®
™
A N N UA L R E P O RT
2020
0
0
6
M o r e t h a n 6 0 0
c l i e n t s
Instem has over 600
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’ REMUNERATION REPORT
DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITY STATEMENT
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 STATEMENT OF CHANGES IN EQUITY
COMPANY STATEMENT OF CHANGES IN EQUITY
ACCOUNTING POLICIES
NOTES TO THE FINANCIAL STATEMENTS
DIRECTORS AND ADVISORS
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108
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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 .
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®
™
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 600 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 and services 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.
5
H I G H L I G H T S
W e a r e e x t r e m e l y p l e a s e d w i t h o u r c o n t i n u e d s t r o n g
o r g a n i c g r o w t h a n d i n c r e a s i n g a b i l i t i e s t o c r o s s s e l l t o
e x i s t i n g a n d n e w c l i e n t s .
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 10% to £28.2m (2019:
£25.7m)
•
Software as a Service (SaaS) revenues
increased 25% to £8.0m (2019: £6.4m)
• Recurring revenues (annual support and
SaaS) increased by 13% to £16.9m (2019:
£14.9m)
• Organic revenue growth (excluding
Leadscope acquisition in November 2019) of
3% to £26.3m (2019: £25.5m)
• Adjusted EBITDA* of £5.9m (2019: £4.9m)
• Reported profit before tax of £2.5m (2019: loss of
£0.9m)
• Adjusted profit before tax** of £4.0m (2019:
£3.2m)
• Fully diluted earnings per share of 11.6p (2019:
5.7p loss per share)
• Adjusted fully diluted earnings per share** of
19.1p (2019: 18.4p)
• Cash balance as at 31 December 2020 of £26.7m
(2019: £6.0m) – reflecting both operating cash
generation and the oversubscribed placing in July
2020
•
Strong performance despite wider market impact
of COVID-19
• Placing raising £15m net of expenses for the
Group to accelerate its acquisition strategy
• Continued transition to SaaS deployment,
increasing recurring revenue
• New business revenue came from a balanced
blend of new and existing clients
• Further expansion of footprint in the Asia-Pacific
region
P O S T P E R I O D - E N D H I G H L I G H T S
• Completed the acquisitions of The Edge
Software Consultancy (“The Edge”) and d-Wise
Technologies Inc (“d-wise”)
• Extending the Group’s reach across the drug
•
•
discovery and development lifecycle
Increasing recurring revenues
Strengthened relationships with existing
clients
• Current cash position of circa £14m following
payment of initial acquisition consideration
• Deferred and contingent consideration payable of
up to approx. £11.1m
*Earnings before interest, tax, depreciation, amortisation,
impairment of goodwill and capitalised development costs plus
non-recurring items.
**After adjusting for the effect of foreign currency exchange on
the revaluation of inter-company balances included in finance
income/(costs), non-recurring items, impairment of goodwill and
capitalised development costs plus amortisation of intangibles on
acquisitions.
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The performance during the Period highlighted our
resilience – especially given the COVID-19 backdrop.
Our proven model continues to generate strong cash
flows while the combination of increasing demand for
regulatory-backed solutions and a growing demand for
artificial intelligence and in silico solutions in the drug
discovery process underpins our confidence in further
leveraging our product base. Importantly, we already
have good visibility for the current year with growing
SaaS revenues and a strong pipeline.
We are extremely pleased with our continued strong
organic growth and increasing abilities to cross sell to
existing and new clients. Furthermore, we are primed
to build on this momentum, having strengthened our
proposition post Period end. The recent acquisitions of
d-wise and The Edge highlight our ability to add scale
and leverage existing customer relationships with a
view to further enhancing earnings and profitability,
while providing a strong platform for continued
growth. In addition, we are continuing discussions
with a number of other potential acquisition targets.
Given the structural backdrop and opportunities
within our existing client base we are confident that
we are well placed to continue growing recurring
revenues, margins, and cash generation, and look
forward to augmenting organic growth via our ongoing
acquisition strategy.
P J Reason
Chief Executive
H i g h l i g h t s
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"The Instem team continued to
make an exceptional contribution
to life sciences R&D in general and
specifically to the global endeavour
to rapidly bring safe and effective
COVID-19 vaccines and therapies to
market."
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
The performance of the Group during the Period
highlights the resilience of our business model as we
generated growing cash flows, revenues and profits
despite the wider global economic malaise caused by
the COVID-19 pandemic.
Whilst, clearly, this pandemic had, and continues
to have, a destabilising effect on a number of sectors
and businesses, we were able to take advantage of
the continued demand for our leading solutions and
services to the global life sciences market. Further, we
were able to meet new requirements from customers
looking to produce rapid solutions for COVID-19
related drug and vaccine development projects.
Operationally, we continued to perform in line with
market expectations - with a 10% increase in revenues
year-on-year and the shift towards SaaS continued,
further increasing visibility. We also successfully raised
£15m net of expenses to accelerate our acquisition
programme through the placing of 3,620,690 new
ordinary shares. The combination of strong cash flow
and funds raised meant that the cash balance at the
year-end was £26.7m (2019: £6.0m).
Importantly, the investment in our global infrastructure
and IT, made over recent years, meant that we were able
to effectively operate across a variety of geographies
whilst continuing to deliver solutions to our clients.
This investment had been designed to facilitate
the requirement for a dispersed and continuously
increasing remote business operation. With sections
of our workforce already working from home prior to
the pandemic, the onset of COVID-19 highlighted our
ability to continue delivering solutions remotely with
minimal disruption.
S T R A T E G I C D I R E C T I O N
Our ability to add value and integrate businesses rapidly
was highlighted by the performance of Leadscope,
which we acquired in November 2019 and which
enabled, our In Silico Solutions business unit to grow
rapidly during the Period.
We believe that the momentum achieved during the
Period provides validation of the strategic potential of
the business. In particular we were delighted to have
made notable progress on a number of fronts during
the Period, namely:
• Continued growth in SaaS-based revenues both
through new business wins and via the ongoing
conversion of existing clients. As such, SaaS-based
revenue increased 25% to £8.03m during the
Period;
• The expansion of "technology enabled outsourced
services", where 2020 revenue was £6.2m (2019:
£5.6m):
• Our market leading offering for the SEND services
business continued to perform well during the
Period.
A C Q U I S I T I V E G R O W T H
One of the Group’s key long-term objectives has been to
acquire complementary technologies or enter adjacent
markets – and given the wealth of opportunity, we
chose to raise £15m in July 2020 to accelerate this
strategy. We are delighted to have acquired d-wise
and The Edge post Period end. Both companies bring
strong management teams and synergies with our
existing business and client base. We believe they
will be integrated easily and will quickly be earnings
enhancing, whilst also extending our reach from
discovery to clinical trial across the drug discovery and
development lifecycle.
When we combine the performance of the business
in the recent past with the impact of the two recent
acquisitions, the step change in the scale of our
operations is strategically significant. We are extremely
excited about the potential we have for new horizons.
B O A R D
While the business has performed extremely well
over recent years, the Board recognises that it is not
currently fully compliant with the QCA guidelines for
corporate governance regarding the independence of
non-executive directors. We intend to address this
situation through additional non-executive director
appointment during the next 12 months. We look
forward to updating shareholders on our efforts in due
course.
S U M M A R Y
Finally, on behalf of the Board, I would like to thank and
congratulate the entire Instem team, who performed
admirably despite the often significant challenges
having to adjust to home based working, lock downs,
home schooling and the many other impacts of
COVID-19. Despite these challenges, the Instem
team continued to make an exceptional contribution
to life sciences R&D in general and specifically to the
global endeavour to rapidly bring safe and effective
COVID-19 vaccines and therapies to market.
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
The Group continued to enhance its position across
all parts of the business with growth underpinned by
the ongoing move to a SaaS model, resulting in further
margin growth during the Period. Importantly, this
shift is in train with the majority of clients, providing
increased visibility in the overall direction of travel.
The Group has a broad portfolio of products, providing
a growing range of solutions to existing and new clients
across the drug discovery and development lifecycle,
and a strong platform for increased cross-selling and
up-selling opportunities. Importantly during the
Period, the Group fully integrated Leadscope, which
was acquired in November 2019, further enhancing
performance.
The focus remains on building on this success, with the
Group primed for further acquisitive growth following
the recent acquisitions of d-wise and The Edge - having
successfully raised £15m net of expenses during the
Period to accelerate our acquisition strategy. Active
discussions are ongoing with a number of targets, with
the aim of further driving value across our existing
solutions with the possibility of also broadening our
portfolio.
M A R K E T R E V I E W
The market backdrop continues to be favourable
for the Group given global population growth and
life expectancy underpinning
increased demand
for successful innovation in life sciences. Increasing
amounts of money are being invested in the biotech
industry with the pharmaceuticals sector investing
heavily in drug development, underpinning a strong
pipeline for Instem. The market dynamics were
highlighted further by the onset of COVID-19, which
presented a number of new opportunities as R&D
increased with all the major companies focusing on
developing vaccines or therapies.
In the pharmaceutical industry, which represents the
largest proportion of Instem's revenue, we refer again
to the Pharma R&D Annual Review, the 2021 version
of which was released by Pharma Intelligence in March
this year. This report shows that the industry grew
strongly in the last 12 months with a 4.8% increase
(2019: 9.6%) in the total number of drugs in the
regulatory stages of global R&D, continuing a multi-
year growth trend that, subject to the potential impact
of COVID-19, shows no sign of abating. Most relevant
to Instem was the 6.0% increase (2019: 13.2%) in the
number of drugs at the preclinical (or non-clinical)
phase of drug development, that accounted for much
of our business.
The constant development of the drug discovery
pipeline continues to drive demand for Instem’s
solutions – enabling companies to provide faster and
cheaper routes to market. Importantly, the regulatory-
backed Standard for the Exchange of Non-clinical
Data ("SEND") continues to underpin longer term
opportunity and visibility. Further regulatory-backed
business lines were added to the Group’s portfolio with
the acquisition of Leadscope, providing solutions for
the ICH M7 (R1) standard.
B U S I N E S S P E R F O R M A N C E
S T U D Y M A N A G E M E N T A N D
D A T A C O L L E C T I O N
Performance here was relatively flat as expected, mainly
as a result of the fact that revenue recognition from
certain contracts won during the Period will not be
recognised until the current financial year, coinciding
with client deployment and the commencement of
annual support payments.
Encouragingly, the transition to SaaS continued at
pace, outstripping management’s expectations – with
the accelerated growth meaning there were fewer new
perpetual software licenses, and correspondingly lower
annual support and maintenance fees.
We were delighted to add Biotoxtech, a prominent
non-clinical Contract Research Organization in South
Korea, as a new client during the Period – further
enhancing the Group’s footprint in the Asia Pacific
region. The contract, worth approximately $1 million,
is for Instem to provide a comprehensive package of
preclinical data collection, analysis and regulatory
submissions management solutions to automate and
optimise study related processes.
Separately, the Group was awarded new business
with an existing client worth c.£2.2m, which has been
extended by a further $0.8m order post period end.
The new contracts combined Study Management and
Regulatory Solutions products and services, including
the expansion of the client's Provantis user base by over
25% - reflecting the continuing growth in non-clinical
research and development. Among other things, the
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funded product development work under this contract
will involve Provantis integration with a leading third
party digital pathology solution, offering the potential
for significant future productivity enhancement and
facilitating the work of an increasingly distributed
pathologist community.
I N S I L I C O S O L U T I O N S
The Group continued to generate strong In Silico
Solutions (previously Informatics) revenue growth,
which benefitted from strong organic growth as well
as a full year’s trading from Leadscope, acquired in
November 2019. The addition of Leadscope broadened
the Group’s in silico reach, which now incorporates
drug discovery through to early deployment and
beyond, providing a more rounded offering for existing
and new clients.
Having
integrated Leadscope, which only
contributed six-weeks trading in 2019, the Group was
able to drive significant in silico solutions returns, with
comparative revenues more than doubling to £3.3m.
fully
R E G U L A T O R Y S O L U T I O N S
Every drug company is required to submit non-clinical
data in the SEND format to the FDA (Food and Drug
Administration) as part of the processes for testing and
getting approval for a new drug. This means that the
combination of the industry’s focus on addressing a
backlog of SEND conversion work in addition to this
standard extending to new study types, provides a solid
platform for continued growth.
Instem’s technology creates, manages and visualizes
SEND datasets while
the Group also provides
technology-enabled outsourced services, enabling
customers to make FDA submissions with confidence.
The industry is increasingly looking to unlock silos of
information and importantly, customers are starting
to contemplate Instem’s SEND solutions as a consistent
approach to leveraging their valuable historic studies
for more efficient and effective research. This is
providing a growing source of revenue for the Group,
highlighted through a £0.7m top-30 pharmaceutical
company contract for conversion of historical studies
to the SEND format, won during the Period.
Furthermore, as part of the £2.2m contract with an
existing client (mentioned above), Instem will provide
SEND staff augmentation support, which will act as
an extension of the client’s staff to help address both
current and growing future demand (and backlog) for
SEND study services.
E N V I R O N M E N T A L , S O C I A L A N D
G O V E R N A N C E ( E S G )
Position and Mission
Instem is a leading provider of IT solutions and services
to the life science market with a mission to enable our
customers to bring their life enhancing products to
market faster.
Our core values underlying our approach to this
mission are summarized by the acronym, “RECIPe”:
• Offer Respect in our dealings with each other
• Empower everyone to add real value at every stage
• Be Creative in our solutions
•
• Be Passionate in our execution
• Leading to enjoyment in our working lives
Show Integrity in dealing with issues
Organisational Governance
At Instem, the Executive management team, under the
direction of the Board of Directors strives to attend
to the interests of all its stakeholders. Shareholders’
interests are also aligned with the long-term incentive
plan provided to senior management, achievement
of which is based on increasing the Instem share
price. Instem’s Board of Directors is committed to an
appropriate composition of the Board and is currently
considering ways of achieving this by engaging
institutional shareholders and external advisors
for their views. It is the intention that there will be
additional non-executive director appointment during
the next 12 months.
Instem is committed to having effective governance
practices to support its pursuit of its objectives, using
appropriate management processes and systems
to deliver the highest standards of ethical business
conduct and corporate governance.
To further support these goals, a Governance, Risk
management and Compliance (GRC) department, has
recently been set up with the aim of providing Instem
with a collection of capabilities that allows the business
to reliably manage governance, identify and manage
risks, and to provide an independent audit function to
ensure the business remains compliant accordingly.
The Board of Directors is responsible for the oversight
of risks facing the Group, and the ESG subjects (such
as social, ethical, environmental, legal and regulatory
compliance, business model resilience) will, where
appropriate, be included within the Group’s board
meetings which are generally held bi-monthly.
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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 )
Human Rights
As a vendor of software and associated services, Instem
operates in the highly regulated and ethically minded
life sciences industry where there is not a prevalence
for human rights issues.
Internally, Instem has implemented policies to cover
areas such as a modern slavery, anti-bribery, diversity,
equality and inclusion, both during the recruitment
process and while staff are in employment. The human
resources Policy and Culture handbooks, together
with our procurement practices ensure Instem and
third party staff are treated fairly and employed in
accordance with all relevant laws and regulations for
the locations in which they are based.
Procedures are in place to support the Group’s policy
that disabled persons, whether registered or not,
shall be considered for employment and subsequent
training, career development and promotion.
Employment Practices
Instem’s staff are a key component in the success of the
business and in respect to this Instem has a dedicated
Human Resources team that have implemented policies
to support staff during their employment.
Annual staff surveys, incorporating both Gallup Q12
and Great Place to Work concepts, are undertaken by
the HR team to ensure our staff have an opportunity
to express views on a wide range of employment and
social issues. Regular staff reviews offer additional
opportunities for such communications as well as to
guide training and skills development. The results of
the 2020 staff survey demonstrated that 82% of the
employees regard Instem as a great place to work.
An internal Kudos Award programme and Thanks
Badges are established to recognise exceptional
performance.
Health and well-being for staff was promoted through
employee communication channels and subsidised
healthcare provision.
Due to the impact of COVID-19 on working practices,
for 2020 Instem introduced a series of flexible working,
homeworking and holiday policies to support the
workforce
the difficulties of balancing
childcare with work commitments. Regular staff
surveys were also conducted and provided staff with
an opportunity to provide feedback on any issues they
were facing, in order for Instem to provide support as
appropriate.
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Environment – Our Environmental impact
At Instem, we understand our responsibility to
ensure that we are acting responsibly in regard to
the environment. For this reason, in 2021 we are
implementing a new Environmental Strategy across
the group, with the objective of ensuring Instem does
not disproportionately impact the environment as part
of its business activities.
The environmental strategy will be implemented
through a new Environmental Management System
(based on the framework of ISO 14001), with the
intention of improving the overall environmental
performance of the Group, considering both our
organisational profile and the local laws and regulation
in which Instem offices are located.
An Environmental Management Group will oversee
our environmental management system, including
representatives from Human Resources, Information
Services and Governance, Risk Management and
Compliance.
IT Equipment Waste Management
We already ensure that as a Group we are participating
in a programme to recycle or re-purpose 100% of all
I.T equipment used internally.
In addition to the above requirement one company
within the group, which is defined as a manufacturer
submitted its annual Waste Electrical and Electronic
Equipment (WEEE) return.
Impact of Greenhouse Gas Emission:
As per our mandatory reporting of greenhouse
gas emission pursuant to the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations
2013, the Group has reviewed the requirements of
the Environmental Reporting guidelines. For each
Company in the group that is qualified as large, their
total energy consumption is below 40MWh and
therefore the Group and Company are not required to
prepare an Energy and Carbon Report to be included
within this Annual Report.
Task Force for Climate-related Financial Disclosures
(TCFD)
The TCFD was established by the Financial Stability
Board to review how the climate-related issues has
been reviewed by the financial sector. The TCFD
has established a series of recommendations on the
disclosures which organisations should include in their
annual report, which would cover
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• Governance
•
Strategy
• Risk Management
• Metrics and targets
As part of our responsibility to manage our contribution
to long-term climate change, we will also include the
recommendations from the TCFD as part of our new
Environmental Strategy. This will assist informing our
stakeholders our climate-related financial risks and
how we manage these.
Within this year we will seek to ensure that we will
develop and implement our actions against the core
areas mentioned above and we will evaluate our
progress on a regular basis.
Ethical Operating Practices
Instem places a high emphasis on conducting its
business with honesty and integrity, and this forms
part of our core values. The highest ethical standards
are expected of management and employees alike and
we continuously strive to create a corporate culture of
honesty, integrity, and trust.
Instem has implemented policies such as Anti-
Corruption and Anti-Bribery and Corporate Criminal
Offences with the HR policy and culture handbooks
ensuring staff understand their responsibilities in
relation to ethical matters. Ethics and Code of Conduct
training is also mandatory training for all staff.
Customer Issues
Instem has a clear strategic objective of meeting its
customer’s needs and expectations in the products
and services that are supplied to them. The following
processes help Instem achieve this aim:
Software Development and Deployment
Instem has a comprehensive Software Development
Lifecycle and robust testing processes that are
overseen by Instem’s ISO9001:2015 certified Quality
Management System.
SaaS deployment of Instem solutions has enabled our
customers to reduce their own I.T. infrastructure. 100%
network availability was achieved for SaaS customers
during 2020.
Customer Support
Instem offers various support services to help our
Instem solutions efficiently and
customers use
effectively. These include, installation and technical
configuration support, training, validation, consultancy
and a global helpdesk.
Instem also strives to meet customer’s need and
expectations by regularly enhancing our software
through new functionality and software changes.
Data Protection
Instem has a Group wide data protection policy that
sets out processes and the legal conditions that must
be satisfied in relation to the obtaining, handling,
processing, storage, transferring and destruction of
personal information.
Information Security
At Instem, Information Security is embedded into all
aspects of business function and we use a combination
of technical, administrative and procedural controls to
protect IT and information from being compromised.
Instem’s security controls are managed according to
our ISO 27001:2013 certified information security
management system (ISMS) and implemented through
a combination of people, technology and processes.
Community Involvement and Development
With employees around the globe, we believe it is
important that we consider how our presence can
benefit the local communities in which we operate. We
also consider common cultural threads that unite us as
a global organisation, while meeting the needs of our
employees in every region.
Elements of this include:
•
Supporting a number of Charities including
matched-funding of employee fundraising events.
• Partnering with the INSPIRE Safety Pharmacology
Horizon 2020 project which includes funding two
PhD students.
S E C T I O N 1 7 2 S T A T E M E N T
In accordance with section 172 of the Companies
Act 2006 the Directors, collectively and individually,
confirm that during the year ended 31 December 2020,
they acted in good faith and have upheld their ‘duty to
promote the success of the Group’ to the benefit of its
stakeholder groups.
Directors acknowledge the importance of forming
and retaining a constructive relationship with all
stakeholder groups. Effective engagement with
stakeholders enables the Board to ensure stakeholder
interests are considered when making decisions and
is crucial for achieving the long-term success of the
Group.
Instem identifies five key stakeholder groups associated
with our business:
• Employees
• Clients
•
• Partners
• Communities in which we operate
Shareholders
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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 )
Employees
We recognise that our employees are critical to the
success of our business and we focus considerable
attention on
their positive engagement. This
commences from their initial induction into the
Group where new joiners are introduced to our Group
Values and our Culture Handbook, which provide a
framework for ensuring an alignment between Group
and employee interests. There is frequent and open
communication with employees, who are encouraged
to share their opinions, informally and through
regular surveys, both attributable and anonymous. We
have consistently used the Gallup Q12 engagement
questions in our surveys to identify trends and our
survey questions have been expanded over recent years
to align with those used by the Great Place to Work®
organization. Employee-led, location specific Action
Groups propose and implement changes to address
employee identified opportunities for improvement.
Proposals are considered by the Executive management
team and actioned accordingly. For further details on
our employees, please see page 12.
Clients
We are fortunate to operate in an industry that has a
highly collaborative culture with many businesses and
scientific related societies and organisations. Instem
participates widely in these groups, networking closely
with our clients and prospects, often taking a leadership
role based on the considerable expertise of our staff and
the broad experience we gain from working with many
clients. In addition, Instem organizes multiple client
engagement forums related to sectors of our market,
specific products and common industry practices or
regulation. These Special Interest Groups provide
input to strategy and operations, allowing us to ensure
that our products and services meet the needs of the
entire client (and prospect) community.
We survey our clients annually and, more regularly, at
the completion of each project and as we address each
client support call. These surveys also help us to plan
and prioritise changes to our products, services and the
broader engagement we have with clients across our
business.
Our Client Strategic Advisory Board
(“SAB”),
comprises senior staff with a broad industry perspective
and from a variety of client organisations. The SAB,
which meets twice per year, is tasked with informing/
validating Instem high-level business, product and
service strategy to ensure we maximise our mission to
enable our clients to bring their life enhancing products
to market faster.
Shareholders
With the professional guidance of our broker and
nominated adviser, N+1 Singer, and our financial public
relations advisers, Walbrook PR, the Group engages
with shareholders through multiple channels, aiming
to provide clear and informative updates. Regulated
News Service releases are provided regularly, both
those required as an AIM-listed business and additional
releases to keep shareholders, and the wider market,
informed about interesting business developments. We
undertake multi-day institutional investor roadshows
following the announcement of interim and full-year
results, which provides an opportunity to also engage
with a wider group of financial analysts and media. We
also took the opportunity to engage with institutional
shareholders through the 2020 equity fund raising
exercise. We typically also organise or attend retail
investor events, to ensure all shareholders have access
to executive management on a regular basis.
As broker research is typically not available to all
shareholders, we engage Progressive Equity Research
to produce additional analyst research, which is freely
available from the Instem Investor Centre website
and through other investor channels. In addition, we
subscribe for services from Proactive Investor who make
a range of Instem video and audio interviews available
for shareholder and wider investor consumption,
aggregated with their own financial journalist coverage
of Instem news.
While our annual general meeting typically attracts
very
independent shareholders, voting on
shareholder resolutions provides a formal avenue to
receive shareholder feedback and an opportunity for
us to consider the implications should resolutions
not pass unanimously. We also take note of feedback
from shareholder representative groups, who typically
provide structured feedback ahead of annual general
meetings.
few
Partners
Instem has a number of strategic partners, with whom
we actively engage to enhance our portfolio of world-
leading products and services. Formal agreements
govern these relationships and nominated Instem
employees are responsible for maintaining a regular
and open dialogue to ensure ongoing alignment
1 4
of interests. We frequently engage our partners in
the wide variety of methods of client engagement
described above to ensure they have a direct two-way
line of communication with the end-users.
impact
Communities
Instem has several offices around the world and
many employees who work from home. We recognise
our role as responsible employers and community
representatives and encourage and support our staff in
this regard, regularly providing matching funding for
charitable activities. There are regular staff organised
fund raising events and other activities to support local
causes that occur within our offices. Clearly this has
been harder to accomplish during office lockdown but
we have done so wherever possible, for example we
have continued to pay our office cleaning staff despite
offices being closed.
With only office (and home) based activities, our
environmental
is generally quite modest
although we do encourage efficient energy usage and
recycling in office locations (see the ESG report on
page 11). We also consider energy usage with our
external data centre partners as our clients increasingly
adopt our SaaS solutions increasing our data centre
footprint. Through investment in technology, staff in
the right places and changing business practices, we are
also striving to reduce the amount of air travel for staff
between our international offices and to our globally
dispersed client-base.
Significantly from a global community perspective, we
also recognise the considerable role we play in helping
our clients to provide their life enhancing products
across the world. We continually assess how we can
optimise what we do to accelerate the availability of
safe and effective drugs, vaccines and medical devices,
as well as safer and more effective agrochemicals, that
help to increase production to feed an ever-growing
world population.
1 5
S T R A T E G I C R E P O R T ( C O N T I N U E D )
F I N A N C I A L R E V I E W
Key Performance Indicators (KPIs)
The directors review monthly revenue and operating costs to ensure that sufficient cash resources are available for the
working capital requirements of the Group. Primary KPIs at the year end were:
12 mths to 31 Dec 2020
£000
12 mths to 31 Dec 2019
£000
Total revenue
Recurring revenue*
Recurring revenue as a percentage of total revenue
Adjusted EBITDA**
Adjusted EBITDA Margin %
Cash and cash equivalents
28,217
16,941
60%
5,919
21.0%
26,724
25,717
14,862
58%
4,864
18.9%
5,957
% Change
10%
13%
+200bps
22%
+210bps
349%
* Recurring revenue includes Annual support fees and SaaS subscription and support fees.
** Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and capitalised development costs
plus non-recurring costs.
Inc
fees,
including Leadscope
In addition, non-financial KPIs are periodically
reviewed and assessed, including customer and staff
retention rates.
Instem’s revenue model consists of perpetual licence
income with annual support and maintenance
contracts, professional
technology enabled
outsourced services fees and SaaS subscriptions.
Total revenues increased by 10% to £28.2m (2019:
£25.7m)
(‘Leadscope’)
revenue, which was acquired in November 2019. Total
organic revenue increased by 3% to £26.3m (2019:
£25.7m). Recurring revenue, comprising Support
& Maintenance contracts and SaaS subscriptions,
increased during the year by 13% to £16.9m (2019:
£14.9m). Recurring revenue as a percentage of
total revenue was 60% (2019: 58%). Revenue from
technology enabled outsourced services increased to
£6.2m (2019: £5.6m). Operating expenses increased
by 7% in the Period reflecting the addition of the
Leadscope cost base, ongoing investment in operational
teams and higher third-party costs associated with the
revenue mix, offset by savings in business travel due to
the pandemic.
Earnings
depreciation,
interest,
amortisation, impairment of goodwill and capitalised
development costplus non-recurring items (Adjusted
before
tax,
EBITDA) increased by 20% to £5.9m (2019: £4.9m).
Excluding Leadscope, the total comparable Adjusted
EBITDA increased by 13% to £5.3m (2019: £4.7m). The
EBITDA margin as a percentage of revenue increased
in the year to 21.0% from 18.9% in 2019.
Non-recurring costs in the year of £0.6m (2019: £0.3m)
included £0.5m of acquisition costs and £0.1m of legal
costs associated with historical contract disputes (2019:
£0.2m acquisition costs and £0.1m legal costs).
The reported profit before tax for the year was £2.5m
(2019: loss of £0.9m). Adjusted profit before tax (i.e.
adjusting for the effect of foreign currency exchange
on the revaluation of inter-company balances included
in finance
items,
impairment of goodwill and capitalised development
costs plus amortisation of intangibles on acquisitions)
was £4.0m (2019: £3.2m).
The total income tax charge in the year of £0.3m (2019:
£0.02m) represents 10.8% of the Group’s profit before
tax (2019: 2.4% of the Group’s loss before tax), with
the reduction against the United Kingdom corporate
tax rate of 19% due to the Group’s ability to receive
additional tax relief on its research and development
expenditure. This additional relief is expected to
continue into future years.
income/(costs), non-recurring
1 6
d-wise positions the enlarged Group as the foremost
authority and driving force in generating, analysing
and leveraging data from Discovery through late-stage
Clinical Trials. The total consideration is up to $31m
comprising $20m on completion, $8m of deferred
consideration and up to a further $3m which is payable
contingent upon the future financial performance of
d-wise. The initial consideration on completion is being
satisfied by $13m in cash and $7m via the issuance of
868,203 new ordinary shares of 10p each in Instem plc.
The cash is being funded from the Group’s existing
financial resources.
The Group’s legacy defined benefit pension scheme
continues to remain closed to new members and future
accrual. The most recent triennial actuarial valuation
of the Scheme was due as at 5 April 2020 with the
results expected to be announced along with the
publication of the Group’s interim results for the six-
month Period ending 30 June 2021. At 31 December
2020, the IAS19 accounting pension deficit increased
by £2.1m to £3.9m (2019: £1.8m). The agreed Group
cash contributions currently approximate to £0.5m
per annum, payable through to October 2024. The
deficit at the 2020 year-end of £3.9m (2019: £1.8m) is
represented by the fair value of assets of £12.5m (2019:
£12.0m) and the present value of funded obligations of
£16.4m (2019: £13.8m), after applying a discount rate
of 1.40% (2019: 2.20%).
The Group continues to maintain its investment in its
product portfolio. Research and development costs
incurred during the year were £3.4m (2019: £3.0m), of
which £1.2m (2019: £1.3m) was capitalised.
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 currency that gave rise to
this risk in 2020 was primarily from realised US dollars
transactions. The foreign exchange loss recorded during
2020 was £454k (2019: £41k) which is composed of
realised and unrealised gains/losses.
Basic and diluted earnings per share calculated on an
adjusted basis were 20.4p and 19.1p respectively (2019:
19.3p basic and 18.4p diluted). The reported basic
and diluted earnings per share were 12.7p and 11.9p
respectively (2019: (5.7)p basic and (5.7)p diluted).
The period saw strong net cash generated from
operating activities of £6.9m (2019: £5.4m), largely due
to cash inflow from key contracts, outsourced services,
working capital management and a £0.7m tax credit
claimed across the Group. In July 2020 the Group
successfully raised equity funds from institutional
investors amounting to £15.0m, net of expenses, for the
purpose of funding its M&A strategy. As a result of this
cash injection and the positive organic cash generation
achieved in the year, cash balances increased to £26.7m
at 31 December 2020, compared with £6.0m as at 31
December 2019.
Following the reporting period end the Group
completed the acquisition of The Edge Software
Consultancy Ltd. (‘The Edge’) in March 2021. The
acquisition extends the Group into early stage drug
Discovery, with software products that
improve
customer productivity and ensure high-quality data
capture in the laboratory. Total consideration payable
for The Edge is up to £8.5m with initial consideration of
£6.0m satisfied by £4.0m in cash from the equity funds
raised in 2020 and £2.0m via the issuance of 391,920
new ordinary shares of 10p each in Instem plc, £0.5m
of deferred consideration and up to a further £2.0m
payable contingent on The Edge’s trading performance
in the year ending 31 December 2021.
On 20 March 2021, Instem exchanged contracts to
acquire US-based clinical trial technology & consulting
leader d-Wise Technologies, Inc (“d-wise”). The
acquisition was completed on 1 April 2021. d-wise adds
a market leading position to the Group in an attractive
adjacent area of clinical trial analysis and submission,
with good future visibility through recurring revenue
streams and already contracted, high value consultancy
projects. The combined strength of Instem and
1 7
S T R A T E G I C R E P O R T ( C O N T I N U E D )
The table below provides the data for certain performance measures mentioned above:
Annual support fees
SaaS subscription and support fees
2020
£000
8,917
8,024
2019
£000
8,418
6,444
Recurring revenue
16,941
14,862
Licence fees
Professional services
Technology enabled outsourced services
3,477
1,603
6,196
Total revenue
28,217
EBITDA
Non recurring costs (see note 3)
*Adjusted EBITDA
Profit/(Loss) before tax
Amortisation of intangibles arising on acquisition
Impairment of goodwill and capitalised development
Non recurring costs (see note 3)
Intercompany foreign exchange loss/(gain)
**Adjusted profit before tax
Weighted average number of shares (000's)
Adjusted diluted earnings per share
Cash at bank
Bank overdraft
Cash balance
5,313
606
5,919
2,549
664
-
606
208
4,027
19,652
19.4p
35,722
(8,998)
26,724
3,501
1,773
5,581
25,717
4,562
302
4,864
(901)
523
3,175
302
61
3,160
17,053
18.4p
14,955
(8,998)
5,957
* Earnings before interest, tax, depreciation, amortisation, impairment of goodwill and capitalised development
costs plus 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, impairment of goodwill and capitalised development costs plus
amortisation of intangibles on acquisitions.
1 8
U P D A T E O N H I S T O R I C A L
C O N T R A C T D I S P U T E
An historical contractual licence dispute, which does
not affect the ongoing operations of the Group, is in
the process of being heard by the German courts. The
Group is defending the action and strongly believes that
the claim should be dismissed. Notwithstanding this,
the cost provision made in 2017 has been maintained in
the 2020 financial statements. Further announcements
will be made as and when appropriate. To date all legal
expenses have been expensed.
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. However, the Group’s products may be
adversely affected if economic and market conditions
are unfavourable and revenue may be affected from by
impact of accounting or regulatory changes.
Additionally, weak economic conditions, including the
potential impact of the trading arrangements between
the UK and EU at the end of the Brexit transition period
in December 2020 may affect the future performance
of the Group and its clients. One area of mitigation
for the Group is the presence of its wholly owned
subsidiary, Notocord SA, which is based in the EU.
The Group seeks to mitigate exposure to all forms of
risk through a combination of regular performance
review and a comprehensive insurance programme
Additionally, the Group has a significant proportion
of recurring revenue (circa 60% of total) from annual
support & maintenance and SaaS contracts from a well-
established global customer base. Consequently, the
Group ensures that it maintains a diversified portfolio
in terms of customers, revenue mix, geography and
markets.
Foreign currency 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 main currency giving
rise to this risk is US dollars. The Group mitigates the
foreign currency risk by having both cash inflows and
outflows in the relevant foreign currency due to local
revenue generation generally offset by a local cost base
that creates a natural hedge.
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. 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 continually assesses the most appropriate
approach to managing its currency exposure in line
with the overall goal of achieving predictable earnings
growth. 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 (2019: £0.1m).
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. No
customer individually amounts to more than 10% of
the Group revenue. At the 2020 year end the Group
had a maximum credit risk exposure of £6.1m (2019:
£6.9m).
The amounts presented in the statement of financial
position are net of impairment provisions.
The Group’s exposure to losses from defaults on
trade receivables is reduced due to contractual terms
which require installation, training, annual licensing
and support fees to be invoiced and paid annually in
advance.
Note 15 sets out the impairment provision for credit
losses on trade receivables and the ageing analysis of
overdue trade receivables. There were no impairment
losses recognised on other financial assets.
Liquidity risk
Liquidity risk is the risk that the Group will not be able
to meet its financial commitments as they fall due. The
Group’s objective is to ensure that adequate facilities are
available through use of bank overdrafts and leases. The
Group manages liquidity risk through regular cash flow
forecasting and monitoring of cash flows, management
1 9
S T R A T E G I C R E P O R T ( C O N T I N U E D )
review and regular review of working capital and costs.
The Group regularly monitors its available headroom
under its borrowing facilities. At 31 December 2020,
its £0.5m net bank facility was undrawn (2019: £0.5m
undrawn). The Group had positive cash reserves of
£26.7m at the end of the Period, in addition to the
£0.5m undrawn working capital facility, although
£2.5m of the cash was held in bank accounts in China,
where it has been traditionally harder to repatriate
funds quickly. There are no long-term restrictions on
the transfer of funds from the Group bank accounts in
China. Since the year-end the Group has repatriated
£1.6m of cash from China to the UK.
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
2020, 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
2020 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).
Cyber risk
The Group handles much data electronically and is
therefore extremely aware of the risks that a cyber-
attack could have on its business. It has robust standards
in place for establishing and maintaining systems and
processes to ensure that the highest standards of data
protection are in place. This also applies to any third
party who is handling data on behalf of the Group and
its customers, such as third-party hosting providers.
Technology risk
Due to the evolving nature of technology platforms
there is a risk of obsolescence. The Group’s future
performance depends on software development, by
introducing new and enhancing new products to meet
customer demand. If the Group does not respond
effectively to technological changes, changes in client
requirements and regulatory industry changes then its
business may be negatively affected.
The Group monitors this risk and develops strategic
development plans to ensure it remains compliant
with technological advances. Additionally, the Group
produces roadmaps for its key software products
through
its close relationships with clients and
partners. In addition, the Group reviews forthcoming
regulations to identify any need to change existing
products and to identify opportunities for developing
new products and services.
Acquisition risk
Any corporate acquisition has associated integration
risk. In respect of every acquisition the Group creates
an integration plan with assigned responsibilities to a
team led by an appointed project manager for delivering
against an agreed timetable. This is monitored closely
throughout the integration process and any deviations
against the plan are flagged and actioned accordingly.
Acquisitions are carefully assessed by the Board
to ensure alignment with the Group’s acquisition
strategy. The Group performs thorough due diligence,
supported by the appropriate use of external advisers,
to help identify any unexpected material adverse
consequences prior to deal completion.
Recruitment and retention risk
As its people are the Group’s major asset, it is critical
to ensure that it recruits the best staff possible and
that these individuals are rewarded and developed
appropriately. If the Group is unable to attract and
retain qualified personnel it is unlikeyly to meet its
growth objectives and stakeholder expectations. The
Group has a global HR team that manages the process
of ensuring the staff benefit and reward packages
are incentivising for both recruitment and retention
purposes. This includes benchmarking against peers
and industry norms and considering staff feedback
through regular performance review. During 2020 the
Group implemented an all-staff share scheme for the
first time.
COVID-19
The risk to the Group, as for any business, is that
the COVID-19 pandemic impacts new and existing
business activities as clients and suppliers focus on
short term priorities arising from pandemic or struggle
to remain in business.
The Group remains well placed and has seen minimal
impact from COVID-19, with working from home
practices implemented and the majority of business
2 0
P J Reason
Chief Executive
10 April 2021
relatively unaffected. There was a small shortfall in
Professional Services revenue compared with budget
due to travel restrictions preventing on-site service
delivery plus Academia was closed for part of the year.
It is expected that a small element of revenue slippage
will move into the current year as we fulfil our strong
services backlog.
P O S T P E R I O D - E N D
The Group completed
the earnings enhancing
acquisitions of The Edge and d-wise. The Edge, which
was acquired for up to £8.5m, is a discovery software
solutions provider with an established client base across
the pharmaceutical, biotechnology, biopharmaceutical
and animal health sectors. Its addition further broadens
Instem's reach into the closely adjacent Discovery
Study Management market.
d-wise, which is a US-based clinical trial technology
& consulting leader, was acquired for up to $31.0m.
The d-wise team and its solutions will create a new
operating segment at Instem, Clinical Trial Acceleration
Solutions, which will focus on leveraging the combined
capabilities to further expand areas of application.
O U T L O O K
The performance during the Period highlighted our
resilience – especially given the COVID-19 backdrop.
Our proven model continues to generate strong cash
flows while the combination of increasing demand for
regulatory-backed solutions and a growing demand for
artificial intelligence and in silico solutions in the drug
discovery process underpin our confidence in further
leveraging our product base.
We are extremely pleased with our continued strong
organic growth and increasing ability to cross sell to
existing and new clients. Furthermore, we are primed
to build on this momentum, having strengthened our
proposition post period end. The recent acquisitions
of d-wise and The Edge highlight our ability to add
scale and leverage existing customer relationships with
a view to further enhancing earnings and profitability,
while providing a strong cornerstone for continued
growth. In addition, we are continuing discussions
with a number of other potential acquisition targets.
Given the structural backdrop and opportunities
within our existing client base we are confident that
we are well placed to continue growing recurring
revenues, margins, and cash generation, and look
forward to augmenting organic growth via our ongoing
acquisition strategy.
2 1
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.
2 2
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
device 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.
2 3
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
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;
b. maintains appropriate relationships with
including considering
the
the
external auditor
appointment and remuneration of the external
auditor and reviews and monitors the external
auditor’s independence and objectivity and the
effectiveness of the audit process;
reviews all financial results of the Group and
financial statements, including all announcements
in respect thereof before submission of the relevant
documents to the Board;
c.
d. 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;
e. 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
f.
g. considers all other relevant findings and audit
programmes of the Group.
The Audit Committee is authorised to:
investigate any activity within its terms of reference;
a.
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.
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
https://investors.instem.com/corporate/governance.
php.
As noted in the Organisational Governance section of
the Strategic Report above. The Board seeks to maintain
a strong governance ethos throughout the Group and is
actively taking steps to address any shortcomings, such
as the composition of the Board. 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
together with
(KPIs) and financial
comparison of these against expectations. KPIs
assessed are both financial and non-financial.
results
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 Group. 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 twice during the year
2 4
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. Due to the closure of the UK head office during the
pandemic, all meetings were held by remote video calls.
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
10/10
10/10
10/10
10/10
10/10
5/5
5/5
5/5
5/5
5/5
1/1
0/0
2/2
2/2
2/2
1/1
1/1
1/1
1/1
1/1
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 Group.
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
the executive directors' remuneration
about
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.
2 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 ( 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 Group.
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;
2 6
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
2 7
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. Cash bonuses amounting to £18,000
were payable to executive directors in respect of the
year ended 31 December 2020 (2019: £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 Group
or any subsidiary of the Group.
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 with a notice period of three
months.
2 8
The emoluments paid or payable to directors in respect of the year ended 31 December 2020 were as follows:
Salary and Fees
Bonus
Benefits
Pension
2020 Total
2019 Total
Executives
P J Reason*
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
226
128
65
33
40
Total
492
11
7
-
-
-
18
8
5
-
-
-
13
31
13
-
-
-
44
276
153
65
33
40
567
261
141
60
30
30
522
* The remuneration in respect of P J Reason is payable in US Dollars and translated at the average rates as disclosed on page 57.
The total remuneration paid in the year was USD 355,000 (2019: USD 332,000).
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 2019
Granted
during year
Exercised
during year
Lapsed
during year
Held at 31
Dec 2020
P J Reason
Ordinary shares
N J Goldsmith
Ordinary shares
Employees
Ordinary shares
1.750
0.900
Nil
Nil
1.760
0.900
0.100
Nil
Nil
1.750
2.220
0.900
0.100
0.100
0.100
0.100
0.100
Nil
0.100
Nil
Nil
Nil
13/10/2010
14/01/2013
22/02/2018
26/06/2020
07/02/2012
14/01/2013
29/07/2015
22/02/2018
26/06/2020
13/10/2010
17/10/2011
14/01/2013
11/02/2015
29/07/2015
21/11/2015
27/05/2016
03/05/2017
22/02/2018
22/02/2019
27/04/2020
06/05/2020
19/05/2020
187,427
23,429
80,000
-
20,000
15,000
62,500
80,000
-
50,714
8,667
22,975
40,584
78,125
25,258
6,480
37,500
240,000
4,644
-
-
-
-
-
-
76,000
-
-
-
-
74,000
-
-
-
-
-
-
-
-
-
-
118,728
24,000
243,000
(187,427)
-
-
-
-
-
-
-
-
(50,714)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(15,000)
-
(4,644)
(2,144)
-
-
-
23,429
80,000
76,000
179,429
20,000
15,000
62,500
80,000
74,000
251,500
-
8,667
22,975
40,584
78,125
25,258
6,480
22,500
240,000
-
116,584
24,000
243,000
828,173
Total
983,303
535,728
(238,141)
(21,788)
1,259,102
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Director
2 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 2020.
Instem plc is a public limited company, incorporated
and domiciled in England, and quoted on AIM.
D I R E C T O R S ’ R E S P O N S I B I L I T Y
U N D E R S E C T I O N 1 7 2
The Group’s response to the requirements of section
172 of the Companies Act 2006 is included within the
Strategic Report.
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 10 to 21.
S T R A T E G I C R E P O R T
The Group has chosen in accordance with Companies
Act 2006, section 414C (11) to set out in the Group's
strategic report on pages 10 to 21 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.
B U S I N E S S R E L A T I O N S H I P S
W I T H S U P P L I E R S , C U S T O M E R S
A N D O T H E R S
The Groups’ response to the requrirment of the
business relationship with suppliers, customers and
others is included within the Section 172 Statement on
page 13 to 15.
D I R E C T O R S ’ R E S P O N S I B I L I T Y
U N D E R G R E E N H O U S E G A S
E M I S S I O N S A N D E N E R G Y
C O N S U M P T I O N
The Group has reviewed the requirements of the
each
Environmental Reporting guidelines,
Company in the group that qualifies as large their total
energy consumption is below 40MWh and therefore
the Group and Company is not required to prepare an
Energy and Carbon Report.
for
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.
Like most businesses worldwide the Group continues
to deal with the impact of COVID-19, with its primary
concern being for the safety and wellbeing of its staff and
their families. The Group has the benefit of operating
in a sector where significant worldwide focus is on
identifying vaccines and therapies for COVID-19, with
a number of our customers directly involved in this
work. While the Group experienced some disruption
to demand for its products and services during the year
there were also some increases in customer demand.
Whilst approximately half of the Group’s revenues
are generated from North America, the remaining
revenues are spread across the world and so there is no
dependence on one territory thus spreading the risk.
The Group benefits from having no supply chain and
no distribution network to rely on and has the added
benefit of having systems and processes established
to enable its workforce to work effectively from home
across all of its sites worldwide.
3 0
D I R E C T O R S ’ R E P O R T ( C O N T I N U E D )
The uncertainty as to the future impact on the Group
of the recent COVID-19 outbreak has been considered
as part of the Group’s adoption of the going concern
basis. Thus far we have not observed any material
impact on our overall existing business or in the level
of new business opportunities that are being presented
to us in the markets in which we operate. We saw a
little slippage in customers placing new business
during the first quarter of 2020, but we believe this
is unlikely to be a long term issue but instead caused
whilst our customers were focused on managing their
own businesses, with changes from introducing staff
self-isolation and working from home.
The Group cash balance at the year end included
£0.9m ($1.1m) of US government Paycheck Protection
Program loans received during the year. It is expected
that these will be forgiven during 2021.
E V E N T S A F T E R T H E
R E P O R T I N G P E R I O D
The events occurred after the balance sheet date were
disclosed in accordance with IAS 10, ‘Events after the
reporting period’. Details are provided in note 31 to the
Consolidated Financial Statements.
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 28 to 29.
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 2020 (2019: as at 3 June 2020) were as
follows:
2020
No. of Shares
2019
No. of Shares
DG 2008 Discretionary
Settlement
538,427
578,427
D M Sherwin
750,000
1,180,066
P J Reason
730,714
685,287
M F McGoun
N J Goldsmith
-
-
-
-
Directors’ interests in share options are detailed in the
Remuneration report on pages 28 to 29 .
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 2020 or
2019.
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 20 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.
3 1
D I R E C T O R S ’ R E P O R T ( C O N T I N U E D )
A N N U A L G E N E R A L M E E T I N G
The Annual General Meeting (‘AGM’) of the Company
will be held on 27 May 2021. The resolutions to be
proposed at the AGM, together with explanatory notes,
appear in a separate notice of AGM which is sent to all
shareholders. A proxy card for registered shareholders
is distributed along with the notice.
A U D I T O R S A N D 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
Pursuant to s489 of the Companies Act 2006, a
resolution to re-appoint Grant Thornton as auditor
will be put to the members at the forthcoming Annual
General Meeting.
On behalf of the Board
P J Reason
Director
10 April 2021
3 2
D I R E C T O R S ’ R E S P O N S I B I L I T Y S T A T E M E N T
The directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the company’s 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 Directors’ Report, the Directors’
Remuneration Report and the financial statements in
accordance with applicable law and regulations.
law requires the directors to prepare
Company
financial statements for each financial year. Under
that law the directors have elected to prepare the
financial statements in accordance with International
Accounting Standards (IAS) in conformity. 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 and profit
or loss of the company and group for that period. In
preparing these financial statements, the directors are
required to:
•
select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that
•
are reasonable and prudent;
state whether applicable International Accounting
Standards (IAS) in conformity have been followed,
subject to any material departures disclosed and
explained in the financial statements;
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the company will continue in business.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the company’s transactions and disclose with
reasonable accuracy at any time the financial position
of the company and enable them to ensure that the
financial statements and the Directors’ Remuneration
report comply with the Companies Act 2006. They
are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The directors confirm that:
•
so far as each director is aware, there is no relevant
audit information of which the company’s auditor
is unaware; and
the directors have taken all the steps that they
ought to have taken as directors in order to make
themselves aware of any relevant audit information
and to establish that the company’s auditor is aware
of that information.
•
3 3
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
FRC’s Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that
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
are
responsible
concluding on
the
for
We
appropriateness of the directors’ use of the going
concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists
related to events or conditions that may cast significant
doubt on the group’s and the parent company’s ability
to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw
attention in our report to the related disclosures in
the financial statements or, if such disclosures are
inadequate, to modify the auditor’s opinion. Our
conclusions are based on the audit evidence obtained
up to the date of our report. However, future events or
conditions may cause the group or the parent company
to cease to continue as a going concern.
A description of our evaluation of management’s
assessment of the ability to continue to adopt the going
concern basis of accounting, and our results arising
with respect to that evaluation, is included in the key
audit matters section of our report.
Based on the work we have performed, we have not
identified any material uncertainties relating to events
or conditions that, individually or collectively, may
cast significant doubt on the group’s and the parent
company’s ability to continue as a going concern for
a period of at least twelve months from when the
financial statements are authorised for issue.
In auditing the financial statements, we have concluded
that the directors’ use of the going concern basis
of accounting in the preparation of the financial
statements is appropriate.
The responsibilities of the directors with respect to
going concern are described in the ‘Responsibilities of
directors for the financial statements’ section of this
report.
O P I N I O N
Our opinion on the financial statements is unmodified
We have audited the financial statements of Instem plc
(the ‘parent company’) and its subsidiaries (the ‘group’)
for the year ended 31 December 2020 which comprise
the Consolidated Statement of Comprehensive
Income, the Consolidated and Company Statements
of Financial Position, the Consolidated and Company
Statements of Cash Flows, the Consolidated and
Company Statements 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 accounting standards
in conformity with the requirements of the Companies
Act 2006, and as regards the parent company financial
statements, as applied in accordance with the provisions
of the Companies Act 2006.
In our opinion:
•
in accordance with
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 2020 and of the group’s
profit for the year then ended;
the group financial statements have been properly
prepared
international
accounting standards in conformity with the
requirements of the Companies Act 2006;
the parent company financial statements have been
properly prepared in accordance with international
accounting standards in conformity with the
requirements of the Companies Act 2006 and as
applied in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared
in accordance with the requirements of the
Companies Act 2006.
•
•
•
B A S I S F O R O P I N I O N
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 the parent company in accordance with
the ethical requirements that are relevant to our audit
of the financial statements in the UK, including the
3 4
O V E R V I E W O F O U R A U D I T A P P R O A C H
Materiality
Overall materiality:
Group: £282,000 (2019: £257,000), which represents 1% of the group’s revenue.
Parent company: £149,000 (2019: £133,000), which represents 0.3% of the parent
company’s total assets.
Key audit matters were identified as;
•
Improper revenue recognition
• Carrying value of goodwill
• Going concern
Our auditor’s report for the year ended 31 December 2019 included one key audit
matter that has not been reported as a key audit matter in our current year’s report.
This relates to the carrying value of acquired intangibles, which was a key audit matter in the prior year specifically
in relation to intangibles acquired on the acquisition of Leadscope Inc in that year.
We have performed the following audit work:
•
an audit of the financial statements of the parent company and of the financial information of three of the
components using component materiality (full scope audit);
an audit of one or more account balances, classes of transactions or disclosures of the component (specified
audit procedures) of nine further components to gain sufficient appropriate audit evidence at the group level;
and
Key audit
matters
Scoping
•
•
analytical procedures at group level for the remaining three components in the group during the year.
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 judgement,
were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those that 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 financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
Description
Audit
reponse
KAM
Disclosures Our results
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
3 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 ( C O N T I N U E D )
K EY AU D I T M AT T E R
– G R OU P
HOW OU R S C O P E A D D R E S SE D T H E
M AT T E R – G R OU P
involved
judgement
is management
Improper recognition of revenue
We identified the improper recognition of revenue
for technology enabled outsourced services and
professional services (service revenue) as one of the
most significant assessed risks of material misstatement
due to fraud.
There is a risk that revenue has been misstated
through improper revenue recognition and due to
the complexity of these revenue streams there is a risk
that revenue recognition criteria is not being properly
applied.
There
in
determining the amount of revenue that is accrued at
year end for service revenue on open projects which are
recognised on a percentage completion basis as they
are incomplete at the year end. We consider the risk to
be heightened for service revenue and this has formed
the focus of our work. We considered this risk to be
specific to the accuracy and occurrence assertions.
We further consider that there is a significant risk
present in relation to new contracts for service revenue
entered into during the year ended 31 December
2020 (FY20), specifically with regard to whether the
contract has been assessed and revenue is recognised
appropriately in accordance with IFRS 15 ‘Revenue
from Contracts with Customers’.
Determining the amount of revenue to be recognised
requires management to make significant judgements.
These judgements include determining how many
performance obligations there are within each contract
and the period in which these obligations will be
fulfilled and recognised as revenue, based on the
group’s accounting policies.
This is considered to be a key audit matter given the
importance of reported revenue to key stakeholders.
In responding to the key audit matter, we performed
the following audit procedures:
• Assessing the group’s revenue accounting policies
•
to check compliance with IFRS 15;
Identifying and assessing new key contracts for
service revenue across the Group and considered
and challenged whether revenue has been
recognised correctly in accordance with IFRS 15
by considering performance obligations under
each key contract. We obtained evidence of
achievement of those obligations by the Group,
including assessment of management’s accounting
papers where available.
• Challenging a number of significant judgements
made by management in respect of service revenue
recognised as per the IFRS 15 accounting policy,
including the stated and implicit promises made to
customers at the point of sale through an assessment
of the contracts and of upgrades provided;
• Testing a sample of service revenue contracts,
focusing on contracts which remain open at the year
end and are recognised on a percentage completion
basis. We performed recalculations of the element
of service revenue to be recognised as completed,
agreeing to underlying signed statements of work,
contracted hourly rates and timesheets, and
invoices to ensure the appropriateness of revenue
recognition;
• Recalculating any accrued or deferred income
balances at the year-end for service revenue
contracts selected as part of our revenue test of
detail procedures; and
• Testing of cut off for service revenue by confirming
the appropriate allocation of sales to the correct
perio
3 6
K EY AU D I T M AT T E R
– G R OU P
HOW OU R S C O P E A D D R E S SE D T H E
M AT T E R – G R OU P
Relevant disclosures in the Annual report and
financial statements 2020
impairment analysis
The Group’s accounting policy on revenue recognition
is shown in ‘Accounting policies’ within the financial
statements on pages 54 to 56; and related disclosures
are included in Note 1 ‘Revenue from contracts with
customers’.
Carrying value of the group’s goodwill
We identified the carrying value of the group’s goodwill
as one of the most significant assessed risks of material
misstatement due to error.
Management’s goodwill
is
completed on an individual cash generating unit
(‘CGU’) basis. The process of assessing whether an
impairment exists under International Accounting
Standard (IAS) 36 ‘Impairment of Assets’ is complex.
Calculating the value in use, through forecasting cash
flows related to CGUs and the determination of the
appropriate discount rate and other assumptions to
be applied is highly judgemental and as a result of the
subjectivity of selecting the assumptions, can be subject
to management bias. The selection of certain inputs
into the cash flow forecasts can significantly impact the
results of the impairment assessment.
We identified significant management judgements in
the following areas:
• The weighted average cost of capital (‘WACC’) for
each CGU used to discount the cash flows within
the group’s impairment assessment;
• The revenue growth rate used in the impairment
forecasts; and
• Allocation of revenue and costs across the group.
Our results
Our audit testing did not identify any material
misstatements in relation to revenue recognition.
In responding to the key audit matter, we performed
the following audit procedures:
• Evaluating the group’s accounting policies to
determine their compliance with the requirements
of IAS 36;
• Testing the accuracy of management’s forecasting
through a comparison of budget to actual data;
• Challenging the appropriateness of management’s
assumptions and sensitivities relating to the fair
value calculations of the CGUs and estimated
future cash flows, including the growth rate and
discount rate used to assess the level of headroom;
• Obtaining and assessing management’s allocation
of revenue and costs to each CGU in the prepared
forecasts in accordance with the transfer pricing
policy;
• Assessing and challenging the carrying value of
goodwill in management’s impairment assessments.
Our challenge
the assumptions
focused on
regarding allocation of future revenues from the
underlying CGU relative to historic performance,
including whether the supporting cash flow
forecasts factor in COVID-19 considerations and
are in accordance with Board approved forecasts;
• Performing sensitivity analysis to understand
the impact of any reasonably possible changes in
assumptions, and evaluate the headroom available
from different outcomes to assess whether goodwill
could be impaired; and
• Assessing whether the group’s disclosures with
respect to the carrying value of the Group’s
goodwill are adequate and the key assumptions are
disclosed.
3 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 )
K EY AU D I T M AT T E R
– G R OU P
HOW OU R S C O P E A D D R E S SE D T H E
M AT T E R – G R OU P
Relevant disclosures in the Annual report and
financial statements 2020
The Group’s accounting policy on goodwill is shown
in ‘Accounting Policies’ within the financial statements
on page 61 and relevant disclosures in respect of the
carrying value of the group’s goodwill are presented in
Note 11 ‘Intangible Assets’.
Our results
Our audit testing did not identify any material
impairment of goodwill. We concluded that the
assumptions used in management’s impairment model
were appropriate. We consider the disclosures with
respect to the carrying value of the group’s goodwill to
be in accordance with IAS 36.
Going concern
We identified to going concern as one of the most
significant assessed risks of material misstatement due
to fraud and error as a result of the judgment required
to conclude whether there is a material uncertainty
related to going concern.
As stated in page 53, Covid-19 is one of the most
significant economic events currently faced by the
UK and at date of this report its effects are subject to
unprecedented levels of uncertainty. This event could
adversely impact the future trading performance of the
group and parent company as such increases the extent
judgement and estimation uncertainty associated with
management’s decision to adopt the going concern
basis of accounting in the preparation of the financial
statements.
In undertaking their assessment of going concern
for the group, the Directors considered the impact
of Covid-19 related events in their forecast future
performance of the Group and anticipated cash flows.
In responding to the key audit matter, we performed
the following audit procedures:
• Obtaining and assessing management’s paper
and assessment of going concern, including the
forecasts covering the period to 31 December 2022
and challenging the assumptions used in the cash
flow forecasts, as approved by the Board;
• Analysing how the reasonableness of forecasts
and related disclosures may be impacted by
the inherent risk associated with Covid-19 and
how this may affect the Group’s and the parent
company’s financial resources or ability to continue
operations over the going concern period;
• Obtaining management’s
extreme downside
scenario, which reflected management’s assessment
of uncertainties,
and which management
considered to be severe but plausible. We evaluated
the assumptions regarding the revenue and costs
during the forecast period and the proposed
mitigating cost savings under this scenario;
• Considering whether assumptions are consistent
with our understanding of the business obtained
during the course of the audit, the impairment
forecast assumptions and the changing external
circumstances arising from the government’s
Covid-19 interventions;
• Assessing the accuracy of management’s forecasting
through a comparison of historical data to actual
results and projections for following periods to
post year end management accounts;
• Testing the adequacy of the supporting evidence for
the cash flow forecast and performing arithmetical
checks on the forecast; and
• Assessing the policies and disclosures in respect of
going concern given in the financial statements for
appropriateness.
3 8
K EY AU D I T M AT T E R
– G R OU P
HOW OU R S C O P E A D D R E S SE D T H E
M AT T E R – G R OU P
Relevant disclosures in the Annual report and
financial statements 2020
The Group’s accounting policy on going concern is
shown in ‘Accounting policies’ within the financial
statements on page 52.
Our results
We have nothing to report in addition to that stated in
the ‘Conclusions relating to going concern’ section of
our report.
We did not identify any key audit matters relating to the audit of the financial statements of the parent company.
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
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the
opinion in the auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent company
Materiality for financial statements as a
whole
We define materiality as the magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to influence the economic decisions
of the users of these financial statements. We use materiality in determining the nature, timing and
extent of our audit work.
Materiality threshold
£282,000, which is 1% of the group’s revenue.
Significant judgements made by auditor in
determining the materiality
Revenue is considered to be the most appropriate
benchmark for the group because it is a key
performance indicator used by the Directors to
report to investors on the financial performance
of the Group.
Materiality for the current year is higher than
the level that we determined for the year ended
31 December 2019 to reflect the year-on-year
revenue growth.
£149,000, which is 0.3% of the parent company’s
total assets.
Total assets is considered to be the most
appropriate benchmark for the parent company
because the parent company’s principal activity is
that of a holding company.
Materiality for the current year is higher than the
level that we determined for the year ended 31
December 2019 to reflect the higher level of total
assets in the parent company at the year end.
Performance materiality used to drive the
extent of our testing
We set performance materiality at an amount less than materiality for the financial statements as a
whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality for the financial statements as a whole.
Performance materiality threshold
£197,400, which is 70% of financial statement
materiality.
£104,300, which is 70% of financial statement
materiality.
Significant judgements made by auditor in
In determining performance materiality, we
In determining performance materiality, we
determining the performance materiality
made the following significant judgements:
consideration of control deficiencies
•
identified in prior years;
•
•
whether there were any significant
adjustments made to the group’s financial
statements in prior years; and
assessment for any significant changes
in business objectives and strategy of the
group.
made the following significant judgements:
•
•
•
consideration of control deficiencies
identified in prior years;
whether there were any significant
adjustments made to the parent
company’s financial statements in prior
years; and
assessment for any significant changes
in business objectives and strategy of the
parent company.
3 9
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 )
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 ( C O N T I N U E D )
Materiality was determined as follows:
Materiality measure
Group
Parent company
Specific materiality
We determine specific materiality for one or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser amounts than materiality for the
financial statements as a whole could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
Specific materiality
We determined a lower level of specific
materiality for related party transactions and
directors’ remuneration.
We determined a lower level of specific
materiality for related party transactions and
directors’ remuneration.
Communication of misstatements to the audit
committee
Threshold for communication
We determine a threshold for reporting unadjusted differences to the audit committee.
£14,100 and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.
£7,450 and misstatements below that threshold
that, in our view, warrant reporting on
qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for
potential uncorrected misstatements.
Overall materiality – Group
Overall materiality – Parent company
Revenues
£28.2m
PM
£197k, 70%
Total assets
£49.8m
PM
£104k, 70%
FSM
£282k, 1%
FSM
£149k, 0.3%
TFPUM
£84.6k, 30%
TFPUM
£44.7k, 30%
FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected
misstatements
4 0
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
We performed a risk-based audit that requires an
understanding of the group and the parent company’s
business, and in particular matters related to:
Understanding the group, its components and their
environments, including group-wide controls
• The engagement team obtained an understanding
of the group, its environment and risk profile,
including group-wide controls, and assessed the
risks of material misstatement at the group level.
We considered the structure of the group, its
processes and controls and the industries in which
the components operate.
Identifying significant components and type of work
to be performed on financial information of parent
and other components
•
In order to address the risks identified, the
engagement team performed an evaluation of
identified components to assess the significant
components and to determine the planned audit
response based on a measure of materiality,
calculated by considering
the component’s
significance as a percentage of the group’s total
assets, revenue and profit before taxation. Of the
group’s sixteen components, we identified four
which, in our view, required an audit of their
financial information (full scope audit), either due
to their size or their risk characteristics. As a result
of this, we performed an audit of the financial
statements of the parent company and of the
financial information of three of the components
using component materiality;
• We identified improper recognition of revenue,
the carrying value of the group’s goodwill and
going concern as key audit matters and the audit
procedures performed in respect of these have
been included in the key audit matters section of
our report;
• We performed
audit procedures
specified
over certain balances and transactions of nine
components to give appropriate coverage of
balances. Together, the components subject to
full-scope audits and specified audit procedures
were responsible for 99% of the group’s revenue,
86% of the group’s profit before tax, 98% of group’s
EBITDA and 95% of the group’s total assets; and
• We performed analytical procedures at group
level over the remaining three components.
These procedures, together with the additional
procedures outlined above, performed at the group
level gave us the audit evidence we needed for our
opinion on the group financial statements as a
whole. All audit work has been undertaken by the
group engagement team.
Other information
The directors are responsible for the other information.
The other information comprises the information
included in the annual report and financial statements,
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 U R O P I N I O N 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 I S
U N M O D I F I E D
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.
•
M A T T E R S O N W H I C H W E A R E
R E Q U I R E D T O R E P O R T U N D E R
T H E C O M P A N I E S A C T 2 0 0 6
In the light of the knowledge and understanding of the
group and the parent company and its environment
obtained in the course of the audit, we have not
identified material misstatements in the strategic
report or the directors’ report.
4 1
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 )
M A T T E R S O N W H I C H W E A R E
R E Q U I R E D T O R E P O R T B Y
E X C E P T I O N
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 F O R T H E
F I N A N C I A L S T A T E M E N T S
As explained more fully in the directors’ responsibilities
statement, 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
4 2
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: www.frc.org.
uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Explanation as to what extent the audit was
irregularities,
considered capable of detecting
including fraud
Irregularities, including fraud, are instances of non-
compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of
irregularities, including fraud. Owing to the inherent
limitations of an audit, there is an unavoidable risk
that material misstatements in the financial statements
may not be detected, even though the audit is properly
planned and performed in accordance with the ISAs
(UK).
The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed
below:
• We obtained an understanding of the legal and
regulatory frameworks applicable to the parent
company and the group and the industry in
which they operate. We determined that the most
significant laws and regulations are: international
accounting standards in conformity with the
requirements of the Companies Act 2006, Quoted
Companies Alliance (QCA) Corporate Governance
Code and taxation laws;
• We obtained an understanding of how the parent
company and the group are complying with
those legal and regulatory frameworks by making
inquiries of management, those responsible for
legal and compliance procedures and the company
secretary. We corroborated our inquiries through
our review of board minutes and papers provided
to the Audit Committee;
• We assessed the susceptibility of the parent
company’s and group’s financial statements to
material misstatement, including how fraud might
occur. Audit procedures performed by the group
engagement team included:
company and the company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.
Michael Frankish
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
10 April 2021
• Assessing the design and implementation of
controls management has in place to prevent
and detect fraud;
• Obtaining an understanding of how those
charged with governance considered and
addressed the potential for override of controls
or other inappropriate influence over the
financial reporting process;
• Challenging assumptions and judgments made
by management in its significant accounting
estimates;
Identifying and testing journal entries, in
particular any journal entries posted with
unusual account combinations;
•
• Engaging with our internal tax specialist to
address the risk of non-compliance of tax
legislation;
• Assessing the extent of compliance with the
relevant laws and regulations as part of our
procedures on the related financial statement
item; and
• Making inquiries, in respect of fraud, of
those outside the finance team, including key
management and the project management
team.
• The assessment of the appropriateness of the
collective competence and capabilities of the
group engagement team included consideration
of the group engagement team's knowledge of
the industry in which the client operates, and
the understanding of, and practical experience
with, audit engagements of a similar nature and
complexity through appropriate training and
participation; and
• The engagement team’s discussions in respect
of potential non-compliance with
laws and
regulations and fraud included the risk of fraud
in revenue recognition. We identified improper
revenue recognition as a key audit matter. The key
audit matters section of our audit report explains
the matter in more detail and also describes the
specific procedures we performed in response to
the key audit matter.
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
4 3
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 2020
Year ended
31 December
2020
£000
Year ended
31 December
2019
£000
Note
REVENUE
Employee benefits expense
Other expenses
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION
AND NON-RECURRING COSTS (ADJUSTED EBITDA)
Depreciation
Amortisation of intangibles arising on acquisition
Amortisation of internally generated intangibles
Amortisation of right of use assets
Impairment of goodwill and capitalised development
OPERATING PROFIT/(LOSS) BEFORE NON-RECURRING COSTS
OPERATING PROFIT/(LOSS) AFTER NON-RECURRING COSTS
Non-recurring costs
Finance income
Finance costs
1
2
2
13
11
11
8
11
2
3
4
5
PROFIT/(LOSS) BEFORE TAXATION
Taxation
10
PROFIT/(LOSS) FOR THE YEAR
OTHER COMPREHENSIVE (EXPENSE)/INCOME
Items that will not be reclassified to profit and loss account:
Actuarial (loss)/gain on retirement benefit obligations
Deferred tax on actuarial gain/(loss)
Deferred tax on share options
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations
OTHER COMPREHENSIVE EXPENSE FOR THE YEAR
TOTAL COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR
PROFIT/(LOSS) ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE INCOME/(EXPENSE) ATTRIBUTABLE TO OWNERS OF THE
PARENT COMPANY
The notes on pages 66 to 107 form part of these financial statements.
Earnings per share
Basic
Diluted
26
26
28,217
(16,508)
(5,790)
5,919
(138)
(664)
(736)
(572)
-
3,809
(606)
3,203
38
(692)
2,549
(275)
2,274
(2,537)
518
322
(1,697)
10
(1,687)
587
2,274
587
12.3
11.6
25,717
(13,609)
(7,244)
4,864
(155)
(523)
(755)
(607)
(3,175)
(351)
(302)
(653)
7
(255)
(901)
(22)
(923)
30
(6)
-
24
(208)
(184)
(1,107)
(923)
(1,107)
(5.7p)
(5.7p)
4 4
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 2020
Company Registration No. 07148099
Note
£000
£000
£000
£000
2020
2019
ASSETS
NON-CURRENT ASSETS
Intangible assets
Property, plant and equipment
Right of use assets
Finance lease receivables
TOTAL NON-CURRENT ASSETS
CURRENT ASSETS
Inventories
Trade and other receivables
Finance lease receivables
Tax receivable
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Deferred income
Tax payable
Financial liabilities
Lease liabilities
Deferred tax liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities
Retirement benefit obligations
Provision for liabilities
Lease liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Share based payment reserve
Translation reserve
Retained earnings
11
13
8
8
14
15
8
21
16
17
18
21
19
8
22
19
23
24
8
25
27
27
27
27
27
18,023
238
1,742
128
50
6,093
41
724
26,724
2,958
9,878
-
268
608
90
1,131
3,868
250
1,476
2,048
28,172
2,432
930
92
(438)
18,108
237
2,165
175
20,131
20,685
33,632
53,763
13,802
6,725
20,527
36
6,921
39
1,158
5,957
2,662
8,942
404
301
565
506
559
1,804
250
2,004
1,662
13,135
2,432
654
82
(1,166)
14,111
34,796
13,380
4,617
17,997
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
33,236
53,763
16,799
34,796
The financial statements on pages 44 to 107 were approved by the board of directors and authorised for issue on 10 April 2021
and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
4 5
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 2020
Company Registration No. 07148099
2020
2019
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
27
Investments
12
26,620
-
26,192
TOTAL NON-CURRENT ASSETS
26,647
26,192
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
15
16
3,330
20,269
5,001
1,128
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
23,599
50,246
Trade and other payables
17
8,468
6,659
TOTAL CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
25
27
27
Share based payment reserve
2,048
28,172
14,066
929
Retained earnings
27
(3,437)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
8,468
8,468
41,778
50,246
1,662
13,135
14,066
654
(3,855)
6,129
32,321
6,659
6,659
25,662
32,321
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own statement of
comprehensive income and related notes. The Company’s profit for the year was £266,000 (2019: £4,023,000).
The notes on pages 66 to 107 form part of these financial statements.
The financial statements on pages 44 to 107 were approved by the board of directors and authorised for issue
on 10 April 2021 and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
4 6
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 2020
Note
£000
£000
£000
£000
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before taxation
Adjustments for:
Depreciation
Amortisation of intangibles
Depreciation of right of use assets
Impairment of goodwill and capitalised development costs
Share based payment charge
Retirement benefit obligations
Finance income
Finance costs
Loss on disposal of fixed assets
13
11
8
11
2
23
4
5
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
Movements in working capital:
(Increase)/decrease in inventories
Decrease in trade and other receivables
Increase in trade, other payables and deferred income
NET CASH GENERATED FROM OPERATIONS
Finance income
4
Finance costs
Income taxes
NET CASH GENERATED FROM OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Capitalisation of development costs and software
Purchase of property, plant and equipment
Payment of deferred consideration
11
13
Purchase of subsidiary undertakings (net of cash acquired)
(1,272)
(141)
(277)
-
2,549
138
1,400
572
-
427
(512)
(38)
692
2
5,230
(14)
742
1,410
7,368
38
(648)
183
6,941
(1,344)
(91)
-
(1,268)
(901)
155
1,278
607
3,175
75
(475)
(7)
255
-
4,162
1
790
693
5,646
7
(255)
25
5,423
NET CASH USED IN INVESTING ACTIVITIES
(1,690)
(2,703)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Proceeds from government support loan
Lease interest payment
Repayment of lease liabilities
8
Receipts from sublease of asset
Repayment of lease capital
15,423
810
-
(621)
40
(15)
648
-
(2)
(693)
7
(34)
NET CASH GENERATED FROM/(USED IN) FINANCING ACTIVITIES
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash and cash equivalents at start of year
Effects of exchange rate changes on the balance of cash held in foreign
currencies
CASH AND CASH EQUIVALENTS AT END OF YEAR
16
15,637
20,888
5,957
(121)
26,724
(74)
2,646
3,572
(261)
5,957
The notes on pages 66 to 107 form part of these financial statements.
4 7
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 2020
Note
2020
2019
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before taxation
Adjustments for:
Amortisation of intangibles
Finance income
Finance cost
Impairment of investment
CASH FLOWS USED IN OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
Decrease/(increase) in trade and other receivables
Increase in trade and other payables
NET CASH USED IN OPERATIONS
Finance income
Finance costs
NET CASH FROM/(USED IN) OPERATING
ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of software intangible
(29)
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
15,423
NET CASH GENERATED FROM FINANCING
ACTIVITIES
NET INCREASE IN CASH AND CASH
EQUIVALENTS
Cash and cash equivalents at start of year
CASH AND CASH EQUIVALENTS AT END OF YEAR
16
The notes on pages 66 to 107 form part of these financial statements.
266
2
(57)
-
-
211
1,670
1,809
3,690
57
-
3,747
(29)
15,423
19,141
1,128
20,269
(4,023)
-
-
243
2,810
(970)
(1,014)
2,064
80
-
(243)
(163)
-
648
485
643
1,128
-
648
4 8
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
Note
Shares
based
payment
reserve
£000
Translation
reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance at 31 December 2018
1,592
12,535
1,598
1,010
Adjustment on initial application
of IFRS 16
Adjusted balance as at 1 January
2019
Loss for the year
Other comprehensive (expense)/
income for the year
Total comprehensive (expense)/
income
Shares issued
Share based payment
25
9
Reserve transfer on exercise of
share options
-
-
-
-
1,592
12,535
1,598
1,010
-
-
-
70
-
-
-
-
-
-
-
-
600
834
-
-
-
-
-
-
-
-
75
(431)
Balance at 31 December 2019
1,662
13,135
2,432
654
Profit for the year
Other comprehensive income/
(expense) for the year
Total comprehensive income
Shares issued
Share based payment
25
9
Reserve transfer on lapse of share
options
Reserve transfer on exercise of
share options
-
-
-
-
-
-
386
15,037
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
427
(65)
(86)
(630)
16,395
(68)
(68)
(698)
16,327
290
-
290
-
(923)
(923)
(184)
(208)
24
(208)
(899)
(1,107)
-
-
-
82
-
10
10
-
-
-
-
-
-
431
1,504
75
-
(1,166)
16,799
2,274
2,274
(1,697)
(1,687)
577
-
-
65
86
587
15,423
427
-
-
Balance as at 31 December 2020
2,048
28,172
2,432
930
92
(438)
33,236
The notes on pages 66 to 107 form part of these financial statements.
4 9
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
Note
Share based
payment
reserve issued
£000
Balance as at 1 January 2019
1,592
12,535
13,232
1,010
Loss for the year
Shares issued
Share based payment
25
9
Reserve transfer on exercise of share
options
-
70
-
-
-
600
-
-
-
834
-
-
Balance as at 31 December 2019
1,662
13,135
14,066
Profit for the year
Shares issued
Share based payment
25
9
Reserve transfer on lapse of share
options
Reserve transfer on exercise of share
options
-
386
-
-
-
-
15,037
-
-
-
-
-
-
-
-
Balance as at 31 December 2020
2,048
28,172
14,066
-
-
75
(431)
654
-
-
427
(66)
(86)
929
Retained
earnings
£000
(263)
(4,023)
-
-
431
Total
equity
£000
28,106
(4,023)
1,504
75
-
(3,855)
25,662
266
-
-
66
86
266
15,423
427
-
-
(3,437)
41,778
The notes on pages 66 to 107 form part of these financial statements.
5 0
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
A D O P T I O N O F I F R S
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 of the Group and Company
have been prepared in accordance with international
accounting
the
requirements of the Companies Act 2006.
in conformity with
standards
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 2020.
The Group and Company have chosen not to adopt any
amendments or revised standards early.
I F R S s A D O P T E D I N T H E Y E A R
There are a number of standards, amendments to
standards, and interpretations which have been issued
by the IASB which are all effective from 1 January 2020.
The most significant of these are as follows:
•
IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors (Amendment – Definition of
Material)
IFRS 3 Business Combinations (Amendment –
Definition of Business)
•
• Revised Conceptual Framework for Financial
•
Reporting
Interest Rate Benchmark Reform (Amendments to
IFRS 9, IAS 39 and IFRS 7)
Those standards, amendments to standards, and
interpretations have been adopted and did not have
a material impact on the accounting policies of the
Group.
The practical expedient for COVID-19 Rent Related
Concessions (Amendments to IFRS 16) have not been
applied in the current reporting period.
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 consolidated financial statements have been
prepared on a going concern basis and prepared on the
historical cost basis. Refer to the Going Concern note
for further details.
The Group has taken advantage of the audit exemption
for nine of its subsidiaries, Instem Life Science Systems
Limited (company number 04339129), Instem Scientific
Solutions Limited (company number 03598020),
Instem Clinical Holdings Limited (company number
05840032), Instem Clinical Limited (company number
06959053), Instem LSS North America Limited
(company number 02126697), Instem LSS Limited
(company number 03548215),
Instem Scientific
Limited (company number 03861669), Perceptive
Instruments Limited (company number 02498351),
Samarind Limited (company number 02105894), by
virtue of s479A of Companies Act 2006. The Company
has provided parent guarantees to these subsidiaries
which have taken advantage of the exemption from
audit.
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all years
presented in these consolidated financial statements.
5 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 )
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
There are a number of standards, amendments to
standards, and interpretations which have been issued
by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The most significant of these is are as follows, which are
all effective for the period beginning 1 January 2021:
• References to the Conceptual Framework
• Proceeds before Intended Use (Amendments to
IAS 16)
• Onerous Contracts – Cost of Fulfilling a Contract
(Amendments to IAS 37)
• Annual Improvements to IFRS Standards 2018-
2020 Cycle (Amendments to IFRS 1, IFRS 9, IFRS
16, IAS 41)
• Classification of Liabilities as Current or Non-
current (Amendments to IAS 1)
These standards are not expected to have a material
impact on the entity in the current or future reporting
periods and on foreseeable future transactions.
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 2020 and 31
December 2019.
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 in which the Group has rights to
variable returns from its involvement with the investee
and has the ability to affect those returns through its
power over the investee. Subsidiaries are consolidated
from the date on which control is transferred to the
Group up until the date that control ceases.
All subsidiary companies within the Group have
a financial year end date of 31 December, with the
exception of Instem India Pvt Limited which has
a financial year end date of 31 March, in line with
Government of India regulations.
5 2
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’.
Consideration may consist of deferred consideration
and contingent consideration. Deferred consideration
is not based on any performance related conditions
and is payable on an agreed future date. Contingent
consideration is based on certain performance related
conditions and payable on an agreed future date, if
those conditions are met.
Deferred consideration and contingent consideration
is measured at their acquisition-date fair value
and are taken into account in the determination of
goodwill. Changes in the fair value of the contingent
consideration that qualify as measurement period
adjustments
retrospectively, with
corresponding adjustments against goodwill. The
subsequent accounting for changes in the fair value
of the contingent consideration that do not qualify
as measurement period adjustments depends on how
the contingent consideration is classified. Contingent
consideration that is classified as an asset or a liability
is re-measured at subsequent reporting dates with
the corresponding gain or loss being recognised in
statement of comprehensive income.
adjusted
are
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.
Background
The Directors have adopted the going concern basis
in preparing these financial statements after careful
assessment of identified principal risks and the possible
adverse impact on financial performance. The Directors
have assessed the financial position and liquidity at the
end of the reporting period and for the forecast period
up to 31 December 2022, including sensitivity analysis.
The going concern period covers the 12 months from
the date of signing the financial statements. The process
and key judgments in coming to this conclusion are set
out below.
The Group’s activities, including the factors likely
to affect its future development, performance and
position are set out in the Chairman’s Statement and
Strategic report. The financial position of the Group, its
cash flows, liquidity position and borrowing facilities
are described in the Financial Review.
Current trading and liquidity
The Group’s trading performance for the year ended
31 December 2020 has been strong with Revenues of
£28.2m and Adjusted EBITDA of £5.9m. Instem is fully
operational, with all staff in all territories working from
home in accordance with governmental guidelines, no
staff have been furloughed and there is no intention
of curtailing any business activities. The company
has continued to recruit staff across its geographic
footprint.
The Group's financing arrangements consist of a net
overdraft facility of £0.5m and a gross limit of £9.0m
with NatWest Bank plc to support the Group's working
capital needs. As of 31 December 2020, the net facility
was undrawn (2019: undrawn). There are no material
covenants associated with the facility.
Following the announcement of the 2019 preliminary
results Instem undertook an equity fund raise in July
2020. This was a success as it was oversubscribed,
raising gross funds of £15.75m, £15.0m net of expenses.
A further six prestigious institutions were added to the
list of shareholders. We spent £4.0m initially funding
the acquisition of The Edge on 1st March 2021 and
$13m spent on the initial funding of the d-wise
acquisition on 1st April 2021. The group remains in a
strong financial position as both of these acquisitions
are expected to be accretive and cash generative.
During 2020, the Group received US government
support loan of $1.1m (£0.9m). The Group have applied
for these sums to be forgiven and based on meeting all
the qualifying criteria, expect to receive a favourable
outcome.
The Group acquired the earnings enhancing, cash
generative business of Leadscope Inc. in November
2019, which has been steadily integrated within the
Group during 2020. The only financial obligation
associated with this acquisition during 2021 is a
deferred consideration payment of $0.3m due in
November 2021.
Other than the initial consideration paid for The Edge
and d-wise there are no further financial obligations
payable associated with the acquisitions until 2022,
when deferred and contingent consideration will be
due.
Sensitivity Analysis
The Company has considered three scenarios which
are also linked to the company’s risks when modelling
the forecast results and cash flow. The sensitivity
assessment includes the trading performance and
cash flows of the Edge and d-wise from the date of the
acquisitions.
(a) Base Case Scenario
The Group's detailed forecasts and projections, taking
account of potential risks and uncertainties in the
business, market and liquidity through sensitivity
analysis, show that the Group has adequate resources to
enable it to continue in operation through the forecast
period ending 31 December 2022 from the approval
date of these Consolidated Financial Statements.
Accordingly, the Group continues to adopt the going
concern basis in preparing its Consolidated Financial
Statements.
The uncertainty as to the future impact on the Group
of the recent COVID-19 outbreak has been considered
as part of the sensitivity analysis and as part of Group's
adoption of the going concern basis. Thus far we have
not observed any material impact on our overall existing
business or in the level of new business opportunities
that are being presented to us in the markets in which
we operate.
The Group has a significant proportion of recurring
revenue (circa 60% of total) from annual support &
maintenance and SaaS contracts from a well-established
global customer base. Revenue is supported by a largely
fixed cost base comprising staff and offices. The Group
had net current assets (excluding deferred income)
of £29.7m as of 31 December 2020 (2019: £10.0m).
The deferred income recurs each year on renewal of
contracts and in general the Group has either received
the related cash or has raised invoices for the services.
The Group had positive cash reserves of £26.7m at 31
December 2020, in addition to the £0.5m undrawn
working capital facility, although £2.6m of the cash
was held in bank accounts in China, where it has been
traditionally harder to repatriate funds quickly. There
are however no long-term restrictions on the transfer
of funds from the Group bank accounts in China and
since the 2020 year end we have been able to repatriate
£1.6m, significantly reducing our financial exposure to
that territory.
5 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 )
(b) Sensitised Scenario
Further stress testing has been carried out to ensure
that the Group has sufficient cash resources to continue
its operations until at least 31 December 2022. In the
downside scenario analysis performed, the Board
considered the potential impact of the COVID-19
outbreak on the Group's results. In preparing this
analysis the following key risks were
included:
COVID-19 causing a 25% loss of new business for
the next twelve months and the risk effect of foreign
exchange movements, particularly between
the
USD and GBP. Despite the negative impact of these
sensitivities the model demonstrated that the Group
remained viable, even though profitability and cash
over the next twelve months was reduced.
(c) Extreme downside Scenario
The Group then considered a more extreme situation
where the impact of its risks would be more severe
such as a significant negative impact of COVID-19
continuing for an extended period of time into 2022,
assuming there would be no new business at all. This
sensitivity exercise resulted in the Group showing an
operating loss in each of the years ending 31 December
2021 and 31 December 2022 and exhausting its cash
reserves from October 2021, having not drawn its bank
facility.
In a scenario where many of the identified risks occurred
the Group would take remedial action to counter the
dramatic reduction in profit and cash through a cost
cutting and fund-raising exercise that would include
staff redundancies, general cost control measures,
office space reduction and seeking alternative sources
of funding.
These downside scenarios are considered unlikely.
the extreme downside scenario
Even applying
sensitivity analysis throughout the forecast period to
31 December 2022, by taking sufficient remedial action
we expect the Group to remain a going concern.
Conclusion and Going Concern Statement
After considering the uncertainties described above, the
directors have a reasonable expectation that the Group
has adequate resources to continue in operational
existence for the foreseeable future. For these reasons,
they continue to adopt the going concern basis in
preparing this annual report and accounts.
5 4
R E V E N U E R E C O G N I T I O N
the
services
inception,
technology
transaction price
The Group generates revenue from the provision of
software licences, annual support, SaaS subscriptions,
professional
enabled
and
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
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 standalone selling price for each
performance obligation.
Revenue is recognised when a performance obligation
has been satisfied by transferring the promised product
or service to the customer.
Software licences
Licence revenue comprises the sale of software licences
across the Group and the sale of compound credits
by Leadscope. The revenue from software licences
is recognised when the customer takes possession of
the software which is usually when the licence 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. The revenue
from compound credits is recognised at the point in
time when the actual credits have been exercised, as the
promises in these contracts are a single performance
obligation.
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 usage of software on a hosted server
over a specified period of time 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 as the subscription and support are
highly interdependent on one another given that the
customers are required to take the full package of both
the software and support services i.e Instem would
not be able to provide the support services without
the provision of the software nor provide the software
without the support services.
The revenue is recognised over the period of the contract
on a straight-line basis as the customer simultaneously
receives and consumes the benefits of the software and
services provided by the Group.
Subscription and support
into by our
Subscription contracts are entered
Leadscope business and the associated revenue is
classified as Subscription and support fees. Customers
typically enter into a Subscription contract for a period
of twelve months and pay a fixed amount in exchange
for the usage of software on a hosted server, computer
based version or customer server version (in customer
premises) over a specified period of time along with
access to maintenance and support. Initial Subscription
contracts may also include some installation services.
The promises in these contracts are considered to be
a single performance obligation as the subscription
and support are highly interdependent on one another
given that the customers are required to take the full
package of both the software and support services
i.e Instem would not be able to provide the support
services without the provision of the software nor
provide the software without the support services.
The revenue is recognised over the period of the contract
on a straight-line basis as the customer simultaneously
receives and consumes the benefits of the software and
services provided by the Group.
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 given the services are
interdependent 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. The Group has elected to take the practical
expedient to apply this policy to its portfolio distinct
service contracts given the similar characteristics in
these types of contracts.
Bundled contracts
Software licences, professional services - and annual
support are often bundled together in a contract.
Where the contract assessment identifies that the sale
does not meet the criteria to be a distinct performance
obligation, due to a lack of interdependence between
performance obligations, 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.
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
judgement to determine which contract
applies
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.
5 5
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 )
During 2020 the business implemented a process to
more accurately allocate centrally held operational
costs to the individual segments. However, it will take
time for the allocations to be sufficiently accurate
for the Board to use segmental cost information for
meaningful decision making. Until that time, cost
allocations are not being provided to the Board as part
of the monthly management information.
The operations of the Group are managed centrally with
group-wide functions including sales and marketing,
development, customer support, human resources and
finance & administration.
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.
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.
•
•
A D J U S T E D 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 )
Adjusted EBITDA is profit/(loss) arising from the
Group’s normal trading activities stated before interest,
tax, depreciation, amortisation,
impairment of
goodwill and capitalised development costs and non-
recurring items.
It is 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
During the prior year the business was divided into
three operating segments to better manage and report
revenues; Study Management, Regulatory Solutions
and In Silico Solutions (see note 1).
In the final quarter of 2019 the board decided to
allocate certain direct costs to the revenue streams
whilst the majority of costs were still recorded and
reported centrally. The treatment in 2019 was based on
information that was provided to the Instem Board, the
Group’s Chief Operating Decision Maker, at the end of
2019.
5 6
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 2019
1.2739
9.9825
8.7841
89.3413
138.8451
1.1389
Closing rate at 31 December 2019
1.3159
10.2457
9.1621
93.8148
142.9249
1.1735
Average rate for year ended 31 December 2020
1.2852
9.9893
8.8974
95.4317
137.1411
1.1283
Closing rate at 31 December 2020
1.3659
10.5882
8.9346
100.1070
140.7079
1.1124
N O N R E C U R R I N G I T E M S
Non recurring items are gains or losses which are
infrequent or abnormal and are not part of the ongoing
operations of the business. Non recurring items may
include restructuring costs, legal fees, M&A costs and
other unusual gains or losses.
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 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.
The consolidated financial statements are presented in
Sterling (GBP), which is also the functional currency of
the Parent Company. 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)
Leadscope Inc.
US Dollars (USD)
5 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 )
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 in the subsidiaries and added to the cost
of investment within Instem plc.
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,
Brand Names and Patents
The Group makes an assessment of the fair value
of intangible assets arising on acquisitions. These
include Intellectual Property, Customer Relationships,
Brand Names 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
5 8
on a straight-line basis over its useful life. The useful
life for Intellectual Property, Customer Relationships,
Brand Names and Patents is between five and ten years.
Amortisation is recognised within the statement of
comprehensive income. All intangible assets except
Goodwill are amortised.
Goodwill
Goodwill on acquisitions, being the excess of the fair
value of the cost of acquisition over the Group’s interest
in the fair value of the identifiable assets and liabilities
acquired, is capitalised and tested for impairment on
an annual basis.
Any impairment is recognised immediately in profit or
loss and is not subsequently reversed. For the purpose
of impairment testing goodwill is allocated to cash
generating units of Instem plc, which represent the
smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Computer Software
Computer software is carried at cost less accumulated
amortisation and any impairment loss. Externally
acquired computer software and software licences are
capitalised and amortised on a straight-line basis over
their useful economic lives of three years. Costs relating
to development of computer software for internal use
are capitalised once the recognition criteria of IAS
38 “Intangible Assets” are met. When the software is
available for its use, these costs are amortised over the
estimated useful life of the software.
Internally generated intangible assets
Expenditure on research activities is recognised in the
statement of comprehensive income as incurred.
Expenditure arising from the Group’s development of
software for sale to third parties is recognised only if all
of the following conditions are met:
•
•
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.
Capitalised development costs are those which are
directly attributable to the development activity and
include employee costs, overheads and direct third
party costs.
technically and
is
•
•
•
•
Where the 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). Any
capitalised internally developed software that is not yet
complete is not amortised but is subject to impairment
testing.
Gains or losses arising from derecognition of an
intangible asset are measured as the difference between
the net disposal proceeds and the carrying amount of
the asset and are recognised in profit or loss when the
asset is derecognised.
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 - 25% - 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.
L E A S I N G
The Group as a lessee
leasing arrangements
The Group makes use of
principally for the provision of office space. The Group
does not enter into sale and leaseback arrangements.
All the leases are negotiated on an individual basis and
contain a wide variety of different terms and conditions
such as purchase options and escalation clauses.
The Group assesses whether a contract is a lease
or contains a lease at inception of the contract. A
lease conveys the right to direct the use and obtain
substantially all of the economic benefits of an identified
asset for a period of time in exchange for consideration.
5 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 )
Some lease contracts contain both lease and non-lease
components. These non-lease components are usually
associated with facilities management services at
offices. The Group has elected to not separate its leases
for offices into lease and non-lease components and
instead accounts for these contracts as a single lease
component.
Measurement and recognition of leases as a lessee
All leases are accounted for by recognising a right of
use asset and a lease liability except for:
• Leases of low value assets; and
• Leases with a term of 12 months or less.
Lease liabilities are measured at the present value of
the contractual payments due to the lessor over the
lease term, discounted using the Group’s incremental
borrowing rate because as the lease contracts are
negotiated with third parties it is not possible to
determine the interest rate that is implicit in the lease.
The incremental borrowing rate is the estimated rate
that the Group could have to pay to borrow the same
amount over a similar term and with similar security to
obtain an asset of equivalent value. This rate is adjusted
should the lessee entity have a different risk profile to
that of the Group.
Lease payments included in the measurement of the
lease liability are made up of fixed payments (including
in substance fixed) and variable payments based on an
index or rate.
In such cases, the initial measurement of the lease
liability assumes the variable element will remain
unchanged throughout the lease term. Other variable
lease payments are expensed in the period to which
they relate.
On initial recognition, the carrying value of the lease
liability also includes:
•
amounts expected to be payable under any residual
value guarantee;
the exercise price of any purchase option granted
in favour of the Group if it is reasonably certain to
assess that option;
any penalties payable for terminating the lease, if
the term of the lease has been estimated on the
basis of termination option being exercised.
•
•
Right of use assets are initially measured at the amount
of the lease liability, reduced for any lease incentives
received, and increased for:
•
lease payments made at or before commencement
of the lease;
6 0
•
•
initial direct costs incurred; and
the amount of any provision recognised where
the Group is contractually required to dismantle,
remove or restore the leased asset (typically
leasehold dilapidations).
Subsequent to initial measurement lease liabilities
increase as a result of interest charged at a constant rate
on the balance outstanding and are reduced for lease
payments made. Right of use assets are amortised on
a straight-line basis over the remaining term of the
lease or over the remaining economic life of the asset if,
rarely, this is judged to be shorter than the lease term.
When the Group revises its estimate of the term of
any lease (because, for example, it re-assesses the
probability of a lessee extension or termination option
being exercised), it adjusts the carrying amount of
the lease liability to reflect the payments to make over
the revised term, which are discounted at the revised
discount rate at the date of re-assessment or effective
date of a lease modification is used. The carrying value
of lease liabilities is similarly revised when the variable
element of future lease payments dependent on a rate
or index is revised. The lease liability is remeasured only
when the adjustment to lease payments takes effect and
the revised contractual payments for the remainder
of the lease term are discounted using an unchanged
discount rate. In both cases an equivalent adjustment
is made to the carrying value of the right of use asset,
with the revised carrying amount being amortised over
the remaining (revised) lease term.
When the Group renegotiates the contractual terms of
a lease with the lessor, the accounting depends on the
nature of the modification:
•
if the renegotiation results in one or more additional
assets being leased for an amount commensurate
with the standalone price for the additional rights-
of-use obtained, the modification is accounted for
as a separate lease in accordance with the above
policy
in all other cases where the renegotiated increases
the scope of the lease (whether that is an extension
to the lease term, or one or more additional assets
being leased), the lease liability is remeasured using
the discount rate applicable on the modification
date, with the right of use asset being adjusted by
the same amount
•
•
if the renegotiation results in a decrease in the
scope of the lease, both the carrying amount of
the lease liability and right of use asset are reduced
by the same proportion to reflect the partial of
full termination of the lease with any difference
recognised in profit or loss. The lease liability is
then further adjusted to ensure its carrying amount
reflects the amount of the renegotiated payments
over the renegotiated term, with the modified lease
payments discounted at the rate applicable on the
modification date. The right of use asset is adjusted
by the same amount.
In determining the lease term, the Group assesses
whether it is reasonably certain to exercise, or not
to exercise, options to extend or terminate a lease.
This assessment is made at the start of the lease and
is re-assessed if significant events or changes in
circumstances occur that are within the lessee’s control.
The Group has elected to account for short-term leases
assets using practical expedients. Instead of recognising
a right-of-use asset and lease liability, the payments in
relation to these are recognised as an expense in profit
or loss on a straight-line basis over the lease term.
The Group applies judgement in determining whether
individual leases can be accounted for as a portfolio.
The judgements include an assessment of whether the
leases share similar characteristics and whether the
financial statements would be materially different if
each lease was accounted for individually. The Group
leases a number of properties in the jurisdictions from
which it operates. In these jurisdictions the periodic rent
is fixed over the lease term, with inflationary increases
incorporated
into the fixed payments stipulated
in the lease agreements. Where rental agreements
include market rate escalations, the lease liability is
re-measured when the change in cash payments takes
affect. The Group also leases certain vehicles. Leases of
vehicles comprise only fixed payments over the lease
terms.
The Group as a lessor
The Group acts as a lessor in relation to a sublease of
part of one of the properties it leases. As a lessor the
Group classifies its leases as either operating or finance
leases. A lease is classified as a finance lease if it transfers
substantially all the risks and rewards incidental to
ownership of the underlying asset and classified as an
operating lease if it does not.
As the lease term is for the major part of the economic
life of the underlying right of use asset this has been
treated as a finance lease. The right of use asset has
therefore been derecognised and a net investment
in the lease recognised instead. Interest income is
recognised on the lease receivable.
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
in
impairment whenever events or changes
for
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
(‘CGU’) to which the asset belongs. A CGU 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 M P A I R M E N T T E S T I N G O F
G O O D W I L L
Cash-generating units to which goodwill has been
allocated are tested for impairment at least annually.
An impairment loss is recognised for the amount by
which CGU’s carrying amount exceeds its recoverable
amount, which is the higher of fair value less costs of
disposal and value-in-use. Both methods are applied to
CGUs to determine the recoverable amount.
6 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 )
To determine the value-in-use, management estimates
expected future cash flows from each cash-generating
unit and determines a suitable discount rate (WACC)
in order to calculate the present value of those cash
flows.
The data used for impairment testing procedures
are directly linked to the Group’s latest approved
budget, adjusted as necessary to exclude the effects of
future reorganisations and asset enhancements. The
budgeted unallocated deparmental costs are assigned
to each CGU's using an approach agreed by the board.
However, the board will not use this format to obtain a
important business decisions.
Impairment losses for cash-generating units reduce
first the carrying amount of any goodwill allocated to
that cash-generating unit. Any remaining impairment
loss is charged pro rata to the other assets in the cash-
generating unit.
To determine the fair value less cost to sell, management
estimates the cash flows that will be received by selling
the CGU at the end of the reporting period. They
then assess the characteristics of that particular CGU
from the perspective of the market particpants at the
measurement date.
With the exception of goodwill, all assets are
subsequently reassessed
that an
impairment loss previously recognised may no longer
exist. An impairment loss is reversed if the asset’s or
cash-generating unit’s recoverable amount exceeds its
carrying amount.
indications
for
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
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.
6 2
F I N A N C I A L I N S T R U M E N T S
Financial assets
The Group classifies its financial assets at amortised
cost. The classification depends on the purpose for
which the financial assets were acquired. Management
determines the classification of its financial assets at
initial recognition.
Financial assets at amortised cost
These assets arise principally from the provision of
goods and services to customers (eg trade receivables),
but also incorporate other types of financial assets where
the objective is to hold these assets in order to collect
contractual cash flows and the contractual cash flows
are solely payments of principal and interest. They are
initially recognised at fair value plus transaction costs
that are directly attributable to their acquisition or
issue, and are subsequently carried at amortised cost,
less provision for impairment.
The Group's financial assets measured at amortised
cost comprise trade and other receivables and cash
and cash equivalents in the consolidated statement of
financial position.
Trade receivables
Trade and other receivables are amounts due from
customers for services performed in the ordinary
course of business. If collection is expected in one
year or less (or in the normal operating cycle of the
business, if longer) they are classified as current assets,
if not, they are presented as non-current assets.
Trade and other receivables are measured at the
transaction price in accordance with IFRS 15.
The Group applies the IFRS 9 simplified approach to
measuring expected credit losses which uses a lifetime
expected loss allowance for all trade receivables and
contract assets. To measure the expected credit losses,
trade receivables and contract assets have been grouped
based on shared credit risk characteristics and the
days past due. The expected loss rates are based on the
payment profiles of sales over a period of 5 years before
31 December 2020 (2019: 31 December 2019) and
the corresponding historical credit losses experienced
within this period. The historical loss rates are adjusted
to reflect current and forward-looking information
on macroeconomic factors affecting the ability of the
customers to settle the receivables. The contract assets
relate to unbilled revenue, which have performance
obligations to be completed. The contract assets have
substantially the same risk characteristics as the trade
receivables for the same types of contracts. The Group
has therefore concluded that the expected loss rates for
trade receivables are a reasonable approximation of the
loss rates for the contract assets.
At each reporting date management assesses whether
any events have occurred which have had a detrimental
effect on the estimated future cash flows of the asset
causing a financial asset to become credit-impaired. If
the credit risk is significant a provision is posted based
on the recoverable amount the Group is expected
to receive per management’s assessment. Specific
provisions of this nature are excluded from the
simplified credit loss calculation using the provision
matrix.
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. Cash and cash equivalents in the
statement of financial position include bank overdrafts.
An offset position is reported as the Group has a legal
right to set off and any settlement would be on a net
basis. For the purposes of the cash flow statement, cash
and cash equivalents include bank overdrafts which are
repayable on demand and are an integral part of Group
cash management.
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.
Intercompany receivables
Impairment provisions for receivables from related
parties and loans to related parties are recognised
based on a forward looking expected credit loss
model. The methodology used to determine the
amount of the provision is based on whether there has
been a significant increase in credit risk since initial
recognition of the financial asset. For those where
the credit risk has not increased significantly since
initial recognition of the financial asset, twelve month
expected credit losses along with gross interest income
are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses
along with the gross interest income are recognised.
For those that are determined to be credit impaired,
lifetime expected credit losses along with interest
income on a net basis are recognised. The amount of
any provision is recognised in the income statement
within other operating costs.
liabilities and equity
Financial liabilities and equity
instruments are
Financial
classified according to the substance of the contractual
arrangements entered into.
Interest-bearing government
loans are recorded
initially at their fair value, net of direct transaction
costs. Such loans 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.
An equity instrument is any contract that evidences
a residual interest in the assets of the Group after
deducting all of its liabilities.
Bank borrowings and loan notes
Interest-bearing
loan notes and bank overdrafts
are recorded initially at their fair value, net of direct
transaction costs. Such instruments are subsequently
carried at their amortised cost and finance charges are
recognised in the statement of comprehensive income
over the term of the instrument using an effective rate
of interest.
Finance charges are accounted for on an accruals basis
to the statement of comprehensive income. Overdrafts
are offset against cash and cash equivalents when the
Group has a legal right of off-set.
Trade and other payables
Trade and other payables are not interest bearing and
are initially recognised at fair value and subsequently
at amortised cost.
Ordinary share capital
For ordinary share capital, the par value is recognised
in share capital and the premium in the share premium
reserve.
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.
6 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 )
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.
S I G N I F I C A N T J U D G E M E N T S
A N D E S T I M A T E S
In the process of applying the Group’s accounting
policies, which are described above, management have
made judgements and estimations about the future
that have the most significant effect on the amounts
recognised in the financial statements. The estimates
and underlying assumptions are reviewed on an on-
going basis. Revisions to accounting estimates are
recognised in the period in which the estimate is
revised if the revision affects only that period or in the
period of revision and future periods if the revision
affects both current and future periods.
Significant judgements
The following judgments have the most significant
effect on the financial statements.
Revenue Recognition
The Group generates revenue from the provision of
software licences, annual support, SaaS subscriptions,
subscription and support, professional services and
technology enabled outsourced services. Software
licences, professional services and annual support are
often bundled together in a contract which do not meet
the criteria to be distinct performance obligation, due
to a lack of interdependence between performance
obligations. Promises that are not distinct are combined
with other promised goods or services in the contract,
until a performance obligation is satisfied.
Judgement is applied in determining how many
performance obligations there are within each contract
and the period in which these obligations will be
fulfilled and recognised as revenue, based on the
Group’s accounting policies. For SaaS subscription
and support, the Group determines for each contract
whether the promise is considered to be a single
performance obligation as the subscription and support
are highly interdependent on one another given that
the customers are required to take the full package of
both the software and support services i.e Instem would
not be able to provide the support services without
the provision of the software nor provide the software
without the support services.
Impairment of goodwill
CGUs are identified by the fact they are separate legal
entities and so have their own intangible and tangible
assets, other current assets and generate cash from their
products and services that are separately identifiable
from one another. The judgements were made in
respect of the WACC, the revenue growth rate applied
and the allocation of costs across the CGUs.
The carrying value of goodwill must be assessed for
impairment annually. This requires a value in use
estimate which is dependent on estimation of future
cashflows and the use of an appropriate discount rate
to discount those cash flows to their present value. The
carrying value of goodwill as at 31 December 2020 was
£10.2m (2019: £10.2m). Refer to note 11 for further
detail.
Management approved to use the same pre-tax WACC
across all CGUs, as it was determined based on the
Groups risks and there were no specific risks related to
each CGU or CGU’s jurisdiction.
The revenue growth rates and margins are based
on current Board-approved budgets and forecasts
covering a period of five years. Management estimates
are considering business growth rates, payroll and
other cost base increases further details are provided
in note 11.
The data used for impairment testing procedures are
directly linked to the Group’s latest approved budget,
adjusted as necessary to exclude the effects of future
reorganisations and asset enhancements. The budgeted
unallocated departmental costs are assigned to each
CGU applying a standard methodology approved by
the Board.
6 4
and the use of an appropriate discount rate to discount
those cash flows to their present value. The carrying
amounts of acquired intangibles and software at the
reporting date was £3.6m and £4.3m respectively (2019:
£4.2m and £3.7m). There was an impairment charge of
£0.7m on the year ended 31 December 2019. Refer to
note 11 for further detail.
Pension scheme
As stated above the Group operates a defined benefit
pension scheme. At the end of each six monthly
reporting period the Group seeks external expert
actuarial advice on the assumptions to apply to the
calculation of the scheme’s liabilities. The Group
then engages a separate, independent firm of pension
advisors to calculate the scheme surplus or deficit at the
reporting date for accounting purposes. The scheme
deficit at 31 December 2020 is £3.9m (2019: £1.8m).
Revenue Recognition
For Professional services and technology enabled
outsourced services revenue recognition there is a
significant estimation of the planned project hours,
which determines the percentage of completion of
service revenue contracts. Before the project is started,
the project manager estimates the budgeted hours
needed for the agreed services. If the project is expected
to overrun then the project manager will amend the
expected budgeted hours in accordance with the new
available information which also mitigates the risk of
early revenue recognition.
Development Costs
The Group invests on a continual basis in the
development of software for sale to third parties.
There is a continual process of enhancements to and
expansion of the software with judgement required
in assessing whether the development costs meet
the criteria for capitalisation. These judgements have
been applied consistently year on year. In making this
judgement, the Group evaluates, amongst other factors,
whether there are future economic benefits beyond the
current period, the stage at which technical feasibility
has been achieved, management’s intention to complete
and use or sell the product, the likelihood of success,
availability of technical and financial resources to
complete the development phase and management’s
ability to measure reliably the expenditure attributable
to the project. Judgement is therefore required in
determining the practice for capitalising development
costs.
Estimation uncertainty
Information about estimations and assumptions that
may have the most significant affect on recognition and
measurement of assets, liabilities, income and expenses
is provided below. Actual results may be substantially
different.
Provision for liabilities
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 2020, the Group has a provision of
£0.25m (2019: £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 input received by the Group.
Contingent consideration
Where acquisition consideration includes consideration
contingent on performance outcomes being met, the
consideration is valued at the acquisition date based
on performance forecasts available at the time. Those
forecasts are reviewed at the reporting date and the
consideration revised where materially different.
Impairment of other intangible assets
Other intangibles assets consist of assets acquired
(customer relationships, intellectual property and
brand names) as part of the net assets of certain
subsidiaries and software, being mainly capitalised
development costs. Impairment testing requires if
there is an indication that the other intangible asset
is impaired and the value in use method would be
estimated based on an estimation of future cashflows
6 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. Segmental Reporting
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.
Prior to 2019, the Group reported its business as one operating segment; Global Life Sciences. The Board managed
the Group by monitoring its revenue streams and considered the cost base as a whole. Historically the Group’s finance
systems have recorded costs centrally and have managed costs in this way. Without systems capable of allocating
costs accurately, the Board concluded that there was only one operating segment in which revenues and costs were
reported. Over recent years the Group has expanded both organically and through acquisition, increasing the number
of products and services. During 2019 the business was divided into three operating segments to better manage and
report revenues; Study Management, Regulatory Solutions and In Silico Solutions.
There has been an ongoing project to enhance the quality of management information (MI) following the
implementation of a new finance system. During the final quarter of 2019 certain direct costs were allocated to the
revenue streams whilst the majority of costs were still recorded and reported centrally. The treatment in 2019 was
based on information that was provided to the Instem Board, the Group’s Chief Operating Decision Maker, at the end
of 2019.
During 2020 the business implemented a process to more accurately allocate centrally held operational costs to the
individual segments. However, it will take time for the allocations to be sufficiently accurate for the Board to use
segmental cost information for meaningful decision making.
The operations of the Group are managed centrally with group-wide functions including sales and marketing,
development, customer support, human resources and finance & administration.
The analysis provided below reflects costs directly attributable to the respective segments in 2020 and 2019, which
are primarily third party costs of sale and costs of allocated employees. The remaining indirect operational costs are
accounted for centrally and are not allocated to specific segments.
6 6
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 ( C O N T I N U E D )
SEGMENTAL REPORTING
2020
Study
Management
£000
Regulatory
Solutions
£000
Total revenue
15,054
Direct attributable costs
(3,516)
Contribution to indirect overheads
11,538
Central unallocated indirect costs
9,839
(2,046)
7,793
In Silico
Solutions
£000
3,324
(1,630)
1,694
Adjusted EBITDA
Depreciation
Amortisation of intangibles arising on acquisition
Amortisation of internally generated intangibles
Depreciation of right of use assets
Impairment of goodwill and capitalised development costs
OPERATING PROFIT BEFORE NON-RECURRING COSTS
OPERATING PROFIT AFTER NON-RECURRING COSTS
Non-recurring costs
Finance income
Finance costs
PROFIT BEFORE TAXATION
SEGMENTAL REPORTING
2019
Study
Management
£000
Regulatory
Solutions
£000
In Silico
Solutions
£000
15,188
(4,370)
10,818
9,037
(2,111)
6,926
1,492
(660)
832
Total revenue
Direct attributable costs
Contribution to indirect overheads
Central unallocated indirect costs
Adjusted EBITDA
Depreciation
Amortisation of intangibles arising on acquisition
Amortisation of internally generated intangibles
Depreciation of right of use assets
Impairment of goodwill and capitalised development costs
OPERATING LOSS BEFORE NON-RECURRING COSTS
OPERATING LOSS AFTER NON-RECURRING COSTS
Non-recurring costs
Finance income
Finance costs
LOSS BEFORE TAXATION
Total
£000
28,217
(7,192)
21,025
(15,106)
5,919
(138)
(664)
(736)
(572)
-
3,809
(606)
3,203
38
(692)
2,549
Total
£000
25,717
(7,141)
18,576
(13,712)
4,864
(155)
(523)
(755)
(607)
(3,175)
(351)
(302)
(653)
7
(255)
(901)
6 7
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 ( C O N T I N U E D )
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
North America
Rest of World
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY
GEOGRAPHICAL LOCATION
UK
Rest of Europe
North America
Rest of World
2020
£000
3,477
8,917
8,024
1,603
6,196
28,217
2020
£000
2,740
5,656
14,586
5,235
28,217
2020
£000
17,549
1,436
524
622
20,131
2019
£000
3,501
8,418
6,444
1,773
5,581
25,717
2019
£000
3,414
5,051
12,701
4,551
25,717
2019
£000
17,779
1,107
432
881
20,199
There were no customers which represented more than 10% of the Group’s revenue in 2020 (2019: none).
6 8
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 ( C O N T I N U E D )
b. Contract Balances
Amounts
recoverable on
contracts
£000
At 1 January
1,395
Transfer in the period from amounts recoverable on
contracts to trade receivables
(1,395)
Amounts included in deferred income that was
recognised as revenue during the period
Deferred income on acquisition of Leadscope Inc.
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
At 31 December
-
-
-
1,826
1,826
2020
2019
Deferred
income
(8,942)
-
8,942
-
(9,878)
-
(9,878)
Amounts
recoverable on
contracts
2,807
(2,807)
-
-
1,365
1,365
Deferred
income
(8,625)
-
8,625
(818)
(8,124)
-
(8,942)
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 plus
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:
2021
£000
50
Revenue
2022
£000
9
2023
£000
-
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.
As of 31 December 2020, the carrying value of costs to obtain contracts which have been capitalised is the amount of
£nil (2019: £nil). Amortisation of £nil (2019: £0.1m) 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.
6 9
2. O P E R A T I N G 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 - owned assets
Amortisation of intangible assets
Depreciation of right to use assets
2020
£000
138
736
572
Research and development costs
2,177
Impairment of goodwill
Impairment of capitalised development
Short life lease expenses
Amounts payable to Grant Thornton UK LLP and their associates in
respect of both audit and non-audit services:
Fees payable to the Group’s auditors:
for the audit of the Parent Company and consolidated financial statements
for the audit of the Company’s subsidiaries
Non-audit services:
Taxation services - Compliance
Taxation services - Advisory
Corporate finance services
-
-
95
177
-
21
53
-
251
The following tables analyse employee benefits operating expense and other expenses:
2020
£000
2019
£000
155
1,278
607
1,711
2,482
693
21
93
15
27
69
30
234
2019
£000
Employee benefits expense
Staff costs (see note 6)
15,447
13,534
Share based payments
Health and life insurance
Other benefits
427
630
4
75
-
-
16,508
13,609
Other expenses
Operating lease rentals
Software maintenance charges
Licence costs
Third party costs
Other expenses
-
918
1,543
1,567
1,762
5,790
28
731
1,457
2,812
2,216
7,244
7 0
3 . N O N - R E C U R R I N G C O S T S
Guaranteed Minimum Pension (GMP) equalisation provision
Legal costs relating to historical contract disputes
Acquisition costs
4 . F I N A N C E I N C O M E
5 . F I N A N C E C O S T S
Right of use asset interest income
Other interest
Loans and overdrafts
Unwinding discount on deferred consideration
Net interest charge on pension scheme
Lease interest cost
Right of use asset interest cost
Foreign exchange losses
2020
£000
5
149
452
606
2020
£000
7
31
38
2020
£000
38
70
34
-
96
454
692
2019
£000
-
106
196
302
2019
£000
-
7
7
2019
£000
34
-
60
2
118
41
255
7 1
6 . E M P L O Y E E S
Group
2020
Number
2019
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
265
304
13,109
1,334
1,004
15,447
Average monthly number (including non-executive directors)
Company
2020
Number
By role:
Non-executive directors
Employment costs:
Wages and salaries
Social security costs
3
138
15
153
39
229
268
11,444
1,148
942
13,534
2019
Number
3
120
13
133
7 2
7 . 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
2020
£000
138
385
44
567
2019
£000
120
359
43
522
Number of directors to whom retirement benefits are accruing under:
Defined contribution schemes
2
2
2020
Number
2019
Number
The remuneration of the highest paid director during the year ended 31 December 2020 was 276,000 (2019:
£261,000). Directors’ remuneration analysed by director is shown on page 29.
8 . L E A S E S
Lease liabilities are presented in the statement of financial position as follows:
Current
Non current
2020
£000
488
1,596
2,084
2019
£000
565
2,004
2,569
Nature of leasing activities in the capacity of lessee
The Group leases a number of offices in the jurisdictions from which it operates. In these jurisdictions the periodic
rent is fixed over the lease term, with inflationary increases incorporated into the fixed payments stipulated in the
lease agreements. Where rental agreements include market rate escalations, the lease liability is re-measured when
the change in cash payments takes effect. The Group also leases certain vehicles. Leases of vehicles comprise only
fixed payments over the lease terms. With the exception of short term leases, leases of low value underlying assets
and a lease held for a telephone system, with less than twelve months remaining on the lease as at 31 December
2020, each lease is reflected on the balance sheet as a right of use asset and a lease liability.
Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset
to another party, the right of use asset can only be used by the Group. Leases are either non cancellable or may only
be cancelled by incurring a termination fee. Some leases contain an option to extend the lease for a further term.
For office leases the Group must keep those properties in a good state of repair and return the properties in their
original condition at the end of the lease.
7 3
8 . L E A S E S ( C O N T I N U E D )
The table below describes the nature of the Groups leasing activities by type of right of use asset recognised on the
balance sheet:
Right of use assets
No of right
of use assets
leased
Range of
remaining
term
No of leases
with extension
options
No of leases
with options
to purchase
No of leases
with payments
linked to an
index
No of leases
with
termination
options
Office buildings
Vehicles
10
3
2.7 years
2.9 years
10
0
0
0
1
0
0
0
Right of use assets
As at 1 January 2019
Derecognition of sublease
Amortisation
Exchange adjustment
As at 31 December 2019
Additions
Lease modification and remeasurement
Amortisation
Exchange adjustment
As at 31 December 2020
Land & buildings
£000
Motor vehicles
£000
2,978
(249)
(590)
19
2,158
123
32
(564)
(38)
1,711
24
-
(17)
-
7
31
-
(8)
-
30
Lease liabilities
Land & buildings
£000
Motor vehicles
£000
As at 1 January 2019
Interest expense
Lease payments
Exchange adjustment
As at 31 December 2019
Additions
Lease modification and remeasurement
Interest expense
Lease payments
Exchange adjustment
As at 31 December 2020
3,020
117
(676)
102
2,563
123
32
95
(710)
(50)
2,053
22
1
(17)
-
6
31
-
-
(6)
-
31
Total
£000
3,002
(249)
(607)
19
2,165
154
32
(572)
(38)
1,741
Total
£000
3,042
118
(693)
102
2,569
154
32
95
(716)
(50)
2,084
7 4
8 . L E A S E S ( C O N T I N U E D )
Reconciliation of movements of liabilities to cash flows arising from financing activities
Changes from financing cash flows
Land & buildings
£000
Motor vehicles
£000
At 31 December 2019
Interest expenses
Payment of lease liabilities
As at 31 December 2020
676
95
615
710
17
0
6
6
Lease liability maturity analysis:
As at 31 December 2019
1 year or less
£000
2 to 5 years
£000
After five years
£000
Lease liabilities
565
1,950
54
As at 31 December 2020
1 year or less
£000
2 to 5 years
£000
After five years
£000
Lease liabilities
488
1,538
58
Total
£000
693
95
621
716
Total
£000
2,569
Total
£000
2,084
The following amounts in respect of leases, where the company is a lessee, have been recognised in consolidated
statement of comprehensive income:
Expenses relating to short-term leases
Low value lease expense
Interest expense
Amortisation of right of use assets
2020
£000
45
95
95
572
2019
£000
21
7
118
607
The total cash outflow for leases in 2020 was £0.7m (2019: £0.7m).
7 5
8 . L E A S E S ( C O N T I N U E D )
Finance lease receivable
Nature of leasing activities in the capacity of lessor
The Group also acts as a lessor in relation to a sublease of part of one of the properties rented. As the lease term is
for the major part of the economic life of the underlying right of use asset this has been treated as a finance lease.
The right of use asset has therefore been derecognised and a net investment in the lease recognised instead. Interest
income is recognised on the lease receivable.
Movement in net investment in leases in relation to sub leases during the year ended 31 December 2020 and 31
December 2019 are as follows:
As at 1 January 2019
Addition
Interest earned
Less: Rental income received
At 31 December 2019
Addition
Interest earned
Less: Rental income received
Exchange adjustment
At 31 December 2020
Minimum undiscounted lease payments receivable are as follows:
Within 1 year
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Later than 5 years
2020
£000
47
48
50
33
-
178
Reconciliation of minimum undiscounted lease payments to net investment in the lease:
Total minimum undiscounted lease payments receivable
Unearned finance income
Net investment in the lease
2020
£000
178
(9)
169
7 6
£000
-
221
1
(8)
214
-
8
(48)
(5)
169
2019
£000
47
48
50
51
40
236
2020
£000
236
(22)
214
8 . L E A S E S ( C O N T I N U E D )
Finance lease receivable maturity analysis:
As at 31 December 2019
1 year or less
£000
2 to 5 years
£000
After five years
£000
Finance lease receivable
39
175
-
As at 31 December 2020
1 year or less
£000
2 to 5 years
£000
After five years
£000
Finance lease receivable
41
128
-
Total
£000
214
Total
£000
169
9 . S H A R E B A S E D P A Y M E N T
Equity-Settled Share Option Plan
The Remuneration Committee can grant options to employees of the Group. Options are granted with a fixed exercise
price at the date of grant and the contractual life is generally ten years from the grant date. Options generally vest
and become exercisable after three years where certain performance criteria have been met. Share options issued to
directors and senior employees generally carry profitability (EBITDA) or market-based performance conditions. The
Group awarded share options to all employees during 2020 which are only subject to continued employment and have
no other performance conditions.
Outstanding at the beginning of the year
Granted
Number
983,303
535,728
Lapsed
(21,788)
Exercised
(238,141)
Outstanding at end of the year
1,259,102
Exercisable at end of year
525,518
2020
2019
Weighted average
exercise price (£)
0.60
0.00
0.09
1.75
0.11
0.25
Number
1,465,548
7,740
(16,804)
(473,181)
983,303
678,659
Weighted average
exercise price (£)
0.85
0.10
0.10
1.37
0.60
0.83
The options outstanding at 31 December 2020 had exercise prices of £nil, £0.10, £0.90, £1.76 and £2.22 (2019: £nil,
£0.10, £0.90, £1.75, £1.76 and £2.22) and a weighted average remaining contractual life of 7 years 3 months (2019: 5
years 3 months).
A charge of £0.427m (2019: £0.075m) arose in respect of share based payments.
The fair value of options granted in the year was £1.9m (2019: £0.02m).
During the year, the average share price in respect of share options exercised was £1.75 (2019: £3.17)
7 7
9 . S H A R E B A S E D P A Y M E N T ( C O N T I N U E D )
New options for 535,728 shares were granted in the year which are valued using the Monte-Carlo option-pricing
model. The fair market value has been estimated using the following key assumptions:
Grant date
27 April & 26 June
Expected life (years)
Share price at grant date
Exercise price
Dividend yield
Risk free rate
Volatility
Fair value of options (average)
3
£4.45
Nil
0.00%
N/A
N/A
£4.45
6 May
3
£4.50
Nil
0.00%
N/A
N/A
£4.50
19 May
26 June
3
£4.50
Nil
0.00%
0.02%
38.6%
£3.34
3
£4.45
Nil
0.00%
0.02%
38.6%
£3.31
The share options awarded in the year comprised of LTIP awards with performance targets, Bonus nil cost options with
no performance targets and conditional awards with no performance targets. The LTIP awards vest when certain share
price conditions are met. The other options are only subject to continued employment and have no other performance
targets.
The fair value calculation includes an assumption regarding share price volatility of 38.6% for LTIP awards only.
The historical volatility of the Group’s share price was calculated using daily data over a 3 year period, which is
commensurate with the remaining performance period.
7 8
1 0 . T A X A T I O N
Income taxes recognised in profit or loss:
Current tax:
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 credit
Deferred tax:
Current year charge
Adjustment in respect of previous years
Retirement benefit obligation
Impact of rate change
Total deferred tax charge
Total income tax charge recognised in the current year
2020
£000
(4)
250
(146)
39
139
(165)
(57)
(90)
(102)
(414)
(275)
2019
£000
28
464
(404)
67
155
(96)
(11)
(70)
-
(177)
(22)
The UK cororation tax is calculated at the prevailing rate of 19%. Foreign tax liabilities are calculated at the
prevailing tax rates applying in the overseas tax jurisdictions.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate will increase
to 25%. Since the proposal to increase the rate to 25% had not been substantively enacted at the balance sheet date,
its effects are not included in these financial statements. However, it is likely that the overall effect of the change, had
it been substantively enacted by the balance sheet date, would not have a material impact.
7 9
1 0 . 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/(Loss) before tax
Profit/(Loss) before tax multiplied by standard rate of corporation tax in the UK 19.0% (2019: 19.0%)
Effects of:
Expenses not allowable for tax purposes
Enhanced R&D tax relief
Losses surrendered for R&D tax credit
R&D tax credit accrual
Tax losses not previously recognised
Impairment of goodwill and capitalised development
Tax losses utilised
Adjustments in respect of prior years
Impact of change in tax rate
Double tax relief
Other differences
Difference in overseas tax rates
2020
£000
2,549
(484)
(59)
321
(327)
390
105
-
-
(22)
(102)
(20)
-
(77)
Total income tax charge recognised in consolidated statement of comprehensive income
(275)
2019
£000
(901)
171
34
454
(599)
572
-
(604)
18
(68)
-
110
18
(128)
(22)
8 0
1 1 . 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
Brand
Names
£000
Patents
£000
Total
£000
Group
Cost
At 1 January 2019
10,590
Additions
Disposals
-
-
Acquisition
2,068
Exchange adjustment
-
At 31 December 2019
12,658
Additions
Exchange adjustment
-
-
At 31 December 2020
12,658
Amounts written off
At 1 January 2019
Amortisation expense
-
-
Impairment charge
2,482
Acquisition
Exchange adjustment
-
-
6,840
1,344
(60)
18
(35)
8,107
1,272
34
9,413
2,953
755
693
18
(4)
4,527
2,874
-
-
1,185
-
5,712
-
-
-
-
264
-
3,138
-
-
-
-
-
380
-
380
-
-
5,712
3,138
380
3,040
332
-
-
-
1,427
191
-
-
-
At 31 December 2019
2,482
4,415
3,372
1,618
Amortisation expense
Exchange adjustment
-
-
736
(9)
423
-
212
-
At 31 December 2020
2,482
5,142
3,795
1,830
Net book value
At 31 December 2019
10,176
3,692
At 31 December 2020
10,176
4,271
2,340
1,917
1,520
1,308
-
-
-
-
-
-
29
-
29
380
351
21
24,852
-
-
-
-
21
-
-
21
21
-
-
-
-
21
-
-
21
-
-
1,344
(60)
3,915
(35)
30,016
1,272
34
31,322
7,441
1,278
3,175
18
(4)
11,908
1,400
(9)
13,299
18,108
18,023
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally
acquired elements. The cost of internally generated software amounts to £8.6m (2019: £7.4m) with accumulated
amortisation of £3.7m (2019: £3.0m). Software additions for the year include £1.2m relating to internal development
(2019: £1.3m).
8 1
1 1 . 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 )
Gross carrying amount of goodwill
The allocation of goodwill to Cash Generated Untis (CGUs) is as follows:
Instem LSS Limited
Instem Scientific Limited
Perceptive Instruments Limited
Samarind Limited
Notocord SA
Leadscope Inc
Clinical Holdings Limited
2020
£000
5,900
500
600
600
500
2,100
-
10,200
Acquisition date
27 March 2002
3 March 2011
21 November 2013
27 May 2016
2 September 2016
15 November 2019
2019
£000
5,900
500
600
600
500
2,100
-
10,200
The Goodwill related, to a CGU, being the Instem Clinical Holdings Limited was fully impaired in 2019.
Impairment testing
The Group tests annually for impairment, or more frequently if there are indications that goodwill might be impaired.
Key assumptions
The recoverable amounts of the CGUs are determined from value-in-use calculations. The key assumptions for the
value in use calculations are those regarding discount rates, growth rates, margins and cashflows.
Discount rates
Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of
money and any risks specific to the CGUs. The rates used to discount the future cashflows are based on the Group’s
pre-tax weighted average cost of capital (WACC) of 9.35% (2019: 10.0%). Management approved the use of the same
pre-tax WACC across all CGUs, as it was determined based on the Groups risks and there were no specific risks
related to each CGUs and CGU’s jurisdiction. Additionally, further sensitivity analysis was performed on pre-tax
WACC which didn’t lead into any concern.
Growth rates and terminal values
The revenue growth rates and margins are based on current Board-approved budgets and forecasts covering a period
of five years. The Group produces a budget for 2021 and then forecast up to 2025 based on growth rates of 7% for
LSS, Instem Scientific and Perceptive Instruments businesses. Then, 5% for Notocord SA and 2.5% for Samarind and
Clinical Holdings Limited businesses (2019: 2.5% growth rate was applied to all CGUs).
For the perpetuity calculation (2025 and onwards) the 2.5%, business growth rate was applied to all CGUs which
management estimates as reasonable considering business growth rates, payroll and other cost base increases (2019:
2.5% perpetuity growth rate was applied to all CGUs).
A terminal value is 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.
Sensitivity analysis
Management has carried out sensitivity analyses on the key assumptions used in recoverable amount calculations.
Instem Clinical and Samarind CGUs were identified as being sensitive to impairment under the value-in-use model.
However, using the FV less cost to sell model for the two CGUs it was evidenced that they were not impaired. Notocord
CGU was also highlighted as sensitive to increases in discount rate and fall in growth rates.
8 2
1 1 . 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 )
The carrying amount includes goodwill, other intangible assets and tangible assets. The headroom of recoverable
amount over carrying amount and sensitivities for 2020 are detailed below:
Recoverable amount
exceeds the carrying
amount
Discount rate
Revenue
Instem LSS Limited
Instem Scientific Limited
Perceptive Instruments Limited
Samarind Limited
Notocord SA
Leadscope Inc
Clinical Holdings Limited
923%
1,665%
605%
-
139%
217%
-
67%
149%
38%
-
3%
9%
-
25%
39%
31%
-
5%
15%
-
The recoverable amount of the Instem Clinical CGU and Samarind CGU using the value-in-use calculation did not
exceed the carrying amount of this CGU. However, using the FV less cost to sell method to calculate the recoverable
amount shows that the recoverable amount is more than the carrying amount for both CGU. As the recoverable
amount is the higher between value in use and FV less cost to sell method then no impairment charge to be required
for both CGUs.
Review of carrying value of goodwill
As of 31 December 2020, the recoverable amount for each of the CGU has been measured using a value-in-use
calculation and no impairment was required with the exception of the Instem Clinical CGU and Samarind CGU.
However, using the FV less cost to sell method to calculate the recoverable amount shows that the recoverable amount
is more than the carrying amount for both CGUs. As the recoverable amount is the higher between value in use and
FV less cost to sell method then no impairment charge is required for either CGU.
As of 31 December 2019, a goodwill impairment of £2.5m was recognised relating to the Instem Clinical CGU.
Alphadas is in the early phase clinical data collection business. This market sector has been going through considerable
structural change and little new business has been placed in this sector over the last 18 months. We envisage further
slippage in the pipeline of new opportunities, with no certainty regarding the timing of new business awards. Net
realisable value calculations, based on sales and profitability, were used by the Group that resulted in a goodwill
impairment of £2.5m in 2019. No further impairment has been deemed necessary in 2020.
The value in use calculations are reliant on the accuracy of management’s forecast and the assumptions that underly
them as well as the discount rate and growth rates applied.
Other intangible assets
As of 31 December 2020, there were no indications that any other intangible assets may be impaired.
As of 31 December 2019, an impairment loss of £0.7m was recognised for internally developed software in the
Alphadas early phase clinical data collection business. The recoverable amount of the asset has been determined using
net realisable value calculations, based on forecast sales and profitability.
8 3
1 2 . I N V E S T M E N T S I N S U B S I D I A R I E S
Cost
At 1 January 2019
Additions
At 31 December 2019
Additions
At 31 December 2020
Provisions
At 1 January 2019
Additions
At 31 December 2019
Additions
At 31 December 2020
Carrying value
At 31 December 2019
At 31 December 2020
£000
28,927
75
29,002
420
29,422
£000
-
2,810
2,810
(8)
2,802
£000
26,192
26,620
The Company tests annually for impairment against investments held.
An impairment provision of £2.8m has been made in 2019 against the carrying value of the investment in the Alphadas
early phase clinical data collection business.
At 31 December 2020 the Group had six wholly-owned subsidiaries and twelve wholly-owned sub-subsidiaries, details
of which are as follows:
Company
Registered Address
Activity
Ownership
Instem Life Science Systems 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
Instem Information Systems (Shanghai) Limited
(company number 310115400257075)
Shanghai, PRC
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
Room 218, Building 3
No. 690 Bibo Road
Zhanjiang High Tech Park
Pudong District
Shanghai
201203
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
8 4
Company
Registered Address
Activity
Ownership
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
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
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
Leadscope Inc.
USA
Diamond Way
Stone Business Park
Stone, Staffordshire
ST15 0SD
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
1393 Dublin Road
Columbus
Ohio 43215
99.9% by Instem LSS Limited
0.1% by Instem LSS (NA)
Limited
100% by Instem plc
100% by Instem Clinical
Holdings Limited
100% by Instem Clinical
Holdings Limited
100% by Instem plc
Software development
Holding of intellectual
property
rights and investment in
group
companies
Provision of electronic
data capture and clinical
management solutions to the
pharmaceutical industry
Provision of electronic
data capture and clinical
management solutions to the
pharmaceutical industry
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
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.
Leading provider of in-silico
safety assessment software
100% Instem Scientific Inc
8 5
1 3 . 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 2019
Additions
Disposals
Acquisition
Exchange adjustment
At 31 December 2019
Additions
Disposals
Exchange adjustment
At 31 December 2020
Depreciation
At 1 January 2019
Depreciation expense
Disposals
Acquisition
Exchange adjustment
At 31 December 2019
Depreciation expense
Disposals
Exchange adjustment
At 31 December 2020
Net book value
At 31 December 2019
At 31 December 2020
Short leasehold property
£000
IT hardware & software
£000
94
14
(34)
-
(2)
72
13
(4)
1
82
66
7
(33)
-
(1)
39
12
(2)
-
49
33
33
1,544
77
(1)
79
(17)
1,682
128
(32)
(14)
1,764
1,272
148
(1)
75
(16)
1,478
126
(32)
(13)
1,559
204
205
Total
£000
1,638
91
(35)
79
(19)
1,754
141
(36)
(13)
1,846
1,338
155
(34)
75
(17)
1,517
138
(34)
(13)
1,608
237
238
8 6
1 4 . I N V E N T O R I E S
Group
Work in progress
Total gross inventories
2020
£000
50
50
2020
£000
50
2019
£000
36
36
2019
£000
36
The inventory consists of high-quality industrial-standard cameras and associated hardware for the Instem Sorcerer
Colony Counter product.
In 2020, a total of £0.02m (2019: £0.02m) of inventory was included in profit or loss as an expense.
1 5 . 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
2020
£000
3,441
1,825
827
6,093
3,259
71
3,330
2019
£000
4,376
1,365
1,180
6,921
4,861
140
5,001
An allowance has been made for estimated credit losses from trade receivable and amounts recoverable on contracts
as per below:
An analysis of the provision for impairment of receivables is as follows:
Group
At beginning of year
Increase in provision for impairment
Reversal of provision for impairment
Foreign exchange adjustment
At end of year
2020
£000
215
87
(161)
3
144
2019
£000
54
161
-
-
215
8 7
1 5 . 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 over a 5 year period prior
to 31 December 2020 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 and 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.
The calculated simplified expected credit loss of trade receivables is deemed immaterial in the current year (2019:
immaterial). The directors therefore do not deem it necessary to increase the impairment provision which is in relation
to specific credit-impaired receivables.
The average credit period taken on sale is 51 days (2019: 61 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.
Impairment of amounts owed by group companies
The Company 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 the Company has reversed a provision of £0.6m for credit impairment of
amounts owed by group companies (2019: has made a provision of £0.8m). The amount of the provision was £0.2m
as of 31 December 2020 (2019: £0.8m).
The age profile of the net trade receivables for the Group at the year-end was as follows:
Debt age
Group
2020
Current
0-30 days
31-60 days
Trade receivables/Amounts recoverable on contracts
Value (£000)
4,132
%
78
556
11
251
5
Debt age
Group
2019
Current
0-30 days
31-60 days
Trade receivables/Amounts recoverable on contracts
Value (£000)
3,654
1,063
%
64
18
451
8
Over 60
days
327
6
Over 60
days
573
10
Total
5,266
100
Total
5,741
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.
8 8
1 6 . 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
2020
£000
35,722
(8,998)
26,724
2019
£000
14,955
(8,998)
5,957
Cash at bank
20,269
1,128
Cash and cash equivalents at 31 December 2020 includes the gross proceeds of £15.75m (£15.0m net of expenses)
raised through a placing of 3,620,690 new shares at a price of 435p per share, announced by the Group on 26 June
2020.
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 3.0% above base rate. The bank overdraft is secured by fixed and floating charges over certain of the
Group’s assets and is repayable on demand.
Cash and cash equivalents in the statement of financial position includes a bank overdraft of £9.0m (2019: £9.0m) as
noted above. An offset position is reported as the Group has a legal right to offset any settlement would be on a net
basis.
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
US Dollar
2020
£000
9,312
1,044
12,326
2,562
1,480
26,724
11,197
9,072
20,269
2019
£000
355
737
1,535
1,924
1,406
5,957
1,128
-
1,128
The carrying amount of these assets approximates to their fair value.
8 9
1 7 . 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
2020
£000
466
533
1,959
2,958
67
7,979
422
8,468
2019
£000
912
183
1,567
2,662
275
6,051
333
6,659
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their
short maturities.
1 8 . D E F E R R E D I N C O M E
Consideration received from customers in advance of work being completed
plus maintenance and support which is invoiced in advance
2020
£000
9,878
2019
£000
8,942
9 0
1 9 . F I N A N C I A L L I A B I L I T I E S
An analysis of financial liabilities as presented in the statement of financial position is as follows:
Lease liability
Deferred consideration
Current liability
Non current borrowings
Deferred consideration
Contingent consideration
Non current liability
2020
£000
-
268
268
2020
£000
815
-
316
1,131
2019
£000
18
283
301
2019
£000
-
275
284
559
The deferred consideration and contingent consideration above is in respect of the acquisition of Leadscope Inc,
which was purchased on 15 November 2019.
The financial liability maturity analysis is disclosed in the table below.
2020
1 year or less
£000
1 to 2 years
£000
2 to 5 years
£000
Non current borrowings
Deferred consideration
Contingent consideration
-
268
-
268
815
-
316
1,131
-
-
-
-
2019
1 year or less
£000
1 to 2 years
£000
2 to 5 years
£000
Lease liability
Deferred consideration
Contingent consideration
18
283
-
301
-
275
-
275
-
-
284
284
Total
£000
815
268
316
1,399
Total
£000
18
558
284
860
9 1
2 0 . F I N A N C I A L I N S T R U M E N T S
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values
The table below analyses financial instruments into a fair value hierarchy based on the valuation technique used to
determine fair value.
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable input).
2020
Group and Company
Carrying amount
£000
Fair value
£000
Contingent consideration
316
316
2019
Group and Company
Carrying amount
£000
Contingent consideration
284
Fair value
£000
284
Level 3
£000
316
Level 3
£000
284
Measurement of fair value of financial instruments
The following valuation technique is used is used for instruments categorised as Level 3:
Contingent consideration (Level 3) – the fair value of contingent consideration related to the acquisition of Leadscope
Inc in November 2019 was estimated using a present value technique. The £284,000 fair value was estimated in 2019 by
probability weighting the estimated future cash outflows, adjusting for risk and discounting at 13.4%. The probability
weighted cash outflows before discounting are £388,000 and reflect management’s estimate of a 100% probability that
the Leadscope’s target level of profitability will be achieved.
The reconciliation of the carrying amounts of financial instruments classified as Level 3 is as follows:
Balance as at 1 January
Arising on business combination
Payment of contingent consideration
Unwinding discount
Foreign exchange
Balance as at 31 December
2020
£000
284
-
-
52
(20)
316
2019
£000
-
284
-
-
-
284
9 2
2 0 . 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 Group is exposed to various risks in relation to financial instruments. Each of these is disclosed in the table below.
Carrying
amount
2020
£000
Fair value
2020
£000
Level 3
2020
£000
Carrying
amount
2019
£000
Fair value
2019
£000
Level 3
2019
£000
Loans and receivables
Cash and cash equivalents
26,724
Trade and other receivables
6,093
Financial assets measured at amortised cost
32,817
Financial assets measured at fair value
-
26,724
6,093
32,817
-
Total financial assets
32,817
32,817
Financial liabilities measured at amortised cost
Trade payables and accruals
(2,425)
Financial liabilities measured at amortised cost
(2,425)
Contingent consideration
Financial liabilities measured at fair value
(316)
(316)
(2,425)
(2,425)
(316)
(316)
-
-
-
-
-
-
-
(316)
(316)
5,957
6,921
5,957
6,921
12,878
12,878
-
-
12,878
12,878
(2,479)
(2,479)
(284)
(284)
(2,479)
(2,479)
(284)
(284)
-
-
-
-
-
-
-
(284)
(284)
Total financial liabilities
(2,741)
(2,741)
(2,763)
(2,763)
Total financial instruments
30,076
30,076
10,115
10,115
CREDIT RISK
Financial risk management
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 Group generates
external revenue from no customer that individually amounts to more than 10% of the Group revenue. At the 2020
year end the Group had a maximum credit risk exposure of £6.1m (2019: £6.9m).
The amounts presented in the statement of financial position are net of impairment provisions.
The Group’s exposure to losses from defaults on trade receivables is reduced due to contractual terms which require
installation, training, annual licensing and support fees to be invoiced and paid annually in advance. Note 15 sets out
the impairment provision for credit losses on trade receivables and the ageing analysis of overdue trade receivables.
There were no impairment losses recognised on other financial assets.
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.
9 3
2 0 . 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 concentration of credit risk for trade receivables at the balance sheet date by geographical region was:
UK
Europe
USA
China
Rest of World
2020
£000
319
778
1,823
386
135
3,441
2019
£000
1,766
146
1,401
644
419
4,376
LIQUIDITY RISK
Financial risk management
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 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 2020, its £0.5m
bank facility was undrawn (2019: £0.5m undrawn). The Group had positive cash reserves of £27m at the 2020 year
end, in addition to the £0.5m undrawn working capital facility, although £2.5m of the cash was held in bank accounts
in China, where it has been traditionally harder to repatriate funds quickly. There are no long term restrictions on the
transfer of funds from the Group bank accounts in China.
The following are the contractual maturities of financial liabilities.
2020
Non derivative financial liabilities
Carrying
amount
£000
Contractual
cashflows
£000
1 year or less
£000
2 to 5 years
£000
After 5 years
£000
Liabilities relating to right of use assets
2,084
Non current borrowings
Trade payables
815
466
3,365
2,084
815
466
3,365
488
-
466
954
1,538
815
-
2,353
58
-
-
58
2019
Non derivative financial liabilities
Carrying
amount
£000
Contractual
cashflows
£000
1 year or less
£000
2 to 5 years
£000
After 5 years
£000
Liabilities relating to right of use assets
2,569
Lease liabilities
Trade payables
18
912
3,499
2,569
18
912
3,499
565
18
912
1,950
-
-
1,495
1,950
54
-
-
54
9 4
2 0 . 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 )
MARKET RISK
Market risk - Foreign currency 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.
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 (2019: £0.1m).
The Group’s exposure to foreign currency risk is as follows.
2020
Sterling
£000
Cash and cash equivalents
9,312
Trade and other receivables
932
Liabilities relating to right off use assets
(519)
Non current borrowings
-
Trade payables
(191)
Euro
£000
1,044
753
(289)
-
(56)
US Dollars
£000
Renminbi
£000
12,326
2,562
3,320
(646)
(815)
(223)
679
(1)
-
-
Other
£000
1,480
409
(629)
-
4
Total
£000
26,724
6,093
(2,084)
(815)
(466)
Net exposure
9,534
1,452
13,962
3,240
1,264
29,452
2019
Sterling
£000
Cash and cash equivalents
Trade and other receivables
Liabilities relating to right off use assets
Lease liabilities
355
2,804
(666)
(18)
Trade payables
(574)
Net exposure
1,901
Euro
£000
737
188
(309)
-
(14)
602
US Dollars
£000
Renminbi
£000
1,924
716
(16)
-
-
1,535
2,636
(730)
-
(330)
3,111
Other
£000
1,406
577
(848)
-
6
2,624
1,141
Total
£000
5,957
6,921
(2,569)
(18)
(912)
9,379
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 2020, 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 2020 and assuming no other changes occur (such
as material changes in currency exchange rates) a change in interest rates should not have a material impact on net
interest income/(expense).
9 5
2 1 . C U R R E N T T A X A T I O N
The Group current tax receivable is £0.7m, net of a payable of £0.2m (2019: receivable of £1.2m and payable of
£0.4m) representing the amount of income tax receivable and payable in respect of the current and prior years.
The Company current tax payable is £nil.
2 2 . D E F E R R E D T A X
Group
Deferred tax asset
Amounts due to be recovered after 12 months
Total deferred tax liability
The movement in the year in the Group’s net deferred tax position was as follows:
At beginning of the year
Foreign exchange differences
Net charge to income for the year
Net debit to Other Comprehensive Income (OCI)
Net debit to goodwill arising on acquisitions during the year
Adjustments in respect of prior years
At end of the year
2020
£000
(90)
(90)
2020
£000
(506)
(10)
(357)
840
-
(57)
(90)
2019
£000
(506)
(506)
2019
£000
(12)
-
(166)
(6)
(311)
(11)
(506)
The following are the major deferred tax assets and liabilities recognised by the Group and the movements thereon
during the year:
Deferred tax asset/(liability)
Accelerated
tax
depreciation
£000
Tax losses
£000
Retirement
benefit
obligations
£000
Other timing
differences
£000
At 1 January 2019
(526)
Credit/(charge) to profit or loss for the year
Debit to OCI for the year
116
-
Debit to goodwill arising on acquisitions during the year
(311)
Adjustments in respect of prior years
-
At 31 December 2019
(721)
Foreign exchange differences
Credit/(charge) to profit or loss for the year
Debit to OCI for the year
Debit to goodwill arising on acquisitions during the year
Adjustments in respect of prior years
-
34
-
-
(4)
At 31 December 2020
(691)
437
(42)
-
-
-
395
-
(126)
-
-
(60)
209
383
(70)
(6)
-
-
307
-
(90)
518
-
-
(306)
(181)
-
-
-
(487)
(10)
(175)
322
-
7
735
(343)
Total
£000
(12)
(177)
(6)
(311)
-
(506)
(10)
(357)
840
-
(57)
(90)
9 6
2 2 . D E F E R R E D T A X ( C O N T I N U E D )
Analysis of P&L deferred tax movement
Current year movement
Impact of rate change-P&L
Total P&L for year (see above)
Analysis of OCI deferred tax movement
Accelerated
tax
depreciation
£000
119
(85)
34
Accelerated
tax
depreciation
£000
Current year movement
Impact of rate change-P&L
Total OCI for year (see above)
-
-
-
Tax losses
£000
(165)
39
(126)
Tax losses
£000
-
-
-
Retirement
benefit
obligations
£000
Other timing
differences
£000
(90)
-
(90)
(119)
(56)
(175)
Retirement
benefit
obligations
£000
Other timing
differences
£000
482
36
518
322
-
322
Total
£000
(255)
(102)
(357)
Total
£000
804
36
840
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 2020 were £2.7m (2019: £0.2m) due to uncertainty over the
timing of the recoverability of these losses.
2 3 . 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 five active defined contribution schemes and a closed defined benefit scheme:
Defined contribution pension schemes
GROUP PERSONAL PENSION PLAN - the Scheme was created on 31 December 2008. The Scheme is a contributory
money purchase scheme with the employer matching employee contributions to a maximum of 5%. The employer
also contributes to the Scheme for former members of Instem LSS Pension Scheme at rates varying from 5% to 18%.
Employer contributions for the year ended 31 December 2020 were £0.66m (2019: £0.65m).
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 2020 were £0.03m (2019: £0.03m).
INSTEM LSS (NORTH AMERICA) LIMITED 401K PLAN - the Plan was created for the benefit of employees
of Instem LSS (North America) Limited in the USA. The Plan 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 2020 were £0.23m (2019: £0.18m).
LEADSCOPE INC 401K PLAN - the Plan was created for the benefit of employees of Leadscope Inc in the USA.
The Plan is a defined contribution plan within the scope of IRS regulations, with employer matching contributions of
3% of compensation. Employer contributions for the year ended 31 December 2020 were £0.019m (2019: £0.002m).
Leadscope was acquired by Instem on 15 November 2019.
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%. This scheme closed during 2020 and members transferred to the main Group Personal Pension Plan. Employer
contributions for the year ended 31 December 2020 were £0.01m (2019: £0.01m).
9 7
2 3 . 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 )
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 statement of financial position of the Scheme in these accounts.
The most recent comprehensive actuarial valuation of the Scheme was carried out as at 5 April 2017 and the next
valuation of the Scheme is due as 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 is possible that contributions may be reduced.
The Group currently expects to pay contributions of £530,000 in the year to 31 December 2021.
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.
There were no Scheme amendments, curtailments or settlements during the year.
A further judgment on The Lloyds Banking Group Pensions Trustees Limited v Lloyds Bank PLC (and others) case
was made on 20 November 2020 and covered whether schemes are required to revisit past transfers. The guaranteed
minimum pensions (GMP) equalisation judgment has resulted in an additional liability of £5,000 being recognised at
31 December 2020, and this has been allowed for as a profit and loss charge, within non recurring costs.
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.
Risk mitigation strategies
The investment manager has previously been instructed as to the permissible ranges for asset allocations as set out in
the Scheme’s current Statement of Investment Principles. Over the year, the Scheme invested in a portfolio of liability-
driven assets, designed to hedge against interest rate and inflation risk.
9 8
2 3 . 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 net interest on the net defined benefit liability 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)
Pension increase (RPI pa)
Pension increase (CPI pa)
2020
%
1.40
2.70
1.90
2.70
1.80
Life Expectancy assumption (number of years from the age of 65)
Years
Male currently aged 45
Female currently aged 45
Male currently aged 65
Female currently aged 65
ANALYSIS OF AMOUNT CHARGED TO FINANCE COSTS
Interest on pension scheme assets
Interest on pension scheme liabilities
Net finance charge
ANALYSIS OF AMOUNT RECOGNISED IN OTHER COMPREHENSIVE INCOME/
(EXPENSE)
Gains on assets in excess of interest
Experience losses on liabilities
(Losses)/gains from changes to demographic assumptions
23.8
25.0
22.8
23.7
2020
£000
266
(300)
(34)
2020
£000
-
(351)
(53)
Losses from changes to financial assumptions
(2,133)
Actuarial (losses)/gains recognised in other comprehensive income/(expense)
(2,537)
2019
%
2.20
2.80
1.80
2.70
1.70
Years
23.7
24.8
22.7
23.6
2019
£000
316
(376)
(60)
2019
£000
1,003
-
261
(1,234)
30
9 9
2 3 . 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 )
CHANGES IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATION
2020
£000
Opening defined benefit obligation
13,773
Interest cost
Past service cost and GMP reserve
Benefits paid
Experience loss on liabilities
Changes to demographic assumptions
Changes to financial assumptions
300
5
(235)
351
53
2,133
2019
£000
12,655
376
-
(231)
-
(261)
1,234
Closing defined benefit obligation
16,380
13,773
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
2020
£000
Opening plan assets
11,969
Interest on assets
Return on plan assets less interest
Company contributions
266
-
512
Benefits paid
(235)
Closing plan assets
12,512
The actual return on assets was a positive return of £266,000 (2019: positive return £1,319,000).
AMOUNT RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
2020
£000
Present value of funded obligations
(16,380)
Fair value of plan assets
Net pension liability
Related deferred tax asset
12,512
(3,868)
735
Net pension liability after deferred tax
(3,133)
2019
£000
10,406
316
1,003
475
(231)
11,969
2019
£000
(13,773)
11,969
(1,804)
307
(1,497)
1 0 0
2 3 . 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 )
RECONCILIATION OF NET DEFINED BENEFIT LIABILITY
Net defined benefit liability at start
Past service cost and GMP reserve
Net interest expense
Remeasurements
Employer contributions
Net defined benefit liability at end
2020
£000
1,804
5
34
2,537
(512)
3,868
2019
£000
2,249
-
60
(30)
(475)
1,804
ANALYSIS OF CUMULATIVE AMOUNT RECOGNISED IN OTHER COMPREHENSIVE
INCOME/(EXPENSE)
Cumulative
2020
£000
Cumulative
2019
£000
Actual return less expected return on assets
Experience losses on liabilities
Changes in demographic assumptions
Changes in financial assumptions
Cumulative actuarial loss recognised in the OCI
2,094
(1,979)
562
(6,555)
(5,878)
Actuarial (loss)/gain recognised in the OCI in the period
(2,537)
2,094
(1,628)
615
(4,422)
(3,341)
30
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2020
2019
Equities
Property
Bonds
Corporate Bonds
LDI
Cash
Other
£000
5,842
717
858
2,033
994
122
1,946
%
47
6
7
16
8
1
15
£000
7,277
655
1,109
1,799
-
338
791
%
61
5
9
15
-
3
7
12,512
100
11,969
100
1 0 1
2 3 . 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:
2020
£000
2019
£000
2018
£000
2017
£000
2016
£000
Present value of defined benefit obligation
(16,380)
(13,773)
(12,655)
(14,549)
(14,436)
Fair value of plan assets
12,512
11,969
10,406
10,799
9,690
Deficit
(3,868)
(1,804)
(2,249)
(3,750)
(4,746)
Experience (losses)/gains on liabilities
(351)
Return on plan assets less interest
-
-
1,003
65
(957)
156
686
-
1,252
The following sensitivities apply to the value placed on the liabilities:
Adjustments to assumptions
Approximate effect on liabilities
DISCOUNT RATE
+ 0.50% pa
- 0.50% pa
INFLATION
+ 0.50% pa
- 0.50% pa
MORTALITY
Life expectancy + 1 year
Life expectancy - 1 year
£000
(1,331)
1,511
1,299
(1,160)
469
(446)
2 4 . P R O V I S I O N F O R L I A B I L I T I E S
At 1 January
Increase in provision during the year
At 31 December
2020
£000
250
-
250
2019
£000
250
-
250
The Group holds a provision of £0.25m (2019: £0.25m) in respect of historical contract disputes against a maximum
exposure of approximately £4.0m (2019: £1.5m). The maximum exposure has increased since last year end due to
additional claims for consequential losses. There are uncertainties around the outcome of contract disputes and any
settlements may be higher or lower than the amount provided. The directors believe the provision represents the best
estimate of the risks and considers all information and legal input received by the Group. The assumptions made
in relation to the current period are consistent with those in the prior year. The utilisation of this provision is still
expected to happen within two years due to the legal process taking longer than originally anticipated.
1 0 2
2 5 . S H A R E C A P I T A L
The share capital of Instem plc consists only of fully paid ordinary shares with a nominal value of 10p per share.
SHARES ISSUED AND FULLY PAID:
2020
£000
2019
£000
Beginning of the year
16,623,078
15,917,931
Issued on exercise of employee share options
238,141
Share issue on acquisition of Leadscope Inc
-
Share issue, placing
3,620,690
473,181
231,966
-
Total shares issued and fully paid at 31 December
20,481,909
16,623,078
Additional shares were issued during 2020 relating to share-based payments (see note 9 for details on the Group’s
share-based remuneration).
On 26 June 2020, the Group announced the issue of 3,620,690 new shares through a placing to raise funds to support
acquisition activities, corresponding to 22% of total shares issued.
In addition the Group launched an all-staff share and option scheme, with staff receiving the right to 386,686 ordinary
shares of 10p each in the Company that will vest in April 2023.
Share premium
Proceeds received in addition to the nominal value of the shares issued during the year have been included in share
premium, less fees, commissions and disbursements. Costs of new shares charged to equity amounted to £0.7m (2019:
£nil).
Share premium has also been recorded in respect of the issue of share capital related to employee share-based payment.
2 6 . E A R N I N G S P E R S H A R E
Basic and diluted earnings per share
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. The diluted loss per share
in 2019 is the same as basic loss per share with losses having an anti-dilutive effect.
Profit after tax
(£000)
Earnings per share - Basic
2,274
Potentially dilutive shares
-
Earnings per share - Diluted
2,274
2020
Weighted
average
number of
shares (000’s)
18,421
1,231
19,652
Profit per
share (pence)
Loss after tax
(£000)
12.3
-
11.6
(923)
-
(923)
2019
Weighted
average
number of
shares (000’s)
16,254
799
17,053
Loss per share
(pence)
(5.7)
-
(5.7)
1 0 3
2 6 . 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 earnings per share
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, impairment of goodwill and capitalised
development 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
3,752
Potentially dilutive shares
-
Earnings per share - Diluted
3,752
2020
Weighted
average
number of
shares (000’s)
18,421
1,231
19,652
20.4
-
19.1
Adjusted
earnings per
share (pence)
Adjusted profit
after tax (£000)
2019
Weighted
average
number of
shares (000’s)
16,254
799
17,053
Adjusted
earnings per
share (pence)
19.3
-
18.4
2019
£000
(901)
302
523
3,175
61
3,160
(22)
3,138
(923)
3,138
-
3,138
2020
£000
2,549
606
664
-
208
4,027
(275)
3,752
2,274
Reconciliation of adjusted profit before tax:
Reported profit/(loss) before tax
Non-recurring costs
Amortisation of acquired intangibles
Impairment of goodwill and capitalised development costs
Foreign exchange differences on revaluation of inter-group balances
Adjusted profit before tax
Tax
Adjusted profit after tax
Profit/(loss) after tax
2 7 . 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.
1 0 4
2 7 . C A P I T A L A N D R E S E R V E S ( C O N T I N U E D )
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 and
the difference between the nominal value and share issue price of shares issued as consideration in the purchase
of Leadscope Inc
Share based payment reserve
The share based payment reserve represents the fair value of shares options periodically awarded to employees and
executive directors, which is charged to the statement of comprehensive income.
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, share based payment reserve,
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.
2 8 . 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 (2019: £nil).
1 0 5
2 9 . 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 Group traded with subsidiary companies in its normal
course of business. These transactions related to recharges and totalled in aggregate £1.0m (2019: £1.0m). The net
intercompany balances due from the Company at the year-end totalled £4.5m (2019: due from: £0.3m).
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:
2020
£000
2019
£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
138
15
153
385
44
34
98
561
Group
Other key management
Salaries and short-term employee benefits
1,062
Post-employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
77
74
154
1,367
120
13
133
359
43
29
21
452
1,047
59
99
54
1,259
The Company paid £0.05m (2019: £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 (2019: £nil).
Key management are considered to be the Directors together with the Senior Managers of the business.
3 0 . 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 £16.4m (2019: £9.0m).
1 0 6
3 1 . S U B S E Q U E N T E V E N T S
No adjusting events have occurred between the 31 December reporting date and the date of approval of these financial
statements.
On 25 of January 2021, Instem Information Systems (Shanghai) Limited signed a new office lease for 2 years in
Pudong New Area, Shanghai.
On 1 March 2021, Instem announced the acquisition of The Edge Software Consultancy Ltd (“The Edge”), a safety
assessment software provider based in the UK. The Edge is focused on improving the efficiency of early stage drug
R&D, improving productivity and ensuring high-quality data capture. In the year ended 31 July 2020, The Edge had
unaudited, normalised profits before tax of £1.7m on sales of £2.7m, of which £0.8m was recurring revenue. Its 2020
sales benefitted from high levels of professional services revenue, expected to be replaced by significant future growth
in recurring software revenue. The consideration payable is up to £8.5m , payable as £6.0m initially, satisfied by £4.0m
in cash from existing reserves and £2.0m via the issuance of 391,920 new ordinary shares in Instem plc, £0.5m of
deferred consideration and up to a further £2.0m payable contingent on The Edge’s future trading performance, both
amounts payable in cash.
On 20 March 2021, Instem exchanged contracts to acquire US-based clinical trial technology & consulting leader
d-Wise Technologies, Inc (“d-wise”). The acquisition was completed on 1 April 2021. d-wise adds a market leading
position to the Group in an attractive adjacent area of clinical trial analysis and submission, with good future visibility
through recurring revenue streams and already contracted, high value consultancy projects. In the year ended 31
December 2020 d-wise had unaudited adjusted profit before tax of $3.1m and adjusted EBITDA of $3.6m on sales of
$24.1m. Approximately 30% of revenue was recurring SaaS, hosting services and software support and maintenance.
As at 31 December 2020, d-wise had net assets of $4.8m. The combined strength of Instem & d-wise positions the
enlarged Group as the foremost authority and driving force in generating, analysing and leveraging data from Discovery
through late-stage Clinical Trials. The total consideration is up to $31m comprising $20m on completion, $8m of
deferred consideration and up to a further $3m which is payable contingent upon the future financial performance of
d-wise. The initial consideration on completion is being satisfied by $13m in cash and $7m via the issuance of 868,203
new ordinary shares of 10p each in Instem plc. The cash is being funded from the Group’s existing financial resources.
The results of both acquisitions will be incorporated from the date of acquisition and will be disclosed in the half year
results to 30 June 2021.
1 0 7
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
Grant Thornton UK LLP
4 Hardman Square
Spinningfields
Manchester
M3 3EB
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 BS99 6ZZ
S O L I C I T O R S
Squire Patton Boggs (UK) LLP
No 1 Spinningfields
1 Hardman Square
Manchester M3 3EB
1 0 8
1 0 9
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
1 1 0
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 .
1 1 1
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 218, Building 3
No. 690 Bibo Road
Zhangjiang High-Tech Park
Pudong District
Shanghai
China, 201203
e-mail: investors@instem.com
instem.com