Instem plc
Annual Report
2014
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 an additional location 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 STATEMENTS OF CHANGES IN EQUITY
ACCOUNTING POLICIES
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS AND ADVISORS
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Instem plc Annual Report, 2014
Highlights
Financial Highlights
Operational Highlights
•
Revenues increased 18% to £13.4m (2013: £11.4m)
•
•
•
Recurring revenues increased to £9.2m (2013:
£8.2m), representing 69% of total revenues
Software as a Service (SaaS) revenues increased
20% to £1.8m (2013: £1.5m)
Adjusted EBITDA* for the year amounted to £1.9m
(2013: £1.8m)
Cash balance as at 31 December 2014 of £1.7m
(2013: £2.1m)
•
After £0.3m of deferred acquisition
consideration paid in 2014
Adjusted earnings per share** of 8.4p (2013: 8.6p)
•
•
•
In contrast to 2013, when the preclinical and
early clinical market was generally reluctant to
commit to any significant investment decisions,
2014 was a period when many of our customers
revisited their near-term ambitions and began to
evaluate their ongoing information management
requirements. This resulted in a very strong
second half performance.
As we enter the current financial year, our order
backlog is at record levels, underpinning our
2015 expectations. In addition, December’s
decision by the FDA to mandate the future use
of SEND was a key event for which Instem has
been planning and we have already begun to see
increasing interest and orders for the Group’s
SEND compliant products across a range of
customers.
Total research and development pipelines within
the pharma sector have increased by almost 9%
to approximately 12,300 drug candidates during
2014, which makes us particularly positive about
our outlook for the future as we can now see
sustainable growth across our target markets.
P J Reason,
Chief Executive
Significant WIL Research contracts won in H1 2014
and H2 2014, with the latter valued at over $7m
over four years
• Multi-year National Institute of Environmental
Health Sciences (“NIEHS”) contract extended with
additional sites and users
•
•
Further client wins extended our market leading
position in China
US Food & Drug Administration mandating drug
submissions using SEND (Standard for the Exchange
of Nonclinical Data)
• Multiple orders for submit™, Instem’s solution for
implementing SEND
•
Both 2013 acquisitions successfully integrated
* Earnings before interest, tax, depreciation, amortisation, share
based payment charges 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. Profit is adjusted in this way to provide a clearer
measure of underlying operating performance.
Instem plc Annual Report, 2014 3
market leadership
“Instem continues to be the leading supplier of
information solutions to the preclinical and early
clinical market place.”
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Chairman’s
Statement
During the period, the Company was pleased to confirm
that the initial earn out criteria for the Instem Clinical
acquisition were successfully achieved, triggering the
first two payments to the vendors. Furthermore, the
recently integrated Perceptive Instruments acquisition
performed well during the period, making a solid
contribution to revenue and profits.
We have successfully diversified our revenue base,
further reducing the Group’s dependence on particular
products, market sectors or geographies whilst
continuing to invest in the capabilities of our product
portfolio and staff. Contract renewal rates remained
high through the year and we ended 2014 with a record
backlog of orders. Furthermore, in December 2014 SEND
received final mandatory guidance from the FDA, setting
the dates by which all regulatory submissions must
comply with the standard; this is a key development in
our market that should provide significant impetus for
our products.
We therefore look forward to the future with confidence
and believe Instem will become an increasingly valuable
player in the field of supporting drug development
through the application of leading information
technology solutions.
Finally, I would like to take this opportunity to thank
all our staff, customers and partners for their ongoing
support.
D Gare
Chairman
As previously stated, our near term ambitions for the
period were to consolidate our market position and fully
integrate the recent acquisitions. I am pleased to report
both of these ambitions were completed successfully
during the year.
From a market perspective, Instem continues to be
the leading supplier of information solutions to the
preclinical and early clinical market place. Furthermore,
this market is experiencing a strong recovery as global
pharmaceutical organisations invest significant financial
and human resources to accelerate their own drug
development and acquire third party candidates for high
value and high growth markets. We believe that Instem
continues to be well placed to benefit from increased
focus on the tools and skills required to increase the
capital efficiency of these global pharmaceutical and
biotechnology companies and their partners.
During the year, we achieved strong organic growth
through expansion contracts with existing customers,
winning contracts with new customers and successfully
integrating the acquisitions of Instem Clinical Holdings
Limited and Perceptive Instruments Limited, which both
contributed a full-year of trading, to record a period of
strong revenue growth of 18%.
From an organic growth point of view, we were
particularly pleased to extend the contract with WIL
Research for our Provantis and Submit solutions for
their toxicology systems and processes worldwide. We
also extended our Provantis contract with the National
Institute of Environmental Health Sciences (“NIEHS”),
which is part of the US National Institute of Health.
With regard to new clients, we won eight new contracts
for our Submit suite during the period, expanded our
international revenues across Asia-Pacific with two
new contracts with the National Shanghai Centre for
Drug Safety Evaluation and Research, a leading Chinese
Contract Research Organisation (“CRO”) and a multi-
year contract with a leading multi-national organisation
to support its standards for the exchange of non-clinical
data.
Instem plc Annual Report, 2014 5
continued growth
“We achieved strong organic growth through
expansion contracts with existing customers,
winning contracts with new customers and
successfully integrating the acquisitions of
Instem Clinical Holdings Limited and Perceptive
Instruments Limited”
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Instem plc Annual Report, 2014
Strategic
Report
The year in review represents a period of significant
progress for the Group in terms of expanding the product
portfolio and diversifying the revenue base by product
and territory.
Instem continues to be a leading supplier to the world’s
largest life science organisations and laboratories,
delivering solutions to streamline R&D processes,
resulting in increased client efficiency and shorter
product development timelines. Following a subdued
first half of the year, the global pharmaceutical industry
in general, and the Contract Research Organisations that
service it in particular, witnessed a strong recovery in the
second half of the year.
Total Group revenue for 2014 increased approximately
18% over the previous year as a combination of 11%
organic growth and 7% contribution from the Perceptive
Instruments acquisition, which only contributed one
month of revenue in 2013.
As a result of the improving market and our increasing
industry presence, new business opportunities improved
significantly in both size and quality during the year and
we converted the majority of our new business using
our SaaS or Hosted delivery models, helping reduce
the medium-term cost of ownership for clients and the
cost of client support for Instem. The SaaS model also
improves revenue visibility and quality of earnings for
the Group. SaaS revenue for the year increased 20%.
Profitability of the Group also increased during the year,
with Adjusted Earnings before Interest, Tax, Depreciation
and Amortisation increasing 5% despite significant
investment in our products and people during the period.
Operational Review
To capitalise on our increased product portfolio and
market presence we added to our Sales, Marketing
and Implementation Services teams during the year
and made significant progress in scaling up our Pune,
India operation, from where we can flexibly and cost
effectively provide a range of software development,
testing, client support and back-office implementation
services. To support our growth in India and elsewhere
in the Asia-Pacific we extended our ISO9001:2008
accreditation to cover both our Pune and Shanghai
offices.
Product Portfolio
With major version upgrades for all current Provantis
and ALPHADAS clients, the increased deployment of
our Submit suite and the general migration to our
Software-as-a-Service and Hosted deployment models,
we also invested further in the Company’s data centre
infrastructure across both the US and China.
Preclinical – Provantis® and Perceptive Instruments
The Group’s preclinical software suite, Provantis,
advanced its market leading position in the year with
significant contracts with the National Institute of
Environmental Health Sciences (“NIEHS”) and WIL
Research, a leading CRO, in both the first and second half
of the year.
The addition of 100 additional Provantis users and two
additional sites for NIEHS illustrated the compelling
value proposition of the Group’s SaaS delivery model
and confirms it remains the leading solution in the
marketplace today. Importantly, this provides further
confidence that this particular customer will generate
revenue at the upper end of the forecast US$6.2m to
US$7.6m range over the ten-year period envisaged when
the contract was initially signed in 2013. The contracts
signed with WIL Research were also representative of
our leading position in the CRO sector. In particular, the
contract signed in the second half of the year was worth
US$7.0m over four years, which is significantly larger
than the average contract size for the Group.
Instem plc Annual Report, 2014 7
STRATEGIC REPORT
Perceptive Instruments, acquired in November 2013 to
enhance the Group’s study workflow and automation
solutions, won over 30 new clients in the first full year
post acquisition, recorded its first sale of its new Cyto
Study Manager Solution, which was also launched in the
year, and achieved its first sale into Japan of its AMES
Study Manager product.
Electronic Regulatory Submissions – submit™
Importantly, the Group extended its market leading
position in the SEND market with its proprietary
Submit solution suite. During the year, the Group hired
experienced staff members from Roche, AstraZeneca
and Eli Lilly to accelerate product development and
penetration in this exciting space, resulting in the
release of important updates and additional software
modules in the Submit suite for managing and viewing
SEND data sets.
The Group won eight new Submit clients during the year,
including some of the world’s largest pharmaceutical
companies and CROs and now has the majority of those
enterprises instrumental in the development of the
SEND protocol over the past 10 years, representing a
significant endorsement of the Group’s solution. This
important market is set to receive a significant boost
following the issue of definitive guidance by the FDA in
December 2014 as to the deadline when all regulatory
submissions must be made using SEND.
Early Clinical – ALPHADAS™
Following strong order intake in 2013, Instem Clinical
focused considerable attention on a series of related
updates to our ALPHADAS product suite and the
corresponding client implementations. With a growing
client list and many more parallel implementation
projects, we took the opportunity to strengthen the
implementation and support team.
The Group implemented several important ALPHADAS
projects during the year and continues to cycle
clients onto the latest version of the product suite.
New business across Europe was particularly strong
for ALPHADAS, whilst several opportunities in North
America were delayed as early phase clinical CROs
continued to restructure and realign their resource
requirements.
Instem Scientific
Instem Scientific has always had a blend of product
sales for big data informatics and related consulting
services in the information sciences. While recurring
product support revenue from existing clients has
been robust, the ongoing restructuring in big pharma
has steadily reduced their internal capabilities in this
area, reducing demand for additional product licences.
However, consistent with their strategic move to an
outsourcing model, there was growing client interest in
our consulting expertise and particularly our capability
to leverage our sophisticated technology suite.
Consequently, we have repositioned our approach to
address this emerging opportunity. We expect to see the
benefits of this change in the coming years, as demand
for consulting expertise is usually a lead indicator for
increasing demand for other products and services
across this market sector.
Market Overview
Citeline®, which claims to have the world’s most
comprehensive source of real-time R&D intelligence
for the pharmaceutical industry, recently reported that
the global drug pipeline had increased by 8.8% in the
past year, alongside a 27% increase in market launches
of new active substances. Supported by high capital
inflows, the biggest growth segment was small to
mid-tier pharma, with a year-on-year increase of more
than 10% in the number of companies with an active
drug development portfolio.
Following the strong growth recorded in 2013, the
growth in 2014 represents the largest annual drug
pipeline rise on record, in absolute terms, and there
is further evidence that the global pharmaceutical
market is now moving resources from late stage clinical
development into early compound development work in
order to refill the pipeline of preclinical candidates.
These drug development activities require specialist
services and technologies with a particular focus on IT
solutions which enable organisations to improve cost
efficiencies and ensure they are able to meet the ever
increasing regulatory demands of the industry. The
regulatory bodies’ preference for the electronic capture,
storage and transfer of data for new drug submissions
continues to grow and pharmaceutical organisations
are seeking tools that can help them to identify suitable
drug candidates from vast volumes of historic data, in
addition to managing their compliance risk with the
authorities.
Preclinical Market
A sustained recovery in study volumes is currently
being reported by Preclinical CROs as pharmaceutical
organisations are currently seeking to replenish early
stage pipelines after five years focused predominately
on late stage clinical candidates. This is supported by
the recent Citeline® report, which shows the Preclinical
drug pipeline increased by 10.5% in the last year, with
CROs accounting for the majority of the increase.
With increased preclinical study volume helping
to create opportunities with the pharma sponsors,
Preclinical CROs continue to report strong demand
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Instem plc Annual Report, 2014
STRATEGIC REPORT
in North America, but a continuation in suppressed
demand from Europe and Japan. Numerous CROs have
been adding or looking to add additional capacity.
Early Stage Clinical Market
Total research and development pipelines within
the pharma sector have increased by almost 9% to
approximately 12,300 drug candidates during 2014,
which makes us particularly positive about our outlook
for the future as we can now see sustainable growth
across our target markets.
P J Reason
Chief Executive
The recent market study from Citeline® reported a
4.9% increase in the Early Stage Clinical pipeline, less
than in 2013, and this supports anecdotal evidence
that the Early Stage Clinical market is growing less
consistently, with some CROs reporting marked
increases in study volume and others still with capacity
to spare.
The early stage clinical market is immediately
downstream of preclinical and there may therefore be
a delay before the increased preclinical investment
delivers an improved flow of drug candidates to the
clinic. The restructuring of the early phase clinical CRO
market, as experienced in recent years, is expected to
continue with CRO performance quite variable.
Nevertheless opportunities exist within the early stage
clinical market for the deployment of Instem’s software
solutions. These opportunities are resulting from an
increasing recognition of the need to control data
quality and integrity and because levels of automation
within the early stage environment remain low.
Government and Academic Research
Funding for Government/Academic institutions
undertaking later stages of life sciences research in
North America, China and Europe continues to grow
to cover gaps that are not sufficiently attractive to
commercial enterprises. This enables them to invest
in both study automation solutions and in innovative
approaches to the process of R&D using novel scientific,
informatics and big data approaches.
Outlook
In contrast to 2013, when the preclinical and early
clinical market was generally reluctant to commit to
any significant investment decisions, 2014 was a period
when many of our customers revisited their near-
term ambitions and began to evaluate their ongoing
information management requirements. This resulted in
a very strong second half performance.
As we enter the current financial year, our order backlog
is at record levels, underpinning our 2015 expectations.
In addition, December’s decision by the FDA to mandate
the future use of SEND was a key event for which Instem
has been planning and we have already begun to see
increasing interest and orders for the Group’s SEND
compliant products across a range of customers.
Instem plc Annual Report, 2014 9
outlook
“As we enter the current financial year, our order
backlog is at record levels. “
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Instem plc Annual Report, 2014
Financial
Review
Instem’s revenue model consists of perpetual licence
income with annual support contracts, professional
services fees and SaaS subscriptions. Total revenue for
the twelve months to 31 December 2014 increased 18%
to £13.4m compared to the same period last year. From
a territory perspective, demand for our products and
services from customers in North America continued
to increase whilst new business in Europe was more
muted, reflecting the lower levels of pharmaceutical R&D
activity in the region.
During the period, organic revenue increased 11%
with the remaining 7% revenue growth from a full-year
contribution of the Perceptive Instruments acquisition.
The organic revenue growth was driven primarily from
the increased sales of our Submit suite with total
revenue benefiting from a full year contribution from
the Perceptive Instruments acquisition, which made
negligible revenue contribution in 2013.
Total recurring revenue, from support contracts and SaaS
based subscriptions, increased 12% during the year to
£9.2m, now representing 69% total revenue and 79%
of total operating expenses of the Group. SaaS based
revenue, which provides enhanced total returns and
increased revenue visibility, increased 20% to £1.8m.
Adjusted Earnings before Interest, Tax, Depreciation,
Amortisation and share based payments, increased
5% to £1.9m. Development costs incurred during the
period were £1.3m of which £0.3m was capitalised.
The non-recurring costs included a charge of £0.06m
relating to a trade dispute, net of insurance proceeds,
and £0.07m of professional fees associated with the
Perceptive Instruments acquisition in 2013.
Profit before tax decreased by £0.5m to £0.2m due to
increased amortisation of intangibles, increased FRS17
pension charge and net foreign exchange losses. In
2013 the acquired subsidiaries contributed £0.6m. After
consolidation and IFRS adjustments, the core business
before acquisitions reported a post-tax loss in 2013
of £0.05m due primarily to a delay in one particularly
significant perpetual licence and non-recurring costs of
£0.2m.
The Group claimed and received research and
development tax credits during the year of £0.1m (2013:
£0.05m).
Cash generated from operation activities was £0.5m
(2013: £2.0m) impacted by the late WIL contract win in
December 2014, the cash receipt from which is due in
2015, and late receipt of three annual fee renewals. The
Group had cash reserves of £1.7m as at 31 December
2014, compared with £2.1m as at 31 December 2013,
after making two deferred consideration cash payments
for the Instem Clinical acquisition during the year
amounting to £0.3m. In addition, cash consideration
amounting to £0.3m was taken in the form of a Loan
Note included within current financial liabilities at the
year-end, which was paid in January 2015.
There was an increase in the funding deficit on the
Group’s defined benefit pension scheme during the
period calculated in accordance with the provisions
of IAS19 that amounted to £0.5m, net of deferred tax
(2013: £0.6m), which has been recognised in Other
Comprehensive Expense. This was a non-cash charge
in the period and arose primarily as a result of forecast
lower gilt yields, partially offset by higher expected
returns on assets.
As part of the scheme’s triennial actuarial valuation as at
5 April 2011, the Group 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 scheme’s actuarial
valuation as at 5 April 2014 is currently in process and
will be reported in the six month results to 30 June
2015. The defined benefit pension scheme has remained
closed to new members since 2000 and to future accrual
since 2008.
Instem plc Annual Report, 2014 11
FINANCIAL REVIEW
The increase in the merger reserve of £0.6m was due
to the premium arising from the issue of shares as part
of the deferred consideration payment relating to the
Instem Clinical acquisition.
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.
The Group seeks to mitigate exposure to all forms of risk
through a combination of regular performance review and
a comprehensive insurance programme.
The global nature of the market means that the Group is
exposed to currency risk as a consequence of a significant
proportion of its revenue being earned in US Dollars,
some of which is mitigated by operating costs incurred by
its US operation. The Group continually assesses the most
appropriate approach to managing its currency exposure
in line with the overall goal of achieving predictable
earnings growth.
N J Goldsmith
Chief Financial Officer
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Instem plc Annual Report, 2014
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.
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, 2014 13
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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 auditors 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.
c.
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
auditor;
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.
d.
e.
g.
f.
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
8/8
8/8
8/8
8/8
8/8
2/2
2/2
2/2
2/2
2/2
3/3
0/0
4/4
4/4
4/4
0/0
0/0
1/1
1/1
1/1
Instem plc Annual Report, 2014 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, 2014
CORPORATE GOVERNANCE STATEMENT
Nomination Committee (continued)
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.
investigate any activity within its terms of
reference;
b.
c.
d.
seek any information it requires from any
employee;
obtain outside legal or other independent
professional advice at the Group’s expense when
the Nomination Committee reasonably believes it is
necessary to do so; and
instruct external professional advisers to attend any
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
21 April 2015
Instem plc Annual Report, 2014 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 2014.
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 2014 the Group had in excess of 400 customers (2013: in
excess of 400 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 2014
was £9.2m (2013: £8.2m)
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, the Strategic Report and Financial Review on
pages 5 to 12.
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 2014 and up to the date of this report were as
follows:
2014
2013
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
-
-
Future Developments
Directors’ interests in share options are detailed in the
Remuneration Committee report on page 20.
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.
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.
Political Donations
Research and Development Activities
The Group continues its development programme of
software for the global pharmaceutical market including
the research and development of new products and
enhancement to existing products. The directors consider
the investment in research and development to be
fundamental to the success of the business in the future.
The Group made no political donations in 2014 or 2013.
Financial Instruments
The Group’s objectives and policies on financial
instruments are set out in note 18 to the financial
statements.
Dividends
The directors do not recommend the payment of a dividend.
18
Instem plc Annual Report, 2014
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 19 May 2015 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
21 April 2015
Instem plc Annual Report, 2014 19
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
Performance Related Annual Bonus
Instem plc is a company listed on AIM and it 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. 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 on four
occasions. Full details of the elements of each director’s
remuneration are set out on page 21. Details of share-
based payments are shown in note 6 to the financial
statements.
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 2014
(2013: £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 and 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.
Policy on Executive Director
Remuneration
Service Contracts
The Executive directors have contracts with 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.
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, 2014
DIRECTORS’ REMUNERATION REPORT
The emoluments paid to directors in the year ended 31 December 2014 were as follows:
Salary
£000
Benefits
£000
Pension
£000
2014 Total
£000
2013 Total
£000
Executives
P J Reason
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
144
100
44
24
24
Total
336
14
11
-
-
-
25
24
11
-
-
-
35
182
122
44
24
24
396
185
119
44
24
24
396
Directors’ and Employees’ Share Options
Exercise
price(£)
Issue date
Held at 31
Dec 2013
Granted
During Year
Exercised
during Year
Lapsed
during Year
Held at 31
Dec 2014
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
807,839
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
187,427
23,429
40,000
20,000
15,000
304,568
(7,507)
93,844
-
-
-
14,667
40,000
61,397
(7,507)
800,332
Subsequent to the year end, on 11 February 2015 81,168 share options were granted to employees with an exercise
price of £0.10 each.
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Chairman
Instem plc Annual Report, 2014 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, 2014
INDEPENDENT AUDITOR’S REPORT to the members Of instem plc
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 65. 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.
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.
•
•
•
Graham Bond FCA (Senior Statutory Auditor)
For and on behalf of BAKER TILLY UK AUDIT LLP,
Statutory Auditor
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
Scope of the audit of the financial
statements
23 April 2015
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/
auditscopeukprivate
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 2014 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
•
•
•
Instem plc Annual Report, 2014 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2014
CONTINUING OPERATIONS
Note
2014
£000
2013
£000
REVENUE
1
13,429
11,361
Operating expenses
(11,699)
(9,685)
Amortisation of internally generated intangibles
(297)
(226)
PROFIT FROM OPERATIONS BEFORE AMORTISATION OF ACQUIRED INTANGIBLES,
SHARE BASED PAYMENT AND NON-RECURRING COSTS
1,433
1,450
Amortisation of intangibles arising on acquisition
Share-based payment
PROFIT BEFORE NON-RECURRING COSTS
Non-recurring costs
PROFIT FROM OPERATIONS
Finance income
Finance costs
PROFIT BEFORE TAXATION
Taxation
PROFIT FOR THE YEAR
2
2
3
4
8
OTHER COMPREHENSIVE EXPENSE
Items that will not be reclassified to profit and loss account
Actuarial loss on retirement benefit obligations
Deferred tax on actuarial loss
Items that may be reclassified to profit and loss account
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
22
22
(640)
(108)
685
(123)
562
9
(359)
212
(62)
150
(621)
124
(497)
34
(463)
(313)
150
(313)
1.2p
1.2p
(394)
(96)
960
(200)
760
145
(207)
698
(169)
529
(587)
30
(557)
(90)
(647)
(118)
529
(118)
4.5p
4.5p
24
Instem plc Annual Report, 2014
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
Note
£000
£000
£000
£000
2014
2013
ASSETS
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Deferred tax assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
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
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
11
19
12
13
14
15
16
17
17
20
21
23
23
23
23
23
12,439
263
574
506
4,432
1,676
8,175
231
1,903
281
3,881
1,221
7,892
(326)
378
228
(3,974)
12,887
265
388
13,276
13,540
5,268
18,808
8,493
5,342
13,835
6,614
19,890
10,309
4,162
14,471
307
2,908
2,053
7,236
7
1,250
1,836
3,506
1,176
7,892
(932)
270
194
(3,627)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF
THE PARENT
5,419
4,973
TOTAL EQUITY AND LIABILITIES
19,890
18,808
The financial statements on pages 24 to 65 were approved by the board of directors and authorised for issue on 21 April 2015
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
Instem plc Annual Report, 2014 25
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014
Note
2014
2013
ASSETS
£000
£000
£000
£000
NON-CURRENT ASSETS
Investments
10
23,132
23,024
TOTAL NON-CURRENT ASSETS
23,132
23,024
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
13
14
15
16
17
2,231
97
2,322
-
1,903
2,328
25,460
1,243
277
1,264
120
1,250
1,520
24,544
4,225
2,634
Financial liabilities
17
281
1,836
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained profit
21
23
23
23
23
1,221
7,892
11,308
378
155
281
4,506
1,836
4,470
1,176
7,892
10,702
270
34
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
20,954
25,460
20,074
24,544
The financial statements on pages 24 to 65 were approved by the board of directors and authorised for issue on 21 April 2015
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
26
Instem plc Annual Report, 2014
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2014
2014
2013
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangibles
Share-based payments and shares to be issued
Retirement benefit obligations
Net foreign exchange gains
Finance income
Finance costs
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
Movements in working capital:
Increase in inventories
(Increase)/Decrease in trade and other receivables
Increase in trade and other payables
CASH GENERATED FROM OPERATIONS
Finance costs
Income taxes
NET CASH GENERATED FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income received
Purchase of intangible assets
Purchase of property, plant and equipment
Payment of deferred consideration
Acquisition of subsidiaries
Cash acquired with subsidiaries
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Loan notes repaid
212
127
937
108
(398)
-
(9)
359
(196)
(1,436)
743
(65)
100
9
(369)
(124)
(302)
-
-
-
698
96
620
96
(412)
84
(145)
207
1,336
1,244
644
1,888
65
1,953
(889)
447
35
482
(210)
823
31
(9)
74
61
(407)
(171)
-
(2,710)
1,134
(786)
(2,093)
(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
14
-
(304)
2,053
(73)
1,676
(250)
(390)
2,450
(7)
2,053
Instem plc Annual Report, 2014 27
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2014
Note
£000
£000
£000
£000
2014
2013
CASH FLOWS FROM OPERATIONS
Profit before taxation
Adjustments for:
Finance income
Finance cost
CASH FLOWS FROM OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
(Increase)/Decrease in trade and other receivables
Increase in trade and other payables
NET CASH GENERATED FROM OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income received
Payment of deferred consideration
Acquisition of subsidiaries
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Loan notes repaid
NET CASH USED IN FINANCING ACTIVITIES
NET DECREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
14
1
(6)
50
6
(302)
-
-
65
(3)
63
3
-
(2,710)
(250)
125
789
955
1,869
(2,707)
(250)
(1,088)
1,365
277
45
(988)
1,059
116
(296)
-
(180)
277
97
28
Instem plc Annual Report, 2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
£000
Balance as at 1 January 2013
1,176
Share
Premium
Merger
Reserve
Shares to
Translation
be issued
Reserve
Retained
Earnings
£000
£000
Profit for the year
Other comprehensive expense
for the year
Total comprehensive expense
Share-based payment
Balance as at 31 December
2013
Profit for the year
Other comprehensive expense
for the year
Total comprehensive income
Shares issued
Share-based payment
£000
7,892
£000
(932)
-
-
-
-
-
-
-
-
-
-
-
-
1,176
7,892
(932)
-
-
-
45
-
-
-
-
-
-
-
-
-
606
-
£000
174
-
-
-
96
270
-
-
-
-
108
378
Total
Equity
£000
4,995
529
(647)
(118)
96
(3,599)
529
(557)
(28)
-
(3,627)
4,973
150
(497)
(347)
-
-
150
(463)
(313)
651
108
Balance as at 31 December
2014
1,221
7,892
(326)
228
(3,974)
5,419
COMPANY STATEMENT OF CHANGES IN EQUITY
Called
up share
capital
£000
Balance as at 1 January 2013
1,176
Loss for the year
Share-based payment
-
-
Share
Premium
£000
7,892
-
-
Merger
Reserve
£000
10,702
-
-
Balance as at 31 December 2013
1,176
7,892
10,702
Profit for the year
Shares issued
Share-based payment
-
45
-
-
-
-
-
606
-
Balance as at 31 December 2014
1,221
7,892
11,308
284
-
(90)
(90)
-
194
-
34
34
-
-
174
-
96
270
-
-
108
378
Shares to
be issued
Retained
Earnings
£000
£000
Total
Equity
£000
20,033
(55)
96
20,074
121
651
108
89
(55)
-
34
121
-
-
155
20,954
Instem plc Annual Report, 2014 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 profit for the year of the parent company is £121,000 (2013:
loss of £55,000).
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 2014 and 31 December 2013.
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
committed working capital facility is in place to support the
Group’s working capital needs. The Group has net current
liabilities of £3.7m at 31 December 2014, including deferred
income of £6.8m (2013: £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 committed working capital facility of £2m
referred to above which, at 31 December 2014, was drawn down
by £0.4m. The Group has, therefore, sufficient liquid assets to
cover its day-to-day needs, in addition to its strong trading cash
flow generation.
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
The financial position of the Group, its cash flows and liquidity
position are set out in the primary statements within these
financial statements. Detailed projections have been made for
the 12 months following the approval of the financial statements
and sensitivity analysis undertaken. This work gives the
directors confidence as to the future trading performance of the
Group. Accordingly the directors continue to adopt the going
concern basis for the preparation of the financial statements.
REVENUE RECOGNITION
The Group follows the principles of IAS 18 ‘Revenue
Recognition’, in determining appropriate revenue recognition
30
Instem plc Annual Report, 2014
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,
or otherwise at the exchange rate ruling at the date of each
transaction.
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
(GBP). The functional currencies of the principal companies in
the Group are as follows:
Instem plc
Sterling (GBP)
Instem Life Science Systems Limited
Sterling (GBP)
Instem LSS Limited
Sterling (GBP)
Instem LSS (North America) Limited
US Dollars (USD)
Instem LSS Asia Limited
Hong Kong
Dollars (HKD)
Instem Information Systems (Shanghai) Limited
Renminbi (RMB)
Instem Scientific Limited
Sterling (GBP)
Instem Scientific Solutions Limited
Sterling (GBP)
Instem Scientific Inc
US Dollars (USD)
Instem India Pvt Limited
Indian Rupees
(INR)
Instem Clinical Holdings Limited
Sterling (GBP)
Instem Clinical Limited
Sterling (GBP)
Instem Clinical Inc
US Dollars (USD)
Logos Technologies Limited
Sterling (GBP)
Perceptive Instruments Limited
Sterling (GBP)
accounting policies
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, and 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 i.e. when licence keys are delivered to the
customer, the sales price is fixed and determinable and
collectability is reasonably assured.
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 is adjusted in this way to
provide a clearer measure of underlying operating performance.
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
Instem plc Annual Report, 2014 31
accounting policies
The exchange rates used to translate the financial statements
into Sterling (GBP) are as follows:
US Dollar
(USD)
Hong Kong Dollar
(HKD)
Chinese Renminbi
(RMB)
Indian Rupee
(INR)
Average rate for year ended 31 December 2013
Closing rate at 31 December 2013
Average rate for year ended 31 December 2014
Closing rate at 31 December 2014
1.5707
1.6494
1.6470
1.5562
12.1832
12.7915
12.7733
12.0780
9.6579
10.0096
10.1437
9.6686
91.7069
102.1390
100.5207
99.0440
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 include interest payable, exchange losses on
the translation of inter-company funding balances, unwinding
discount from future deferred consideration payments, finance
charges on finance leases and net 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. Market vesting conditions are linked to the
Group’s share price performance relative to the performance of
the AIM All share index. Non-market vesting conditions are linked
to trading performance and service over defined time periods.
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 or 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
32
Instem plc Annual Report, 2014
accounting policies
combination. Deferred tax assets are recognised only to
the extent that it is probable that future taxable profits will be
available against which temporary differences can be utilised.
Deferred tax is charged or credited to the statement of
comprehensive income, except when it relates to items charged
or credited directly to equity, in which case it is dealt with within
equity. It is calculated at the tax rates that are expected to apply
to the period when the asset is realised or the liability is settled.
INTANGIBLE ASSETS
Intangible assets purchased separately from a business are
capitalised at their cost.
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 cash 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:
•
•
•
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 a straight line basis as follows:
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.
•
•
•
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;
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
Instem plc Annual Report, 2014 33
accounting policies
the estimates of future cash flows have not been adjusted.
income.
If the recoverable amount of an asset is estimated to be less than
its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised as
an expense immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the assets is increased to the revised estimate of
its recoverable amount, but so that the increased carrying
amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognised for
the asset in prior years. A reversal of an impairment loss is
recognised in profit or loss immediately.
INVENTORY
Inventory is stated at the lower of cost and net realisable value.
Inventory includes billable employee expenses. These are
stated at the lower of amortised cost and net realisable value.
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.
Provision is made where necessary for obsolete and slow
moving inventory.
Trade and other payables
Trade and other payables are not interest bearing and are initially
recognised at fair value and subsequently at amortised cost.
FINANCIAL INSTRUMENTS
Classification of financial instruments
Financial instruments are classified as financial assets, financial
liabilities or equity instruments.
Ordinary share capital
For ordinary share capital, the par value is recognised in share
capital and the premium in the share premium reserve.
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
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.
34
Instem plc Annual Report, 2014
accounting policies
Actuarial gains and losses are recognised in the statement
of other comprehensive income in the year in which they
occur, whilst expected returns on plan assets, servicing
costs and financing costs are recognised in the statement of
comprehensive income.
The rate used to discount the benefit obligations is based on
market yields for high quality corporate bonds with terms and
currencies consistent with those of the benefit obligations.
IFRSs ADOPTED IN THE YEAR
The following IFRSs, IASs and IFRICs have been adopted for
the first time in the year. As expected their adoption has not had
a material impact on these financial statements.
IFRS 9 ‘Financial Instruments’ - effective 1 January 2014
IFRS 10 ‘Consolidated financial statements’ - effective 1 January
2014
Changes made to IAS19 that came into force for accounting
periods on or after 1 January 2013 are as follows:
IFRS 11 ‘Joint Arrangements’ - effective 1 January 2014
•
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.
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.
IFRS 12 ‘Disclosure of interests in other entities’ - effective 1
January 2014
IFRS 14 ‘Regulatory deferral accounts’ - 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 36 ‘Impairment of Assets’ - effective 1 January 2014
The time value of money is not expected to be material and
therefore future outflows have not been discounted.
IAS 39 ‘Financial Instruments: Recognition and measurement’ -
effective 1 January 2014
IFRIC 21 ‘Levies’ - effective 1 January 2014
IFRIC 14 - IAS 19 The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction was
effective for accounting periods beginning after 1 January
2008. The directors have considered issues arising from this
amendment to IAS 19 and feel that it is unlikely that the schedule
of contributions agreed with the trustees of the LSS pension
scheme will result in an IAS19 surplus in the scheme.
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 2014. 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.
IAS 1 ‘Presentation of financial statements’ - effective 1 January
2016
IFRS10 ‘Consolidated financial statements’ - effective 1 January
2016
IFRS 12 ‘Disclosure of Interests in Other Entities’ - effective 1
January 2016
IAS 28 ‘Investments in associates’ - effective 1 January 2016
IFRS 15 ‘Revenue from contracts with customers’ - effective 1
January 2017
IFRS9 ‘Financial Instruments’ - effective 1 January 2018
Instem plc Annual Report, 2014 35
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
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
2013
£000
2,282
6,307
1,543
1,175
54
2014
£000
2,734
6,984
1,822
1,763
126
13,429
11,361
REVENUE
2014
£000
2,141
2,699
7,583
1,006
2013
£000
2,496
1,991
5,871
1,003
13,429
11,361
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION
2014
£000
12,664
16
22
12,702
2013
£000
13,120
14
18
13,152
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
No customer represents more than 10% of Group revenue (2013: nil).
36
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
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
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
Taxation services - Compliance
Taxation services - Advisory
Corporate finance services
2014
£000
127
937
1,026
4
252
16
43
21
15
31
-
2013
£000
96
620
1,379
4
376
15
38
15
11
8
25
126
112
Instem plc Annual Report, 2014 37
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
2. Profit from Operations (continued)
The following table analyses the nature of expenses:
Staff costs (see note 5)
Depreciation (see note 11)
Operating lease rentals
Software maintenance charges
Licence costs
2014
£000
7,536
127
256
374
188
Total cost of sales, distribution costs, administrative expenses and other
operating expenses
11,699
Other expenses
3,218
2013
£000
6,235
96
380
333
110
2,531
9,685
Non-Recurring Costs
The non-recurring costs included a net charge of £0.06m relating to a trade dispute, net of insurance proceeds of £0.09m, and £0.07m
of professional fees associated with the Perceptive Instruments acquisition in 2013.
38
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
3. Finance Income
Bank interest
Foreign exchange gains
Bank loans and overdrafts
Unwinding discount
Net interest charge on pension scheme
Foreign exchange losses
2014
£000
9
-
9
2014
£000
65
46
152
96
359
2013
£000
61
84
145
2013
£000
9
63
135
-
207
4. Finance Costs
5. Employees
Average monthly number (including non-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
A charge of £0.1m (2013: £0.1m) arose in respect of share-based payment.
2014
Number
2013
Number
42
98
140
2014
£000
6,382
590
564
7,536
39
84
123
2013
£000
5,207
514
514
6,235
Instem plc Annual Report, 2014 39
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
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 at the date of grant. The contractual life is generally ten years from the date of grant.
Options generally 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
807,839
Granted
-
Lapsed
(7,507)
Outstanding at end of the year
Exercisable at 31 December
800,332
640,507
2014
2013
Weighted
average exercise
price (£)
1.71
-
2.22
1.71
1.86
Number
708,013
99,826
-
807,839
491,996
Weighted
average exercise
price (£)
1.82
0.90
-
1.71
1.75
The options outstanding at 31 December 2014 and 31 December 2013 had exercise prices of £0.900, £1.115, £1.750, £1.760, £2.215
and £2.220 and a weighted average remaining contractual life of 6 years 4 months (2013: 7 years 4 months).
New options are valued using the Black-Scholes option-pricing model and for performance conditions, the Binomial or Monte Carlo
models. The fair market value of option awards granted during the year has been estimated using the following key assumptions – note
there were no options granted during 2014:
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
Fair value of options
2014
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
2013
£0.90
£1.35
3
17.7%
10
6
1.14%
0%
0%
£0.25
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 556,599 shares (2013: 564,106 shares) incorporate a market performance condition based on the Company’s share price.
The fair value of options granted in the year is £nil (2013: £0.02m).
Subsequent to the year end, on 11 February 2015 81,168 share options were granted to employees with an exercise price of £0.10
each.
40
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
7. Directors’ Emoluments
Amounts payable by Instem plc:
Emoluments
Amounts payable by subsidiary companies:
Emoluments
Money purchase pension contributions
Total emoluments
2014
£000
92
269
35
396
2013
£000
92
267
37
396
2014
Number
2013
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, 2014 41
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
8. Taxation
Income taxes recognised in profit or loss
Current tax:
UK corporation tax on profits of the year
Foreign tax
Foreign tax in respect of previous years
Adjustments in respect of previous years
Adjustments in respect of R&D tax credit
Total current tax
Deferred tax:
Current year charge
Adjustments in respect of previous years
Retirement benefit obligation
Total deferred tax
Total income tax expense recognised in the current year
The income tax expense can be reconciled to the accounting profit as follows:
Profit before tax
Profit before tax multiplied by standard rate of
corporation tax in the UK 21.5% (2013: 23.25%)
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 utilised/carried forward
Total income tax expense recognised in profit or loss
2014
£000
-
272
239
(171)
(92)
248
(30)
(103)
(53)
(186)
62
2014
£000
212
46
33
(9)
109
(35)
-
(82)
62
2013
£000
42
147
(227)
121
-
83
11
11
64
86
169
2013
£000
698
162
50
1
63
(95)
(15)
3
169
42
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
9.
Intangible Assets
Goodwill
Software
property
Relationships
Patents
Group
£000
£000
£000
£000
£000
Intellectual
Customer
Cost
At 1 January 2013
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
Additions from continuing
operations
Additions from acquisitions in
prior period
-
120
369
-
819
-
1,403
2,222
-
-
At 31 December 2014
9,507
2,262
2,222
Amounts written off
At 1 January 2013
Amortisation expense
At 31 December 2013
Amortisation expense
At 31 December 2014
Net book value
-
-
-
-
-
546
226
772
297
301
303
604
445
1,069
1,049
At 31 December 2013
9,387
At 31 December 2014
9,507
1,121
1,193
1,618
1,173
325
-
632
957
-
-
957
119
87
206
191
397
751
560
21
-
-
21
-
-
21
7
4
11
4
15
10
6
Total
£000
9,007
407
5,066
14,480
369
120
14,969
973
620
1,593
937
2,530
12,887
12,439
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally acquired
elements. The cost of internally generated software amounts to £2.3m (2013: £1.9m) with accumulated amortisation of £1.1m (2013:
£0.8m). Software additions for the year include £312,000 relating to internal development (2013: £316,000).
The additions from acquisitions in prior period of £120,000 arose from deferred income in Perceptive Instruments Limited not previously
recognised on initial acquisition.
Impairment of goodwill
Goodwill amounting to £5.858m (2013: £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 (2013: £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
(2013: £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 £0.669m (2013: £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 cash
flows 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 2014 a pre-tax discount rate of 11.1% (2013: 13.0%) was used in the value-in-use
calculation based on the Group’s cost of capital.
Instem plc Annual Report, 2014 43
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
9.
Intangible Assets (continued)
Projected cash flows were based on detailed profit and cashflow projections through to 2015 with a 2.5% 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. No indication of impairment was found when assumptions of growth of 2.5% beyond 2015 were used.
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
Cost at beginning of year
Additions
At end of year
£000
23,024
108
23,132
The company has four wholly-owned subsidiaries and ten wholly-owned sub-subsidiaries, details of which are as follows:
Company
Activity
Ownership
Instem Life Science Systems Limited
(company number 04339129)
Holding Company
100% by Instem plc
England and Wales
Instem LSS Limited
(company number 03548215)
England and Wales
Instem LSS (North America) Limited
Software development, sales, sales support and
administrative support
(company number 02126697)
Sales, sales support and administrative support
England and Wales
Instem LSS (Asia) Limited
(company number 1371107)
Hong Kong
Holding Company
Instem Information Systems (Shanghai) Limited
(company number 310115400257075)
Sales, sales support and service
100% by Instem Life
Science Systems
Limited
100% by Instem LSS
Limited
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
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, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
10. Investments (continued)
Company
Activity
Instem India Pvt Limited
(company number U73100MH2012FTC231951)
Software development
India
Instem Clinical Holdings Limited
(company number 05840032)
England and Wales
Instem Clinical Limited
(company number 06959053)
England and Wales
Instem Clinical Inc.
USA
Logos Technologies Limited
(company number 05836842)
England and Wales
Perceptive Instruments Limited
(company number 02498351)
England and Wales
Ownership
99.9% by Instem LSS
Limited
0.1% by Instem LSS
(NA) Limited
100% by Instem plc
Holding of intellectual property
rights and investment in group
companies
Provision of electronic data capture and clinical
100% by Instem
management solutions to the pharmaceutical
Clinical Holdings
industry
Limited
Provision of electronic data capture and clinical
100% by Instem
management solutions to the pharmaceutical
Clinical Holdings
industry
Dormant
Limited
100% by Instem
Clinical Holdings
Limited
Development, manufacture and supply of
software and hardware products for in vitro
study data collection and study management
100% by Instem plc
in the genetic toxicology, microbiology and
immunology markets
Instem plc Annual Report, 2014 45
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
11. Property, Plant and Equipment
Short leasehold
IT Hardware &
property
£000
Software
£000
Group
Cost
At 1 January 2013
14
Additions
Disposals
Acquisitions through business combinations
Exchange adjustment
At 31 December 2013
Additions
Exchange adjustment
At 31 December 2014
Depreciation
At 1 January 2013
Reclassification
Depreciation expense
Disposal
Exchange adjustment
At 31 December 2013
Depreciation expense
Exchange adjustment
At 31 December 2014
Net book value
At 31 December 2013
At 31 December 2014
-
-
-
-
14
60
-
74
(8)
12
4
-
-
8
17
1
26
6
48
1,650
171
(1)
5
(4)
1,821
64
4
1,889
1,485
(12)
92
(1)
(2)
1,562
110
2
1,674
259
215
Total
£000
1,664
171
(1)
5
(4)
1,835
124
4
1,963
1,477
-
96
(1)
(2)
1,570
127
3
1,700
265
263
46
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
12. Inventories
Group
Raw materials
Work in progress
Total gross inventories
13. Trade and Other Receivables
Group
Trade receivables
Amounts recoverable on contracts
Prepayments and accrued income
Company
Amounts owed by group companies
Other receivables
2014
£000
21
485
506
2014
£000
506
2014
£000
2,705
1,257
470
4,432
2,214
17
2,231
2013
£000
17
290
307
2013
£000
307
2013
£000
1,990
425
493
2,908
1,225
18
1,243
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
Charge/(credit) for the year
At end of year
2014
£000
-
23
23
2013
£000
4
(4)
-
The average credit period taken on sale is 38 days (2013: 31 days). No interest is charged on overdue receivables.
Before accepting any new significant 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, 2014 47
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
13. Trade and Other Receivables (continued)
The age profile of the net trade receivables for the Group at the year-end was as follows:
Group
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
Group
2014
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables/Amounts recoverable
on contracts
Value (£000)
%
3,359
85
470
12
45
1
88
2
3,962
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
2014
£000
1,713
341
2,162
202
14
4,432
2013
£000
1,083
67
1,598
156
4
2,908
48
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
14. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
2014
£000
10,674
(8,998)
1,676
97
2013
£000
11,051
(8,998)
2,053
277
The Group’s committed overdraft facility has a net limit of £2,000,000 and a gross limit of £9,000,000. Interest is charged on the bank
overdraft at 2.75% above base rate. The bank overdraft is secured by fixed and floating charges over certain of the Group’s assets.
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.
15. Trade and Other Payables
Group - Current
Trade payables
Other taxation and social security costs
Accruals
Deferred income
Company - Current
Trade payables
Amounts owed to group companies
Accruals
2014
£000
(367)
153
1,035
842
13
1,676
97
2014
£000
416
203
745
6,811
8,175
16
2,270
36
2,322
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
Instem plc Annual Report, 2014 49
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
15. 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
2014
£000
3,762
4,099
314
-
8,175
2,322
2013
£000
3,500
3,531
202
3
7,236
1,264
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their short maturities.
16. Current Taxation
The Group current tax payable of £231,000 (2013: £7,000) represents the amount of income taxes payable in respect of current and
prior years.
The Company current tax payable of £nil (2013: £120,000) represents the amount of income taxes payable in respect of current and
prior years.
17. Financial Liabilities
Group and Company
2013
Total
£000
Less than
One to
More than
one year
two years
two years
£000
£000
£000
Deferred consideration
3,086
1,250
980
856
2014
Total
£000
Deferred consideration
1,881
Loan note
303
2,184
Less than
One to
More than
one year
two years
two years
£000
1,600
303
1,903
£000
£000
281
-
281
-
-
-
Deferred Consideration
The deferred consideration relates to the acquisitions of Instem Clinical Holdings Limited and Perceptive Instruments Limited.
The directors believe that the carrying value of the deferred consideration for Perceptive Instruments approximates to the fair
value and that the carrying value of the deferred consideration for Instem Clinical Holdings Limited has been discounted by an
appropriate rate to take account of the time to maturity.
The range of the possible amount of deferred consideration payable is between nil and £3.5m with the amount provided as
£1,881,000 as shown above.
50
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
17. Financial Liabilities (continued)
Loan Note
A Loan Note amounting to £298,000 was issued during the year as part of the deferred consideration payable. The 6-month Note
accrued interest at 4% and the total due of £303,000, including interest, was paid in full in January 2015.
18. Financial Instruments
All financial instruments held by the Group, as detailed in this note, are classified as “Loans and Receivables” (trade and other
receivables, excluding prepayments, and cash and cash equivalents), “Financial Liabilities Measured at Amortised Cost” (trade and
other payables, excluding statutory liabilities, and financial liabilities) and “Fair value through profit and loss” (other financial liabilities
which reflect derivative contracts) under IAS 39 ‘Financial Instruments: Recognition and Measurement’.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks including market risk, credit risk and liquidity risk. Market risk includes
interest rate risk, foreign exchange rate risk and price risk. The main financial risks managed by the Group, under policies approved by
the Board, are interest rate risk, foreign currency risk, liquidity risk and credit risk.
The Group has in place risk management policies that seek to limit the adverse effects on the financial performance of the Group by
using various instruments and techniques. Derivative financial instruments are only used to hedge exposures arising in respect of
underlying business requirements and not for any speculative purpose.
Foreign exchange risk
The Group operates internationally and is exposed to foreign currency risk on transactions denominated in a currency other than the
functional currency and on the translation of the statement of financial position and statement of comprehensive income of foreign
operations into sterling. The currencies giving rise to this risk are primarily US dollars. The Group has both cash inflows and outflows in
this currency that create a natural hedge.
In managing currency risks the Group aims to reduce the impact of short-term fluctuations on the Group’s cash inflows and outflows in a
foreign currency. The Group also hedges any material foreign currency transaction exposure. During the year the Group entered into a
US dollar hedging arrangement with a fixed forward contract which expired prior to the reporting date.
Over the longer term, changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. The
assumption in 2014 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 £0.1m.
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 2014 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 2014 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, 2014 51
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
18. Financial Instruments (continued)
2013
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
2014
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Loan note
2013
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Fixed
rate
£000
-
-
-
-
-
Fixed
rate
£000
-
-
-
-
(303)
(303)
Fixed
rate
£000
-
-
-
-
-
Floating
Non-interest
rate
£000
-
2,053
-
-
2,053
bearing
£000
2,415
-
(1,268)
(3,086)
(1,939)
Floating
Non-interest
rate
£000
-
1,676
-
-
-
1,676
bearing
£000
3,962
-
(1,161)
(1,881)
-
920
Floating
Non-interest
rate
£000
-
277
-
-
277
bearing
£000
1,243
-
(1,264)
(3,086)
(3,107)
Total
£000
2,415
2,053
(1,268)
(3,086)
114
Total
£000
3,962
1,676
(1,161)
(1,881)
(303)
(2,293)
Total
£000
1,243
277
(1,264)
(3,086)
(2,830)
52
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
18. Financial Instruments (continued)
2014
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Loan note
Fixed
rate
£000
-
-
-
-
(303)
(303)
Floating
Non-interest
rate
£000
bearing
£000
-
97
-
-
-
97
2,231
-
(2,322)
(1,881)
-
(1,972)
Total
£000
2,231
97
(2,322)
(1,881)
(303)
(2,178)
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 (2013:
nil).
The Group’s exposure to losses from defaults on trade receivables is reduced due to contractual terms which require installation,
training, annual licensing and support fees to be invoiced and paid annually in advance.
Note 13 sets out the impairment provision for credit losses on trade receivables and the ageing analysis of overdue trade receivables.
There were no impairment losses recognised on other financial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial commitments as they fall due.
The Group’s objective is to ensure that adequate facilities are available through use of bank overdrafts and finance leases. The Group
manages liquidity risk through regular cash flow forecasting and monitoring of cash flows, management review and regular review of
working capital and costs.
The Group regularly monitors its available headroom under its borrowing facilities. At 31 December 2014, its £2.0m committed bank
facility was drawn down by £0.4m, with £1.6m available (2013: £2.0m available).
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, 2014 53
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
19. Deferred Tax
Group
Deferred tax assets
Amounts due to be recovered within 12 months
Amounts due to be recovered after 12 months
Total deferred tax
2014
£000
-
574
574
The movement in the period in the Group’s net deferred tax position was as follows:
2014
2013
£000
124
(124)
-
At beginning of the year
Charge to income for the year
Actuarial losses
Tax losses
Accelerated tax depreciation
Net credit/(charge) to equity
Adjustments in respect of prior years
At end of the year
£000
388
83
-
103
574
£000
30
158
(446)
2013
£000
-
388
388
£000
732
(75)
(258)
(11)
388
The movements on deferred taxation for the year ended 31 December 2013 includes balances which arose from acquisitions made in
that period.
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 2013
Credit/(charge) to profit or loss for the year
(Charge)/credit to equity for the year
Adjustments in respect of prior years
At 31 December 2013
Credit/(charge) to profit or loss for the year
(Charge)/credit to equity for the year
Adjustments in respect of prior years
£000
(358)
127
(446)
(9)
(686)
58
-
(73)
At 31 December 2014
(701)
£000
345
(143)
158
-
360
76
(124)
172
484
£000
£000
735
(64)
30
-
701
(53)
124
4
776
10
5
-
(2)
13
2
-
-
15
Total
£000
732
(75)
(258)
(11)
388
83
-
103
574
Management have recognised deferred tax assets in relation to tax losses based on forecast profitability of the Group companies
concerned.
Unrecognised tax losses not included at 31 December 2014 were £4,808,000 (2013: £4,883,000) due to uncertainty over the timing of
the recoverability of these losses.
54
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
20. 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 2014 were £0.47m (2013: £0.40m).
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 2014 were £0.03m (2013: £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 2014 were £0.07m (2013: £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 2014 were £0.02m (2013: £0.03m).
Perceptive Instruments Limited - the Group makes contributions to personal pension arrangements of certain employees. During the
year ended 31 December 2014, employer contributions to these arrangements totalled £0.02m (2013: nil).
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 in deficit and no contributions
payable under a minimum funding requirement are considered potentially refundable or utilisable as a reduction of future contributions.
IFRIC interpretation 14 is deemed to be not applicable to the Group.
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 2014 by a qualified independent
actuary.
Instem plc Annual Report, 2014 55
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
20. Retirement Benefit Obligations (continued)
The following schedule of contributions was prepared by the Trustees of the Instem LSS Pension Scheme (‘the Scheme’) after obtaining
the advice of the Scheme Actuary appointed by the Trustees and was intended to clear the deficit in the Scheme at the time it was
agreed in July 2012:
Period ended
31 March 2015
31 March 2016
31 March 2017
31 March 2018
31 March 2019
31 March 2020
15 October 2020
Monthly payment (payable in each month
Balancing payment due before period end
except the final month in each period) £’000
£’000
15
15
15
15
15
15
15
247
262
277
292
308
325
206
The employer pays the Pension Protection Fund levy each year in respect of the scheme. It is intended that all other expenses
associated with the running of the Scheme will be met from the Scheme’s assets.
Changes made to IAS19 that came into force for accounting periods on or after 1 January 2013 were 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 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.
56
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
20. Retirement Benefit Obligations (continued)
Discount rate
Inflation
Rate of increase in salaries
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
2014
%
3.8
3.1
N/A
2.8
3.1
Life Expectancy assumption (number of years from the age of 65)
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
Losses/(Gains) on pension scheme assets in excess of interest
Experience losses arising on scheme liabilities
(Gains)/losses from changes to demographic assumptions
Losses from changes to financial assumptions
Actuarial loss recognised in other comprehensive expense
24.7
25.8
23.4
24.3
2014
£000
-
-
-
2014
£000
327
(479)
(152)
2014
£000
7
138
(163)
639
621
2013
%
4.6
3.5
N/A
3.5
3.5
Years
25.0
26.3
23.7
24.8
2013
£000
-
-
-
2013
£000
273
(408)
(135)
2013
£000
(612)
-
279
920
587
Instem plc Annual Report, 2014 57
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
20. Retirement Benefit Obligations (continued)
CHANGES IN THE PRESENT VALUE OF THE DEFINED
BENEFIT OBLIGATION
Opening defined benefit obligation
Interest cost
Benefits paid
Experience loss on defined benefit obligation
Changes to demographic assumptions
Changes to financial assumptions
2014
£000
10,529
479
(217)
138
(163)
639
2013
£000
9,200
408
(278)
-
279
920
Closing defined benefit obligation
11,405
10,529
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
Opening plan assets
Expected return
Return on plan assets less interest
Contributions by employer
Benefits paid
Closing plan assets
The actual return on plan assets was a positive return of £320,000 (2013: £885,000)
AMOUNT RECOGNISED IN THE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
2014
£000
7,023
327
(7)
398
(217)
7,524
2014
£000
2013
£000
6,004
273
612
412
(278)
7,023
2013
£000
Present value of funded obligations
(11,405)
(10,529)
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
58
Instem plc Annual Report, 2014
7,524
(3,881)
776
(3,105)
2014
£000
3,506
152
621
(398)
3,881
7,023
(3,506)
701
(2,805)
2013
£000
3,196
135
587
(412)
3,506
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
20. 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
2014
£000
246
(1,811)
(2,239)
2013
£000
253
(1,673)
(1,763)
Cumulative actuarial loss recognised in other
comprehensive expense
(3,804)
(3,183)
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2014
2013
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
5,376
185
680
682
516
85
%
72
2
9
9
7
1
£000
4,986
211
632
632
492
70
%
71
3
9
9
7
1
7,524
100
7,023
100
The five year history of experience adjustments is as follows:
2014
£000
2013
£000
2012
£000
2011
£000
2010
£000
Present value of defined
benefit obligation
(11,405)
(10,529)
(9,200)
(6,946)
(6,956)
Fair value of plan assets
7,524
7,023
6,004
5,330
5,479
Deficit
(3,881)
(3,506)
(3,196)
(1,616)
(1,477)
Experience adjustments on
plan liabilities
Experience adjustments on
plan assets
(138)
(7)
-
612
(763)
-
172
(480)
(77)
235
The Group expects to contribute £0.4m to its defined benefit plans in the next financial year (2013: £0.4m).
Instem plc Annual Report, 2014 59
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
20. 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
PENSION INCREASES
Plus 0.50% pa
Minus 0.50%
(1,039)
1,192
416
(380)
315
(321)
580
(321)
21. Share Capital
Allotted, called up and fully paid
At 1 January
11,764,658 ordinary shares of 10p each (2013: 11,764,658)
447,602 (2013:Nil) ordinary shares of 10p each, issued during the year
At 31 December
2014
£000
1,176
45
1,221
2013
£000
1,176
-
1,176
447,602 shares were issued in 2014 as part settlement of the deferred consideration payable relating to the acquisition of Instem
Clinical Holdings Limited.
60
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
22. Earnings Per Share
Basic and Fully Diluted
Basic earnings per share are 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)
2014
Weighted
average
Earnings per
Profit after tax
2013
Weighted
average
Earnings per
number of
share (pence)
(£000)
number of
share (pence)
shares (000’s)
shares (000’s)
Earnings per share-basic
Potentially dilutive shares
Earnings per share-diluted
150
-
150
12,063
155
12,218
1.2
-
1.2
529
-
529
11,765
15
11,780
4.5
-
4.5
Adjusted
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)
2014
Weighted
average
Earnings per
number of
share (pence)
shares (000’s)
Adjusted
profit after tax
(£000)
2013
Weighted
average
Earnings per
number of
share (pence)
shares (000’s)
Earnings per share-basic
1,009
Potentially dilutive shares
-
Earnings per share-diluted
1,009
12,063
155
12,218
8.4
(0.1)
8.3
1,017
-
1,017
11,765
15
11,780
Reconciliation of adjusted profit after tax:
Reported profit after tax
Non-recurring costs/(income)
Amortisation of acquired intangibles
Foreign exchange differences on revaluation of inter-company balances
Sundry income
2014
£000
150
123
640
96
-
8.6
-
8.6
2013
£000
529
200
394
(84)
(22)
1,009
1,017
Instem plc Annual Report, 2014 61
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
23. Capital and Reserves
Called up share capital
The share capital account includes the par value for all shares issued and outstanding.
Share premium account
The share premium account is used to record amounts received in excess of the nominal value of shares on issue of new shares less
the costs of new share issues.
Translation reserve
The translation reserve incorporates the cumulative net exchange gains and losses recognised on the translation of subsidiary company
financial information to the presentational currency of Sterling (£).
Retained earnings
The retained earnings reserve includes the accumulated profits and losses arising from the consolidated ‘Statement of Comprehensive
Income’ and certain items from ‘Other Comprehensive Income’ attributable to equity shareholders net of distributions to shareholders.
Merger reserve
The merger reserve represents the difference between the consideration payable at the date of acquisition, net of merger relief, and the
share capital and share premium of Instem Life Science Systems Limited.
Shares to be issued
The shares to be issued reserve represents the shares to be issued under the share option scheme and shares contingently issuable on
acquisitions.
CAPITAL MANAGEMENT
The Group’s main objective when managing capital is to protect returns to shareholders by ensuring the Group will continue to trade
profitably in the foreseeable future. The Group also aims to maximise the capital structure of debt and equity so as to minimise its cost
of capital.
The Group manages its capital with regard to the risks inherent in the business and the sector within which it operates by monitoring its
gearing ratio on a regular basis.
The Group considers its capital to include share capital, share premium, translation reserve, retained earnings and net debt as noted
below.
Net debt includes short and long-term borrowings (including overdrafts, redeemable preference shares and lease obligations) net of
cash and cash equivalents.
The Group has not made any changes to its capital management during the year.
24. Capital Commitments
There were no capital commitments at the end of the financial year (2013: £nil).
62
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
25. Operating Leases Payable
Minimum lease payments under operating leases recognised as
an expense in the year
At the reporting date, the Group has outstanding commitments
under operating leases, which fall due as follows:
Land and buildings
Within one year
In the second to fifth year inclusive
After five years
Plant and machinery
Within one year
In the second to fifth year inclusive
2014
£000
256
2014
£000
394
1,000
498
3
5
2013
£000
380
2013
£000
295
868
604
4
8
1,900
1,779
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 contains 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.
No operating leases are held by the Company.
Instem plc Annual Report, 2014 63
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
26. Related Party Transactions
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation of the
consolidated financial statements. During the year the Company traded with subsidiary companies in its normal course of business.
These transactions related to recharges and totalled in aggregate £0.51m (2013: £0.73m). The net intercompany balances due from
the Company at the year-end totalled £0.01m (2013: £0.02m).
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:
2014
£000
2013
£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
68
-
7
-
75
Executive Directors
Salaries and short term benefits
269
Post employment retirement benefits
Employers’ national insurance & social security costs
Share-based payment charge
35
20
12
336
Other key management
Salaries and short term employee benefits
461
Post employment retirement benefits
Employers’ national insurance & social security costs
Share-based payment charge
26
44
8
539
86
-
9
-
95
267
37
20
38
362
414
25
38
36
513
The Company paid £0.05m (2013: £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 (2013: £nil).
In addition the Company paid £0.02m (2013: £0.01m) 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 £0.002m (2013: £nil).
Key management are considered to be the Directors together with the Senior Managers of the business.
27. Critical Accounting Estimates and Judgements
Some asset and liability amounts reported in the financial information are based on management estimates and assumptions. There
is therefore a risk of significant changes to the carrying amounts for these assets and liabilities within the next financial year. The
estimates and assumptions are made on the basis of information and conditions that exist at the time of the valuation.
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.
64
Instem plc Annual Report, 2014
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2014
27. Critical Accounting Estimates and Judgments (continued)
The contingent consideration provided in the financial statements is measured initially at its acquisition-date fair value and subsequently
carried at its amortised cost.
Impairment
At each reporting date, the Group reviews the carrying amounts of goodwill and investments. The recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. A
key factor which could result in an impairment of goodwill or investments is lower than predicted revenue. Sensitivities around this factor
and the discount rate are set out in note 9.
Other intangible assets – useful lives
Other intangible assets are amortised over their useful life, which has been estimated by management to be up to 8 years.
28. Contingent Liabilities
Instem plc has provided a guarantee to its subsidiaries which have taken advantage of the exemption from audit. Under this guarantee,
the company has a contingent liability of £9.0m (2013:£9.0m).
Instem plc Annual Report, 2014 65
NOTES
66
Instem plc Annual Report, 2014
NOTES
Instem plc Annual Report, 2014 67
NOTES
68
Instem plc Annual Report, 2014
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
AUDITOR
Baker Tilly UK Audit LLP
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
SECRETARY
N J Goldsmith
REGISTERED OFFICE
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
Tel: +44 1785 825600
Fax: +44 1785 825633
www.instem.com
Company No: 07148099
BANKER
National Westminster Bank plc
1 Spinningfields Square
Manchester
M2 3AP
NOMINATED ADVISOR AND BROKER
Nplus1 Singer Advisory LLP
One Bartholomew Lane
London
EC2N 2AX
REGISTRARS
Computershare Investor Services plc
The Pavilions
Bridgwater Road
Bristol
BS13 8AE
SOLICITORS
Squire Patton Boggs (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