Instem plc
Annual Report
2012
Instem is a leading supplier of IT applications to the early development healthcare market
delivering compelling solutions for data collection, management and analysis across the R&D
continuum. Instem applications are in use by customers worldwide, meeting the rapidly
expanding needs of life science and healthcare organisations for data-driven decision making
leading to safer, more effective products.
Instem’s portfolio of software solutions increases client productivity by automating study-related
processes while offering the unique ability to generate new knowledge through the extraction
and harmonisation of actionable scientific information.
Instem supports its clients through full service offices in the United States, United Kingdom and
China with additional locations in India and a full service distributor based in Japan.
Our clients include these fine organisations...
Contents
HIGHLIGHTS
CHAIRMAN’S STATEMENT
OPERATIONAL REVIEW
FINANCIAL REVIEW
BOARD OF DIRECTORS
DIRECTORS’ REPORT
CORPORATE GOVERNANCE STATEMENT
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF INSTEM 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
DIRECTORS AND ADVISERS
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Instem plc Annual Report, 2012
Highlights
Financial Highlights
Operational Highlights
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Customer retention rate remained strong at over
95%
A number of prestigious contract wins including:
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The US National Institute of Allergy and
Infectious Diseases (NIAID)
JOINN Laboratories, China’s largest provider of
pre-clinical studies
Advinus Therapeutics and Lupin Limited in
India
• One of the world’s largest Biopharmaceutical
organisations
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A leading Japanese pharmaceutical company
Improvements to the product set through the
release of Provantis® 9, the next generation of
our leading pre-clinical drug safety data collection
software, Provantis Portal for remote data access,
Omniviz® 6.1, an upgraded version of our visual
data analytics platform, further modules in the
Centrus™ suite and Logbook™, our paperless
solution for laboratory and other data recording
A significant post year end US government contract
win for Provantis 9, announced in late February
2013, with the National Institute of Environmental
Health Sciences committing to an agreement lasting
up to ten years
* Operating profit before amortisation, share based payment and
non-recurring items.
•
Revenues of £10.7m (2011: £10.8m)
•
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Recurring revenues accounted for 70% of total
revenues (2011: 70%)
SaaS (Software as a Service) revenue up 12%
to £1.1m (2011: £1.0m)
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Adjusted operating profit* £1.5m (2011: £2.0m) in
line with revised market expectations
Reported profit before tax £1.3m (2011: £1.5m)
Basic earnings per share 8.9p (2011: 8.6p)
Closing cash balance as at 31 December 2012 of
£2.5m (2011: £3.4m)
The market inertia experienced earlier in
2012 now appears to be largely resolved, with
several new contracts secured in December
and in the first quarter of 2013. North America
and the emerging markets appear to be the
most buoyant, offsetting continuing difficult
conditions in Europe. While Provantis sales are
anticipated to continue to deliver the majority of
revenues to the Group for some time, the growing
interest in our Centrus and translational science
capabilities offers additional revenue avenues
for the future.
Instem is a robust business, with net cash and
a valuable customer base delivering high levels
of recurring revenue. The business has been
developed extensively in the last few years and
is continuing to increase its strong global market
share. We believe Instem continues to be well
positioned to take advantage of the structural
changes in the processes of drug development
that are currently taking place. Both the
regulatory and fiscal environments continue to
be favourable to Instem, driving demand for all
areas of our product suite.
Phil Reason,
Chief Executive
Instem plc Annual Report, 2012 3
GLOBAL EXPANSION
“Operations now span the US, UK, India and
China, and notable customer wins were secured
in each of these regions during the year.”
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Instem plc Annual Report, 2012
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Chairman’s
Statement
Against a challenging market environment, created
by global economic concerns on the one hand and
the rapidly changing structure of drug development
processes on the other, Instem has delivered a solid
set of results for the year. The Group has further
consolidated its leading position in the early
development application market and extended its
penetration across its customer base, as well as
establishing new relationships with some of the most
notable global leaders in the pharmaceutical market.
Delays, caused by customer uncertainties in the face of
strategic changes in the market, impacted the level of
new licence sales, particularly in the first half of 2012.
However a strong final quarter ensured revenues were
broadly flat year-on-year at £10.7m (2011: £10.8m)
and several delayed contracts have been signed post
period end. A small increase in internal cost to support
the completion and release of Provantis 9, together with
increased third party costs due to the successful launch
of Logbook, led to a decrease in adjusted operating profit
to £1.5m (2011: £2.0m). This was in line with the revised
market expectation.
The Group continues to benefit from its substantial
recurring revenue base, of approximately £7.5m (on
an annualised basis), and enjoys a high and sustained
customer renewal rate of over 95%. Taken together
with a healthy opening order book, this provides a solid,
profitable and cash-generative platform from which to
continue to develop the business.
Strong operational progress was made in the year. In
particular the Group extended its geographical footprint,
establishing a wholly owned subsidiary in Pune, India,
providing additional software development and support
resource. Operations now span the US, UK, India and
China, and notable customer wins were secured in each
of these regions during the year. Over 87% of Instem’s
revenue now comes from territories outside the UK
(2011: 87%).
Instem continues to execute against this strategy and
in 2012 was pleased to launch planned major new
releases of Provantis, OmniViz, the Provantis Portal,
and further Centrus modules. In addition, we were
able to add Logbook to our offering via a partnership
with Trimetra. Partnering and complementary product
introductions such as this have the ability to increase
Instem’s addressable marketplace and will continue to
be a focus for the Group going forward. The year saw an
encouraging level of sales across the enlarged product
suite to both existing and new customers.
Provantis 9, which delivers significant operational
efficiencies in Clinical Pathology laboratories, received
very positive feedback from its early adopter Roche
and all of the other high profile beta test clients. This
product generated new licence and upgrade revenue in
2012 and excellent opportunities for 2013.
Post year end, the Group announced that Provantis
had been selected as the IT platform for the National
Toxicology Program being managed by the US
Government. This is a substantial multi-year Software-as-
a-Service contract and endorses Instem’s leading market
position.
I would like to thank all our employees across the Group
for their continued enthusiasm and commitment, as
it is their efforts that provide Instem with its strong
reputation and leading market position.
While the structural changes in the market continue
to impact purchasing decisions at large pharma, there
were signs towards the end of the year of increasing
confidence amongst pharma and Contract Research
Organisations (CROs), particularly within the US and
emerging markets. We believe that Instem is well
positioned to meet the needs of our customers in this
changing environment and look forward to a positive
2013.
A core element of the Group’s strategy is the extension
of the range of solutions it can offer its customer base.
D Gare
Chairman
Instem plc Annual Report, 2012 5
MARKET LEADERSHIP
“Instem continues to extend its footprint within
existing clients and across the industry as a whole,
outperforming its competitors in product and
performance evaluations.”
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Instem plc Annual Report, 2012
Operational
Review
Whilst the major structural changes underway within
the pharmaceutical market are, we believe, to Instem’s
long term advantage, they created uncertainty in 2012,
delaying order placement. This was particularly the case
in Europe, where revenues were down 13% on the prior
year. The US and emerging markets were less affected
and, by the end of 2012, pharmaceutical customers in
these regions were making commitments - with Instem
enjoying favourable outcomes in the majority of bidding
situations. After they had endured a very challenging
2011, there was also a notable increase in business
in the year from our CRO clients. Some of the largest
CROs made significant purchases of additional products,
whilst the smaller ones added more user licences - an
encouraging sign that study volumes are starting to
increase.
It is pleasing to report that throughout the year, the
Group successfully increased its penetration in overseas
markets and secured several new clients. A number of
new product introductions and releases were made
in 2012 and all of these generated new sales in the
year and contributed to a solid pipeline for 2013. As
in previous years, the majority of new contracts and
contract renewals were secured in the second half
of 2012, consequently, the majority of associated
implementation services and product support revenue
will be recognised in 2013.
The Group’s substantial recurring revenue base continues
to provide a solid and cash generative platform for the
expansion of an increasingly global business.
Customer Wins and Renewals
As the leader in its field, Instem continues to extend its
footprint within existing clients and across the industry
as a whole, outperforming its competitors in product
and performance evaluations. Instem has once again
maintained its high level of Provantis renewals in the
year, with the rate remaining 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, in comparison with the first half, with
the final quarter once again being the strongest.
Traditional perpetual licences for on-premise
deployment signed during the year included the
purchase of Provantis in November 2012 by the
National Institute of Allergy and Infectious Diseases
(NIAID), part of the National Institutes of Health (NIH).
This purchase by a US government agency represents a
good opportunity for the Group, particularly as the NIH
invests over $30 billion annually in medical research.
A prestigious contract was won in December 2012
with a top 10 biopharmaceutical organisation, which
purchased multiple modules of the Centrus software
suite, including the Standard for Exchange of Nonclinical
Data (SEND). This represents the most comprehensive
suite of Centrus modules purchased to date. Additionally,
in December 2012, Instem secured a multi-year contract
extension with its largest client, a leading CRO, worth
an annual seven-figure US Dollar amount. The CRO not
only extended the existing contract but also purchased
additional Instem products and services with a value in
excess of $400,000, underlining its confidence in Instem.
As well as securing customers for traditional licences,
Instem also saw further uptake of its software deployed
via the Software as a Service (SaaS) business model.
SaaS and hybrid SaaS options continue to prove to be
an increasingly popular choice for organisations of all
sizes. Total SaaS revenue for 2012 was up 12% to £1.1m
(2011: £1.0m).
Several smaller US and European CROs extended
their agreements with Instem in the period by adding
additional user and module licences; these included
Champions, PSL, Jackson and Vivotecnia. There was also
a step-up in upgrade projects to Provantis 9 with orders
from Advinus and Lovelace.
Instem plc Annual Report, 2012 7
OPERATIONAL REVIEW
Increased Global Presence
Instem’s increased global reach has provided the Group
with a strong competitive advantage and we continue to
tender and successfully win projects with organisations
located in all territories where early development
research facilities are based. In late 2009, Instem
embarked on a strategy to broaden its global presence
beyond the more traditional markets of North America,
Europe and Japan to the emerging economies. In 2010,
our Chinese operation was established, and during
2012 we were pleased to also launch the Group’s Indian
operations out of Pune. 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.
The Indian office provides the ability to scale-up
development and support resources flexibly in response
to demand. In the longer term, it is planned that this
operation will also enable the Group to provide sales
and services locally in the region. During the year we
were pleased to increase our penetration in this region
by gaining a new client, Lupin Pharmaceuticals, and
also by securing an upgrade with an existing customer,
Advinus Therapeutics.
In China, Instem continued to achieve new contracts
including the prestigious sale of Provantis to JOINN
Laboratories, China’s largest provider of preclinical
studies. The system will automate processes within its
China-based facilities located in Beijing and Suzhou.
Through its highly successful Japanese distributor
CTCLS, Instem signed a contract in the first half of 2012
with one of Japan’s leading pharmaceutical companies
for a comprehensive suite of Provantis modules.
Instem Scientific
Instem Scientific has leveraged its strong client base,
technology and service offerings in omics research, data
integration and visual analytics to deliver information
solutions for translational science. This is a growing area
of the life sciences market as companies look to re-use
data in the development of new drugs, chemicals and
medical devices. Leveraging large volumes of historic
data collected by Instem’s flagship product Provantis,
and extending this across the full reach of the drug
development process, from discovery through to clinical
development, is one of the opportunities for Instem
Scientific solutions.
Instem Scientific continues to enjoy a high rate of
recurring revenue renewal across all product lines
reflecting the strong long-term partnerships with its life
science customers.
The Group continues to invest in this area of the
business, adding further expertise, marketing strength
and new product releases to improve performance and
functionality.
Product Development
Instem’s market leading study management product,
Provantis, continues to generate significant revenues for
the Group. In July 2012, Instem successfully delivered
Provantis 9, a major new release of its core product
suite. The release completed a significant, phased
multi-year product redevelopment, designed to further
enhance efficiencies and reduce study timelines while
supporting the changes in laboratory working practices
brought about by the structural changes in the pharma
market. It takes advantage of the latest capabilities
of the underlying Microsoft® and Oracle® platform
technologies. Unique Provantis capabilities that improve
operational efficiency and reduce study timelines are
proving key competitive differentiators.
Initial Provantis 9 uptake and future interest has been
encouraging. Early adopter Roche and a wider group of
high profile beta test clients have shared very positive
impressions of the new release, helping stimulate both
new client and existing client upgrade orders.
In late 2010, Instem launched Centrus, a software suite
that is complementary to Provantis but focused on the
areas of enterprise information integration in early
drug development, management and reporting. The
suite continues to build good momentum, particularly
the modules associated with the US Food and Drug
Administration sponsored Standard for the Exchange of
Non-clinical Data (SEND).
The Group’s leading position in this developing area
was underlined in February 2012 when Instem was
recognised for its outstanding contribution to SEND
at the Interchange North America event organised
by CDISC, the Clinical Data Interchange Standards
Consortium. The release of Centrus submitTM 3.1
immediately after the formal release of the SEND 3.0
standard continues Instem’s leadership in this area.
The Centrus pipeline continues to be healthy, and
Instem was pleased that in December 2012 it secured
a significant order with one of the world’s largest
biopharmaceutical organisations. This order represents
the most comprehensive suite of Centrus modules
purchased to date. Instem expects the SEND standard
to be a catalyst for the uptake of Centrus, as clients
prioritise investments that satisfy new regulatory
requirements and support increased study outsourcing.
In June 2012, Instem launched Logbook, via a
partnership with Trimetra. It achieved notable success,
by exceeding its anticipated revenue targets for the
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Instem plc Annual Report, 2012
OPERATIONAL REVIEW
year. Logbook replaces the last vestiges of client paper
data recording, improving operational efficiency and
facilitating electronic data access.
In October 2012 the Provantis Portal was launched,
enabling internal client staff or their external clients and
collaborators to access live study data securely. During
the year it was taken into use by a lead client, Jackson
Laboratories, and generated good opportunities for
further follow-on business.
Instem Scientific continues to focus on translational
informatics, harnessing its expertise in developing
solutions across the whole spectrum of pharmaceutical
R&D, but now with an added focus in Instem’s early
development market. In November 2012, version 6.1 of
OmniViz was released, bringing the full power of 64-bit
processing technology to a key component of their data
integration and bioinformatics suite. In particular this
facilitates the generation of new knowledge through the
extraction of actionable information across the research
and development continuum.
Market Overview
A typical drug can take 13-15 years from patent
registration to come to market, at an average cost of
approximately $1.3 billion, leaving a pharmaceutical
company just 5-7 years of remaining patent protection
following product launch to recover its investment.
Therefore there is a recognised need to increase
efficiencies and reduce costs. Instem’s established
software solutions increase efficiencies during drug
development by automating study management
processes. The addition of products through internal
development, revenue-share partnerships, and
acquisitions, serve to increase Instem’s addressable
markets. Alongside this is an increased tendency for
pharmaceutical companies 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 sustained demand for
high integrity data sharing solutions. We address this
need through our Centrus and broader Instem Scientific
suite of products.
Instem is ideally positioned to take advantage of
on-going changes within the global R&D market,
particularly in emerging markets such as China where
technology solutions are being sought to help reduce
development time, cut costs and improve operating
efficiency, and where little automation of processes has
taken place to date. There were also indications during
the year from the larger CROs that there is a modest
but sustained increase in activity levels as large pharma
begin to increase spend on drug development activities.
Additionally in 2012, Instem saw an increase in the
number of licences required by smaller US and European
CROs, an encouraging sign of increasing confidence in
these markets.
The majority of the leaders in the industry continue to
choose our software, and indeed advocate consolidation
in the disparate supplier marketplace. Since the Group
provides access to a blue chip client base and a global
network of support, sales and development, Instem is
seeing an appetite, from other suppliers, to partner with
the Group in complementary areas. We remain alert to
opportunities for partnered product developments and,
where appropriate, selective acquisitions.
Future Plans
Instem plans to continue to develop its business by
building on the three elements of the Instem product
set:
Instem Study Management
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Provantis; a suite of Study Management and Data
Collection modules that provide 75% of recurring
revenues annually and invariably captures a high
proportion of all new business placed in its market;
Centrus; a complementary Reporting, Analysis &
Submission product suite, that offers cross-selling
capabilities within the existing client base as well
as to potential new customers;
•
Instem Scientific
• Our translational science suite provides the ability
to aggregate, analyse and extract knowledge from
huge volumes of disparate internal and external
data, unlocking considerable additional value from
prior research investments; this positions us within
a valuable area of the pharmaceutical market.
Although Provantis sales are anticipated to continue
to deliver the majority of revenues to the Group for
some time, the growing interest in our Centrus and
translational science capabilities offers additional
avenues for future growth.
The Group has an impressive and longstanding customer
list of leading global pharmaceutical, chemical,
academic and government research organisations. The
IT supplier market is highly fragmented and Instem’s
customer base has indicated its preference to purchase
software from a smaller number of core suppliers,
of which Instem is one. Instem continues to pursue
relationships with other suppliers that would advance
this goal. An example is the partnership with Trimetra
which, for Instem, simultaneously enhances the Group’s
market position, complements existing products and
provides access to adjacent markets and for Trimetra
provides a route to market for their Logbook product.
Similar mutually beneficial relationships that provide
access to Instem’s blue chip client base and global
network, for organisations with relevant ‘market ready’
products, offer attractive growth possibilities and
increase Instem’s addressable market.
Instem plc Annual Report, 2012 9
outlook
“Instem continues to be well positioned to
take advantage of the structural changes in the
processes of drug development that are currently
taking place. Both the regulatory and fiscal
environments continue to be favourable to Instem,
driving demand for all areas of our product suite.”
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Instem plc Annual Report, 2012
Financial
Review
The financial results demonstrate a solid performance
in the year with total revenues steady at £10.7m (2011:
£10.8m). As described in the Chairman’s Statement, new
licence sales were lower in the first half of the year than
previously anticipated, but increased in the final quarter.
As a result only minimal revenue has been recognised
for implementation services and annual support and
maintenance from these contracts in 2012, with the
remainder to be recognised in 2013.
The business continued to expand in developing markets
with revenue from outside North America and Europe
increasing to £1.1m (2011: £0.9m), being 10% of Group
revenue (2011: 9%) with notable wins in India, China
and Japan.
Instem’s business model consists of fees for perpetual
licences, annual support, SaaS subscriptions and
professional services. As in the previous year,
approximately 70% of revenue was recurring in
nature, 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 $1.5888/£1.00 compared with an
average exchange rate in 2011 of $1.6014/£1.00.
The profit from operations before amortisation, share
based payment and non-recurring costs for the year was
£1.5m (2011: £2.0m). Operating expenses increased
in line with expectations by £0.4m over 2011 due to
a small increase in internal costs as Provantis 9 was
completed, together with increased third party costs due
to the successful launch of Logbook.
Amortisation increased by £0.1m over the equivalent
period in 2011 reflecting the increased investment in
intangibles including those assets acquired through the
purchase of Instem Scientific.
Development costs incurred in the period were £1.69m
(2011: £1.64m), of which £0.26m were capitalised
(2011: £0.26m).
Non-recurring costs include a charge of £0.1m in respect
of legal and professional fees associated with pursuing
acquisition opportunities, offset by a £0.24m write-back
of the provision for deferred contingent consideration in
respect of Instem Scientific.
In common with many businesses with a defined benefit
pension scheme, there was an increase in the funding
deficit during the period calculated in accordance with
the provisions of IAS19 that amounted to £1.4m (net
of deferred tax), which has been recognised in Other
Comprehensive Income/(Expense). This was a non-cash
charge in the period and arose primarily as a result of
lower discount rates used for calculation of the liabilities,
partially offset by higher expected returns on assets. As
part of the scheme’s triennial actuarial valuation as at 5
April 2011, the Group has agreed a schedule of payments
to the scheme with the trustees and the Pensions
Regulator that is designed to eliminate the funding
deficit over an eight year period. This involves a modest
increase of £0.1m in the Group’s current payments to
the scheme rising from £0.3m to £0.4m per annum from
2013. The defined benefit pension scheme has remained
closed to new members since 2000 and to future accrual
since 2008.
Cash generated from operations was £0.4m (2011:
£1.3m). The Group had cash reserves of £2.5m as at
31 December 2012, compared with £3.4m as at 31
December 2011. Cash flows related to a number of the
larger contracts which were signed in the final quarter of
2012 have been received in the first quarter of 2013.
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.
Instem plc Annual Report, 2012 11
FINANCIAL REVIEW
Principal 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 Group 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.
Outlook
The market inertia experienced earlier in 2012 now
appears to be largely resolved, with several new contracts
secured in December and in the first quarter of 2013.
North America and the emerging markets appear to be the
most buoyant, offsetting continuing difficult conditions in
Europe. While Provantis sales are anticipated to continue
to deliver the majority of revenues to the Group for some
time, the growing interest in our Centrus and translational
science capabilities offers additional revenue avenues for
the future.
Instem is a robust business, with net cash and a valuable
customer base delivering high levels of recurring revenue.
The business has been developed extensively in the last
few years and is continuing to increase its strong global
market share. We believe Instem continues to be well
positioned to take advantage of the structural changes
in the processes of drug development that are currently
taking place. Both the regulatory and fiscal environments
continue to be favourable to Instem, driving demand for
all areas of our product suite.
P J Reason
Chief Executive
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Instem plc Annual Report, 2012
BOARD OF DIRECTORS
David Gare
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
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
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 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
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 was founder and non-executive Chairman of Tikit Group plc prior to its disposal to BT plc in 2012.
Mike has been Chairman of Peakdale Molecular plc, a chemistry research organisation, since 2002.
David Sherwin
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, 2012 13
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Instem plc Annual Report, 2012
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The directors submit their report and the Group and
Company financial statements of Instem plc for the year
ended 31 December 2012.
Instem plc is a public listed company, incorporated and
domiciled in England, and quoted on the Alternative
Investment Market (AIM).
Principal Activities
The principal activity of the Group is the provision of world-
class 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. The principal
activity of the Company is that of a holding company.
The Group operates subsidiaries outside the EU in USA,
China, Hong Kong and India.
Review of the Business
In measuring the successful development of the business,
the directors focus on three important performance
indicators, which strongly underwrite the future
performance of the Group:
1. Total number of customers
In 2012 the Group had a total of 122 customers (2011: 121
customers) for continuing products.
2. Recurring revenue
The Group generates a substantial proportion of revenue
from fees in respect of annual support, hosting and routine
upgrade services. The value of these recurring fees in 2012
was £7.5m (2011: £7.5m).
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 Group
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.
Research and Development Activities
The Group continues its development programme of
software for the global pharmaceutical market, including
the research and development of new products and
enhancement to existing products. The directors consider
the investment in research and development to be
fundamental to the success of the business in the future.
In 2012 development expenditure was £1.69m (2011:
£1.64m) before capitalised expenditure of £0.26m (2011:
£0.26m).
Dividends
3. New product orders
The directors do not recommend the payment of a dividend.
In 2012 the value of orders from new products developed
and new markets entered during the preceding three years
amounted to £1.08m (2011: £0.40m).
A more detailed review of the development and
performance of the Group’s business during the year and its
position at the end of the year is set out in the Chairman’s
Statement and the Operational Review on pages 5 to 9.
Future Developments
The directors consider that the continued investment in
product and market development will allow the business to
Directors
The following directors held office during the year:
D Gare
M F McGoun
D M Sherwin
P J Reason
N J Goldsmith
Details of the directors’ service contracts and their
respective notice terms are detailed in the Remuneration
Committee report on page 20.
Instem plc Annual Report, 2012 15
DIRECTORS’ REPORT
Directors and Their Interests
The interests of the directors who held office at 31
December 2012 and up to the date of this report were
as follows:
of their duties or the exercise of their powers, including
but not limited to any liability for the costs of any legal
proceedings. The Group has purchased and maintains
appropriate insurance cover against legal action brought
against directors or officers.
No. of Shares
2012
2011
Annual General Meeting
The Annual General Meeting of the Company will
be held on 21 May 2013 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
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 s489 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
N J Goldsmith
Director and Company Secretary
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
19 April 2013
D Gare
2,278,427
2,278,427
D M Sherwin
1,580,066
1,580,066
P J Reason
665,287
665,287
M F McGoun
14,286
14,286
N J Goldsmith
-
-
Directors’ interests in share options are detailed in the
Remuneration Committee report on page 20.
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.
Politicial and Charitable Contributions
The Group made charitable contributions in the year of
£1,100 (2011: £1,324), matching contributions made by
employees to a Give As You Earn scheme. No political
donations were made in 2012 or 2011.
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 2012 represented 42 days of purchases
(2011: 61 days).
Financial Instruments
The Group’s objectives and policies on financial
instruments are set out in note 18 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 Group may
and has indemnified all directors and other officers
against liability incurred in the execution or discharge
16
Instem plc Annual Report, 2012
CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE
STATEMENT
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 auditor 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:
Audit Committee
The Audit Committee comprises M F McGoun (Chairman),
D Gare and D M 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 auditor of the Group. In addition, the Audit
Committee shall meet with the external auditor 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 the
external auditor, including considering the
appointment and remuneration of the external
auditor, 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
auditor including reviewing the external auditor
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
Non-Executive directors
D Gare
D M Sherwin
M F McGoun
7/7
7/7
7/7
7/7
7/7
3/3
3/3
3/3
3/3
3/3
2/2
1/1
2/2
2/2
2/2
1/1
-
1/1
1/1
1/1
Instem plc Annual Report, 2012 17
CORPORATE GOVERNANCE STATEMENT
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 Group; and
obtain, at the Group’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 M F McGoun
(Chairman), D Gare and D M Sherwin, all of whom are
non-executive directors of the Group.
The members of the Remuneration Committee are
appointed by the Board on recommendation from
the Nomination Committee, in consultation with the
Chairman of the Remuneration 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.
Board about the public disclosure of information
about the executive directors’ remuneration
packages and structures in addition to those
required by law or by the London Stock Exchange.
The Chairman of the Remuneration Committee
reports formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities. The Remuneration Committee produces
an annual report which is included in the Group’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.
The Remuneration Committee:
Nomination 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
remuneration of the executive directors is set by an
independent committee of the Board; and
considers and makes recommendations to the
e.
The Nomination Committee comprises D Gare
(Chairman), M F McGoun and D M Sherwin, all of whom
are non-executive directors of the Group.
Appointments to the Nomination Committee are made
by the Board, in consultation with the Chairman of the
Nomination Committee.
The Nomination Committee may invite any person
it thinks appropriate to join the members of the
Nomination Committee at its meetings. The Nomination
Committee meets at least once per year.
The Nomination Committee:
a.
regularly reviews the structure, size and
composition (including skills, knowledge and
experience required) of the Board compared to its
current position and makes recommendations to
the Board with regard to any changes;
b. gives full consideration to succession planning for
directors and other senior executives in the course
of its work, taking into account the challenges and
18
Instem plc Annual Report, 2012
meeting at the Group’s expense if the Nomination
Committee considers this reasonably necessary and
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
N J Goldsmith
Director and Company Secretary
19 April 2013
CORPORATE GOVERNANCE STATEMENT
c.
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; and
d. evaluates the balance of skills, knowledge and
experience on the Board before an appointment
is made and, in light of this evaluation, prepares a
description of the role and capabilities required for
a particular appointment.
The Chairman of the Nomination Committee reports
formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities.
The Nomination Committee also makes
recommendations to the Board concerning:
a.
formulating plans for succession for both executive
and non-executive directors and in particular
the key roles of Chairman of the Board and Chief
Executive 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
recommendation for which would be considered at
a meeting of the full Board.
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 Group’s expense when
the Nomination Committee reasonably believes it is
necessary to do so; and
instruct external professional advisers to attend any
Instem plc Annual Report, 2012 19
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
Performance Related Annual Bonus
Executive directors are eligible for a performance
related bonus based on Company 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. No bonuses were paid or
payable in respect of the year ended 31 December 2012
(2011: £nil).
Pensions
Company 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, D M Sherwin and M F McGoun each have a
contract with an initial three year term that commenced
in October 2010, with a notice period of 3 months
during or after expiry of that 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 M F McGoun. The terms of reference for
the Committee are to determine the Company’s policy
on executive remuneration and to consider and approve
the remuneration packages for directors and key
executives of the Company, subject to 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
are shown in note 6 to the financial statements.
Policy on Executive Director
Remuneration
The Company’s current and ongoing policy aims to
ensure that executive directors are rewarded fairly for
their individual contributions to the Company’s overall
performance and is designed to attract, retain and
motivate executives of the right calibre. The Committee
is responsible for recommendations on all elements
of executive remuneration including, in particular,
basic salary, annual bonus, share options and any other
incentive awards. In implementing the remuneration
policy, the Committee has regard to factors specific
to the Company, such as salary and other benefit
arrangements within the Company and the achievement
of the Company’s strategic objectives. The Committee
determines the Company’s policy on executive
remuneration with reference to comparable companies
of similar market capitalisation, location and business
sector.
Basic Salary
The basic salaries of executive directors are reviewed
annually having regard to individual performance and
position within the Company and are intended to be
competitive but fair using information provided from
both internal and external sources.
20
Instem plc Annual Report, 2012
DIRECTORS’ REMUNERATION REPORT
The emoluments paid to directors in the year ended 31 December 2012 were as follows:
Salary
Benefits
Pension
2012 Total
2011 Total
Executives
P J Reason
N J Goldsmith
J McLauchlan
Non-executives
D Gare
D M Sherwin
M F McGoun
£000
143
82
-
44
24
24
£000
£000
14
12
-
-
-
-
23
25
-
-
-
-
Total
317
26
48
Directors’ and Employees’ Share Options
£000
180
119
-
44
24
24
391
£000
175
18
58
44
49
24
368
Exercise
price(£)
Issue date
Held at 31
Dec 2011
Granted
During Year
Exercised
during Year
Lapsed
during Year
Held at 31
Dec 2012
P J Reason
Ordinary shares
N J Goldsmith
Ordinary shares
1.750
13/10/2010
187,428
2.215
29/11/2011
60,000
-
-
J McLauchlan & Estate
Ordinary shares
Employees
Ordinary shares
1.760
07/02/2012
-
20,000
1.750
13/10/2010
62,476
1.750
13/10/2010
304,569
2.220
03/03/2011
101,351
2.220
17/10/2011
22,000
-
-
-
-
1.115
23/10/2012
-
40,000
Total
737,824
60,000
-
-
-
-
-
-
-
-
-
-
187,428
(20,000)
40,000
-
20,000
(62,476)
-
-
-
304,569
101,351
(7,333)
14,667
-
40,000
(89,809)
708,015
Further detail of the terms of the option agreements is given in note 6.
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Chairman
Instem plc Annual Report, 2012 21
DIRECTORS’ RESPONSIBILITIES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
irregularities.
22
Instem plc Annual Report, 2012
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF INSTEM PLC
•
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
We have audited the group and parent company
financial statements (“the financial statements”) on
pages 24 to 62. 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.
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 BA FCA (Senior Statutory Auditor)
For and on behalf of BAKER TILLY UK AUDIT LLP,
Statutory Auditor
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
Scope of the audit of the financial
statements
22 April 2013
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.
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’s affairs as
at 31 December 2012 and of the Group’s profit for
the year then ended;
the Group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union;
the parent 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
•
•
Instem plc Annual Report, 2012 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2012
Year ended
Year ended
31 December 2012
31 December 2011
Continuing Operations
Note
REVENUE
Operating expenses
PROFIT FROM OPERATIONS BEFORE AMORTISATION, SHARE BASED
PAYMENT AND NON-RECURRING ITEMS
Amortisation of intangibles
Share based payment
PROFIT BEFORE NON-RECURRING ITEMS
Non-recurring income/(costs)
PROFIT FROM OPERATIONS
Finance income
Finance costs
PROFIT BEFORE TAXATION
Income tax expense
RETAINED PROFIT FOR THE YEAR
1
2
2
3
4
8
£000
10,661
(9,157)
1,504
(397)
(86)
1,021
137
1,158
238
(144)
1,252
(208)
1,044
OTHER COMPREHENSIVE (EXPENSE)/INCOME
Actuarial loss on retirement benefit obligations
20
(1,833)
Deferred tax on actuarial loss
Exchange differences on translating foreign operations
OTHER COMPREHENSIVE EXPENSE FOR THE YEAR
389
(189)
(1,633)
£000
10,793
(8,791)
2,002
(347)
(88)
1,567
(21)
1,546
422
(456)
1,512
(506)
1,006
(392)
68
96
(228)
TOTAL COMPREHENSIVE (EXPENSE) / INCOME FOR THE YEAR
(589)
778
Profit attributable to Owners of the Parent Company
TOTAL COMPREHENSIVE (EXPENSE) / INCOME ATTRIBUTABLE TO
OWNERS OF THE PARENT COMPANY
Earnings per share from continuing operations Basic
Diluted
22
22
1,044
(589)
8.9p
8.9p
1,006
778
8.6p
8.5p
24
Instem plc Annual Report, 2012
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2012
31 December 2012
31 December 2011
Note
£000
£000
£000
£000
ASSETS
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
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
11
19
12
13
16
14
15
17
17
20
21
23
23
23
23
23
8,953
6,525
15,478
7,287
3,196
10,483
8,034
187
732
90
3,750
235
2,450
7,037
250
-
3,196
1,176
7,892
(932)
174
284
(3,599)
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)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF
THE PARENT
4,995
5,414
TOTAL EQUITY AND LIABILITIES
15,478
15,124
The financial statements on pages 24 to 62 were approved by the board of directors and authorised for issue on 19 April 2013
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
Instem plc Annual Report, 2012 25
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2012
31 December 2012
31 December 2011
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Investments
10
17,195
17,109
TOTAL NON-CURRENT ASSETS
17,195
17,109
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
13
14
15
17
2,032
1,365
309
250
Financial liabilities
17
-
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained earnings
21
23
23
23
23
1,176
7,892
10,702
174
89
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF
THE PARENT
TOTAL EQUITY AND LIABILITIES
753
2,102
573
250
250
1,171
7,813
10,702
88
(883)
2,855
19,964
823
250
1,073
18,891
19,964
3,397
20,592
559
-
559
20,033
20,592
The financial statements on pages 24 to 62 were approved by the board of directors and authorised for issue on 19 April 2013 and
are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
26
Instem plc Annual Report, 2012
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2012
Year ended
31 December 2012
Year ended
31 December 2011
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATIONS
Profit before taxation
1,252
Adjustments for:
Depreciation
Amortisation of intangibles
Profit on disposal of property, plant and equipment
Share based payments and shares to be issued
Adjustments to contingent consideration
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 in inventories
Increase in trade and other receivables
(Decrease)/increase in trade and other payables
CASH GENERATED FROM OPERATIONS
Finance costs
Income taxes paid
NET CASH (USED IN)/GENERATED FROM OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income received
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
158
397
-
86
(241)
(337)
219
(238)
144
19
(328)
(158)
-
(85)
-
Loan notes repaid
(250)
NET CASH USED IN FINANCING ACTIVITIES
NET (DECREASE)/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
14
1,512
116
347
(14)
88
(80)
(245)
88
(422)
456
300
(291)
(152)
30
(200)
141
(253)
1,846
47
(1,230)
679
1,342
(362)
(478)
502
(172)
(253)
77
3,263
28
3,368
1,440
-
(953)
(64)
423
(60)
(442)
(79)
(552)
(250)
(881)
3,368
(37)
2,450
Instem plc Annual Report, 2012 27
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2012
Year ended
Year ended
31 December 2012
31 December 2011
Note
£000
£000
£000
£000
972
(241)
-
(18)
13
CASH FLOWS FROM OPERATIONS
Profit/(loss) before taxation
Adjustments for:
Contingent consideration
Share based payment
Finance income
Finance cost
CASH FLOWS FROM OPERATIONS BEFORE
MOVEMENTS 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
18
(85)
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Loan note repayment
(250)
NET CASH USED IN FINANCING ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
14
726
(1,279)
146
(407)
(13)
(420)
(67)
(250)
(737)
2,102
1,365
(542)
-
88
(42)
48
42
(200)
(253)
(448)
(189)
98
(539)
(48)
(587)
(158)
(253)
(998)
3,100
2,102
28
Instem plc Annual Report, 2012
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
£000
Balance as at 1 January 2011
1,171
Share
Premium
£000
7,813
Merger
Reserve
£000
(932)
Shares to
Translation
be issued
Reserve
Profit for the year
Other comprehensive income/
(expense) for the year
Total comprehensive income
Share based payment
Balance as at 31 December
2011
Profit for the year
Other comprehensive expense
for the year
Total comprehensive expense
Share based payment
Transactions with owners in
their capacity as owners
Shares issued
Balance as at 31 December
2012
-
-
-
-
-
-
-
-
-
-
-
-
1,171
7,813
(932)
-
-
-
-
5
-
-
-
-
79
-
-
-
-
-
Retained
Earnings
£000
(3,881)
1,006
Total
Equity
£000
4,548
1,006
(324)
(228)
682
-
778
88
(3,199)
5,414
1,044
1,044
£000
377
-
96
96
-
473
-
(189)
(1,444)
(1,633)
(189)
(400)
-
-
-
-
(589)
86
84
£000
-
-
-
-
88
88
-
-
-
86
-
1,176
7,892
(932)
174
284
(3,599)
4,995
COMPANY STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
£000
Balance as at 1 January 2011
1,171
Total comprehensive expense for the year
Share based payment
-
-
Share
Premium
£000
7,813
-
-
Merger
Reserve
£000
10,702
-
-
Balance as at 31 December 2011
1,171
7,813
10,702
Total comprehensive income for the year
Share based payment
Transactions with owners in
their capacity as owners
Shares issued
-
-
5
-
-
79
-
-
-
Shares to
be issued
£000
-
-
88
88
-
86
-
Retained
Earnings
£000
(341)
(542)
-
(883)
972
-
-
Total
Equity
£000
19,345
(542)
88
18,891
972
86
84
Balance as at 31 December 2012
1,176
7,892
10,702
174
89
20,033
Instem plc Annual Report, 2012 29
accounting policies
GENERAL INFORMATION
The principal activity of the Group is the provision of world
class 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. Instem 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 2010 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.
The financial statements have been prepared on the historical
cost basis.
The Company has taken advantage of the audit exemption for
two of its non-trading subsidiaries Instem Life Science Systems
Limited and Instem Scientific Solutions Limited, by virtue of
s479A of Companies Act 2006. The Company has provided
parent guarantees to these two subsidiaries.
In accordance with Section 408 of the Companies Act 2006 the
company has elected not to present its own income statement.
The profit for the year of the parent company is £972,000 (2011:
Loss £542,000).
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, and its subsidiary undertakings
made up to 31 December 2012 and 31 December 2011,
excluding Instem India Private Limited as the values were
considered immaterial.
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 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 working
capital facility is in place to support the Group’s working capital
needs.
The financial position of the Group, its cash flows and liquidity
position are set out in the primary statements within 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.
REVENUE RECOGNITION
The Group follows the principles of IAS 18 ‘Revenue
Recognition’, in determining appropriate revenue recognition
principles. In general, 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.
30
Instem plc Annual Report, 2012
accounting policies
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.
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.
Revenue from licence based products is recognised when the
risks and rewards of ownership of the product are transferred to
the customer. For bill and hold arrangements relating to sales
of licences, revenue is recognised when the buyer takes title
provided that it is probable that delivery will be made, the item is
on hand, identified and ready for delivery to the buyer, the buyer
specifically acknowledges the deferred delivery instructions and
the usual payment terms apply.
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 amounts recoverable on contracts.
PROFIT FROM OPERATIONS BEFORE AMORTISATION,
SHARE BASED PAYMENT AND NON-RECURRING ITEMS
Profit from operations before amortisation, share based payment
and non-recurring items is profit arising from the Group’s normal
trading activities stated before amortisation of intangible assets,
share based payment charges, non-recurring items, finance
income, finance costs and taxation.
PROFIT FROM OPERATIONS
Profit from operations is profit from the Group’s ordinary activities
stated before finance income and costs, and income tax
expense.
SEGMENTAL REPORTING
IFRS 8 ‘Operating Segments’ provides segmental information for
the Group on the basis of information reported internally to the
chief operating decision-maker for decision-making purposes.
The Group considers that the role of chief operating decision-
maker is performed by the Group’s Board of directors.
Since the Group is primarily providing goods and services to the
global life sciences market there is only one operating segment
which is monitored by the business.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at
the reporting date are translated at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on
translation are recognised in 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.
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.
The presentational currency adopted by the Group is Sterling (£).
The functional currencies of the principal companies in the Group
are as follows:
Instem plc
Sterling (£)
Instem Life Science Systems Limited
Sterling (£)
Instem LSS Limited
Sterling (£)
Instem LSS (North America) Limited
US Dollars ($)
Instem LSS Asia Limited
Hong Kong
Dollars (HK$)
Instem Information Systems (Shanghai) Limited
Renminbi (¥)
Instem Scientific Limited
Sterling (£)
Instem Scientific Solutions Limited
Sterling (£)
Instem Scientific Inc
US Dollars ($)
Instem India Pvt Limited
Indian Rupees
(INR)
The exchange rates used to translate the financial statements
into Sterling (£) are as follows:
US Dollar
($)
Hong Kong
Dollar
(HK$)
Chinese
Renminbi
(¥)
1.6014
12.4623
10.3447
1.5541
12.0701
9.7815
1.5888
12.3237
10.0170
1.6155
12.5228
10.0699
Average rate for year
ended 31 December 2011
Closing rate at 31
December 2011
Average rate for year
ended 31 December 2012
Closing rate at 31
December 2012
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
Net finance costs comprise interest payable, exchange losses on
the translation of intra-group funding balances, finance charges
on finance leases and interest on pension scheme liabilities.
Interest payable is recognised in the statement of comprehensive
income as it accrues, using the effective interest method.
Instem plc Annual Report, 2012 31
accounting policies
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 the statement of
comprehensive income.
All other leases are “operating leases” and the annual rentals are
charged to the statement of comprehensive income on a straight
line basis over the lease term.
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.
Income tax credits for research and development activities are
recognised on an accruals basis when their receipt is reasonably
certain.
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.
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.
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.
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.
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
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 the statement of comprehensive income. 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 cost generating units of Instem
plc, 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
32
Instem plc Annual Report, 2012
accounting policies
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.
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.
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.
Where an impairment loss subsequently reverses, the carrying
amount of the assets is increased to the revised estimate of
its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for
the asset in prior years. A reversal of an impairment loss is
recognised in profit or loss immediately.
INVENTORY
Inventory is stated at the lower of cost and net realisable value.
Inventory includes billable employee expenses and hosting set
up costs. These are stated at the lower of amortised cost and
net realisable value.
Provision is made where necessary for obsolete and slow
moving inventory.
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.
Internally generated intangible assets
Expenditure on research activities is recognised in the statement
of comprehensive income 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.
Where these criteria have not been achieved, development
expenditure is recognised in profit or loss in the period in which it
is incurred.
Internally-generated intangible assets are amortised, once the
product is available for use, on a straight-line basis over their
useful lives (five to eight years).
PROPERTY, PLANT & EQUIPMENT
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
- Over term of lease
- 12½% - 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 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 the
statement of comprehensive income.
IMPAIRMENT OF ASSETS EXCLUDING GOODWILL
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.
Instem plc Annual Report, 2012 33
accounting policies
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 the
statement of comprehensive income 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.
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
of its liabilities.
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 Group has a legal right of off-set.
Trade and other payables
Trade and other 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.
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 total of 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.
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 the statement of
comprehensive income.
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, IAS and International
Financial Reporting Interpretations Committee (IFRICs) effective
as at 31 December 2012. The Group and Company have not
chosen to adopt any amendments or revised standards early.
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.
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.
The Group does not adopt the hedge accounting provisions and
as such, these derivatives are classified as financial instruments
34
Instem plc Annual Report, 2012
•
IAS 32 Financial Instruments: Presentation
Clarifies that income tax relating to distributions to
holders of an equity instrument and income tax relating to
transaction costs of an equity transaction are accounted for
in accordance with IAS 12 Income Taxes.
Effective for periods commencing on or after 1 January
2013.
IFRSs ADOPTED IN THE YEAR
The following IFRSs, IASs and IFRICs have been adopted for
the first time in the year:
•
•
IAS 24 Revised Related Party Disclosures
IFRS 7 Financial Instruments: Disclosures – Amendments;
Disclosures – Transfers of Financial Assets
accounting policies
•
•
•
•
•
•
IFRS 13 Fair Value Measurement
Provides a definition of fair value and a single source of fair
value measurement and disclosure requirements for use
across IFRS’s.
Effective for periods commencing on or after 1 January
2013.
IFRS 7 Financial Instruments: Disclosures – Amendment;
Offsetting Financial Assets and Financial Liabilities
Provides guidance on the meaning of “a legally enforceable
right of set off” and situations where gross settlement
systems may be considered equivalent to net settlement.
Effective for periods commencing on or after 1 January
2013.
IFRS 10 Consolidated Financial Statements
Replaces IAS 27 “Consolidated and Separate
Financial Statements” and SIC 12 “Consolidation –
Special Purpose Entities”. Retains the principle of
control, but redefines control and provides further
guidance on how to apply the control principle.
Effective for periods commencing on or after 1 January
2013.
IFRS 12 Disclosure of Interests in Other Entities
Applies to entities with interests in subsidiaries, joint
arrangements, associates and other unconsolidated
structured entities and sets out disclosures in respect of
such entities.
Effective for periods commencing on or after 1 January
2013.
IFRS 9 Financial Instruments (including Amendment issued
16 Dec 11)
Replaces the requirements for the classification and
measurement of financial assets and financial liabilities
in IAS 39 “Financial Instruments: Recognition and
Measurement”. Requires that financial assets are measured
initially at fair value and subsequently at amortised cost
or fair value through profit or loss, based on how an entity
manages its financial instruments and the contractual
cash flow characteristics of the financial assets. Retains
the option to designate as at fair value through profit or
loss under certain conditions and applies measurement
to the entire hybrid contract, so embedded derivatives are
no longer separated. Requires equity instruments to be
measured at fair value through profit and loss unless an
irrevocable election is made to recognise fair value gains
and losses in other comprehensive income. Changes the
fair value option for financial liabilities to address own credit
risk.
Effective for periods commencing on or after 1 January
2015.
IAS 1 Presentation of Financial Statements
Details requirements for voluntarily disclosed comparative
information and confirms that notes are not required to
the opening statement of financial position presented on a
change of accounting policy or retrospective restatement or
reclassification.
Effective for periods commencing on or after 1 January
2013.
Instem plc Annual Report, 2012 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
United Kingdom
Rest of Europe
USA and Canada
Rest of World
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION
INFORMATION BY GEOGRAPHICAL LOCATION
United Kingdom
USA and Canada
Rest of World
2012
£000
1,775
6,188
1,141
1,373
184
2011
£000
2,336
5,961
1,016
1,338
142
10,661
10,793
2012
£000
1,311
2,147
6,135
1,068
2011
£000
1,342
2,518
5,989
944
10,661
10,793
2012
£000
8,183
29
9
8,221
2011
£000
8,163
48
80
8,291
MAJOR CUSTOMERS
The Group generates external revenue from one customer which individually amounts to more than 10% of the Group revenue.
Revenue in respect of this customer for the year ended 31 December 2012 amounted to £1.1m (2011: £0.8m). In 2011 no customers
exceeded 10% of revenue.
36
Instem plc Annual Report, 2012
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
Amortisation of intangible assets
Profit on disposal of property, plant and equipment
Research and development costs
Foreign exchange gains 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:
2012
£000
158
397
-
1,434
(219)
61
363
15
31
Taxation services - Compliance
10
Taxation services - Advisory
Corporate finance services
2
25
83
2011
£000
116
347
(14)
1,384
(88)
108
308
16
60
12
-
31
119
Instem plc Annual Report, 2012 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 11)
Operating lease rentals
Software maintenance charges
Licence costs
2012
£000
6,024
158
424
257
436
Total cost of sales, distribution costs, administrative expenses and other
operating expenses
9,157
Other expenses
1,858
2011
£000
5,761
116
416
309
114
2,075
8,791
Non-Recurring Income/(Costs)
The Group incurred costs of £0.10m (2011: £0.10m) in connection with acquisition activities. In addition the Group recognised a credit
of £0.24m (2011: £0.08m) in relation to the re-assessment of contingent consideration.
38
Instem plc Annual Report, 2012
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
2012
£000
19
219
238
2012
£000
47
-
(288)
372
13
144
2011
£000
300
122
422
2011
£000
306
34
(334)
394
56
456
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
Other pension costs
2012
Number
2011
Number
35
79
114
2012
£000
5,000
495
529
6,024
34
82
116
2011
£000
4,769
470
522
5,761
A charge of £0.09m (2011: £0.09m) arises in respect of share based payment.
Instem plc Annual Report, 2012 39
NOTES TO THE FINANCIAL STATEMENTS
6. Share-Based Payment
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 year
Granted
Lapsed
Outstanding at end of the year
Number
737,824
60,000
(89,809)
708,015
Exercisable at 31 December
-
2012
2011
Weighted
average exercise
price (£)
1.87
1.33
1.89
1.82
-
Number
585,711
183,351
(31,238)
737,824
-
Weighted
average exercise
price (£)
1.75
2.22
1.75
1.87
-
The options outstanding at 31 December 2012 had exercise prices of £1.115, £1.750, £1.760, £2.215 and £2.220 (2011: £1.750, £2.220
and £2.215) and a weighted average remaining contractual life of 8.10 years (2011: 8.90 years).
Options are valued using the Black-Scholes option-pricing model and for performance conditions, the Binomial or Monte Carlo models.
The fair market value has been estimated using the following key assumptions:
Average exercise price
Average market price
Average vesting period (years)
2012
£1.33
£1.47
3
2011
£2.22
£2.22
3
Expected volatility
17.9%-19.1%
19.1%-20.7%
Option life (years)
Expected life
10
6
10
6
Risk free rate
0.95%-1.29%
1.27%-1.60%
Expected dividend yield
Expected lapse rate
0%
0%
0%
0%
Fair value of options
£0.30-£0.45
£0.51-£0.53
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 464,281 shares (2011: 447,233 shares) incorporate a market performance condition based on the Company’s share price.
The fair value of options granted in the year is £0.02m (2011: £0.11m).
40
Instem plc Annual Report, 2012
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
2012
£000
92
-
251
48
391
2011
£000
117
-
246
30
393
2012
Number
2011
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
2
1
The highest paid director is shown in the Directors’ Remuneration Report.
Instem plc Annual Report, 2012 41
NOTES TO THE FINANCIAL STATEMENTS
8.
Income Taxes
Income taxes recognised in the statement of
comprehensive income
Current tax:
UK corporation tax on profits of the year
Double tax relief
Foreign tax
Adjustments in respect of previous years
Adjustment in respect of 2010 R&D tax credit
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 24.5% (2011: 26.5%)
Effects of:
Expenses not deductible for tax purposes
Differences in overseas tax rates
Adjustments in respect of prior years
Tax losses utilised in respect of subsidiaries
Non taxable income
Total income tax expense recognised in the statement
of comprehensive income
42
Instem plc Annual Report, 2012
2012
£000
179
(109)
224
27
(50)
271
(38)
(83)
58
(63)
208
2012
£000
1,252
307
29
110
(106)
(73)
(59)
208
2011
£000
167
-
240
(78)
-
329
150
(36)
63
177
506
2011
£000
1,512
401
67
152
(114)
-
-
506
NOTES TO THE FINANCIAL STATEMENTS
9.
Intangible Assets
Goodwill
Software
property
Relations
Group
£000
£000
£000
£000
Patents
£000
Intellectual
Customer
Cost
At 1 January 2011
5,858
Additions from continuing
operations
Additions from acquisitions in
the period
-
498
788
291
79
At 31 December 2011
6,356
1,158
Additions from continuing
operations
-
328
At 31 December 2012
6,356
1,486
Amounts written off
At 1 January 2011
Amortisation expense
At 31 December 2011
Amortisation expense
At 31 December 2012
Net book value
-
-
-
-
-
At 31 December 2011
6,356
At 31 December 2012
6,356
229
153
382
164
546
776
940
-
-
819
819
-
819
-
137
137
164
301
682
518
-
-
325
325
-
325
-
54
54
65
119
271
206
-
-
21
21
-
21
-
3
3
4
7
18
14
Total
£000
6,646
291
1,742
8,679
328
9,007
229
347
576
397
973
8,103
8,034
Impairment of goodwill
Goodwill, amounting to £5.858m (2011: £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 (2011: £0.498m), relates to a cash
generating unit (“CGU”), being the BioWisdom Limited (now Instem Scientific Limited) 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 units exceeded the carrying amounts of goodwill. The recoverable amount for each of the cash generating units has been
measured using a value in use calculation and as such no impairment was deemed necessary.
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 two years which have then been extrapolated to cover a period of five years, being the maximum period which
management considers can reliably be forecast. At 31 December 2012 a pre-tax discount rate of 12.5% (2011: 12.0%) was used in the
value in use calculation based on the Group’s cost of capital.
Projected cashflows were based on detailed profit and cashflow projections through to 2014 with a 2.5% assumption of growth beyond
2014. The projections were based on reasonable assumptions in respect of business growth rates, payroll and other cost increases and
related cashflow impacts.
The recoverable amount of the Instem CGU exceeds the carrying amount of this CGU by 22% and, for the Instem Scientific CGU, by
10%. The directors consider the discount rate and revenues to be the most sensitive assumptions used in the impairment reviews.
An increase in the discount rate of 8 percentage points, or a reduction in certain revenues of in excess of 10%, would result in the
recoverable amount of the Instem CGU being equal to its carrying amount. An increase of 4 percentage points in the Instem Scientific
discount rate, or a reduction in revenues of 3% would result in the recoverable amount of the CGU being equal to its carrying amount.
Amortisation expenses are disclosed in the consolidated Statement of comprehensive income.
Instem plc Annual Report, 2012 43
NOTES TO THE FINANCIAL STATEMENTS
10. Investments
Company
£000’s
Cost
At 1 January 2011
16,500
Additions
609
At 31 December 2011
17,109
Additions
86
At 31 December 2012
17,195
The company has two wholly-owned subsidiaries and seven wholly-owned sub-subsidiaries, details of which are as follows:
Company
Activity
Ownership
Instem Life Science Systems 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
100% by Instem LSS (Asia)
Limited
Shanghai, PRC
Instem Scientific Limited
(company number 03861669)
England and Wales
Instem Scientific Solutions Limited
(company number 03598020)
England and Wales
Instem Scientific Inc
USA
Instem India Pvt Limited
Leading provider of software
solutions for extracting
intelligence from R&D related
healthcare data
100% by Instem plc
Non-trading
100% by Instem Scientific
Limited
Leading provider of software
solutions for extracting
100% by Instem Scientific
intelligence from R&D related
Limited
healthcare data
(company number U73100MH2012FTC231951)
Software development
100% by Instem LSS Limited
India
44
Instem plc Annual Report, 2012
Short leasehold
Plant and
property
£000
equipment
£000
Motor vehicles
£000
NOTES TO THE FINANCIAL STATEMENTS
11. Property, Plant and Equipment
Group
Cost
At 1 January 2011
Additions
Disposals
Acquisitions through business
combinations
Exchange adjustment
At 31 December 2011
Additions
Disposals
Exchange adjustment
45
8
(48)
-
-
5
9
-
-
At 31 December 2012
14
Depreciation
At 1 January 2011
Depreciation expense
Eliminated on disposals
Exchange adjustment
At 31 December 2011
Reclassification
Depreciation expense
Disposals
Exchange adjustment
At 31 December 2012
Net book value
At 31 December 2011
At 31 December 2012
20
15
(35)
-
-
(12)
4
-
-
(8)
5
22
2,847
144
(1,495)
1
4
1,501
149
-
-
1,650
2,706
101
(1,492)
3
1,318
12
154
-
1
1,485
183
165
12
-
-
-
-
12
-
(12)
-
-
12
-
-
-
12
-
-
(12)
-
-
-
-
Total
£000
2,904
152
(1,543)
1
4
1,518
158
(12)
-
1,664
2,738
116
(1,527)
3
1,330
-
158
(12)
1
1,477
188
187
Instem plc Annual Report, 2012 45
NOTES TO THE FINANCIAL STATEMENTS
12. Inventories
Group
Work in progress
Total gross inventories
Inventory impairment
Net inventories
13. Trade and Other Receivables
Group
Trade receivables
Amounts recoverable on contracts
Other receivables
Prepayments and accrued income
Company
Amounts owed by group companies
Other receivables
2012
£000
90
2012
£000
90
-
90
2012
£000
1,971
1,232
-
547
3,750
1,919
113
2,032
2011
£000
93
2011
£000
93
-
93
2011
£000
2,008
590
15
416
3,029
700
53
753
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:
Group
At beginning of year
(Credit)/charge for the year
At end of year
2012
£000
6
(2)
4
2011
£000
2
4
6
The average credit period taken on sale is 54 days (2011: 48 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.
46
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
13. Trade and Other Receivables (continued)
The age profile of the net trade receivables for the Group at the year-end was as follows:
Group
2011
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables/Amounts recoverable
on contracts
Value (£000)
%
1,896
73
440
17
246
9
16
1
2,598
100
Group
2012
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables/Amounts recoverable
on contracts
Value (£000)
%
2,133
67
775
24
250
8
45
1
3,203
100
An analysis of trade and other receivables by currency is as follows:
Group
Sterling
Euro
US Dollar
Renminbi
Hong Kong Dollar
2012
£000
1,690
179
1,645
235
1
3,750
2011
£000
1,544
186
1,150
148
1
3,029
Instem plc Annual Report, 2012 47
NOTES TO THE FINANCIAL STATEMENTS
14. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
2012
£000
11,415
(8,965)
2,450
1,365
2011
£000
12,280
(8,912)
3,368
2,102
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. The bank overdraft is secured by fixed and floating charges over certain of the Group’s assets. All balances
are denominated in Sterling. The bank facility is reviewed in April each year.
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, in respect of the Group’s overdraft facility.
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 approximate to their fair value.
15. Trade and Other Payables
Group - Current
Trade payables
Other taxation and social security costs
Other payables
Accruals and other payables
Deferred income
Company - Current
Trade payables
Amounts owed to group companies
Other payables
Accruals and deferred income
48
Instem plc Annual Report, 2012
2012
£000
743
38
1,418
251
2,450
1,365
2012
£000
334
134
82
704
5,783
7,037
11
260
-
38
309
2011
£000
2,032
100
1,114
122
3,368
2,102
2011
£000
404
163
152
839
6,036
7,594
40
103
411
19
573
NOTES TO THE FINANCIAL STATEMENTS
15. 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
2012
£000
3,010
3,819
206
2
7,037
309
2011
£000
3,878
3,590
124
2
7,594
573
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their short maturities.
16. Current Taxation
The Group current tax receivable of £235,000 (2011: £64,000) represents the amount of income taxes receivable in respect of current
and prior years.
17. Financial Liabilities
Group and Company
2011
Total
£000
Less than
One to
More than
one year
two years
two years
£000
£000
£000
Loan Note
500
250
250
-
Total
£000
Less than
One to
More than
one year
two years
two years
£000
£000
£000
2012
Loan Note
250
250
-
-
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.
Instem plc Annual Report, 2012 49
NOTES TO THE FINANCIAL STATEMENTS
18. 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 year the Group entered into a
US dollar hedging arrangement with a fixed forward contract which expired prior to the reporting date.
Over the longer term, changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. The
assumption in 2012 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 £0.20m.
Interest rate risk
The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported earnings.
The Group’s 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. Currency swaps have been utilised to maximise the interest gains whilst minimising foreign
exchange risks.
As at 31 December 2012 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 2012 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).
50
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
18. Financial Instruments (continued)
2011
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
2012
Group
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
2012
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
Fixed
rate
£000
-
-
-
(500)
(500)
Fixed
rate
£000
-
-
-
(250)
(250)
Fixed
rate
£000
-
-
-
(500)
(500)
Fixed
rate
£000
-
-
-
(250)
(250)
Floating
Non-interest
rate
£000
-
3,368
-
-
3,368
bearing
£000
2,613
-
(1,395)
-
1,218
Floating
Non-interest
rate
£000
-
2,450
-
-
2,450
bearing
£000
3,203
-
(1,120)
-
2,083
Floating
Non-interest
rate
£000
500
2,102
-
-
2,602
bearing
£000
253
-
(573)
-
(320)
Floating
Non-interest
rate
£000
500
1,365
-
-
1,865
bearing
£000
1,532
-
(309)
-
1,223
Total
£000
2,613
3,368
(1,395)
(500)
4,086
Total
£000
3,203
2,450
(1,120)
(250)
4,283
Total
£000
753
2,102
(573)
(500)
1,782
Total
£000
2,032
1,365
(309)
(250)
2,838
Instem plc Annual Report, 2012 51
NOTES TO THE FINANCIAL STATEMENTS
18. Financial Instruments (continued)
Credit risk
Management aims 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 generates external revenue from one customer which individually amounts to more than 10% of the Group revenue.
Revenue in respect of this customer for the year ended 31 December 2012 amounted to £1.1m (2011: £0.8m). In 2011 no customers
exceeded 10% of revenue.
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 13 sets out the impairment provision for credit losses on trade receivables and the ageing analysis of overdue trade receivables.
There were 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 2012, its £2.0m bank facility was
undrawn and available (2011: £2.0m).
In respect of the Group’s interest-bearing financial liabilities, the table in note 17 includes details at the reporting date of the periods in
which they mature.
52
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
19. Deferred Tax
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
The movement in the period 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
Adjustments in respect of prior years
At end of the year
2012
£000
-
735
-
(3)
732
2012
£000
279
(46)
421
(32)
-
-
110
732
2011
£000
-
404
-
(125)
279
2011
£000
321
(177)
98
(30)
69
(2)
-
279
The following are the major deferred tax assets and liabilities recognised by the Group and the movements thereon during the year:
Accelerated
tax
depreciation
Tax losses
Deferred tax asset/(liability)
At 1 January 2011
Charge to profit or loss for the year
Credit/(charge) to equity for the year
Recognised on acquisitions
At 31 December 2011
Credit/(charge) to profit or loss for
the year
Credit to equity for the year
Adjustments in respect of prior
years
£000
(104)
(88)
28
(336)
(500)
42
-
100
£000
26
(26)
(30)
405
375
(30)
-
-
At 31 December 2012
(358)
345
Retirement
benefit
obligations
£000
Other timing
differences
£000
399
(63)
68
-
404
(58)
389
-
735
-
-
-
-
-
-
-
10
10
Total
£000
321
(177)
66
69
279
(46)
389
110
732
Unrecognised tax losses not included at 31 December 2012 were £3,571,000 (2011: £3,834,000).
Instem plc Annual Report, 2012 53
NOTES TO THE FINANCIAL STATEMENTS
20. Retirement Benefit Obligations
Defined contribution pension scheme
The Group has four active defined contribution schemes and a closed defined benefit 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 Instem LSS Pension Scheme at rates varying from 5% to 18%. Employer contributions for the year ended 31
December 2012 were £0.43m (2011: £0.39m).
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 2012 were £0.03m (2011: £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%. Employer contributions for the year ended 31 December 2012 were £0.09m (2011: £0.09m).
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 2012 were £nil (2011: £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. Employee members must contribute at least 3% of basic salary and the employer contributes up to a maximum of
6%. Employer contributions for the year ended 31 December 2012 were £0.03m (2011: £0.03m).
54
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
20. 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 2011 and was updated to 31 December 2012 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 OPERATING EXPENSES
Current service cost
Past service cost
Total operating charge
ANALYSIS OF AMOUNT CHARGED TO 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
Actuarial loss recognised in other comprehensive income
2012
%
4.5
4.5
2.9
N/A
2.9
2.9
24.9
26.2
23.6
24.7
2012
£000
-
-
-
2012
£000
288
(372)
(84)
2012
£000
172
(763)
(1,242)
(1,833)
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
(392)
Instem plc Annual Report, 2012 55
NOTES TO THE FINANCIAL STATEMENTS
20. Retirement Benefit Obligations (continued)
CHANGES IN THE PRESENT VALUE OF THE DEFINED
BENEFIT OBLIGATION
Opening defined benefit obligation
Interest cost
Actuarial loss/(gain)
Benefits paid
Closing defined benefit obligation
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
Opening plan assets
Expected return
Actuarial gain/(loss)
Contributions by employer
Benefits paid
Closing plan assets
2012
£000
6,946
372
2,005
(123)
9,200
2012
£000
5,330
288
172
337
(123)
6,004
The actual return on plan assets was a negative return of £460,000 (2011: negative return of £146,000)
Present value of funded obligations
Fair value of plan assets
Deficit
Related deferred tax asset
Net pension liability
2012
£000
(9,200)
6,004
(3,196)
735
(2,461)
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)
56
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
20. 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
2012
£000
(359)
(1,673)
(564)
(2,596)
2011
£000
(531)
(910)
678
(763)
%
72
2
8
11
6
1
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2012
2011
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
4,263
120
541
600
480
-
%
71
2
9
10
8
-
£000
3,838
107
426
586
320
53
6,004
100
5,330
100
The five year history of experience adjustments are as follows:
2012
£000
2011
£000
2010
£000
2009
£000
2008
£000
Present value of defined
benefit obligation
(9,200)
(6,946)
(6,956)
(5,893)
(4,901)
Fair value of plan assets
6,004
5,330
5,479
4,812
3,752
Deficit
(3,196)
(1,616)
(1,477)
(1,081)
(1,149)
Experience adjustments on
plan liabilities
(763)
-
Experience adjustments on
plan assets
172
(480)
(77)
235
(18)
557
(431)
(1,390)
The Group expects to contribute £412,000 to its defined benefit plans in the next financial year (2012: £321,000).
Instem plc Annual Report, 2012 57
NOTES TO THE FINANCIAL STATEMENTS
21. Share Capital
Allotted, called up and fully paid
At 1 January
11,714,286 ordinary shares of 10p each
50,372 ordinary shares of 10p each, issued during year
At 31 December
2012
£000
1,171
5
1,176
2011
£000
1,171
-
1,171
50,372 shares were issued in the year in part settlement of the deferred contingent consideration in respect of the acquisition of Instem
Scientific Limited.
22. 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)
2012
Weighted
average
number of
shares (000’s)
Earnings per
Profit after tax
2011
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
1,044
11,755
-
-
1,044
11,755
8.9
-
8.9
1,006
11,714
-
134
1,006
11,848
8.6
(0.1)
8.5
58
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
23. Capital and 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.
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.
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 (including overdrafts, redeemable preference shares and lease obligations) net of
cash and cash equivalents.
The Group has not made any changes to its capital management during the year.
24. Capital Commitments
There were no capital commitments at the end of the financial year (2011: £nil).
Instem plc Annual Report, 2012 59
NOTES TO THE FINANCIAL STATEMENTS
25. 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
2012
£000
424
2012
£000
364
1,168
727
3
5
2011
£000
416
2011
£000
363
1,048
863
61
2
2,267
2,337
Operating lease payments represent rentals payable by the Group for property leases and certain equipment. Leases have varying
terms and renewal rights. The above leasing arrangements do not contain any restrictive covenants, contingent rents or purchase
options.
The operating 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.
60
Instem plc Annual Report, 2012
NOTES TO THE FINANCIAL STATEMENTS
26. Related Party Transactions
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation of the
consolidated financial statements. During the year the Company traded with subsidiary companies in its normal course of business.
These transactions related to recharges and totalled in aggregate £1.21m (2011: £nil). The intercompany balances due to the Company
at the year-end totalled £1.66m (2011: £0.60m).
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:
2012
£000
2011
£000
Fees for services provided as non-executive directors
Salaries and short term benefits
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
Executive directors
92
-
10
-
Salaries and short term benefits
251
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
Other key management
48
18
43
Salaries and short term employee benefits
336
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
24
29
36
117
-
10
-
221
30
14
41
346
26
31
31
In addition the Company paid £0.05m (2011: £0.05m) to Instem Ventures Limited, a company owned by Adrian Gare, a shareholder.
The balance outstanding at the end of the year was £nil (2011: £0.01m).
Key management are considered to be the Directors together with the Senior Vice-President of Client Services, the Senior Vice-
President of Product Development and the Chief Scientific Officer.
27. 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.
Instem plc Annual Report, 2012 61
NOTES TO THE FINANCIAL STATEMENTS
27. Accounting Estimates and Judgements (continued)
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 20.
Impairment
At each reporting date, the Group reviews the carrying amounts of goodwill and investments. 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. A
key factor which could result in an impairment of goodwill or investments is lower than predicted revenue. Sensitivities around this factor
and the discount rate are set out in note 9.
Other intangible assets – useful lives
Other intangible assets are amortised over their useful life, which has been estimated by management to be up to 8 years.
28. Contingent Liabilities
Instem plc has provided a guarantee to its subsidiaries which have taken advantage of the exemption from audit. Under this guarantee,
the Company has a contingent liability of £9.0m.
62
Instem plc Annual Report, 2012
NOTES
Instem plc Annual Report, 2012 63
NOTES
64
Instem plc Annual Report, 2012
NOTES
Instem plc Annual Report, 2012 65
NOTES
66
Instem plc Annual Report, 2012
NOTES
Instem plc Annual Report, 2012 67
NOTES
68
Instem plc Annual Report, 2012
Directors and Advisers
DIRECTORS
D Gare (Non-Executive Chairman)
M F McGoun (Independent Non-Executive)
D M Sherwin (Non- Executive)
P J Reason
N J Goldsmith
SECRETARY
N J 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 Singer Advisory LLP
One Bartholomew Lane
London
EC2N 2AX
REGISTRARS
Computershare
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
FINANCIAL PUBLIC RELATIONS
Newgate Threadneedle
5th Floor
33 King William Street
London
EC4R 9AS
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