Instem plc
Annual Report
2016
Instem is a leading supplier of IT applications and
technology-enabled outsourced services to the early
development global
life sciences market.
Instem
solutions are used by customers worldwide, meeting the
rapidly expanding needs of life science and healthcare
organisations for data-driven decision making that help
them bring their life enhancing products to market faster.
Instem is creating a more connected ecosystem in the
life sciences by consolidating a fragmented vendor
marketplace. Their established portfolio of software
solutions increase client productivity by automating
processes while offering the unique ability to generate
new knowledge through the extraction and harmonisation
of actionable scientific information.
Instem supports over 500 clients through offices in the
United States, United Kingdom, France, India, China 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, 2016 1
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Instem plc Annual Report, 2016
Highlights
Financial Highlights
•
Revenues increased 12% to £18.3m (2015: £16.3m)
• Recurring revenues increased 21% to £12.1m
(2015: £10.0m)
• Software as a Service (SaaS) revenues increased
•
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38% to £2.9m (2015: £2.1m)
EBITDA* of £1.3m (2015: £2.5m)
Adjusted** profit before tax of £0.7m (2015: £1.7m)
Reported profit before tax of £0.02m (2015: loss
before tax of £0.4m)
Basic earnings per share of 6.9p (2015: loss of 3.5p)
Adjusted** fully diluted earnings per share of 11.2p
(2015: 12.9p)
Net cash balance as at 31 December 2016 of £4.2m
(2015: £2.2m)
Operational Highlights
• Oversubscribed placing to raise £5.0m (gross) in
February 2016 to fund acquisitive growth:
• Acquisition in May 2016 of Samarind Limited, a
Regulatory Information Management solutions
provider, for a maximum consideration of £2.5m
• Acquisition in Sept 2016 of Notocord, a software
provider in pre-clinical studies, for a maximum
consideration of €4.2m (£3.6m)
•
•
Disappointing performance from Instem Clinical
is being addressed through decisive management
actions following strategic reappraisal
Strong trading across all other business areas:
• Secured the majority of SEND (“Standard
for Exchange of Non-clinical Data”) related
technology and outsourced services contracts
placed in the market
• Successfully established KnowledgeScan
Target Safety Assessment service, delivering 14
assignments, with repeat business from every
client
• High levels of Provantis® contract renewals,
including a long-term relationship with Charles
River Laboratories, by far the largest pre-clinical
CRO (contract research organisation)
• Record revenue and profit contribution from
Perceptive Instruments, our genetic toxicology
product suite
•
Investment in the Sales and Operational teams and
infrastructure to fund on-going growth
“With the exception of the disappointing
performance of Instem Clinical, business in 2016
was strong, helped by a buoyant pre-clinical
market, the target for the majority of our products
and services. Revenues grew both organically
and through the acquisitions of Samarind and
Notocord. Recurring revenue and SaaS revenue
growth of 21% and 38%, respectively, were
particularly pleasing.
A more conservative revenue outlook for Instem
Clinical in 2017 is expected to be more than offset
by the growing momentum of our KnowledgeScan
big data analytics and insights service, introduced
in 2016, and the full year contributions from the
Samarind and Notocord acquisitions.
The FDA mandate of SEND in December 2016
fuelled market demand for our software and
technology enabled out-sourced services and
we anticipate strong revenue growth in line with
expectations, however we will continue to invest
in additional staff and facilities in this area during
2017 to ensure we maximise market share and
retain our substantial market leadership as the
FDA regulations drive further market growth.
While near term profit will be significantly
reduced by this and other investment across the
Group, we are putting in place a platform for
further growth in the longer term.”
P J Reason
Chief Executive
* Earnings before interest, tax, depreciation, amortisation and
non-recurring income/(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, 2016 3
INVESTMENT
“We have continued to invest in our business to
both increase the depth of management expertise
and enhance the various software product
offerings across the Group.”
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Instem plc Annual Report, 2016
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Chairman’s
Statement
The period under review was undoubtedly a frustrating
year for the Group, due wholly to the disappointing
performance of Instem Clinical. Importantly, we
successfully achieved a significant equity fundraise at
the beginning of the year and subsequently completed
two strategic acquisitions. We also managed strong
revenue growth across the majority of our businesses
and significantly strengthened our senior management
team. Nevertheless, the poor performance of our Clinical
business ultimately resulted in trading for the Group,
disappointingly, coming in below our expectations for
the year.
over 50 SEND-related contracts in 2016. In order to
capitalise on the opportunities to provide services, as
well as software, we are investing in additional staff and
facilities, further details of which are included in the
Chief Executive’s Statement.
Furthermore, we introduced a new bio-informatics
platform, KnowledgeScan, which achieved significant
market recognition in its first application area of Target
Safety Assessment (“TSA”). In the second half of the year
we delivered several TSA projects with high levels of
customer repeat business.
Notwithstanding the above, we have continued to
invest in our business to both increase the depth of
management expertise and enhance the various software
product offerings across the Group. In particular, the
appointment of MaryBeth Thompson as Chief Operating
Officer, who brings more than 18 years of relevant
experience to the role, is strategically important
to the Group as it will enable the rest of the senior
management team to increase their focus on delivering
further organic growth and continuing our strategic
acquisition programme.
I am pleased to report that the recent acquisitions of
Samarind and Notocord are performing in line with
expectations and are on track to be fully integrated in
2017 and we are now seeking to consolidate the full
cross and upselling opportunities for both businesses as
part of the larger group.
Importantly, our Preclinical and Regulatory Solutions
businesses maintained their pre-eminent industry
positions by continuing to win the majority of business
placed globally in their markets. In particular, our
submit™, Standard for the Exchange of Non-clinical Data
(“SEND”) technology suite has already demonstrated
market dominance, winning the majority of contracts
placed during the period. The evolution of our SEND
value proposition continued during the year with the
transition from a pure software licensing model to a
combined offering with the addition of technology-
enabled out-sourced services assignments. We secured
During the year, senior management time and resources
were diverted into addressing the challenges with the
Instem Clinical business and this is continuing. Whilst
some challenges still remain, we have reappraised
this business and believe that with some additional
investment under the newly appointed Instem
Clinical management team it can become a long-term
cornerstone business for the Group.
The strategic opportunities for 2017 and beyond remain
encouraging; particularly as the period will see full-year
contributions from the recent Notocord and Samarind
acquisitions. The period will continue to require us to
make further investment to support the continued strong
performances from our business units, in particular the
opportunity in SEND, although this is expected to pay
back relatively quickly.
As Chairman, it has always been my passion to invest in
world leading global products. Today the Company has,
for our markets, an unrivalled portfolio of such products.
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
Instem plc Annual Report, 2016 5
continued growth
“Taking further market share in the now FDA
mandated SEND market has been a particular
management focus, whilst also concentrating on
improving our substantial recurring revenues, with
a 21% increase year-on-year.”
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Instem plc Annual Report, 2016
Strategic
Report
Chief Executive’s Statement
Overview
The past year was an extremely busy time for Instem,
with the successful oversubscribed placing at the
beginning of the year and the completion of two
acquisitions, which are integrating well.
With the exception of Instem Clinical, trading was robust
throughout the year, helped by a buoyant preclinical
market. Unfortunately, in what turned out to be a
very challenging early phase clinical market, certain
significant contracts at Instem Clinical were delayed
and the outperformance across the rest of the Group’s
operations was insufficient to compensate for this
shortfall. We consequently downgraded expectations for
the full year towards the end of the period.
Highlights for the period included further market
penetration for existing product suites and services
and a continued high percentage of client retention.
This was supported by cross-selling of products across
our extended client base, particularly for our genetic
toxicology solutions in major accounts and for all
solutions in the Asia-Pacific regions. Through investment
in product development, we have introduced new
and chargeable solutions and expanded our service
offering, leveraging our leading technology solutions.
Taking further market share in the now FDA mandated
SEND market has been a particular management focus,
while also concentrating on improving our substantial
recurring revenues, with a 21% increase year-on-year.
The Group has continued to expand its customer base
and has in excess of 500 customers (2015: in excess
of 450 customers) for continuing products. Further
information in respect of the Group performance and
key performance indicators is disclosed in the Financial
Review and Directors’ Report on pages 11 to 12 and 18
to 19 respectively.
A significant positive milestone achieved during the
period was the successful launch of “Instem University”,
an online learning platform for the Group’s global
customer base. The Instem University is a sophisticated,
easy to use, intuitive web-based solution that is available
on demand whenever a client needs it. Instem’s entire
approach for the initiative is based upon the single
objective of making it easier for clients to use all of
Instem’s software so that end users can better perform
their jobs. The introduction of Instem University and its
dedicated Academies provides a highly cost effective
and scalable solution enabling many clients to quickly
and concurrently deploy major Instem product upgrades.
Having clients on the latest product versions maximises
the potential for add-on sales of new modules and
reduces internal support costs.
In order to support the growth of the Group, primarily
related to SEND, KnowledgeScan and Instem University,
we are intending to invest c.£1.0m in 2017, of which
approximately £0.4m relates to third party cost of
sales. This investment will include the funding of larger
premises in Pune, India and further expansion of our
software development, market facing and out-sourced
services staff.
Instem Preclinical - Provantis, Notocord-HEM, Comet,
AMES & Cyto Study Manager
Provantis, the Group’s primary preclinical software
suite, experienced high renewal rates during the period
with new clients added in-line with management
expectations.
The largest of these renewals was with Charles River
Laboratories (‘CRL’), post their acquisition of WIL
Research (‘WIL’), both significant Instem clients. The
new agreement, which was announced in August 2016,
included the continuation of all current licences, an
extended support and maintenance contract running
through to 31st December 2022 and the integration
of two sizable Provantis implementation projects.
The revised agreement resulted in moderately higher
revenue in 2016 than under the previous separate
agreements with WIL and CRL, and we believe there
are further opportunities to continue to grow this key
relationship over the coming years.
Instem plc Annual Report, 2016 7
STRATEGIC REPORT
One of the key Preclinical milestones for the year was
the successful launch of the “Provantis 10 Software
suite”, a fully integrated Windows-based system for
organisations engaged in non-clinical evaluation
studies, which went live in the second half of 2016.
Initial feedback has been universally positive and
we intend to further roll-out Provantis 10 across our
customers during the coming year.
As a consequence of the Perceptive Instruments
(“Perceptive”) acquisition, Instem is one of the leading
specialist video imaging system providers in the
preclinical market and enjoyed a particularly strong
year with revenue up approximately 46% over the prior
year. Cyto Study Manager and AMES Study Manager
enjoyed particularly strong trading periods. Cyto Study
Manager, which integrates data acquisition, auditing,
reporting and study management for several genetic
toxicology assays into a single system, benefitted
from adding support for Chromosome Aberration
assays. Genotoxicity studies are mandatory for all
pharmaceuticals, medical devices, agrochemicals and
industrial chemicals with the AMES assay the most
widely used regulatory test. Instem’s AMES Study
Manager can be found in laboratories across the globe
and has rapidly established itself with an excellent
reputation for increasing productivity while improving
compliance with GLP regulations and reporting
requirements.
Notocord, acquired by Instem in September 2016,
continues to integrate well into the Group. Notocord is
headquartered in Paris, France. The company provides
software solutions for telemetry data acquisition
and analysis and is a highly respected name in
the life sciences software industry. Notocord has
sold more than 1,500 licences around the world to
major pharmaceutical companies, contract research
laboratories, hospitals and academic research centres.
Customers include Sanofi, Merck & Co and Pfizer. Whilst
it is still too early to report on potential cross selling
and upselling opportunities across the Group, there
have already been high levels of interaction with both
customers and potential new sales channel partners.
This, coupled with a well-attended user meeting in Paris,
provides us with confidence that the acquisition will
perform at least in-line with management expectations
in the current year.
We are pleased to report that the order expanding the
utilisation of Provantis at the US National Institute of
Environmental Health Sciences (“NIEHS”), delayed from
2016, has recently been received and the appropriate
accounting treatment for revenue and profit recognition
purposes is currently being assessed. The delayed AMES
and Cyto Study Manager order has also been received.
Instem Clinical – ALPHADAS™
The early stage clinical market was undoubtedly the
most challenging aspect of the year for Instem with little
new business being procured during the period as much
of the existing pipeline of new business was delayed.
Whilst the deterioration in trading levels was initially
identified in the first half of the year and flagged in
the Interim Results, it was felt far more acutely during
the second half. Following a Board review of the
significant under performance of the Clinical business,
the sale agreement with the former Logos Technologies
shareholders was revised, resulting in a £700k reduction
in the deferred consideration for the Logos acquisition.
The two major Logos shareholders, who were the
two senior managers for Instem Clinical, also left the
company. Instem Clinical now has new management in
place working to a revised, more conservative business
plan.
Whilst the business underperformed in the period,
having undertaken a strategic reappraisal of Instem
Clinical, we still strongly believe that the early stage
clinical market represents a significant and attractive
opportunity for the Group, including the potential
for the cross selling of other products and services.
However, we also recognise that it will take a period of
time for the new management team to fully address
certain issues and further staff investment of circa £0.25
million is being made into strengthening the technical
and development capability in order to further enhance
the ALPHADAS offering. Encouragingly, whilst still early
in the year, we are seeing revenue growth compared to
the prior period.
Instem Scientific
Instem Scientific delivered a record 14 KnowledgeScan
Target Safety Assessment assignments during the period
and is on target to deliver a further six for mid-sized
pharmaceutical companies in the first few months of
2017. An important key performance indicator during
the period was that all customers in 2016 have already
placed repeat KnowledgeScan orders, which highlights
the high value proposition this business offers.
Whilst activity has been at record levels, the business
has also been focussing on improving the workflow of
discrete assignments to reduce delivery timelines, add
extra capacity and expand operating margins. There is
a growing pipeline of new business opportunities for
2017.
Samarind Ltd
Samarind, acquired in May 2016, provides Regulatory
Information Management (“RIM”) software solutions
across the life sciences sector, through its product suite
“Samarind RMS”. Its solutions significantly enhance the
quality of regulatory information and help to achieve
and maintain compliance for pharmaceutical, biotech
and medical device products.
Samarind RMS delivers the security, flexibility and ease
of use that regulatory affairs teams need to achieve their
regulatory and commercial requirements. Deployed
on-site or accessed on-line, Samarind’s solutions
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Instem plc Annual Report, 2016
STRATEGIC REPORT
provide a smarter way to manage the acquisition and
maintenance of product licences.
Instem can report that whilst it has been a slower year
for revenue growth, the retention rate of existing clients
has been high and we have released a new dashboard
and analytics module to improve the user interface and
strengthen customer relationships across the product
suite. There has also been a strong focus on the new
Identification and Description of Medicinal Product
(“IDMP”) Standards, making sure Instem’s strategy is
aligned with the expected regulatory dates and working
with clients to plan for their IDMP implementations.
Instem’s leadership in the xEVMPD standard that will
be replaced remains a useful market differentiator as
organisations consider their IDMP needs.
Electronic Regulatory Submissions (SEND) – submit™
The FDA’s (“Food and Drug Administration”) SEND
(“Standard for Exchange of Nonclinical Data”) initiative
was ratified in December 2014 and mandated for an
initial subset of study submissions in December 2016.
Consequently, its implementation is now a market
imperative for the entire drug development industry.
A more comprehensive range of study submissions
will be mandated by the FDA in December 2017, which
has already started to influence purchases of Instem
technology and services.
Instem has continued to secure the majority of the
SEND-related product and service business placed
globally during 2016, winning over 50 contracts for its
software solutions, of which 30 were for technology-
enabled out-sourced services. Customers range across
all sizes of pharmaceutical and contract research
organisations with the largest contract award from a top
10 global pharmaceutical company, which purchased
Instem’s entire submit™ solution suite.
In the second half of 2016, Instem agreed an exclusive
global distribution agreement for a third party
product, SEND Explorer, which provides sophisticated
visualisation and analytics for SEND data sets and nicely
complements Instem’s other SEND solutions.
Technology enabled out-sourced service volume
increased during H2 2016 with 30 contracts secured
during the year from companies that had not already
equipped themselves with staff and technology to
create and review SEND data sets internally. This
trend is expected to continue and increase, so we are
intending to recruit approximately 15 further specialists
in this area, based predominantly in our Pune, India
office, complementing the highly experienced staff
already in place in the UK and North America.
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, in its
Pharma R&D Annual Review 2017, that the global drug
pipeline had increased by 8.4% in the past year with
an additional 1,154 drugs added to the pipeline, the
second highest rise over the last 10 years following the
record rise in the prior year (1,418 were added in 2015-
16).
As of January 2017, the total number of companies
with one or more drugs in the regulatory stages of
development has now risen to 4,003, an increase
of 8.6% on the previous year. This is lower than the
2015-16 number but is still a “strikingly large growth
rate”.
The volume of activity in pharma R&D is at an all-time
high with all the important parameters for Instem
increasing strongly.
The greatest growth occurred at the preclinical stage
with an extra 632 drugs joining the early drug phase,
an increase of 9.2% on the previous year. While there
were increases in the numbers of drugs at every clinical
phase, Phase I saw the greatest rise this year with the
drug count increasing by 11.2%.
Summary and Outlook
With the exception of the disappointing performance of
Instem Clinical, business in 2016 was strong, helped by
a buoyant pre-clinical market, the target for the majority
of our products and services. Revenues grew both
organically and through the acquisitions of Samarind
and Notocord. Recurring revenue and SaaS revenue
growth of 21% and 38%, respectively, were particularly
pleasing.
A more conservative revenue outlook for Instem
Clinical in 2017 is expected to be more than offset by
the growing momentum of our KnowledgeScan big
data analytics and insights service, introduced in 2016,
and the full year contributions from the Samarind and
Notocord acquisitions.
The FDA mandate of SEND in December 2016 fuelled
market demand for our software and technology
enabled out-sourced services and we anticipate strong
revenue growth in line with expectations, however we
will continue to invest in additional staff and facilities
in this area during 2017 to ensure we maximise market
share and retain our substantial market leadership as
the FDA regulations drive further market growth. While
near term profit will be significantly reduced by this and
other investment across the Group, we are putting in
place a platform for further growth in the longer term.
P J Reason
Chief Executive
12 April 2017
Instem plc Annual Report, 2016 9
outlook
“We are putting in place a platform for further
growth in the longer term.“
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Instem plc Annual Report, 2016
Financial
Review
Instem’s revenue model consists of perpetual licence
income with annual support contracts, professional
services fees, SaaS subscriptions with annual support
contracts and funded development initiatives. Total
revenue for the year to 31 December 2016 increased by
12% to £18.3m (2015: £16.3m). This increase includes
revenues from our new acquisitions of £1.1m combined
with organic growth in respect of the majority of our
products, and the benefit of average exchange rates,
which increase the underlying revenues. These are offset
by costs of our overseas subsidiaries.
A key performance indicator of the Group is recurring
revenue. During the year, the total recurring revenue,
from support & maintenance contracts, SaaS based
subscriptions and certain professional services increased
21% during the year to £12.1m (2015: £10.0m),
representing 66% of total revenue (2015: 61%). This
includes recurring revenue generated from our 2016
acquisitions of £0.8m.
Earnings before interest, tax, depreciation and
amortisation and non-recurring items for the year
was £1.3m (2015: £2.5m). This decrease reflected a
disappointing performance from Instem Clinical. The
Group continued to invest in our sales and operations
teams and infrastructure to capitalise on growth
opportunities going forward.
Adjusted profit before tax (i.e. adjusting for the effect
of foreign currency exchange on the revaluation of
inter-company balances included in finance costs,
non-recurring items and amortisation of intangibles on
acquisitions) was £0.7m (2015: £1.7m). The unadjusted
profit before tax for the year was £0.02m (2015: loss of
£0.4m).
The non-recurring items in the year included the costs
of professional fees in respect of the acquisitions of
Samarind and Notocord together with the restructuring
costs in respect of Instem Clinical. These costs
aggregated to £0.4m. The non-recurring items also
included income of £1.0m in respect of the amendment
and change in the deferred consideration and deferred
contingent consideration in respect of Clinical (£0.7m)
and Samarind (£0.3m), respectively.
Development costs incurred during the year were £2.6m
(2015: £1.9m), of which £0.8m (2015: £0.6m) was
capitalised. The Group claimed and received research
and development tax credits during the year of £0.4m
(2015: £0.2m).
Basic and fully diluted earnings per share calculated on
an adjusted basis were 11.5p and 11.2p respectively
(2015: 13.3p basic and 12.9p adjusted).
The Group continued to generate net cash from
operating activities. The Group had net cash reserves
of £4.2m at 31 December 2016, compared with £2.2m
as at 31 December 2015. The increase is largely due
to the cash proceeds from the share issue during the
year which generated £4.8m (net of fees) less the initial
consideration for both Samarind and Notocord of £3.3m.
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 IAS19 that amounted
to £1.0m (net of deferred tax) (2015: £0.3m) due to a
reduction in bond yields following the EU Referendum.
This is a non-cash charge and was recognised in Other
Comprehensive Income/(Expense). The overall deficit at
the year-end stood at £4.7m (2015: £3.9m), represented
by the fair value of assets of £9.7m (2015: £7.9m) and
the present value of funded obligations of £14.4m
(2015: £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
Instem plc Annual Report, 2016 11
FINANCIAL REVIEW
designed to eliminate the funding deficit by November
2023. The next triennial valuation will be calculated as at
5 April 2017.
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
2016, its £2.0m committed bank facility was undrawn
(2015: £2.0m undrawn).
N J Goldsmith
Chief Financial Officer
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Instem plc Annual Report, 2016
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, 2016 13
s
t
r
o
p
e
r
14
Instem plc Annual Report, 2016
CORPORATE GOVERNANCE STATEMENT
CORPORATE GOVERNANCE
STATEMENT
Given the size of the Group, the Board has decided to
follow the Corporate Governance Code for Small and
Mid-Size Quoted Companies as a framework as it seeks
to maintain a strong governance ethos throughout the
Group. The Board recognises its overall responsibility
for the Group’s systems of internal control and for
monitoring their effectiveness.
The main features of the Group’s corporate governance
procedures are as follows;
a.
b.
c.
d.
the Board has one independent non-executive
director who takes an active role in Board matters;
the Group has an Audit Committee, a Remuneration
Committee and a Nomination Committee, each
of which consists of the non-executive directors,
and meets regularly with executive directors in
attendance by invitation. The Audit Committee
has unrestricted access to the Group’s auditor and
ensures that auditor independence has not been
compromised;
all business activity is organised within a defined
structure with formal lines of responsibility and
delegation of authority, including a schedule of
“matters referred to the Board”; and
regular monitoring of key performance indicators
and financial results together with comparison of
these against expectations.
Attendance at Board and Committee
Meetings
Attendances of directors at Board and Committee
meetings convened in the period, along with the
number of meetings they were invited to attend, are set
out below:
Audit Committee
The Audit Committee comprises M F McGoun (Chairman),
D Gare and D M Sherwin, all of whom are non-executive
directors of the Company. The Board is satisfied that
the Audit Committee has all the recent and relevant
financial experience required to fulfil the role.
Appointments to the Audit Committee are made by the
Board in consultation with the Nomination Committee
and the chairman of the Audit Committee. The Audit
Committee meets at least twice a year and any other
time as required by either the chairman of the Audit
Committee, the Chief Financial Officer of the Group or
the external auditor of the Group. In addition, the Audit
Committee shall meet with the external auditor of the
Group (without any of the executives attending) at any
time during the year as it deems fit.
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 attended / No. of meetings invited to attend
Board meetings
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive directors
P J Reason
N J Goldsmith
Non-Executive directors
D Gare
D M Sherwin
M F McGoun
19/19
19/19
16/19
19/19
17/19
2/2
2/2
2/2
2/2
2/2
2/2
0/0
2/2
2/2
2/2
1/1
1/1
1/1
1/1
1/1
Instem plc Annual Report, 2016 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, 2016
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 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.
d.
instruct external professional advisors to attend
any meeting at the Group’s expense if the
Nomination Committee considers this reasonably
necessary and appropriate.
Internal Controls
The directors are responsible for establishing and
maintaining the Group’s system of internal control
and reviewing its effectiveness. The system of internal
control is designed to manage rather than eliminate the
risk of failure to achieve business objectives and can
only provide reasonable but not absolute assurance
against material misstatement or loss.
The Board and senior executives meet to review
both the risks facing the business and the controls
established to minimise those risks and their
effectiveness in operation on an ongoing basis. The aim
of these reviews is to provide reasonable assurance
that material risks and problems are identified and
appropriate action taken at an early stage.
Going Concern
The directors have prepared and reviewed 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 positive cash
reserves, as well as a committed working capital facility
of £2.0m which at 31 December 2016 was undrawn.
The Group has, therefore, sufficient liquid assets to cover
its day-to-day needs, in addition to its operating 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
M F McGoun
Independent Non-Executive Director
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
b.
c.
Instem plc Annual Report, 2016 17
DIRECTORS’ REPORT
DIRECTORS’ REPORT
Future Developments
The directors submit their report and the Group and
Company financial statements of Instem plc for the year
ended 31 December 2016.
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.
The directors consider that the continued investment in
product and market development will allow the business to
grow organically in its core markets. Investment in business
growth initiatives will also allow the business to move into
new product and market areas. The combination of organic
growth along with strategic acquisitions will support the
expected growth as outlined in the Chairman’s Statement
and the Strategic Report.
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
Review of the Business
The following directors held office during the year:
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:
D Gare
M F McGoun
D M Sherwin
P J Reason
N J Goldsmith
1. Total number of customers
In 2016 the Group had in excess of 500 customers (2015: in
excess of 450 customers) for continuing products.
Details of the directors’ service contracts and their
respective notice terms are detailed in the Directors’
Remuneration report on pages 20 and 21.
2. Recurring revenue
Directors and their Interests
The Group generates a substantial proportion of revenue
from fees in respect of annual support, hosting and
routine upgrade services. The total recurring revenue
increased 21% during the year to £12.1m (2015: £10.0m),
representing 66% of total revenue (2015: 61%). This
includes recurring revenue generated from the two 2016
corporate acquisitions of £0.8m.
A more detailed review of the development and
performance of the Group’s business during the year and its
position at the end of the year is set out in the Chairman’s
Statement, the Strategic Report and Financial Review on
pages 5 to 12.
The interests of the directors who held office at 31
December 2016 and up to the date of this report (2015: as
at 26 April 2016) were as follows:
2016
2015
No. of Shares
No. of Shares
D Gare
1,418,427
1,418,427
D M Sherwin
1,380,066
1,380,066
P J Reason
665,287
665,287
M F McGoun
36,786
36,786
N J Goldsmith
-
-
18
Instem plc Annual Report, 2016
DIRECTORS’ REPORT
Directors’ interests in share options are detailed in the
Remuneration report on pages 20 and 21.
Auditor
Pursuant to s489 of the Companies Act 2006, a
resolution to re-appoint RSM UK Audit LLP as auditor
will be put to the members at the forthcoming Annual
General Meeting.
On behalf of the Board
P J Reason
Director
12 April 2017
Employee Involvement
The general policy of the Group is to welcome employee
involvement as far as it is reasonably practicable.
Employees are kept informed of progress by regular
company meetings and monthly management reports.
Political Donations
The Group made no political donations in 2016 or 2015.
Financial Instruments
The Group’s objectives and policies on financial
instruments are set out in note 21 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 18 May 2017 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, 2016 19
DIRECTORS’ REMUNERATION REPORT
DIRECTORS’ REMUNERATION REPORT
Performance Related Annual Bonus
Instem plc is a company listed on AIM and it is not
required to comply with Schedule 8 of the Large
and Medium Sized Companies and Groups (Accounts
and Reports) Regulations 2008 relating to directors’
remuneration reports or the Listing Rules. The
disclosures contained within this report are, therefore,
made on a voluntary basis and in keeping with the
Board’s commitment to best practice.
Remuneration Committee
The Remuneration Committee (‘the Committee’) is
composed entirely of non-executive directors. The
Committee was formed upon the public listing of the
Company on 13 October 2010. The Chairman of the
Committee is M F McGoun. The terms of reference for
the Committee are to determine the 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 the following page. Details of share-
based payment are shown in note 7 to the financial
statements.
Executive directors are eligible for a performance
related bonus based on Group performance, in
particular, the achievement of profit 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
£0.02m were payable to executive directors in respect
of the year ended 31 December 2016 (2015: £0.03m).
Pensions
Company contributions are made to the executive
directors’ personal pension schemes up to a maximum
of 16.5% of basic salary.
Benefits
Benefits comprise car and fuel allowance, private
healthcare and critical illness cover. No executive
director receives additional remuneration or benefits in
relation to being a director of the Board of the Company
or any subsidiary of the Company.
Policy on Executive Director
Remuneration
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
letter of appointment that had an initial three year
term commencing October 2010. These 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.
The Group’s current and ongoing policy aims to
ensure that executive directors are rewarded fairly
for their individual contributions to the Group’s
overall performance and is designed to attract, retain
and motivate executives of the right calibre. The
Committee is responsible for recommendations on
all elements of executive remuneration including, in
particular, basic salary, annual bonus, share options
and any other incentive awards. In implementing
the remuneration policy, the Committee has regard
to factors specific to the Group, such as salary and
other benefit arrangements within the Group and the
achievement of the Group’s strategic objectives. The
Committee determines the Group’s Policy on executive
remuneration with reference to comparable companies
of similar market capitalisation, location and business
sector.
Basic Salary
The basic salaries of executive directors are reviewed
annually having regard to individual performance
and position within the Group and are intended to be
competitive but fair using information provided from
both internal and external sources.
20
Instem plc Annual Report, 2016
DIRECTORS’ REMUNERATION REPORT
The emoluments paid to directors in the year ended 31 December 2016 were as follows:
Salary
£000
Bonus
£000
Benefits
£000
Pension
£000
2016 Total
£000
2015 Total
£000
Executives
P J Reason
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
194
103
52
30
30
Total
409
15
7
-
-
-
22
5
11
-
-
-
16
27
13
-
-
-
40
241
134
52
30
30
487
221
134
44
24
24
447
Directors’ and Employees’ Share Options
Exercise
price (£)
Issue date
Held at 31
Dec 2015
Granted
during year
Exercised
during year
Lapsed
during year
Held at 31
Dec 2016
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
0.100
07/02/2012
20,000
14/01/2013
15,000
29/07/2015
100,000
Employees
Ordinary shares
1.750
13/10/2010
304,568
03/03/2011
93,844
17/10/2011
14,667
23/10/2012
30,000
14/01/2013
61,397
11/02/2015
81,168
29/07/2015
215,000
21/11/2015
50,516
2.220
2.220
1.115
0.900
0.100
0.100
0.100
0.100
0.100
27/05/2016
19/09/2016
-
-
34,558
70,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(51,542)
-
-
(8,500)
(11,597)
(40,584)
-
-
187,427
23,429
(37,500)
112,500
323,356
40,000
20,000
15,000
75,000
150,000
253,026
93,844
14,667
21,500
49,800
40,584
-
-
-
(25,000)
-
-
-
-
-
-
(3,750)
(61,250)
150,000
(25,258)
-
-
-
-
(17,500)
25,258
34,558
52,500
735,737
Total
1,387,016
104,558
(141,231)
(141,250)
1,209,093
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Director
Instem plc Annual Report, 2016 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, 2016
INDEPENDENT AUDITOR’S REPORT to the members Of instem plc
INDEPENDENT AUDITOR’S REPORT TO
THE MEMBERS OF INSTEM PLC
Opinion on financial statements
We have audited the group and parent company
financial statements (“the financial statements”) on
pages 24 to 70. 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.
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 2016 and of the group’s profit for the
year then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union;
the parent financial statements have been properly
prepared in accordance with IFRSs as adopted by
the European Union and as applied in accordance
with the Companies Act 2006; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
•
•
•
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 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 and, based
on the work undertaken in the course of our audit,
the Strategic Report and the Directors’ Report have
been prepared in accordance with applicable legal
requirements.
Matters on which we are required to
report by exception
In the light of the knowledge and understanding of
the company and its environment obtained in the
course of the audit, we have not identified any material
misstatements in the Strategic Report or the Directors’
Report.
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.
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.
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.
Graham Bond FCA (Senior Statutory Auditor)
For and on behalf of RSM UK AUDIT LLP
Statutory Auditor
14th Floor
Chapel Street
Liverpool
L3 9AG
12 April 2017
Instem plc Annual Report, 2016 23
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2016
CONTINUING OPERATIONS
Note
Year ended
31 December
2016
£000
Year ended
31 December
2015
£000
1
2
2
3
4
5
9
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 INCOME/(COSTS)
Non-recurring income/(costs)
PROFIT /(LOSS) AFTER NON-RECURRING INCOME/(COSTS) AND BEFORE FINANCE COSTS
Finance income
Finance costs
PROFIT/(LOSS) BEFORE TAXATION
Taxation
PROFIT/(LOSS) 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 INCOME/(EXPENSE) FOR THE YEAR
PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE INCOME/(EXPENSE) ATTRIBUTABLE TO OWNERS OF THE
PARENT COMPANY
Earnings per share from continuing operations attributable to owners of the parent
company:
Basic
Diluted
25
25
18,319
(16,843)
(223)
1,253
(156)
(667)
(380)
50
619
669
-
(646)
23
1,035
1,058
(1,192)
215
(977)
844
(133)
925
1,058
925
6.9p
6.8p
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)
(3.5p)
(3.5p)
24
Instem plc Annual Report, 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2016
Note
£000
£000
£000
£000
2016
2015
ASSETS
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Deferred tax assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Financial asset
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
11
13
22
14
15
16
17
18
19
20
20
23
24
26
26
26
26
26
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF
THE PARENT
TOTAL EQUITY AND LIABILITIES
17,607
374
947
916
6,899
10
4,189
2,670
9,092
429
979
242
4,746
1,577
12,462
1,432
864
1,048
(4,599)
12,035
376
663
18,928
13,074
822
4,745
-
2,183
1,797
7,107
541
385
448
3,933
1,304
7,903
1,241
641
204
(4,680)
7,750
20,824
9,830
4,381
14,211
6,613
20,824
12,014
30,942
13,170
4,988
18,158
12,784
30,942
The financial statements on pages 24 to 70 were approved by the board of directors and authorised for issue on 12 April 2017
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
Instem plc Annual Report, 2016 25
COMPANY STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2016
Note
2016
2015
ASSETS
£000
£000
£000
£000
NON-CURRENT ASSETS
Investments
12
28,426
23,395
TOTAL NON-CURRENT ASSETS
28,426
23,395
CURRENT ASSETS
Trade and other receivables
Financial asset
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
15
16
17
18
20
2,301
10
2,221
4,332
950
4,532
32,958
2,621
-
24
3,824
357
2,645
26,040
5,282
4,181
Financial liabilities
20
158
331
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained earnings
24
26
26
26
26
1,577
12,462
13,066
864
(451)
158
5,440
331
4,512
1,304
7,903
12,875
641
(1,195)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
27,518
32,958
21,528
26,040
The Company’s profit for the year and total comprehensive income for the year was £744,000 (2015:loss £1,350,000).
The financial statements on pages 24 to 70 were approved by the board of directors and authorised for issue on 12 April 2017
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
26
Instem plc Annual Report, 2016
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2016
2016
2015
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before taxation
23
Adjustments for:
Depreciation
Loss on disposal of property, plant and equipment
Amortisation of intangibles
Share based payment
Retirement benefit obligations
Finance income
Finance costs
156
2
1,047
223
(518)
-
646
(Decrease)/increase in deferred contingent consideration
(1,017)
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
(361)
156
-
1,016
263
(427)
(4)
272
1,361
562
2,276
WORKING CAPITAL
Movements in working capital:
Decrease/(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
85
647
(520)
127
12
(1,737)
1,810
(379)
(141)
-
(890)
(113)
-
(33)
Purchase of subsidiary undertakings (net of cash acquired)
(2,347)
NET CASH USED IN INVESTING ACTIVITIES
(3,383)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Loan notes repaid
Finance lease interest
4,823
-
(8)
NET CASH GENERATED FROM/(USED IN) FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of year
Effects of exchange rate changes on the balance of cash held
in foreign currencies
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
4,815
1,559
2,183
447
4,189
(313)
(71)
493
(86)
205
4
(612)
(113)
(950)
(8)
-
12
(303)
(4)
109
2,385
119
2,504
(1,679)
(295)
530
1,676
(23)
2,183
Instem plc Annual Report, 2016 27
COMPANY STATEMENT OF CASH FLOWS for the year ended 31 December 2016
Note
£000
£000
£000
£000
2016
2015
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before taxation
Adjustments for:
Finance income
Finance cost
(Decrease)/increase in deferred contingent
consideration
CASH FLOWS (USED IN)/FROM OPERATIONS
BEFORE MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
Decrease/(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
Purchase of subsidiary undertakings
Payment of deferred contingent consideration
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Loan notes repaid
NET CASH GENERATED FROM/(USED IN)
FINANCING ACTIVITIES
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents at start of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
744
(18)
129
(1,017)
9
(3,289)
-
4,823
-
(162)
320
496
654
(3,280)
4,823
2,197
24
2,221
(1,350)
(5)
41
1,361
5
-
(950)
12
(303)
47
(390)
1,506
1,163
(945)
(291)
(73)
97
24
28
Instem plc Annual Report, 2016
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
Shares to
Translation
Retained
be issued
reserve
earnings
£000
£000
Share
capital
£000
Balance as at 1 January 2015
1,221
Loss for the year
Other comprehensive expense
for the year
Total comprehensive expense
Shares issued
Share based payment
-
-
-
83
-
Share
premium
£000
7,892
-
-
-
11
-
Merger
reserve
£000
(326)
-
-
-
1,567
-
Balance at 31 December 2015
1,304
7,903
1,241
Profit for the year
Other comprehensive income/
(expense) for the year
Total comprehensive income
Shares issued
Share based payment
-
-
-
273
-
-
-
-
4,559
-
-
-
-
191
-
Balance as at 31 December 2016
1,577
12,462
1,432
£000
378
-
-
-
-
263
641
-
-
-
-
223
864
Total
equity
£000
5,419
(428)
(302)
(730)
1,661
263
6,613
1,058
(3,974)
(428)
(278)
(706)
-
-
(4,680)
1,058
(977)
(133)
81
-
-
925
5,023
223
1,048
(4,599)
12,784
228
-
(24)
(24)
-
-
204
-
844
844
-
-
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 2015
1,221
Loss for the year
Shares issued
Share based payment
-
83
-
Share
premium
£000
7,892
-
11
-
Merger
reserve
£000
11,308
-
1,567
-
Balance as at 31 December 2015
1,304
7,903
12,875
Profit for the year
Shares issued
Share based payment
-
273
-
-
4,559
-
-
191
-
Balance as at 31 December 2016
1,577
12,462
13,066
£000
378
-
-
263
641
-
-
223
864
Total
equity
£000
20,954
(1,350)
1,661
263
£000
155
(1,350)
-
-
(1,195)
21,528
744
-
-
744
5,023
223
(451)
27,518
Instem plc Annual Report, 2016 29
accounting policies
GENERAL INFORMATION
The principal activity and nature of operations 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 limited 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 financial statements have been prepared on the historical
cost basis.
The Company has taken advantage of the audit exemption
for three of its non-trading subsidiaries Instem Life Science
Systems Limited (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 profit for the year of the parent company is £0.74m (2015:
loss of £1.35m).
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 2016 and 31 December 2015.
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
net current assets (excluding deferred income) of £7.9m at 31
December 2016 (2015: £5.0m). 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 positive cash reserves, as well as a committed
working capital facility of £2.0m referred to above which, at 31
December 2016 was undrawn.
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.
30
Instem plc Annual Report, 2016
accounting policies
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 is 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
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 items (EBITDA) is profit/(loss) arising from
the Group’s normal trading activities stated before depreciation,
amortisation, non-recurring items, 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)
Samarind Limited
Sterling (GBP)
Notocord Systems S.A.
Euro (EUR)
Notocord Inc.
US Dollars (USD)
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 (including exchange gains on the translation of intra-group
funding balances).
FINANCE COSTS
Net finance costs include interest payable, exchange losses
(including 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.
Instem plc Annual Report, 2016 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)
Average rate for year ended 31 December 2015
1.5283
11.8503
Closing rate at 31 December 2015
1.4941
11.5809
Average rate for year ended 31 December 2016
1.3553
10.5210
Closing rate at 31 December 2016
1.2340
9.5654
Chinese
Renminbi
(RMB)
9.5010
9.6767
9.0102
8.5978
Indian Rupee
(INR)
Japanese
Yen (JPY)
Euro
(EUR)
97.8763
179.712
98.9288
185.080
91.0666
147.577
83.4892
144.503
-
-
1.2242
1.1731
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 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
the extent that it is probable that future taxable profits will be
available against which temporary differences can be utilised.
Deferred tax is recognised on income or expenses from
subsidiaries that will be assessed or allow for tax in future
periods except where the Group is able to control the reversal of
the timing difference and it is probable that the timing difference
will not reverse in the foreseeable future.
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 between five and ten
years. Amortisation is recognised within the statement of
comprehensive income. All intangible assets except Goodwill
are amortised.
32
Instem plc Annual Report, 2016
accounting policies
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:
•
•
•
•
•
•
an asset is created that can be identified;
it is probable that the asset created will generate future
economic benefits;
the development cost of the asset can be measured
reliably;
the Group has the intention to complete the asset and the
ability and intention to use or sell it;
the product or process is technically and commercially
feasible; and
sufficient resources are available to complete the
development and to either sell or use the asset.
Where these criteria have not been achieved, development
expenditure is recognised in profit or loss in the period in which it
is incurred.
Internally-generated intangible assets are amortised, once the
product is available for use, on a straight-line basis over their
useful lives (five to eight years).
PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment are stated in the statement of
financial position at cost less accumulated depreciation and
provision for impairments.
Depreciation is provided on all assets so as to write off the cost
less estimated residual value on a straight line basis as follows:
Short leasehold property
IT hardware and software
- Over term of lease
- 12½% - 33% per annum
The expected useful lives and residual values of property,
plant and equipment are reviewed on an annual basis and,
if necessary, changes in useful lives are accounted for
prospectively.
The gain or loss arising on the disposal or retirement of an asset
is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in the
statement of comprehensive income.
IMPAIRMENT OF ASSETS EXCLUDING GOODWILL
The carrying value of property, plant and equipment and
intangible assets (excluding goodwill) is reviewed for impairment
whenever events or changes in circumstances indicate the
carrying value may not be recoverable.
At each reporting date the Group reviews the carrying value of its
property, plant and equipment and intangible assets to determine
whether there is any indication that those assets have suffered
an impairment loss. If any such indication exists the recoverable
amount of the asset is estimated in order to determine the extent
of the impairment loss.
Where the asset does not generate cash flows that are
independent from other assets the Group estimates the
recoverable amount of the cash generating unit to which the
asset belongs. A cash generating unit is the smallest identifiable
group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of
assets.
Recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use the estimated future
cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset, for which
the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset is estimated to be less than
its carrying amount, the carrying amount of the asset is reduced
to its recoverable amount. An impairment loss is recognised as
an expense immediately.
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.
Provision is made where necessary for obsolete and slow
moving inventory.
FINANCIAL INSTRUMENTS
Classification of financial instruments
Financial instruments are classified as financial assets, financial
liabilities or equity instruments.
Instem plc Annual Report, 2016 33
accounting policies
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 are recorded at cost in the statement
of financial position. They are tested for impairment when there
is objective evidence of impairment. Any impairment losses are
recognised in the statement of comprehensive income in the
period they occur.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and cash
deposits which are readily convertible to a known amount of
cash. For the purposes of the cash flow statement, cash and
cash equivalents include bank overdrafts which are repayable
on demand as these form an integral part of Group cash
management.
Trade receivables
Trade receivables are classified as loans and receivables and
are initially recognised at fair value. They are subsequently
measured at their amortised cost using the effective interest
method less any provision for impairment. A provision for
impairment is made where there is objective evidence that
amounts will not be recovered in accordance with original terms
of the agreement. A provision for impairment is established when
the carrying value of the receivable exceeds the present value
of the future cash flows discounted using the original effective
interest rate. The carrying value of the receivable is reduced
through the use of an impairment provision account and any
impairment loss is recognised in the statement of comprehensive
income.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements
entered into. An equity instrument is any contract that evidences
a residual interest in the assets of the Group after deducting all
of its liabilities.
Bank borrowings and loan notes
Interest-bearing loan notes and bank overdrafts are recorded
initially at their fair value, net of direct transaction costs.
Such instruments are subsequently carried at their amortised
cost and finance charges are recognised in the statement of
comprehensive income over the term of the instrument using an
effective rate of interest. Finance charges are accounted for on
an accruals basis to the statement of comprehensive income.
Overdrafts are offset against cash and cash equivalents when
the Group has a legal right of off-set.
Trade and other payables
Trade and other payables are not interest bearing and are initially
recognised at fair value and subsequently at amortised cost.
Ordinary share capital
For ordinary share capital, the par value is recognised in share
capital and the premium in the share premium reserve.
Derivative financial instruments
The Group’s activities expose it primarily to foreign currency risk.
The Group uses forward contracts to hedge this exposure.
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 scheme
A defined benefit scheme is a pension plan under which the
Group pays contributions in order to fund a defined amount of
pension that the employees under the scheme will receive on
retirement. The cost of providing the benefits is determined
using the projected unit credit method with actuarial valuations
being carried out regularly.
An asset or liability is recognised equal to the present value of
the defined benefit obligation, adjusted for unrecognised past
service costs and reduced by the fair value of plan assets.
Actuarial gains and losses are recognised in the statement
of other comprehensive income in the year in which they
occur, whilst expected returns on plan assets, servicing
costs and financing costs are recognised in the statement of
comprehensive income.
The rate used to discount the benefit obligations is based on
market yields for high quality corporate bonds with terms and
currencies consistent with those of the benefit obligations.
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.
Fair value of assets acquired and calculation of contingent
consideration (see note 10)
The amounts presented in the statement of financial position in
respect of the fair values of assets acquired are estimated by the
Group’s management based on prior experience and information
available at the time of the acquisition. Key assumptions and
judgements are required to both identify and measure the
identifiable assets acquired. It is the opinion of management,
that in respect of both acquisitions, the identifiable intangible
assets acquired relate to Intellectual Property and Customer
Relationships. The fair value of such assets represents the
estimated future earnings discounted to their net present value.
The assessment of these future earnings includes estimates
and judgements such as the use of an appropriate royalty rate in
respect of the calculation and modelling of the intellectual
34
Instem plc Annual Report, 2016
accounting policies
property asset, the assessment of potential future earnings and
the useful economic life of each identifiable asset acquired.
IAS 12 ‘Recognition of Deferred Tax Assets for Unrealised
Losses’ (Amended) effective - 1 January 2017
IAS 7 ‘Disclosure initiative’ (Amended) effective - 1 January 2017
IFRS 2 ’Classification and Measurement of Share Based
Payment’ (Amended) effective - 1 January 2018
IFRIC 22 ‘Foreign Currency Transactions and Advance
Consideration’ effective - 1 January 2018
The directors are 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 standards above 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 1 ‘Presentation of Financial Statements’ (Amended) effective
- 1 January 2016
IFRS 10 ‘Consolidated Financial Statements’ (Amended)
effective - 1 January 2016
IFRS 12 ‘Disclosure of Interests in Other Entities’ (Amended)
effective - 1 January 2016
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
The directors have reviewed the sensitivity of the royalty rate
assumption in the Samarind valuation of acquired intangible
assets. A 10% decrease in the assumed royalty rate would result
in approximately a £0.14m increase in goodwill, £0.17m less
acquired intangible assets and £0.03m less deferred tax liability
arising on acquisition. The subsequent impact of amortisation
charge for the year ended 31 December 2016 would be a
reduced charge of £0.02m.
The directors have reviewed the sensitivity of the royalty rate
assumption in the Notocord valuation of acquired intangible
assets. A 10% decrease in the assumed royalty rate would result
in approximately a £0.17m increase in goodwill, £0.21m less
acquired intangible assets and £0.04m less deferred tax liability
arising on acquisition. The subsequent impact of amortisation
charge for the year ended 31 December 2016 would be a
reduced charge of £0.01m.
The contingent consideration provided in the financial statements
is measured initially at its acquisition-date fair value. The
consideration in respect of both Samarind and Notocord
include deferred contingent consideration, which is dependent
on financial performance of the acquired businesses. The
estimation of fair values includes management’s best estimate to
the outcome of such performance using detailed forecasts of the
acquired business.
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 management’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.
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 2016. The Group and Company have
chosen not 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.
IFRS 15 ‘Revenue from Contracts with Customers’ effective - 1
January 2018
IFRS 9 ‘Financial Instruments’ effective - 1 January 2018
IFRS 16 ‘Leases’ effective - 1 January 2019
Instem plc Annual Report, 2016 35
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
1. Segmental Reporting
For management purposes, the Group is currently organised into one operating segment – Global Life Sciences.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
REVENUE BY PRODUCT TYPE
Licence fees
Annual support fees
SaaS subscription fees
Professional services
Funded development initiatives
REVENUE BY GEOGRAPHICAL LOCATION
UK
Rest of Europe
USA and Canada
Rest of World
NON-CURRENT ASSETS EXCLUDING DEFERRED
TAXATION BY GEOGRAPHICAL LOCATION
UK
USA and Canada
Rest of World
2016
£000
4,162
8,890
2,853
2,414
-
2015
£000
4,612
7,383
2,076
2,042
208
18,319
16,321
2016
£000
3,329
3,232
9,829
1,929
2015
£000
2,004
3,592
9,429
1,296
18,319
16,321
2016
£000
17,750
165
66
17,981
2015
£000
12,331
39
41
12,411
Major customers
There were no customers which represented more than 10% of the Group revenue in 2016 (2015: nil).
36
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
2. Profit/(Loss) before Non-Recurring Income/(Costs)
2016
£000
2015
£000
Profit/(loss) from operations includes the following significant items:
Depreciation and amounts written off property, plant and equipment:
Charge for the year:
Owned assets
Leased assets
Loss on disposal of property, plant and equipment
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
Due diligence
126
30
2
1,047
1,840
39
481
17
64
16
18
4
47
137
19
-
1,016
1,302
3
365
16
51
11
12
10
-
The following table analyses the nature of expenses:
166
100
2016
£000
Staff costs (see note 6)
10,706
Operating lease rentals
Software maintenance charges
Licence costs
520
444
599
Other expenses
4,574
Total cost of sales, distribution costs, administrative expenses
and other operating expenses
16,843
2015
£000
8,666
368
318
593
3,608
13,553
Instem plc Annual Report, 2016 37
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
3. Non-Recurring Items
Professional fees in respect of acquisitions
Amendment to consideration payable in respect of Instem Clinical
Restructuring costs in respect of Instem Clinical
Amendment to contingent consideration post acquisition in respect of
Samarind
2016
£000
(249)
690
(149)
327
619
2015
£000
(25)
(1,401)
-
-
(1,426)
The professional fees relate to the acquisition of Samarind Limited on 27 May 2016 and Notocord Systems S.A. on 2 September 2016
(see note 10).
During the year, the Group reached agreement with the previous owners of Instem Clinical resulting in the release of the Group from its
obligations to pay the final consideration payments.
The contingent consideration in respect of Samarind Limited was estimated at its fair value at the date of acquisition. This was
re-measured at the reporting date and the estimation of the contingent consideration has reduced.
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).
4. Finance Income
5. Finance Costs
Bank interest
Bank loans and overdrafts
Unwinding discount on deferred consideration
Net interest charge on pension scheme
Foreign exchange losses
Finance lease interest
2016
£000
-
2016
£000
32
120
139
347
8
646
2015
£000
4
2015
£000
86
36
140
6
4
272
38
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
6. 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
2016
Number
2015
Number
42
154
196
2016
£000
9,045
890
771
10,706
40
118
158
2015
£000
7,421
636
609
8,666
In addition to the above employment costs, the Group had non-recurring employment costs of £0.15m (2015:£nil) as disclosed in note 3.
The Company has three employees during the year and in the prior year. These employees are non-executive directors of the
Company and their remuneration is disclosed in note 8.
Instem plc Annual Report, 2016 39
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
7. Share Based Payment
Equity-settled share option plan
Under the approved and unapproved share 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.
2016
2015
Weighted
average exercise
Number
price (£)
Outstanding at the beginning of the year
1,387,016
Granted
104,558
Lapsed
(141,250)
Exercised
(141,231)
Outstanding at end of the year
1,209,093
Exercisable at end of year
784,535
1.02
0.10
0.10
0.83
1.07
1.59
Weighted
average exercise
price (£)
1.71
0.10
-
1.12
1.02
1.01
Number
800,332
596,684
-
(10,000)
1,387,016
1,227,191
The options outstanding at 31 December 2016 and 31 December 2015 had exercise prices of £0.10, £0.90, £1.115, £1.75, £1.76,
£2.215 and £2.22 and a weighted average remaining contractual life of 6 years 1 month (2015: 7 years 1 month).
A charge of £0.2m (2015: £0.3m) 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:
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
2016
0.10
2.67
3
19.0
10
3
2%
-
-
Fair value of options
2.40
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 474,960 shares (2015: 556,599 shares) incorporate a market performance condition based on the Company’s share price.
Options over 490,400 shares (2015: 596,684) 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 £0.3m (2015: £1.1m).
During the year, the average share price in respect of share options exercised is £2.55 (2015: £2.06).
40
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
8. Directors’ Emoluments
Amounts payable by Instem plc:
Emoluments*
Amounts payable by subsidiary companies:
Emoluments
Defined contribution pension contributions
Total emoluments
2016
£000
112
335
40
487
2015
£000
92
318
37
447
2016
Number
2015
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
2
2
* The above emoluments include £30,000 (2015: £24,000) payable to third parties as shown in note 29.
The highest paid director is shown in the Directors’ Remuneration Report.
Instem plc Annual Report, 2016 41
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
9. Taxation
Income taxes recognised in profit or loss:
UK corporation tax on profit/(loss) of the year
Amounts in respect of previously unrecognised losses
Current tax:
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
Amounts in respect of previously unrecognised losses
Adjustment in respect of previous years
Retirement benefit obligation
Effects of domestic tax rate change on opening balances
Total deferred tax
Total income tax (credit)/expense recognised in the current year
The income tax expense can be reconciled to the accounting profit as follows:
Profit/(loss) before tax multiplied by standard rate of corporation tax in
Profit/(loss) before tax
the UK 20% (2015: 20.25%)
Effects of:
(Income)/expenses not (allowable)/deductible for tax purposes
Fixed asset temporary differences
Differences in overseas tax rates
Adjustments in respect of prior years
Foreign tax suffered in excess of double tax relief
Effects of domestic tax rate change on opening balances
Adjustment in respect of R&D tax credit
Other temporary differences
Tax losses utilised
Tax losses carried forward not previously recognised
Overseas tax losses not carried forward
Total income tax (income)/expense recognised in consolidated statement
of comprehensive income
2016
£000
244
(141)
400
(45)
(312)
(350)
(204)
(421)
(459)
(73)
76
46
(831)
(1,035)
2016
£000
23
5
(23)
164
85
(430)
110
46
(350)
(97)
(141)
(526)
122
(1,035)
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
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 2016 is 17% in respect of periods from 1 April 2020 following legislation in the Finance Act 2015.
42
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
10. Acquisition of Subsidiaries
Company
Principal activity
Date of acquisition
Proportion of voting
equity interests
acquired
%
Consideration
£000
Samarind Limited
Provider of Regulatory Information
Management software and
services to Life Science sector
27 May 2016
100
2,324
Samarind Limited was acquired to continue the expansion and development of the Group’s capabilities in the Global Life Sciences
sector.
Consideration
Initial cash consideration (including £13,000 stamp duty)
Initial share consideration
Deferred consideration (27 May 2017) – To be settled in cash or shares
Deferred contingent consideration (27 May 2017) – To be settled in cash or shares
Deferred consideration (27 May 2018) – To be settled in cash or shares
Discounting of estimated future cashflows
Fair value of consideration
£000
1,313
200
450
350
200
2,513
(189)
2,324
The contingent consideration is based on certain performance related conditions in respect of the first twelve months. The deferred
contingent consideration in the table above is based on the forecast estimate that the performance related conditions will be fully met
and the full consideration will be payable. The contingent consideration was re-measured at the reporting date as disclosed in note 3.
Acquisition related costs amounting to £0.07m have been excluded from the consideration transferred and have been recognised as an
expense in the current year, within the ‘Non-recurring income/(costs)’ line item in the consolidated statement of comprehensive income.
Fair value of assets acquired and liabilities recognised at the date of acquisition
Fair Value
£000
Non-Current Assets
Intellectual property
Customer relationships
Property, plant and equipment
Current Assets
Trade and other receivables
Cash and cash equivalents
Current tax
Current Liabilities
Trade and other payables
Deferred income
Non-Current Liabilities
Deferred tax on acquisition
Fair value of identifiable net assets acquired
1,047
921
16
104
697
119
(416)
(404)
(354)
1,730
Instem plc Annual Report, 2016 43
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
10. Acquisition of Subsidaries (continued)
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets acquired
£000
2,324
(1,730)
Goodwill arising on acquisition
594
The impact of the acquisition on the Group’s assets and liabilities is set out above. The fair value of the assets and liabilities may be
adjusted for circumstances that are revealed within 12 months of the date of acquisition. The value of goodwill arose on the acquisition
of Samarind Limited because the premium paid by the Group reflected the expected benefit of synergies, revenue growth and future
market development. Samarind Limited was acquired to expand and enhance the Group’s product and service offering within the
Global Life Sciences operating segment. These benefits have not been recognised separately from goodwill because they do not meet
the recognition criteria for identifiable intangible assets.
The fair value of the identifiable net assets acquired as reported in the interim statement as at 30 June 2016 were provisional. Following
the interim report, the Group has thoroughly reviewed the fair value of identifiable net assets and the values are reflected in the table on
the previous page.
Impact of acquisition on the results of the Group
Included in the profit for the year is a loss of £0.05m attributable to the additional business generated by Samarind Limited. Revenue for
the year includes £0.53m in respect of Samarind Limited.
Had this business combination been effected at 1 January 2016, the revenue of Samarind from continuing operations would have been
£0.92m, and the profit for the year from continuing operations would have approximated break even. The directors consider these
numbers to represent an approximate measure of the performance of Samarind on an annualised basis and to provide a reference point
for comparison in future years.
Subsidiary acquired
Company
Principal activity
Date of acquisition
Proportion of voting
equity interests
acquired
%
Consideration
£000
Notocord
Systems S.A.
(including Notocord Inc.)
Provider of software into
preclinical Safety
Pharmacology sector
2 September 2016
100
2,482
Notocord Systems S.A. and Notocord Inc. were acquired to continue the expansion and development of the Group’s capabilities in the
preclinical Safety Pharmacology sector, which is adjacent to Instem’s core Toxicology/Pathology sector.
Consideration
Initial cash consideration - €2.3m
(including €0.3m consideration in respect of acquired cash balances)
Deferred contingent consideration (30 March 2017)
Discounting of estimated future cashflows
Fair value of consideration
£000
1,976
533
2,509
(27)
2,482
The contingent consideration is based on certain performance related conditions in respect of the years ending 31 December 2016 and
31 December 2017. The maximum deferred contingent consideration which would be payable if all performance conditions were met
would be £1.7m (€2.0m).
Acquisition related costs amounting to £0.18m have been excluded from the consideration transferred and have been recognised as an
expense in the current year, within the ‘Non-recurring income/(costs)’ line item in the consolidated statement of comprehensive income.
44
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
10. Acquisition of Subsidaries (continued)
Fair value of assets acquired and liabilities recognised at the date of acquisition
Fair Value
£000
Non-Current Assets
Intellectual property
Customer relationships
Property, plant and equipment
Current Assets
Trade and other receivables
Cash and cash equivalents
Current tax
Current Liabilities
Trade and other payables
Deferred income
Non-Current Liabilities
Deferred tax on acquisition
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets acquired
1,258
996
14
148
245
(355)
(101)
(232)
(405)
1,568
£000
2,482
(1,568)
Goodwill arising on acquisition
914
The impact of the acquisition on the Group’s assets and liabilities is set out above. The fair value of the assets and liabilities may be
adjusted for circumstances that are revealed within 12 months of the date of acquisition. The value of goodwill arose on the acquisition
of Notocord Systems S.A. because the premium paid by the Group reflects the expected benefit of synergies, revenue growth and
future market development. Notocord Systems S.A. was acquired to expand and enhance the Group’s product and service offering
within the Safety Pharmacology sector. These benefits have not been recognised separately from goodwill because they do not meet
the recognition criteria for identifiable intangible assets.
Impact of acquisition on the results of the Group
Included in the profit before tax for the year is a profit of £0.15m attributable to the additional business generated by Notocord Systems
S.A. and Notocord Inc. Revenue for the year includes £0.53m in respect of Notocord Systems S.A. and Notocord Inc.
Had this business combination been effected at 1 January 2016, the revenue of Notocord from continuing operations would have been
in the region of £1.8m, and the profit for the year from continuing operations would have been in the region of £0.4m. The directors
consider these numbers to represent an approximate measure of the performance of Notocord Systems S.A. and Notocord Inc. on an
annualised basis and to provide a reference point for comparison in future years.
Instem plc Annual Report, 2016 45
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
11. Intangible Assets
Goodwill
Software
property
relationships
Patents
Group
£000
£000
£000
£000
£000
Intellectual
Customer
Cost
At 1 January 2015
9,507
2,262
2,222
Additions from continuing
operations
-
612
-
At 31 December 2015
9,507
2,874
2,222
Additions from continuing
operations
-
Additions from acquisitions
1,508
Exchange adjustment
-
890
-
10
At 31 December 2016
11,015
3,774
Amounts written off
At 1 January 2015
Amortisation expense
At 31 December 2015
Amortisation expense
Exchange adjustment
At 31 December 2016
Net book value
-
-
-
-
-
-
At 31 December 2015
9,507
At 31 December 2016
11,015
1,069
375
1,444
380
11
1,835
1,430
1,939
-
2,305
-
4,527
1,049
444
1,493
442
-
1,935
729
2,592
957
-
957
-
1,917
-
2,874
397
192
589
224
-
813
368
2,061
21
-
21
-
-
-
21
15
5
20
1
-
21
1
-
Total
£000
14,969
612
15,581
890
5,730
10
22,211
2,530
1,016
3,546
1,047
11
4,604
12,035
17,607
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally acquired
elements. The cost of internally generated software amounts to £3.0m (2015: £2.3m) with accumulated amortisation of £1.2m (2015:
£0.9m). Software additions for the year include £0.8m relating to internal development (2015: £0.6m).
Impairment of goodwill
Goodwill amounting to £5.9m (2015: £5.9m) 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 £0.5m (2015: £0.5m), relates to a CGU, being
the Instem Scientific Limited business acquired on 3 March 2011. Goodwill amounting to £2.5m (2015: £2.5m), relates to a CGU, being
the Instem Clinical Holdings Limited business acquired on 10 May 2013. Goodwill amounting to £0.7m (2015: £0.7m) relates to a CGU,
being the Perceptive Instruments Limited business acquired on 21 November 2013.
During the year, the Group acquired goodwill amounting to £0.6m and £0.9m in respect of the acquisition of Samarind and Notocord
respectively (see note 10).
During the year, 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 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 2016, a pre-tax discount rate of 9.1% (2015: 8.9%) was used in the value-in-use calculation based on
the Group’s cost of capital.
46
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
11. Intangible Assets (continued)
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 identified.
The recoverable amount of the Instem LSS CGU exceeds the carrying amount of this CGU by 335%, for the Instem Scientific CGU
by 848%, for Instem Clinical CGU by 249%, Perceptive Instruments CGU by 898%, Samarind CGU by 443% and Notocord CGU by
351%. 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 24%, 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 68% in the Instem Scientific 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 15% in the Instem Clinical discount rate, or a reduction in revenues of 9% would result in the recoverable amount of the
CGU being equal to its carrying amount. An additional increase of 30% in the Perceptive Instruments discount rate, or a reduction in
revenues of 17% would result in the recoverable amount of the CGU being equal to its carrying amount. An additional increase of 30%
in the Samarind discount rate, or a reduction in revenues by 30% would result in the recoverable amount of the CGU being equal to
its carrying value. An additional increase of 24% in the Notocord discount rate, or a reduction in revenues by 24% would result in the
recoverable amount of the CGU being equal to its carrying value.
Amortisation expenses are disclosed in the Consolidated Statement of Comprehensive Income.
12. Investments
Company
Cost at beginning of year
Additions
At end of year
£000
23,395
5,031
28,426
During the year, the Company acquired the investment in Samarind Limited and Notocord Systems S.A. At the end of the year the
company has six wholly-owned subsidiaries and twelve wholly-owned sub-subsidiaries, details of which are as follows:
Company
Registered Address
Activity
Ownership
Instem Life Science Systems
Diamond Way
Limited
Stone Business Park
(company number 04339129)
Stone, Staffordshire
England and Wales
ST15 0SD
Instem LSS Limited
(company number 03548215)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Instem LSS (North America)
Diamond Way
Holding Company
100% by Instem plc
Software development,
sales, sales support and
administrative support
100% by Instem Life
Science Systems Limited
Limited
Stone Business Park
Sales, sales support and
100% by Instem LSS
(company number 02126697)
Stone, Staffordshire
administrative support
Limited
England and Wales
ST15 0SD
Instem LSS (Asia) Limited
(company number 1371107)
Hong Kong
Instem Information Systems
(Shanghai) Limited
(company number
310115400257075)
Shanghai, PRC
Suite 1106-8
11/F Tai Yau Building
No 181 Johnston Road
Wanchai
Room 205, Building 16
88 Da’erwen Road
Zhanjiang
High Tech Park
Pudong District
201203
Holding Company
100% by Instem LSS
Limited
Sales, sales support and
service
100% by Instem LSS (Asia)
Limited
Instem plc Annual Report, 2016 47
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
12. Investments (continued)
Company
Registered Address
Activity
Ownership
Instem Scientific Limited
(company number 03861669)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Instem Scientific Solutions
Diamond Way
Limited
Stone Business Park
(company number 03598020)
Stone, Staffordshire
England and Wales
ST15 0SD
Instem Scientific Inc.
161 Washington Street
Suite 1550
USA
8 Tower Bridge
Conshohocken PA 19428
Instem India Pvt Limited
(company number
U73100MH2012FTC231951)
India
302, Third Floor
Lalani Quantum
Bavdhan (Budruk)
Pune
411021
Instem Clinical Holdings
Diamond Way
Limited
Stone Business Park
(company number 05840032)
Stone, Staffordshire
England and Wales
ST15 0SD
Instem Clinical Limited
(company number 06959053)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Suite 1550
Instem Clinical Inc.
161 Washington Street
USA
Logos Technologies Limited
(company number 05836842)
England and Wales
8 Tower Bridge
Conshohocken PA 19428
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Perceptive Instruments
Diamond Way
Limited
Stone Business Park
(company number 02498351)
Stone, Staffordshire
England and Wales
ST15 0SD
Leading provider of
software solutions for
extracting intelligence
100% by Instem plc
from R&D related
healthcare data
Dormant
100% by Instem Scientific
Limited
Leading provider of
software solutions for
extracting intelligence
from R&D related
healthcare data
Software development
Holding of intellectual
property rights and
investment in group
companies
Provision of electronic
data capture and clinical
management solutions
to the pharmaceutical
industry
Provision of electronic
data capture and clinical
management solutions
to the pharmaceutical
industry
100% by Instem Scientific
Limited
99.9% by Instem LSS
Limited
0.1% by Instem LSS (NA)
Limited
100% by Instem plc
100% by Instem Clinical
Holdings Limited
100% by Instem Clinical
Holdings Limited
Dormant
100% by Instem Clinical
Holdings Limited
Development,
manufacture and supply
of software and hardware
products for in vitro
study data collection and
100% by Instem plc
study management in
the genetic toxicology,
microbiology and
immunology markets
48
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
12. Investments (continued)
Company
Registered Address
Activity
Ownership
Instem Japan K.K
(company number
0104-01-120355)
Japan
Samarind Limited
(company number 02105894)
England and Wales
Notocord Systems S.A.
(company number 350927349)
France
Shinagawa
Intercity Tower
A Level 28
2-15-1 Konan
Minato-ku
Tokyo 108-6028
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
113 Chemin de Ronde
Croissy-sur-Seine
Paris
78290
Suite 1550
Sales, sales support and
100% by Instem LSS
service
Limited
Provider of regulatory
information management
100% by Instem plc
software
Software development,
sales support and
100% by Instem plc
administrative support
Notocord Inc.
USA
161 Washington Street
Sales, sales support and
100% by Notocord Systems
8 Tower Bridge
administrative support
S.A.
Conshohocken PA 19428
Instem plc Annual Report, 2016 49
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
13. Property, Plant and Equipment
Short leasehold
IT hardware &
property
£000
software
£000
Group
Cost
At 1 January 2015
Additions
Exchange adjustment
At 31 December 2015
Additions
Acquisitions
Disposals
Exchange adjustment
At 31 December 2016
Depreciation
At 1 January 2015
Depreciation expense
Exchange adjustment
At 31 December 2015
Depreciation expense
Acquisitions
Disposals
Exchange adjustment
At 31 December 2016
Net book value
At 31 December 2015
At 31 December 2016
74
-
-
74
3
-
(1)
3
79
26
17
(2)
41
14
-
(1)
3
57
33
22
Total
£000
1,963
266
2
2,231
113
103
(1,385)
74
1,136
1,700
156
(1)
1,855
156
73
1,889
266
2
2,157
110
103
(1,384)
71
1,057
1,674
139
1
1,814
142
73
(1,382)
(1,383)
58
705
343
352
61
762
376
374
IT hardware and software includes assets with a net book value of £0.10m (2015: £0.13m) held under finance lease. The depreciation
on these assets during the year was £0.03m (2015: £0.02m).
50
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
14. Inventories
Group
Raw materials
Work in progress
Total gross inventories
15. Trade and Other Receivables
Group
Trade receivables
Amounts recoverable on contracts
Prepayments and accrued income
Company
Amounts owed by group companies
Other receivables
2016
£000
27
889
916
2016
£000
916
2016
£000
5,104
894
901
6,899
2,217
84
2,301
2015
£000
14
808
822
2015
£000
822
2015
£000
2,788
1,395
562
4,745
2,589
32
2,621
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
Increase in provision for impairment
Reversal of provision for impairment
At end of year
2016
£000
232
9
(147)
94
2015
£000
23
209
-
232
The average credit period taken on sale is 68 days (2015: 57 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, 2016 51
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
15. Trade and Other Receivables (continued)
The age profile of the net trade receivables for the Group at the year-end was as follows:
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
Group
2016
Current
0-30
days
31-60
days
Over 60
days
Total
Debt age
Trade receivables/Amounts recoverable
on contracts
Value (£000)
%
4,434
74
565
10
501
8
498
8
5,998
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
16. Financial Asset
2016
£000
2,511
784
3,056
488
60
6,899
2015
£000
1,815
162
2,452
270
46
4,745
Group and Company
Forward foreign exchange contract
2016
£000
10
2015
£000
-
At the reporting date the Group and Company had one short term forward foreign exchange contract to purchase Euros at a
guaranteed rate. The above represents the fair value of the contract at 31 December 2016. There were no contracts in place as
at 31 December 2015. The credit has been recognised in the consolidated statement of comprehensive income and reflected in
foreign exchange losses within finance costs.
52
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
17. Cash and Cash Equivalents
Group
Cash at bank
Bank overdraft
Company
Cash at bank
2016
£000
13,187
(8,998)
4,189
2,221
2015
£000
11,181
(8,998)
2,183
24
The Group’s committed overdraft facility has a net limit of £2.0m and a gross limit of £9.0m. 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
Euro
2016
£000
(1,138)
1,687
2,329
1,243
68
4,189
1,165
1,056
2,221
2015
£000
(407)
201
1,529
831
29
2,183
24
-
24
The carrying amount of these assets approximates to their fair value.
Instem plc Annual Report, 2016 53
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
18. 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
An analysis of trade and other payables by currency is as follows:
Group
Sterling
Euro
US Dollar
Renminbi
Other
Company
Sterling
2016
£000
632
276
1,762
2,670
78
4,125
129
4,332
2016
£000
1,595
272
725
31
47
2,670
4,332
2015
£000
487
186
1,124
1,797
37
3,773
14
3,824
2015
£000
1,088
-
677
20
12
1,797
3,824
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their short maturities.
The maturity analysis of the trade and other payables for the Group at the year-end was as follows:
Group
2015
Trade and other payables (£000)
%
Group
2016
Trade and other payables (£000)
%
19. Current Taxation
Current
1,700
95
Current
2,634
99
0-30
days
56
3
0-30
days
24
1
31-60
days
Over 60
days
6
-
35
2
31-60
days
Over 60
days
-
-
12
-
Total
1,797
100
Total
2,670
100
The Group current tax payable of £0.43m (2015: £0.54m) represents the amount of income taxes payable in respect of current and prior
years.
The Company current tax payable is £nil (2015: £nil).
54
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
20. Financial Liabilities
Group
2015
Deferred consideration
Finance lease liabilities
Company
2015
Deferred consideration
Group
2016
Deferred contingent consideration
Finance lease liabilities
Total
£000
688
145
833
Total
£000
688
Total
£000
1,108
113
1,221
Less than
One to
More than
one year
two years
two years
£000
£000
£000
357
28
385
331
29
360
-
88
88
Less than
One to
More than
one year
two years
two years
£000
357
£000
331
£000
-
Less than
One to
More than
one year
two years
two years
£000
£000
£000
950
29
979
158
32
190
-
52
52
Company
Less than
One to
More than
Deferred contingent consideration
2016
Total
£000
1,108
one year
two years
two years
£000
950
£000
158
£000
-
Deferred contingent consideration
The deferred contingent consideration above includes £0.58m (2015: £nil) in respect of the acquisition of Samarind Limited,
£0.53m (2015: £nil) in respect of the acquisition of Notocord Systems S.A. and £nil (2015: £0.69m) in respect of Instem Clinical
Holdings Limited.
During the year, the Group reached agreement with the previous owners of Instem Clinical Holdings Limited resulting in the
release of the Group from its obligation to pay the final consideration payments.
The estimation of deferred consideration in respect of the acquisition of Samarind Limited and Notocord Systems S.A. is
contingent on performance criteria relating to 2017.
The carrying value of all deferred consideration has been discounted by an appropriate rate to take account of the time to maturity.
Further details are provided in note 21.
Instem plc Annual Report, 2016 55
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
20. Financial Liabilities (continued)
Finance lease liabilities
Minimum lease payments
Present value of minimum
lease payment
31 December
31 December
31 December
31 December
2016
2015
2016
2015
Not later than one year
Later than one year and not later than five years
Less future finance charges
Present value of minimum lease payments
36
90
126
(13)
113
36
126
162
(17)
145
29
84
113
-
113
28
117
145
-
145
21. 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 deferred consideration) and “Fair value through profit and loss” (other financial
liabilities which reflect deferred contingent consideration, and a forward contract shown as a financial asset) 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.
2015
Group and Company
Level 1
£000
Level 2
£000
Level 3
£000
Deferred contingent consideration
-
(688)
-
2016
Group and Company
Level 1
£000
Level 2
£000
Financial asset
Deferred contingent consideration
-
-
-
10
-
10
Level 3
£000
-
(1,108)
(1,108)
Total
£000
(688)
Total
£000
10
(1,108)
(1,098)
The valuation of the financial asset has been made with reference to the guaranteed rate within the forward contract and an appropriate
forward rate as at 31 December 2016.
56
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
21. Financial Instruments (continued)
The following table shows a reconciliation from the opening balances as at 1 January 2016 to the closing balances as at 31 December
2016 for Level 3 fair value measurements in respect of both the Group and Company.
Balance as at 1 January 2016
Acquisition of Samarind Limited
Acquisition of Notocord Systems S.A.
Unwinding discount*
Change in fair value**
Adjustment in respect of foreign exchange*
Balance as at 31 December 2016
Deferred contingent
consideration
£000
-
811
506
108
(327)
10
1,108
* Recognised in consolidated statement of comprehensive income and reflected in finance costs
** Recognised in consolidated statement of comprehensive income and reflected in non-recurring income/(costs)
The assumptions in respect of the fair value measurement of the deferred contingent consideration is disclosed in note 10.
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 average value of Sterling against the US dollar would have resulted in an increase in the Group’s profit before tax by
approximately £0.3m (2015: £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 2016 indications are that the UK bank base interest rate will not materially differ from 0.25% over the next
12 months. On the basis of the floating net cash position at 31 December 2016 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, 2016 57
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
21. Financial Instruments (continued)
2015
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Finance lease
2016
Group
Trade and other receivables
Financial asset
Cash and cash equivalents
Trade and other payables
Deferred contingent consideration
Finance lease
2015
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred consideration
Fixed
rate
£000
-
-
-
-
(145)
(145)
Fixed
rate
£000
-
-
-
-
-
(113)
(113)
Fixed
rate
£000
-
-
-
-
-
Floating
rate
£000
Non-interest
bearing
£000
-
2,183
-
-
-
2,183
4,183
-
(1,611)
(688)
-
1,884
Floating
rate
£000
Non-interest
bearing
£000
-
-
4,189
-
-
-
4,189
5,998
10
-
(2,394)
(1,108)
-
2,506
Floating
rate
£000
Non-interest
bearing
£000
-
24
-
-
24
2,621
-
(3,824)
(688)
(1,891)
2016
Company
Trade and other receivables
Financial asset
Cash and cash equivalents
Trade and other payables
Deferred contingent consideration
Fixed
rate
£000
Floating
rate
£000
Non-interest
bearing
£000
-
-
-
-
-
-
-
-
2,221
-
-
2,221
2,301
10
-
(4,332)
(1,108)
(3,129)
Total
£000
4,183
2,183
(1,611)
(688)
(145)
3,922
Total
£000
5,998
10
4,189
(2,394)
(1,108)
(113)
6,582
Total
£000
2,621
24
(3,824)
(688)
(1,867)
Total
£000
2,301
10
2,221
(4,332)
(1,108)
(908)
58
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
21. 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 (2015:
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 15 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 2016, its £2.0m committed bank
facility was undrawn (2015: £2.0m undrawn).
In respect of the Group’s interest-bearing financial liabilities, the table in note 20 includes details at the reporting date of the periods in
which they mature.
Instem plc Annual Report, 2016 59
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
22. 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 year 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
Arising on acquisitions during the year
Adjustments in respect of prior years
Effect of domestic tax rate change on opening balances
At end of the year
2016
£000
-
947
947
2016
£000
663
804
215
(762)
73
(46)
947
2015
£000
-
663
663
2015
£000
574
263
61
-
(179)
(56)
663
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 2015
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
(701)
162
-
-
71
At 31 December 2015
(468)
Credit/(charge) to profit or loss for the year
Credit to equity for the year
Arising on acquisitions in the year
Adjustments in respect of prior years
Effects of domestic tax rate change on opening
balances
155
-
(762)
223
17
At 31 December 2016
(835)
Group
£000
484
-
-
(179)
(48)
257
654
-
-
-
(14)
897
£000
776
(52)
61
-
(78)
707
(76)
215
-
-
(39)
807
£000
15
153
-
-
(1)
167
71
-
-
(150)
(10)
78
Total
£000
574
263
61
(179)
(56)
663
804
215
(762)
73
(46)
947
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 2016 were £nil (2015: £4.07m) due to uncertainty over the timing of the
recoverability of these losses.
60
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
23. Retirement Benefit Obligations
The Group has five 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 2016 were £0.57m (2015: £0.46m).
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 2016 were £0.03m (2015: £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 2016 were £0.08m (2015: £0.08m).
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 2016 were £0.02m (2015: £0.02m).
Perceptive Instruments Limited - The Group made contributions to personal pension arrangements of certain employees however
following the introduction of auto enrolment on 1 July 2016 these employees were entered into the Group Personal Pension Plan.
During the year ended 31 December 2016 employer contributions to these arrangements prior to autoenrollment totalled £0.01m. (2015:
£0.02m).
Samarind Group Pension Plan - The Scheme is a Group Personal Pension arrangement with Scottish Widows. Employee members
must contribute at least 3% and the employer contributes up a maximum of 3% to the Scheme. During the period ended 31 December
2016 the employer made contributions of £0.01m (2015: £nil).
Defined benefit pension scheme
The Group also operates a pension scheme providing benefits based on final pensionable pay. This scheme was closed to new
members with effect from 8 October 2001 and the rate of future benefit accrual reduced from 1/60th of final pensionable pay per year of
service to 1/80th with effect from 6 April 2003. The scheme closed to future accrual on 31 December 2008.
The Scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the Scheme is carried out at least
once every three years to determine whether the Statutory Funding Objective is met. As part of the process, the Group must agree with
the Trustees of the Scheme the contributions to be paid to address any shortfall against the Statutory Funding. The Statutory Funding
Objective does not currently impact on the recognition of the Scheme in the accounts. The scheme is in deficit and no contributions
payable under a minimum funding requirement are considered potentially refundable or utilisable as a reduction of future contributions.
IFRIC interpretation 14 is deemed to be not applicable to the Group.
The Scheme is managed by a Board of Trustees appointed in part by the Group and part from elections by members of the Scheme.
The Trustees have responsibility for obtaining valuations of the Scheme, administering benefit payments and investing the Scheme
assets. The Trustees delegate some of these functions to their professional 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 bonds 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.
Instem plc Annual Report, 2016 61
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
23. Retirement Benefit Obligations (continued)
There were no Scheme amendments, curtailments or settlements during the year.
The latest full actuarial valuation was carried out at 5 April 2014 and was updated to 31 December 2016 by a qualified independent
actuary.
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.
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.
62
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
23. 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
2016
%
2.85
3.30
N/A
3.00
3.30
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 FINANCE COSTS
Interest on pension scheme assets
Interest on pension scheme liabilities
Net finance charge
ANALYSIS OF AMOUNT RECOGNISED IN OTHER COMPREHENSIVE EXPENSE
(Gains)/losses on pension scheme assets in excess of interest
Gains from changes to demographic assumptions
Losses from changes to financial assumptions
Actuarial loss recognised in other comprehensive expense
24.5
25.8
23.3
24.3
2016
£000
304
(443)
(139)
2016
£000
(1,252)
(133)
2,577
1,192
2015
%
3.80
3.20
N/A
2.90
3.20
Years
24.7
25.9
23.4
24.4
2015
£000
289
(429)
(140)
2015
£000
136
-
203
339
Instem plc Annual Report, 2016 63
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
23. Retirement Benefit Obligations (continued)
CHANGES IN THE PRESENT VALUE OF THE DEFINED
BENEFIT OBLIGATION
Opening defined benefit obligation
Interest cost
Benefits paid
Changes to demographic assumptions
Changes to financial assumptions
Closing defined benefit obligation
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 £1.56m (2015: £0.15m).
AMOUNT RECOGNISED IN THE CONSOLIDATED
STATEMENT OF FINANCIAL POSITION
2016
£000
11,782
443
(233)
(133)
2,577
14,436
2016
£000
7,849
304
1,252
518
(233)
9,690
2016
£000
2015
£000
11,405
429
(255)
-
203
11,782
2015
£000
7,524
289
(136)
427
(255)
7,849
2015
£000
Present value of funded obligations
(14,436)
(11,782)
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
9,690
(4,746)
807
(3,939)
2016
£000
3,933
139
1,192
(518)
4,746
7,849
(3,933)
707
(3,226)
2015
£000
3,881
140
339
(427)
3,933
64
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
23. Retirement Benefit Obligations (continued)
Cumulative
Cumulative
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 demographic assumptions
Changes in assumptions underlying the present value of the scheme
liabilities
2016
£000
1,362
(1,811)
133
(5,019)
Cumulative actuarial loss recognised in other comprehensive expense
(5,335)
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2016
2015
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
6,959
301
1,232
167
424
607
9,690
%
72
3
13
2
4
6
£000
5,664
227
810
672
378
98
100
7,849
100
2015
£000
110
(1,811)
-
(2,442)
(4,143)
%
72
3
10
9
5
1
The five-year history of experience adjustments is as follows:
2016
£000
2015
£000
2014
£000
2013
£000
2012
£000
Present value of defined
benefit obligation
(14,436)
(11,782)
(11,405)
(10,529)
(9,200)
Fair value of plan assets
9,690
7,849
7,524
7,023
6,004
Deficit
(4,746)
(3,933)
(3,881)
(3,506)
(3,196)
Experience adjustments on
plan liabilities
Return on plan assets less
interest
-
-
(138)
-
(763)
1,252
(136)
(7)
612
172
Instem plc Annual Report, 2016 65
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
23. Retirement Benefit Obligations (continued)
The Group expects to contribute £0.5m to its defined benefit plan in the next financial year (2015: £0.4m).
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
(1,313)
1,506
1,424
(1,264)
(507)
503
24. Share Capital
Allotted, called up and fully paid
At 1 January
13,043,774 ordinary shares of 10p each (2015: 12,212,260)
2,727,624 (2015: 831,514) ordinary shares of 10p each, issued during the year
At 31 December
2016
£000
1,304
273
1,577
2015
£000
1,221
83
1,304
On 23 February 2016, the Company raised £5.0 million (before expenses) by way of a placing of 2,500,000 new ordinary shares with
new and existing investors. The Company issued 86,393 new ordinary shares in respect of part consideration of the acquisition of
Samarind Limited. In addition, 141,231 shares were issued during the year in respect of the exercise of share options.
66
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
25. 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.
2016
Weighted
average
Earnings per
Profit after
2015
Weighted
average
Earnings per
number of
share (pence)
tax (£000)
number of
share (pence)
shares (000’s)
shares (000’s)
Profit after
tax (£000)
Earnings per share-Basic
1,058
Potentially dilutive shares
-
Earnings per share-Diluted
1,058
15,302
324
15,626
6.9
-
6.8
(428)
-
(428)
12,398
-*
12,398
(3.5)
-
(3.5)
* Dilutive share options have been excluded from the calculation as in accordance with IAS 33, ‘Earnings 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
1,752
Potentially dilutive shares
-
Earnings per share-Diluted
1,752
2016
Weighted
average
number of
shares (000’s)
15,302
324
15,626
Adjusted
earnings per
share (pence)
Adjusted
profit after
tax (£000)
11.5
-
11.2
1,644
-
1,644
2015
Weighted
average
number of
shares (000’s)
12,398
337
12,735
Reconciliation of adjusted profit after tax:
Reported profit/(loss) after tax
Non-recurring (income)/costs
Amortisation of acquired intangibles
Foreign exchange differences on revaluation of inter-group balances
2016
£000
1,058
(619)
667
646
1,752
Adjusted
earnings per
share (pence)
13.3
-
12.9
2015
£000
(428)
1,426
640
6
1,644
Instem plc Annual Report, 2016 67
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
26. Capital and Reserves
Share capital
The share capital account represents the par value for all shares issued. The Company has one class of share and each share rank
parri passu and carry equal rights.
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.
27. Capital Commitments
There were no capital commitments at the end of the financial year (2015: £nil).
68
Instem plc Annual Report, 2016
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
28. 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
2016
£000
520
2016
£000
444
778
236
10
13
2015
£000
368
2015
£000
395
748
358
2
3
1,481
1,506
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 leases in relation to office buildings contains a dilapidation clause whereby Instem plc must make good any damage to
the demised premises on expiration of the lease. 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, 2016 69
NOTES TO THE FINANCIAL STATEMENTS for the year ended 31 December 2016
29. 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 £0.5m (2015: £0.6m). The net intercompany balances due from the
Company at the year-end totalled £1.9m (2015: due from: £1.2m).
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:
2016
£000
2015
£000
Fees for services provided as Non-Executive Directors
Salaries and short term benefits
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
Executive Directors
Salaries and short term benefits
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
82
-
9
-
91
335
40
25
105
505
Other key management
Salaries and short term employee benefits
567
Post employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
49
55
84
755
68
-
7
-
75
318
37
21
71
447
508
26
45
57
636
The Company paid £0.05m (2015: £0.05m) to Instem Ventures Limited, a company owned by A Gare, a shareholder. The balance
outstanding at the end of the year was £nil (2015: £0.005m).
In addition, the Company paid £0.03m (2015: £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 £0.009m (2015: £0.002m).
In November 2016, the Group made a six-month loan of £0.07m to a member of the key management team. Interest is accrued at a rate
of 3%. The balance outstanding at the end of the year was £0.07m (2015: £nil).
Key management are considered to be the Directors together with the Senior Managers of the business.
30. 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 (2015: £9.0m).
70
Instem plc Annual Report, 2016
NOTES
Instem plc Annual Report, 2016 71
NOTES
72
Instem plc Annual Report, 2016
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
14th Floor
Chapel Street
Liverpool
L3 9AG
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
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
Our clients include these fine organisations...
Instem supports over 500 clients
through offices in the United States,
United Kingdom, France, India,
China 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
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Tel: +1 (610) 941 0990
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Tel: +86 (0) 21 5131 2080
e-mail: investors@instem.com
investors.instem.com