A N N U A L
R E P O R T
2018
0
0
5
M o r e t h a n 5 0 0
c l i e n t s
Instem has over 500
customers with its blue
chip customer base
consisting of the leading
pharmaceutical, medical
device, chemical and
contract research
organisations as well as
academic, government
and privately funded
research institutions
across many sites
worldwide. These
include all of the top
25 pharmaceutical and
biotech companies such
as GlaxoSmithKline and
AstraZeneca.
A n n u a l R e p o r t
2
CONTENTS
HIGHLIGHTS
CHAIRMAN’S STATEMENT
STRATEGIC REPORT
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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46
81
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A s t h e n u m b e r
o n e g l o b a l
p r o v i d e r , w e
e s t i m a t e t h a t
a p p r o x i m a t e l y
h a l f o f t h e
w o r l d ’ s
p r e c l i n i c a l d r u g
s a f e t y d a t a h a s
b e e n c o l l e c t e d
o v e r t h e l a s t
2 0 y e a r s
u s i n g I n s t e m
s o f t w a r e .
4
P o w e r f u l S o l u t i o n s • U n i q u e P e r s p e c t i v e • G l o b a l C o v e r a g e
Instem is a leading provider of IT solutions & services
to the life sciences market delivering compelling
solutions for Study Management and Data Collection;
Regulatory Solutions for Submissions and Compliance;
and Informatics-based Insight Generation.
Instem solutions are in use by over 500 customers
worldwide, including all the largest 25 pharmaceutical
companies, enabling clients to bring life enhancing
products to market faster. Instem’s portfolio of software
solutions increases client productivity by automating
study-related processes while offering the unique ability
to generate new knowledge through the extraction and
harmonisation of actionable scientific information.
Instem products and services now address aspects of the
entire drug development value chain, from discovery
through to market launch. Management estimate that
over 50% of all drugs on the market have been through
some part of Instem’s platform at some stage of their
development. To learn more about Instem solutions
and its mission, please visit instem.com.
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H I G H L I G H T S
W i t h i n c r e a s i n g m o m e n t u m i n t h e b u s i n e s s f r o m r e c e n t
c o n t r a c t w i n s a n d t h e g r o w i n g p i p e l i n e , w e a r e c o n f i d e n t
a b o u t t h e o u t l o o k f o r t h e G r o u p f o r 2 0 1 9 a n d b e y o n d .
F I N A N C I A L H I G H L I G H T S
O P E R A T I O N A L H I G H L I G H T S
• Revenues increased 8% to £22.7m (2017 restated*:
•
£21.1m)
•
Software as a Service (SaaS) revenues increased
25% to £5.5m (2017: £4.4m)
SEND outsourced services contract wins with two
top five global non-clinical Contract Research
Organisations (“CROs”) each worth in excess of
£1m
• Recurring revenues (annual support and SaaS)
• Growing shift towards a SaaS based delivery and
revenue model
• Contract win with leading Fortune 500 Company
which adopted Samarind RMS solution for its
worldwide medical products regulatory tracking
system
500 additional Provantis® users licensed by our
largest CRO client
•
increased 6% to £13.7m (2017: £12.9m)
• Adjusted EBITDA** of £4.1m (2017 restated*:
£2.4m)
• Reported profit before tax of £1.7m (2017 restated*:
£0.3m)
• Basic earnings per share of 9.2p (2017 restated*:
4.1p)
• Fully diluted earnings per share of 8.7p (2017
restated*: 4.0p)
• Adjusted*** fully diluted earnings per share of
15.5p (2017 restated*: 11.0p)
• Net cash balance as at 31 December 2018 of £3.6m
(2017: £3.1m)
*Restated due to the adoption of IFRS 15 and its impact on
revenue recognition that accounts for £0.4m of additional revenue
and £0.3m of EBITDA in FY18, which had previously been
recognised in FY17.
**Earnings before interest, tax, depreciation, amortisation and
non-recurring costs.
***After adjusting for the effect of foreign currency exchange
on the revaluation of inter-company balances included in
finance income/(costs), non-recurring items and amortisation of
intangibles on acquisitions. Profit is adjusted in this way to provide
a clearer measure of underlying operating performance.
6
We are very pleased with the performance
of the business during 2018 with regulatory
requirements delivering the expected significant
increase in demand for our technology enabled
outsourced services.
Growth was also particularly strong in the
Asia-Pacific region, with bookings up 37% on
the prior year, primarily attributable to the
continuing funding of pharmaceutical Research
& Development by the Chinese government.
With increasing momentum in the business
from recent contract wins and the growing
pipeline, we are confident about the outlook for
the Group for 2019 and beyond.
While our strategy remains focused on Instem’s
strong organic revenue growth, expanding
operational gearing and improving positive
cashflow, management will continue to
consider complementary acquisition targets
to further develop our position as a market
leading provider of IT solutions to the global life
sciences market.
P J Reason
Chief Executive
H i g h l i g h t s
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“We remain focused on achieving
organic profitable growth, expanding
margins and improving positive
cashflow.”
D Gare
Non-Executive Chairman
C h a i r m a n ' s S t a t e m e n t
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C H A I R M A N ' S S T A T E M E N T
I am pleased to report a further year of profitable growth
for Instem, with improving revenue, earnings and
expanding operating margins.
All parts of the business: Study Management; Informatics;
and Regulatory Solutions; made a positive contribution
to the performance of the Group. Importantly, our
loyal customer base contributed increased recurring
revenue from support & maintenance contracts and SaaS
subscriptions, as well as providing very encouraging
levels of repeat business for our technology enabled
outsourced services.
R E S U L T S A N D I M P A C T O F I F R S 1 5
The Group is now required to report its financial results
under the new IFRS 15 “Revenue from contracts with
customers” accounting standard. As a consequence,
certain adjustments have been made to both the prior
year 2017 and 2018 accounts resulting in £0.6m of
revenue and £0.5m of EBITDA previously recognised in
2017 spread into future years, of which £0.4m of revenue
and £0.3m of EBITDA has been recognised in the 2018
accounts. Prior to the adjustments the 2018 results
would have been revenues of £22.3m (2017: £21.7m) and
EBITDA of £3.7m (2017: £3.0m). Our actual reported
results for 2018, post adjustments, are therefore revenues
of £22.7m (2017: £21.1m) and EBITDA of £4.1m (2017:
£2.4m).
The Board believes IFRS 15 will have no material effect
on the Group’s 2019 expected reported performance.
C A S H
The end of the year cash balance increased to £3.6m,
which was less than previously expected, due to a
number of delayed customer payments that have now
been received.
F I R M F O U N D A T I O N S
and
growth
initiatives
Organic
complementary
acquisitions completed over the past several years mean
we now have a broad-based product portfolio serving
several adjacent market segments within the global
life sciences sector. These diversified revenue sources
improve both the robustness of the business and the
quality of our earnings.
Nevertheless, we continue to invest in our personnel and
operations to ensure that we are fully prepared for future
organic and acquisitive growth opportunities.
and earnings, each of these showed progress in the year:
• A focus on materially increasing SaaS based revenues.
We intend to achieve this through a combination of
new business wins directly onto our SaaS platform
and accelerating the conversion of on-premise
customers to SaaS, which will increase margins. SaaS
based revenue increased 25% to £5.5m in the period;
• The expansion of “technology enabled outsourced
services”, where 2018 revenue was £3.3m (2017:
£1.1m) and new business orders were £6.5m:
• We remain excited by the potential for our
SEND services business, where the Group
has a market leading offering and continues
to secure the majority of contracts awarded.
SEND outsourced services new business orders
increased over 500% to £5.8m during the period;
Instem’s KnowledgeScan augmented intelligence
platform has now gained industry recognition
for
its Target Safety Assessment solution.
KnowledgeScan new business orders increased
30% to £0.7m during the period; and
•
• Expansion of our market penetration across our
existing client base, cross selling additional software
and services.
It was a particularly successful year for our Study
Management solutions. This was highlighted by the
purchase of 500 additional Provantis licenses by our
largest client, Charles River Laboratories. Our Clinical
business continued to absorb substantial development
resources, leading to a major new release of Alphadas
in early March 2019 addressing some significant client
requirements.
S U M M A R Y
I am pleased with our progress in 2018 and believe that the
foundations have now been laid for further operational
and financial progress in 2019 and beyond.
Whilst management will
to pursue
continue
complementary acquisition targets to further develop
our position as a market leading provider of IT solutions
to the global life sciences industry, we remain focused on
achieving organic profitable growth, expanding margins
and improving positive cashflow.
Finally, I should note that as a global business, with
significant recurring revenues and with the majority of
our business outside Europe, we believe that the impact
of Brexit, whatever the outcome, should be minimal.
S T R A T E G I C D I R E C T I O N
Looking forward, we have several important elements to
our strategy which will be the drivers of future growth
D Gare
Non-Executive Chairman
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S T R A T E G I C R E P O R T
S T R A T E G I C D E V E L O P M E N T
S T U D Y M A N A G E M E N T
The period under review was one of solid progress
across the Group, with the anticipated strong growth in
technology enabled outsourced services and a higher
than expected transition of clients to SaaS deployment.
The accelerated growth in SaaS revenue, in line with
our strategy, meant that there were fewer new perpetual
software licenses than planned and correspondingly
lower annual support and maintenance fees. Total
revenue growth was therefore slightly lower than
anticipated, but careful cost control ensured that we met
our full-year EBITDA target and enhanced margins.
We have now largely completed the investment in
our technology and resources to enable the Group to
secure a leading share of the FDA’s (Food and Drug
for
Administration) mandated SEND (Standard
Exchange of Non-clinical Data) market and to cost
effectively deliver high quality results using a blend of
resources in the UK, US and India.
Certification to the Information Security Management
Standard (ISO27001) in 2018 ensures compliance with
EU General Data Protection Regulation (GDPR) and is
an important competitive differentiator for the Group.
Completion of a group-wide deployment of Oracle
NetSuite provides a key platform for operational and
financial management, enabling the Group to scale
efficiently within the highly regulated markets in which
it operates.
M A R K E T R E V I E W
The pharmaceutical industry continues to represent a
significant proportion of our total life sciences market
and the record numbers of drugs in the R&D pipeline (a
6% increase over the prior year) and a steadily increasing
number of world-wide pharmaceutical companies
has provided a positive business environment. The
specific customer markets in which Instem operates
remained particularly strong in 2018, with record
numbers of drugs in the earlier stages of the R&D
lifecycle. This underpins robust recurring SaaS and
software maintenance contract renewal rates as well as
bolstering the pipeline for new business revenue.
Growth was also particularly strong in the Asia-Pacific
region, which represented 14% of total revenue in
the period, significantly helped by the continuing
substantial funding of pharmaceutical R&D by the
Chinese government.
The majority of new business deals in this area were
of modest size, as expected, with the exception of a
significant increase in Provantis user licenses from
our largest CRO client. There was generally solid order
volume, particularly for Provantis, our market leading
non-clinical software suite for organisations engaged
in non-clinical safety studies, where additional users,
modules and upgrade projects underpinned the good
momentum.
This area contributes the majority of our annual
recurring income and renewal rates remained high. It
also provides the greatest opportunity for conversion
of existing clients from on-premise to SaaS deployment
and the internal project to accelerate this transition is
building momentum. During 2018 the SaaS transition
appealed to all types of customers. The move of long-
standing clients to SaaS deployment, including a top
three chemical company and another existing top
20 pharma client, both in addition to upgrades to
Provantis version 10, provides further evidence that
any prior reluctance to make this move is evaporating.
Provantis has once again dominated the Chinese
market with existing clients expanding and adding
both users and modules.
Investment to enhance Instem’s early phase clinical
product, Alphadas, was increased in the period in
response to current client needs. These enhancements
will have wider market appeal going forward.
I N F O R M A T I C S
New business orders for KnowledgeScan, which can
reduce the traditional cost of Target Safety Assessment
(TSA) development by up to 50%, increased by 30%
year-on-year, mainly from repeat customers, which
is demonstrative of a strong and recurring revenue
stream.
By outsourcing all, or augmenting some, of a customer’s
TSA projects to Instem, clients are able to conduct more
safety evaluations without increasing resources or costs.
Driven by leading stage technology, including well
proven artificial intelligence, Instem’s KnowledgeScan
TSA service offers consistent, systematic and efficient
processes that produce high quality reliable results.
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R E G U L A T O R Y S O L U T I O N S
Regulatory Information Management
In June, we announced that a leading Fortune 500
Company had adopted Instem’s Samarind RMS
solution for its worldwide medical products regulatory
tracking system. The contract is worth approximately
US$750,000, incorporating both perpetual license and
SaaS revenue streams, with c. 80% of the contract being
recognised in 2018 and with annual recurring revenue
of US$169,000.
Samarind RMS provides medical device and
pharmaceutical companies with a smarter way to
manage their Product Information, facilitating initial
marketing authorisation and supporting ongoing
regulatory compliance. The product is optimised to
enable these companies to register and track their
regulated products worldwide by maintaining a single
integrated database of all relevant information, which
is then used to update regulators as products change
over time. The comprehensive functionality provided
by Samarind RMS enables customers to systematically
define and execute complex regulatory activities across
a globally dispersed workforce whilst providing a single
place to find, analyse and act on a wealth of product
and regulatory information.
SEND
The Regulatory Solutions business performed well in
2018 following the December 2017 FDA mandate of
the Standard for the Exchange of Non-clinical Data.
SEND technology enabled outsourced services was
particularly strong with new order value in 2018 over
500% higher than the prior period.
To help manage this additional workflow effectively,
Instem recruited an additional 29 staff to its outsourced
services team in 2018; 21 in India, four in the US and
four in the UK, making 47 in total globally, substantially
more than our competitors. While expansion will
continue in 2019, the rate of recruitment is moderating
as the existing team becomes fully billable and our
technology platform and processes are optimised and
leveraged to increase study throughput.
F I N A N C I A L R E V I E W
fees,
Instem’s revenue model consists of perpetual licence
income with annual support and maintenance
contracts, professional
technology enabled
outsourced services fees and SaaS subscriptions.
The Group is now required to report its financial results
under the new IFRS 15 “Revenue from contracts with
customers” accounting standard. As a result, certain
adjustments have been made to both the prior year 2017
to
and 2018 accounts, resulting in £0.6m of revenue and
£0.5m of EBITDA previously recognised in 2017 spread
into future years of which £0.4m of revenue and £0.3m
of EBITDA has been recognised in the 2018 accounts.
Prior to the adjustments the 2018 results would have
been revenues of £22.3m (2017: £21.7m) and EBITDA
of £3.7m (2017: £3.0m). The actual reported results for
2018, post adjustments, are revenues of £22.7m (2017:
£21.1m) and EBITDA of £4.1m (2017: £2.4m). After a
review during 2018 of the Group’s revenue recognition
policy the Group concluded it was compliant with the
new standard (IFRS 15) for recognising the majority of
its revenues.
Three contracts for sales of software licences were
identified
the
that required an amendment
accounting treatment that had been originally applied
to comply with the new standard, two where the licence
revenue had been recognised in full in 2017 and one
which had accelerated revenue in 2018. The nature of
the adjustments had the effect of spreading the revenue
from the respective licence sales over the contract
period on a straight-line basis rather than taking all
the licence income to profit at the point of shipment. A
more thorough explanation of the impact on revenue
and EBITDA in 2018 and 2017 from adopting IFRS 15
in 2018 and the corresponding updated accounting
policy on revenue recognition applied during 2018
is set out in the accounting policies. All prior period
comparisons that have been impacted by IFRS 15 have
been restated and designated as such.
A key performance indicator of the Group is recurring
revenue. During the year, the total recurring revenue,
from support & maintenance contracts and SaaS
subscriptions, increased 6% to £13.7m (2017: £12.9m),
representing 60% of total revenue (2017: 61%).
Operating costs reflected prudent control whilst
investing in the future by continuing to build the
infrastructure to support the Group’s expansion
plans, which included the successful implementation
of Oracle NetSuite, a new financial accounting and
reporting system. The Group benefited from a full year
of the cost savings realised during 2017 with overall
costs remaining flat year on year despite the growth in
revenues, thus contributing to a much-improved profit
performance.
Earnings before
tax, depreciation and
items (“Adjusted
amortisation and non-recurring
EBITDA”) for the year was £4.1m (2017: £2.4m as
restated) after adding the net positive impact of the
IFRS 15 adjustments. The EBITDA margin increased
in the year to 17.8% from 11.5% in 2017.
interest,
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S T R A T E G I C R E P O R T ( C O N T I N U E D )
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 £2.8m (2017: £1.4m as restated).
The unadjusted reported profit before tax for the year
was £1.7m (2017: £0.3m).
The non-recurring costs in the year included £0.4m
of legal and professional fees, plus a £0.1m estimated
provision created for the cost of GMP equalisation in
the Group’s defined benefit pension scheme. The actual
cost to the scheme is being calculated by the scheme’s
pension advisers with the scheme’s trustees and will
be reflected in a future actuarial calculation of the
scheme’s liabilities.
Development costs incurred during the year were
£3.1m (2017: £3.3m), of which £1.5m (2017: £1.5m)
was capitalised. The Group claimed research and
development tax credits in respect of the prior year
2017 of £0.5m (2017 in respect of 2016: £0.6m). At the
year-end the Group had estimated available trading tax
losses to offset future trading profits of £2.9m.
Basic and fully diluted earnings per share calculated
on an adjusted basis were 16.4p and 15.5p, respectively
(2017: 11.3p basic and 11.0p fully diluted, as restated).
The reported basic and fully diluted earnings per share
were 9.2p and 8.7p, respectively (2017: 4.1p basic and
4.0p fully diluted).
The Group generated net cash from operating activities
of £2.2m (2017: £1.4m), assisted by a net cash inflow
on tax following the R&D tax credit claim. The Group
had net cash reserves of £3.6m at 31 December 2018,
compared with £3.1m as at 31 December 2017. The
Group paid the previously flagged final instalment
of £0.2m in respect of deferred consideration during
the year, which extinguished the remaining liability
in respect of prior period acquisitions. The Group
continued to invest in its comprehensive suite of
software products through its own development
teams, representing the majority of the £1.5m spent on
intangible assets in the year (2017: £1.5m).
The Group’s legacy defined benefit pension scheme
has remained closed to new members since 2000 and
to future accrual since 2008. During the year the April
2017 actuarial valuation was concluded and the impact
was reflected in the IAS19 calculation at 31 December
2018. The valuation resulted in a substantial net decrease
of £1.6m in the funding deficit moving from £3.8m in
2017 to £2.2m in 2018, the main impact (circa £1m)
arising from the valuation of certain liabilities on a CPI
rather than RPI basis following Counsel’s ruling. This
represents a substantial benefit to the Group and has
been reflected in the future agreed cash contributions
which will remain around an annual level of £0.5m
payable through to October 2024, by when the funding
liability is scheduled to be eliminated. The overall
deficit at the year-end stood at £2.2m (2017: £3.8m),
represented by the fair value of assets of £10.4m (2017:
£10.8m) and the present value of funded obligations of
£12.6m (2017: £14.5m). The next triennial valuation
will be calculated as at 5 April 2020.
U P D A T E O N H I S T O R I C
C O N T R A C T D I S P U T E
As originally highlighted in the preliminary results
announcement for the year ended 31 December 2017,
released on 26 March 2018, the Group made a cost
provision related to historical contract disputes.
A dispute, which does not affect ongoing operations of
the Group, is now being heard by the German courts,
with the initial hearing held on 22 January 2019. Instem
has taken legal advice and is defending the action.
The Group strongly believes that the claim should be
dismissed. Notwithstanding this, the cost provision
made in 2017 will be maintained in the 2018 accounts.
Further announcements will be made as and when
appropriate.
P R I N C I P A L R I S K S A N D
U N C E R T A I N T I E S
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
1 2
targets to further develop our position as a market
leading provider of IT solutions to the global life
sciences market.
On behalf of the Board
P J Reason
Chief Executive
25 April 2019
assesses the most appropriate approach to managing
its currency exposure in line with the overall goal of
achieving predictable earnings growth. The Group also
generates material cash reserves through its Chinese
subsidiary that are not readily available to the UK group
at short notice and as such the Group has to maintain
sufficient working capital headroom to accommodate
any delays in repatriating cash from China.
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 2018, its £0.5m bank facility was undrawn
(2017: £2.0m facility undrawn).
Brexit – whilst the outcome of Brexit remains uncertain,
there is always the associated risk of adverse implications
for the business, including the impact on exchange
rate fluctuations. However, the Group has experienced
no negative impact on its business to date and does
not expect to do so in the future. Instem operates in
a global market with a multinational customer base
and its revenues and costs spread around the globe
without over reliance on Europe or exposure to it. The
2016 acquisition of Notocord in France provides the
Group with a presence in Europe that we expect to help
mitigate any impact that might arise from the Brexit
outcome. The Group will continue to monitor the
progress of the Brexit situation and its possible effects.
O U T L O O K
We are very pleased with the performance of the
business during 2018 with regulatory requirements
delivering the expected significant increase in demand
for our technology enabled outsourced services.
Growth was also particularly strong in the Asia-
Pacific region, with bookings up 37% on the prior
year, primarily attributable to the continuing funding
of pharmaceutical Research & Development by the
Chinese government.
With increasing momentum in the business from
recent contract wins and the growing pipeline, we are
confident about the outlook for the Group for 2019 and
beyond.
While our strategy remains focused on Instem’s strong
organic revenue growth, expanding operational
gearing and improving positive cashflow, management
will continue to consider complementary acquisition
1 3
B O A R D O F D I R E C T O R S
Non-executive Chairman
Chief Executive Officer
D a v i d G a r e
P h i l R e a s o n
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 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.
1 4
Chief Financial Officer
Non-executive Director
Non-executive Director
N i g e l G o l d s m i t h
M i k e M c G o u n
D a v i d S h e r w i n
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 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.
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.
1 5
C O R P O R A T E G O V E R N A N C E S T A T E M E N T
In accordance with AIM Notice 50 issued by the
London Stock Exchange, 8 March 2018, the Group
has adopted the Corporate Governance Guidelines for
Small and Medium Size Quoted Companies published
by the Quoted Companies Alliance (the QCA Code).
The main features of the Group’s corporate governance
procedures, in relation to the 10 Principles of the QCA
Code, are set out in the full QCA Code Compliance at
www.investors.instem.com/corporate/governance.php
Given the size of the Group the Board has decided
to follow the code issued by the Quoted Companies
Alliance 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.
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;
b.
c. 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
d. regular monitoring of key performance indicators
and financial results together with comparison of
these against expectations.
A U D I T C O M M I T T E E
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 has met once during the year
1 6
and may meet at any other time as required by either
the chairman of the Audit Committee, the Chief
Financial Officer of the Group or the external auditor
of the Group. In addition, the Audit Committee shall
meet with the external auditor of the Group (without
any of the executives attending) at any time during the
year as it deems fit.
The Audit Committee:
a. monitors the financial reporting and internal
financial control principles of the Group;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;
c.
b. 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;
d. considers all major findings of internal operational
audit reviews and management's response to
internal and
ensure co-ordination between
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.
e.
f.
The Audit Committee is authorised to:
a.
investigate any activity within its terms of reference;
b. seek any information it requires from any employee
of the Group; and
c. 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.
R E M U N E R A T I O N C O M M I T T E E
The Remuneration Committee comprises M F McGoun
(Chairman), D Gare and D M Sherwin, all of whom are
non-executive directors of the Company.
A T T E N D A N C E A T B O A R D A N D C O M M I T T E E M E E T I N G S
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:
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
12/12
12/12
12/12
12/12
12/12
1/1
1/1
1/1
1/1
1/1
2/2
1/1
2/2
2/2
2/2
0/0
0/0
1/1
1/1
1/1
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;
b. 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;
c. oversees and reviews all aspects of the Group’s
share option schemes including the selection of
eligible directors and other employees and the
terms of any options granted;
d. demonstrates to the Group’s shareholders that the
remuneration of the executive directors is set by an
independent committee of the Board; and
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.
The Remuneration Committee is authorised to:
a.
investigate any activity within its terms of reference;
b. seek any information it requires from any employee
of the Group;
c. 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.
1 7
C O R P O R A T E G O V E R N A N C E S T A T E M E N T ( C O N T I N U E D )
N O M I N A T I O N C O M M I T T E E
d.
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;
is responsible for identifying and nominating for
the approval of the Board, candidates to fill Board
vacancies as and when they arise; and
c.
d. evaluates the balance of skills, knowledge and
experience on the Board before an appointment
is made and, in light of this evaluation, prepares a
description of the role and capabilities required for
a particular appointment.
the Nomination Committee
The Chairman of
reports formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities.
The Nomination
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;
also makes
Committee
c.
b. membership of the Audit and Remuneration
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;
1 8
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.
legal or other
The Nomination Committee is authorised to:
a.
investigate any activity within its terms of reference;
b. seek any information it requires from any employee;
independent
c. obtain outside
professional advice at the Group’s expense when
the Nomination Committee reasonably believes it
is necessary to do so; and
instruct external professional advisors to attend any
meeting at the Group’s expense if the Nomination
Committee considers this reasonably necessary
and appropriate.
d.
I N T E R N A L C O N T R O L S
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.
On behalf of the Board
M F McGoun
Independent Non-Executive Director
T h e B o a r d
r e c o g n i s e s
i t s o v e r a l l
r e s p o n s i b i l i t y
f o r t h e G r o u p ’ s
s y s t e m s o f i n t e r n a l
c o n t r o l a n d f o r
m o n i t o r i n g t h e i r
e f f e c t i v e n e s s .
C o r p o r a t e G o v e r n a n c e S t a t e m e n t
1 9
D I R E C T O R S ' R E P O R T
The directors submit their report and the Group and
Company financial statements of Instem plc for the
year ended 31 December 2018.
Instem plc is a public limited company, incorporated
and domiciled in England, and quoted on AIM.
P R I N C I P A L A C T I V I T I E S
Instem is a leading supplier of IT applications to the
life sciences 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.
R E V I E W O F T H E B U S I N E S S
A detailed review of the development and performance
of the Group’s business during the year and its position
at the end of the year is set out in the Chairman’s
Statement and the Strategic Report on pages 8 to 13.
S T R A T E G I C R E P O R T
The Company has chosen
in accordance with
Companies Act 2006, section 414C (11) to set out
in the Company’s strategic report on pages 10 to 13
information required to be contained in the Directors’
Report by Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2008, Sch.
7, where not already disclosed in the Directors’ Report.
F U T U R E D E V E L O P M E N T S
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.
R E S E A R C H A N D D E V E L O P M E N T
A C T I V I T I E S
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.
D I V I D E N D S
The directors do not recommend the payment of a
dividend.
D I R E C T O R S
The following directors held office during the year:
D Gare
M F McGoun
D M Sherwin
P J Reason
N J Goldsmith
Details of the directors’ service contracts and their
respective notice terms are detailed in the Directors’
Remuneration report on pages 22 to 24.
D I R E C T O R S A N D T H E I R
I N T E R E S T S
The interests of the directors who held office at 31
December 2018 and up to the date of this report (2017:
as at 12 April 2018) were as follows:
2018
No. of Shares
2017
No. of Shares
D Gare
578,427
1,258,427
D M Sherwin
1,180,066
1,380,066
P J Reason
685,287
M F McGoun
36,786
N J Goldsmith
-
665,287
36,786
-
Directors’ interests in share options are detailed in the
Remuneration report on pages 22 to 24.
2 0
in order to make themselves aware of any relevant
audit information and to establish that it has been
communicated to the auditor.
A U D I T O R
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
25 April 2019
E M P L O Y E E I N V O L V E M E N T
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.
Group values are communicated and reinforced on
a regular basis. These values, known by the acronym
RECIPE, are Respect, Empowerment, Creativity,
Integrity and Passion leading to Enjoyment in our
working lives. These values drive the Group’s culture.
P O L I T I C A L D O N A T I O N S
The Group made no political donations in 2018 or
2017.
F I N A N C I A L I N S T R U M E N T S
The Group’s objectives and policies on financial
instruments are set out in note 21 to the financial
statements.
I N D E M N I T Y O F O F F I C E R S A N D
D I R E C T O R S
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.
A N N U A L G E N E R A L M E E T I N G
The Annual General Meeting of the Company will be
held on 23 May 2019 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.
S T A T E M E N T A S T O D I S C L O S U R E
O F I N F O R M A T I O N T O A U D I T O R
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
2 1
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T
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.
R E M U N E R A T I O N C O M M I T T E E
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 9 to the
financial statements.
P O L I C Y O N E X E C U T I V E
D I R E C T O R R E M U N E R A T I O N
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.
B A S I C S A L A R Y
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.
P E R F O R M A N C E R E L A T E D
A N N U A L B O N U S
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 £nil were payable
to executive directors in respect of the year ended 31
December 2018 (2017: £nil).
P E N S I O N S
Company contributions are made to the executive
directors’ personal pension schemes up to a maximum
of 16.5% of basic salary.
B E N E F I T S
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.
S E R V I C E C O N T R A C T S
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. M F McGoun has been remunerated through
a service company, Noble Adamson Limited, for 7
months during 2018.
2 2
The emoluments paid or payable to directors in respect of the year ended 31 December 2018 were as follows:
Salary and Fees
Bonus
Benefits
Pension
2018 Total
2017 Total
Executives
P J Reason*
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
207
110
60
30
30
Total
437
-
-
-
-
-
-
7
11
-
-
-
18
29
12
-
-
-
41
243
133
60
30
30
496
246
134
60
30
30
500
* The remuneration in respect of P J Reason is payable in US Dollars and translated at the average rates as disclosed on page 40.
D I R E C T O R S ’ A N D E M P L O Y E E S ’ S H A R E O P T I O N S
Exercise price
(£)
Issue date
Held at 31
Dec 2017
Granted
during year
Exercised
during year
Lapsed
during year
Held at 31
Dec 2018
P J Reason
Ordinary shares
N J Goldsmith
Ordinary shares
Employees
Ordinary shares
1.750
0.900
0.100
NIL
2.215
1.760
0.900
0.100
NIL
1.750
2.220
2.220
0.900
0.100
0.100
0.100
0.100
0.100
0.100
NIL
0.100
13/10/2010
14/01/2013
29/07/2015
22/02/2018
29/11/2011
07/02/2012
14/01/2013
29/07/2015
22/02/2018
13/10/2010
03/03/2011
17/10/2011
14/01/2013
11/02/2015
29/07/2015
21/11/2015
27/05/2016
19/09/2016
03/05/2017
22/02/2018
30/07/2018
187,427
23,429
93,750
-
40,000
20,000
15,000
62,500
-
253,026
93,844
14,667
44,646
40,584
125,000
25,258
21,599
22,500
15,000
-
-
-
-
-
80,000
-
-
-
-
80,000
-
-
-
-
-
-
-
-
-
-
240,000
8,446
-
-
-
-
-
-
-
-
-
(25,771)
-
-
(5,500)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,479)
-
-
-
(3,378)
187,427
23,429
93,750
80,000
384,606
40,000
20,000
15,000
62,500
80,000
217,500
227,255
93,844
14,667
39,146
40,584
125,000
25,258
15,120
22,500
15,000
240,000
5,068
863,442
Total
1,098,230
408,446
(31,271)
(9,857)
1,465,548
2 3
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T ( C O N T I N U E D )
On 20th February 2019 it was announced that certain
directors and employees of the Company had exercised
share options over 235,339 ordinary shares of 10p each
in the Company. These included 40,000 options in
respect of N J Goldsmith and 93,750 options in respect
of P J Reason.
For the two directors, N J Goldsmith and P J Reason,
all options held at 31 December 2018 that had been
issued up to and including 29th July 2015 had vested.
The awards made on 22 February 2018 vest over three
years at 25% on the first anniversary of the award date,
25% on the second anniversary of the award date and
50% on the third anniversary of the award date, subject
in each year to the Company achieving and sustaining
certain share price targets.
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Director
2 4
D I R E C T O R S ’ R E S P O N S I B I L I T I E S I N T H E
P R E P A R A T I O N O F F I N A N C I A L S T A T E M E N T S
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.
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.
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
are reasonable and prudent;
c.
state whether
accordance with IFRSs adopted by the EU;
they have been prepared
in
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.
2 5
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F I N S T E M P L C
O P I N I O N
We have audited the financial statements of Instem Plc
(the ‘parent company’) and its subsidiaries (the ‘group’)
for the year ended 31 December 2018 which comprise
the Consolidated Statement of Comprehensive
Income, Consolidated Statement of Financial
Position, Company Statement of Financial Position,
Consolidated Statement of Cashflows, Company
Statement of Cashflows, Consolidated Statement of
Changes in Equity, Company Statement of Changes in
Equity, and notes to the financial statements, including
a summary of significant accounting policies. 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 of the parent company’s
affairs as at 31 December 2018 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 company 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.
•
•
•
the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
C O N C L U S I O N S R E L A T I N G T O
G O I N G C O N C E R N
We have nothing to report in respect of the following
matters in relation to which the ISAs (UK) require us
to report to you where:
•
the directors’ use of the going concern basis of
accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial
statements any identified material uncertainties
that may cast significant doubt about the group’s or
the parent company’s ability to continue to adopt
the going concern basis of accounting for a period
of at least twelve months from the date when the
financial statements are authorised for issue.
•
K E Y A U D I T M A T T E R S
Key audit matters are those matters that, in our
professional judgment, were of most significance in
our audit of the group and parent company financial
statements of the current period and include the most
significant assessed risks of material misstatement
(whether or not due to fraud) we identified, including
those which had the greatest effect on the overall audit
strategy, the allocation of resources in the audit and
directing the efforts of the engagement team. These
matters were addressed in the context of our audit of
the group and parent company financial statements as
a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
B A S I S F O R O P I N I O N
G R O U P K E Y A U D I T M A T T E R S
We conducted our audit
in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements
section of our report. We are independent of the group
and parent company in accordance with the ethical
requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s
Ethical Standard as applied to SME listed entities and
we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that
I F R S 1 5 T R A N S I T I O N
(Refer to pages 36-37 regarding the accounting policy
in respect of the adoption of IFRS15 (Included in the
Basis of Preparation section) and notes 3 & 4 to the
financial statements on pages 49-50)
The risk
This was considered to be one of most significant
matters in the audit and therefore determined to be a
key audit matter because of the risk that the group has
incorrectly applied the principles of the new standard
2 6
and considered its impact in respect of the change in
standards on prior year financials.
Our response
We have obtained management’s considerations in
respect of the transition impact to revenue recognition.
We have tested a sample of customer revenues back
to signed agreements and the accounting standards
for the revenue recognition. We have reviewed
managements support for judgements made as part
of their assessment in applying the revised standard
in particular surrounding their assessment that
installations are a separate obligation for the majority
of contracts and that the free upgrades available to
customers on maintenance fees is not deemed to be
critical to the function of the licence. We have assessed
the evidence provided by management in respect of
these judgements in determining our opinion
We have also reviewed management’s assessment in
respect of direct contract costs associated with the
revenues, and whether any capitalisation of these are
required.
R E V E N U E R E C O G N I T I O N
income recognition
Refer to pages 37 to 39 regarding the accounting policy
in respect of revenue recognition and note 1 to the
financial statements on page 46.
The risk
Appropriate and accurate
is
required to be applied by the Directors to ensure that
revenue is recognised in accordance with IFRS15
Revenue within the financial statements. There is a risk
that revenue could be inappropriately recognised based
on the differing recognition policies for product type
and because this risk was considered to be one of most
significance in the audit it was determined to be a key
audit matter. In the year to 31 December 2018 revenue
recognised amounted to £23,109k (2017: £21,071k).
Our response
We have conducted substantive analytical work on
each revenue stream, tested a sample of customer
revenues back to signed agreements, invoice and
where applicable proof of delivery. We have assessed
the revenue recognition treatment of the sample
against IFRS15.
We have also considered the
accounting policies adopted on contracts based on our
understanding of the underlying revenue streams and
identified any apparent errors in within the revenue
recognition treatment of these. Cut-off testing has also
been carried out on key revenue streams in order to
identify any areas of material misstatement.
C A R R Y I N G VA L U E O F G R O U P
G O O D W I L L A N D A C Q U I R E D
I N T A N G I B L E S
(Refer to page 42 regarding the accounting policy in
respect of Goodwill, page 44 in respect of critical
judgements and estimates applied by the Directors and
note 12 to the financial statements on page 55-56)
The risk
The Group has material levels of Intangible assets
arising from previous business combinations. As a
consequence, there is a significant risk that these are
impaired and need to be written down and it was
therefore determined to be a key audit matter. At the
31 December 2018, the carrying value of the Goodwill
and acquired Intangibles amounted to £13,524k (2017:
£14,312k) in the Company Statement of Financial
Position.
Our response
We
subsidiary
undertaking and discussed with management whether
each balance was supportable taking into account the
strategic plans established by the board in respect of
each subsidiary undertaking.
We also obtained management’s impairment review
and underlying calculations prepared to support
the carrying value of the investments. We reviewed
forecasts and considered whether they were consistent
with the forecasts prepared by management in relation
to going concern. In addition, we reviewed the
assumptions utilised in the model and agreed a sample
of these back to supporting information.
investments
identified
in each
P A R E N T C O M P A N Y K E Y A U D I T
M A T T E R S
C A R R Y I N G VA L U E O F C O M P A N Y
I N V E S T M E N T S
(Refer to page 43 regarding the accounting policy in
respect of investments, page 44 in respect of critical
judgements and estimates applied by the Directors and
note 13 to the financial statements on pages 57-58)
The risk
The Company has material investments in subsidiary
undertakings which may not be supported by their
trading levels. As a consequence, there is a significant
risk that these are impaired and need to be written
down and it was therefore determined to be a key audit
matter. At the 31 December 2018, the carrying value
of these investments amounted to £28,927k (2017:
£28,711k) in the Company Statement of Financial
Position.
2 7
I N D E P E N D E N T A U D I T O R ’ S R E P O R T
T O T H E M E M B E R S O F I N S T E M P L C ( C O N T I N U E D )
in each
identified
investments
Our response
subsidiary
We
undertaking and discussed with management whether
each balance was supportable taking into account the
strategic plans established by the board in respect of
each subsidiary undertaking.
We also obtained management’s impairment review
and underlying calculations prepared to support the
carrying value of the investments. We reviewed forecasts
and considered whether they were consistent with the
forecasts prepared by management in relation to going
concern. In addition, we reviewed the assumptions
utilised in the model and agreed a sample of these
back to supporting information. Sensitivity testing
was performed on balances in respect of significant
variables.
O U R A P P L I C A T I O N O F
M A T E R I A L I T Y
When establishing our overall audit strategy, we set
certain thresholds which help us to determine the
nature, timing and extent of our audit procedures. When
evaluating whether the effects of misstatements, both
individually and on the financial statements as a whole
could reasonably influence the economic decisions of
the users we take into account the qualitative nature
and the size of the misstatements. During planning
materiality for the group financial statements as a whole
was calculated as £302,000, which was not significantly
changed during the course of our audit. Materiality for
the parent company financial statements as a whole
was calculated as £181,000 which was not significantly
changed during the course of the audit. We agreed with
the Audit Committee that we would report to them
all unadjusted differences in excess of £7,500, as well
as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
A N O V E R V I E W O F T H E S C O P E
O F O U R A U D I T
•
Seven of the Group’s components were subject to
full scope audit procedures for group and statutory
reporting purposes. We did not rely on the work of
any component auditors. As part of our planning we
assessed the risk of material misstatement including
those that required significant auditor consideration
at the component and group level. Procedures were
then performed to address the risk identified and
2 8
for the most significant assessed risks of material
misstatement, the procedures performed are outlined
above in the key audit matters section of this report.
O T H E R I N F O R M A T I O N
The directors are responsible for the other information.
The other information comprises the information
included in the annual report, other than the financial
statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify
such material inconsistencies or apparent material
misstatements, we are required to determine whether
there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of
this other information, we are required to report that
fact.
We have nothing to report in this regard.
O P I N I O N S O N O T H E R M A T T E R S
P R E S C R I B E D B Y T H E C O M P A N I E S
A C T 2 0 0 6
In our opinion, based on the work undertaken in the
course of the audit:
•
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
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
group and the parent company and their environment
obtained in the course of the audit, we have not
identified material misstatements in the Strategic
Report or the Directors’ Report.
We have nothing to report in respect of the following
matters in relation to which 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.
R E S P O N S I B I L I T I E S O F
D I R E C T O R S
As explained more fully in the directors’ responsibilities
statement set out on page 25, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view, and for such internal control as
the directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the parent
company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting
unless the directors either intend to liquidate the group
or the parent company or to cease operations, or have
no realistic alternative but to do so.
A U D I T O R ’ S R E S P O N S I B I L I T I E S
F O R T H E A U D I T O F T H E
F I N A N C I A L S T A T E M E N T S
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due
to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the
audit of the financial statements is located on the
Financial Reporting Council’s website at: http://www.
frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
U S E O F O U R R E P O R T
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
Chartered Accountants
14th Floor
Chapel Street
Liverpool
L3 9AG
29 April 2019
2 9
C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E
For the year ended 31 December 2018
CONTINUING OPERATIONS
Note
REVENUE
Operating expenses
Share based payment
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION
AND NON-RECURRING COSTS (‘EBITDA’)
Depreciation
Amortisation of intangibles arising on acquisition
Amortisation of internally generated intangibles
PROFIT BEFORE NON-RECURRING COSTS
Non-recurring costs
PROFIT AFTER NON-RECURRING COSTS
Finance income
Finance costs
1
2
2
5
6
7
PROFIT BEFORE TAXATION
Taxation
11
PROFIT FOR THE YEAR
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Items that will not be reclassified to profit and loss account:
Actuarial gain on retirement benefit obligations
Deferred tax on actuarial gain
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY
Earnings per share from continuing operations
Basic
Diluted
26
26
Year ended
31 December
2018
£000
22,705
(18,437)
Restated
(see note 3)
Year ended
31 December
2017
£000
21,071
(18,497)
(216)
4,052
(144)
(788)
(738)
2,382
(539)
1,843
33
(199)
1,677
(207)
1,470
1,300
(221)
1,079
(193)
886
2,356
1,470
2,356
9.2p
8.7p
(157)
2,417
(186)
(931)
(473)
827
(443)
384
186
(318)
252
390
642
664
(113)
551
(565)
(14)
628
642
628
4.1p
4.0p
3 0
C O N S O L I D A T E D S T A T E M E N T O F F I N A N C I A L P O S I T I O N
At 31 December 2018
Company Registration No. 07148099
Note
£000
£000
£000
£000
2018
Restated (see note 3) 2017
ASSETS
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Deferred tax assets
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Current tax receivable
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Deferred income
Current tax payable
Financial liabilities
Deferred tax liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities
Retirement benefit obligations
Provision for liabilities and charges
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Translation reserve
Retained earnings
12
14
22
15
16
19
17
18
19
20
22
20
23
24
25
27
27
27
27
27
17,411
300
-
37
7,807
1,013
3,572
2,156
8,625
401
34
12
18
2,249
250
1,592
12,535
1,598
1,010
290
(630)
17,440
299
393
17,711
18,132
12,429
30,140
13,830
31,962
29
9,470
1,267
3,064
2,725
10,967
226
220
-
11,228
14,138
2,517
13,745
4,051
18,189
51
3,750
250
1,589
12,488
1,598
794
483
(3,179)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
16,395
30,140
13,773
31,962
The adoption of IFRS 15 Revenue from Contracts with Customers did not impact on the reported Balance Sheet as at 31
December 2016.
The financial statements on pages 30 to 80 were approved by the board of directors and authorised for issue on 25 April 2019
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
3 1
C O M P A N Y S T A T E M E N T O F F I N A N C I A L P O S I T I O N
At 31 December 2018
Company Registration No. 07148099
2018
2017
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Investments
13
28,927
28,711
TOTAL NON-CURRENT ASSETS
28,927
28,711
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Shares to be issued
Retained earnings
16
17
18
20
25
27
27
27
27
3,131
643
4,595
-
1,592
12,535
13,232
1,010
(263)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
2,246
1,036
3,876
188
1,589
12,488
13,232
794
(174)
3,774
32,701
4,595
4,595
28,106
32,701
3,282
31,993
4,064
4,064
27,929
31,993
The Company’s loss for the year and total comprehensive loss for the year was £89,000 (2017: profit £50,000).
The financial statements on pages 30 to 80 were approved by the board of directors and authorised for issue
on 25 April 2019 and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
3 2
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
For the year ended 31 December 2018
Note
£000
£000
£000
£000
2018
Restated (see note 3) 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangibles
Share based payment
Retirement benefit obligations
Finance income
Finance costs
Decrease in deferred contingent consideration
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
Movements in working capital:
(Increase)/Decrease in inventories
Decrease/(Increase) in trade and other receivables
(Decrease)/Increase in trade, other payables and deferred income
NET CASH GENERATED FROM OPERATIONS
Finance income
Finance costs
Income taxes
NET CASH GENERATED FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
1,677
144
1,526
216
(499)
(33)
199
-
3,230
(7)
1,997
(3,448)
1,772
33
(11)
408
2,202
252
186
1,404
157
(461)
(186)
318
(148)
1,522
700
(3,043)
2,353
1,532
186
(112)
(214)
1,392
Purchase of intangible assets
Purchase of property, plant and equipment
Payment of deferred contingent consideration
Repayment of capital of finance leases
(1,490)
(145)
(200)
(31)
(1,517)
(117)
(687)
(30)
NET CASH USED IN INVESTING ACTIVITIES
(1,866)
(2,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Finance lease interest
50
(4)
29
(6)
NET CASH GENERATED FROM FINANCING ACTIVITIES
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents at start of year
Effects of exchange rate changes on the balance of cash held in foreign
currencies
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
46
382
3,064
126
3,572
23
(936)
4,189
(189)
3,064
3 3
C O M P A N Y S T A T E M E N T O F C A S H F L O W S
For the year ended 31 December 2018
Note
2018
2017
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/Profit before taxation
Adjustments for:
Finance income
Finance cost
Decrease in deferred contingent consideration
CASH FLOWS (USED IN)/FROM OPERATIONS
BEFORE MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
(Increase)/Decrease in trade and other receivables
Increase/(Decrease) in trade and other payables
NET CASH USED IN OPERATIONS
Finance income
Finance costs
NET CASH USED IN OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Payment of deferred consideration
(200)
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
50
NET CASH GENERATED FROM FINANCING
ACTIVITIES
NET DECREASE IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents at start of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
17
(89)
(81)
20
-
(150)
(885)
719
(316)
81
(8)
(243)
(200)
50
(393)
1,036
643
50
-
150
(148)
52
55
(573)
(466)
-
(61)
(527)
(687)
29
(1,185)
2,221
1,036
(687)
29
3 4
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
ATTRIBUTABLE TO OWNERS OF THE COMPANY
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Shares to
be issued
£000
Translation
reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance as at 1 January 2017
1,577
12,462
1,432
864
1,048
(4,599)
12,784
Profit for the year
Other comprehensive income/
(expense) for the year
Total comprehensive income
Shares issued
Share based payment
Reserve transfer on lapse of share
options
Balance at 31 December 2017 -
Restated
Profit for the year
Other comprehensive (expense)/
income for the year
Total comprehensive income
Shares issued
Share based payment
-
-
-
12
-
-
-
-
-
26
-
-
-
-
-
166
-
-
-
-
-
-
157
(227)
1,589
12,488
1,598
794
-
-
-
3
-
-
-
-
47
-
-
-
-
-
-
-
-
-
-
216
-
(565)
(565)
-
-
-
483
-
(193)
(193)
-
-
642
551
1,193
-
-
227
642
(14)
628
204
157
-
(3,179)
13,773
1,470
1,079
2,549
-
-
1,470
886
2,356
50
216
Balance as at 31 December 2018
1,592
12,535
1,598
1,010
290
(630)
16,395
C O M P A N Y S T A T E M E N T O F C H A N G E S I N E Q U I T Y
ATTRIBUTABLE TO OWNERS OF THE COMPANY
Share
capital
£000
Share
premium
£000
Merger
reserve
£000
Shares to be
issued
£000
Retained
earnings
£000
Total
equity
£000
Balance as at 1 January 2017
1,577
12,462
13,066
864
(451)
27,518
Profit for the year
Shares issued
Share based payment
Reserve transfer on lapse of share options
-
12
-
-
-
26
-
-
-
166
-
-
Balance as at 31 December 2017
1,589
12,488
13,232
Loss for the year
Shares issued
Share based payment
-
3
-
-
47
-
-
-
-
-
-
157
(227)
794
-
-
216
50
-
-
227
(174)
(89)
-
-
50
204
157
-
27,929
(89)
50
216
Balance as at 31 December 2018
1,592
12,535
13,232
1,010
(263)
28,106
3 5
A C C O U N T I N G P O L I C I E S
G E N E R A L I N F O R M A T I O N
The principal activity and nature of operations of the
Group is the provision of world class IT solutions to
the life sciences 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.
S T A T E M E N T O F C O M P L I A N C E
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.
B A S I S O F P R E P A R A T I O N
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 two of its subsidiaries Instem Life Science
Systems Limited (company number 04339129) and
Instem Scientific Solutions Limited (company number
03598020), by virtue of s479A of Companies Act
2006. The Company has provided parent guarantees
to these two subsidiaries which have taken advantage
of the exemption from audit. Under this guarantee, the
Company has a contingent liability of £9.0m.
In accordance with Section 408 of the Companies Act
2006 the Company has elected not to present its own
income statement. The loss for the year of the parent
company is £0.089m (2017: profit £0.05m).
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all years
presented in these consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers is
effective for the Group for the period starting 1 January
2018. The Group has applied IFRS 15 retrospectively
to each prior reporting period and has utilised certain
practical expedients available in IFRS 15.
The adoption of IFRS 15 does not alter the total contract
value or timing of cash flows. The revenue recognition
from annual support fees and SaaS subscriptions does
not change, as these continue to be spread rateably over
the term of the contract. Management will continue
to assess the revenue recognition from SaaS and
maintenance and support services and whether they
are a combined or distinct performance obligation on a
contract by contract basis.
There are two key areas where the adoption of IFRS 15
changes current revenue recognition:
Bundled contracts:
Software licences, professional services and annual
support are often bundled together in a contract.
Under IFRS 15, a contract by contract assessment is
completed to identify the performance obligations in
each contract and may identify that the promise in the
contract is a single performance obligation resulting
in the total value of the contract being combined as
one obligation and recognised over the contract term.
The impact of this is a reduction of revenue previously
recognised; an increase in deferred income and an
increase in monthly recurring revenue going forward.
Previously under IAS 18 revenue from professional
services was recognised as the work was completed,
revenue from the software licence was recognised
when the risks and rewards of ownership of the product
were transferred to the customer and revenue from the
annual support was recognised over the term of the
contract. This resulted in the revenue being recognised
earlier in the contract period. For the years 2017 and
2018 Management identified three contracts where a
single contractual obligation existed, resulting in the
licence fee income being recognised over the period of
the contracts rather than at the point of delivery.
Where software licenses, professional services and
annual support are not part of a bundled contract or
where a bundled contract is deemed not to represent a
single performance obligation the revenue recognition
for each revenue element does not change under IFRS
15. Management will assess whether software licences,
professional services and annual support are distinct
performance obligations on a contract by contract
basis.
Contract costs:
Under IFRS 15, sales commissions that are incremental
to obtaining the contract and are expected to be
recovered are capitalised as a cost of obtaining the
3 6
contract and amortised over the life of the contract.
These costs were previously expensed to the income
statement as incurred.
Costs associated with the installation of software are
capitalised as contract fulfilment assets and amortised
over the life of the contract. Installation costs were
previously expensed to the income statement as
incurred.
B A S I S O F C O N S O L I D A T I O N
The consolidated financial statements incorporate those
of the parent company, Instem plc, and its subsidiary
undertakings made up to 31 December 2018 and 31
December 2017.
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.
B U S I N E S S C O M B I N A T I O N S
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
retrospectively, with
adjustments
corresponding adjustments against goodwill. The
subsequent accounting for changes in the fair value
adjusted
are
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.
G O I N G C O N C E R N
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
£9.8m at 31 December 2018 (2017: restated £10.7m).
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 working
capital facility of £0.5m which was undrawn at 31
December 2018.
Accordingly, the directors continue to adopt the going
concern basis for the preparation of the financial
statements.
R E V E N U E R E C O G N I T I O N
The Group has adopted IFRS 15 Revenue from
Contracts with Customers, in determining appropriate
revenue recognition principles.
The Group generates revenue from the provision of
software licences, annual support, SaaS subscriptions,
enabled
and
professional
outsourced services.
At contract inception, an assessment is completed to
identify the performance obligations in each contract.
Performance obligations in a contract are either goods
or services that are distinct or part of a series of goods
technology
services
3 7
A C C O U N T I N G P O L I C I E S ( C O N T I N U E D )
the
inception,
transaction price
or services that are substantially the same and have the
same pattern of transfer to the customer.
Promises that are not distinct are combined with other
promised goods or services in the contract, until a
performance obligation is satisfied.
At contract
is
determined, being the amount that the group expects to
receive for transferring the promised goods or services.
The transaction price is allocated to the performance
obligations in the contract based on their relative
standalone selling prices. The Group has determined
that the contractually stated price represents the
for each performance
standalone selling price
obligation.
Revenue is recognised when a performance obligation
has been satisfied by transferring the promised product
or service to the customer.
Software licences
Revenue from the sale of the software licences is
recognised when the customer takes possession of
the software which is usually when the license key is
provided to the customer. This is because the software
is functional at the time the licence transfers to the
customer and the Group is not required or expected to
undertake activities that significantly affect the utility
of the intellectual property by the customer.
Annual support
Customers typically enter into a support contract for
a period of twelve months. This contract provides the
customer with access to technical support and software
upgrades. The promises in these contracts are a single
performance obligation, which is satisfied over time
as the customer consumes the benefits of the service.
Revenue in respect of the single performance obligation
is recognised evenly over the contract term.
SaaS subscription and support
Customers typically enter into a SaaS contract for a
period of twelve months and pay a fixed amount in
exchange for the right to access software on a hosted
server along with access to maintenance and support.
Initial SaaS contracts may also include some installation
or customisation of the software and training for staff.
The promises in this contract are considered to be
a single performance obligation and the revenue is
recognised over the period of the contract on a straight-
line basis.
Professional services and technology enabled
outsourced services
Customers typically enter into a service contract to
provide distinct service work based on clear statements
of work. Service work includes, but is not limited to,
implementation services, training and outsourced
services work relating to SEND and KnowledgeScan.
The promises in this contract are considered to be
a single performance obligation and the revenue is
recognised on a percentage completion basis for fixed
price contracts or as services are provided in respect of
time and materials contracts.
Bundled contracts
Software licences, professional services and annual
support are often bundled together in a contract.
Unless otherwise noted during the contract assessment,
the three revenue elements are considered to be
separate performance obligations on the basis that
the software licence can be delivered with or without
the professional services and annual support and
management has determined that, although the annual
support provides the customer with access to software
upgrades, these upgrades are rarely utilised within the
initial contract period and do not significantly enhance
the intellectual property of the purchased software
licence, therefore the products and services are not
interdependent or interrelated with another good or
service. In allocating the consideration to the separate
performance obligations the standalone selling price is
used.
Where the contract assessment identifies that the sale
does not meet the criteria to be a distinct performance
obligation, promises that are not distinct are combined
with other promised goods or services in the contract,
until a performance obligation is satisfied. Revenue
in respect of this bundled performance obligation is
recognised over the period of the contracted obligation
on a straight-line basis.
Amounts recoverable on contracts and deferred income
In most cases, customers are invoiced and payment is
received in advance of revenue being recognised in the
income statement. Amounts recoverable on contracts
and deferred income is the difference between amounts
invoiced to customers and revenue recognised under
the policy described above. If the amount of revenue
recognised exceeds the amounts invoiced the excess
amount is included within amounts recoverable on
contracts.
3 8
Contract costs
The incremental costs associated with obtaining a
contract are recognised as an asset if the Group expects
to recover the costs. Costs that are not incremental
to a contract are expensed as incurred. Management
determine which costs are incremental and meet the
criteria for capitalisation.
Costs to fulfil a contract, which are not in the scope
of another standard, are recognised separately as
a contract fulfilment asset to the extent that they
relate directly to a contract which can be specifically
identified; the costs generate or enhance resources that
will be used to satisfy the performance obligation and
the costs are expected to be recovered. Management
applies
judgement to determine which contract
fulfilment costs meet the recognition criteria, and in
particular if the costs generate or enhance resources
used to satisfy the performance obligation.
Costs to fulfil a contract which do not meet the criteria
above are expensed as incurred.
Contract fulfilment asset
Contract fulfilment assets are amortised over the
expected contract period on a systematic basis
representing the pattern in which control of the
associated service is transferred to the customer.
Practical exemptions
The Group has taken advantage of the following
practical exemptions:
• not to account for significant financing components
where the time difference between receiving
consideration and transferring control of goods (or
services) to its customer is one year or less;
expense the incremental costs of obtaining a
contract when the amortisation period of the asset
otherwise recognised would have been one year or
less; and
to not disclose information relating to performance
obligations for contracts that had an original
expected duration of one year or less or where
the right to consideration from a customer is an
amount that corresponds directly with the value of
the completed performance obligations.
•
•
non-recurring items, finance income, finance costs and
taxation, and shown in this way to provide a clearer
measure of underlying operating performance.
S E G M E N T A L D I S C L O S U R E S
Instem has one operating segment, providing goods
and services to the global life sciences market, based
on management information provided to Instem’s
chief operating decision-maker, the Group’s Board of
Directors. Resource allocation decisions are made for
the benefit of the whole product portfolio. Performance
of the product portfolio is assessed based on the
consolidated profit and loss before tax for the year.
F O R E I G N C U R R E N C I E S
Monetary assets and
Transactions in foreign currencies are translated
at the foreign exchange rate ruling at the date of
the transaction.
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.
E A R N I N G S B E F O R E I N T E R E S T ,
T A X A T I O N , D E P R E C I A T I O N ,
A M O R T I S A T I O N A N D N O N -
R E C U R R I N G C O S T S ( ‘ E B I T D A’ )
interest,
taxation, depreciation,
Earnings before
amortisation and non-recurring items (EBITDA) is
profit/(loss) arising from the Group’s normal trading
activities stated before depreciation, amortisation,
3 9
A C C O U N T I N G P O L I C I E S ( C O N T I N U E D )
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)
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)
F I N A N C E I N C O M E
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).
F I N A N C E C O S T S
Net finance costs include interest payable, arrangement
and service fees, 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.
L E A S I N G
Where assets are financed by leasing agreements that
give rights approximating to ownership (“finance
leases”), the assets are treated as if they had been
purchased outright. The amount capitalised is the fair
value or, if lower, the present value of the minimum
lease payments payable during the lease term. The
corresponding leasing commitments are shown as
finance lease obligations to the lessor.
Lease payments are apportioned between finance
charges and reduction of lease obligations so as to
achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged
to finance costs in the statement of comprehensive
income.
The exchange rates used to translate the financial statements into Sterling (GBP) are as follows:
US Dollar
(USD)
Hong Kong
Dollar (HKD)
Chinese
Renminbi
(RMB)
Indian Rupee
(INR)
Japanese
Yen (JPY)
Euro
(EUR)
Average rate for year ended 31 December 2017
1.2886
10.0426
8.7036
83.8497
144.4930
1.1416
Closing rate at 31 December 2017
1.3513
10.5678
8.7931
86.2715
152.2310
1.1260
Average rate for year ended 31 December 2018
1.3354
10.4662
8.8201
91.1933
147.3546
1.1301
Closing rate at 31 December 2018
1.2735
9.9761
8.7611
88.8707
140.3243
1.1138
4 0
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.
S H A R E - B A S E D P A Y M E N T
T R A N S A C T I O N S
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. 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.
T A X A T I O N
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.
I N T A N G I B L E A S S E T S
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.
4 1
A C C O U N T I N G P O L I C I E S ( C O N T I N U E D )
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
commercially feasible; and
sufficient resources are available to complete the
development and to either sell or use the asset.
technically and
•
•
•
•
is
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).
4 2
P R O P E R T Y, P L A N T & E Q U I P M E N T
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 - Over term of lease
• IT hardware and software - 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.
I M P A I R M E N T O F A S S E T S
E X C L U D I N G G O O D W I L L
The carrying value of property, plant and equipment
and intangible assets (excluding goodwill) is reviewed
for
in
impairment whenever events or changes
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.
I N V E N T O R Y
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.
P R O V I S I O N F O R L I A B I L I T I E S
A N D C H A R G E S
Provisions are recognised when there is a present legal
or constructive obligation as a result of a past event, for
which it is probable that an outflow of economic benefit
will be required to settle the obligation and where the
amount can be reliably estimated.
F I N A N C I A L I N S T R U M E N T S
Classification of financial instruments
Financial instruments are classified as financial assets,
financial liabilities or equity instruments.
Recognition and valuation of financial assets
Financial assets are initially recorded at their fair value
net of transaction costs. At each reporting date, the
Group reviews the carrying value of its financial assets
to determine whether there is objective evidence of an
indication of impairment. If any such indication exists,
the recoverable amount is estimated and any identified
impairment loss is recognised in the statement of
comprehensive income.
Impairment of financial assets
An impairment loss is recognised for the expected
credit losses on financial assets when there is an
increased probability that the counterparty will be
unable to settle the instruments contractual cash
flows on the contractual due dates, a reduction in the
amounts expected to be recovered, or both.
The probability of default and expected amounts
recoverable are assessed using reasonable and
supportable past and forward-looking information
that is available without undue cost or effort. The
expected credit loss is a probability-weighted amount
determined from a range of outcomes and takes into
account the time value of money.
Expected credit
losses are considered over the
maximum contractual period (including extension
options) during which the entity is exposed to credit
risk by extrapolating expectations beyond periods
covered by reasonable and supportable forecasts.
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
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
liabilities and equity
4 3
A C C O U N T I N G P O L I C I E S ( C O N T I N U E D )
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.
R E T I R E M E N T B E N E F I T S
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.
C R I T I C A L A C C O U N T I N G
E S T I M A T E S A N D J U D G E M E N T S
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.
Revenue Recognition
The Group has adopted IFRS 15 Revenue from
Contracts with Customers, in determining appropriate
revenue recognition principles. The Group generates
revenue from the provision of software licences, annual
support, SaaS subscriptions, professional services and
technology enabled outsourced services.
Unless otherwise noted during the contract assessment,
the software licences, annual support and professional
services are considered to be separate performance
obligations on the basis that the software licence can be
delivered with or without the professional services and
annual support and management has determined that,
although the annual support provides the customer
with access to software upgrades, these upgrades are
rarely utilised within the initial contract period and do
not significantly enhance the intellectual property of
the purchased software licence, therefore the products
and services are not interdependent or interrelated with
another good or service. In allocating the consideration
to the separate performance obligations the standalone
selling price is used.
Where the contract assessment identifies that the sale
does not meet the criteria to be a distinct performance
obligation, promises that are not distinct are combined
with other promised goods or services in the contract,
until a performance obligation is satisfied. Revenue
in respect of this bundled performance obligation is
4 4
recognised over the period of the contracted obligation
on a straight-line basis.
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.
Provision for liabilities and charges
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past
event, it is probable that the Group will be required to
settle the probable outflow of resources, and a reliable
estimate can be made of the amount of the obligation.
As at 31 December 2018, the Group has a provision
of £0.25m in respect of historical contract disputes as
the directors have considered that the above provision
conditions have been met. The provision represents the
best estimate of the risks and considers all information
and legal advice received by the Group.
Impairment
At each reporting date, the Group reviews the carrying
amounts of goodwill and investments. The recoverable
amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where the
asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the
asset belongs. A key factor which could result in
an impairment of goodwill or investments is lower
than predicted profitability. The CGU with the most
sensitivity to obtaining future custom and profitability
is Instem Clinical where an additional increase of 28%
in the discount rate or a reduction in revenues of 31%
would result in the recoverable amount of the CGU
being equal to its carrying amount. The forecasts to
support Clinical’s carrying value are reliant on winning
future contracts that have not yet been agreed.
A D O P T I O N O F I F R S
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 2018.
The Group and Company have chosen not to adopt any
amendments or revised standards early.
I F R S s I S S U E D B U T N O T Y E T
E F F E C T I V E
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 16 - ‘Leases’ effective - 1 January 2019
It is expected that IFRS 16 will materially affect the
Group’s consolidated financial statements. As at
the reporting date the Group has non-cancellable
operating lease commitments of £3.4m (refer to note
29) the majority of which relate to office leases held
across all locations. Management have performed an
analysis of these leases to assess the expected impact
of IFRS 16. If IFRS 16 was implemented in the year
to 31 December 2018, its effect would be to increase
the net book value of property, plant and equipment,
with a corresponding finance lease liability. The net
impact on the income statement for the year ended 31
December 2018 would be £nil.
I F R S s A D O P T E D I N T H E Y E A R
The following IFRSs, IASs and IFRICs have been
adopted for the first time in the year: As expected
their adoption has not had a material impact on these
financial statements.
IFRS 2 - ’Classification and Measurement of Share
Based Payment’ (Amended) effective - 1 January 2018
IFRS 9 - ‘Financial Instruments’ effective - 1 January
2018
The Group has applied IFRS 9 ‘Financial Instruments’
(IFRS) for the first time in the year ended 31 December
2018. IFRS 9 replaces IAS 39 ‘Financial Instruments:
Recognition and measurement’. No significant changes
were identified on adoption of this standard.
IFRS 9 requires impairments of financial assets to be
assessed using an ‘expected loss’ model. The change
from the ‘incurred loss’ model previously applied
under IAS 39 resulted in an no additional impairment
loss being recognised at 1 January 2018.
IFRS 15 - ‘Revenue from Contracts with Customers’
effective - 1 January 2018
IFRIC 22 -
Advance Consideration’ effective - 1 January 2018
‘Foreign Currency Transactions and
4 5
N O T E S T O T H E F I N A N C I A L S T A T E M E N T S
1. R E V E N U E F R O M C O N T R A C T S W I T H C U S T O M E R S
a. Disaggregation of Revenue
The Group has disaggregated revenue into various categories in the following tables which are intended to depict how
the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.
For management purposes, the Group is currently organised into one operating segment – Global Life Sciences.
REVENUE BY PRODUCT TYPE
Licence fees
Annual support fees
SaaS subscription and support fees
Professional services
Technology enabled outsourced services
REVENUE BY GEOGRAPHICAL LOCATION
UK
Rest of Europe
USA and Canada
Rest of World
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY
GEOGRAPHICAL LOCATION
UK
Rest of Europe
USA and Canada
Rest of World
2018
£000
3,491
8,160
5,509
2,204
3,341
22,705
2018
£000
3,504
4,534
11,507
3,160
22,705
2018
£000
16,896
624
133
58
17,711
Restated
2017
£000
5,194
8,446
4,424
1,891
1,116
21,071
Restated
2017
£000
2,073
4,567
12,246
2,185
21,071
Restated
2017
£000
17,167
320
214
38
17,739
There were no customers which represented more than 10% of the Group revenue in 2018 (2017: none)
4 6
b. Contract Balances
2018
2017
Amounts
recoverable on
contracts
£000
At 1 January
2,389
Deferred
income
(10,967)
Transfer in the period from amounts
recoverable on contracts to trade receivables
(2,389)
-
Amounts included in deferred income that was
recognised as revenue during the period
Cash received in advance of performance and
not recognised as revenue during the period
Excess of revenue recognised over cash being
recognised during the period
IFRS 15 Restatement
-
-
2,807
-
10,967
(8,625)
-
-
At 31 December
2,807
(8,625)
Amounts
recoverable on
contracts
894
(894)
-
-
2,389
-
2,389
Deferred
income
(9,092)
-
9,092
(10,370)
-
(597)
(10,967)
Amounts recoverable on contracts and deferred income are included within “trade and other receivables” and
“deferred income” respectively on the face of the statement of financial position.
Amounts recoverable on contracts predominately relate to fulfilled obligations on service contracts where billing is
in arrears. At the point where completed work is invoiced, the contract asset is derecognised and a corresponding
receivable recognised.
Deferred income relates to consideration received from customers in advance of work being completed and
maintenance and support which is invoiced in advance.
c. Remaining performance obligations
The vast majority of the Group’s contracts are for the delivery of software and services within the next 12 months for
which the practical expedient in paragraph 121(a) of IFRS 15 applies. However, certain bundled contracts have been
entered into for which both the original contract was greater than 12 months and the Group's right to consideration
does not correspond directly with the performance.
The amount of revenue that will be recognised in future periods on these contracts is as follows:
2019
£000
142
Revenue
2020
£000
108
2021
£000
4
The Group has applied the exemption in paragraph C5(d) of the transitional rules in IFRS 15 and therefore has not
disclosed the amount of revenue that will be recognised in future periods for the comparative period.
d. Contract Costs
It is expected that commissions paid are recoverable. These have therefore been capitalised as an asset and are
amortised over the term of the contract.
The carrying value of costs to obtain contracts with customers which have been capitalised is an amount of £0.01m
(2017: £0.03m). Amortisation of £0.02m (2017: £nil) was recognised during the year.
The entity has applied the practical expedient available in paragraph 94 of IFRS 15 to recognise the incremental
costs of obtaining a contract as an expense when incurred where the amortisation period of the asset that the entity
otherwise would have recognised is one year or less.
4 7
2. P R O F I T B E F O R E N O N - R E C U R R I N G C O S T S
Profit from operations includes the following significant items:
Depreciation and amounts written off property, plant and equipment:
Charge for the year:
Owned assets
Leased assets
Amortisation of intangible assets
Research and development costs
Operating lease rentals:
Plant and machinery
Land and buildings
Amounts payable to RSM UK Audit LLP and their associates in respect of both audit and
non-audit services:
Audit services:
Statutory audit of parent and consolidated financial information
Audit of subsidiaries where such services are provided by
RSM UK Audit LLP or its associates
Other services:
Audit related assurance services
Taxation services - Compliance
Taxation services - Advisory
Other services
The following table analyses the nature of operating expenses:
2018
£000
114
30
1,526
1,623
37
527
25
68
22
22
26
-
163
2018
£000
Staff costs (see note 8)
12,220
Operating lease rentals
Software maintenance charges
Licence costs
Other expenses
564
561
1,109
3,983
2017
£000
156
30
1,404
1,831
61
521
21
67
16
22
17
1
144
Restated
2017
£000
11,981
582
549
1,685
3,700
Total operating expenses
18,437
18,497
4 8
3. R E C O N C I L I A T I O N T O P R E V I O U S L Y R E P O R T E D I N F O R M A T I O N
The table below reconciles key line items in these financial statements to the information provided in the financial
statements for the year ended 31 December 2017 and the opening statement of financial position at 1 January 2018.
The changes relate to the fully retrospective adoption of IFRS 15, Revenue from Contracts with Customers.
As previously
reported
IFRS 15 adoption
As restated
INCOME STATEMENT FOR 2017
£000
REVENUE
21,668
Operating expenses
(18,549)
Share based payment
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION,
AMORTISATION AND NON-RECURRING COSTS (‘EBITDA’)
(157)
2,962
Depreciation and Amortisation
(1,590)
PROFIT BEFORE NON-RECURRING COSTS
1,372
PROFIT BEFORE TAXATION
Taxation
797
297
PROFIT FOR THE YEAR
1,094
£000
(597)
52
-
(545)
-
(545)
(545)
93
(452)
£000
21,071
(18,497)
(157)
2,417
(1,590)
827
252
390
642
As previously
reported
IFRS 15 adoption
As restated
STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2017
£000
£000
Non-current assets
18,039
Deferred tax asset
300
Total assets
31,869
Current liabilities
13,593
Trade and other payables
2,777
Deferred income
10,370
Total liabilities
17,644
Total equity attributable to the owners of the parent
14,225
Retained earnings
(2,727)
93
93
93
545
(52)
597
545
(452)
(452)
£000
18,132
393
31,962
14,138
2,725
10,967
18,189
13,773
(3,179)
4 9
4. I M P A C T O F I F R S 1 5 , R E V E N U E F R O M C O N T R A C T S W I T H
C U S T O M E R S , O N T H E I N C O M E S T A T E M E N T F O R T H E Y E A R E N D E D
3 1 D E C E M B E R 2 0 1 8
The table below shows the impact of IFRS15, Revenue from Contracts with Customers on key line items in the Income
statement for the year ended 31 December 2018.
Amounts excluding
IFRS 15
IFRS 15 adoption
As reported
INCOME STATEMENT FOR 2018
£000
REVENUE
22,322
Operating expenses
(18,397)
Share based payment
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION,
AMORTISATION AND NON-RECURRING COSTS (‘EBITDA’)
(216)
3,709
Depreciation and Amortisation
(1,670)
PROFIT BEFORE NON-RECURRING COSTS
2,039
£000
383
(40)
-
343
-
343
5. N O N - R E C U R R I N G C O S T S
Guaranteed Minimum Pension (GMP) equalisation provision
Legal cost and cost provision relating to historical contract disputes
Professional fees
Restructuring costs
Amendment to contingent consideration post acquisition
2018
£000
(126)
(49)
(364)
-
-
(539)
£000
22,705
(18,437)
(216)
4,052
(1,670)
2,382
2017
£000
-
(250)
-
(341)
148
(443)
Pension schemes are legally required to equalise pension benefits for the effects of unequal Guaranteed Minimum
Pensions (GMPs) between males and females that were accrued since May 1990. The Group has included a reserve for
the cost of GMP equalisation, based on information from the Group’s pension advisors (see note 23).
The professional costs incurred in the period relate to a one-off project undertaken in the period by the Group as part
of its forecasting and underlying operations review. The benefits of this project are expected to be realised in future
periods.
5 0
6. F I N A N C E I N C O M E
Foreign exchange gains
Other interest
7. F I N A N C E C O S T S
Bank loans and overdrafts
Unwinding discount on deferred consideration
Net interest charge on pension scheme
Finance lease interest
2018
£000
25
8
33
2018
£000
11
12
172
4
199
2017
£000
184
2
186
2017
£000
112
71
129
6
318
8. E M P L O Y E E S
2018
Number
2017
Number
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
39
199
238
2018
£000
10,416
1,031
773
12,220
43
174
217
2017
£000
10,181
1,047
753
11,981
The Company had three employees during the year and the prior year. These employees are non-executive directors
of the Company and their remuneration is disclosed in note 10.
5 1
9. S H A R E B A S E D P A Y M E N T
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.
2018
2017
Number
Weighted average
exercise price (£)
Outstanding at the beginning of the year
1,098,230
Granted
408,446
Lapsed
(9,857)
Exercised
(31,271)
Outstanding at end of the year
1,465,548
Exercisable at end of year
1,014,341
1.14
0.10
0.10
1.60
0.85
1.18
Number
1,209,093
20,000
(104,209)
(26,654)
1,098,230
757,881
Weighted average
exercise price (£)
1.07
0.10
0.10
1.07
1.14
1.61
The options outstanding at 31 December 2018 and 31 December 2017 had exercise prices of £0.10, £0.90, £1.75, £1.76,
£2.215 and £2.22 and a weighted average remaining contractual life of 5 years 3 months (2017: 4 years 11 months).
A charge of £0.2m (2017: £0.2m) arose in respect of share based payments.
New options for 408,446 shares were granted in the year, 400,000 shares of which are valued using the Monte-Carlo
option-pricing model. The fair market value has been estimated using the following key assumptions:
2018
Grant date
22 February 2018
Expected life (years)
Share price at grant date
Exercise price
Dividend yield
Risk free rate (average)
Projection period (years)
Volatility
Fair value of options (average)
3
£1.69
Nil
0.00%
0.74%
2.10
28.6%
£0.41
Options over 8,446 shares (2017: 21,599) 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 was £0.2m (2017: £0.3m).
During the year, the average share price in respect of share options exercised was £2.09 (2017: £1.65)
5 2
10. D I R E C T O R S ' E M O L U M E N T S
Amounts payable by Instem plc:
Emoluments*
Amounts payable by subsidiary companies:
Emoluments
Defined contribution pension contributions
Total emoluments
2018
£000
120
335
41
496
2017
£000
120
340
40
500
* The above emoluments include £17,500 (2017: £30,000) payable to third parties as shown in note 30.
2018
Number
2017
Number
Number of directors to whom retirement benefits
are accruing under:
Defined contribution schemes
2
2
The highest paid director is shown in the Directors’ Remuneration Report.
11. T A X A T I O N
Income taxes recognised in profit or loss:
Current tax:
UK corporation tax on profit of the year
UK corporation tax in respect of previous years
Adjustments in respect of R&D tax credit
Foreign tax
Foreign tax in respect of previous years
Total current tax
Deferred tax:
Current year charge
Adjustment in respect of previous years
Retirement benefit obligation
Total deferred tax
Total income tax (charge)/credit recognised in the current year
2018
£000
-
(85)
477
(403)
(12)
(23)
(67)
(83)
(34)
(184)
(207)
2017
£000
-
306
567
(379)
337
831
(28)
(357)
(56)
(441)
390
5 3
11. T A X A T I O N ( C O N T I N U E D )
The income tax (expense)/credit can be reconciled to the accounting profit as follows:
Profit before tax
Profit before tax multiplied by standard rate of corporation tax in the UK 19.0% (2017: 19.25%)
Effects of:
Expenses not allowable 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
Adjustment in respect of R&D tax credit
Other temporary differences
Tax losses utilised
2018
£000
1,677
(319)
(6)
(94)
(187)
(180)
-
477
71
31
Total income tax (charge)/credit recognised in consolidated statement of comprehensive income
(207)
Restated
2017
£000
252
(49)
(74)
(101)
(105)
286
(69)
567
(113)
48
390
5 4
12. I N T A N G I B L E A S S E T S
Goodwill
£000
Software
£000
Intellectual
property
£000
Customer
relationships
£000
Patents
£000
Total
£000
Group
Cost
4,527
2,874
21
22,211
At 1 January 2017
11,015
Additions from continuing
operations
-
Fair value adjustment
(425)
Transferred from work in progress
Exchange adjustment
-
-
At 31 December 2017
10,590
Additions from continuing
operations
Disposals
Exchange adjustment
-
-
-
At 31 December 2018
10,590
Amounts written off
At 1 January 2017
Amortisation expense
Exchange adjustment
At 31 December 2017
Amortisation expense
Disposals
Exchange adjustment
At 31 December 2018
Net book value
-
-
-
-
-
-
-
-
3,774
1,517
-
166
(25)
5,432
1,490
(96)
14
6,840
1,835
473
(4)
2,304
738
(96)
7
-
-
-
-
-
-
-
-
4,527
2,874
-
-
-
-
-
-
4,527
2,874
1,935
613
-
2,548
492
-
-
813
318
-
1,131
296
-
-
2,953
3,040
1,427
At 31 December 2017
10,590
At 31 December 2018
10,590
3,128
3,887
1,979
1,487
1,743
1,447
-
-
-
-
21
-
-
-
21
21
-
-
21
-
-
-
-
-
-
1,517
(425)
166
(25)
23,444
1,490
(96)
14
24,852
4,604
1,404
(4)
6,004
1,526
(96)
7
7,441
17,440
17,411
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally
acquired elements. The cost of internally generated software amounts to £6.1m (2017: £4.6m) with accumulated
amortisation of £2.3m (2017: £1.6m). Software additions for the year include £1.5m relating to internal development
(2017: £1.4m).
Impairment of goodwill
Goodwill amounting to £5.9m (2017: £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
(2017: £0.5m), relates to a CGU, being the Instem Scientific Limited business acquired on 3 March 2011. Goodwill
amounting to £2.5m (2017: £2.5m), relates to a CGU, being the Instem Clinical Holdings Limited business acquired
on 10 May 2013. Goodwill amounting to £0.7m (2017: £0.7m) relates to a CGU, being the Perceptive Instruments
Limited business acquired on 21 November 2013. Goodwill amounting to £0.6m (2017: £0.6m) relates to a CGU,
being the Samarind Limited business acquired on 27 May 2016. Goodwill amounting to £0.5m (2017: £0.5m) relates
to a CGU, being the Notocord business acquired on 2 September 2016.
5 5
12. I N T A N G I B L E A S S E T S ( C O N T I N U E D )
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 pre-tax 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 2018,
a pre-tax discount rate of 10.5% (2017: 8.9%) was used in the value-in-use calculation based on the Group’s cost of
capital.
Projected cash flows were based on detailed profit and cashflow projections through to 2019 with a 2.5% assumption
of growth beyond 2019. 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 747%, for the Instem
Scientific CGU by 424%, for Instem Clinical CGU by 278%, Perceptive Instruments CGU by 386%, Samarind CGU
by 361% and Notocord CGU by 112%. 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 76%, or a reduction in
certain revenues of in excess of 19%, would result in the recoverable amount of the Instem LSS CGU being equal to
its carrying amount. An additional increase of 47% in the Instem Scientific discount rate, or a reduction in revenues
of 14% would result in the recoverable amount of the CGU being equal to its carrying amount. An additional increase
of 28% in the Instem Clinical discount rate, or a reduction in revenues of 31% would result in the recoverable amount
of the CGU being equal to its carrying amount. An additional increase of 43% in the Perceptive Instruments discount
rate, or a reduction in revenues of 15% would result in the recoverable amount of the CGU being equal to its carrying
amount. An additional increase of 32% in the Samarind discount rate, or a reduction in revenues by 8% would result
in the recoverable amount of the CGU being equal to its carrying value. An additional increase of 3% in the Notocord
discount rate, or a reduction in revenues by 2% 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.
5 6
13. I N V E S T M E N T S
Company
Cost at beginning of year
Additions
At end of year
2018
£000
28,711
216
28,927
2017
£000
28,426
285
28,711
At the end of the year the company has six wholly-owned subsidiaries and eleven wholly-owned sub-subsidiaries,
details of which are as follows:
Company
Registered Address
Activity
Ownership
Instem Life Science Systems Limited
(company number 04339129)
England and Wales
Instem LSS Limited
(company number 03548215)
England and Wales
Instem LSS (North America) Limited
(company number 02126697)
England and Wales
Instem LSS (Asia) Limited
(company number 1371107)
Hong Kong
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Suite 1106-8
11/F Tai Yau Building
No 181 Johnston Road
Wanchai
Instem Information Systems (Shanghai) Limited
(company number 310115400257075)
Shanghai, PRC
Room 205, Building 16
88 Da’erwen Road
Zhanjiang, High Tech Park
Pudong District 201203
Instem Scientific Limited
(company number 03861669)
England and Wales
Instem Scientific Solutions Limited
(company number 03598020)
England and Wales
Instem Scientific Inc.
USA
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Holding Company
100% by Instem plc
Software development,
sales, sales support and
administrative support
100% by Instem Life Science
Systems Limited
Sales, sales support and
administrative support
100% by Instem LSS Limited
Holding Company
100% by Instem LSS Limited
Sales, sales support and
service
100% by Instem LSS (Asia)
Limited
Leading provider of software
solutions for extracting
intelligence from R&D
related healthcare data
100% by Instem plc
Dormant
100% by Instem Scientific
Limited
Suite 1550
161 Washington Street
8 Tower Bridge
Conshohocken PA 19428
Leading provider of software
solutions for extracting
intelligence from R&D
related healthcare data
100% by Instem Scientific
Limited
Instem India Pvt Limited
(company number U73100MH2012FTC231951)
India
Adisa Icon
Mumbai Bangalore Highway
Bavdhan Budruk
Pune 411021
Instem Clinical Holdings Limited
(company number 05840032)
England and Wales
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Software development
Holding of intellectual
property
rights and investment in
group
companies
99.9% by Instem LSS Limited
0.1% by Instem LSS (NA)
Limited
100% by Instem plc
5 7
13. I N V E S T M E N T S ( C O N T I N U E D )
Company
Registered Address
Activity
Ownership
Instem Clinical Limited
(company number 06959053)
England and Wales
Instem Clinical Inc.
USA
Perceptive Instruments Limited
(company number 02498351)
England and Wales
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
Notocord Inc.
USA
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Suite 1550
161 Washington Street
8 Tower Bridge
Conshohocken PA 19428
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Shinagawa
Intercity Tower, A Level 28
2-15-1 Konan, Minato-ku
Tokyo 108-6028
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
Parc des Grillons
60, route de Sartrouville
78230 Le Pecq
Paris
PO Box 10188
Newark
New Jersey
07101-3188
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
Development, manufacture
and supply of software and
hardware products for in
vitro study data collection
and study management
in the genetic toxicology,
microbiology and
immunology markets
100% by Instem Clinical
Holdings Limited
100% by Instem Clinical
Holdings Limited
100% by Instem plc
Sales, sales support and
service
100% by Instem LSS Limited
Provider of regulatory
information management
software
100% by Instem plc
Software development, sales
support and administrative
support
100% by Instem plc
Sales, sales support and
administrative support
100% by Notocord Systems
S.A.
5 8
14. P R O P E R T Y, P L A N T A N D E Q U I P M E N T
Group
Cost
At 1 January 2017
Additions
Acquisitions
Exchange adjustment
At 31 December 2017
Additions
Disposals
*Adjustment
Exchange adjustment
At 31 December 2018
Depreciation
At 1 January 2017
Acquisitions
Depreciation expense
Exchange adjustment
At 31 December 2017
Depreciation expense
Disposals
*Adjustment
Exchange adjustment
At 31 December 2018
Net book value
At 31 December 2017
At 31 December 2018
Short leasehold property
£000
IT hardware & software
£000
79
-
-
(1)
78
29
(10)
(4)
1
94
57
4
-
(1)
60
4
(3)
4
1
66
18
28
1,057
117
(259)
(22)
893
116
(32)
562
5
1,544
705
182
(259)
(16)
612
140
(32)
549
3
1,272
281
272
Total
£000
1,136
117
(259)
(23)
971
145
(42)
558
6
1,638
762
186
(259)
(17)
672
144
(35)
553
4
1,338
299
300
*Adjustment refers to a correction to previously reported cost of £0.6m and depreciation of £0.6m. The impact on net
book value is nil.
IT hardware and software includes assets with a net book value of £0.04m (2017: £0.07m) held under finance lease.
The depreciation on these assets during the year was £0.03m (2017: £0.03m).
5 9
15. I N V E N T O R I E S
Group
Raw materials
Work in progress
Total gross inventories
16. T R A D E A N D O T H E R R E C E I VA B L E S
Group
Trade receivables
Amounts recoverable on contracts
Prepayments and accrued income
Company
Amounts owed by group companies
Other receivables
An analysis of the provision for impairment of receivables is as follows:
Group
At beginning of year
Increase in provision for impairment
Receivables written off
Reversal of provision for impairment
At end of year
2018
£000
-
37
37
2018
£000
37
2018
£000
3,786
2,807
1,214
7,807
3,010
121
3,131
2018
£000
73
1
-
(20)
54
2017
£000
14
15
29
2017
£000
29
2017
£000
6,104
2,389
977
9,470
2,192
54
2,246
2017
£000
94
64
(31)
(54)
73
6 0
16. T R A D E A N D O T H E R R E C E I VA B L E S ( C O N T I N U E D )
Definition of default
A loss allowance on all financial assets is measured by considering the probability of default.
Receivables are considered to be in default based on an assessment of past payment practices and the likelihood of
such overdue amounts being recovered.
Impairment of trade receivables
The probability of default is determined at the year-end based on the ageing of the receivables, historical data about
default rates. That data is adjusted if the Group determines that historical data is not reflective of expected future
conditions due to changes in the nature of its customers and how they are affected by external factors such as economic
and market conditions.
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.
Impairment of group receivables
The Group assesses the expected credit loss in respect of group receivables based on their ability to repay and recover
the balance. In the absence of agreed terms this consideration is given over the expected period of repayment and
any expected credit loss. As at the period end no allowance has been made for credit impairment of group receivables
(2017: nil)
The average credit period taken on sale is 83 days (2017: 88 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.
The age profile of the net trade receivables for the Group at the year-end was as follows:
Debt age
Group
2018
Current
0-30 days
31-60 days
Trade receivables/Amounts recoverable on contracts
Value (£000)
4,061
1,904
%
62
29
216
3
Debt age
Group
2017
Current
0-30 days
31-60 days
Trade receivables/Amounts recoverable on contracts
Value (£000)
5,011
1,806
1,012
%
59
21
12
Over 60
days
412
6
Over 60
days
664
8
Total
6,593
100
Total
8,493
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.
6 1
16. T R A D E A N D O T H E R R E C E I VA B L E S ( C O N T I N U E D )
An analysis of trade and other receivables by currency is as follows:
Group
Sterling
Euro
US Dollar
Renminbi
Other
2018
£000
2,887
171
3,866
718
165
7,807
2017
£000
3,928
576
4,551
288
127
9,470
17. C A S H A N D C A S H E Q U I VA L E N T S
Group
Cash at bank
Bank overdraft
Company
2018
£000
12,570
(8,998)
3,572
2017
£000
12,062
(8,998)
3,064
Cash at bank
643
1,036
The Group’s overdraft facility has a net limit of £0.5m 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 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
2018
£000
(226)
105
1,597
1,629
467
3,572
643
643
2017
£000
(1,539)
683
3,034
828
58
3,064
1,036
1,036
The carrying amount of these assets approximates to their fair value.
6 2
18. T R A D E A N D O T H E R P A YA B L E S
Group - Current
Trade payables
Other taxation and social security costs
Accruals
Company - Current
Trade payables
Amounts owed to group companies
Accruals
2018
£000
589
205
1,362
2,156
165
4,271
159
4,595
An analysis of trade and other payables by currency is as follows:
Group
Sterling
Euro
US Dollar
Other
Company
Sterling
2018
£000
1,164
132
821
39
2,156
4,595
Restated
2017
£000
548
410
1,767
2,725
35
3,659
182
3,876
Restated
2017
£000
1,495
246
918
66
2,725
3,876
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
2018
Current
0-30 days
31-60 days
Trade and other payables (£000)
1,801
%
84
328
15
-
-
Group
2017
Current
0-30 days
31-60 days
Trade and other payables (£000)
2,318
%
85
369
14
34
1
Over 60
days
27
1
Over 60
days
4
-
Total
2,156
100
Total
2,725
100
6 3
19. C U R R E N T T A X A T I O N
The Group current tax receivable of £1.0m and payable of £0.4m (2017: receivable of £1.3m and payable of £0.2m)
represents the amount of income taxes receivable and payable in respect of current and prior years.
The Company current tax payable is £nil (2017: £nil).
20. F I N A N C I A L L I A B I L I T I E S
Group
2018
Finance lease liabilities
Company
2018
Finance lease liabilities
Group
2017
Deferred contingent consideration
Finance lease liabilities
Company
2017
Deferred contingent consideration
Total
£000
52
52
Total
£000
-
-
Total
£000
188
83
271
Total
£000
188
188
Less than one
year
£000
One to two years
£000
More than two
years
£000
34
34
18
18
-
-
Less than one
year
£000
One to two years
£000
More than two
years
£000
-
-
-
-
-
-
Less than one
year
£000
One to two years
£000
More than two
years
£000
188
32
220
-
51
51
-
-
-
Less than one
year
£000
One to two years
£000
More than two
years
£000
188
188
-
-
-
-
Deferred contingent consideration
The deferred contingent consideration above includes £nil (2017: £0.2m) in respect of the acquisition of Samarind
Limited.
6 4
20. F I N A N C I A L L I A B I L I T I E S ( C O N T I N U E D )
Finance lease liabilities
Minimum lease payments
Present value of minimum
lease payment
31 December 2018
31 December 2017
31 December 2018
31 December 2017
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
18
54
(2)
52
36
54
90
(7)
83
34
18
52
-
52
32
51
83
-
83
Reconcilitaion of liability arising from financing activities
31 December 2018
£000
31 December 2017
£000
At the beginning of the year
Repayment of finance leases
At the end of the year
83
(31)
52
113
(30)
83
21. F I N A N C I A L I N S T R U M E N T S
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 IFRS 9 ‘Financial Instruments'.
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.
2018
Group and Company
Level 1
£000
Deferred contingent consideration
-
-
2017
Group and Company
Level 1
£000
Deferred contingent consideration
-
-
Level 2
£000
-
-
Level 2
£000
-
-
Level 3
£000
-
-
Level 3
£000
(188)
(188)
Total
£000
-
-
Total
£000
(188)
(188)
6 5
21. F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
The following table shows a reconciliation from the opening balances as at 1 January 2018 to the closing balances as at
31 December 2018 for Level 3 fair value measurements in respect of both the Group and Company.
Deferred contingent consideration
£000
Balance as at 1 January 2018
Cash payment in the year
Unwinding discount*
Balance as at 31 December 2018
188
(200)
12
-
*Recognised in consolidated statement of comprehensive income and reflected in finance costs
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks. 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 £0.1m (2017: £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 2018, the indications are that the UK bank base interest rate will not materially differ over the next
12 months. On the basis of the net cash position at 31 December 2018 and assuming no other changes occur (such
as material changes in currency exchange rates) the change in interest rates will not have a material impact on net
interest income/(expense).
6 6
21. F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
2018
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Finance lease
2017
Group
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred contingent consideration
Finance lease
2018
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
2017
Company
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Deferred contingent consideration
Fixed
rate
£000
-
-
-
(52)
(52)
Fixed
rate
£000
-
-
-
-
(83)
(83)
Fixed
rate
£000
-
-
-
-
Fixed
rate
£000
-
-
-
-
-
Floating
rate
£000
Non-interest
bearing
£000
-
3,572
-
-
3,572
6,593
-
(1,951)
-
4,642
Floating
rate
£000
Non-interest
bearing
£000
-
3,064
-
-
-
3,064
Floating
rate
£000
-
643
-
643
8,493
-
(2,315)
(188)
-
5,990
Non-interest
bearing
£000
3,131
-
(4,595)
(1,464)
Floating
rate
£000
Non-interest
bearing
£000
-
1,036
-
-
1,036
2,246
-
(3,876)
(188)
(1,818)
Total
£000
6,593
3,572
(1,951)
(52)
8,162
Restated
Total
£000
8,493
3,064
(2,315)
(188)
(83)
8,971
Total
£000
3,131
643
(4,595)
(821)
Total
£000
2,246
1,036
(3,876)
(188)
(782)
6 7
21. F I N A N C I A L I N S T R U M E N T S ( C O N T I N U E D )
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 (2017: 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 16 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.
The Group undertakes procedures to determine whether there has been a significant increase in the credit risk of
its other receivables, including group balances, since their initial recognition. Where these procedures identify a
significant increase in credit risk, the loss allowance is measured based on the risk of a default occurring over the
expected life of the instrument rather than considering only the default events expected within 12 months of the year-
end.
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 2018, its £0.5m
bank facility was undrawn (2017: £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.
22. D E F E R R E D T A X
Group
Deferred tax asset
Amounts due to be recovered within 12 months
Amounts due to be recovered after 12 months
Total deferred tax (liability)/asset
2018
£000
-
(12)
(12)
Restated
2017
£000
93
300
393
6 8
22. D E F E R R E D T A X ( C O N T I N U E D )
The movement in the year in the Group’s net deferred tax position was as follows:
At beginning of the year
Net charge to income for the year
Net debit to equity
Adjustments in respect of prior years
At end of the year
2018
£000
393
(101)
(221)
(83)
(12)
Restated
2017
£000
947
(84)
(113)
(357)
393
The following are the major deferred tax assets and liabilities recognised by the Group and the movements thereon
during the year:
Accelerated
tax
depreciation
£000
Tax losses
£000
Retirement
benefit
obligations
£000
Other timing
differences
£000
Deferred tax asset/(liability)
At 1 January 2017
Credit/(charge) to profit or loss for the year
Debit to equity for the year
Adjustments in respect of prior years
(835)
177
-
-
At 31 December 2017
(658)
Credit/(charge) to profit or loss for the year
132
Debit to equity for the year
Adjustments in respect of prior years
-
-
897
(70)
-
(133)
694
(257)
-
-
At 31 December 2018
(526)
437
807
(56)
(113)
-
638
(34)
(221)
-
383
78
(135)
-
(224)
(281)
58
-
(83)
(306)
Total
£000
947
(84)
(113)
(357)
393
(101)
(221)
(83)
(12)
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 2018 were £0.3m (2017: £0.3m) due to uncertainty over the
timing of the recoverability of these losses.
23. R E T I R E M E N T B E N E F I T O B L I G A T I O N S
The Group has four active defined contribution schemes and a closed defined benefit scheme:
Defined contribution pension schemes
GROUP PERSONAL PENSION PLAN - the Scheme was created on 31 December 2008. The Scheme is a contributory
money purchase scheme with the employer matching employee contributions to a maximum of 5%. The employer
also contributes to the Scheme for former members of Instem LSS Pension Scheme at rates varying from 5% to 18%.
Employer contributions for the year ended 31 December 2018 were £0.53m (2017: £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 2018 were £0.03m (2017: £0.03m).
6 9
23. R E T I R E M E N T B E N E F I T O B L I G A T I O N S ( C O N T I N U E D )
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 2018 were £0.16m (2017: £0.11m).
BIOWISDOM GPP SCHEME - the Scheme is a Group Personal Pension arrangement with AVIVA 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 2018 were £0.02m (2017: £0.02m).
SAMARIND GROUP PENSION PLAN - the Scheme is a Group Personal Pension arrangement with Scottish Widows.
This Scheme moved to the Group Personal Pension Plan on 1 November 2017. During the year ended 31 December
2018 the employer made contributions of £nil (2017: £0.02m).
Defined benefit pension scheme
The Group also operates a defined benefit pension arrangement called the Instem LSS Pension Scheme (the Scheme).
The Scheme provides benefits based on final salary and length of service on retirement, leaving service or death. This
scheme was closed to new members with effect from 8 October 2001.
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 meet the Statutory
Funding Objective. The future contributions required to meet the Statutory Funding Objective do not currently affect
the balance sheet of the Scheme in these accounts.
The Scheme is managed by a Board of Trustees appointed in part by the Group and part from elections by members of
the Scheme. The Trustees have responsibility for obtaining valuations of the Scheme, administering benefit payments
and investing the Scheme's 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 a 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.
Apart from GMP equalisation and the increase on the cap on certain pension increases there were no Scheme
amendments, curtailments or settlements during the year.
The most recent comprehensive actuarial valuation was carried out at 5 April 2017 and the next valuation of the
Scheme is due at 5 April 2020. In the event that the valuation reveals a larger deficit than expected the Group may be
required to increase contributions above those set out in the existing Schedule of Contributions. Conversely, if the
position is better than expected, it’s possible that contributions may be reduced.
7 0
23. R E T I R E M E N T B E N E F I T O B L I G A T I O N S ( C O N T I N U E D )
The following schedule of contributions was prepared by the Trustees of 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 2018:
Period ended
31 March 2018
31 March 2019
31 March 2020
31 March 2021
31 March 2022
31 March 2023
31 March 2024
30 October 2024
Monthly payment (payable in each month except the
final month in each period) £’000
Balancing payment due before period end £’000
25
25
25
25
25
25
25
25
203
220
237
255
273
293
313
193
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.
Discount rate (pa)
Inflation (RPI) (pa)
Inflation (CPI) (pa)
Rate of increase in salaries
Rate of increase in pensions in payment
2018
%
3.00
3.10
2.00
N/A
3.00
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
24.1
25.2
23.1
24.0
2018
£000
212
(384)
(172)
2017
%
2.65
3.10
2.00
N/A
3.00
Years
24.3
25.3
23.2
24.1
2017
£000
278
(407)
(129)
7 1
23. R E T I R E M E N T B E N E F I T O B L I G A T I O N S ( C O N T I N U E D )
Pension schemes are legally required to equalise pension benefits for the effects of unequal Guaranteed Minimum
Pensions (GMPs) between males and females that were accrued since May 1990. The Group has included a reserve
of £0.126m in 2018 for the cost of GMP equalisation, based on information from the Group’s pension advisors. This
amount is charged to non-recurring costs in the Statement of Comprehensive Income.
ANALYSIS OF AMOUNT RECOGNISED IN OTHER COMPREHENSIVE EXPENSE
Losses/(gains) on pension scheme assets in excess of interest
Experience gains on liabilities
Gains from changes to demographic assumptions
2018
£000
957
-
(65)
(Gains)/losses from changes to financial assumptions
(2,192)
Actuarial gain recognised in other comprehensive expense
(1,300)
CHANGES IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATION
2018
£000
Opening defined benefit obligation
14,549
Interest cost
Past service cost and GMP reserve
Benefits paid
Experience gain on liabilities
Changes to demographic assumptions
384
203
(224)
-
(65)
Changes to financial assumptions
(2,192)
2017
£000
(686)
(183)
(156)
361
(664)
2017
£000
14,436
407
-
(316)
(183)
(156)
361
Closing defined benefit obligation
12,655
14,549
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
2018
£000
Opening plan assets
10,799
Expected return
Return on plan assets less interest
Contributions by employer
Benefits paid
289
(957)
499
(224)
Closing plan assets
10,406
2017
£000
9,690
278
686
461
(316)
10,799
The actual return on plan assets was a negative return of £0.67m (2017: positive return £0.96m).
7 2
23. R E T I R E M E N T B E N E F I T O B L I G A T I O N S ( C O N T I N U E D )
AMOUNT RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
2018
£000
Present value of funded obligations
(12,655)
Fair value of plan assets
Net pension liability
Related deferred tax asset
Net pension liability after deferred tax
RECONCILIATION OF NET DEFINED BENEFIT LIABILITY
Opening net defined benefit liability
Net interest expense and GMP reserve
10,406
(2,249)
383
(1,866)
2018
£000
3,750
298
Remeasurements
(1,300)
Contributions by employer
Closing net defined benefit liability
(499)
2,249
2017
£000
(14,549)
10,799
(3,750)
638
(3,112)
2017
£000
4,746
129
(664)
(461)
3,750
ANALYSIS OF CUMULATIVE AMOUNT RECOGNISED IN OTHER COMPREHENSIVE
EXPENSE
Cumulative
2018
£000
Cumulative
2017
£000
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
Cumulative actuarial loss recognised in other comprehensive expense
1,091
(1,628)
354
(3,188)
(3,371)
Actuarial gain recognised in other comprehensive income in the period
1,300
2,048
(1,628)
289
(5,380)
(4,671)
664
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2018
2017
Equities
Property
Bonds
Corporate Bonds
Cash
Other
£000
6,458
781
1,058
1,297
86
726
%
62
8
10
12
1
7
£000
7,468
438
1,104
1,028
553
208
%
69
4
10
10
5
2
10,406
100
10,799
100
7 3
23. R E T I R E M E N T B E N E F I T O B L I G A T I O N S ( C O N T I N U E D )
The five-year history of experience adjustments is as follows:
2018
£000
2017
£000
2016
£000
2015
£000
2014
£000
Present value of defined benefit obligation
(12,655)
(14,549)
(14,436)
(11,782)
(11,405)
Fair value of plan assets
10,406
10,799
9,690
7,849
7,524
Deficit
(2,249)
(3,750)
(4,746)
(3,933)
(3,881)
Experience gains/(loss) on plan liabilities
65
Return on plan assets less interest
(957)
156
686
-
-
1,252
(136)
(138)
(7)
The Group expects to contribute £0.5m to its defined benefit plan in the next financial year (2017: £0.5m).
The following sensitivities apply to the value placed on the liabilities:
Adjustments to assumptions
Approximate effect on liabilities
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
£000
(1,018)
1,153
1,068
(952)
301
(291)
24. P R O V I S I O N F O R L I A B I L I T I E S A N D C H A R G E S
At 1 January
Increase in provision during the year
At 31 December
2018
£000
250
-
250
2017
£000
-
250
250
During the year the Group made a provision of £nil (2017: £0.25m) in respect of historical contract disputes. The
utilisation of this provision is anticipated to be within 2 years.
7 4
25. S H A R E C A P I T A L
ALLOTTED, CALLED UP AND FULLY PAID
At 1 January
15,886,660 ordinary shares of 10p each (2017: 15,771,398)
31,271 ordinary shares of 10p each (2017: 115,262), issued during the year
At 31 December
2018
£000
1,589
3
1,592
2017
£000
1,577
12
1,589
During the year 31,271 shares were issued in respect of the exercise of share options.
26. E A R N I N G S P E R S H A R E
Basic and fully diluted
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders by the weighted
average number of ordinary shares in issue during the year. Diluted earnings per share is calculated by adjusting the
weighted number of ordinary shares outstanding to assume conversion of all dilutive potential shares arising from the
share option scheme. The dilutive impact of the share options is calculated by determining the number of shares that
could have been acquired at fair value (determined as the average market share price of the Company’s shares) based
on the monetary value of the subscription rights attached to the outstanding share options.
Profit after tax
(£000)
Earnings per share - Basic
1,470
Potentially dilutive shares
-
Earnings per share - Diluted
1,470
2018
Weighted
average
number of
shares (000’s)
15,909
940
16,849
Earnings per
share (pence)
Profit after tax
(£000)
9.2
-
8.7
642
-
642
Restated 2017
Weighted
average
number of
shares (000’s)
15,831
328
16,159
Earnings per
share (pence)
4.1
-
4.0
The adoption of IFRS 15 Revenue from Contracts with Customers has impacted Earnings per share (basic and fully
diluted). The pre-restated 2017 position is:
Pre-restated
Profit after tax
(£000)
Earnings per share - Basic
1,094
Potentially dilutive shares
-
Earnings per share - Diluted
1,094
2017
Weighted
average
number of
shares (000’s)
15,831
328
16,159
Pre-restated
Earnings per
share (pence)
6.9
-
6.8
7 5
26. E A R N I N G S P E R S H A R E ( C O N T I N U E D )
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
2,611
Potentially dilutive shares
-
Earnings per share - Diluted
2,611
2018
Weighted
average
number of
shares (000’s)
15,909
940
16,849
Adjusted
Earnings per
share (pence)
Adjusted
Profit after tax
(£000)
16.4
-
15.5
1,782
-
1,782
2017
Weighted
average
number of
shares (000’s)
15,831
328
16,159
Adjusted
Earnings per
share (pence)
11.3
-
11.0
The adoption of IFRS 15 Revenue from Contracts with Customers has impacted Earnings per share (adjusted basic
and fully diluted). The pre-restated 2017 position is:
Pre-restated
Profit after tax
(£000)
Earnings per share - Basic
2,234
Potentially dilutive shares
-
Earnings per share - Diluted
2,234
2017
Weighted
average
number of
shares (000’s)
15,831
328
16,159
Pre-restated
Earnings per
share (pence)
14.1
-
13.8
Reconciliation of adjusted profit before tax:
Reported profit before tax
Non-recurring costs
Amortisation of acquired intangibles
Foreign exchange differences on revaluation of inter-group balances
Adjusted profit before tax
Tax
Adjusted profit after tax
2018
£000
1,677
539
788
(186)
2,818
(207)
2,611
Restated 2017
£000
252
443
931
(234)
1,392
390
1,782
7 6
27. C A P I T A L A N D R E S E R V E S
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.
28. C A P I T A L C O M M I T M E N T S
There were no capital commitments at the end of the financial year (2017: £nil).
7 7
29. O P E R A T I N G L E A S E S P A YA B L E
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
2018
£000
564
2018
£000
603
2,496
244
17
3
3,363
2017
£000
582
2017
£000
461
1,369
368
24
20
2,242
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 the office buildings contain 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.
7 8
30. R E L A T E D P A R T Y T R A N S A C T I O N S
Transactions between Group companies have not been disclosed as these have all been eliminated in the preparation of
the consolidated financial statements. During the year, the Company traded with subsidiary companies in its normal
course of business. These transactions related to recharges and totalled in aggregate £1.0m (2017: £0.7m). The net
intercompany balances due from the Company at the year-end totalled £1.3m (2017: due from: £1.5m).
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:
2018
£000
2017
£000
Group and Company
Fees for services provided as Non-Executive Directors
Salaries and short-term benefits
Employer's national insurance & social security costs
Group
Executive Directors
Salaries and short-term benefits
Post-employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
Group
Other key management
Salaries and short-term employee benefits
Post-employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
120
11
131
335
41
23
91
490
968
51
68
125
1,212
120
10
130
340
40
24
73
477
1,029
51
67
66
1,213
The Company paid £0.05m (2017: £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 (2017: £nil).
The Company paid £0.018m (2017: £0.03m) 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 £0.003m
(2017: £0.009m).
In November 2016, the Group made a 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 (2017: £0.07m). The loan and accrued interest
has been repaid in full in 2019.
Key management are considered to be the Directors together with the Senior Managers of the business.
7 9
31. C O N T I N G E N T L I A B I L I T I E S
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 (2017: £9.0m).
8 0
D I R E C T O R S A N D A D V I S O R S
D I R E C T O R S
D Gare (Non-Executive Chairman)
M F McGoun (Independent Non-Executive)
D M Sherwin (Non- Executive)
P J Reason
N J Goldsmith
S E C R E T A R Y
N J Goldsmith
R E G I S T E R E D O F F I C E
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
Tel: +44 1785 825600
Fax: +44 1785 825633
www.instem.com
Company No: 07148099
A U D I T O R
RSM UK Audit LLP
Chartered Accountants
14th Floor
Chapel Street
Liverpool
L3 9AG
B A N K E R
National Westminster Bank Plc
1 Spinningfields Square
Manchester M2 3AP
N O M I N A T E D A D V I S O R A N D B R O K E R
Nplus1 Singer Advisory LLP
One Bartholomew Lane
London EC2N 2AX
R E G I S T R A R S
Computershare Investor Services PLC
The Pavilions
Bridgewater Road
Bristol BS13 8AE
S O L I C I T O R S
Squire Patton Boggs (UK) LLP
Trinity Court
16 John Dalton Street
Manchester M60 8HS
8 1
O U R C L I E N T S
O u r c l i e n t s
i n c l u d e t h e s e f i n e
o r g a n i s a t i o n s
8 2
I n s t e m s u p p o r t s i t s g l o b a l
r o s t e r o f c l i e n t s t h r o u g h
o f f i c e s i n t h e U n i t e d
S t a t e s , U n i t e d K i n g d o m ,
F r a n c e , J a p a n , C h i n a a n d
I n d i a .
8 3
UK
Global Headquarters
UK & European Operations
Diamond Way
Stone Business Park
Stone
Staffordshire, ST15 0SD
United Kingdom
Tel: +44 (0) 1785 825600
USA
North American Headquarters
Eight Tower Bridge
161 Washington Street
Suite 1550, 15th Floor
Conshohocken, PA 19428
United States
Tel: +1 (610) 941 0990
China
Asia-Pacific Headquarters
Room 205, Building 16
88 Darwin Road
Zhangjiang High-Tech Park, Pudong District
Shanghai
China, 201203
Tel: +86 (0) 21 5131 2080
e-mail: investors@instem.com
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