Instem plc
Annual Report
2015
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 450 clients through full service
offices in the United States, United Kingdom and China
with additional locations in India and 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, 2015
Highlights
Financial Highlights
•
Revenues increased 22% to £16.3m (2014: £13.4m)
•
•
Recurring revenues increased 9% to £10.0m
(2014: £9.2m)
Software as a Service (SaaS) revenues increased
14% to £2.1m (2014: £1.8m)
EBITDA* increased 43% to £2.5m (2014: £1.7m)
Adjusted** profit before tax of £1.7m (2014: £1.1m)
Loss before tax of £0.4m (2014: profit £0.2m)
•
After charging £1.4m of deferred contingent
consideration (2014: £nil)
Adjusted** basic earnings per share of 13.3p (2014:
8.4p)
Adjusted** fully diluted earnings per share of 12.9p
(2014: 8.3p)
Net cash balance as at 31 December 2015 of £2.2m
(2014: £1.7m)
•
After paying £1.3m of deferred contingent
consideration (2014: £0.3m)
•
•
•
•
•
•
Operational Highlights
•
•
•
Final deferred contingent consideration was paid for
Perceptive Instruments and agreed early for Instem
Clinical (formerly Logos Technologies) after both
exceeded performance criteria.
Instem Japan incorporated and Tokyo office opened.
Significant ALPHADAS Contract wins included three
announced in May 2015 worth approximately
£1.4m.
• Won the majority of SEND business placed
worldwide.
Post Balance Sheet Event
On 23 February 2016 the Company announced it had
raised £5.0 million (before expenses) by way of a
placing of 2,500,000 New Ordinary Shares, at a price
of 200 pence per ordinary share, with certain new and
existing investors. The net proceeds are intended to be
used in the near term primarily to fund growth through
acquisition and also for working capital to enhance
organic growth.
“Our core addressable markets continue to grow
in terms of the number of potential customers
and the absolute size. Our products and services
recorded significant year-on-year revenue growth
during 2015 and we are pleased to report that
we entered the new financial year with a strong
forward order book. Regulatory requirements
and the enlarged drug R&D pipeline are expected
to continue to stimulate demand for Instem’s
solutions and services.
The recently strengthened balance sheet provides
opportunities to invest further in our core
products and services, accelerate the development
of new offerings such as KnowledgeScan and
SEND submit™ and play a significant role in
consolidating the industry in which we operate.
We therefore look forward to the coming year
with confidence and expect to deliver further
operational and financial progress.”
P J Reason
Chief Executive
* 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, 2015 3
market leadership
“We have maintained our pre-eminent position
in the preclinical market whilst also winning the
majority of business placed globally in the early
clinical market.”
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Instem plc Annual Report, 2015
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Chairman’s
Statement
Following the end of the financial year, in February
2016 the Company announced it had raised £5.0 million
(before expenses) by way of a placing of 2,500,000 New
Ordinary Shares with new and existing investors. The
Board intends to use the proceeds of this placing, along
with existing cash resources, to continue the Group’s
acquisition strategy and to provide additional working
capital. We believe that having the funding in place will
be of significant benefit for the execution of this strategy,
as a result of providing certainty to potential vendors
during the negotiation of deal terms.
Finally, I would like to take this opportunity once again
to thank all of our staff, customers and partners for their
ongoing support.
D Gare
Non-Executive Chairman
26 April 2016
The positive market dynamics experienced at the end
of 2014 continued throughout the period, providing an
encouraging backdrop for the continued development of
the Group. I am, therefore, pleased to be able to report
that all areas of business achieved successful outcomes
for the year.
Consequently, not only has the Group increased revenue
and underlying profits during the year, but we are also
increasingly optimistic about 2016.
We have maintained our pre-eminent position in the
preclinical market whilst also winning the majority of
business placed globally in the early clinical market.
A highlight of the year was the market leadership
demonstrated by our team offering Standard for the
Exchange of Non-clinical Data (SEND) software and
services: whereby we once again secured the majority
of business placed during 2015. This was particularly
important following the announcement from the US Food
& Drug Administration (“FDA”) mandating SEND at the
end of 2014.
A cornerstone of our global leadership strategy for each
of our product lines is to ensure that we are able to
provide sales and service facilities locally wherever there
are substantial groupings of customers. Consequently,
we opened an office in Tokyo, Japan, complementing
existing Instem Asian locations in Pune, India and
Shanghai, China. We expect the Instem Japan facility to
start to contribute to our revenues during 2016.
At a corporate level we were pleased to make the final
payment for the Perceptive Instruments’ acquisition as
a result of it exceeding our targets. Further, in December
2015, we announced the early agreement of the Instem
Clinical (formerly Logos Technologies) earn-out. Given
this business had out-performed in each of its prior
earn out years, the Board determined that in order to
maximise its potential it was appropriate to fully align
the objectives of both its shareholders and the Group.
Instem plc Annual Report, 2015 5
continued growth
“Demand for our products and services from
customers in all territories in which we operate
continued to increase, reflecting increased levels
of pharmaceutical R&D activity.”
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Instem plc Annual Report, 2015
Strategic
Report
Chief Executive’s Statement
Operational Review
The twelve months to 31 December 2015 represented
another year of significant financial and operational
progress across the Group.
The year began with a record order book and a
strengthening market backdrop. This was converted
into revenue through successful contract execution,
supplemented by winning and delivering new business
contracts throughout the year.
All areas of the Group are now taking advantage of
Instem’s global operations with marketing, sales, service
delivery and client support now available through
offices in the UK, North America, China, India and Japan.
Although the Group has operated successfully in Japan
through local distributors, establishing an Instem
presence is expected to increase demand, in what is
the second highest spending nation in the world on
pharmaceutical research and development.
Notably in 2015, both our clinical and preclinical
products and services gained traction, as a result of
record numbers of compounds progressing through
the early stages of the drug development pipeline. Our
laboratory workflow automation solutions were selected
to deliver efficiencies, replacing “paper” records, legacy
in-house applications or ageing commercial systems.
Further, new regulatory requirements also drove the
adoption of Instem’s technology. Once again, there was
a blend of perpetual license sales and operationally
effective SaaS deployments, with recurring revenue
growing in absolute terms year–on-year. This provides
the business with increased revenue visibility and long-
term stability.
Importantly for the Group as a whole, the growth
experienced in the preclinical market during 2014
now appears to be flowing through into increased
activity levels within the early clinical phase of drug
development. Consequently, ALPHADAS, the Group’s
leading early phase clinical software platform, generated
record levels of new business.
The Group continues to attract some of the most capable
people in the industry, appointing senior new hires
within the SEND business and establishing an office in
Tokyo, Japan. This office will support distributors and
customers across the region.
The Group’s Pune, India operation has moved into much
larger premises to accommodate further expansion
of software development, back office services and,
increasingly, client related service delivery activities.
Pune enjoys a reputation for academic excellence and
is one of India’s most attractive cities in which to live;
enabling us to secure both local talent and exceptional
candidates from other areas of the country.
Preclinical – Provantis® and Perceptive Instruments
Opportunities for Provantis and Perceptive Instruments
solutions within the preclinical market continued to
increase during the year as study volumes, mostly
carried out by Contract Research Organisations (CROs),
accelerated. The Group’s “best-of-breed” products
increased their share of the preclinical market as
customers sought to leverage additional modules and
new software features with both new and existing clients
increasingly adopting operationally effective SaaS based
deployments.
Provantis, the Group’s primary preclinical software suite,
continued to win licence sales across the Group’s client
base with continued displacement of legacy in-house
systems as new implementation projects progressed
during the year. By the end of the first half of 2015, all
the Group’s US-based SaaS customers were running the
Instem plc Annual Report, 2015 7
STRATEGIC REPORT
latest product versions, enabling us to achieve higher
quality support and increased effectiveness of our
delivery infrastructure.
Perceptive Instruments (“Perceptive”) continued to
perform strongly as part of an enlarged business. In
particular, Perceptive had success in up-selling higher
value modules, such as AMES study manager and Cyto
Study Manager, into existing Instem clients. During
the year, due to the strong financial performance of
Perceptive Instruments for the period to November
2014, the Group paid the vendors the maximum
consideration for the acquisition, in accordance with the
original acquisition agreement.
Perceptive is located in Suffolk, UK, and develops,
manufactures and supplies software and hardware
products for in-vitro study management and data
collection in the genetic toxicology, microbiology
and immunology markets. Perceptive is the leading
technology provider within its niche market and there
are few competitors, of any scale, active in the space.
Early Stage Clinical – ALPHADAS™
Our ALPHADAS early phase clinical software solution
performed particularly well during 2015. We added five
new clients across mainland Europe, Canada and the
USA and additional sites/users for existing clients. New
releases of ALPHADAS have been widely implemented
by existing customers, delivering important new
capabilities and enticing clients to adopt further
modules from the product suite.
Instem entered the early phase clinical market in 2013
with the acquisition of Logos Technologies, now Instem
Clinical, and its product suite ALPHADAS. Since the
acquisition, ALPHADAS revenue has grown strongly and
is now a core offering of the Group.
Instem Scientific
The transition of Instem Scientific, from a software
products business to an ‘outcome-led’ managed service,
continued during the period, with further investment
in “KnowledgeScan”. KnowledgeScan allows our
specialist investigators to provide rigorous insight
into potential, and observed issues during all stages of
new compound development, by combining powerful
information technology with transparent, systematic
and comprehensive analytical workflows. The service
leverages the Group’s powerful big-data technology
assets and is designed to monitise the Group’s expertise
across its extensive scientific content, ontologies and
vocabularies, which have been developed over multiple
projects during the last 10 years.
industry, which has led to a significant increase in
R&D outsourcing. Whilst the financial benefits of
Instem Scientific may not be felt by the wider Group
immediately, pilot KnowledgeScan projects have
progressed extremely well during the year and keep
Instem at the leading edge of this field of development.
Electronic Regulatory Submissions (SEND) – submit™
As highlighted in the half-year statement, the new
business pipeline for both our software solutions and
SEND (“Standard for the Exchange of Non-clinical Data”)
data set conversion services continued to increase
month-on-month during the year as the new electronic
regulatory submission standard started to become
mandatory in our client community.
Pleasingly, Instem continued to secure the
overwhelming majority of all new business placed in
this area, converting some of this into revenue in 2015
with the balance contributing to the strong opening
order backlog for 2016. We continue to believe that
Instem’s submit™ software suite offers the most
advanced product to meet the requirements of the SEND
standard.
As a direct consequence of the increased demand for
SEND, the Group further strengthened the submit™
development, sales and implementation teams during
the year. In particular, two highly experienced market
facing consultants were hired, both of whom have been
key members on the SEND committee for over 10 years.
We expect these consultants to gain further traction for
submit™ during 2016 and beyond.
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 11.5% in the
past year with an additional 1,418 drugs added to the
pipeline (993 were added in the previous year). The
total number of companies with one or more drugs in
the regulatory stages of development has now risen
to 3,687, an increase of 12.2% on the previous year.
This is the biggest increase ever in terms of numbers of
companies and the second largest percentage-wise.
Following the record growth recorded in 2014, 2015
again represented the largest annual drug pipeline
rise on record, in absolute terms, and there is further
evidence that the global pharmaceutical market is still
moving resources from late stage clinical development
into early stage candidates in order to refill the R&D
pipeline.
We believe this outcome-led service fits well with
the ongoing restructuring across the pharmaceutical
These drug development activities require specialist
services and technologies, with a particular focus on
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Instem plc Annual Report, 2015
STRATEGIC REPORT
IT solutions, which enable organisations to reduce
timelines, improve cost efficiencies and ensure they are
able to meet ever-increasing regulatory demands.
data warehouses to rapidly query data across drugs,
companies, and clinical and non-clinical disciplines.
As a result, the US Food & Drug Administration has
made it mandatory to use SEND for all related study
submissions, starting with those run after December
2016 that support the submission of a new drug
application. The Directors believe that the annual total
market spend on technology and services in respect of
SEND will grow to approximately $150 million in 2019
and we are looking to optimise Instem’s offering to all
areas of this market.
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, providing another
source of revenue for the majority of Instem’s solutions
and services.
P J Reason
Chief Executive
26 April 2016
Preclinical Market
The 2016 pipeline shows increases at all phases of
development, but the preclinical phase shows the
largest rise, with the number of projects up by 13.2% as
shown in the recent Citeline® report.
With increased preclinical study volume helping to
create opportunities with their pharma sponsors,
preclinical CROs continue to report strong demand
in North America and increased demand in Europe
and Japan in comparison with 2014. Consequently,
numerous CROs have been adding or looking to add
additional capacity organically or through acquisition.
On 7th January 2016 Charles River Laboratories
announced its intention to acquire WIL Research and
public announcements have talked of continued growth
and expansion following completion of the transaction.
Both of these large CROs are heavily committed Instem
clients and we expect the impact of the merger on
Instem will become clearer during 2016.
Early Stage Clinical Market
The Citeline® report details significant growth in the
clinical stage of drug development, with 2015 posting
the largest increases in this decade in both Phase I
(up by 190 drugs/11.4%) and Phase III (up by 146
drugs/18.1%). The growth rate in Phase II slowed but is
still at record levels (up by 110 drugs/5.1%). The Phase
III figure is particularly encouraging, not just because it
is showing significant growth, but also as these are the
drugs, which should be feeding into the new release
schedule for 2017 and 2018.
Opportunities continue to 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 relatively
modest.
SEND
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 prioritise suitable drug candidates utilising vast
volumes of historic data, in addition to managing
their compliance risk with the authorities. SEND was
developed to speed up and enhance the review process
for drug applications by developing electronic tools to
analyse and visualise these submissions, and building
Instem plc Annual Report, 2015 9
outlook
“Our products and services recorded significant
year-on-year revenue growth during 2015 and
we are pleased to report that we entered the new
financial year with a strong forward order book.“
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Instem plc Annual Report, 2015
Financial
Review
Instem’s revenue model consists of perpetual licence
income with annual support contracts, professional
services fees, SaaS subscriptions and funded
development initiatives. Total revenue for the twelve
months to 31 December 2015 increased 22% to £16.3m
compared with last year. Demand for our products and
services from customers in all territories in which we
operate continued to increase, reflecting increased levels
of pharmaceutical R&D activity.
maximum payable of £5.0m. The total paid up until the
end of 2015 was £4.1m, with the remaining balance of
£0.7m to be paid in cash in two equal instalments in July
2016 and July 2017.
The Group claimed and received research and
development tax credits during the year of £0.2m (2014:
£0.1m).
Revenue growth during the year came from both new
and existing customers and was driven primarily from
increases in Provantis and ALPHADAS related business.
Total recurring revenue, from support contracts and
SaaS based subscriptions, increased 9% during the year
to £10.0m (2014: £9.2m), representing 62% of total
revenue. SaaS based revenue increased by 14% to
£2.1m (2014: £1.8m).
Earnings before interest, tax, depreciation and
amortisation increased 43% for the year to £2.5m.
(2014: £1.7m).
Development costs incurred during the period was
£1.9m (2014: £1.3m), of which £0.6m (2014: £0.3m) was
capitalised.
Adjusted profit before tax (i.e. 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) was £1.7m (2014: £1.1m). The
non-recurring charge of £1.4m, which was previously
announced, arose following the early agreement of
the final deferred contingent consideration payment
relating to the 2013 Instem Clinical (formerly Logos
Technologies) acquisition after all profit targets were
exceeded. This resulted in a total consideration payment
for the Logos business totalling £4.8m, in a mixture
of cash and shares, slightly lower than the potential
Basic and fully diluted earnings per share calculated on
an adjusted basis were ahead of prior year by 58% and
55% respectively.
Net cash generated from operating activities was £2.5m
(2014: £0.5m). The Group had net cash reserves of
£2.2m at 31 December 2015, compared with £1.7m
as at 31 December 2014, after making deferred
contingent consideration cash payments for the 2013
Instem Clinical acquisition amounting to £0.7m and
one deferred contingent consideration payment in
respect of the 2013 Perceptive Instruments acquisition
of £0.3m. In addition, a cash payment amounting to
£0.3m was made to repay a Loan Note associated with
the Instem Clinical acquisition. In line with 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.
The Group’s legacy defined benefit pension scheme has
remained closed to new members since 2000 and to
future accrual since 2008. It experienced an increase
in the funding deficit during the year calculated in
accordance with the provisions of IAS 19 that amounted
to £0.3m (net of deferred tax). This is a non-cash charge
and was recognised in Other Comprehensive Income/
(Expense). The overall deficit at the year-end stood at
£3.9m, represented by a fair value of assets of £7.9m
and a present value of funded obligations of £11.8m. As
part of the scheme’s triennial actuarial valuation as at 5
April 2014, the Group agreed in June 2015 a schedule
of payments to the scheme designed to eliminate the
Instem plc Annual Report, 2015 11
The recently strengthened balance sheet provides
opportunities to invest further in our core products and
services, accelerate the development of new offerings
such as KnowledgeScan and SEND submit™ and play
a more significant role in consolidating the industry in
which we operate.
We therefore look forward to the coming year with
increasing confidence in terms of both improved
operational progress and our financial performance.
N J Goldsmith
Chief Financial Officer
26 April 2016
FINANCIAL REVIEW
funding deficit by November 2023. This involves an
increase of £0.1m in the Group’s current payments to the
scheme rising from £0.4m to £0.5m per annum from April
2016.
Post Balance Sheet Event
As described in the Chairman’s Statement, following
the post year-end fund raising, the Company received
£5.0m before expenses to support organic growth and
acquisition opportunities.
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.
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 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
2015, its £2.0m committed bank facility was undrawn
(2014: £1.6m available).
Outlook
Our core addressable markets continue to grow in terms
of the number of potential customers and the absolute
size. Our products and services recorded significant year-
on-year revenue growth during 2015 and we are pleased
to report that we entered the new financial year with a
strong forward order book. Regulatory requirements and
the enlarged drug R&D pipeline are expected to continue
to stimulate demand for Instem’s solutions and services.
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Instem plc Annual Report, 2015
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, 2015 13
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Instem plc Annual Report, 2015
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
Executive directors
P J Reason
N J Goldsmith
Non-Executive directors
D Gare
D M Sherwin
M F McGoun
14/14
14/14
14/14
14/14
14/14
2/2
2/2
2/2
2/2
2/2
2/2
0/0
2/2
2/2
2/2
Instem plc Annual Report, 2015 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.
e.
considers and makes recommendations to the
Board about the public disclosure of information
about the executive directors’ remuneration
packages and structures in addition to those
required by law or by the London Stock Exchange.
The Chairman of the Remuneration Committee
reports formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities. The Remuneration Committee produces
an annual report which is included in the Group’s annual
report and accounts.
Remuneration Committee
The Remuneration Committee is authorised to:
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.
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;
b.
c.
d. demonstrates to the Group’s shareholders that the
remuneration of the executive directors is set by an
independent committee of the Board; and
16
Instem plc Annual Report, 2015
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.
reviews the structure, size and composition
(including skills, knowledge and experience
required) of the Board compared to its current
position and makes recommendations to the Board
with regard to any changes;
b. gives full consideration to succession planning for
directors and other senior executives in the course
of its work, taking into account the challenges and
opportunities facing the Group, and what skills and
expertise are needed on the Board in the future;
CORPORATE GOVERNANCE STATEMENT
Nomination Committee (continued)
c.
is responsible for identifying and nominating for
the approval of the Board, candidates to fill Board
vacancies as and when they arise; and
d. evaluates the balance of skills, knowledge and
experience on the Board before an appointment
is made and, in light of this evaluation, prepares a
description of the role and capabilities required for
a particular appointment.
The Chairman of the Nomination Committee reports
formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities.
The Nomination Committee also makes
recommendations to the Board concerning:
a.
formulating plans for succession for both executive
and non-executive directors and in particular
the key roles of Chairman of the Board and Chief
Executive Officer;
b. membership of the Audit and Remuneration
c.
d.
Committees, in consultation with the chairmen of
those committees;
the re-appointment of any non-executive director
at the conclusion of their specified term of office
having given due regard to their performance and
ability to continue to contribute to the Board in
the light of the knowledge, skills and experience
required;
the re-election by shareholders of any director
under the “retirement by rotation” provisions in
the Company’s articles of association having due
regard to their performance and ability to continue
to contribute to the Board in the light of the
knowledge, skills and experience required;
e. matters relating to the continuation in office of any
director at any time including the suspension or
termination of service of an executive director as
an employee of the Group subject to the provisions
of the law and his/her service contract; and
the appointment of any director to executive or
other office other than to the positions of Chairman
of the Board and Chief Executive Officer, the
recommendation for which would be considered at
a meeting of the full Board.
f.
b.
c.
The Nomination Committee is authorised to:
a.
investigate any activity within its terms of
reference;
seek any information it requires from any
employee;
obtain outside legal or other independent
professional advice at the Group’s expense when
the Nomination Committee reasonably believes it is
necessary to do so; and
d.
instruct external professional advisors to attend
any meeting at the Group’s expense if the
Nomination Committee considers this reasonably
necessary and appropriate.
There were no Nomination Committee meetings held
during the year.
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 revewed detailed
projections which have been made for the 12 months
following the approval of the financial statements. This
work gives the directors confidence that the Group has
adequate resources to enable it to continue in operation
for the foreseeable future. The Group has strong
positive cash reserves, as well as a committed working
capital facility of £2.0m which at 31 December 2015
was undrawn.
Following the end of the financial year, in February
2016, the Group raised £5.0 million (before expenses)
by way of a placing of 2,500,000 New Ordinary Shares
with new and existing investors. The Group has,
therefore, sufficient liquid assets to cover its day-to-day
needs, in addition to its strong trading cash flow
generation.
Accordingly the directors continue to adopt the going
concern basis for the preparation of the financial
statements.
On behalf of the Board
N J Goldsmith
Director and Company Secretary
26 April 2016
Instem plc Annual Report, 2015 17
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The directors submit their report and the Group and
Company financial statements of Instem plc for the year
ended 31 December 2015.
Instem plc is a public limited company, incorporated and
domiciled in England, and quoted on AIM.
Principal Activities
Instem is a leading supplier of IT applications to the early
development healthcare market, delivering compelling
solutions for data collection, management and analysis
across the R&D continuum. Instem applications are in use
by customers worldwide, meeting the rapidly expanding
needs of life science and healthcare organisations for data-
driven decision making leading to safer, more effective
products.
Instem’s portfolio of software solutions increases client
productivity by automating study-related processes while
offering the unique ability to generate new knowledge
through the extraction and harmonisation of actionable
scientific information.
Review of the Business
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.
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.
Dividends
The directors do not recommend the payment of a dividend.
Directors
The following directors held office during the year:
D Gare
M F McGoun
D M Sherwin
P J Reason
N J Goldsmith
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 2015 the Group had in excess of 450 customers (2014: in
excess of 400 customers) for continuing products.
Details of the directors’ service contracts and their
respective notice terms are detailed in the Directors’
Remuneration report on page 20.
Directors and their Interests
The interests of the directors who held office at 31
December 2015 and up to the date of this report were as
follows:
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 2015
was £10.0m (2014: £9.2m).
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.
Future Developments
The directors consider that the continued investment in
product and market development will allow the business to
grow organically in its core markets. Investment in business
growth initiatives will also allow the business to move into
2015
2014
No. of Shares
No. of Shares
D Gare
1,418,427
2,278,427
D M Sherwin
1,380,066
1,580,066
P J Reason
665,287
665,287
M F McGoun
36,786
14,286
N J Goldsmith
-
-
Directors’ interests in share options are detailed in the
Remuneration report on page 20 to 21.
18
Instem plc Annual Report, 2015
DIRECTORS’ REPORT
Employee Involvement
Auditor
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.
Pursuant to s489 of the Companies Act 2006, a
resolution to re-appoint RSM UK Audit LLP (formally
Baker Tilly UK Audit LLP) as auditor will be put to the
members at the forthcoming Annual General Meeting.
Political Donations
On behalf of the Board
P J Reason
Director
26 April 2016
The Group made no political donations in 2015 or 2014.
Financial Instruments
The Group’s objectives and policies on financial
instruments are set out in note 18 to the financial
statements.
Indemnity of Officers and Directors
Under the Company’s Articles of Association and subject
to the provisions of the Companies Act, the Group may
and has indemnified all directors and other officers
against liability incurred in the execution or discharge
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 26 May 2016 at the offices of RSM UK Audit LLP,
3 Hardman Street, Manchester, M3 3HF. 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.
Instem plc Annual Report, 2015 19
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
Performance Related Annual Bonus
Executive directors are eligible for a performance
related bonus based on Group performance, in
particular, the achievement of profit and cash targets.
The performance related annual bonus forms a
significant part of the level of remuneration considered
appropriate by the Committee. In addition to the formal
bonus scheme, the Committee has the discretion to
recommend the payment of ad hoc awards to reflect
exceptional performance. Bonuses amounting to
£0.03m were payable to executive directors in respect
of the year ended 31 December 2015 (2014: £nil), were
included in accruals at 31 December 2015 and were
paid in February 2016.
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.
Service Contracts
The Executive directors have contracts with notice
periods between six and twelve months.
The Board determines the Group’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 M F McGoun has been
remunerated through a service company, Noble
Adamson Limited.
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 Group’s policy on
executive remuneration and to consider and approve the
remuneration packages for directors and key executives
of the Group, subject to ratification by the Board. During
the year, the Committee met on two occasions. Full
details of the elements of each director’s remuneration
are set out on page 21. Details of share based payment
are shown in note 6 to the financial statements.
Policy on Executive Director
Remuneration
The Group’s current and ongoing policy aims to
ensure that executive directors are rewarded fairly
for their individual contributions to the 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 Group, such as salary and
other benefit arrangements within the Group and the
achievement of the Group’s strategic objectives. The
Committee determines the Group’s Policy on executive
remuneration with reference to comparable companies
of similar market capitalisation, location and business
sector.
Basic Salary
The basic salaries of executive directors are reviewed
annually having regard to individual performance
and position within the Group and are intended to be
competitive but fair using information provided from
both internal and external sources.
20
Instem plc Annual Report, 2015
DIRECTORS’ REMUNERATION REPORT
The emoluments paid to directors in the year ended 31 December 2015 were as follows:
Salary
£000
Bonus
£000
Benefits
£000
Pension
£000
2015 Total
£000
2014 Total
£000
Executives
P J Reason
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
158
102
44
24
24
Total
352
21
10
-
-
-
31
16
11
-
-
-
27
26
11
-
-
-
37
221
134
44
24
24
447
182
122
44
24
24
396
Directors’ and Employees’ Share Options
Exercise
price(£)
Issue date
Held at 31
Dec 2014
Granted
during year
Exercised
during year
Lapsed
during year
Held at 31
Dec 2015
P J Reason
Ordinary shares
1.750
13/10/2010
187,427
0.900
0.100
14/01/2013
23,429
29/07/2015
-
150,000
-
-
N J Goldsmith
Ordinary shares
2.215
29/11/2011
40,000
1.760
0.900
07/02/2012
20,000
14/01/2013
15,000
-
-
-
0.100
29/07/2015
-
100,000
Employees
Ordinary shares
1.750
13/10/2010
304,568
2.220
2.220
1.115
0.900
0.100
0.100
0.100
03/03/2011
93,844
17/10/2011
14,667
23/10/2012
40,000
14/01/2013
61,397
11/02/2015
29/07/2015
21/11/2015
-
-
-
-
-
-
-
-
81,168
215,000
50,516
-
-
-
-
-
-
-
-
-
-
(10,000)
-
-
-
-
Total
800,332
596,684
(10,000)
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Director
26 April 2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
187,427
23,429
150,000
360,856
40,000
20,000
15,000
100,000
175,000
304,568
93,844
14,667
30,000
61,397
81,168
215,000
50,516
851,160
1,387,016
Instem plc Annual Report, 2015 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, 2015
INDEPENDENT AUDITOR’S REPORT to the members Of instem plc
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF INSTEM PLC
•
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
We have audited the group and parent company
financial statements (“the financial statements”) on
pages 24 to 67. The financial reporting framework that
has been applied in their preparation is applicable law
and International Financial Reporting Standards (IFRSs)
as adopted by the European Union and, as regards the
parent company financial statements, as applied in
accordance with the provisions of the Companies Act
2006.
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the
company and the company’s members as a body, for our
audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of directors
and auditor
As more fully explained in the Directors’ Responsibilities
Statement set out on page 22, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express
an opinion on the financial statements in accordance
with applicable law and International Standards on
Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board’s (APB’s)
Ethical Standards for Auditors.
Scope of the audit of the financial
statements
A description of the scope of an audit of financial
statements is provided on the Financial Reporting
Council’s website at http://www.frc.org.uk/
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 2015 and of the group’s loss 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
•
•
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 RSM UK AUDIT LLP
(formerly Baker Tilly UK Audit LLP)
Statutory Auditor
Chartered Accountants
3 Hardman Street
Manchester
M3 3HF
26 April 2016
Instem plc Annual Report, 2015 23
Year ended
31 December
2015
£000
Note
Restated
Year ended
31 December
2014
£000
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2015
CONTINUING OPERATIONS
REVENUE
Operating expenses
Share based payment
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION
AND NON-RECURRING COSTS (‘EBITDA’)
Depreciation
Amortisation of intangibles arising on acquisition
Amortisation of internally generated intangibles
PROFIT BEFORE NON-RECURRING COSTS
Non-recurring costs
(LOSS)/PROFIT AFTER NON-RECURRING COSTS AND BEFORE FINANCE COSTS
Finance income
Finance costs
(LOSS)/PROFIT BEFORE TAXATION
Taxation
(LOSS)/PROFIT FOR THE YEAR
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
(LOSS)/PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE EXPENSE ATTRIBUTABLE TO OWNERS OF THE PARENT
Earnings per share from continuing operations
COMPANY
1
2
2
2
3
4
8
16,321
(13,553)
(263)
2,505
(156)
(640)
(376)
1,333
(1,426)
(93)
4
(272)
(361)
(67)
(428)
(339)
61
(278)
(24)
(302)
(730)
(428)
(730)
Basic
Diluted
22
22
(3.5p)
(3.5p)
24
Instem plc Annual Report, 2015
13,429
(11,572)
(108)
1,749
(127)
(640)
(297)
685
(123)
562
9
(359)
212
(62)
150
(621)
124
(497)
34
(463)
(313)
150
(313)
1.2p
1.2p
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2015
2015
Restated
2014
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Deferred tax assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Deferred income
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 earnings
9
11
19
12
13
14
15
16
17
17
20
21
23
23
23
23
23
12,035
376
663
822
4,745
2,183
1,797
7,107
541
385
448
3,933
1,304
7,903
1,241
641
204
(4,680)
12,439
263
574
13,074
13,276
6,614
19,890
10,309
4,162
14,471
7,750
20,824
9,830
4,381
14,211
506
4,432
1,676
1,364
6,811
231
1,903
281
3,881
1,221
7,892
(326)
378
228
(3,974)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF
THE PARENT
6,613
5,419
TOTAL EQUITY AND LIABILITIES
20,824
19,890
The financial statements on pages 24 to 67 were approved by the board of directors and authorised for issue on 26 April 2016
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
Instem plc Annual Report, 2015 25
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2015
Note
2015
2014
ASSETS
£000
£000
£000
£000
NON-CURRENT ASSETS
Investments
10
23,395
23,132
TOTAL NON-CURRENT ASSETS
23,395
23,132
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
13
14
15
17
2,621
24
3,824
357
2,645
26,040
2,231
97
2,322
1,903
2,328
25,460
4,181
4,225
Financial liabilities
17
331
281
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained earnings
21
23
23
23
23
1,304
7,903
12,875
641
(1,195)
331
4,512
281
4,506
1,221
7,892
11,308
378
155
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
21,528
26,040
20,954
25,460
The financial statements on pages 24 to 67 were approved by the board of directors and authorised for issue on 26 April 2016
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
26
Instem plc Annual Report, 2015
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2015
2015
2014
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before taxation
Adjustments for:
Depreciation
Amortisation of intangibles
Share based payment
Retirement benefit obligations
Finance income
Finance costs
Increase in deferred contingent consideration
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
Movements in working capital:
Increase in inventories
Increase in trade and other receivables
Increase in trade, other payables and deferred income
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 contingent consideration
Repayment of capital of finance leases
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Loan notes repaid
Finance lease interest
NET CASH USED IN FINANCING ACTIVITIES
NET INCREASE/(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
(361)
156
1,016
263
(427)
(4)
272
1,361
(313)
(71)
493
(86)
205
4
(612)
(113)
(950)
(8)
12
(303)
(4)
212
127
937
108
(398)
(9)
359
-
2,276
1,336
(196)
(1,436)
743
(65)
100
9
(369)
(124)
(302)
-
-
-
-
109
2,385
119
2,504
(1,679)
(295)
530
1,676
(23)
2,183
(889)
447
35
482
(786)
-
(304)
2,053
(73)
1,676
Instem plc Annual Report, 2015 27
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2015
Note
£000
£000
£000
£000
2015
2014
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/profit before taxation
(1,350)
Adjustments for:
Finance income
Finance cost
Increase in deferred contingent consideration
CASH FLOWS FROM OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
Increase in trade and other receivables
Increase in trade and other payables
NET CASH GENERATED FROM OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Finance income received
Payment of deferred consideration
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
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
(5)
41
1,361
5
(950)
12
(303)
1
(6)
50
-
6
(302)
47
(390)
1,506
1,163
45
(988)
1,059
116
(945)
(296)
-
-
-
(180)
277
97
(291)
(73)
97
24
28
Instem plc Annual Report, 2015
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Share
capital
£000
Balance as at 1 January 2014
1,176
Profit for the year
Other comprehensive income/
(expense) for the year
Total comprehensive income/
(expense)
Shares issued
Share based payment
Balance as at 31 December
2014
Loss for the year
Other comprehensive expense
for the year
Total comprehensive expense
Shares issued
Share based payment
Share
premium
£000
7,892
Merger
reserve
£000
(932)
-
-
-
-
-
-
-
-
606
-
-
-
-
45
-
1,221
7,892
(326)
-
-
-
83
-
-
-
-
11
-
-
-
-
1,567
-
Shares to
Translation
Retained
be issued
reserve
earnings
£000
270
£000
194
£000
(3,627)
150
Total
equity
£000
4,973
150
-
34
34
-
-
228
-
(24)
(24)
-
-
(497)
(463)
(347)
(313)
-
-
651
108
(3,974)
5,419
(428)
(278)
(706)
-
-
(428)
(302)
(730)
1,661
263
-
-
-
-
108
378
-
-
-
-
263
641
Balance as at 31 December
2015
1,304
7,903
1,241
204
(4,680)
6,613
Shares to
be issued
Retained
earnings
COMPANY STATEMENT OF CHANGES IN EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Share
capital
£000
Balance as at 1 January 2014
1,176
Profit for the year
Shares issued
Share based payment
-
45
-
Share
premium
£000
7,892
-
-
-
Merger
reserve
£000
10,702
-
606
-
Balance as at 31 December 2014
1,221
7,892
11,308
Loss for the year
Shares issued
Share based payment
-
83
-
-
11
-
-
1,567
-
Balance as at 31 December 2015
1,304
7,903
12,875
£000
270
-
-
108
378
-
-
263
641
Total
equity
£000
20,074
121
651
108
20,954
(1,350)
1,661
263
£000
34
121
-
-
155
(1,350)
-
-
(1,195)
21,528
Instem plc Annual Report, 2015 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
public listed company, listed on AIM and 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 presentation of the Consolidated Statement of
Comprehensive Income has changed from the previous audited
financial statements. The change includes the depreciation
charge being presented on the face of the Consolidated
Statement of Comprehensive Income rather than being included
in operating expenses. The change has been made to provide
clarity in the calculation of earnings before interest, taxation,
depreciation and non-recurring costs (EBITDA).
The presentation of the Consolidated Statement of Financial
Position has changed from the previous audited financial
statements. The change is to show deferred income on the face
of the Consolidated Statement of Financial Position rather than
being included in trade and other payables.
It is the opinion of the directors that the above changes are
considered more appropriate to the readers and users to better
understand the performance and position of the Group.
The Company has taken advantage of the audit exemption
for three of its non-trading subsidiaries Instem Life Science
Systems Limited (company number 04339129), Instem Scientific
Solutions Limited (company number 03598020) and Logos
Technologies Limited (company number 05836842), by virtue
of s479A of Companies Act 2006. The Company has provided
parent guarantees to these three subsidiaries which have taken
advantage of the exemption from audit. Under this guarantee,
the company has a contingent liability of £9.0m.
In accordance with Section 408 of the Companies Act 2006 the
Company has elected not to present its own income statement.
The loss for the year of the parent company is £1,350,000 (2014:
profit of £121,000).
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 2015 and 31 December 2014.
In preparing the consolidated financial statements, any intra-
group balances, unrealised gains and losses or income and
expenses arising from intra-group trading are eliminated. Where
accounting policies used in individual financial statements of a
subsidiary company differ from Group policies, adjustments are
made to bring these policies in line with Group policies.
Subsidiaries
Subsidiaries are entities over which the Group has the power
to govern the financial and operating policies so as to obtain
economic benefits from their activities. Subsidiaries are
consolidated from the date on which control is transferred to the
Group up until the date that control ceases.
BUSINESS COMBINATIONS
Acquisitions of businesses are accounted for using the
acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the
sum of the acquisition date fair values of the assets transferred
by the Group, liabilities incurred by the Group to the former
owners of the acquiree and the equity interests issued by the
Group in exchange for control of the acquiree. Acquisition
related costs are recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and the
liabilities assumed are recognised at their fair value, except that
deferred tax assets or liabilities are recognised and measured in
accordance with IAS 12 ‘Income taxes’.
Contingent consideration is measured at its acquisition-date fair
value and is included as part of the consideration transferred.
Changes in the fair value of the contingent consideration that
qualify as measurement period adjustments are adjusted
retrospectively, with corresponding adjustments against goodwill.
The subsequent accounting for changes in the fair value of the
contingent consideration that do not qualify as measurement
period adjustments depends on how the contingent consideration
is classified. Contingent consideration that is classified as an
asset or a liability is re-measured at subsequent reporting dates
with the corresponding gain or loss being recognised in profit
or loss. Contingent consideration is recognised initially at fair
value and subsequently carried at amortised cost; the difference
between the gross amount and the fair value is recognised in the
income statement over the period in which the liability is settled
using the effective interest method.
GOING CONCERN
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 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 had
30
Instem plc Annual Report, 2015
accounting policies
net current assets (excluding deferred income) of £5.0m at 31
December 2015 (2014: £3.1m). 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.
The Group has strong positive cash reserves, as well as a
committed working capital facility of £2.0m referred to above
which, at 31 December 2015 was undrawn.
Following the end of the financial year, in February 2016, the
Group raised £5.0 million (before expenses) by way of a placing
of 2,500,000 New Ordinary Shares with new and existing
investors. The Group has, therefore, sufficient liquid assets to
cover its day-to-day needs, in addition to its strong trading cash
flow generation.
Accordingly the directors continue to adopt the going concern
basis for the preparation of the financial statements.
REVENUE RECOGNITION
The Group follows the principles of IAS 18 ‘Revenue
Recognition’, in determining appropriate revenue recognition
principles. In general, revenue is recognised to the extent that
it is probable that the economic benefits associated with the
transaction will flow to the Group.
Revenue comprises the value of software licence sales, 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.
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION,
AMORTISATION AND NON-RECURRING COSTS (‘EBITDA’)
Earnings before interest, taxation, depreciation, amortisation
and non-recurring costs (EBITDA) is profit/(loss) arising from
the Group’s normal trading activities stated before depreciation,
amortisation, non-recurring costs, finance income and finance
costs, and shown in this way to provide a clearer measure of
underlying operating performance.
SEGMENTAL REPORTING
IFRS 8 ‘Operating Segments’ requires segmental information for
the Group on the basis of information reported internally to the
chief operating decision-maker for decision-making purposes.
The Group considers that the role of chief operating decision-
maker is performed by the Group’s Board of Directors.
Since the Group is primarily providing goods and services to the
global life sciences market there is only one operating segment
which is monitored by the business.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at
the reporting date are translated at the foreign exchange rate
ruling at that date. Foreign exchange differences arising on
translation are recognised in profit or loss. Non-monetary assets
and liabilities that are measured in terms of historical cost in a
foreign currency are translated using the exchange rate at the
date of the transaction. Non-monetary assets and liabilities
denominated in foreign currencies that are stated at fair value
are translated at foreign exchange rates ruling at the date the fair
value was determined.
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation, are
translated at foreign exchange rates ruling at the reporting date.
The revenue and expenses of foreign operations are translated
at an average rate for the year where this rate approximates to
the foreign exchange rates ruling at the dates of the transactions,
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 each of the 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)
Instem Japan K.K
Japanese Yen (JPY)
Instem plc Annual Report, 2015 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)
Japanese
Yen (JPY)
Average rate for year ended 31 December 2014
1.6470
Closing rate at 31 December 2014
1.5562
Average rate for year ended 31 December 2015
1.5283
Closing rate at 31 December 2015
1.4941
12.7733
12.0780
11.8503
11.5809
10.1437
100.5207
9.6686
9.5010
9.6767
99.0440
97.8763
98.9288
-
-
179.712
185.080
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 Binomial, Monte Carlo or
Black Scholes models. 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
combination. Deferred tax assets are recognised only to
32
Instem plc Annual Report, 2015
accounting policies
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 three 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:
•
•
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;
the Group has the intention to complete the asset and the
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset, for which
the estimates of future cash flows have not been adjusted.
Instem plc Annual Report, 2015 33
accounting policies
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.
The cost of work in progress comprises direct labour and other
direct costs and includes billable employee expenses.
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
income.
Derivative financial instruments
The Group’s activities expose it primarily to foreign currency
risk. The Group uses forward contracts to hedge this exposure
however none are held at 31 December 2015.
RETIREMENT BENEFITS
Defined contribution schemes
A defined contribution scheme is a pension plan under which
the Group pays a fixed contribution to a scheme with an
external provider. The amount charged to the statement of
comprehensive income in respect of pension costs and other
post-retirement benefits is the total of contributions payable in the
year. Differences between contributions payable in the year and
contributions actually paid are shown as either other payables
or other receivables in the statement of financial position. The
Group has no further payment obligations once the contributions
have been paid.
Defined benefit schemes
A defined benefit scheme is a pension plan under which the
Group pays contributions in order to fund a defined amount of
pension that the employees under the scheme will receive on
retirement. The cost of providing the benefits is determined
using the projected unit credit method with actuarial valuations
being carried out regularly.
An asset or liability is recognised equal to the present value of
the defined benefit obligation, adjusted for unrecognised past
service costs and reduced by the fair value of plan assets.
Actuarial gains and losses are recognised in the statement
of other comprehensive income in the year in which they
occur, whilst expected returns on plan assets, servicing
costs and financing costs are recognised in the statement of
comprehensive income.
The rate used to discount the benefit obligations is based on
34
Instem plc Annual Report, 2015
accounting policies
market yields for high quality corporate bonds with terms and
currencies consistent with those of the benefit obligations.
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 2015. 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.
IAS 1 ‘Presentation of financial statements’ – effective 1 January
2016
IFRS 10 ‘Consolidated financial statements’ – effective 1
January 2016
IFRS 12 ‘Disclosure of Interests in Other Entities’ – effective 1
January 2016
IFRS 15 ‘Revenue from contracts with customers’ effective – 1
January 2018
IFRS 9 ‘Financial Instruments’ effective – 1 January 2018
IAS 27 ‘Equity method in separate financial statements’
(Amended) – effective 1 January 2016
IAS 16 and IAS 38 ‘Clarification of acceptable methods of
depreciation and amortisation’ (Amendments) – effective 1
January 2016
IFRS 16 ‘Leases’ effective – 1 January 2019
The directors are currently reviewing the implications of IFRS 15
‘Revenue from contracts with customers’ and IFRS 16 ‘Leases’
to consider the implications on the financial statements. The
directors do not believe that the other above standards will have
a material impact on the financial statements.
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.
IAS 19 ‘Defined Benefit Plans’ – Employee Contributions –
(Amended) – effective 1 February 2015
Instem plc Annual Report, 2015 35
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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.
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
REVENUE
2014
£000
2,734
6,984
1,822
1,763
126
2015
£000
4,612
7,383
2,076
2,042
208
16,321
13,429
REVENUE
2015
£000
2,004
3,592
9,429
1,296
2014
£000
2,141
2,699
7,583
1,006
16,321
13,429
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION
2015
£000
12,331
39
41
12,411
2014
£000
12,664
16
22
12,702
Major customers
No customer represents more than 10% of Group revenue in 2015 or 2014.
36
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
2.
(Loss)/Profit from Operations
(Loss)/Profit from operations includes the following significant items:
Depreciation and amounts written off property, plant and equipment:
Charge for the year:
Owned assets
Leased assets
Amortisation of intangible assets
Research and development costs
Operating lease rentals:
Plant and machinery
Land and buildings
Amounts payable to RSM UK Audit LLP and their associates in respect of
both audit and non-audit services:
Audit services:
Statutory audit of parent and consolidated financial information
Audit of subsidiaries where such services are provided by
RSM UK Audit LLP or its associates
Other services:
Audit related assurance services
Taxation services - Compliance
Taxation services - Advisory
2015
£000
137
19
1,016
1,302
3
365
16
51
11
12
10
100
2014
£000
127
-
937
1,026
4
252
16
43
21
15
31
126
Instem plc Annual Report, 2015 37
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
2.
(Loss)/Profit from Operations (continued)
The following table analyses the nature of expenses:
Staff costs (see note 5)
Operating lease rentals
Software maintenance charges
Licence costs
2015
£000
8,666
368
318
593
2014
£000
7,536
256
374
188
Other expenses
3,608
3,218
Total cost of sales, distribution costs, administrative expenses
and other operating expenses
13,553
11,572
Non-recurring costs
The 2015 non-recurring charge of £1.4m arose following the early agreement of the final deferred contingent consideration relating to
the 2013 acquisition of Instem Clinical (formerly Logos Technologies) after all profit targets were exceeded.
The 2014 non-recurring charge 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, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
3. Finance Income
Bank interest
Bank loans and overdrafts
Unwinding discount
Net interest charge on pension scheme
Foreign exchange losses
Finance lease interest
2015
£000
4
2015
£000
86
36
140
6
4
272
2014
£000
9
2014
£000
65
46
152
96
-
359
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
2015
Number
2014
Number
40
118
158
2015
£000
7,421
636
609
8,666
42
98
140
2014
£000
6,382
590
564
7,536
Instem plc Annual Report, 2015 39
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
Granted
Lapsed
Number
800,332
596,684
-
Exercised
(10,000)
Outstanding at end of the year
1,387,016
Exercisable at 31 December
1,227,191
2015
2014
Weighted
average exercise
price (£)
1.71
0.10
-
1.12
1.02
1.01
Number
807,839
-
(7,507)
-
800,332
640,507
Weighted
average exercise
price (£)
1.71
-
2.22
-
1.71
1.86
The options outstanding at 31 December 2015 and 31 December 2014 had exercise prices of £0.10, £0.90, £1.115, £1.75, £1.76 and
£2.22 and a weighted average remaining contractual life of 7 years 1 month (2014: 6 years 4 months).
A charge of £0.3m (2014: £0.1m) arose in respect of share based payment.
New options are valued using the Black-Scholes option-pricing model. 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
2015
0.10
2.04
3
20.6
10
3
2.0
-
-
1.95
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 546,599 shares (2014: 556,599 shares) incorporate a market performance condition based on the Company’s share
price. Options over 596,684 shares (2014: nil) incorporate a condition based on the performance of either the Group or the individual
performance of a subsidiary.
The fair value of options granted in the year is £1.1m (2014: £nil).
40
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
7. Directors’ Emoluments
Amounts payable by Instem plc:
Emoluments*
Amounts payable by subsidiary companies:
Emoluments
Money purchase pension contributions
Total emoluments
2015
£000
92
318
37
447
2014
£000
92
269
35
396
2015
Number
2014
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
2
2
* The above emoluments include £24,000 (2014: £24,000) paid to third parties as shown in note 26.
The highest paid director is shown in the Directors’ Remuneration Report.
Instem plc Annual Report, 2015 41
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
8. Taxation
Income taxes recognised in profit or loss
Current tax:
UK corporation tax on (loss)/profit 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 credit
Adjustments in respect of previous years
Retirement benefit obligation
Effects of domestic tax rate change on opening balances
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:
(Loss)/profit before tax
(Loss)/profit before tax multiplied by standard rate of
corporation tax in the UK 20.25% (2014: 21.5%)
Effects of:
Expenses not deductible for tax purposes
Fixed asset temporary differences
Differences in overseas tax rates
Adjustments in respect of prior years
Effects of domestic tax rate change on opening balances
Adjustment in respect of R&D tax credit
Other temporary differences
Tax losses utilised
Total income tax expense recognised in consolidated
statement of comprehensive income
2015
£000
98
411
(302)
61
(173)
95
(315)
179
52
56
(28)
67
2015
£000
(361)
(73)
341
17
113
(62)
56
(173)
(152)
-
67
2014
£000
-
272
239
(171)
(92)
248
(30)
(103)
(53)
-
(186)
62
2014
£000
212
46
33
(9)
109
(35)
-
-
-
(82)
62
The reduction in the applicable tax rate is due to legislation included in the Finance Act 2013 to reduce the main rate of UK corporation
tax from 23% to 21% from 1 April 2014 and to 20% from 1 April 2015. The tax rate which has been substantively enacted as at 31
December 2015 is 18% in respect of periods from 1 April 2020.
42
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
9.
Intangible Assets
Goodwill
Software
property
relationships
Patents
Group
£000
£000
£000
£000
£000
Intellectual
Customer
Cost
At 1 January 2014
9,387
1,893
2,222
957
Additions from continuing
operations
Additions from acquisitions in
the prior period
-
120
369
-
-
-
At 31 December 2014
9,507
2,262
2,222
Additions from continuing
operations
-
612
-
At 31 December 2015
9,507
2,874
2,222
Amounts written off
At 1 January 2014
Amortisation expense
At 31 December 2014
Amortisation expense
At 31 December 2015
Net book value
-
-
-
-
-
At 31 December 2014
9,507
At 31 December 2015
9,507
772
297
1,069
375
1,444
1,193
1,430
604
445
1,049
444
1,493
1,173
729
-
-
957
-
957
206
191
397
192
589
560
368
21
-
-
21
-
21
11
4
15
5
20
6
1
Total
£000
14,480
369
120
14,969
612
15,581
1,593
937
2,530
1,016
3,546
12,439
12,035
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally acquired
elements. The cost of internally generated software amounts to £2.9m (2014: £2.3m) with accumulated amortisation of £1.4m (2014:
£1.1m). Software additions for the year include £580,000 relating to internal development (2014: £312,000).
The additions from acquisitions in the prior period in 2014 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 (2014: £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 (2014: £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
(2014: £2.482m), relates to a CGU, being the Logos Holdings Limited (now Instem Clinical Holdings Limited) business acquired on
10 May 2013. Goodwill amounting to £0.669m (2014: £0.669m) 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 2015 a pre-tax discount rate of 8.9% (2014: 11.1%) was used in the value-in-use
calculation based on the Group’s cost of capital.
Projected cash flows were based on detailed profit and cashflow projections through to 2017 with a 2.5% assumption of growth beyond
2017. 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 2017 were used.
Instem plc Annual Report, 2015 43
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
9.
Intangible Assets (continued)
The recoverable amount of the Instem LSS CGU exceeds the carrying amount of this CGU by 236%, for the Instem Scientific CGU
by 662%, for Instem Clinical CGU by 378% and, Perceptive Instruments CGU by 428%. The directors consider the discount rate and
revenues to be the most sensitive assumptions used in the impairment reviews. An additional increase in the discount rate of 40%,
or a reduction in certain revenues of in excess of 3%, would result in the recoverable amount of the Instem LSS CGU being equal
to its carrying amount. An additional increase of 79% in the Instem Scientific discount rate, or a reduction in revenues of 22% would
result in the recoverable amount of the CGU being equal to its carrying amount. An additional increase of 54% in the Instem Clinical
discount rate, or a reduction in revenues of 10% would result in the recoverable amount of the CGU being equal to its carrying amount.
An additional increase of 59% in the Perceptive Instruments discount rate, or a reduction in revenues of 12% 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
23,132
263
23,395
The company has four wholly-owned subsidiaries and eleven 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
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
Leading provider of software solutions for
extracting intelligence from R&D related
healthcare data
Dormant
Leading provider of software solutions for
extracting intelligence from R&D related
healthcare data
100% by Instem Life
Science Systems
Limited
100% by Instem LSS
Limited
100% by Instem LSS
Limited
100% by Instem LSS
(Asia) Limited
100% by Instem plc
100% by Instem
Scientific Limited
100% by Instem
Scientific Limited
44
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
10. Investments (continued)
Company
Activity
Instem India Pvt Limited
(company number U73100MH2012FTC231951)
Software development
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
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
Instem Japan K.K
(company number 0104-01-120355)
Sales, sales support and service
Japan
100% by Instem LSS
Limited
Instem plc Annual Report, 2015 45
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
11. Property, Plant and Equipment
Group
Cost
At 1 January 2014
Additions
Exchange adjustment
At 31 December 2014
Additions
Exchange adjustment
At 31 December 2015
Depreciation
At 1 January 2014
Depreciation expense
Exchange adjustment
At 31 December 2014
Depreciation expense
Exchange adjustment
At 31 December 2015
Net book value
At 31 December 2014
At 31 December 2015
Short leasehold
IT hardware &
property
£000
software
£000
14
60
-
74
-
-
74
8
17
1
26
17
(2)
41
48
33
1,821
64
4
1,889
266
2
2,157
1,562
110
2
1,674
139
1
1,814
215
343
Total
£000
1,835
124
4
1,963
266
2
2,231
1,570
127
3
1,700
156
(1)
1,855
263
376
IT hardware and software includes assets with a net book value of £134,000 (2014: £nil) held under finance lease. The depreciation on
these assets during the year was £19,000 (2014: £nil).
46
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
2015
£000
14
808
822
2015
£000
822
2015
£000
2,788
1,395
562
4,745
2,589
32
2,621
2014
£000
21
485
506
2014
£000
506
2014
£000
2,705
1,257
470
4,432
2,214
17
2,231
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 for the year
At end of year
2015
£000
23
209
232
2014
£000
-
23
23
The average credit period taken on sale is 57 days (2014: 38 days). No interest has been 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, 2015 47
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
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
Group
2015
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables/Amounts recoverable
on contracts
Value (£000)
%
3,711
89
344
8
17
-
111
3
4,183
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
2015
£000
1,815
162
2,452
270
46
4,745
2014
£000
1,713
341
2,162
202
14
4,432
48
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
14. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
2015
£000
11,181
(8,998)
2,183
24
2014
£000
10,674
(8,998)
1,676
97
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
Company - Current
Trade payables
Amounts owed to group companies
Accruals
2015
£000
(407)
201
1,529
831
29
2,183
24
2015
£000
487
186
1,124
1,797
37
3,773
14
3,824
2014
£000
(367)
153
1,035
842
13
1,676
97
Restated
2014
£000
416
203
745
1,364
16
2,270
36
2,322
Instem plc Annual Report, 2015 49
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
2015
£000
1,088
677
20
12
1,797
3,824
Restated
2014
£000
1,013
319
32
-
1,364
2,322
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their short maturities.
The age profile of the trade and other payables for the Group at the year-end was as follows:
Group
2014
Trade and other payables (£000)
%
Group
2015
Trade and other payables (£000)
%
16. Current Taxation
Current
1,284
94
Current
1,700
95
0-30
days
48
4
0-30
days
56
3
31-60
days
Over 60
days
7
-
25
2
31-60
days
Over 60
days
6
-
35
2
Total
1,364
100
Total
1,797
100
The Group current tax payable of £541,000 (2014: £231,000) represents the amount of income taxes payable in respect of current and
prior years.
The Company current tax payable is nil (2014: £nil).
17. Financial Liabilities
Group and Company
Less than
One to
More than
2014
Deferred contingent consideration
Loan note
Group
2015
Deferred consideration
Finance lease liabilities
Total
£000
1,881
303
2,184
Total
£000
688
145
833
one year
£000
two years
£000
two years
£000
1,600
303
1,903
281
-
281
-
-
-
Less than
One to
More than
one year
two years
two years
£000
£000
£000
357
28
385
331
29
360
-
88
88
50
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
17. Financial Liabilities (continued)
Company
Less than
One to
More than
2015
Deferred consideration
Total
£000
688
one year
two years
two years
£000
357
£000
331
£000
-
Deferred contingent consideration
The deferred contingent consideration relates to the acquisition of Instem Clinical Holdings Limited. The carrying value of the deferred
contingent consideration for Instem Clinical Holdings Limited has been discounted by an appropriate rate to take account of the time
to maturity. The deferred contingent consideration is now fixed and has no further future performance criteria and there are no further
contingencies as at 31 December 2015. Further details are provided in note 18.
Loan note
A loan note amounting to £298,000 was issued during 2014 as part of the deferred contingent consideration payable for the
acquisition of Instem Clinical Holdings Limited. The six month note accrued interest at 4% and the total due of £303,000, including
interest, was paid in full in January 2015.
Finance lease liabilities
Minimum lease payments
Present value of minimum
lease payment
31 December
31 December
31 December
31 December
2015
2014
2015
2014
Not later than one year
Later than one year and not later than five years
Later than five years
Less future finance charges
Present value of minimum lease payments
36
126
-
162
(17)
145
-
-
-
-
-
-
28
117
-
145
-
145
-
-
-
-
-
-
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 deferred consideration) under IAS 39 ‘Financial Instruments: Recognition and Measurement’.
The tables on the following pages analyse recurring assets and liabilities carried at fair value. The different levels are defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement
date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
Instem plc Annual Report, 2015 51
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
18. Financial Instruments (continued)
2014
Group and Company
Level 1
£000
Level 2
£000
Deferred contingent consideration
-
-
2015
Group and Company
Level 1
£000
Deferred consideration
-
-
-
-
Level 2
£000
(688)
(688)
Level 3
£000
(1,881)
(1,881)
Level 3
£000
-
-
Total
£000
(1,881)
(1,881)
Total
£000
(688)
(688)
The Group and Company’s policy is to recognise transfers out of Level 3 as at the event or change in circumstances that caused the
transfer.
The following table shows a reconciliation from the opening balances as at 1 January 2015 to the closing balances as at 31 December
2015 for Level 3 fair value measurements in respect of both the Group and Company.
Balance as at 1 January 2015
Cash consideration
Consideration through share issue
Unwinding discount
Change in fair value
Transfer to Level 2
Balance as at 31 December 2015
Deferred contingent
consideration
£000
1,881
(950)
(650)
34
1,401
(1,716)
-
The Level 3 fair value of deferred contingent consideration in prior years was valued with reference to the agreement on 10 May 2013
to acquire Logos Holdings Limited (now called Instem Clinical). This agreement included deferred contingent consideration which
was based on the acquired company performance between acquisition date and 30 April 2017. The fair value therefore included an
assessment and forecast of company performance for these periods. During the year the acquired company exceeded expectations.
The change in fair value of £1,401,000 was realised upon the agreement on 1 December 2015 between the Directors and the vendors
of Instem Clinical to crystallise the remaining deferred consideration and eliminate all future contingent consideration and agree a fixed
settlement of £1.7m. The Group satisfied £1.0m of this settlement through a share issue on 4 December 2015 and the remaining £0.7m
deferred consideration is Level 2 and is due to be settled in 2016 and 2017.
52
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
18. Financial Instruments (continued)
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.
Over the longer term, changes in foreign exchange could have an impact on consolidation of foreign subsidiaries earnings. A
10% decrease in the value of Sterling against the US dollar would have resulted in an increase in the Group’s profit before tax by
approximately £0.3m.
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 transfers have been utilised to maximise the interest gains whilst
minimising foreign exchange risks.
As at 31 December 2015 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 2015 and assuming no other changes occur (such as
material 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, 2015 53
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
18. Financial Instruments (continued)
2014
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred contingent consideration
Loan note
2015
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Finance lease
2014
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred contingent consideration
Loan note
2015
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Fixed
rate
£000
-
-
-
-
(303)
(303)
Fixed
rate
£000
-
-
-
-
(145)
(145)
Fixed
rate
£000
-
-
-
-
(303)
(303)
Fixed
rate
£000
-
-
-
-
-
Floating
Non-interest
rate
£000
-
1,676
-
-
-
1,676
bearing
£000
3,962
-
(1,161)
(1,881)
-
920
Floating
Non-interest
rate
£000
-
2,183
-
-
-
2,183
bearing
£000
4,183
-
(1,611)
(688)
-
1,884
Floating
Non-interest
rate
£000
bearing
£000
-
97
-
-
-
97
2,231
-
(2,322)
(1,881)
-
(1,972)
Floating
Non-interest
rate
£000
bearing
£000
-
24
-
-
24
2,621
-
(3,824)
(688)
(1,891)
Total
£000
3,962
1,676
(1,161)
(1,881)
(303)
2,293
Total
£000
4,183
2,183
(1,611)
(688)
(145)
3,922
Total
£000
2,231
97
(2,322)
(1,881)
(303)
(2,178)
Total
£000
2,621
24
(3,824)
(688)
(1,867)
54
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
18. Financial Instruments (continued)
Credit risk
Management aims to minimise the risk of credit losses.
The Group’s financial assets are bank balances and cash and trade and other receivables, which represent the Group’s maximum
exposure to credit risk in relation to financial assets.
The Group’s credit risk is primarily attributable to its trade receivables and the Group has policies in place to ensure that sales of
products and services are made to customers with appropriate creditworthiness.
The amounts presented in the statement of financial position are net of impairment provisions, estimated by the Group’s management
based on prior experience and their assessment of the present value of estimated future cash flows. An allowance for impairment is
made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the
cash flows.
The Group generates external revenue from no customers which individually amount to more than 10% of the Group revenue (2014:
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 2015, its £2.0m committed bank
facility was undrawn (2014: £1.6m available).
In respect of the Group’s interest-bearing financial liabilities, the table in note 17 includes details at the reporting date of the periods in
which they mature.
Instem plc Annual Report, 2015 55
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
The movement in the period in the Group’s net deferred tax asset position was as follows:
At beginning of the year
Net credit to income for the year
Net credit to equity
Adjustments in respect of prior years
Effect of domestic tax rate change on opening balances
At end of the year
2015
£000
-
663
663
2015
£000
574
263
61
(179)
(56)
663
2014
£000
-
574
574
2014
£000
388
83
-
103
-
574
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 2014
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 2014
Credit/(charge) to profit or loss for the year
Credit to equity for the year
Adjustments in respect of prior years
Effects of domestic tax rate change on opening
balances
£000
(686)
58
-
(73)
(701)
162
-
-
71
At 31 December 2015
(468)
£000
360
76
(124)
172
484
-
-
(179)
(48)
257
£000
701
(53)
124
4
776
(52)
61
-
(78)
707
£000
13
2
-
-
15
153
-
-
(1)
167
Total
£000
388
83
-
103
574
263
61
(179)
(56)
663
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 2015 were £4,066,000 (2014: £4,808,000) due to uncertainty over the timing of
the recoverability of these losses.
56
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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 2015 were £0.46m (2014: £0.47m).
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 2015 were £0.03m (2014: £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 2015 were £0.08m (2014: £0.07m).
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 2015 were £0.02m (2014: £0.02m).
Perceptive Instruments Limited - The Group makes contributions to personal pension arrangements of certain employees. During the
year ended 31 December 2015 employer contributions to these arrangements totalled £0.02m. (2014:£0.02m)
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 advisors 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 Scheme amendments, curtailments or settlements during the period.
The latest full actuarial valuation was carried out at 5 April 2014 and was updated to 31 December 2015 by a qualified independent
actuary.
Instem plc Annual Report, 2015 57
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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 June 2015:
Period ended
31 March 2016
31 March 2017
31 March 2018
31 March 2019
31 March 2020
31 March 2021
31 March 2022
31 March 2023
30 November 2023
Monthly payment (payable in each month
Balancing payment due before period end
except the final month in each period) £’000
£’000
15
25
25
25
25
25
25
25
25
262
187
203
220
237
255
273
293
239
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.
58
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
20. Retirement Benefit Obligations (continued)
Discount rate
Inflation (RPI)
Rate of increase in salaries
Rate of increase in pensions in payment
Rate of increase in pensions in deferment
2015
%
3.8
3.2
N/A
2.9
3.2
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 on pension scheme assets in excess of interest
Experience losses arising on scheme liabilities
Gains from changes to demographic assumptions
Losses from changes to financial assumptions
Actuarial loss recognised in other comprehensive expense
24.7
25.9
23.4
24.4
2015
£000
-
-
-
2015
£000
289
(429)
(140)
2015
£000
136
-
-
203
339
2014
%
3.8
3.1
N/A
2.8
3.1
Years
24.7
25.8
23.4
24.3
2014
£000
-
-
-
2014
£000
327
(479)
(152)
2014
£000
7
138
(163)
639
621
Instem plc Annual Report, 2015 59
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
2015
£000
11,405
429
(255)
-
-
203
2014
£000
10,529
479
(217)
138
(163)
639
Closing defined benefit obligation
11,782
11,405
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 £153,000 (2014: £320,000).
AMOUNT RECOGNISED IN THE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
2015
£000
7,524
289
(136)
427
(255)
7,849
2015
£000
2014
£000
7,023
327
(7)
398
(217)
7,524
2014
£000
Present value of funded obligations
(11,782)
(11,405)
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
60
Instem plc Annual Report, 2015
7,849
(3,933)
707
(3,226)
2015
£000
3,881
140
339
(427)
3,933
7,524
(3,881)
776
(3,105)
2014
£000
3,506
152
621
(398)
3,881
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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
2015
£000
110
(1,811)
(2,442)
2014
£000
246
(1,811)
(2,239)
Cumulative actuarial loss recognised in other
comprehensive expense
(4,143)
(3,804)
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2015
2014
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
5,664
227
810
672
378
98
%
72
3
10
9
5
1
£000
5,376
185
680
682
516
85
%
72
2
9
9
7
1
7,849
100
7,524
100
The five year history of experience adjustments is as follows:
2015
£000
2014
£000
2013
£000
2012
£000
2011
£000
Present value of defined
benefit obligation
(11,782)
(11,405)
(10,529)
(9,200)
(6,946)
Fair value of plan assets
7,849
7,524
7,023
6,004
5,330
Deficit
(3,933)
(3,881)
(3,506)
(3,196)
(1,616)
Experience adjustments on
plan liabilities
Experience adjustments on
plan assets
-
(138)
-
(763)
-
(136)
(7)
612
172
(480)
The Group expects to contribute £0.4m to its defined benefit plan in the next financial year (2014: £0.4m).
Instem plc Annual Report, 2015 61
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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% pa
INFLATION
Plus 0.50% pa
Minus 0.50% pa
LIFE EXPECTANCY
Plus 1 year
Minus 1 year
(1,030)
1,175
1,074
(971)
343
(349)
21. Share Capital
Allotted, called up and fully paid
At 1 January
12,212,260 ordinary shares of 10p each (2014: 11,764,658)
831,514 (2014: 447,602) ordinary shares of 10p each, issued during the year
At 31 December
2015
£000
1,221
83
1,304
2014
£000
1,176
45
1,221
821,514 (2014: 447,602) shares were issued in the year as part settlement of the deferred contingent consideration payable relating to
the acquisition of Instem Clinical Holdings Limited. In addition 10,000 shares were issued during the year in respect of the exercise of
share options.
62
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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.
2015
Weighted
average
Loss after tax
Earnings per
Profit after
2014
Weighted
average
Earnings per
(£000)
number of
share (pence)
tax (£000)
number of
share (pence)
shares (000’s)
shares (000’s)
Earnings per share-Basic
Potentially dilutive shares
Earnings per share-Diluted
(428)
-
(428)
12,398
-*
12,398
(3.5)
-
(3.5)
150
-
150
12,063
155
12,218
1.2
-
1.2
* Dilutive share options have been excluded from the calculation as in accordance with IAS 33, ‘Earning per share’, as they are only included where the
impact is dilutive.
Adjusted
Adjusted earnings per share is calculated after adjusting for the effect of foreign currency exchange on the revaluation of inter-group
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)
Earnings per share-Basic
1,644
Potentially dilutive shares
-
Earnings per share-Diluted
1,644
2015
Weighted
average
number of
shares (000’s)
12,398
337
12,735
Adjusted
earnings per
share (pence)
Adjusted
profit after
tax (£000)
13.3
-
12.9
1,009
-
1,009
2014
Weighted
average
number of
shares (000’s)
12,063
155
12,218
Reconciliation of adjusted profit after tax:
Reported (loss)/profit after tax
Non-recurring costs
Amortisation of acquired intangibles
Foreign exchange differences on revaluation of inter-group balances
2015
£000
(428)
1,426
640
6
1,644
Adjusted
earnings per
share (pence)
8.4
-
8.3
2014
£000
150
123
640
96
1,009
Instem plc Annual Report, 2015 63
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
23. Capital and Reserves
Share capital
The share capital account represents the par value for all shares issued.
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.
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.
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.
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, merger reserve, shares to be issued, translation reserve,
retained earnings and net debt as noted below.
Net debt includes short and long-term borrowings (including overdrafts 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 (2014: £nil).
64
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
25. Operating Leases Payable
Minimum lease payments under operating leases recognised as
an expense in the year
At the reporting date, the Group has future aggregate minimum
lease payments, 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
2015
£000
368
2015
£000
395
748
358
2
3
2014
£000
256
2014
£000
394
1,000
498
3
5
1,506
1,900
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, 2015 65
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
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 £0.6m (2014: £0.5m). The net intercompany balances due from the
Company at the year-end totalled £1.2m (2014: due from: £0.02m).
During the year the Group traded in its normal course of business with shareholders and consultancy businesses in which Directors
have a material interest as follows:
Key management compensation:
2015
£000
2014
£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
318
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
37
21
71
447
Other key management
Salaries and short term employee benefits
508
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
26
45
57
636
68
-
7
-
75
269
35
20
12
336
461
26
44
8
539
The Company paid £0.05m (2014: £0.05m) to Instem Ventures Limited, a company owned by A Gare, a shareholder. The balance
outstanding at the end of the year was £0.005m (2014: £nil).
In addition the Company paid £0.02m (2014: £0.02m) to Noble Adamson Limited, a company owned by M McGoun, an independent
non-executive director and a shareholder. The balance outstanding at the end of the year was £0.002m (2014: £0.002m).
Key management are considered to be the Directors together with the Senior Managers of the business.
27. Critical Accounting Estimates and Judgements
Certain year end 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 of these assets and liabilities within the next financial year. The
estimates and assumptions are made on the basis of information and conditions that existed at the time of the valuation.
The deferred contingent consideration provided in the financial statements is measured initially at its acquisition-date fair value and
subsequently carried at its amortised cost.
66
Instem plc Annual Report, 2015
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2015
27. Critical Accounting Estimates and Judgments (continued)
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 lives, which have been estimated by management to be up to 8 years.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that sufficient and suitable taxable profits will be
available in the future against which the reversal of temporary differences can be deducted. Where the temporary differences are related
to losses, relevant tax law is considered to determine the availability of the losses to offset against the future taxable profits. The amount
recognised in the consolidated financial statements is derived from the Director’s best estimation and judgement incorporating forecasts
and all available information. Recognition therefore involves judgement regarding the future financial performance of the particular legal
entity or tax group in which the deferred tax asset has been recognised.
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 (2014: £9.0m).
29. Post Balance Sheet Event
Following the end of the financial year, in February 2016 the Company announced it had raised £5.0 million (before expenses) by way
of a placing of 2,500,000 New Ordinary Shares with new and existing investors. The Board intends to use the proceeds of this placing,
along with existing cash resources, to continue the Group’s acquisition strategy and to provide additional working capital.
Instem plc Annual Report, 2015 67
NOTES
68
Instem plc Annual Report, 2015
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
RSM 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
N+1 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...
Instem supports over 450 clients
through full service offices in the
United States, United Kingdom and
China with additional locations in
India and Japan.
To learn more about Instem
solutions and its mission, please
visit instem.com
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
e-mail: investors@instem.com
instem.com