Instem plc
Annual Report
2013
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 used 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 established 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 over 400 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
STRATEGIC REPORT
FINANCIAL REVIEW
BOARD OF DIRECTORS
CORPORATE GOVERNANCE STATEMENT
DIRECTORS’ REPORT
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 ADVISORS
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Instem plc Annual Report, 2013
Highlights
Financial Highlights
Strategic Developments
•
Revenues increased 7% to £11.4m (2012: £10.7m)
•
•
Recurring revenues increased 9% to £8.2m
(2012: £7.5m), representing 72% of total
revenues
Software as a Service (SaaS) revenues increased
35% to £1.5m (2012: £1.1m)
•
•
Logos Technologies (rebranded “Instem Clinical”)
and its ALPHADAS® product suite acquired in May
2013. Fully integrated and performing strongly
First entrance into the in vitro R&D market through
the acquisition of Perceptive Instruments Ltd. in
November 2013
Operational Highlights
•
•
•
•
•
•
Customer retention rate remained strong at 95%
Signed 10-year US$6.2m revenue SaaS contract
for Provantis secured with the National Institute
of Environmental Health Sciences (NIEHS), a US
Government body
SaaS deals with two top 10 pharmaceutical
companies
Provantis licensed for 3 additional clients in North
America, Europe and India in Q4
First Instem Clinical contract won with Retroscreen
Virology Group plc (AIM:RVG), with additional sites
licensed in December 2013
Signed SEND contracts with a major healthcare
customer, a top three pharmaceutical company and
three further clients in H2
* Before amortisation of intangibles on acquisitions, share-based
payments and non-recurring costs.
**After adjusting for the effect of foreign currency exchange on the
revaluation of inter-company balances included in finance income/
(costs), non-recurring items and amortisation of intangibles on
acquisitions.
•
•
•
•
Adjusted operating profit* increased 8% to £1.5m
(2012: £1.3m)
Reported profit before tax of £0.7m (2012: £1.3m)
Cash balance as at 31 December 2013 of £2.1m
(2012: £2.5m)
•
£1.6m net investment in acquisitions during
2013
Adjusted** earnings per share of 8.6p (2012: 7.8p)
•
Basic earnings per share of 4.5p (2012: 8.9p)
The Group has continued to increase its share
of the preclinical market and made important
strategic progress including expansion of its
product sets and entry into the early phase
clinical market. The increase in new SaaS deals
signed in the year is particularly pleasing. Our
SaaS offer is compelling for clients and provides
the Group with increasing long-term revenue
visibility.
Instem, like other pharmaceutical services
companies, is beginning to see an improvement
in its end markets, with the global
pharmaceutical market re-focusing its efforts
into early stage development work. In addition,
the industry’s regulatory and fiscal pressures
continue to work in Instem’s favour, driving
demand for all areas of our product portfolio.
With the benefit of a full year’s contribution
from both the Instem Clinical and more recent
Perceptive Instruments acquisitions, we look
forward to 2014 with confidence.
P J Reason,
Chief Executive
Instem plc Annual Report, 2013 3
market leadership
“Instem has again proven to be the leading
supplier in the preclinical market place, extending
its footprint with existing clients and across the
industry as a whole.”
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Instem plc Annual Report, 2013
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Chairman’s
Statement
As outlined in the January Trading Update, although
overall order intake in 2013 was encouraging,
particularly in the latter half of the year, contractual
discussions regarding a significant contract remained
ongoing at the year-end, consequently affecting the
overall 2013 revenue and profits performance. Whilst
there is clear potential for consolidation within the
fragmented supplier base, our priority during 2014
will be to maximise the synergistic benefit created
for Instem Clinical and Perceptive Instruments as a
result of being part of the Instem Group. Nevertheless,
should appropriate strategic opportunities arise during
the year every effort will be made to achieve further
consolidation.
The pharmaceutical market continues to undergo
structural changes, and once again this created some
uncertainty that impacted client purchasing decisions
during the year. There have, however, been nascent signs
of a recovery. Pharmaceutical companies are prioritising
investment in early stage drug development and the
sector outlook for 2014 is improving.
The Board believes that the significant progress achieved
during the year continues to provide the necessary
platform for growth, both organic and through further
selective acquisitions.
D Gare
Chairman
During the year, Instem successfully continued its
dual strategy of both increasing its market share and
extending its product portfolio. In particular, the two
acquisitions successfully completed in the year were
important examples of the execution of this strategy.
Behind the scenes the Group has also invested in
strengthening its management resources to ensure that
it has the capacity to continue to implement its strategic
plans.
Instem has again proven to be the leading supplier in
the preclinical market place, extending its footprint
with existing clients and across the industry as a whole.
Of great importance, and testimony to the quality of
our people and our products, was the decision of the
National Institute of Environmental Health Sciences
(NIEHS) to use Provantis as the cornerstone IT system for
its National Toxicology Program in the USA. In addition,
several strategically important contracts were gained,
including both existing and new clients choosing
Instem’s preferred SaaS deployment strategy. It was
particularly pleasing to see uptake by industry elites
across the entirety of our product set.
The first of two acquisitions made in the year was Logos
Technologies (now rebranded Instem Clinical) which was
acquired in May. This acquisition has enabled Instem to
make an important strategic step into the adjacent early
phase clinical market. During the seven months as part
of the Instem Group, the Board was delighted that Instem
Clinical was able to exceed its plans. Instem Clinical is
now fully integrated within the Group and we are starting
to see the market benefits of it being part of a larger
business.
In November the Group completed its second acquisition
in the period, purchasing Perceptive Instruments, a
business that provides world-leading software and
hardware solutions supporting in vitro research and
development within the broad life sciences market.
We believe the acquisition will particularly enhance
our offering in the preclinical market. As the acquisition
was late in the year, it had little impact on our 2013
performance.
Instem plc Annual Report, 2013 5
continued growth
“Instem has continued to increase its reach
with existing clients and expand the number
of clients it serves”
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Instem plc Annual Report, 2013
Strategic
Report
In May 2013, Instem acquired London-based Logos
Technologies and its ALPHADAS software suite. The
initial consideration paid amounted to £0.55 million with
additional consideration of up to £4.45 million payable
through a mixture of cash and shares dependent on profit
related targets over the first four years. The first earn-out
payment of £0.45 million was made following the period
end, comprising £0.2 million in cash and £0.25 million
through the issue and allotment of new ordinary shares.
November 2013 marked Instem’s entrance into the
in vitro R&D marketplace through the acquisition of
Perceptive Instruments for an initial cash amount of
£1.0 million net of cash acquired, and an additional £0.3
million earn-out, contingent on the performance of the
business. The integration of Perceptive Instruments is
progressing well.
Both acquisitions are complementary to Instem’s product
portfolio and are expected to provide additional cross-
selling opportunities with existing and new clients.
The breadth of Instem’s business has grown significantly
over the past year, as the portfolio of leading products
for the early development healthcare market has been
expanded through organic and acquisitive activity.
Instem continues to service many of the world’s leading
pharmaceutical organisations and laboratories, providing
the tools to streamline processes within the industry
whilst significantly reducing costs.
As well as securing customers for traditional licences,
Instem also saw further uptake of its software deployed
via the SaaS business model, which is proving to be
an increasingly compelling value proposition for
organisations of all sizes. Total SaaS revenue for 2013
was up 35% to £1.5m (2012: £1.1m). This, in conjunction
with annual licence renewals, continues to provide the
Group with strong forward visibility. Recurring revenues
for the year, including SaaS and support and maintenance
revenues, amounted to 72% of total revenues (2012:
70%).
Strategic acquisitions enhance product
offering and expand addressable market
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 providers, such
as Instem. There is a need to consolidate this disparate
supplier landscape and enhance data integration
amongst and between the customer bases.
Instem has an impressive and longstanding customer
list of leading global pharmaceutical, chemical,
academic and government research organisations.
Instem is ideally positioned with its international sales
model and geographical presence to sell additional
products to these customers, either through third-party
licensing agreements or acquired technology. In the
year, Instem has expanded its range of products through
the acquisitions of two complementary technology
companies.
Instem plc Annual Report, 2013 7
STRATEGIC REPORT
Product Portfolio
ALPHADAS
Instem has continued to increase its reach with existing
clients and expand the number of clients it serves.
Instem offers software via perpetual licences and term-
based subscriptions, and is seeing strong growth in
demand for its SaaS model.
Provantis
Provantis is the leading product for the management
of study data in the preclinical drug safety assessment
market and it has continued a strong performance
throughout the year generating further sales and
maintaining a very high renewal rate for recurring
revenues.
In February 2013, Instem won a significant US
Government contract with the NIEHS to support National
Toxicology Program studies. During the year this
contract was extended to enable two additional contract
laboratories to utilise Provantis. Other significant client
wins included a multi-site North American and European
CRO and further clients in India and China.
Provantis continued to generate a steady stream of
additional revenue from current clients who licensed
additional modules from the suite, increased their user
licensing and upgraded to later versions. The large
Provantis client base also provides avenues for cross-
selling of complementary third party products such as
Logbook and ACIS.
Centrus
Centrus is Instem’s software suite for the exchange,
aggregation, collation and reporting of early drug
development information. Modules associated with
the US FDA sponsored Standard for the Exchange of
Non-Clinical Data (SEND) have proved particularly
successful. In May 2013, a world leading healthcare
company purchased the complete Centrus software
suite, with four further clients, including a top three
pharmaceutical company, purchasing SEND related
modules during 2013. Centrus submit™ was also
recognised for innovation and industry leadership at the
2013 SmartCEO VOLTAGE Awards.
A number of important new modules have been added
to the Centrus suite; these offer opportunities for
additional sales with existing customers and make the
offer more compelling for new clients. Instem is pleased
to report that momentum for Centrus seen in the final
quarter of the year has continued into 2014.
Instem’s solution for the early phase clinical market,
ALPHADAS, has performed well in the year and has
generated strong order intake. The first new contract
for Instem Clinical, post-acquisition, was a perpetual
licence with Retroscreen Virology Group plc, a virology
healthcare business that recently floated on AIM. The
Retroscreen project progressed well during 2013 and
in December Retroscreen exercised an option in the
contract to extend ALPHADAS licensing for additional
sites. In December 2013, Simbec Research selected
ALPHADAS for deployment in its UK-based Phase I unit.
ALPHADAS version 6 was released during the year,
enabling upgrades within the existing customer base
and enhancing Instem’s competitive position for new
product opportunities within the wider early phase
clinical market.
Instem Scientific
The re-use of scientific data is an increasing market
within the life sciences industry. Instem Scientific’s
products are designed to enable clients to leverage
large volumes of public and proprietary historic
data, to enable considerable value to be unlocked
from prior research investments. Instem routinely
leads or participates in industry groups focused on
the challenges and opportunities in this area and
in September 2013 Gordon Baxter, Instem’s Chief
Scientific Officer, was appointed to the Board of one
leading industry body, the Pistoia Alliance.
Instem completed the development and launch of
the next version of the SRS Data integration platform
(version 8.4) in early July 2013, further enhancing our
clients’ abilities to identify patterns and trends in their
data and generate new knowledge and scientific insight.
Two new clients for SRS were added in the period.
New versions of OmniViz, an advanced visualisation and
data projection solution, were also released in the year.
This contributed to securing several additional licence
purchases from existing customers and a number of new
clients.
Perceptive Instruments (“Perceptive”)
Perceptive was acquired to enhance Instem’s Study
Workflow and Automation Suites. The integration of
Perceptive is underway and progressing according
to plans with Perceptive making a minimal, five-
week contribution to the 2013 fiscal year results.
Development focus during 2013 was on a new product,
Cyto Study Manager, which we plan to launch in the
first half of 2014. The majority of potential clients for
Cyto Study Manager are existing Perceptive or Instem
customers.
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Instem plc Annual Report, 2013
STRATEGIC REPORT
Market Overview
clinics have ensured that many opportunities remain for
software solutions to gain greater penetration.
Government
Governments in North America, China and Europe are
expanding investment in order to: prime advances in
basic research, advance therapies with important social
needs (but limited return to commercial organisations)
and generally improve environmental health. This is of
particular importance as such organisations frequently
operate on a different economic cycle to the commercial
pharmaceutical industry.
Government agencies are indirectly supporting
investment in Instem technologies through funding a
wide variety of commercial organisations and research
institutes as well as purchasing solutions directly for
their government research facilities. Through this,
Instem’s products can also be mandated by authorities
for use by third parties involved in public sector
programmes.
Growth Strategy
Instem will continue to focus on growing organically
through further penetration of existing product
suites into pharmaceutical organisations, CROs and
research institutions. The Group’s aim is to increase
recurring revenues and growth by maintaining market
leadership with established product suites and
introducing new solutions organically, acquisitively
and through exclusive third party arrangements, which
satisfy an ever increasing proportion of the early drug
development market.
The approaching deadline for the requirement to submit
SEND data sets presents an important opportunity for
Centrus. The growing need for the management of ‘Big
Data’ represents an opportunity for Instem Scientific as
companies look to mine large amounts of historical data
for the generation of scientific insight.
The trend, where large pharmaceutical organisations
prefer to select a smaller number of strategic providers
for their research software needs, continues to be the
key focus of the Group’s acquisition strategy. The Group
will continue to selectively pursue additional bolt-on
acquisitions that provide access to adjacent markets and
additional growth prospects.
Over recent years the pharmaceutical industry has
focused work on drugs in late stage development in
an attempt to fill the gap from lost revenues on patent
expired drugs. Recently, there have been signs that
the global pharmaceutical market is moving resource
towards early stage development work to refill
the pipeline of preclinical candidates. This is a key
development given the Group’s position within the early
stage development market.
As a consequence, Instem and its pharmaceutical
services clients that target the earlier stages of drug
development, are beginning to see an improvement in
end markets. Citeline®, which claims the world’s most
comprehensive source of real-time R&D intelligence for
the pharmaceutical industry, recently reported a 7.9%
increase in the global drug pipeline.
Two key aspects are increasing demand for IT solutions.
Firstly, there is an increased preference for regulatory
authorities to receive data for new drug submissions
electronically. Secondly, there is a growing appetite
from pharmaceutical organisations to analyse and
mine historic data in order to extract further value and
generate additional scientific insight from development
work already carried out.
Preclinical market
There is evidence of a more sustained recovery in the
preclinical market, including data from the two largest
preclinical CROs, Charles River and Covance, who have
both reported greater growth and optimism in recent
results announcements.
While there were only modest additions of new
commercial clients in 2013, Instem’s preclinical
business benefitted from increased demand from
governmental customers. In February 2013, Instem won
a contract with the US government NIEHS with a cash
value of US$870,000 in the first year, with a potential to
extend and expand the agreement up to a further nine
years, giving a possible total contract value of between
US$6.2 million – US$7.6 million.
Early Stage Clinical market
The early stage clinical market is immediately
downstream of preclinical and consequently has also
witnessed reduced study volumes in recent years.
However, a growing prevalence of patient studies in
early phase clinical, to complement the widespread
use of healthy volunteers, is extending trial sites
into hospital units and increasing the importance
of controlling data quality and integrity through the
deployment of IT solutions. These factors together with
the relatively low levels of automation in early phase
Instem plc Annual Report, 2013 9
outlook
“…the industry’s regulatory and fiscal pressures
continue to work in Instem’s favour, driving
demand for all areas of our product portfolio. “
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Instem plc Annual Report, 2013
Financial
Review
The financial results demonstrate a solid performance in
the year with total revenues at £11.4m (2012: £10.7m).
As described in the Chairman’s Statement, although
market conditions were challenging and resulted in the
delay in one particularly significant perpetual licence,
there are nascent signs of a recovery in end markets.
Growth in revenues was principally driven from the UK,
with an increase from £1.3m in 2012 to £2.5m, driven
by new business orders for ALPHADAS received from
Retroscreen Virology,
Instem’s business model consists of perpetual licence
fees, annual support, SaaS subscriptions and professional
services. Approximately 72% of revenue was recurring in
nature (2012: 70%), principally from annual support fees
and SaaS subscriptions, with a small contribution from
professional fees.
The Group continues to generate the majority of its
revenue in US dollars and therefore we continued to
hedge against currency fluctuations. In the period
the average exchange rate was $1.5707/£1.00
compared with an average exchange rate in 2012 of
$1.5888/£1.00.
The profit from operations before amortisation of
acquired intangibles, share-based payment and
non-recurring costs for the year was £1.5m (2012:
£1.3m). Operating expenses, comprising primarily salary
costs, increased by £0.5m in the year reflecting the two
acquisitions during the year.
Amortisation increased due to the acquisitions to £0.6m
(2012: £0.4m)
Internal development costs incurred in the period were
£1.8m (2012: £1.7m), of which £0.4m was capitalised
(2012: £0.3m).
There was an increase in the actuarial deficit on the
Group’s defined benefit pension scheme during the
period calculated in accordance with the provisions
of IAS19 that amounted to £0.6m, net of deferred tax
(2012: £1.4m), which has been recognised in Other
Comprehensive Expense. This was a non-cash charge
in the period and arose primarily as a result of higher
inflation 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. The defined benefit
pension scheme has remained closed to new members
since 2000 and to future accrual since 2008.
Cash generated from operations was £2.0m (2012:
£0.4m). The Group had cash reserves of £2.1m as at
31 December 2013, compared with £2.5m as at 31
December 2012, after making initial payments (net of
cash acquired) for the two acquisitions during the year of
£1.6m.
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.
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.
Non-recurring costs of £0.2m include legal and
professional fees associated with the two completed
acquisitions during the year.
The Group seeks to mitigate exposure to all forms of risk
through a combination of regular performance review
and a comprehensive insurance programme.
Instem plc Annual Report, 2013 11
FINANCIAL REVIEW
The global nature of the market means that the Group is
exposed to currency risk as a consequence of a significant
proportion of its revenue being earned 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 past year has seen the Group continue to increase
its share of the preclinical market and make important
strategic progress including expansion of its product
sets and entry into the early phase clinical market.
The increase in new SaaS deals signed in the year is
particularly pleasing. Our SaaS offer is compelling for
clients and provides the Group with increasing long-term
revenue visibility.
Instem, like other pharmaceutical services companies,
is beginning to see an improvement in its end markets,
with the global pharmaceutical market re-focusing its
efforts into early stage development work. In addition,
the industry’s regulatory and fiscal pressures continue to
work in Instem’s favour, driving demand for all areas of
our product portfolio.
With the benefit of a full year’s contribution from
both the Instem Clinical and more recent Perceptive
Instruments acquisitions, we look forward to 2014 with
confidence.
On behalf of the Board
P J Reason
Chief Executive
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Instem plc Annual Report, 2013
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, 2013 13
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Instem plc Annual Report, 2013
CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE
STATEMENT
Given the size of the Group the Board has decided to
apply the Corporate Governance Code for Small and
Mid-Size Quoted Companies as it seeks to maintain a
strong governance ethos throughout the Group. 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 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’s
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
10/10
10/10
10/10
10/10
9/10
3/3
3/3
3/3
3/3
3/3
1/1
1/1
1/1
1/1
1/1
0/0
0/0
0/0
0/0
0/0
Instem plc Annual Report, 2013 15
CORPORATE GOVERNANCE STATEMENT
Audit Committee (continued)
The Audit Committee is authorised to:
a.
b.
c.
investigate any activity within its terms of
reference;
seek any information it requires from any employee
of the 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 Company.
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.
The Remuneration Committee:
a.
b.
c.
ensures that the executive directors are fairly
rewarded for their individual contributions to
the overall performance of the Group but also
ensures that the Group avoids paying more than is
necessary for this purpose;
considers the remuneration packages of the
executive directors and any recommendations
made by the Chief Executive Officer for changes to
their remuneration packages including in respect
of bonuses (including associated performance
criteria), other benefits, pension arrangements
and other terms of their service contracts and any
other matters relating to the remuneration of or
terms of employment applicable to the executive
directors that may be referred to the Remuneration
Committee by the Board;
oversees and reviews all aspects of the Group’s
share option schemes including the selection of
eligible directors and other employees and the
terms of any options granted;
e.
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
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.
Nomination Committee
The Nomination Committee comprises D Gare
(Chairman), M F McGoun and D M Sherwin, all of whom
are non-executive directors of the Company.
Appointments to the Nomination Committee are made
by the Board, in consultation with the Chairman of the
Nomination Committee.
The Nomination Committee may invite any person
it thinks appropriate to join the members of the
Nomination Committee at its meetings.
The Nomination Committee:
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;
16
Instem plc Annual Report, 2013
CORPORATE GOVERNANCE STATEMENT
b. gives full consideration to succession planning for
directors and other senior executives in the course
of its work, taking into account the challenges and
opportunities facing the Group, and what skills and
expertise are needed on the Board in the future;
is responsible for identifying and nominating for
the approval of the Board, candidates to fill Board
vacancies as and when they arise; and
c.
d. evaluates the balance of skills, knowledge and
experience on the Board before an appointment
is made and, in light of this evaluation, prepares a
description of the role and capabilities required for
a particular appointment.
The Chairman of the Nomination Committee reports
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.
investigate any activity within its terms of
reference;
seek any information it requires from any
employee;
c.
d.
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
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 for the following two years. 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
16 April 2014
Instem plc Annual Report, 2013 17
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Directors
The directors submit their report and the Group and
Company financial statements of Instem plc for the year
ended 31 December 2013.
Instem plc is a public limited company, incorporated and
domiciled in England, and quoted on AIM.
Review of the Business
In measuring the successful development of the business,
the directors focus on two important performance
indicators which strongly underwrite the future
performance of the Group:
1. Total number of customers
In 2013 the Group had in excess of 400 customers (2012:
122 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 2013
was £8.2m (2012: £7.5m)
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 Strategic Report on pages 5 to 10.
Future Developments
The directors consider that the continued investment in
product and market development will allow the business to
grow organically in its core markets. Investment in business
growth initiatives will also allow the business to move into
new product and market areas. The combination of organic
growth along with strategic acquisitions will support the
expected growth as outlined in the Chairman’s Statement
and the Strategic Report.
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.
Directors and Their Interests
The interests of the directors who held office at 31
December 2013 and up to the date of this report were as
follows:
2013
2012
No. of Shares
No. of Shares
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 21.
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.
Research and Development Activities
Political Donations
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.
Dividends
The directors do not recommend the payment of a dividend.
The Group made no political donations in 2013 or 2012.
Financial Instruments
The Group’s objectives and policies on financial
instruments are set out in note 19 to the financial
statements.
18
Instem plc Annual Report, 2013
DIRECTORS’ REPORT
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
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.
Annual General Meeting
The Annual General Meeting of the Company will
be held on 20 May 2014 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. A proxy card
for registered shareholders is distributed along with the
notice.
Statement as to Disclosure of Information
to Auditor
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 auditor is 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.
Auditor
Pursuant to s489 of the Companies Act 2006, a
resolution to appoint Baker Tilly UK Audit LLP as auditor
will be put to the members at the forthcoming Annual
General Meeting.
On behalf of the Board
P J Reason
Director
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
16 April 2014
Instem plc Annual Report, 2013 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 2013
(2012: £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 car and fuel allowance, private
healthcare and critical illness cover. No executive
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 with a notice
periods between six and twelve 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 that had an initial three year term commencing
October 2010. These contracts were renewed in
December 2013, each with a notice period of three
months. Since October 2013 Mr McGoun has been
remunerated through a service company, Noble
Adamson Limited.
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 once. Full
details of the elements of each director’s remuneration
are set out on page 16. 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, 2013
DIRECTORS’ REMUNERATION REPORT
The emoluments paid to directors in the year ended 31 December 2013 were as follows:
Salary
Benefits
Pension
2013 Total
2012 Total
Executives
£000
£000
£000
P J Reason
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
146
94
44
24
24
Total
332
15
12
-
-
-
27
24
13
-
-
-
37
£000
185
119
44
24
24
396
£000
180
119
44
24
24
391
Directors’ and Employees’ Share Options
Exercise
price(£)
Issue date
Held at 31
Dec 2012
Granted
During Year
Exercised
during Year
Lapsed
during Year
Held at 31
Dec 2013
P J Reason
Ordinary shares
1.750
13/10/2010
187,427
-
0.900
14/01/2013
-
23,429
N J Goldsmith
Ordinary shares
2.215
29/11/2011
40,000
1.760
07/02/2012
20,000
-
-
0.900
14/01/2013
-
15,000
Employees
Ordinary shares
1.750
13/10/2010
304,568
2.220
03/03/2011
101,351
2.220
17/10/2011
14,667
1.115
23/10/2012
40,000
-
-
-
-
0.900
14/01/2013
-
61,397
Total
708,013
99,826
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
187,427
23,429
40,000
20,000
15,000
304,568
101,351
14,667
40,000
61,397
807,839
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, 2013 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 Strategic
Report and 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, 2013
INDEPENDENT AUDITOR’S REPORT
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF INSTEM PLC
We have audited the group and parent company
financial statements (“the financial statements”) on
pages 24 to 68. The financial reporting framework that
has been applied in their preparation is applicable law
and International Financial Reporting Standards (IFRSs)
as adopted by the European Union and, as regards the
parent company financial statements, as applied in
accordance with the provisions of the Companies Act
2006.
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the
company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors
and auditor
As more fully explained in the Directors’ Responsibilities
Statement set out on page 22, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance
with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s (APB’s)
Ethical Standards for Auditors.
Scope of the audit of the financial
statements
A description of the scope of an audit of financial
statements is provided on the Financial Reporting
Council’s website at http://www.frc.org.uk/Our-Work/
Codes-Standards/Audit-and-assurance/Standards-
and-guidance/Standards-and-guidance-for-auditors/
Scope-of-audit/UK-Private-Sector-Entity-(issued-1-
December-2010).aspx
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 2013 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
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
Opinion on other matter prescribed by
the Companies Act 2006
In our opinion the information given in the Strategic
Report and 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
17 April 2014
Instem plc Annual Report, 2013 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2013
CONTINUING OPERATIONS
Note
REVENUE
Operating expenses
Amortisation of internally generated intangibles
PROFIT FROM OPERATIONS BEFORE AMORTISATION OF INTANGIBLES ARISING ON
ACQUISITION, SHARE-BASED PAYMENT AND NON-RECURRING COSTS
Amortisation of intangibles arising on acquisition
Share-based payment
PROFIT BEFORE NON-RECURRING COSTS
Non-recurring (costs)/income
PROFIT FROM OPERATIONS
Finance income
Finance costs
PROFIT BEFORE TAXATION
Income tax expense
PROFIT FOR THE YEAR
1
2
2
3
4
8
2013
£000
2012
£000
11,361
10,661
(9,685)
(9,157)
(226)
(164)
1,450
1,340
(394)
(96)
960
(200)
760
145
(207)
698
(169)
529
(233)
(86)
1,021
137
1,158
238
(144)
1,252
(208)
1,044
OTHER COMPREHENSIVE EXPENSE
Items that will not be reclassified to profit or loss
Actuarial loss on retirement benefit obligations
21
(587)
(1,833)
Deferred tax on actuarial loss
30
389
Items that may be subsequently reclassified to profit or loss
Exchange differences on translating foreign operations
OTHER COMPREHENSIVE EXPENSE FOR THE YEAR
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE EXPENSE ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
Earnings per share from continuing operations
Basic
Diluted
23
23
(557)
(1,444)
(90)
(647)
(118)
529
(118)
4.5p
4.5p
(189)
(1,633)
(589)
1,044
(589)
8.9p
8.9p
24
Instem plc Annual Report, 2013
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2013
Note
£000
£000
£000
£000
2013
2012
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
Current tax payable
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 deficit
9
12
20
13
14
17
15
16
17
18
18
21
22
24
24
24
24
24
8,953
6,525
15,478
7,287
3,196
10,483
12,887
265
388
307
2,908
-
2,053
7,236
7
1,250
1,836
3,506
1,176
7,892
(932)
270
194
(3,627)
13,540
5,268
18,808
8,493
5,342
13,835
8,034
187
732
90
3,750
235
2,450
7,037
-
250
-
3,196
1,176
7,892
(932)
174
284
(3,599)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF
THE PARENT
4,973
4,995
TOTAL EQUITY AND LIABILITIES
18,808
15,478
The financial statements on pages 24 to 68 were approved by the board of directors and authorised for issue on 16 April 2014
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
Instem plc Annual Report, 2013 25
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2013
Note
2013
2012
ASSETS
£000
£000
£000
£000
NON-CURRENT ASSETS
Investments
10
23,024
17,195
TOTAL NON-CURRENT ASSETS
23,024
17,195
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Current tax payable
Financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
14
15
16
17
18
1,243
277
1,264
120
1,250
Financial liabilities
18
1,836
TOTAL NON CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained deficit
22
24
24
24
24
1,176
7,892
10,702
270
34
1,520
24,544
2,634
1,836
4,470
2,032
1,365
309
-
250
-
1,176
7,892
10,702
174
89
3,397
20,592
559
-
559
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
20,074
24,544
20,033
20,592
The financial statements on pages 24 to 68 were approved by the board of directors and authorised for issue on 16 April 2014
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
26
Instem plc Annual Report, 2013
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2013
2013
2012
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATIONS
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangibles
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:
Increase in inventories
Decrease/(Increase) in trade and other receivables
Increase/(Decrease) in trade and other payables
CASH GENERATED FROM OPERATIONS
Finance costs
Income taxes
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
Acquisition of subsidiaries
Cash acquired with subsidiaries
698
96
620
96
-
(412)
84
(145)
207
61
(407)
(171)
(2,710)
1,134
1,244
(210)
823
31
1,888
(9)
74
1,953
NET CASH USED IN INVESTING ACTIVITIES
(2,093)
CASH FLOWS FROM FINANCING ACTIVITIES
Loan notes repaid
(250)
NET CASH USED IN FINANCING ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of year
Effects of exchange rate changes on the balance of cash
held in foreign currencies
CASH AND CASH EQUIVALENTS AT END OF YEAR
15
(250)
(390)
2,450
(7)
2,053
1,252
158
397
86
(241)
(337)
219
(238)
144
19
(328)
(158)
(85)
-
(250)
1,440
-
(953)
(64)
423
(60)
(442)
(79)
(552)
(250)
(881)
3,368
(37)
2,450
Instem plc Annual Report, 2013 27
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2013
Note
£000
£000
£000
£000
2013
2012
65
-
(3)
63
CASH FLOWS FROM OPERATIONS
Profit before taxation
Adjustments for:
Contingent consideration
Finance income
Finance cost
CASH FLOWS FROM OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
Decrease/(Increase) in trade and other receivables
Increase in trade and other payables
CASH GENERATED FROM/(USED IN) OPERATIONS
Finance costs
NET CASH GENERATED FROM/(USED IN)
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income received
Acquisition of subsidiaries
3
(2,710)
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Loan notes repaid
(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
15
125
789
955
1,869
-
1,869
(2,707)
(250)
(1,088)
1,365
277
972
(241)
(18)
13
18
(85)
(250)
726
(1,279)
146
(407)
(13)
(420)
(67)
(250)
(737)
2,102
1,365
28
Instem plc Annual Report, 2013
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
£000
Balance as at 1 January 2012
1,171
£000
7,813
£000
(932)
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
Profit for the year
Other comprehensive expense
for the year
Total comprehensive expense
Share-based payment
-
-
-
-
5
-
-
-
-
79
-
-
-
-
-
1,176
7,892
(932)
-
-
-
-
-
-
-
-
-
-
-
-
Balance as at 31 December
2013
1,176
7,892
(932)
COMPANY STATEMENT OF CHANGES IN EQUITY
Share
Premium
Merger
Reserve
Shares to
Translation
be issued
Reserve
Retained
Earnings
£000
£000
473
-
(3,199)
1,044
(189)
(1,444)
(1,633)
(189)
(400)
Total
Equity
£000
5,414
1,044
(589)
86
84
-
-
(3,599)
4,995
529
(557)
(28)
-
529
(647)
(118)
96
(3,627)
4,973
-
-
284
-
(90)
(90)
-
194
£000
88
-
-
-
86
-
174
-
-
-
96
270
Called
up share
capital
£000
Balance as at 1 January 2012
1,171
Total comprehensive income for the year
Share-based payment
Transactions with owners in their capacity
as owners
Shares issued
-
-
5
Balance as at 31 December 2012
1,176
Total comprehensive expense for the year
Share-based payment
-
-
Share
Premium
£000
7,813
-
-
79
7,892
-
-
Merger
Reserve
£000
10,702
-
-
-
10,702
-
-
Balance as at 31 December 2013
1,176
7,892
10,702
Shares to
be issued
£000
88
-
86
-
174
-
96
270
Retained
Earnings
£000
(883)
972
-
-
89
(55)
-
34
Total
Equity
£000
18,891
972
86
84
20,033
(55)
96
20,074
Instem plc Annual Report, 2013 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 solutions for data collection, management and analysis
are used by customers worldwide, to meet the needs of life
science and healthcare organisations for data-driven decision
making leading to safer, more effective products. Instem plc
is a Company incorporated in England and Wales under the
Companies Act 2006 and domiciled in England and Wales. 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 (IFRS) and IFRS
Interpretation Committee (IFRIC) interpretations as adopted
by the EU 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 three of its non-trading subsidiaries Instem Life Science
Systems Limited, Instem Scientific Solutions Limited and Logos
Technologies Limited, by virtue of s479A of Companies Act 2006.
The Company has provided parent guarantees to these three
subsidiaries.
In accordance with Section 408 of the Companies Act 2006 the
company has elected not to present its own income statement.
The loss for the year of the parent company is £55,000 (2012:
profit £972,000).
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 2013 and 31 December 2012. (2012:
excludes Instem India Private Limited as the values were
considered immaterial). Statutory accounts for Perceptive
Instruments Limited have not been produced at 31 December
2013, but they will be produced for the eighteen month period
ending 31 December 2014
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 an
asset or a liability is re-measured at subsequent reporting dates
with the corresponding gain or loss being recognised in profit
or loss. Contingent consideration is recognised initially at fair
value and subsequently carried at amortised cost; the difference
between the gross amount and the fair value is recognised in the
income statement over the period in which the liability is settled
using the effective interest method.
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 Group has net current liabilities of £3.2m at 31
December 2013, including deferred income of £5.8m (2012:
£5.8m). The deferred income recurs each year on renewal of
contracts, and in general the Group has either received the
cash or has raised invoices for the services. As a result, this
amount reverses during the financial year in the normal course of
business. The Group has strong positive cash reserves, as well
as the working capital facility of £2m referred to above which, at
31 December 2013 was unutilised. The Group has, therefore,
sufficient liquid assets to cover its day to day needs, in addition
to its strong trading cashflow generation.
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.
30
Instem plc Annual Report, 2013
accounting policies
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,
SaaS subscription, installation, training, maintenance and
support services. Revenue is recognised when (i) persuasive
evidence of an arrangement exists; (ii) delivery has occurred or
services have been rendered; (iii) the sales price is fixed and
determinable and (iv) collectability is reasonably assured.
For software arrangements with multiple elements revenue is
recognised dependent on whether vendor-specific objective
evidence (‘VSOE’) of fair value exists for each of the elements.
VSOE is determined by reference to sales made to customers
on a stand-alone basis. Where there is no VSOE revenue is
recognised over the full term of each contract.
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, SaaS 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 OF
INTANGIBLES ARISING ON ACQUISITION, SHARE-BASED
PAYMENT AND NON-RECURRING COSTS
Profit from operations before amortisation of intangibles arising
on acquisition, share-based payment and non-recurring costs
is profit arising from the Group’s normal trading activities stated
before amortisation of intangibles arising on acquisition, share-
based payment charges, non-recurring costs, 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’ requires 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.
The revenue and expenses of foreign operations are translated
at an average rate for the year where this rate approximates to
the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from the translation of foreign
operations are taken directly to the translation reserve. They are
released into profit or loss upon disposal of the foreign operation.
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)
Instem Clinical Holdings Limited
Sterling (£)
Instem Clinical Limited
Sterling (£)
Instem Clinical Inc
US Dollars ($)
Logos Technologies Limited
Sterling (£)
Perceptive Instruments Limited
Sterling (£)
Instem plc Annual Report, 2013 31
accounting policies
The exchange rates used to translate the financial statements
into Sterling (£) are as follows:
US Dollar ($)
Hong Kong Dollar
(HK$)
Chinese Renminbi
(¥)
Indian Rupee
(INR)
Average rate for year ended 31 December 2012
Closing rate at 31 December 2012
Average rate for year ended 31 December 2013
Closing rate at 31 December 2013
1.5888
1.6155
1.5707
1.6494
12.3237
12.5228
12.1832
12.7915
10.0170
10.0699
9.6579
10.0096
87.3028
88.5428
91.7069
102.1390
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.
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.
SHARE-BASED PAYMENT TRANSACTIONS
The Group has applied the requirements of IFRS 2 Share-based
Payment. In accordance with the transitional provisions, IFRS
2 has been applied to all grants of equity instruments after 7
November 2002 that were unvested as of 1 January 2007.
The Group issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments
are measured at fair value at the date of grant by reference
to the fair value of the equity instruments granted. The fair
value determined at the grant date of equity-settled share-
based payments is expensed on a straight-line basis over the
vesting period, based on the Group’s estimate of the number
of instruments that will eventually vest with a corresponding
adjustment to equity. Fair values are measured by use of
the Black-Scholes model and for options with a performance
condition, Binomial or Monte Carlo models are used. The
expected life used in the model has been adjusted, based on
management’s best estimate, for the effect of non-transferability,
exercise restrictions, and behavioural considerations.
Non-vesting and market vesting conditions are taken into
account when estimating the fair value of the option at grant
date. Service and non-market vesting conditions are taken into
account by adjusting the number of options expected to vest at
each reporting date.
Cancelled or settled options are accounted for as an acceleration
of vesting. The unrecognised grant date fair value is recognised
in profit or loss in the year that the options are cancelled or
settled. Where the terms of the options are modified and
the modification increases the fair value or number of equity
instruments granted, measured immediately before and after
the modification, the incremental fair value is spread over the
remaining vesting period.
Options over the Company’s shares granted to employees of
subsidiaries are recognised as a capital contribution by the
Company to the subsidiaries.
TAXATION
Taxation expense includes the amount of current income tax
payable and the charge for the year in respect of deferred
taxation.
The income tax payable is based on an estimation of the
amount due on the taxable profit for the year. Taxable profit is
different from profit before tax as reported in the statement of
comprehensive income because it excludes items of income or
expenditure which are not taxable or deductible in the year as a
result of either the nature of the item or the fact that it is taxable
or deductible in another year. The Group’s liability for current
tax is calculated by using tax rates that have been enacted or
substantively enacted by the reporting date.
Income tax credits for research and development activities are
recognised on a cash 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.
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.
32
Instem plc Annual Report, 2013
accounting policies
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.
Intellectual Property, Customer Relationships and Patents
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
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.
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
IT Hardware and Software
- Over term of lease
- 12½% - 33% 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 and
intangible assets (excluding goodwill) is reviewed for impairment
whenever events or changes in circumstances indicate the
carrying value may not be recoverable.
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.
Instem plc Annual Report, 2013 33
accounting policies
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.
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.
Derivative financial instruments
The Group’s activities expose it primarily to foreign currency
risk. The Group uses forward contracts to hedge this exposure.
The Group does not use derivative financial instruments for
speculative purposes.
The Group does not adopt the hedge accounting provisions and
as such, these derivatives are classified as financial instruments
held for trading in accordance with IAS 39. They are initially
and subsequently measured at fair value with gains and losses
recognised in the statement of comprehensive income.
RETIREMENT BENEFITS
Defined contribution schemes
A defined contribution scheme is a pension plan under which
the Group pays a fixed contribution to a scheme with an
external provider. The amount charged to the statement of
comprehensive income in respect of pension costs and other
post-retirement benefits is the 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.
34
Instem plc Annual Report, 2013
accounting policies
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.
IFRS 12 ‘Disclosure of interests in other entities’ – effective 1
January 2014
IFRS 14 ‘Regulatory deferral accounts (not yet endorsed by the
EU) – effective 1 January 2014
IFRIC 21 ‘Levies (not yet endorsed by the EU) – effective 1
January 2014
IFRSs ADOPTED IN THE YEAR
The following IFRSs, IASs and IFRICs have been adopted for
the first time in the year:
IFRS 13 ‘Fair Value Measurement’ – effective 1 January 2013
IFRS 7 ‘Financial Instruments – Disclosures – Amendment;
Offsetting Financial Assets and Financial Liabilities’ – effective 1
January 2013
IAS 1 ‘Presentation of Financial Statements – Amendments’ –
effective 1 January 2013
IAS 19 ‘Employee Benefits’ – (Amended) – effective 1 January
2013
Changes made to IAS19 that came into force for accounting
periods on or after 1 January 2013 are as follows:
•
The “finance cost” which was previously the difference
between the interest on liabilities and expected return on
assets is replaced by a “net interest cost”. This means
that the expected return on assets is effectively based
on the discount rate with no allowance made for any
outperformance expected from the Scheme’s asset holding.
•
Actual administration expenses are required to be included
in the Statement of Financial Position.
The Group has not restated 2012 numbers as the additional
charge which arises is not considered to be material.
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 2013. The Group and Company have not
chosen to adopt any amendments or revised standards early.
IFRSs ISSUED BUT NOT YET EFFECTIVE
The following IFRSs, IASs and IFRICs have been issued, are
not yet effective, and have not been adopted by the Group or
the Company in these financial statements. The directors do not
believe the adoption will have a material impact on the business.
IFRS 9 ‘Financial Instruments’ – effective 1 January 2014
IAS 27 ‘Separate financial statements’ – (Amended) – effective 1
January 2014
IAS 28 ‘Interests in Associates and Joint Ventures’ – (Amended)
– effective 1 January 2014
IAS 32 ‘Financial Instruments: Presentation’ – effective 1 January
2014
IAS 39 ‘Financial Instruments: Recognition and measurement’ –
effective 1 January 2014
IAS 36 ‘Impairment of Assets’ – effective 1 January 2014
IFRS 10 ‘Consolidated of financial statements’ – effective 1
January 2014
IFRS 11 ‘Joint Arrangements’ – effective 1 January 2014
Instem plc Annual Report, 2013 35
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
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.
REVENUE
2012
£000
1,775
6,188
1,141
1,373
184
2013
£000
2,282
6,307
1,543
1,175
54
11,361
10,661
REVENUE
2013
£000
2,496
1,991
5,871
1,003
2012
£000
1,311
2,147
6,135
1,068
11,361
10,661
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION
2013
£000
13,120
14
18
13,152
2012
£000
8,183
29
9
8,221
INFORMATION BY PRODUCT TYPE
Licence fees
Annual support fees
SaaS subscription fees
Professional services
Funded development initiatives
INFORMATION BY GEOGRAPHICAL LOCATION
United Kingdom
Rest of Europe
USA and Canada
Rest of World
INFORMATION BY GEOGRAPHICAL LOCATION
United Kingdom
USA and Canada
Rest of World
Major Customers
The Group generates revenue from no customers which individually amount to more than 10% of the Group revenue (2012: one such
customer generated revenues of £1.1m).
36
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
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
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:
Statutory audit of parent and consolidated financial information
Audit services:
Other services:
Audit of subsidiaries where such services are provided by Baker Tilly UK
Audit LLP or its associates
Audit related assurance services
2013
£000
96
620
1,379
(84)
4
376
15
38
15
Taxation services - Compliance
11
Taxation services - Advisory
Corporate finance services
8
25
112
2012
£000
158
397
1,434
(219)
61
363
15
20
11
10
2
25
83
Instem plc Annual Report, 2013 37
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
2. Profit from Operations (continued)
The following table analyses the nature of expenses:
Staff costs (see note 5)
Depreciation (see note 12)
Operating lease rentals
Software maintenance charges
Licence costs
2013
£000
6,235
96
380
333
110
Total cost of sales, distribution costs, administrative expenses and other
operating expenses
9,685
Other expenses
2,531
2012
£000
6,024
158
424
257
436
1,858
9,157
Non-Recurring (Costs)/Income
The Group incurred costs of £0.2m (2012: £0.10m) in connection with acquisition activities. The Group recognised a credit of £0.24m in
2012 in relation to the re-assessment of contingent consideration.
38
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
3. Finance Income
Bank interest
Foreign exchange gains
Bank loans and overdrafts
Unwinding discount
Net interest charge on pension scheme
Other
2013
£000
61
84
145
2013
£000
9
63
135
-
207
2012
£000
19
219
238
2012
£000
47
-
84
13
144
4. Finance Costs
5. Employees
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
2013
Number
2012
Number
39
84
123
2013
£000
5,207
514
514
6,235
35
79
114
2012
£000
5,000
495
529
6,024
A charge of £0.1m (2012: £0.1m) arises in respect of share-based payment.
Instem plc Annual Report, 2013 39
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
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
Number
708,015
Granted
99,826
Lapsed
-
Outstanding at end of the year
Exercisable at 31 December
807,841
491,996
2013
2012
Weighted
average exercise
price (£)
1.82
0.90
-
1.71
1.75
Number
737,824
60,000
(89,809)
708,015
-
Weighted
average exercise
price (£)
1.87
1.33
1.89
1.82
-
The options outstanding at 31 December 2013 had exercise prices of £0.900, £1.115, £1.750, £1.760, £2.215 and £2.220. (2012:
£1.115, £1.750, £1.760, £2.215 and £2.220) and a weighted average remaining contractual life of 7.4 years (2012: 8.10 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)
Expected volatility
Option life (years)
Expected life
Risk free rate
Expected dividend yield
Expected lapse rate
2013
£0.90
£1.35
3
17.7%
10
6
2012
£1.33
£1.47
3
17.9%-19.1%
10
6
1.14%
0.95%-1.29%
0%
0%
0%
0%
Fair value of options
£0.25
£0.30-£0.45
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 564,106 shares (2012: 464,281 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 (2012: £0.02m).
40
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
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
2013
£000
92
-
267
37
396
2012
£000
92
-
251
48
391
2013
Number
2012
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
2
2
The highest paid director is shown in the Directors’ Remuneration Report.
Instem plc Annual Report, 2013 41
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
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
Foreign tax in respect of previous years
Adjustments in respect of previous years
Adjustment in respect of R&D tax credit
Total current tax
Deferred tax:
Current year charge
Origination and reversal of temporary differences
Adjustments in respect of previous years
Retirement benefit obligation
Total deferred tax
2013
£000
42
-
147
(227)
121
-
83
11
-
11
64
86
Total income tax expense recognised in the current year
169
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 23.25% (2012: 24.5%)
Effects of:
Expenses not deductible for tax purposes
Fixed asset timing differences
Differences in overseas tax rates
Adjustments in respect of prior years
Tax losses utilised in respect of subsidiaries
Tax losses carried forward
Non taxable income
Total income tax expense recognised in the statement
of comprehensive income
42
Instem plc Annual Report, 2013
2013
£000
698
162
50
1
63
(95)
(15)
3
-
169
2012
£000
179
(109)
224
-
27
(50)
271
-
(38)
(83)
58
(63)
208
2012
£000
1,252
307
29
-
110
(106)
(73)
-
(59)
208
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
9.
Intangible Assets
Goodwill
Software
property
Relationships
Patents
Group
£000
£000
£000
£000
£000
Intellectual
Customer
Cost
At 1 January 2012
6,356
1,158
Additions from continuing
operations
-
328
At 31 December 2012
6,356
1,486
Additions from continuing
operations
Additions from acquisitions in
the period
-
3,031
407
-
At 31 December 2013
9,387
1,893
Amounts written off
At 1 January 2012
Amortisation expense
At 31 December 2012
Amortisation expense
At 31 December 2013
Net book value
-
-
-
-
-
382
164
546
226
772
819
-
819
-
1,403
2,222
137
164
301
303
604
At 31 December 2012
6,356
940
518
At 31 December 2013
9,387
1,121
1,618
325
-
325
-
632
957
54
65
119
87
206
206
751
21
-
21
-
-
21
3
4
7
4
11
14
10
Total
£000
8,679
328
9,007
407
5,066
14,480
576
397
973
620
1,593
8,034
12,887
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally acquired
elements. The cost of internally generated software amounts to £0.3m (2012: £0.3m) with accumulated amortisation of £0.2m (2012:
£0.2m)
Impairment of goodwill
Goodwill amounting to £5.858m (2012: £5.858m) relates to a cash generating unit (CGU), being the Instem business acquired on the
management buyout of Instem LSS Limited on 27 March 2002. Goodwill amounting to £0.498m (2012: £0.498m), relates to a CGU,
being the BioWisdom Limited (now Instem Scientific Limited) business acquired on 3 March 2011. Goodwill amounting to £2.482m,
relates to a CGU, being the Logos Holdings Limited (now Instem Clinical Holding Limited) business acquired on 10 May 2013. Goodwill
amounting to £0.549m, relates to a CGU, being the Perceptive Instruments Limited business acquired on 21 November 2013.
During the period, goodwill was tested for impairment in accordance with IAS 36 “Impairment of Assets”. The recoverable amount of the
CGU exceeded the carrying amounts of goodwill. The recoverable amount for each of the CGU 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 been extrapolated to cover a period of five years, and then a terminal value calculated
using the Gordon Growth Model, to take account of the software development cycle and the high percentage of recurring revenues
from the customer base. At 31 December 2013 a pre-tax discount rate of 13.0% (2012: 12.5%) 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 2015 with a 2.5%-10% assumption of growth
beyond 2015. The projections were based on reasonable assumptions in respect of business growth rates, payroll and other cost
increases and related cashflow impacts.
Instem plc Annual Report, 2013 43
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
9.
Intangible Assets (continued)
The recoverable amount of the Instem CGU exceeds the carrying amount of this CGU by 168%, for the Instem Scientific CGU by 580%,
for Instem Clinical CGU by 117% and, Perceptive Instruments CGU by 152%. 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 36%, or a reduction in certain
revenues of in excess of 5%, would result in the recoverable amount of the Instem CGU being equal to its carrying amount. An increase
of 68% in the Instem Scientific discount rate, or a reduction in revenues of 20% would result in the recoverable amount of the CGU
being equal to its carrying amount. An increase of 36% in the Instem Clinical discount rate, or a reduction in revenues of 16% would
result in the recoverable amount of the CGU being equal to its carrying amount. An increase of 28% in the Perceptive Instruments
discount rate, or a reduction in revenues of 25% 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.
10. Investments
Company
£000’s
Cost
At 1 January 2012
Additions
At 31 December 2012
Additions
At 31 December 2013
17,109
86
17,195
5,829
23,024
The company has four wholly-owned subsidiaries and ten wholly-owned sub-subsidiaries, details of which are as follows:
Company
Activity
Ownership
Instem Information Systems (Shanghai) Limited
(company number 310115400257075)
Sales, sales support and service
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
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
44
Instem plc Annual Report, 2013
Holding Company
100% by Instem plc
Software development, sales, sales support
and administrative support
100% by Instem Life
Science Systems
Limited
Sales, sales support and administrative
100% by Instem LSS
support
Limited
Holding Company
100% by Instem LSS
Limited
100% by Instem LSS
(Asia) Limited
Leading provider of software solutions for
extracting intelligence from R&D related
100% by Instem plc
healthcare data
Dormant
Leading provider of software solutions for
extracting intelligence from R&D related
healthcare data
100% by Instem
Scientific Limited
100% by Instem
Scientific Limited
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
10. Investments (continued)
Company
Activity
Ownership
Instem India Pvt Limited
(company number
U73100MH2012FTC231951)
India
Software development
100% by Instem LSS Limited
Instem Clinical Holdings Limited
Holding of intellectual property
(company number 05840032)
rights and investment in group
100% by Instem plc
England and Wales
companies
Instem Clinical Limited
Provision of electronic data capture and clinical
(company number 06959053)
management solutions to the pharmaceutical
England and Wales
industry
Instem Clinical Inc.
USA
Logos Technologies Limited
(company number 05836842)
England and Wales
Provision of electronic data capture and clinical
management solutions to the pharmaceutical
industry
Dormant
100% by Instem Clinical
Holdings Limited
100% by Instem Clinical
Holdings Limited
100% by Instem Clinical
Holdings Limited
Perceptive Instruments Limited
software and hardware products for in vitro study
(company number 02498351)
data collection and study management in the
100% by Instem plc
England and Wales
genetic toxicology, microbiology and immunology
Development, manufacture and supply of
markets
11. Business Combinations
Subsidiary acquired
2013
Principal activity
Instem Clinical Holdings
Holding of intellectual property
Proportion of voting
Date of
acquisition
equity interests
Consideration
acquired %
transferred £000
Limited (formerly Logos
rights and investment in group
10 May 2013
100
3,298
Holdings Limited)
companies
Consideration transferred
Initial cash consideration (including £25,000 stamp duty)
Contingent consideration – Payable in cash
Contingent consideration – To be settled in shares
Contingent consideration – To be settled in cash or shares
Total consideration estimate at 31 December 2013
Instem Clinical Holdings Limited
£000
575
200
250
2,273
3,298
The contingent consideration is based on achieving certain cumulative Earnings Before Interest & Taxation (EBIT) performance related
conditions over 4 periods ending 30 April 2016 . The contingent consideration provided in the financial statements represents the Group
management’s estimate of the amount payable over this period.
Instem plc Annual Report, 2013 45
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
11. Business Combinations (continued)
Discounting has been applied, which gives a difference of £164,000 between the contractual cost of the acquisition and its fair value.
This will be charged to the statement of comprehensive income over the period of consideration. The method used to derive the above
values was present value.
Acquisition related costs amounting to £98,000 have been excluded from the consideration transferred and have been recognised as an
expense in the current year, within the ‘Non-recurring costs’ line item in the consolidated statement of comprehensive income.
Assets acquired and liabilities recognised at the date of acquisition
£000
Instem Clinical Holdings Limited
Non-Current Assets
Intellectual property
Customer related assets
Investment in subsidiaries
Property, plant and equipment
Deferred Tax on losses brought forward
Current Assets
Trade and other receivables
Cash and cash equivalents
Current Liabilities
Trade and other payables
Non-Current Liabilities
Deferred Tax on acquisition
Fair value of identifiable net assets acquired
964
105
1
1
158
54
22
(243)
(246)
816
46
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
11. Business Combinations (continued)
Instem Clinical Holdings Limited
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets acquired
Goodwill arising on acquisition
£000
3,298
(816)
2,482
Goodwill arose on the acquisition of Instem Clinical Holdings Limited because the premium paid by the Company reflects the expected
benefit of synergies, revenue growth and future market development. Instem Clinical Holdings Limited was acquired to expand and
enhance the Group’s product and service offering within the Global Life Sciences operating segment. These benefits have not been
recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
Instem Clinical Holdings Limited
Net cash outflow on acquisition
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow
£000
575
(22)
553
Impact of acquisition on the results of the Group
Included in the profit for the year is £581,000 attributable to the additional business generated by Instem Clinical Holdings Limited.
Revenue for the year includes £1,340,000 in respect of Instem Clinical Holdings Limited.
Had this business combination been effected at 1 January 2013, Instem Clinical Holdings Limited would have added £1,418,000 to the
Group’s revenues and £297,000 to the profit from continuing operations.
Subsidiary acquired
2013
Principal activity
Date of
acquisition
Proportion of voting
Consideration
equity interests
transferred
acquired %
£000
Development, manufacture
and supply of software and
hardware products for in vitro
study data collection and study
management in the genetic
toxicology, microbiology and
immunology markets
Perceptive Instruments
Limited
Consideration transferred
21 November
2013
100
2,435
Initial cash consideration
Contingent consideration – Payable in cash
Deferred consideration – Payable in cash
Total consideration estimate at 31 December 2013
Perceptive Instruments Limited
£000
2,085
300
50
2,435
Instem plc Annual Report, 2013 47
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
11. Business Combinations (continued)
The contingent consideration is based on performance related conditions over 1 year as follows:
The contingent consideration is based on achieving a certain revenue target over a 1 year period ending 20 November 2014. The
contingent consideration provided in the financial statements represents the Group management’s estimate of the amount payable over
this period.
Acquisition related costs amounting to £73,000 have been excluded from the consideration transferred and have been recognised as an
expense in the current year, within the ‘Non-recurring costs’ line item in the consolidated statement of comprehensive income.
Assets acquired and liabilities recognised at the date of acquisition
£000
Perceptive Instruments Limited
Non-Current Assets
Intellectual property
Customer related assets
Property, plant and equipment
Current Assets
Inventories
Trade and other receivables
Cash and cash equivalents
Current Liabilities
Trade and other payables
Non-Current Liabilities
Deferred Tax on acquisition
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets acquired
Goodwill arising on acquisition
439
527
4
17
99
1,112
(109)
(203)
1,886
£000
2,435
(1,886)
549
Goodwill arose on the acquisition of Perceptive Instruments Limited because the premium paid by the Company reflects the expected
benefit of synergies, revenue growth and future market development. Perceptive Instruments Limited was acquired to expand and
enhance the Group’s product and service offering within the Global Life Sciences operating segment. These benefits have not been
recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
48
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
11. Business Combinations (continued)
Perceptive Instruments Limited
Net cash outflow on acquisition
Consideration paid in cash
Less: cash and cash equivalent balances acquired
Net cash outflow
£000
2,085
(1,112)
973
Impact of acquisition on the results of the Group
Included in the profit for the year is a loss of £7,000 attributable to the additional business generated by Perceptive Instruments Limited.
Revenue for the year includes £36,000 in respect of Perceptive Instruments Limited.
Had this business combination been effected at 1 January 2013, Perceptive Instruments Limited would have added £842,000 to the
Group’s revenues and £287,000 to the profit from continuing operations.
Instem plc Annual Report, 2013 49
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
12. Property, Plant and Equipment
Short leasehold
IT Hardware &
property
£000
Software
£000
Motor vehicles
£000
1,501
149
-
1,650
171
(1)
5
(4)
1,821
1,318
12
154
-
1
1,485
92
(1)
(12)
(2)
1,562
165
259
12
-
(12)
-
-
-
-
-
-
12
-
-
(12)
-
-
-
-
-
-
-
-
-
Total
£000
1,518
158
(12)
1,664
171
(1)
5
(4)
1,835
1,330
-
158
(12)
1
1,477
96
(1)
-
(2)
1,570
187
265
Group
Cost
At 1 January 2012
Additions
Disposals
At 31 December 2012
Additions
Disposals
Acquisitions through business
combinations
Exchange adjustment
5
9
-
14
-
-
-
-
At 31 December 2013
14
Depreciation
At 1 January 2012
Reclassification
Depreciation expense
Disposal
Exchange adjustment
At 31 December 2012
Depreciation expense
Disposals
Reclassification
Exchange adjustment
At 31 December 2013
Net book value
At 31 December 2012
At 31 December 2013
-
(12)
4
-
-
(8)
4
-
12
-
8
22
6
50
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
13. Inventories
Group
Work in progress
Total gross inventories
Inventory impairment
Net inventories
14. Trade and Other Receivables
Group
Trade receivables
Amounts recoverable on contracts
Prepayments and accrued income
Company
Amounts owed by group companies
Other receivables
2013
£000
307
2013
£000
307
-
307
2013
£000
1,990
425
493
2,908
1,225
18
1,243
2012
£000
90
2012
£000
90
-
90
2012
£000
1,971
1,232
547
3,750
1,919
113
2,032
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 for the year
At end of year
2013
£000
4
(4)
-
2012
£000
6
(2)
4
The average credit period taken on sale is 31 days (2012: 54 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.
Instem plc Annual Report, 2013 51
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
14. Trade and Other Receivables (continued)
The age profile of the net trade receivables for the Group at the year-end was as follows:
Group
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
Group
2013
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables/Amounts recoverable
on contracts
Value (£000)
%
1,619
67
488
20
94
4
214
9
2,415
100
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The
group does not hold any collateral as security.
An analysis of trade and other receivables by currency is as follows:
Group
Sterling
Euro
US Dollar
Renminbi
Other
2013
£000
1,083
67
1,598
156
4
2,908
2012
£000
1,690
179
1,645
235
1
3,750
52
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
15. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
2013
£000
11,051
(8,998)
2,053
277
2012
£000
11,415
(8,965)
2,450
1,365
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 items of the Group’s assets. 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
Renminbi
Other
Company
Sterling
The carrying amount of these assets approximates to their fair value.
16. Trade and Other Payables
Group - Current
Trade payables
Other taxation and social security costs
Other payables
Accruals
Deferred income
Company - Current
Trade payables
Amounts owed to group companies
Accruals
2013
£000
601
82
733
619
18
2,053
277
2013
£000
525
192
-
743
5,776
7,236
80
1,080
104
1,264
2012
£000
743
38
1,418
238
13
2,450
1,365
2012
£000
334
134
82
704
5,783
7,037
11
260
38
309
Instem plc Annual Report, 2013 53
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
16. Trade and Other Payables (continued)
An analysis of trade and other payables by currency is as follows:
Group
Sterling
US Dollar
Renminbi
Other
Company
Sterling
2013
£000
3,500
3,531
202
3
7,236
1,264
2012
£000
3,010
3,819
206
2
7,037
309
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their short maturities.
17. Current Taxation
The Group current tax payable of £7,000 (2012: receivable £235,000) represents the amount of income taxes payable/receivable in
respect of current and prior years.
The Company current tax payable of £120,000 (2012: £nil) represents the amount of income taxes payable in respect of current and
prior years.
18. Financial Liabilities
Group and Company
2012
Total
£000
Less than
One to
More than
one year
two years
two years
£000
£000
£000
Loan Note
250
250
-
-
Total
£000
Less than
One to
More than
one year
two years
two years
£000
£000
£000
2013
Contingent consideration
3,086
1,250
980
856
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. This was repaid in full during 2013.
Contingent Consideration
The contingent consideration relates to the acquisitions of Instem Clinical Holdings Limited and Perceptive Instruments Limited.
The directors believe that the carrying value of the contingent consideration for Perceptive Instruments approximates to the fair
value and that the carrying value of the contingent consideration for Instem Clinical Holdings Limited has been discounted by an
appropriate rate to take account of the time to maturity.
54
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
19. Financial Instruments
All financial instruments held by the Group, as detailed in this note, are classified as “Loans and Receivables” (trade and other
receivables, excluding prepayments, and cash and cash equivalents), “Financial Liabilities Measured at Amortised Cost” (trade and
other payables, excluding statutory liabilities, and financial liabilities) and “Fair value through profit and loss” (other financial liabilities
which reflect derivative contracts) under IAS 39 ‘Financial Instruments: Recognition and Measurement’.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks including market risk, credit risk and liquidity risk. Market risk includes
interest rate risk, foreign exchange rate risk and price risk. The main financial risks managed by the Group, under policies approved by
the Board, are interest rate risk, foreign currency risk, liquidity risk and credit risk.
The Group has in place risk management policies that seek to limit the adverse effects on the financial performance of the Group by
using various instruments and techniques. Derivative financial instruments are only used to hedge exposures arising in respect of
underlying business requirements and not for any speculative purpose.
Foreign exchange risk
The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the
functional currency and on the translation of the statement of financial position and statement of comprehensive income of foreign
operations into sterling. The currencies giving rise to this risk are primarily US dollars. The Group has both cash inflows and outflows in
this currency that create a natural hedge.
In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s cash inflows and outflows in a
foreign currency. The Group also hedges any material foreign currency transaction exposure. During the 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 2013 was based on a forecast that the US dollar to sterling rate would be 1.60. A 10% decrease in the value of Sterling
against the US dollar would result in an increase in the Group’s profit before tax by approximately £0.30m.
Interest rate risk
The Group operates an interest rate policy designed to minimise interest costs and reduce volatility in reported earnings.
The Group’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 2013 indications are that the UK bank base interest rate will not materially differ from 0.5% over the next 12 months.
On the basis of the floating net cash position at 31 December 2013 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).
Instem plc Annual Report, 2013 55
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
19. Financial Instruments (continued)
2012
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
2013
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Contingent consideration
2012
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Loan notes
2013
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Contingent consideration
Fixed
rate
£000
-
-
-
(250)
(250)
Fixed
rate
£000
-
-
-
-
-
Fixed
rate
£000
-
-
-
(250)
(250)
Fixed
rate
£000
-
-
-
-
-
Floating
Non-interest
rate
£000
-
2,450
-
-
2,450
bearing
£000
3,203
-
(1,120)
-
2,083
Floating
Non-interest
rate
£000
-
2,053
-
-
2,053
bearing
£000
2,415
-
(1,268)
(3,086)
(1,939)
Floating
Non-interest
rate
£000
-
1,365
-
-
1,365
bearing
£000
2,032
-
(309)
-
1,723
Floating
Non-interest
rate
£000
-
277
-
-
277
bearing
£000
1,243
-
(1,264)
(3,086)
(3,107)
Total
£000
3,203
2,450
(1,120)
(250)
4,283
Total
£000
2,415
2,053
(1,268)
(3,086)
114
Total
£000
2,032
1,365
(309)
(250)
2,838
Total
£000
1,243
277
(1,264)
(3,086)
(2,830)
56
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
19. 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 no customers which individually amount to more than 10% of the Group revenue (2012:
one such customer generated revenues of £1.1m).
The Group’s exposure to losses from defaults on trade receivables is reduced due to contractual terms which require installation,
training, annual licensing and support fees to be invoiced and paid annually in advance.
Note 14 sets out the impairment provision for credit losses on trade receivables and the ageing analysis of overdue trade receivables.
There 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 2013, its £2.0m bank facility was
undrawn and available (2012: £2.0m).
In respect of the Group’s interest-bearing financial liabilities, the table in note 18 includes details at the reporting date of the periods in
which they mature.
Instem plc Annual Report, 2013 57
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
20. 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
Charge to equity
Adjustments in respect of prior years
At end of the year
2013
£000
-
388
-
-
388
2013
£000
732
(75)
(258)
(11)
388
2012
£000
-
735
-
(3)
732
2012
£000
279
(46)
389
110
732
The following are the major deferred tax assets and liabilities recognised by the Group and the movements thereon during the year:
Accelerated
tax
Retirement
benefit
Other
timing
depreciation
Tax losses
obligations
differences
Deferred tax asset/(liability)
At 1 January 2012
Charge to profit or loss for the year
Charge to equity for the year
Adjustments in respect of prior years
At 31 December 2012
Charge to profit or loss for the year
Credit to equity for the year
Adjustments in respect of prior years
£000
(500)
42
-
100
(358)
127
(446)
(9)
At 31 December 2013
(686)
£000
375
(30)
-
-
345
(143)
158
-
360
£000
£000
404
(58)
389
-
735
(64)
30
-
701
-
-
-
10
10
5
-
(2)
13
Total
£000
279
(46)
389
110
732
(75)
(258)
(11)
388
Unrecognised tax losses not included at 31 December 2013 were £4,883,000 (2012: £5,246,000) due to uncertainty over the timing of
the recoverability of these losses.
58
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
21. Retirement Benefit Obligations
The Group has four active defined contribution schemes and a closed defined benefit scheme:
Defined contribution pension schemes
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 2013 were £0.40m (2012: £0.43m).
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 2013 were £0.03m (2012: £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 2013 were £0.09m (2012: £0.09m).
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 2013 were £0.03m (2012: £0.03m).
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 Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least
once every three years to determine whether the Statutory Funding Objective is met. As part of the process, the Group must agree with
the Trustees of the Scheme the contributions to be paid to address any shortfall against the Statutory Funding. The Statutory Funding
Objective does not currently impact on the recognition of the Scheme in the accounts.
The Scheme is managed by a Board of Trustees appointed in part by the Group and part from elections by members of the Scheme.
The Trustees have responsibility for obtaining valuations of the Scheme, administering benefit payments and investing the Scheme
assets. The Trustees delegate some of these functions to their professional advisers where appropriate.
The Scheme exposes the Group to a number of risks:
•
•
•
Investment risk. The Scheme holds investments in asset classes, such as equities, which have volatile market values and while
these assets are expected to provide the real returns over the long-term the short-term volatility can cause additional funding to be
required if deficit emerges.
Interest rate risk. The Scheme’s liabilities are assessed using market yields on high quality corporate bands to discount the
liabilities. As the Scheme holds assets such as equities the value of the assets and liabilities may not move in the same way.
Inflation risk. A significant proportion of the benefits under the Scheme are linked to inflation. Although the Scheme’s assets are
expected to provide a good hedge against inflation over the long-term, movements over the short-term could lead to deficits
emerging.
• Mortality risk. In the event that members live longer than assumed a deficit will emerge in the Scheme.
There were no plan amendments, curtailments or settlements during the period.
The latest full actuarial valuation was carried out at 5 April 2011 and was updated to 31 December 2013 by a qualified independent
actuary.
Instem plc Annual Report, 2013 59
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
21. Retirement Benefit Obligations (continued)
The expected return on plan assets was determined by considering the expected returns available on the assets underlying the current
investment portfolio. Expected yields on bonds are based on gross redemption yields at the 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
Inflation
Rate of increase in salaries
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
2013
%
4.6
3.5
N/A
3.5
3.5
Life Expectancy assumptions
Years
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
Interest on pension scheme assets
Interest on pension scheme liabilities
Net finance charge
ANALYSIS OF AMOUNT RECOGNISED IN OTHER COMPREHENSIVE EXPENSE
Gains on pension scheme assets in excess of interest
Experience losses arising on scheme liabilities
Changes in assumptions underlying the present value of the scheme liabilities
Actuarial loss recognised in other comprehensive expense
25.0
26.3
23.7
24.8
2013
£000
-
-
-
2013
£000
273
(408)
(135)
2013
£000
(612)
-
1,199
587
2012
%
4.5
2.9
N/A
2.9
2.9
Years
24.9
26.2
23.6
24.7
2012
£000
-
-
-
2012
£000
288
(372)
(84)
2012
£000
(172)
763
1,242
1,833
60
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
21. Retirement Benefit Obligations (continued)
CHANGES IN THE PRESENT VALUE OF THE DEFINED
BENEFIT OBLIGATION
Opening defined benefit obligation
Interest cost
Actuarial loss
Benefits paid
Closing defined benefit obligation
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
Opening plan assets
Expected return
Actuarial gain
Contributions by employer
Benefits paid
Closing plan assets
The actual return on plan assets was a positive return of £885,000 (2012: £460,000)
AMOUNT RECOGNISED IN THE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
Present value of funded obligations
Fair value of plan assets
Deficit
Related deferred tax asset
Net pension liability
RECONCILIATION OF NET DEFINED BENEFIT LIABILITY
Opening net defined benefit liability
Net interest expense
Remeasurements
Contributions by employer
Closing net defined benefit liability
2013
£000
9,200
408
1,199
(278)
10,529
2013
£000
6,004
273
612
412
(278)
7,023
2013
£000
(10,529)
7,023
(3,506)
701
(2,805)
2013
£000
3,196
135
587
(412)
3,506
2012
£000
6,946
372
2,005
(123)
9,200
2012
£000
5,330
288
172
337
(123)
6,004
2012
£000
(9,200)
6,004
(3,196)
735
(2,461)
2012
£000
1,616
84
1,833
(337)
3,196
Instem plc Annual Report, 2013 61
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
21. Retirement Benefit Obligations (continued)
ANALYSIS OF CUMULATIVE AMOUNT RECOGNISED IN
OTHER COMPREHENSIVE EXPENSE
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
Cumulative
2013
£000
253
(1,673)
(1,763)
2012
£000
(359)
(1,673)
(564)
Cumulative actuarial loss recognised in other
comprehensive expense
(3,183)
(2,596)
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2013
2012
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
4,986
211
632
632
492
70
%
71
3
9
9
7
1
£000
4,263
120
541
600
480
-
%
71
2
9
10
8
-
7,023
100
6,004
100
The five year history of experience adjustments are as follows:
2013
£000
2012
£000
2011
£000
2010
£000
2009
£000
Present value of defined
benefit obligation
(10,529)
(9,200)
(6,946)
(6,956)
(5,893)
Fair value of plan assets
7,023
6,004
5,330
5,479
4,812
Deficit
(3,506)
(3,196)
(1,616)
(1,477)
(1,081)
Experience adjustments on
plan liabilities
Experience adjustments on
plan assets
-
612
(763)
-
172
(480)
(77)
235
(18)
557
The Group expects to contribute £0.4m to its defined benefit plans in the next financial year (2012: £0.4m).
62
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
21. Retirement Benefit Obligations (continued)
The following sensitivities apply to the value placed on the liabilities:
Adjustments to assumptions
Approximate effect on
Liabilities
£000
DISCOUNT RATE
Plus 0.50% pa
Minus 0.50%
INFLATION
Plus 0.50%
Minus 0.50%
LIFE EXPECTANCY
Plus 1 year
Minus 1 year
(979)
1,125
951
(935)
305
(312)
22. Share Capital
Allotted, called up and fully paid
At 1 January
11,764,658 ordinary shares of 10p each (2012: 11,714,286)
50,372 ordinary shares of 10p each, issued during 2012
At 31 December
2013
£000
1,176
-
1,176
2012
£000
1,171
5
1,176
50,372 shares were issued in 2012 in part settlement of the deferred contingent consideration in respect of the acquisition of Instem
Scientific Limited.
Instem plc Annual Report, 2013 63
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
23. 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)
2013
Weighted
average
Earnings per
Profit after tax
2012
Weighted
average
Earnings per
number of
share (pence)
(£000’s)
number of
share (pence)
shares (000’s)
shares (000’s)
Earnings per share-basic
Potentially dilutive shares
Earnings per share-diluted
529
-
529
11,765
15
11,780
4.5
-
4.5
1,044
-
1,044
11,755
-
11,755
8.9
-
8.9
Adjusted Earnings Per Share
Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange on the revaluation of inter-company
balances included in finance income/(costs), non-recurring items and amortisation of intangibles on acquisitions. Diluted adjusted
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.
Adjusted
Profit after
tax (£000’s)
2013
Weighted
average
Earnings per
number of
share (pence)
shares (000’s)
Earnings per share-basic
1,017
Potentially dilutive shares
-
Earnings per share-diluted
1,017
11,765
15
11,780
8.6
-
8.6
2012
Weighted
average
Earnings per
number of
share (pence)
shares (000’s)
11,755
-
11,755
7.8
-
7.8
Adjusted
Profit after
tax (£000’s)
921
-
921
64
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
24. 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.
25. Capital Commitments
There were no capital commitments at the end of the financial year (2012: £nil).
Instem plc Annual Report, 2013 65
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
26. 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
2013
£000
380
2013
£000
295
868
604
4
8
2012
£000
424
2012
£000
364
1,168
727
3
5
1,779
2,267
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.
66
Instem plc Annual Report, 2013
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
27. 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 £0.73m (2012: £1.21m). The net intercompany balances due to the
Company at the year-end totalled £0.02m (2012: £1.66m).
During the year the Company traded in its normal course of business with shareholders and consultancy businesses in which Directors
have a material interest as follows:
Key management compensation:
2013
£000
2012
£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
86
-
9
-
95
Executive directors
Salaries and short term benefits
267
Post employment retirement benefits
Employers’ national insurance & social security costs
Share-based payment charge
37
20
38
362
Other key management
Salaries and short term employee benefits
414
Post employment retirement benefits
Employers’ national insurance & social security costs
Share-based payment charge
25
38
36
513
92
-
10
-
102
251
48
18
43
360
336
24
29
36
425
In addition the Company paid £0.05m (2012: £0.05m) to Instem Ventures Limited, a company owned by A Gare, a shareholder. The
balance outstanding at the end of the year was £nil (2012: £nil).
In addition the Company paid £0.006m (2012: £nil) to Noble Adamson Limited, a company owned by M McGoun, the independent
non-executive director and a shareholder. The balance outstanding at the end of the year was £nil (2012: £nil).
Key management are considered to be the Directors together with the Senior Managers of the business.
28. Critical Accounting Estimates and Judgments
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.
Fair value of assets acquired and calculation of contingent consideration
The amounts presented in the statement of financial position in respect of the fair values of assets acquired are estimated by the
Group’s management based on prior experience and their assessment of the present value of estimated future cash flows. The key
assumptions made in assessing fair values are in relation to intangible assets acquired, and these relate principally to the royalty rate
applied to intellectual property rights (IPR), and the assessment of future revenues.
Instem plc Annual Report, 2013 67
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2013
28. Critical Accounting Estimates and Judgments (continued)
The contingent consideration provided in the financial statements represents the Group management’s estimate of the net present value
of the amount payable over the related period.
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.
29. 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.
68
Instem plc Annual Report, 2013
NOTES
Instem plc Annual Report, 2013 69
NOTES
70
Instem plc Annual Report, 2013
NOTES
Instem plc Annual Report, 2013 71
NOTES
72
Instem plc Annual Report, 2013
Directors and Advisors
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 825625
www.instem.com
Company No: 07148099
AUDITOR
Baker Tilly UK Audit LLP
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
BANKER
NatWest Bank
1 Spinningfields Square
Manchester
M2 3AP
NOMINATED ADVISOR AND BROKER
Nplus1 Singer Advisory LLP
One Bartholomew Lane
London
EC2N 2AX
REGISTRARS
Computershare
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
SOLICITORS
Squire Sanders (UK) LLP
Trinity Court
16 John Dalton Street
Manchester
M60 8HS
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 130 people in eight offices in the US, UK,
China and India; with a full service distributor in Japan.
e-mail
investors@instem.com
instem.com