Note
-
500
500
-
250
250
-
250
250
-
-
-
-
-
-
-
-
-
-
-
-
Series B Loan Notes
The Series B Loan Notes were issued on 5 October 2010. The notes are unsecured and bear interest at the rate of 1.75% above bank
base rate. The loan notes plus accrued interest were repaid in full on 13 October 2011.
Instem plc Annual Report, 2011 51
NOTES TO THE FINANCIAL STATEMENTS
18. Financial Liabilities (continued)
Loan Note
The Loan Note was issued on 3 March 2011. The loan note is unsecured and bears interest at the rate of 7%.
Due to the short maturity the directors believe the carrying value approximates to fair value.
There is a debenture in favour of National Westminster Bank Plc, dated 13 April 2011, secured over the assets of the group by way of
fixed and floating charges.
19. Financial Instruments
All financial instruments held by the Group, as detailed in this note, are classified 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 financial liabilities) and “Fair value through profit and loss” (other financial liabilities
which reflect derivative contracts) under IAS 39 ‘Financial Instruments: Recognition and Measurement’.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks including market risk, credit risk and liquidity risk. Market risk includes
interest rate risk, foreign exchange rate risk and price risk. The main financial 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 financial performance of the Group by
using various instruments and techniques. Derivative financial instruments 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 financial 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 inflows and outflows in
this currency that create a natural hedge.
In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s cash inflows and outflows in a
foreign currency. The Group also hedges any material foreign currency transaction exposure. During the prior year the Group entered
into US dollar hedging arrangements with fixed 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 2011 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 profit 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 2011 indications are that the UK bank rate will remain at 0.5% over the next 12 months. On the basis of the floating
net cash position at 31 December 2011 and assuming no other changes occur (such as changes in currency exchange rates) and that
no further interest rate management action is taken, the stable interest rates will not have an impact on net interest income/(expense).
52
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
19. Financial Instruments (continued)
2010
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
2011
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan Note
2010
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
2011
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
Fixed
rate
£000
-
-
-
-
-
Fixed
rate
£000
-
-
-
(500)
(500)
Fixed
rate
£000
-
-
-
-
-
Fixed
rate
£000
-
-
-
(500)
(500)
Floating
Non-interest
rate
£000
-
3,067
-
(253)
2,814
bearing
£000
1,595
196
(5,536)
-
(3,745)
Floating
Non-interest
rate
£000
-
3,368
-
-
3,368
bearing
£000
3,029
-
(7,594)
-
(4,565)
Floating
Non-interest
rate
£000
-
3,100
-
(253)
2,847
bearing
£000
64
-
(66)
-
(2)
Floating
rate
Non-interest
bearing
£000
500
2,102
-
-
2,602
£000
253
-
(573)
-
(320)
Total
£000
1,595
3,263
(5,536)
(253)
(931)
Total
£000
3,029
3,368
(7,594)
(500)
(1,697)
Total
£000
64
3,100
(66)
(253)
2,845
Total
£000
753
2,102
(573)
(500)
1,782
Instem plc Annual Report, 2011 53
NOTES TO THE FINANCIAL STATEMENTS
19. Financial Instruments (continued)
Credit risk
Management aim to minimise the risk of credit losses.
The Group’s financial assets are bank balances and cash and trade and other receivables, which represent the Group’s maximum
exposure to credit risk in relation to financial 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 flows. An allowance for impairment is
made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the
cash flows. The Group had a significant concentration of credit risk in the prior year:
2010
Customer A - £223,220 (23%)
2011
No individual customers in 2011 accounted for 10% or more of total credit risk.
The Group’s exposure to losses from defaults on trade receivables is reduced due to contractual terms which require installation,
training, annual licensing and support fees to be invoiced and paid annually in advance.
Note 14 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 financial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial commitments as they fall due.
The Group’s objective is to ensure that adequate facilities are available through use of bank overdrafts and finance leases. The Group
manages liquidity risk through regular cash flow forecasting and monitoring of cash flows, management review and regular review of
working capital and costs.
The Group regularly monitors its available headroom under its borrowing facilities. At 31 December 2011, £2.0m of undrawn facilities
was available (2010: £1.2m).
In respect of the Group’s interest-bearing financial liabilities, the table in note 18 includes details at the reporting date of the periods in
which they mature.
54
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
20. Derivative Financial Instruments
The Group utilises derivatives to hedge its foreign currency exposure arising from future transactions and cash flows. During the prior
year the Group entered in to an accrual forward contract to exchange $25,000 per month at an agreed rate of $1.456/£1 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 Group is
committed to exchange a further $25,000 at $1.395/£.
The fair value of the derivative at 31 December 2011 is £nil (2010: £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 financial 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 is as
follows:
US Dollars
21. Deferred Tax
2011
$000
-
2010
$000
275
Group
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
31 December 2011
31 December 2010
£000
-
404
-
(125)
279
£000
-
431
-
(110)
321
The movement in the year in the Group’s net deferred tax position was as follows:
At beginning of the year
Charge to income for the year
Credit to other comprehensive income for the year
Effect of change in tax rate – equity
Recognised on acquisitions
Other
At end of the year
31 December 2011
31 December 2010
£000
321
(177)
98
(30)
69
(2)
279
£000
297
(123)
157
(10)
-
-
321
Instem plc Annual Report, 2011 55
NOTES TO THE FINANCIAL STATEMENTS
21. Deferred Tax (continued)
The following are the major deferred tax assets and liabilities recognised by the Group and the movements thereon during the year:
Deferred tax asset/(liabilities)
depreciation
Accelerated tax
At 1 January 2010
Charge to profit or loss for the year
Charge to equity for the year
£000
(50)
(54)
-
At 31 December 2010
(104)
Charge to profit or loss for the year
Charge to equity for the year
(88)
28
Recognised on acquisitions
(336)
At 31 December 2011
(500)
Tax losses
£000
Retirement
benefit
obligations
£000
45
(19)
-
26
(26)
(30)
405
375
302
(50)
147
399
(63)
68
-
404
Total
£000
297
(123)
147
321
(177)
66
69
279
22. Retirement Benefit Obligations
Defined contribution pension scheme
The Company has four active defined contribution schemes and a closed defined 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 year ended 31
December 2011 were £0.39m (2010: £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 2011 were £0.03m (2010: £0.03m).
Instem LSS (North America) Limited 401k Plan - the scheme was created for the benefit 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 2011 were £nil (2010: £nil).
BioWisdom GPP Scheme - the Scheme is a Group Personal Pension arrangement with Winterthur Life (now part of Friends Life) and
was set up in 2001. The employee must contribute at least 3% of basic salary and the employer contributes up to a maximum of 6%.
Employer contributions for the period ended 31 December 2011 were £0.03m.
56
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
22. Retirement Benefit Obligations (continued)
Defined benefit pension scheme
The Group also operates a pension scheme providing benefits based on final pensionable pay. This scheme was closed to new
members with effect from 8 October 2001 and the rate of future benefit accrual reduced from 1/60th of final 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 2011 by a qualified independent
actuary.
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 reporting date whilst the expected returns
on the equity and property investments reflect 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
Life Expectancy assumptions
Male currently aged 45
Female currently aged 45
Male currently aged 65
Female currently aged 65
ANALYSIS OF AMOUNT CHARGED TO PROFIT OR LOSS
Current service cost
Past service cost
Total operating charge
ANALYSIS OF AMOUNT CHARGED TO OTHER FINANCE COSTS
Expected returns on pension scheme assets
Interest on pension scheme liabilities
Net finance charge
ANALYSIS OF AMOUNT RECOGNISED IN OTHER 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
2011
%
5.4
5.3
3.1
N/A
3.1
3.1
24.4
26.8
22.5
24.9
2011
£000
-
-
-
2011
£000
334
(394)
(60)
2011
£000
(480)
-
88
Actuarial loss recognised in other comprehensive income
(392)
2010
%
5.8
6.1
3.6
N/A
3.6
3.6
24.3
26.7
22.4
24.8
2010
£000
-
-
-
2010
£000
326
(356)
(30)
2010
£000
235
(77)
(734)
(576)
Instem plc Annual Report, 2011 57
NOTES TO THE FINANCIAL STATEMENTS
22. Retirement Benefit Obligations (continued)
CHANGES IN THE PRESENT VALUE OF THE DEFINED
BENEFIT OBLIGATION
Opening defined benefit obligation
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
2011
£000
6,956
394
(88)
(316)
6,946
2011
£000
5,479
334
(480)
313
(316)
5,330
2011
£000
(6,946)
5,330
(1,616)
404
(1,212)
2010
£000
5,893
356
811
(104)
6,956
2010
£000
4,812
326
235
210
(104)
5,479
2010
£000
(6,956)
5,479
(1,477)
399
(1,078)
58
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
22. 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 recognised in other
comprehensive income
Cumulative
Cumulative
2011
£000
(531)
(910)
678
(763)
2010
£000
(51)
(910)
590
(371)
%
74
2
8
4
11
1
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2011
2010
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
3,838
107
426
586
320
53
%
72
2
8
11
6
1
£000
4,054
110
438
219
603
55
5,330
100
5,479
100
The five year history of experience adjustments are as follows:
2011
£000
2010
£000
2009
£000
2008
£000
2007
£000
Present value of defined benefit
obligation
(6,946)
(6,956)
(5,893)
(4,901)
(6,303)
Fair value of plan assets
5,330
5,479
4,812
3,752
4,335
Deficit
(1,616)
(1,477)
(1,081)
(1,149)
(1,968)
Experience adjustments on plan
liabilities
Experience adjustments on plan
assets
-
(480)
(77)
235
(18)
557
(431)
(31)
(1,390)
(7)
The Group expects to contribute £321,000 to its defined benefit plans in the next financial year (2011: £313,000).
Instem plc Annual Report, 2011 59
NOTES TO THE FINANCIAL STATEMENTS
23. Share Capital
Allotted, called up and fully paid
11,714,286 ordinary shares of 10p each
1,171
1,171
2011
£000
2010
£000
Under the pooling of interests basis the share capital as at 5 October 2010 is deemed to have been in existence throughout the years
presented.
24. Earnings Per Share
Basic earnings per share is calculated by dividing the profit 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)
2011
Weighted
average
number of
shares (000’s)
Earnings per
Profit after tax
2010
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
1,006
11,714
-
134
1,006
11,848
8.6
(0.1)
8.5
901
-
901
7,698
23
7,721
11.7
-
11.7
60
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
24. Earnings Per Share (continued)
Adjusted earnings per share
2011
Weighted
average
Profit after tax
Earnings per
Profit after tax
2010*
Weighted
average
Earnings per
(£000)
number of
share (pence)
(£000)
number of
share (pence)
shares (000)
shares (000)
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 - Basic
Potentially dilutive
shares
Adjusted earnings per
share-diluted
1,006
11,714
88
21
(6)
-
-
-
1,109
11,714
-
134
1,109
11,848
8.6
0.7
0.2
-
9.5
(0.1)
9.4
7,698
11.7
901
21
683
(191)
-
-
-
1,414
7,698
-
23
0.3
8.9
(2.5)
18.4
-
1,414
7,721
18.4
* Following the Initial Public Offering in October 2010 the Company had 11,714,286 shares in issue for the short period up to the end of
the financial year. On a comparable basis with 2011, if those shares had been in issue for the full 12 months during 2010, the weighted
average number of shares in issue would have been 11,714,286 and the comparable basic earnings per share would have been 7.7p.
25. 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 financial information to the presentational currency of Sterling (£).
Retained earnings
The retained earnings reserve includes the accumulated profits 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 Life Science Systems Limited (formerly Instem LSS Group Limited).
Shares to be issued
The shares to be issued reserve represents the shares to be issued under the share option scheme and shares contingently issuable on
acquisitions.
Instem plc Annual Report, 2011 61
NOTES TO THE FINANCIAL STATEMENTS
25. Reserves (continued)
Capital management
The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade
profitably in the foreseeable future. The Group also aims to maximise the capital structure of debt and equity so as to minimise its cost
of capital.
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 net of cash and cash equivalents.
The Group has not made any changes to its capital management during the year.
26. Capital Commitments
There were no capital commitments at the end of the financial year (2010: £nil).
27. Operating Leases Payable
Minimum lease payments under operating leases recognised as
an expense in the year
At the reporting 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
2011
£000
416
2011
£000
363
1,048
863
61
2
-
2010
£000
446
2010
£000
334
1,220
1,411
119
65
-
2,337
3,149
Operating lease payments represent rentals payable by the Group for certain property and 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 lease in relation to the head office buildings contain a dilapidation clause whereby Instem plc must make good any
damage to the demised premises on expiration of the lease in November 2023. The directors’ estimate that the current liability is not
material to warrant provision at the period end.
62
Instem plc Annual Report, 2011
NOTES TO THE FINANCIAL STATEMENTS
28. Related Party Transactions
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation of the financial
statements. During the year the Company traded with subsidiary companies in its normal course of business. These transactions
related to loans and recharges and totalled in aggregate £534,000 credit. The intercompany balances due to the Company at the year
end totalled £597,000.
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:
31 December
31 December
2011
£000
2010
£000
Fees for services provided as non-executive directors
Salaries, short term benefits and post retirement benefits
Employers National Insurance & Social Security costs
Executive directors
Salaries, short term benefits and post retirement benefits
Employers National Insurance & Social Security costs
Other key management
Salaries, short term employee benefits and post
retirement benefits
Employers National Insurance & Social Security costs
117
10
251
14
372
31
380
49
285
18
269
21
In addition the Company and Group paid £0.05m (2010: £0.02m) to Instem Ventures, a company owned by Adrian Gare, a shareholder.
The balance outstanding at the end of the year was £0.01m (2010: £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 and the Chief Scientific Officer.
29. Accounting Estimates and Judgements
Some asset and liability amounts reported in the financial information are based on management estimates and assumptions. There
is therefore a risk of significant changes to the carrying amounts for these assets and liabilities within the next financial 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 specific contract by
contract basis based on management’s prior experience and their assessment of the present value of estimated future cash flows.
Receivables impairment provisions
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 flows.
Pension valuation assumptions
Assumptions are used in the actuarial valuation of the Group’s defined benefit pension schemes. Details of these assumptions are
disclosed in note 22.
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 flows that are
independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets are amortised over their useful lifes, which has been estimated by management to be 5 years.
Instem plc Annual Report, 2011 63
NOTES TO THE FINANCIAL STATEMENTS
30. Post Balance Sheet Events
On 8 March 2012 the Company issued 50,371 ordinary shares in part settlement of the first tranche of contingent consideration on the
acquisition of Instem Scientific Limited.
64
Instem plc Annual Report, 2011
Company Statement of Comprehensive Income
Year ended
Year ended
31 December 2011
31 December 2010
REVENUE
Operating expenses
LOSS FROM OPERATIONS BEFORE AMORTISATION
Amortisation of intangibles
£000
-
(435)
(435)
-
LOSS FROM OPERATIONS
(435)
Finance income
Finance costs
Non-recurring costs
LOSS BEFORE TAXATION
Income tax expense
LOSS FOR THE FINANCIAL YEAR
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR
LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE EXPENSE ATTRIBUTABLE TO EQUITY HOLDERS OF THE
PARENT COMPANY
This page does not form part of the statutory financial statements.
42
(48)
(101)
(542)
-
(542)
(542)
(542)
(542)
£000
-
(344)
(344)
-
(344)
6
(3)
-
(341)
-
(341)
(341)
(341)
(341)
Instem plc Annual Report, 2011 65
NOTES
66
Instem plc Annual Report, 2011
NOTES
Instem plc Annual Report, 2011 67
NOTES
68
Instem plc Annual Report, 2011
Directors and Advisers
DIRECTORS
D Gare (Non-Executive Chairman)
MF McGoun (Independent Non-Executive)
DM Sherwin (Non- Executive)
PJ Reason
NJ Goldsmith
SECRETARY
NJ Goldsmith
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
BANKERS
Nat West Bank
1 Spinningfields Square
Manchester
M2 3AP
NOMINATED ADVISER AND BROKER
Nplus1 Brewin LLP
12 Smithfield Street
London
EC1A 9BD
CORPORATE FINANCIAL ADVISERS
Rickitt Mitchell & Partners Limited
Centurion House
129 Deansgate
Manchester
M3 3WR
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: +1 (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 Group employs over 110 people in seven offices in the US,
UK, China and India; with a full service distributor in Japan.
e-mail
investors@instem.com
instem.com