®
™
A N N UA L R E P O RT
2021
0
0
7
M o r e t h a n 7 0 0
c l i e n t s
Instem has over 700
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
6
8
10
26
28
32
34
37
38
50
51
52
53
54
55
56
57
72
126
3
W e e s t i m a t e t h a t a p p r o x i m a t e l y h a l f
o f t h e w o r l d ’ s p r e c l i n i c a l d r u g s a f e t y
d a t a h a s b e e n c o l l e c t e d o v e r t h e l a s t
2 0 y e a r s u s i n g I n s t e m s o f t w a r e .
4
P o w e r f u l S o l u t i o n s • U n i q u e P e r s p e c t i v e • G l o b a l C o v e r a g e
Instem is a leading provider of IT solutions & services
to the life sciences market delivering compelling
solutions for Study Management and Data Collection;
Regulatory Solutions for Submissions and Compliance;
and Informatics-based Insight Generation.
Instem solutions are in use by over 700 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
T h e r e c e n t a c q u i s i t i o n s o f T h e E d g e , d - w i s e a n d P D S h i g h l i g h t
o u r a b i l i t y t o a d d s c a l e a n d l e v e r a g e e x i s t i n g c u s t o m e r
r e l a t i o n s h i p s w i t h a v i e w t o f u r t h e r e n h a n c i n g e a r n i n g s , w h i l e
p r o v i d i n g a s t r o n g p l a t f o r m f o r c o n t i n u e d g r o w t h .
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
•
Strong organic growth with little impact of
COVID-19
• New business revenue came from both new and
existing clients
• Further expansion of footprint in the Asia-Pacific
region
• Continued transition to the SaaS model further
increased recurring revenue and earnings
visibility
• Transformed the scale and reach of the business
through acquisitions of:
• The Edge Software Consultancy ("The Edge")
• d-wise Technologies Inc ("d-wise")
• PDS Pathology Data Systems Ltd (“PDS”)
P O S T P E R I O D - E N D H I G H L I G H T S
• New banking facility finalised with HSBC of up to
£20m, £10m of which is committed
• Earn outs met in full for d-wise and The Edge
(PDS has no earn out provision)
• No known exposure to Russia or Ukraine
• Revenues increased 63% to £46.0m (2020:
£28.2m)
• Recurring revenue (annual support and SaaS)
increased 43% to £24.1m (2020: £16.9m) with
SaaS revenues increasing 21% to £9.7m (2020:
£8.0m)
• Organic revenue growth of 7% to £30.1m
(2020: £28.2m)
• Organic constant currency revenue growth
•
was 12%
SaaS Annual Recurring Revenue (“ARR”) of
£11.5m at 1 January 2022
• Adjusted EBITDA* of £8.3m (2020: £5.9m)
• Reported profit before tax of £3.0m (2020: profit
of £2.5m)
• Adjusted profit before tax** of £5.0m (2020:
£4.0m)
• Fully diluted earnings per share of 7.4p (2020:
11.6p earnings per share)
• Adjusted fully diluted earnings per share** of
16.3p (2020: 19.1p)
• Cash balance as at 31 December 2021 of £15.0m
(2020: £26.7m, reflecting the equity raise in July
2020 to fund the 2021 acquisitions).
For an explanation of the alternative performance
measures in the report, please refer to page 20
*Earnings before interest, tax, depreciation, amortisation and 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 and amortisation of
intangibles on acquisitions.
6
"The performance during the year highlighted our
resilience - especially given the COVID-19 backdrop,
and I would like to thank all of our staff for their
continued efforts and hard work. 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 R&D
process underpins our confidence in further leveraging
our software and service portfolio. As such, we now
have the platform in place to capitalise on the various
opportunities ahead of us and we look forward to
reporting further progress as we continue to execute
our growth strategy.
In common with other businesses, we have seen wage
inflation in recent months and, accordingly, we are
moderating our profit expectations for the current
year ahead of price rises on contract renewals flowing
through positively to revenue. Importantly, we already
have good visibility for the current year with growing
recurring SaaS and Annual Support revenues and a
strong pipeline.
The recent acquisitions of The Edge, d-wise and
PDS highlight our ability to add scale and leverage
existing customer relationships with a view to further
enhancing earnings, while providing a strong platform
for continued growth. We look forward to advancing
further acquisition opportunities after consolidating
the 2021 additions."
P J Reason
Chief Executive
H i g h l i g h t s
7
"...the Company is now closer to
becoming a one-stop shop for life
sciences companies looking for long
term partnerships to assist them over
the drug discovery and development
landscape."
D Gare
Non-Executive Chairman
C h a i r m a n ' s S t a t e m e n t
8
C H A I R M A N ' S S T A T E M E N T
The achievements of the Company in the year have
been outstanding. Not only has our operational
performance been exceptional but the business has
also accomplished a fundamental strategic shift in its
scale and reach as a result of the completion of three
important acquisitions. As a consequence, our standing
within the wider industry has been significantly
enhanced.
In July 2020 we raised funds to acquire businesses that
we believed would be transformational to the company
by extending our ‘footprint’ in the life sciences R&D
space, providing a stronger platform for long term
growth. I believe that we can say that this has been
achieved. The acquisitions of d-wise and The Edge
have significantly extended our product and service
portfolio, whilst the acquisition of PDS ensures that
our position in the preclinical space is unrivalled.
Whilst the integration of the acquired businesses is
ongoing, we have already seen the benefits of their
skillsets and teams operating within the enlarged
Group, providing a significant contribution to our
overall financial performance in the year.
O P E R A T I O N S
The Company’s strong infrastructure and ability to
operate remotely provided essential resilience in our
business operations as the pandemic continued. We
are delighted with and thankful for the team’s efforts
throughout this challenging period.
We have made notable progress on a number of key
metrics during the Period. In particular:
• Continued growth
revenues
(increased 21% to £9.7m) both through new
business wins and via the ongoing conversion of
existing clients
in SaaS-based
• Total Group revenues increased 63% - including the
partial year impact of the acquisitions completed
during the period
• Adjusted EBITDA increased 39%
• Net cash generated from operations of £10.3m
C O R P O R A T E E N H A N C E M E N T
We were delighted to welcome Mr Riaz Bandali to the
Board in December 2021. Riaz has spent his entire
career in the healthcare and life sciences industries
in a variety of strategic, commercial and operational
roles at senior level, also including exposure to
fundraising and M&A activity and, as such, brings a
wealth of relevant experience and contacts in the North
American and wider life sciences industry. We are
also continuing with our efforts to identify a further
suitable Independent NED candidate and look forward
to updating shareholders in due course.
We were also delighted to appoint Stifel Nicolaus
Europe Ltd as Joint broker with Singer Capital Markets
to enhance our presence, primarily within the North
American investor market.
L O O K I N G F O R WA R D
In the short term, we are confident that we can continue
to execute our growth plans for the Group. That said,
labour cost inflation, in particular, has significantly
increased in recent times. As a result, although
anticipating material improvement over 2021, we
are prudently moderating our profit expectations for
the current year, whilst planning to regain ground in
the following year, as justifiable price increases flow
through to revenue.
The three acquisitions, completed in the year, have
extended our reach from discovery to clinical trials
across the drug discovery and development lifecycle.
As a result, the Company is now closer to becoming a
one-stop shop for life sciences companies looking for
long term partnerships to assist them over the drug
discovery and development landscape.
Whilst our near-term focus remains on completing
the successful integration of the recently acquired
businesses, the Board believes that this new platform
further
will create substantial opportunities
development of the business. These include:
• Organic revenue growth from additional market
penetration, cross-selling and the introduction of
new products and services
for
• Margin
improvement
SaaS deployment and
infrastructure
through conversion
to
leveraging our global
• Accretive M&A and strategic partnerships in
existing markets, as well as entry into related
adjacent areas.
In summary, we believe that the momentum and
platform we now have in place ensures that the
Company is well positioned for continued success over
the longer term.
D Gare
Non-Executive Chairman
9
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
During 2021, the Group materially advanced its ability
to pursue its strategic thesis of providing data driven,
“in silico” alternatives to traditional client experimental
processes with the aim of radically reducing the cost
and time of life sciences R&D. The strategy is based on
leveraging trusted client and regulatory relationships
and our intimate understanding of complex scientific
data, established by providing a broad portfolio of
market leading IT solutions that optimise today’s life
sciences R&D processes, from early discovery to late-
stage clinical trials. The acquisition of The Edge has
strengthened our position in discovery and d-wise
adds a well-respected market leader in the analysis
and de-identification of clinical trial data. Instem’s
in non-clinical
already strong market presence
development was enhanced by the acquisition of long-
term competitor PDS and we are now well positioned
to provide innovative solutions across the entire R&D
continuum.
Organic growth remained strong, with retention of
recurring SaaS and Annual Support revenue once again
ahead of our 98% key performance indicator and new
business win rates confirming our market leadership
across our broad portfolio. Although the increasing
rate of SaaS deployment, for existing and new clients,
moderated short term revenue growth, due to the
switch from perpetual license revenue recognition
to longer term subscription rentals, overall organic
revenue growth remained strong.
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
the ongoing COVID-19
pandemic, 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 2022 version
further by
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 an 8.2% increase
(2020: 4.8%) in the total number of drugs in the
regulatory stages of global R&D, continuing a multi-
year growth trend that, shows no sign of abating. Most
relevant to Instem are the increase in the number of
drugs at the preclinical (or non-clinical) phase of drug
development of 11.0% (2020: 6.0%) and clinical phases
1-3 where there was an 8.3% increase (2020: 3.6%), as
these areas account for much of our business.
The constant development of the drug discovery
pipeline continues to drive demand for Instem’s
solutions – which enable companies to provide faster
and cheaper routes to market for their life changing
products. Importantly, the regulatory-backed Standard
for the Exchange of Non-clinical Data ("SEND")
continues to underpin
longer term opportunity
and visibility in the non-clinical segment. Similar
regulatory standards help with demand for our clinical
trial analysis solutions and mandatory provision of de-
identified clinical trial data for European and Canadian
regulatory authority approved drugs enhances demand
for our clinical trial transparency software and services.
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 very pleasing, with revenue
growth compared to the prior period of 34%, with 17%
organic growth and 17% from acquisitions, including
10 months contribution from The Edge and 4 months
from PDS.
The 11% increase in the number of drugs in the non-
clinical stage of development has supported significant
growth for the contract research organisations (CROs)
specialising in this area and they in turn have been
purchasing additional users for our products, additional
product modules that they had not yet licensed and
services to support their successful deployment and
use of our solutions.
The majority of the revenue associated with orders in
excess of £2.7m, announced for one of our largest CRO
clients on 15 December 2020 and in our 14 January
2021 Trading Update, was recognised in 2021 and we
continue to collaborate extensively with this customer
as they look for competitive advantage through
1 0
technology investment. Most of this additional revenue
was study management related but also included new
SEND related capabilities, much of which will benefit
the wider SEND community.
The acquisition of The Edge has broadened Instem's
reach into the Discovery Study Management market,
providing scope for increased cross-selling particularly
in the Drug Metabolism & Pharmacokinetics (DMPK)
field. The Edge extends the Company’s reach within
existing and new clients and enhances our technology
offering. Provided predominantly on a subscription
basis, The Edge has helped to expand our recurring
revenue.
I N S I L I C O S O L U T I O N S
Following a slow H1 2021 as a result of the pandemic,
demand picked up during H2. This is an area where
we have historically generated significant market
awareness and sales pipeline at scientific conferences,
as both Instem staff and reference clients present a
new, "disruptive" approach to the established method
of assessing the potential safety issues of modulating
a biological target thought to offer therapeutic benefit.
We were eagerly awaiting the post COVID-19 return
to in person conferences, which were further delayed
by the Delta and Omicron variants. Post period end
in late March 2022 we attended the largest event of this
type, the "Society of Toxicology" annual meeting and
were extremely encouraged by the strong interest in
our In Silico solutions.
In November 2021 the Company announced the
release of the latest edition of its Leadscope Model
Applier computational toxicology software solution.
This release included a comprehensive package of
new and updated models to meet the growing market
demand for in silico solutions, which are often heavily
encouraged and supported by the global regulatory
authorities.
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. The combination of
the industry’s focus on addressing a continuing backlog
of SEND conversion work, in addition to the standard
being extended to new study types, provides a solid
platform for continued growth.
Instem’s technology creates, manages and visualises
the Group also provides
SEND datasets while
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, and subsequently the data warehouse
and exploration technology platform to house this
data, both won during the Period.
The acquisition of competitor PDS allows for greater
industry standardisation on Instem’s SEND technology
platform and has brought a further 17 US-based SEND
consultants to an outsourced services team of 72 people,
38 or whom are based in India. Instem’s expertise,
capacity, and business in this area in unrivalled.
C L I N I C A L T R I A L A C C E L E R A T I O N
The acquisition of d-wise on 1 April 2021 led to the
creation of a fourth business unit, Clinical Trial
Acceleration, which pleasingly met its EBITDA-
based earn out target for the financial year ended 31
December 2021.
Solid progress was made in all areas of the business,
with material contribution during the period from two
statistical computing environment (SCE) solution lines
of business:
•
the productised integration of leading technology
tools, hosted by Instem for small to mid-sized
pharmaceutical companies and CROs
large custom projects for bigger clients
•
Focus and investment increased during the year on
Aspire, a next generation clinical analytics framework
of flexible components that can be leveraged in both
the productised or custom approaches to building
and deploying SCE solutions. Aspire is expected to
significantly speed up the time to deployment of a new
SCE solution, to provide recurring SaaS revenue and,
ultimately, to result in higher project margins.
With some COVID-related relaxation by the European
and Canadian regulatory authorities of the requirement
for submission of anonymised clinical trial data for
each approved new drug, we experienced lower than
expected demand for our clinical trial transparency
products and outsourced services, however this remains
a promising regulatory mandated growth opportunity.
1 1
S T R A T E G I C R E P O R T ( C O N T I N U E D )
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.
The Group’s mission and values align with the health
care provision by assisting its customers to accelerate
the discovery, development and delivery of their life
enhancing products while complying with the relevant
regulations. Instem’s suite of In Silico Solutions in
particular helps reduce the reliance on animal-based
testing, and only uses such results when alternative
methods are not sufficient to assess the toxicity
potential of a chemical.
The core values underlying our approach to this
mission are summarised 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
The Group has made good progress this year with its
initial ESG targets and it is committed to developing
a comprehensive ESG strategy over the forthcoming
years, which will include key risks and opportunities
of the Group.
In 2021, the Group received its first external ESG rating
from Gaïa Research which placed the Group above
the national benchmarks for its sector and turnover
category.
Show Integrity in dealing with issues
ENVIRONMENT
Our Environmental impact
At Instem, we understand our responsibility to ensure
that we are acting responsibly for the environment.
For this reason, in 2021 we implemented a new
Environmental Strategy across the group, with the
objective of ensuring Instem minimises its impact on
the environment as part of its business activities.
The environmental strategy is implemented through
an Environmental Management System, taking into
account the requirements of Streamlined Energy and
Carbon Reporting (SECR) and the Task Force on Climate
Related Financial Disclosures (TCFD). We intend to
improve the overall environmental performance of the
Group, considering both our organisational profile and
the local laws and regulations in which Instem offices
are located. The Group has reviewed the requirements
of the Environmental Reporting guidelines, for each
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. Instem will meet the
statutory reporting requirements of SECR, with the
first results due to be included in the Annual Report
for the year ending 31 December 2022.
An Environmental Management Group oversees
our environmental management system, including
representatives from Human Resources, Information
Services and Governance, Risk Management and
Compliance.
information
IT Equipment Waste Management
We already ensure that, as a Group, we are participating
in a programme to recycle or re-purpose the highest
amount possible of all
technology
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 disclosing a minimal
amount of 8.5kgs in the year ended 31 December 2021.
Impact of Greenhouse Gas Emission:
As per our mandatory reporting of greenhouse gas
emissions 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 assist companies to assess climate-related
financial risks. The TCFD has developed a series
of recommendations on
the disclosures, which
organisations should include in their annual report,
covering:
• Governance
•
Strategy
1 2
• Risk Management
• Metrics and targets
As part of our responsibility to manage our contribution
to long-term climate change, we have included the
recommendations from the TCFD as part of our new
Environmental Strategy. This will assist in informing
our stakeholders of our climate-related financial risks
and how we manage them.
Currently Instem is not required to report under the
TFCD due to its size. Metrics will be published in the
2023 annual report should Instem meet the required
criteria.
SOCIAL
Employment Practices
Instem’s staff are a key component in the success of the
business and in respect of this Instem has a dedicated
Human Resources team that has implemented policies
to support staff during their employment.
Ethical Practices and Human Rights
Instem places 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.
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 of
human rights issues.
Internally, Instem has implemented policies such as
Anti-Corruption, 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. We
operate a global staff handbook, which consolidates all
the above policies.
Our Human Resources Policy and Culture handbooks,
together with our procurement practices, require
Instem and third-party staff to be treated fairly and
employed in accordance with all relevant laws and
regulations for the locations in which they are based.
Ensuring that equal opportunities exist for all
The Group is fully committed to offering equal
employment opportunities to all and its policies are
designed to attract, retain and motivate staff, who can
demonstrate that they have the necessary skills and
capabilities, regardless of protected characteristics, or
any other conditions not relevant to the performance
of the job. The Group gives proper consideration to
applications for employment when these are received
from persons with disabilities, taking account of any
reasonable adjustments that may be required for
candidates with a disability. The Group’s policies are
consistent with the requirements of the Universal
Declaration on Human Rights and the spirit of the
labour
International Labour Organisation core
standards.
Employee’s diversity
Instem has a diverse global workforce with staff located
across the UK, Europe, North America and Asia. As
of 31 December 2021, 66% (2020: 59%) of employees
were located outside of the UK.
The Group recognises the importance of gender
diversity on its Board and within senior management
and whilst this is a consideration, future appointment
will ultimately be based on merit.
As the Group has less than 250 employees in the United
Kingdom, it is not a reporting requirement to publish
a gender pay gap report. However, the Group’s internal
processes ensure that salary levels and salary increases
are fair and comparable across its staff in all regions.
Engagement with the workforce
Annual staff surveys, incorporating both Gallup Q12
and Great Place to Work® concepts, are undertaken by
the Human Resources 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 2021 staff survey demonstrated that
90% (2020: 82%) of employees regard Instem as a great
place to work.
During the year the Group expanded its range of
employee engagement activities ensuring that the
views and opinions of employees are heard and that its
corporate values are upheld. During the year ended 31
December 2021 these activities included:
• quarterly company performance meetings for all
staff and interactive forums to raise questions,
topics of interest, provide feedback or listen to
others
acquisition integration forum meetings, which
provides the opportunity to ask questions about
the integration process
trading updates and monthly management reports
are shared with all staff
•
•
• highlighting mental health issues and raising
awareness through mental health panel interviews
with staff, resilience and stress management
webinars
and mental wellness workshops
introducing the “Wellbeing Wheel” to support staff
mental health.
1 3
S T R A T E G I C R E P O R T ( C O N T I N U E D )
Health and well-being for staff was promoted through
employee communication channels and subsidised
healthcare provision.
An internal Kudos Award programme has been
implemented across the whole Group where staff and
managers are able to recognise exceptional individual
staff and team performance.
Due to the impact of COVID-19, new working
practices have been implemented in 2021 including
a new homeworking policy, with 48% staff choosing
to be hybrid, 50% staff remote and 2% office based.
This homeworking policy along with a series of
flexible working and holiday policies have supported
the workforce through 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.
Customer Issues
Instem has a clear strategic objective of meeting
customer needs and expectations in the products and
services that are supplied. 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 IT infrastructure. 100%
network availability was achieved for SaaS customers
during 2021.
Customer Support
Instem offers various support services to help our
customers use
Instem solutions efficiently and
effectively. These include installation and technical
configuration support, training, validation, consultancy
and a global helpdesk.
Instem also strives to meet customers' needs and
expectations by regularly enhancing our software
through new functionality and software changes.
Data Protection
Instem has a Group wide data protection policy and
document framework 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 in relation to
the laws and regulations of countries and regions in
which Instem operates.
Information Security and Business Continuity
At Instem, Information Security is embedded into all
aspects of our business 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.
Instem's Business Continuity, Disaster Recovery
and
Information Security policies, procedures
and assessments are designed to protect sensitive
information and enable effective response to cyber or
security threats. Our programs are designed to create
a resilient operating environment with pre-planned
response and recovery strategies in the event of business
disruption. These strategies focus on safeguarding our
people, assets, information and clients. Comprehensive
cyber insurance is in place across the entire Instem
organisation.
Instem maintains programs with frameworks and
methodologies designed
effectively manage
business continuity risk. Established emergency and
crisis management activities and protocols have been
interwoven into the Business Continuity Process. The
Business Continuity Management Policy and Standards
outline the mandates and minimum requirements that
the business must follow to plan for and respond to
disruptive events. Methods the Group has used are
based on a proven, certifiable discipline (ISO 22301),
although it should be noted that Instem is not certified
to this standard.
to
Community Involvement and Development
With employees around the globe, we believe it is
important to 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, whilst 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
such as Breast Cancer Now and Oxfam.
• Partnering with the INSPIRE Safety Pharmacology
Horizon 2020 project which includes funding two
PhD students.
1 4
• Plans to extend the Group’s graduate recruitment
scheme and establish a graduate apprenticeship
centre of excellence.
• Raising funds for building a pre- and primary
school in Tanzania.
• Nature photography and children’s nature drawing
competitions which involved the sponsoring of an
endangered animal at a zoo, or issuing vouchers for
an environmentally friendly shop.
Sponsoring of a local bee colony near the Stone,
UK office
•
GOVERNANCE
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
plans provided to senior management, achievement of
which is based on increasing the value of the company
through an increasing Instem share price. Instem’s
Board of Directors is committed to an appropriate
composition of the Board and considers ways of
achieving this by soliciting institutional shareholders
views. In December 2021, an additional independent
non-executive director was appointed.
Instem is committed to having effective governance
practices to support the pursuit of its corporate
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
been established, 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, internal quality audit
function to ensure the business remains in compliance.
The Board of Directors is responsible for oversight
of risks and ESG matters facing the Group (such as
social, ethical, environmental, legal and regulatory
compliance, business model resilience). These matters
are routinely included at each Group board meeting.
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 2021
they acted in good faith and have upheld their ‘duty to
promote the success of the Group’ to the benefit of its
stakeholder groups. This includes the three corporate
acquisitions that were made during the year that bring
scale, profitability and new opportunities to the Instem
group, whilst acknowledging that they also bring
additional challenges as they go through an integration
process.
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 six key stakeholder groups associated
with our business:
• Employees
• Clients
•
• Partners
• Communities in which we operate
•
Shareholders
Suppliers
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 anonymously. 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®
organisation. 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.
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 organises multiple client
engagement forums related to sectors of our market,
specific products and common industry practices or
regulation. These Special Interest Groups provide
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 )
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 individuals with a broad industry
perspective, from a variety of client organisations.
The SAB, which meets twice per year, is tasked with
informing/validating Instem’s business, product and
service strategy. It provides guidance to ensure Instem
is successful in its mission to enable its clients to bring
their life enhancing products to market faster.
Shareholders
With the professional guidance of our joint broker and
nominated adviser, Singer Capital Markets, joint broker
Stifel Nicolaus Europe Limited 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 provide an opportunity to also engage
with a wider group of financial analysts and media.
We typically 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. We have recently
appointed Stifel Nicolaus Europe (Stifel) as joint broker
with Singer Capital Markets and we anticipate that
they will be initiating research on Instem following
publication of these 2021 results. 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.
Our annual general meeting 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. We ensure that shareholders are treated
equally and fairly, regardless of the size of their
shareholding or their status as a private or institutional
shareholder. The Group provides clear and timely
communications to all shareholders in their chosen
communication medium, as well as via the Group’s
website and via Regulatory News Service.
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
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.
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 COVID-
related office lockdowns, but we have done so wherever
possible, for example we continued to pay our office
cleaning staff despite offices being closed.
With only office (and home) based activities, our
environmental impact is generally quite modest,
although we do encourage efficient energy usage and
recycling in office locations. 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.
1 6
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.
The Board ensures that decisions made are responsible
and ethical by taking into consideration the wider
society external to the organisation. The Group is
committed to contributing towards the community in
which it operates.
Suppliers
The Group engages closely with its suppliers and has
internal procedures to ensure that appropriate due
diligence is undertaken on these firms when they
are engaged. Engagement with any new suppliers is
subject to a formal process and requires final approval
from Instem’s Governance, Risk management and
Compliance (GRC) department.
Significant supplier contracts of a recurring nature
require approval from the Board as a whole. These
suppliers are chosen according to their ability to meet
the Group’s own high standards and to demonstrate
values that are consistent with those of the Group.
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:
Total revenue
Organic revenue1 *
Recurring revenue1 **
Annual Recurring revenue1
Recurring revenue as a percentage of total revenue
Adjusted EBITDA1 ***
Adjusted EBITDA Margin %
Cash and cash equivalents
Organic customer retention rate for recurring SaaS and
Annual Support revenue
Operating profit after non-recurring items
Year ended
31 Dec 2021
£000
46,017
30,052
24,082
28,741
52%
8,250
17.9%
15,021
98%
4,098
Year ended
31 Dec 2020
£000
28,217
28,217
16,941
-
60%
5,919
21.0%
26,724
-
3,203
Change
63%
7%
42%
-
-800bps
39%
-310bps
(44%)
-
28%
1 For an explanation of the alternative performance measure in the report, please refer to page 20. Annual Recurring
Revenue has been introduced as a KPI for the first time in 2021.
* Excluding revenue from the new acquired businesses
** Recurring revenue includes Annual support fees and SaaS subscription fees.
*** Earnings before interest, tax, depreciation, amortisation and non-recurring items.
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 )
fees,
In addition, non-financial KPIs are periodically
reviewed and assessed, including customer and staff
satisfaction and retention rates.
Instem’s revenue model consists of perpetual licence
income with annual support and maintenance
contracts, professional
technology enabled
outsourced services fees, SaaS subscriptions and
consultancy services.
Total revenues increased by 63% to £46.0m (2020:
£28.2m), including revenue from The Edge, d-wise
and PDS, which were acquired in March, April and
September 2021 respectively. Total organic revenue
increased by 7% to £30.1m (2020: £28.2m). Recurring
revenue, comprising Support & Maintenance contracts
and SaaS subscriptions, increased during the year by
43% to £24.1m (2020: £16.9m). Recurring revenue as
a percentage of total revenue was 52% (2020: 60%). In
absolute terms, recurring revenue increased over the
year by £7.2m but its percentage of the total decreased
due primarily to the addition of d-wise consulting
revenue, which is classified as non-recurring.
Revenue from technology enabled outsourced services
remained stable at £6.4m (2020: £6.2m). Operating
expenses increased by 69% in the period reflecting the
ongoing investment in operational teams and mainly
the inclusion of The Edge, d-wise and PDS costs. Like-
for-like operating costs increased by 7%.
Adjusted earnings before interest, tax, depreciation,
amortisation, and non-recurring
items (Adjusted
EBITDA) increased by 41% to £8.3m (2020: £5.9m).
For this measure of earnings, the margin as a percentage
of revenue decreased in the period to 17.9% from 21%
in 2020, entirely due to the impact of the lower than
Instem average margins of d-wise and PDS.
Non-recurring costs in the period were £1.29m
(2020: £0.6m), consisting of £0.1m for legal expenses
associated with historical contract disputes, £0.17m for
share based payments and £1.02m of acquisition costs.
Non-recurring income of £0.8m ($1.1m) relates to US
federal government COVID-19 support loans, which
were forgiven during 2021, refer to note 3 for non
-recurring items.
The reported profit before tax for the year was £3.0m
(2020: profit of £2.5m). Adjusted profit before tax (i.e.
adjusting for the effect of foreign currency exchange
on the revaluation of inter-company balances included
in finance income/(costs), non-recurring items and
amortisation of intangibles on acquisitions) was £5.0m
(2020: £4.0m).
The total income tax charge in the year of £1.3m (2020:
£0.3m) is an effective tax rate of 43.8% (2020: 10.8%).
The increase in the tax charge is mainly due to higher
foreign tax payable, including on profits from d-wise
and the impact on deferred tax of the UK corporation
tax rate increase to 25% from April 2023. In the UK,
the Group continues to receive additional tax relief on
its research and development expenditure, which is
expected to continue into future years.
The Group continues to maintain its investment in its
product portfolio. Research and development costs
incurred during the year were £4.9m (2020: £3.4m), of
which £2.2m (2020: £1.2m) 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 2021 was primarily from realised US dollars
transactions. In 2021, the organic revenue growth
excluding the foreign exchange exposure was 12%.
The foreign exchange loss recorded during 2021 was
£0.04m (2020: £0.5m), which is composed of realised
and unrealised gains/losses.
Basic and diluted earnings per share calculated on
an adjusted basis were 17.2p and 16.3p respectively
(2020: 20.4p basic and 19.1p diluted). The reported
basic and diluted earnings per share were 7.8p and 7.4p
respectively (2020: 12.3p basic and 11.6p diluted).
On 1 March 2021, Instem announced the acquisition
of The Edge, a study management 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.
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. Since the year end, the
deferred consideration has been paid and the earn-
out targets have been achieved in full. In addition,
an amount of £1.5m was paid in 2021 as a net cash
adjustment after deducting the estimated debt at the
point of the acquisition.
1 8
capital management. The Group’s cash resources were
used to accelerate the Group’s acquisition strategy with
the acquisition of The Edge, d-wise and PDS. The net
cash payment for purchasing those subsidiaries was
£17.2m (net of cash acquired). The proceeds of £0.8m
($1.1m) which were part of the US federal government
support for businesses during the COVID-19 pandemic
have been fully forgiven during 2021. As a result of
the above, and the positive organic cash generation
achieved in the period, the cash balance decreased
from £26.7m to £15.0m.
The latest triennial actuarial valuation of the Group’s
legacy defined benefit pension scheme as at 5 April 2020,
was completed in July 2021. As part of the process, the
Group has agreed a revised Schedule of Contributions
with the Trustees of the Scheme, which are intended
to clear the Scheme deficit by 30 September 2026 (see
note 27).
At 31 December 2021, the IAS19 accounting pension
deficit decreased by £1.9m to £2.0m (2020: £3.9m).
The agreed Group cash contributions currently
approximate to £0.6m per annum, payable through
to September 2026. The deficit at the 2021 year-end of
£2.0m (2020: £3.9m) is represented by the fair value of
assets of £14.0m (2020: £12.5m) and the present value
of funded obligations of £16.0m (2020: £16.4m), after
applying a discount rate of 1.90% (2020: 1.40%).
On 1 April 2021, Instem acquired US-based clinical trial
technology and consulting leader d-wise Technologies,
Inc. (d-wise). D-wise adds another 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 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 $31.0m comprising $20m (c.
£14.5m) on completion, $8.0m (c. £6.2m) of deferred
consideration and up to a further $3m (c. £2.2m) which
is payable contingent upon the financial performance
of d-wise for the 12 months ending 31 December 2021.
The initial consideration on completion was satisfied
by $13m (c. £9.4m) in cash and $7m (c. £9.8m) via the
issuance of 868,203 new ordinary shares of 10p each in
Instem plc. The initial cash payment was funded from
the Group’s existing financial resources. Since the year
end, $3m of deferred consideration has been paid and
the earn-out and contingent consideration has been
reported as having been achieved in full.
Finally, on 1 September 2021, Instem announced
the acquisition of PDS Pathology Data Systems Ltd
(“PDS”), a direct competitor in the life sciences space
with headquarters in Switzerland and offices in the
United States and Japan. The Initial Consideration was
satisfied by CHF 4.7m in cash (c. £3.7m) and CHF 3.5m
(c. £2.8m) via the issuance of 359,157 new ordinary
shares of 10p each in Instem plc. The cash payment,
loan repayments and other net liabilities payments were
funded from the Group's existing financial resources.
The PDS acquisition enables Instem to concentrate
investment on a single line of SEND and preclinical
study management products, removing unnecessary
duplication
in the market. The combination of
technologies and highly experienced teams will enable
the Group to enhance the development and delivery of
existing and new solutions that provide higher value to
its clients.
these
The financial obligations associated with
acquisitions during 2022 and 2023 are deferred
and contingent consideration payments of £6.5m
and £5.3m respectively, in a combination of cash
and shares. The contingent consideration reflects
management’s estimate that the entities would achieve
their profitability targets.
The period again saw strong net cash generated from
operations of £10.3m (2020: £7.4m), largely due to
cash inflows from the newly acquired businesses, key
contracts, outsourced services and effective working
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 )
Alternative performance measures
This Annual Report and Accounts contains certain financial alternative performance measures (“APMs”) that are
not defined or recognised under IFRS but are presented to provide readers with additional financial information that
is evaluated by management and investors in assessing the performance of the Group. This additional information
presented is not uniformly defined by all companies and may not be comparable with similarly titled measures and
disclosures by other companies.
The table below provides the data for certain performance measures mentioned above:
Annual support fees
SaaS subscription and support fees
Recurring revenue
Licence fees
Professional services
Technology enabled outsourced services
Consultancy services
2021
£000
14,378
9,704
24,082
4,597
3,651
6,378
7,309
Total revenue
46,017
2020
£000
8,917
8,024
16,941
3,477
1,603
6,196
-
28,217
Recurring revenue is the revenue that repeats annually under contractual arrangements. It highlights how much of
the Group’s total revenue is secured and anticipated to repeat in future periods, providing a measure of the financial
strength of the business.
Total revenue
Revenue from the acquisitions
Organic revenue
2021
£000
46,017
(15,965)
30,052
2020
£000
28,217
-
28,217
Organic revenue is the revenue excluding the impact of acquisitions, which highlights the Group’s income generated
from the primary operations.
Recurring Revenue
Annual recurring revenue adjustment
Annual Recurring Revenue
2021
£000
24,082
4,659
28,741
2020
£000
-
-
-
Annual recurring revenue is the revenue that annually repeats under contractual arrangements, considering also
the acquisitions which were part of the Group for 12 months. The revenue has also been adjusted for new and lost
contracts.
2 0
EBITDA
Non recurring cost (see note 3)
Non recurring income (see note 3)
Adjusted EBITDA
2021
£000
7,769
1,286
(805)
8,250
2020
£000
5,313
606
-
5,919
Adjusted EBITDA is EBITDA plus non-recurring items (as set out in note 3). The same adjustments are also made
in determining the adjusted EBITDA margin. Items are only classified as exceptional due to their nature or size and
the Board considers that this metric provides the best measure of assessing underlying trading performance.
Profit before tax
Amortisation of intangibles arising on acquisition
Non recurring cost (see note 3)
Non recurring income (see note 3)
Intercompany foreign exchange (gain)/loss
Adjusted profit before tax
2021
£000
2,984
1,563
1,286
(805)
(18)
5,010
2020
£000
2,549
664
606
-
208
4,027
Adjusted profit before tax is after adjusting for the effect of foreign currency exchange on the revaluation of inter-
company balances included in finance income/(costs), non-recurring items and amortisation of intangibles on
acquisitions.
The same adjustments are also made in determining adjusted earnings per share (“EPS”). The Board considers this
adjusted measure of operating profit provides the best metric of assessing underlying performance.
Weighted average number of shares (000's)
Adjusted diluted earnings per share
Cash at bank
Bank overdraft
Cash balance
2021
£000
22,719
16.3p
24,019
(8,998)
15,021
2020
£000
19,652
19.1p
35,722
(8,998)
26,724
2 1
S T R A T E G I C R E P O R T ( C O N T I N U E D )
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, was
heard by a German court on 17 March 2022 and
the official outcome is awaited. The Group has been
defending the action.
Notwithstanding this, the cost provision of £0.25m
made in 2017 has been maintained in the 2021 financial
statements. As the potential financial outcome cannot
yet be determined with any certainty the Board has
concluded that the £0.25m provision was appropriate
at 31 December 2021. 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 by
impact of accounting or regulatory changes.
Additionally, weak economic conditions, including the
potential impact of UK’s departure from the European
Union (“EU”), may disrupt the Group’s operations and
associated revenues. The Group engages with clients
based in EU countries and, prior to the COVID-19
pandemic, employees were previously able to travel
freely to those countries to implement projects without
the need to obtain visas or work permits. One area of
mitigation for the Group is the presence of its wholly
owned subsidiary, Notocord SA, which is based in the
EU.
Finally, any significant inflationary increases would
quickly impact the Group’s cost base, with a potential
delay before increased costs can be passed to clients.
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 52% 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, including the newly
acquired businesses. 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 £0.6m (2020: £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 2021 year end the Group
had a maximum credit risk exposure of £14.9m (2020:
£6.1m).
2 2
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 18 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 review and regular review of working
capital and costs. The Group regularly monitors its
available headroom under its borrowing facilities, for
further details refer to the going concern review.
The Group signed a new financing arrangement on 8
April 2022, which consists of a committed facility of
£10.0m with HSBC UK Bank plc to support the Group's
working capital needs and its acquisition strategy. The
facility can also be extended up to £20.0m, if needed,
subject to additional bank approval. The financial
covenants have been considered in the cash forecast to
ensure compliance.
At 31 December 2021, the Group £0.5m net bank
facility was undrawn (2020: £0.5m undrawn). The
Group had positive gross cash reserves of £15.0m at the
end of the period, in addition to the £0.5m undrawn
working capital facility, although £3.5m of the cash
was held in bank accounts in China, where it has been
traditionally harder to repatriate funds quickly.
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
2021, the indications are that the UK bank base interest
rate could rise by 25 basis points to 0.75%. On the
basis of the net cash position at 31 December 2021 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 significant amounts of 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. All staff are trained in
identifying and responding to any perceived, or actual,
cyber attacks. The Group maintains separate insurance
cover to protect against the financial implications of
any cyber threat.
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 existing 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 and integration 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 potential unexpected material
adverse consequences prior to deal completion.
2 3
S T R A T E G I C R E P O R T ( C O N T I N U E D )
intelligence and in silico solutions in the drug R&D
process underpins our confidence in further leveraging
our software and service portfolio. As such, we now
have the platform in place to capitalise on the various
opportunities ahead of us and we look forward to
reporting further progress as we continue to execute
our growth strategy.
In common with other businesses, we have seen wage
inflation in recent months and, accordingly, we are
moderating our profit expectations for the current
year ahead of price rises on contract renewals flowing
through positively to revenue. Importantly, we already
have good visibility for the current year with growing
recurring SaaS and Annual Support revenues and a
strong pipeline.
The recent acquisitions of The Edge, d-wise and
PDS highlight our ability to add scale and leverage
existing customer relationships with a view to further
enhancing earnings, while providing a strong platform
for continued growth. We look forward to advancing
further acquisition opportunities after consolidating
the 2021 additions.
P J Reason
Chief Executive
4 May 2022
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 unlikely 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 and further all-staff share awards were made
in 2021.
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 the 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
relatively unaffected.
Conflict in Ukraine
The Group has no clients or operations located in either
Ukraine or Russia. The Board is actively monitoring
the developing situation and is mindful of the potential
for escalation. The Group is also assessing contingency
plans should such a situation arise.
P O S T P E R I O D - E N D
For the material subsequent events refer to note 35,
as these have a bearing on the understanding of the
financial statements.
O U T L O O K
The performance during the year highlighted our
resilience – especially given the COVID-19 backdrop,
and I would like to thank all of our staff for their
continued efforts and hard work. 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
2 4
"...the combination of
increasing demand for
regulatory-backed solutions
and a growing demand for
artificial intelligence and in
silico solutions in the drug
R&D process underpins
our confidence in further
leveraging our software
and service portfolio."
S t r a t e g i c R e p o r t
2 5
B O A R D O F D I R E C T O R S
Non-executive Chairman
Chief Executive Officer
Chief Financial Officer
D a v i d G a r e
P h i l R e a s o n
N i g e l G o l d s m i t h
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.
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 6
Non-executive Director
D a v i d S h e r w i n
Non-executive Director
M i k e M c G o u n
Non-executive Director
R i a z B a n d a l i
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.
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.
Riaz has spent his entire career
in the healthcare and life
sciences industries in a variety
of strategic, commercial and
operational roles at senior level,
also including exposure to
fundraising and M&A activity.
Riaz is currently President,
Nordion Inc (a Sotera Health
Company), the global leader
in the provision of Cobalt
60 and gamma irradiation
systems for medical devices,
PPE, food safety, health care
and oncology purposes. His
previous role was as CEO of
Emerald Health Therapeutics,
a role he held for three years.
Prior to that, Riaz was with
Syneos Health for nine years,
firstly leading their Early Stage
Contract Research Services
business then becoming Chief
Innovation Officer and more
recently as President, Early
Phase Development and
Translational Sciences, with
responsibility for a team of 900
people globally.
2 7
C O R P O R A T E G O V E R N A N C E S T A T E M E N T
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)
and aims to ensure compliance where possible. 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 two independent non-executive
directors 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
(KPIs) and financial
together with
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, D M Sherwin and R Bandali, 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.
2 8
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 met twice during the year 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:
a.
investigate any activity within its terms of reference;
b. seek any information it requires from any employee
of the Group; and
c. obtain, at the Group’s expense, outside legal or
other independent professional advice and to
secure the attendance of such persons to meetings
as it considers necessary and appropriate.
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
R Bandali
12/12
12/12
12/12
12/12
12/12
1/1
2/2
2/2
2/2
2/2
2/2
1/1
1/1
1/1
1/1
1/1
1/1
-
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, D M Sherwin and R Bandali, 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
about
the executive directors' remuneration
packages and structures in addition to those
required by law, or by the London Stock Exchange.
The Chairman of the Remuneration Committee
reports formally to the Board on its proceedings
after each meeting on all matters within its duties
and responsibilities. The Remuneration Committee
produces an annual report which is included in the
Group’s annual report and accounts.
The Remuneration Committee is authorised to:
a.
investigate any activity within its terms of reference;
b. seek any information it requires from any employee
of the Group;
c. assess the remuneration paid by other UK listed
companies of a similar size in any comparable
industry sector and to assess whether changes to the
executive directors’ remuneration is appropriate
for the purpose of making their remuneration
competitive or otherwise comparable with the
remuneration paid by such companies; and
d. obtain, at the Group’s expense, outside legal or
other independent professional advice, including
independent remuneration consultants, when the
Remuneration Committee reasonably believes it
is necessary to do so and secure the attendance of
such persons to meetings as it considers necessary
and appropriate.
2 9
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
The Nomination Committee comprises D Gare
(Chairman), M F McGoun, D M Sherwin and R
Bandali, 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 Chairman of
the Nomination Committee
reports formally to the Board on its proceedings after
each meeting on all matters within its duties and
responsibilities.
The Nomination
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
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
c.
3 0
d.
ability to continue to contribute to the Board in
the light of the knowledge, skills and experience
required;
the re-election by shareholders of any director
under the “retirement by rotation” provisions in
the Company’s articles of association having due
regard to their performance and ability to continue
to contribute to the Board in the light of the
knowledge, skills and experience required;
e. matters relating to the continuation in office of any
director at any time including the suspension or
termination of service of an executive director as
an employee of the Group subject to the provisions
of the law and his/her service contract; and
the appointment of any director to executive or
other office other than to the positions of Chairman
of the Board and Chief Executive Officer, the
recommendation for which would be considered
at a meeting of the full Board.
f.
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;
c. obtain outside
independent
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. This approach is also adopted for any
corporate acquisition, whereby controls, systems and
processes of the target company are assessed during
the due diligence phase and any areas of remediation
are included in the planning of the Integration process
post-acquisition.
there was a high emphasis on
During 2021,
understanding
the existing control environment
with the new acquisitions, identifying and reporting
the issues to the local management and assisting
on implementing the appropriate controls. There
is an ongoing integration process into our certified
management systems for all acquisitions and the
Group target is to apply the same internal controls for
the Edge, d-wise and PDS.
On behalf of the Board
M F McGoun
Independent Non-Executive Director
3 1
D I R E C T O R S ’ R E M U N E R A T I O N R E P O R T
Instem plc is a company listed on AIM and it is not
required to comply with Schedule 8 of the Large and
Medium Sized Companies and Groups (Accounts
and Reports) Regulations 2008 relating to directors’
remuneration reports or the Listing Rules. The
disclosures contained within this report are, therefore,
made on a voluntary basis and in keeping with the
Board’s commitment to best practice.
R E M U N E R A T I O N C O M M I T T E E
The Remuneration Committee (‘the Committee’) is
composed entirely of non-executive directors. The
Committee was formed upon the public listing of the
Company on 13 October 2010. The Chairman of the
Committee is M F McGoun. The terms of reference for
the Committee are to determine the Group’s policy on
executive remuneration and to consider and approve
the remuneration packages for directors and key
executives of the Group, subject to ratification by the
Board. During the year, the Committee met on one
occasion. 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 £47,000
were payable to executive directors in respect of the
year ended 31 December 2021 (2020: £18,000).
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, M F McGoun and R Bandali
each have a letter of appointment with a notice period
of three months.
3 2
The emoluments paid or payable to directors in respect of the year ended 31 December 2021 were as follows:
Salary and Fees
Bonus
Benefits
Pension
2021 Total
2020 Total
Executives
P J Reason*
N J Goldsmith
Non-executives
D Gare
D M Sherwin
M F McGoun
R Bandali **
204
131
65
33
40
3
Total
476
33
14
-
-
-
-
47
21
9
-
-
-
-
30
21
7
-
-
-
-
28
279
161
65
33
40
3
581
276
153
65
33
40
-
567
* The remuneration in respect of P J Reason is payable in US Dollars and translated at the average rates as disclosed on page 63.
The total remuneration paid in the year was USD 384,000 (2020: USD 355,000).
** R Bandali was appointed to the Board as an independent non executive director, effective 1 December 2021.
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
P J Reason
Ordinary shares
N J Goldsmith
Ordinary shares
Employees
Ordinary shares
Exercise price
(£)
0.90
Nil
Nil
Nil
Nil
1.76
0.90
0.10
Nil
Nil
Nil
Nil
2.22
0.90
0.10
0.10
0.10
0.10
0.10
Nil
Nil
Nil
Nil
0.10
Nil
Nil
Issue date
14/01/2013
22/02/2018
26/06/2020
16/04/2021
27/09/2021
07/02/2012
14/01/2013
29/07/2015
22/02/2018
26/06/2020
16/04/2021
27/09/2021
17/10/2011
14/01/2013
11/02/2015
29/07/2015
21/11/2015
27/05/2016
03/05/2017
22/02/2018
27/04/2020
06/05/2020
19/05/2020
22/03/2021
22/03/2021
21/09/2021
Held at 31
Dec 2020
Granted
during year
Exercised
during year
Lapsed
during year
Held at 31
Dec 2021
23,429
80,000
76,000
-
-
20,000
15,000
62,500
80,000
74,000
-
-
8,667
22,975
40,584
78,125
25,258
6,480
22,500
240,000
116,584
24,000
243,000
-
-
-
4,387
25,000
3,031
25,000
30,000
55,061
289,000
(8,667)
(50,000)
(30,000)
(15,000)
(10,059)
(24,000)
(4,354)
23,429
80,000
76,000
4,387
25,000
208,816
20,000
15,000
62,500
80,000
74,000
3,031
25,000
279,531
-
22,975
40,584
78,125
25,258
6,480
7,500
190,000
106,525
24,000
219,000
-
50,707
289,000
1,060,154
Total
1,259,102
431,479
(88,667)
(53,413)
1,548,501
Approved by the Board and signed on its behalf by:
M F McGoun
Independent Non-Executive Director
3 3
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 2021.
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 9 to 24.
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 24 information
required to be contained in the 24’ 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 requirement of the
business relationship with suppliers, customers and
others is included within the Section 172 Statement on
page 15 to 17.
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 and is reviewing
the possible implication of the ongoing conflict between
Ukraine and Russia. 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.
The uncertainty as to the future impact on the Group of
the COVID-19 outbreak and ongoing conflict between
Ukraine and Russia 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.
3 4
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 loan proceeds of £0.8m ($1.1m) which were part
of the US federal government support for businesses
during the COVID-19 pandemic were fully forgiven in
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 35 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
R Bandali
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 32 to 33.
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 2021 (2020: as at 12 April 2021) were as
follows:
2021
No. of Shares
2020
No. of Shares
DG 2008 Discretionary
Settlement
538,427
538,427
D M Sherwin
750,000
P J Reason
770,714
750,000
730,714
N J Goldsmith
10,000
-
Directors’ interests in share options are detailed in the
Remuneration report on pages 32 to 33.
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 2021 or
2020.
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 23 to the financial
statements.
I N D E M N I T Y O F O F F I C E R S A N D
D I R E C T O R S
Under the Company’s Articles of Association and
subject to the provisions of the Companies Act, the
Group may and has indemnified all directors and other
officers against liability incurred in the execution or
discharge of their duties or the exercise of their powers,
including but not limited to any liability for the costs of
any legal proceedings. The Group has purchased and
maintains appropriate insurance cover against legal
action brought against directors or officers.
A N N U A L G E N E R A L M E E T I N G
The Annual General Meeting (‘AGM’) of the Company
will be held on 9 June 2022. 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.
3 5
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 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
4 May 2022
3 6
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 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
the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
C O N C L U S I O N S R E L A T I N G T O
G O I N G C O N C E R N
We are responsible for concluding on the 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 the key observations
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 2021, 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
international
law and UK-adopted
accounting standards and as regards the parent
company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
In our opinion:
•
in
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 2021 and of the Group’s
profit for the year then ended;
the Group financial statements have been properly
prepared
accordance with UK-adopted
international accounting standards;
the parent company financial statements have
been properly prepared in accordance with UK-
adopted international accounting standards 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
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
3 8
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
Overall materiality:
Group: £356,000, which represents 0.77% of the Group’s revenue.
Parent company: £253,000, which represents 0.36% of the parent company’s total
assets.
Key audit matters for the Group were identified as:
• Improper revenue recognition;
• Carrying value of goodwill;
• Going concern; and
• Acquisition accounting and valuation of related intangible assets.
We did not identify any key audit matters relating to the audit of the financial
statements of the parent company that were not already identified for the Group financial statements.
Our auditor’s report for the year ended 31 December 2020 included no key audit matters that have not been
reported as key audit matters in our current year’s report. One new key audit matter has been identified, being
acquisition accounting and valuation of related intangible assets.
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
Materiality
Scoping
Key audit
matters
components using component materiality (full scope audit), being Instem LSS Limited, Instem LSS NA Limited,
and d-wise Inc;
• an audit of one or more account balances, classes of transactions or disclosures of the component (specified audit
procedures) of four further components to gain sufficient appropriate audit evidence at the Group level; and
• analytical procedures at Group level for the remaining fifteen 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.
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
Audit
reponse
Description
KAM
Disclosures Our results
High
Potential
financial
statement
impact
Low
Low
Management
over-ride of
controls
Going
Concern
Improper
recognition of
revenue
Carrying value
of goodwill
Acquisition accounting and
valuation of related
intangible assets
DB pension
liablility
Internally
generated
intangible
assets
Extent of management judgement
High
Key audit matter
Significant risk
Other risk
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 )
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
is management
Improper recognition of revenue
We identified the improper recognition of revenue
for technology enabled outsourced services and
professional services and consultancy 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 due to
the complexity of these revenue streams which presents
the possibility 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.
There
is also a significant estimate made by
management with regards planned project hours for
service obligations, which determine the percentage
completion of service revenue contracts.
We consider the risk of overstatement to be heightened
for service revenue and this has been the focus of
our work. We consider this risk to be specific to the
occurrence assertion.
judgement
involved
Relevant disclosures in the Annual report and
financial statements 2021
The Group’s accounting policy on revenue recognition
is shown in ‘Accounting policies’ within the financial
statements on pages 60 to 62; and related disclosures
are included in Note 1 ‘Revenue from contracts with
customers’.
4 0
In responding to the key audit matter, we performed
the following audit procedures:
• Performed an assessment of business processes
and the design and implementation of the controls
identified;
• Assessed the Group’s revenue accounting policies to
assess compliance with IFRS 15
• Identified and assessed 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;
• Assessed management’s accounting papers in respect
of the application and implementation of IFRS 15 to
the newly acquired entities;
• Challenged
significant
judgements made by
management in respect of service revenue recognised
as per the IFRS 15 accounting policy, including the
recognition of revenue over time on a percentage
completion basis;
• Selected key items and tested 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 identified such
contracts from the project management system. 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;
• Performed a lookback test after the year end in order
to review the accuracy of budgeted hours for project
completion when compared to actual hours post
year end;
• Recalculated 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
• Tested cut off for service revenue by confirming the
appropriate allocation of sales to the correct period.
Our results
Our audit testing did not identify any material
misstatements in relation to revenue recognition.
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
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. We have pinpointed the
significant risk in relation to the carrying value of
goodwill, with increased focus on the CGUs identified
as sensitive in management’s sensitivity analyses.
Under International Accounting Standard IAS 36
‘Impairment of Assets’, management are required to
assess at the end of each reporting period whether
there is any indication that an asset may be impaired
and to perform an annual assessment of whether the
Group’s goodwill within a CGU is impaired.
The process for assessing whether an impairment exists
under IAS 36 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;
• Allocation of revenue and costs across the Group in
accordance with transfer pricing policy; and
In responding to the key audit matter, we performed
the following audit procedures:
• Understood and assessed the Group’s process and
relevant controls around the carrying value of
goodwill;
• Assessed the mechanical accuracy of the impairment
model and the methodology applied by management
for consistency with the requirements of IAS 36,
including their associated sensitivity analysis;
• Tested the accuracy of management’s forecasting
through a comparison of prior forecasts to actual
data;
• Assessed whether the supporting cash flow forecasts
are in accordance with Board approved forecasts;
• Challenged the CGUs identified by management
with regard as to whether there is an active market
for the output of each CGU;
• Challenged the appropriateness of management’s
assumptions and sensitivities relating
the
estimated future cash flows applied to the CGUs,
including the growth rate and discount rate used to
assess the level of headroom;
to
• Engaged internal valuations specialists to inform
our challenge of management to ensure that the
assumptions used within the WACC calculation
are reasonable and gained assurance that the
assumptions used are consistent with other similar
Groups; and
• Reviewed management’s sensitivity analyses to
understand the impact of any reasonably possible
changes in assumptions (including the WACC), and
evaluated the headroom available from different
outcomes to assess whether goodwill could be
impaired on this basis;
• Assessed revenue growth rates against historical
rates used by Instem, comparable businesses in the
sector, and third party market data;
• Reviewed the transfer pricing policy to assess
the reasonableness of management’s judgements
applied, and for consistency with previous periods;
• Assessed management’s allocation of revenue and
costs to each CGU in the prepared forecasts in
accordance with the transfer pricing policy;
• Performed sensitivities on the transfer pricing
adjustments and tested management’s inputs;
• Assessed whether the Group’s disclosures with
respect to the carrying value of the Group’s goodwill
are adequate and the key assumptions are disclosed.
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 )
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 2021
The Group’s accounting policy on goodwill is shown
in ‘Accounting Policies’ within the financial statements
on page 68 and relevant disclosures in respect of the
carrying value of the Group’s goodwill are presented in
Note 14 ‘Intangible Assets’.
Going concern
We identified 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 on page 68, the Group has undergone a period
of significant change throughout FY20 and FY21, driven
by the acquisitive growth strategy of the Group. The
Group has adapted to changes in respect of the global
pandemic COVID-19, as well as raising significant
funds via equity to fund the acquisition pipeline.
These events could adversely impact the future trading
performance of the Group and parent company and 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
and adverse turn in events within their forecast future
performance of the Group and anticipated cash flows.
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.
In responding to the key audit matter, we performed
the following audit procedures:
• Obtained and assessed management’s paper and
assessment of going concern, including the forecasts
covering the period to 30 April 2023 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 uncertainties in the economic
environment and how this may affect the Group’s
resources or ability to continue operations over the
going concern period;
• Obtained management’s sensitised 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;
• Considered whether assumptions are consistent
with our understanding of the business obtained
during the course of the audit, the impairment
forecast assumptions;
• Considered the impacts of year-end provisions and
contingent liabilities as disclosed in the financial
statements on the Group’s ability to continue as a
going concern;
• Assessed 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;
• Assessed the adequacy of the supporting evidence for
the cash flow forecast and performing arithmetical
checks on the forecast; and
• Assessed the policies and disclosures in respect of
going concern given in the financial statements for
appropriateness.
4 2
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 2021
The Group’s accounting policy on going concern is
shown in ‘Accounting policies’ within the financial
statements on page 58.
Acquisition accounting and valuation of related
intangible assets
We identified accounting for business combinations as
one of the most significant assessed risks of material
misstatement due to error. Considering the pervasive
nature of these transactions and the level of judgement
involved, this has been identified as a financial
statement level risk.
The Group has made three acquisitions in the
current year. Under IFRS 3, ‘Business combinations’
management is required to recognise, separately from
goodwill, the assets acquired and liabilities assumed,
and then to recognise goodwill on purchase.
Management make significant judgements to identify
specific intangible assets that are acquired with a new
business and make significant estimates to value these
assets.
Given the nature of the entities acquired, management
have recognised material software assets, customer
relationships and goodwill as part of the acquisitions.
Under IFRS 10, ‘Consolidated financial statements’,
the group is required to consolidate newly acquired
subsidiaries from the date it obtains control.
Our results
We have nothing to report in addition to that stated in
the ‘Conclusions relating to going concern’ section of
our report.
In responding to the key audit matter, we performed the
following audit procedures on business combinations:
• assessed whether the Group’s accounting policy for
the valuation of goodwill and other intangible assets
is in accordance with UK-adopted international
accounting standards
in conformity with the
requirements of the Companies Act 2006, and
checking that fair value measurements are accounted
for in accordance with the stated accounting policy;
• obtained the acquisition date balance sheet of
each acquired subsidiary and performing audit
procedures in respect of the material assets and
liabilities acquired;
• considered whether assets and liabilities transferred
have been recognised at fair value, per the
requirements of IFRS 3;
• obtained the details of the consideration paid, and
agreeing these to relevant source documents, such as
sale and purchase agreements;
• obtained management’s purchase price allocation
used to value specific acquired intangibles and
assessing the appropriateness and reasonableness of
key assumptions made in the calculations, such as
growth rates, customer attrition rates and discount
rates, and engaging our internal valuation specialists
as auditor’s experts to assess the reasonableness of
such models and assumptions, and thus inform our
challenge;
• engaged our internal valuation specialists as auditor’s
experts to perform shadow calculations used to
develop an auditor’s range for the value for certain
intangibles acquired which was used to compare
management’s point estimate;
• challenged management’s assessment of
the
identifiable intangible assets acquired by the Group,
and whether any further intangible assets, such as
brands or trademarks, should be identified; and
• assessed whether the requirements of control as
defined under IFRS 10, ‘Consolidated financial
statements’ had been achieved.
4 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 ( 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
Accounts 2021
The Group’s accounting policies on goodwill, intangible
assets and the basis of consolidation are shown in
note 2 to the Group financial statements and related
disclosures are included in notes 11 through 13.
Our results
We have nothing to report in addition to that stated in
the ‘Conclusions relating to going concern’ section of
our report.
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
£356,000, which is 0.77% of the Group’s revenue.
Significant judgements made by auditor in
determining the materiality
We determine revenue to be the most appropriate
benchmark due to this having importance in
both external financial reporting and internal
management reporting. This is a key driver of
business activity and is a measure on which
growth is monitored.
Materiality for the current year is higher than
the level that we determined for the year ended
31 December 2020 to reflect the year on year
revenue growth.
£253,000, which is 0.36% of the parent company’s
total assets.
We determine net assets to be the most
appropriate benchmark because the parent
company does not trade and largely holds
investments in subsidiary undertakings.
Materiality for the current year is higher than the
level that we determined for the year ended 31
December 2020 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
£249,200, which is 70% of financial statement
materiality.
£177,100, 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:
• assessment of the control environment in
made the following significant judgements:
• whether there were any significant
acquired entities;
adjustments made to the parent company’s
• whether there were any significant
financial statements in prior years; and
adjustments made to the Group’s financial
• assessment for any significant changes
statements in prior years; and
in business objectives and strategy of the
• assessment for any significant changes
parent company.
in business objectives and strategy of the
Group.
4 4
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.
£17,800 and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.
£12,600 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
£46m
PM
£249k, 70%
Total assets
£70.8m
PM
£177k, 70%
FSM
£356k, 0.77%
FSM
£253k, 0.36%
TFPUM
£89k, 30%
TFPUM
£63k, 30%
FSM: Financial statements materiality, PM: Performance materiality, TFPUM: Tolerance for potential uncorrected
misstatements
4 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 )
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 and its environment, including
Group-wide controls, and assessed the risks of
material misstatement at the Group level; and
considered the structure of the Group, including
Group-wide processes and controls, and used this
to inform our assessment of risk, for example if the
Group financial reporting system is centralised,
and use of service organisations including shared
service centres.
•
Identifying significant 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.
Type of work to be performed on financial
information of parent and other components
(including how it addressed the key audit matters)
• Of the Group’s twenty eight components, we
identified three in addition to the parent company
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;
Performance of our audit
• 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 80% of the Group’s revenue, 76%
of the Group’s profit before tax and 85.6% of the
Group’s total assets; and
• We performed analytical procedures at Group level
over the remaining 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. Changes in
approach from previous period.
• All work including component work was performed
by the Group audit team.
Other information
The directors are responsible for the other information.
The other information comprises the information
included in the annual report, other than the financial
statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements,
or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify
such material inconsistencies or apparent material
misstatements, we are required to determine whether
there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of
this other information, we are required to report that
fact.
We have nothing to report in this regard.
4 6
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.
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
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.
E X P L A N A T I O N A S T O W H A T
E X T E N T T H E A U D I T WA S
C O N S I D E R E D C A P A B L E O F
D E T E C T I N G I R R E G U L A R I T I E S ,
I N C L U D I N G F R A U D
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 ISAs (UK).
4 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 )
• Making inquiries, in respect of fraud, of
those outside the finance team, including key
management and the project management
team.
• 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.
• These audit procedures were designed to provide
reasonable assurance that the financial statements
were free from fraud or error. The risk of not
detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting
from error and detecting irregularities that result
from fraud is inherently more difficult than
detecting those that result from error, as fraud
may involve collusion, deliberate concealment,
forgery, or intentional misrepresentations. Also,
the further removed non-compliance with laws
and regulations is from events and transactions
reflected in the financial statements, the less likely
we would become aware of it; and
• 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.
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: UK-adopted
international accounting standards, Companies
Act 2006, the AIM Rules, Quoted Companies
Alliance (QCA) Corporate Governance Code,
HIPAA laws in the United States, 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:
• 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
4 8
U S E O F O U R R E P O R T
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the
company and the company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.
Michael Frankish
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
4 May 2022
4 9
C O N S O L I D A T E D S T A T E M E N T O F C O M P R E H E N S I V E I N C O M E
For the year ended 31 December 2021
REVENUE
Employee benefits expense
Other expenses
Note
1
2
2
Net impairment loss on financial assets
18
EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATION, AMORTISATION AND
NON-RECURRING ITEMS (ADJUSTED EBITDA)
Depreciation
Amortisation of intangibles arising on acquisitions
Amortisation of internally generated intangibles
Depreciation of right of use assets
OPERATING PROFIT BEFORE NON-RECURRING ITEMS
Non-recurring costs
Non-recurring income
OPERATING PROFIT AFTER NON-RECURRING ITEMS
Finance income
Finance costs
16
14
14
8
3
3
4
5
PROFIT BEFORE TAXATION
Taxation
10
PROFIT FOR THE YEAR
OTHER COMPREHENSIVE INCOME/(EXPENSE)
Items that will not be reclassified to profit and loss account:
Actuarial gain/(loss) on net defined benefit liability
Deferred tax on actuarial (loss)/gain
Deferred tax on share options
Items that may be reclassified to profit and loss account:
Exchange differences on translating foreign operations
OTHER COMPREHENSIVE INCOME/(EXPENSE) FOR THE YEAR
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
PROFIT ATTRIBUTABLE TO OWNERS OF THE PARENT COMPANY
TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT
COMPANY
Earnings per share
Basic
Diluted
30
30
The notes on pages 72 to 125 form part of these financial statements.
5 0
Year ended
31 December
2021
£000
Year ended
31 December
2020
£000
46,017
(26,918)
(10,491)
(358)
8,250
(312)
(1,563)
(851)
(945)
4,579
(1,286)
805
4,098
30
(1,144)
2,984
(1,306)
1,678
1,375
(140)
-
1,235
(294)
941
2,619
1,678
2,619
7.8
7.4
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
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 2021
Company Registration No. 07148099
Note
£000
£000
£000
£000
2021
2020
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
Financial liabilities
Lease liabilities
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
Financial liabilities
Pension obligations
Provision for liabilities
Lease liabilities
Deferred tax liabilities
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
Share based payment reserve
Translation reserve
Retained earnings
14
16
8
8
17
18
8
25
19
20
21
22
8
22
27
28
8
26
29
31
31
31
31
31
58,311
592
2,077
85
64
14,852
44
130
15,021
5,723
18,935
6,612
1,077
4,728
2,014
291
1,248
3,247
2,219
28,191
12,104
2,294
(202)
2,695
18,023
238
1,742
128
61,065
20,131
30,111
91,176
32,347
11,528
43,875
50
6,093
41
724
26,724
2,958
9,878
268
608
1,131
3,868
250
1,476
90
2,048
28,172
2,432
930
92
(438)
33,632
53,763
13,712
6,815
20,527
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
47,301
91,176
33,236
53,763
The financial statements on pages 72 to 125 were approved by the board of directors and authorised for issue on 4 May 2022 and
are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
5 1
C O M P A N Y S T A T E M E N T O F F I N A N C I A L P O S I T I O N
At 31 December 2021
Company Registration No. 07148099
2021
2020
Note
£000
£000
£000
£000
ASSETS
NON-CURRENT ASSETS
Intangible assets
17
Investments
15
47,188
27
26,620
TOTAL NON-CURRENT ASSETS
47,205
26,647
CURRENT ASSETS
Trade and other receivables
Cash and cash equivalents
TOTAL CURRENT ASSETS
TOTAL ASSETS
LIABILITIES
CURRENT LIABILITIES
Trade and other payables
Financial liabilities
18
19
20
22
20,322
3,294
16,632
2,122
23,616
70,821
TOTAL CURRENT LIABILITIES
18,754
NON-CURRENT LIABILITIES
Financial liabilities
22
757
TOTAL NON-CURRENT LIABILITIES
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Merger reserve
29
31
31
Share based payment reserve
2,219
28,191
23,738
1,765
Retained earnings
31
(4,603)
TOTAL EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
TOTAL EQUITY AND LIABILITIES
757
19,511
51,310
70,821
3,330
20,269
8,468
-
-
2,048
28,172
14,066
929
(3,437)
23,599
50,246
8,468
-
8,468
41,778
50,246
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 loss for the year was £1,386,000 (2020: profit of £266,000).
The notes on pages 72 to 125 form part of these financial statements.
The financial statements on pages 50 to 125 were approved by the board of directors and authorised for issue
on 4 May 2021 and are signed on its behalf by:
P J Reason
Director
N J Goldsmith
Director
5 2
C O N S O L I D A T E D S T A T E M E N T O F C A S H F L O W S
For the year ended 31 December 2021
2021
2020
Note
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Depreciation
Amortisation of intangibles
Depreciation of right of use assets
Share based payment charge
Contributions to defined benefit pension scheme
Government support loan forgiveness
Finance income
Finance costs
Loss on disposal of fixed assets
16
14
8
2
27
3
4
5
CASH FLOWS FROM OPERATIONS BEFORE MOVEMENTS IN
WORKING CAPITAL
Movements in working capital:
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase in trade, 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
14
16
(2,238)
(144)
(277)
Purchase of subsidiary undertakings (net of cash acquired)
11,12,13
(14,840)
2,549
138
1,400
572
427
(512)
-
(38)
692
2
5,230
(14)
742
1,410
7,368
38
(648)
183
6,941
2,984
312
2,414
945
1,061
(530)
(805)
(30)
1,144
3
7,498
(14)
(1,573)
4,432
10,343
6
(276)
(873)
9,200
(1,272)
(141)
(277)
-
NET CASH USED IN INVESTING ACTIVITIES
(17,499)
(1,690)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Issue costs
Proceeds from government support loan
Repayment of lease liabilities
Receipts from sublease of asset
Repayment of lease capital
Repayment of former PDS’s shareholder loan
24
24
24
22
-
-
(963)
40
-
(2,387)
16,167
(744)
810
(621)
40
(15)
-
NET CASH GENERATED (USED IN)/FROM FINANCING ACTIVITIES
NET (DECREASE)/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
19
(3,288)
(11,587)
26,724
(116)
15,021
15,637
20,888
5,957
(121)
26,724
The notes on pages 72 to 125 form part of these financial statements.
5 3
C O M P A N Y S T A T E M E N T O F C A S H F L O W S
For the year ended 31 December 2021
Note
2021
2020
£000
£000
£000
£000
CASH FLOWS FROM OPERATING ACTIVITIES
(Loss)/Profit before taxation
(1,386)
Adjustments for:
Amortisation of intangibles
Finance income
Finance cost
CASH FLOWS USED IN OPERATIONS BEFORE
MOVEMENTS IN WORKING CAPITAL
Movements in working capital:
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
NET CASH GENERATED FROM OPERATIONS
Finance income
Finance costs
NET CASH GENERATED (USED IN)/ FROM
OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of software intangible
Purchase of subsidiary undertakings (net of cash acquired)
10
(21)
462
(935)
(9,561)
8,164
(2,332)
21
(86)
(2,397)
-
(14,590)
(29)
-
266
2
(57)
-
211
1,670
1,809
3,690
57
-
3,747
NET CASH USED IN INVESTING ACTIVITIES
(14,590)
(29)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
22
15,423
NET CASH GENERATED FROM FINANCING
ACTIVITIES
NET (DECREASE)/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
19
22
(16,965)
20,269
(10)
3,294
15,423
19,141
1,128
-
20,269
The notes on pages 72 to 125 form part of these financial statements.
5 4
C O N S O L I D A T E D S T A T E M E N T O F C H A N G E S I N E Q U I T Y
ATTRIBUTABLE TO OWNERS OF THE COMPANY
Share capital
£000
Note
Share
premium
£000
Merger
reserve
£000
Share based
payment
reserve issued
£000
Translation
reserve
£000
Retained
earnings
£000
Total
equity
£000
Balance as at 1 January 2020
1,662
13,135
2,432
654
Profit for the year
Other comprehensive (expense)/
income for the year
Total comprehensive expense
Shares issued
Share based payment
29
9
Reserve transfer on lapse of share
options
Reserve transfer on exercise of
share options
-
-
-
-
-
-
386
15,037
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 31 December 2020
2,048
28,172
2,432
Profit for the year
Other comprehensive income/
(expense) for the year
Total comprehensive (expense)/
income
Shares issued
Share based payment
29
9
Deferred tax on share options
Nil cost option charge
Reserve transfer on lapse of share
options
Reserve transfer on exercise of
share options
-
-
-
-
-
-
-
-
-
171
19
9,672
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
427
(65)
(86)
930
-
-
-
-
1,061
528
(5)
(25)
(195)
(1,166)
16,799
2,274
2,274
(1,697)
(1,687)
82
-
10
10
-
-
-
-
92
-
(294)
577
-
-
65
86
(438)
1,678
1,235
(294)
2,913
-
-
-
-
-
-
-
-
-
-
25
195
587
15,423
427
-
-
33,236
1,678
941
2,619
9,862
1,061
528
(5)
-
-
Balance as at 31 December 2021
2,219
28,191
12,104
2,294
(202)
2,695
47,301
The notes on pages 72 to 125 form part of these financial statements.
5 5
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
Retained
earnings
£000
Total
equity
£000
Balance as at 1 January 2020
1,662
13,135
14,066
654
(3,855)
25,662
Profit for the year
Shares issued
Share based payment
29
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
Loss for the year
Shares issued
Share based payment
Nil cost option charge
29
9
Reserve transfer on lapse of share
options
Reserve transfer on exercise of share
options
-
171
-
-
-
-
-
19
-
-
-
-
-
9,672
-
-
-
-
-
-
427
(66)
(86)
929
-
-
1,061
(5)
(25)
(195)
266
-
-
66
86
(3,437)
(1,386)
-
-
-
25
195
266
15,423
427
-
-
41,778
(1,386)
9,862
1,061
(5)
-
-
Balance as at 31 December 2021
2,219
28,191
23,738
1,765
(4,603)
51,310
The notes on pages 72 to 125 form part of these financial statements.
5 6
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 UK-adopted
international accounting standards.
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 eleven 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
Instem
(company number 03548215),
Limited
Scientific Limited (company number 03861669),
Perceptive Instruments Limited (company number
02498351), Samarind Limited (company number
02105894), The Edge Software Consultancy Limited
(company number 05400315), d-wise Technologies
UK Limited (company number 07352898) 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.
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 2021.
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 2021.
The most significant of these are as follows:
•
Interest Rate Benchmark Reform Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16)
Those standards, amendments to standards, and
interpretations have been adopted and did not have
a material impact on the accounting policies of the
Group.
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 are as follows, which are
all effective for the period beginning 1 January 2022:
• Amendments to IAS 1, ‘Presentation of financial
statements’, on classification of liabilities
• Amendments to IAS12 ‘Deferred tax’ on deferred
tax related to assets and liabilities arising from a
single transaction
IFRS 3 ‘Business combination’, reference to the
Conceptual Framework and IAS 37, ‘Provisions’,
on onerous contracts
•
• A number of narrow-scope amendments to IFRS1,
IAS 8, IAS16 and IAS17
• A number of annual improvements on IFRS 1,
IFRS 9, IAS 41 and IFRS 16
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.
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 )
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 2021 and 31
December 2020.
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.
B U S I N E S S C O M B I N A T I O N S
The Group applies the acquisition method in accounting
for business
consideration
combinations. The
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.
5 8
are
adjusted
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
retrospectively, with
adjustments
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.
In the interim results announcement on 27 September
2021 an element of deferred consideration relating to
the d-Wise acquisition was recognised as employee
remuneration through the Statement of Comprehensive
Income.
As part of the procedures performed for the year end
release of results on 26 April 2022 this was reassessed
and it was concluded that no substantive employment
link existed. Appropriate adjustments have been
made to the current year annual report to include the
deferred consideration as part of the cost of business
combination. Any employment remuneration expense
recognised in the interim results announcement on 27
September 2021 has been reversed.
This does not represent a prior period error in
accordance with IAS 8 for the purpose of the annual
report on 4 May 2022, however, it will be appropriately
addressed in the next interim results release on
September 2022.
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.
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 30 April 2023, 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 2021 has been strong with Revenues of
£46.0m and Adjusted EBITDA of £8.3m. 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 signed a new financing arrangement on 8
April 2022, which consists of a committed facility of
£10.0m with HSBC UK Bank plc to support the Group's
working capital needs and its acquisition strategy,
which can be extended up to £20.0m if needed, subject
to further bank approval. The financial covenants have
been considered in the forecast to ensure compliance.
However as of 31 December 2021, the Group had a net
overdraft facility of £0.5m and a gross facility of £9.0m
with NatWest Bank plc. As of 31 December 2021,
the net overdraft facility with NatWest Bank plc was
undrawn (2020: undrawn).
Instem undertook an oversubscribed equity fund raise
in July 2020, raising £15.0m net of expenses. The fund
raise placed the Group in a strong cash position which
helped to accelerate the Group’s acquisition strategy
with the acquisitions of the Edge, d-wise and PDS. The
cash payment for purchasing those subsidiaries was
£17.2m (net of cash acquired).
The period 2021 saw again strong net cash generated
from operations of £10.3m (2020: £7.4m), largely due
to operating cash inflows from the newly acquired
businesses, key contracts, outsourced services and
effective working capital management.
The loan proceeds of £0.8m ($1.1m) which were part
of the US federal government support for businesses
during the COVID-19 pandemic were fully forgiven in
2021. As a result of the above and the positive organic
cash generation achieved in the period, the cash
balance decreased from £26.7m to £15.0m.
The Group acquired the earnings enhancing, cash
generative business of Leadscope Inc, The Edge, d-wise,
and PDS between November 2019 and September
2021, which have been steadily integrated within the
Group during 2021.
The financial cash obligations associated with these
acquisitions during 2022 are deferred and contingent
consideration payments of £3.6m and £2.5m
respectively. The contingent consideration reflects
management’s estimate of a 100% probability that
the entities target profitability will be achieved. The
amount of £1.1m payable to d-wise in relation to its
contingent consideration could be a combination of
cash and shares of Instem plc at the discretion of the
Group.
Sensitivity Analysis
The Company has considered two 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
three acquisitions occurred in 2023.
(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 30 April 2023 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 ongoing conflict between Russia and Ukraine
has been considered as part of the sensitivity analysis
and as part of Group's adoption of the going concern
basis. We have no customers, suppliers or staff in either
territory. 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 52% 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.
(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 30 April 2023. In preparing
this analysis the following key risks were included
causing a 35% 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
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 )
however, the cash balance was reduced over the going
concern period to April 2023.
In a worse scenario where many of the identified risks
occurred, the Group would take remedial action to
counter the reduction in profit and cash through a cost
cutting and fund-raising exercise that would include
staff redundancies, general cost control measures.
These further downside scenarios are considered
unlikely.
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.
R E V E N U E R E C O G N I T I O N
services
outsourced
The Group generates revenue from the provision of
software licences, annual support, SaaS subscriptions,
subscription and support, professional services,
technology
and
enabled
consultancy 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
transaction price
inception,
the
by Leadscope and resale of complementary products.
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. Customers pay a fixed amount in exchange
for the use of a cloud based statistical computing
environment, along with access to maintenance and
support. The promises in these contracts constitute a
single performance obligation, which is satisfied over
time as the customer consumes the benefits of the
service consistently over the contract term. 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 consistently over the
contract term.
6 0
Subscription and support
Customers typically enter into a Subscription contract
for an agreed period, could be more than 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. In some cases the
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 consistently over the
contract term.
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, KnowledgeScan and
Blur. 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.
Professional services include the revenue from funded
development projects where customers
typically
enter into a service contract to accelerate product
development. Revenue for funded development work
is recognised on a percentage completed basis. The
percentage completed is determined with reference to
time required to complete the development.
Consultancy services
Customers typically enter into a service contract
to provide distinct service work based on clear
statements of work which include consulting services
for clinical trial applications. The consultancy services
are contracted for on either a time and materials or
fixed priced basis. Time and materials consultancy is
recognised in the period in which it is performed. Fixed
price work is recognised on a percentage completion
basis of the remaining unbilled milestones. The
percentage completed is determined with reference to
time incurred to date and time required to complete
the development or consultancy.
Bundled contracts
Software licences, professional services, cloud based
statisitical computing environment - 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.
For professional
enabled
outsourced services and consultancy services the
group will raise an invoice to the customer only if the
performance obligation based on the agreement would
be met.
Consequently, if the amount of revenue recognised
exceeds the amounts invoiced the excess amount is
included within amounts recoverable on contracts.
In comparison if customers are invoiced and payment is
received in advance of revenue being recognised in the
income statement then deferred income is recognised.
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;
technology
services,
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 )
thereby, assisting the Board to use the segmental cost
information for meaningful decision making.
The operations of the Group are managed centrally
with group-wide functions including sales, marketing,
software development, customer support, IT, 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.
liabilities of foreign operations,
The assets and
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.
•
•
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 I T E M 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 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 Period, year the business was divided into
four operating segments to better manage and report
revenues; Study Management, Regulatory Solutions,
In Silico Solutions and Clinical Trial Acceleration
(CTA), see note 1. The fourth segment was established
following the acquisition of d-wise in April 2021.
There has been an internal project to enhance the
quality of management information following the
implementation of a new finance system in 2019. During
2020 this system enabled more centrally recorded
costs to be allocated to the individual segments and
that process was further developed during 2021. The
operations of the Group are managed centrally with
including sales, marketing,
group-wide functions
software development,
technology,
customer support, human resources and finance &
administration. The CTA segment already bears the
majority of its costs directly and as such reports a lower
direct contribution margin to central overheads than
the other three segments.
The expectation in future years is to be able to allocate
more centrally held operational costs to the individual
internal reporting systems evolve,
segments as
information
6 2
The exchange rates used to translate the financial statements into Sterling (GBP) are as follows:
US Dollar
(USD)
Euro
(EUR)
Swiss Franc
(CHF)
Chinese
Renminbi
(RMB)
Indian Rupee
(INR)
Japanese
Yen (JPY)
Average rate for year ended 31 December 2020
1.2852
1.1283
1.2025
8.8974
95.4317
137.1411
Closing rate at 31 December 2020
1.3659
1.1124
1.2038
8.9346
100.1070
140.7079
Average rate for year ended 31 December 2021
1.3744
1.1583
1.2570
8.8570
101.6019
150.6447
Closing rate at 31 December 2021
1.3497
1.1918
1.2315
8.5684
100.2861
155.3695
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)
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.
Instem LSS Limited
Sterling (GBP)
G R A N T
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)
Grants from the government are recognised at their
fair value where there is a reasonable assurance that the
grant will be received and the group will comply with
the appropriate conditions.
Instem Scientific Solutions Limited
Sterling (GBP)
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.
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)
The Edge Software Consultancy Limited
Sterling (GBP)
d-wise Technologies UK Limited
Sterling (GBP)
Instem Inc.
US Dollars (USD)
d-wise Technologies Inc.
US Dollars (USD)
d-wise Technologies Inc Morrisville
succursale de Geneve Branch
Swiss Franc (CHF)
d-wise Technologies Deutshland GmbH
Euro (EUR)
Pathology Data Systems AG
Swiss Franc (CHF)
Pathology Data Systems Inc.
US Dollars (USD)
Pathology Data Systems Limited Japan
Branch
Japanese Yen (JPY)
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 )
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
6 4
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 fifteen
years. Amortisation is recognised within the statement
of comprehensive income. All intangible assets except
Goodwill are amortised and are tested for impairment
whenever events or changes in circumstances indicate
the carrying amount may not be recoverable.
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. Goodwill is carried at cost less
accumulated impairment losses.
Any impairment is recognised immediately in profit or
loss and is not subsequently reversed. For the purpose
of impairment testing goodwill is allocated to cash
generating units of Instem plc, which represent the
smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Computer Software
Computer software is carried at cost less accumulated
amortisation and any impairment loss. Externally
acquired computer software and software licences are
capitalised and amortised on a straight-line basis over
their useful economic lives of three years. Costs relating
to development of computer software for internal use
are capitalised once the recognition criteria of IAS
38 “Intangible Assets” are met. When the software is
available for its use, these costs are amortised over the
estimated useful life of the software.
Internally generated intangible assets
Expenditure on research activities is recognised in the
statement of comprehensive income as incurred.
Expenditure arising from the Group’s development of
software for sale to third parties is recognised only if all
of the following conditions are met:
•
•
an asset is created that can be identified;
it is probable that the asset created will generate
future economic benefits;
the development cost of the asset can be measured
reliably;
the Group has the intention to complete the asset
and the ability and intention to use or sell it;
the product or process
commercially feasible; and
sufficient resources are available to complete the
development and to either sell or use the asset.
technically and
•
•
•
•
is
Capitalised development costs are those which are
directly attributable to the development activity and
include employee costs, overheads and direct third
party costs.
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) and are
tested for impairment whenever events or changes in
circumstances indicate the carrying amount may not
be recoverable. 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
The Group makes use of
leasing arrangements
principally for the provision of office space and IT
equipment. 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.
6 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 )
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.
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.
•
•
6 6
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;
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
for
in
impairment whenever events or changes
circumstances indicate the carrying value may not be
recoverable.
At each reporting date the Group reviews the carrying
value of its property, plant and equipment and intangible
assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any
such indication exists the recoverable amount of the
asset is estimated in order to determine the extent of
the impairment loss.
Where the asset does not generate cash flows that are
independent from other assets the Group estimates
the recoverable amount of the cash generating unit
(‘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.
6 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 )
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.
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 departmental costs are assigned to each
CGU's using an approach agreed by the board.
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.
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 8
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 (e.g. 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 2021 (2020: 31 December 2020) 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. Other than performance
risk, 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 offset 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.
P O S T - E M P L O Y 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-employment
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 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 )
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,
technology
and
consultancy 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.
outsourced
services
enabled
Even though, the promise to transfer services to the
customer are separately identifiable, the nature in the
context of the contract, is to transfer combined services.
The goods or services are highly interdependent,
interrelated and the Group would not be able to fulfil
its promise by transferring each of the goods or services
independently.
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,
subscription and support and annual 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
In 2021, the 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 2021 was
£34.6m (2020: £10.2m). Refer to note 14 for further
detail.
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 Business Unit pre-tax weighted average cost of
capital. Where a CGU operates in multiple operating
segments an average of the relevant WACCs has been
used.
The revenue growth rates and margins are based
on current Board-approved budgets and forecasts
covering a period of five years. Management estimates
7 0
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.
are considering business growth rates, payroll and
other cost base increases further details are provided
in note 14.
The data used for impairment testing procedures are
directly linked to the Group’s latest budget, adjusted as
necessary to exclude the effects of future reorganisations
and asset enhancements.
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.
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 (note
22).
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 2021 was £2.0m (2020: £3.9m).
7 1
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.
The Group’s Chief Operating Decision Maker (CODM) is its chief executive and he monitors the performance of
these operating segments as well as deciding on the allocation of resources to them alongside with the executive
management team.
Historically the Group’s finance systems have recorded costs centrally and have managed costs in this way. Over recent
years the Group has expanded both organically and through acquisition, increasing the number of products and
services offered and in 2020 the Group reported through three operating segments, Study Management, Regulatory
Solutions and In Silico Solutions. During 2021 the fourth segment, Clinical Trial Acceleration (CTA), was established
after following the acquisition of d-wise.
During 2020 this system enabled more centrally recorded costs to be allocated to the individual segments and that
process was further developed during 2021. The operations of the Group are managed centrally with group-wide
functions including sales, marketing, software development, information technology, customer support, human
resources and finance & administration. The CTA segment already bears the majority of its costs directly and as
such reports a lower direct contribution margin to central overheads than the other three segments. The expectation
in future years is to be able to allocate more centrally held operational costs to the individual segments as internal
reporting systems evolve, thereby assisting the Board to use the segmental cost information for meaningful decision
making.
The operations of the Group are managed centrally with group-wide functions including sales, marketing, software
development, IT, customer support, human resources and finance & administration.
The analysis provided below reflects costs directly attributable to the respective segments in 2021 and 2020, 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.
7 2
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
2021
Study
Management
£000
Regulatory
Solutions
£000
In Silico
Solutions
£000
Clinical Trial
Acceleration
£000
Total
£000
3,042
12,706
46,017
(1,681)
(11,308)
(29,393)
1,361
45%
1,398
11%
Total revenue
20,259
Direct attributable costs
(10,388)
Contribution to indirect overheads
Contribution to indirect overheads %
9,871
49%
Central unallocated indirect costs
10,010
(6,016)
3,994
40%
Adjusted EBITDA
Depreciation
Amortisation of intangibles arising on acquisitions
Amortisation of internally generated intangibles
Depreciation of right of use assets
OPERATING PROFIT BEFORE NON-RECURRING ITEMS
Non-recurring costs
Non-recurring income
OPERATING PROFIT AFTER NON-RECURRING ITEMS
Finance income
Finance costs
PROFIT BEFORE TAXATION
SEGMENTAL REPORTING
2020
Study
Management
£000
Regulatory
Solutions
£000
In Silico
Solutions
£000
Clinical Trial
Acceleration
£000
Total revenue
15,054
Direct attributable costs
(3,516)
Contribution to indirect overheads
11,538
Contribution to indirect overheads %
77%
Central unallocated indirect costs
Adjusted EBITDA
Depreciation
9,839
(2,046)
7,793
79%
3,324
(1,630)
1,694
51%
-
-
-
-
Amortisation of intangibles arising on acquisitions
Amortisation of internally generated intangibles
Depreciation of right of use assets
OPERATING PROFIT BEFORE NON-RECURRING ITEMS
OPERATING PROFIT AFTER NON-RECURRING ITEMS
Non-recurring costs
Finance income
Finance costs
PROFIT BEFORE TAXATION
16,624
(8,374)
8,250
(312)
(1,563)
(851)
(945)
4,579
(1,286)
805
4,098
30
(1,144)
2,984
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
7 3
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
Consultancy services
REVENUE BY GEOGRAPHICAL LOCATION
UK
Europe
USA
Rest of World
NON-CURRENT ASSETS EXCLUDING DEFERRED TAXATION BY
GEOGRAPHICAL LOCATION
UK
Europe
USA
Rest of World
2021
£000
4,597
14,378
9,704
3,651
6,378
7,309
46,017
2021
£000
3,540
7,477
26,831
8,169
46,017
2021
£000
56,925
1,895
1,812
433
61,065
2020
£000
3,477
8,917
8,024
1,603
6,196
-
28,217
2020
£000
2,740
5,656
13,050
6,771
28,217
2020
£000
17,549
1,436
524
622
20,131
There were no customers which represented more than 10% of the Group’s revenue in 2021 (2020: none).
7 4
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
2021
2020
Amounts
recoverable on
contracts
£000
At 1 January
1,826
Deferred
income
(9,878)
Transfer in the period from amounts recoverable on contracts
to trade receivables
(1,826)
-
Amounts included in deferred income that was recognised as
revenue during the period
Deferred income on acquisition of the Edge
Deferred income on acquisition of d-wise
Deferred income on acquisition of PDS
-
-
-
-
Amounts recoverable on contracts on acquisition of d-wise
551
Amounts recoverable on contracts on acquisition of PDS
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
9
-
1,480
2,040
9,878
(555)
(4,230)
(708)
-
-
(13,442)
-
(18,935)
Amounts
recoverable on
contracts
1,395
(1,395)
-
-
-
-
-
-
-
1,826
1,826
Deferred
income
(8,942)
-
8,942
-
-
-
-
-
(9,878)
-
(9,878)
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, a corresponding receivable is 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:
2022
£000
6
Revenue
2023
£000
-
2024
£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 2021, the carrying value of costs to obtain contracts which have been capitalised is the amount of
£nil (2020: £nil). Amortisation of £nil (2020: £nil) was recognised during the year.
The entity has applied the practical expedient available in paragraph 94 of IFRS 15 to recognise the incremental
costs of obtaining a contract as an expense when incurred where the amortisation period of the asset that the entity
otherwise would have recognised is one year or less.
7 5
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 I T E M 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
Research and development costs
i.
Short life lease expenses
2021
£000
312
2,414
945
2,623
159
2020
£000
138
736
572
2,177
95
i. Research and development cost – relates to internal research and development costs which were not capitalised as at 31 December 2021.
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
Non-audit services:
Taxation services - Compliance
Taxation services - Advisory
2021
£000
257
27
6
290
The following tables analyse employee benefits operating expense and other expenses:
2021
£000
2020
£000
177
21
53
251
2020
£000
Employee benefits expense
Staff costs (see note 6)
24,759
15,447
Share based payments
Health and life insurance
Other benefits
Other expenses
Software maintenance charges
Licence costs
Third party costs
Other expenses (excluding net impairment (loss/gain on financial assets)
889
1,233
37
26,918
1,379
1,716
2,076
5,320
10,491
427
630
4
16,508
918
1,543
1,567
1,762
5,790
7 6
3 . N O N - R E C U R R I N G I T E M S
NON RECURRING COST
Guaranteed Minimum Pension (GMP) equalisation provision
Legal costs relating to historical contract disputes
Acquisition costs
Share based payments
NON RECURRING INCOME
US government loans forgiven
2021
£000
-
95
1,019
172
1,286
2021
£000
805
805
2020
£000
5
149
452
-
606
2020
£000
-
-
Non recurring costs in the year include acquisition costs of £1.0m relating to the acquisistions of The Edge, d-wise and
PDS. The share based payments charge of £0.2m relate to options that were re-issued in 2021 and vested immediately.
The non recurring income of £0.8m ($1.1m) relates to US federal government COVID-19 support loans which were
forgiven during 2021 and there are no unfulfilled conditions or contingencies related to this income.
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
Right of use asset interest cost
Foreign exchange losses
2021
£000
6
24
30
2021
£000
85
867
51
97
44
1,144
2020
£000
7
31
38
2020
£000
38
70
34
96
454
692
7 7
6 . E M P L O Y E E S
Group
2021
Number
2020
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
55
381
436
21,485
1,858
1,416
24,759
Average monthly number (including non-executive directors)
Company
2021
Number
By role:
Non-executive directors
Employment costs:
Wages and salaries
Social security costs
3
141
15
156
39
265
304
13,109
1,334
1,004
15,447
2020
Number
3
138
15
153
7 8
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
2021
£000
141
411
29
581
2020
£000
138
385
44
567
Number of directors to whom post-employment benefits are accruing under:
Defined contribution schemes
2
2
2021
Number
2020
Number
The remuneration of the highest paid director during the year ended 31 December 2021 was £279,000 (2020:
£276,000). Directors’ remuneration analysed by director is shown on page 33.
8 . L E A S E S
Lease liabilities are presented in the statement of financial position as follows:
Current
Non current
2021
£000
1,077
1,248
2,325
2020
£000
488
1,596
2,084
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 one vehicles and certain equipment. Leases of
vehicle and equipment 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 2021, 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. Two leases that came with the acquisitions could be terminated in a subject
of notice. 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 9
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:
No of right
of use assets
leased
Average
remaining
lease 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
Right of use assets
Office buildings
Vehicles
Equipment
14
1
1
2.3 years
1.9 years
0.5 years
10
0
0
0
0
0
1
0
0
Right of use assets
Land & buildings
£000
Motor vehicles
£000
Equipment
£000
As at 1 January 2020
2,158
Additions
Lease modification and remeasurement
Depreciation
Exchange adjustment
As at 31 December 2020
Additions
Acquisitions
Restoration costs
Depreciation
Exchange adjustment
As at 31 December 2021
123
32
(564)
(38)
1,711
261
539
70
(686)
(5)
1,890
7
31
-
(8)
-
30
-
-
-
(10)
-
20
-
-
-
-
-
-
-
410
-
(249)
6
167
Lease liabilities
Land & buildings
£000
Motor vehicles
£000
Equipment
£000
As at 1 January 2020
2,563
Additions
Lease modification and remeasurement
Interest expense
Lease payments
Exchange adjustment
As at 31 December 2020
Additions
Acquisitions
Interest expense
Lease payments
Exchange adjustment
As at 31 December 2021
123
32
95
(710)
(50)
2,053
261
539
84
(795)
(9)
2,133
6
31
-
-
(6)
-
31
-
-
1
(11)
-
21
-
-
-
-
-
-
-
-
410
11
(253)
3
171
8 0
2
0
0
Total
£000
2,165
154
32
(572)
(38)
1,741
261
949
70
(945)
1
2,077
Total
£000
2,569
154
32
95
(716)
(50)
2,084
261
949
96
(1,059)
(6)
2,325
8 . L E A S E S ( C O N T I N U E D )
Reconciliation of movements of lease liabilities to cash flows
Cash flow changes
Interest expenses
Payment of lease liabilities
At 31 December 2020
Interest expenses
Payment of lease liabilities
As at 31 December 2021
Land & buildings
£000
Motor vehicles
£000
Equipment
£000
95
615
710
83
712
795
-
6
6
1
10
11
-
-
-
12
241
253
Lease liability maturity analysis:
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
As at 31 December 2021
1 year or less
£000
2 to 5 years
£000
After five years
£000
Lease liabilities
1,077
1,229
19
Total
£000
95
621
716
96
963
1,059
Total
£000
2,084
Total
£000
2,325
The Group has elected not to recognise a lease liability for short term leases (leases with an expected term of 12
months or less) or for leases of low value assets. Payments made under such leases are expensed on a straight-line
basis.
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
2021
£000
159
81
96
945
2020
£000
45
95
95
572
The total cash outflow for leases in 2021 was £1.0m (2020: £0.7m).
8 1
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 2021 and 31
December 2020 are as follows:
As at 1 January 2020
Interest earned
Less: Rental income received
Exchange adjustment
At 31 December 2020
Interest earned
Less: Rental income received
Exchange adjustment
At 31 December 2021
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
2021
£000
49
50
34
-
-
133
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
2021
£000
133
(4)
129
8 2
£000
214
8
(48)
(5)
169
6
(46)
-
129
2020
£000
47
48
50
33
-
178
2020
£000
178
(9)
169
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 2020
1 year or less
£000
2 to 5 years
£000
After five years
£000
Finance lease receivable
41
128
-
As at 31 December 2021
1 year or less
£000
2 to 5 years
£000
After five years
£000
Finance lease receivable
44
85
-
Total
£000
169
Total
£000
129
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 share options that Group awarded to all employees are only subject to continued employment, passage of time
and there are no other performance conditions.
2021
2020
Number
Weighted average
exercise price (£)
Outstanding at the beginning of the year
1,259,102
Granted
431,479
Lapsed
(53,413)
Exercised
(88,667)
Outstanding at end of the year
1,548,501
Exercisable at end of year
651,851
0.11
0.01
0.03
0.25
0.07
0.17
Number
983,303
535,728
(21,788)
(238,141)
1,259,102
525,518
Weighted average
exercise price (£)
0.60
0.00
0.09
1.75
0.11
0.25
The options outstanding at 31 December 2021 had exercise prices of £nil, £0.10, £0.90, £1.76 and £2.22) (2020: £nil,
£0.10, £0.90, £1.76 and £2.22) and a weighted average remaining contractual life of 7 years 1 month (2020: 7 years 3
months).
A charge of £1.061m (2020: £0.427m) arose in respect of share based payments.
The fair value of options granted in the year was £2.6m (2020: £1.9m).
8 3
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 )
During the year, the average share price in respect of share options exercised was £7.90 (2020: £4.38)
New options for 431,479 shares were granted in the year. The Monte-Carlo option-pricing model has been used where
option conditions are market related and Black-Scholes where option conditions are EBITDA related . The fair market
value has been estimated using the following key assumptions:
Grant date 2021
22 March
16 April
1 September
27 September
Expected life (years)
Share price at grant date
Exercise price
1.8
£5.78
Nil
Dividend yield
0.00%
Risk free rate
Volatility
Fair value of options (average)
NA
NA
5.70
2.7
£6.63
Nil
0.00%
NA
NA
6.63
3.0
£8.38
Nil
0.00%
0.2%
29%
5.86
3.0
£9.00
Nil
0.00%
0.4%
29%
6.92
The fair value calculation includes an assumption regarding share price volatility of 29% 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.
8 4
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 (charge)/credit
Deferred tax:
Current year charge
Adjustment in respect of previous years
Defined benefit liability
Impact of rate change
Total deferred tax credit/(charge)
2021
£000
(268)
351
(1,111)
(54)
(1,082)
(147)
575
(91)
(560)
(223)
Total income tax charge recognised in the current year
(1,306)
2020
£000
(4)
250
(146)
39
139
(165)
(57)
(90)
(102)
(414)
(275)
The UK corporation 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 UK Government announced that from 1 April 2023 the corporation tax rate will
increase to 25%. As the proposal to increase the rate to 25% had been substantively enacted at the balance sheet date,
its effects are included in these financial statements as a change from 19% to 25% on deferred tax.
8 5
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 before tax
Profit before tax multiplied by standard rate of corporation tax in the UK 19.0% (2020: 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
Adjustments in respect of prior years
Impact of change in tax rate
Double tax relief
Difference in overseas tax rates
2021
£000
2,984
(567)
(278)
341
(460)
408
(137)
252
(560)
(36)
(269)
Total income tax charge recognised in consolidated statement of comprehensive income
(1,306)
2020
£000
2,549
(484)
(59)
321
(327)
390
105
(22)
(102)
(20)
(77)
(275)
8 6
1 1 . ACQUISITION OF THE ED GE SOFT WARE CONSULTANCY LTD ('THE ED GE')
On 1 March 2021, Instem acquired 100% of the issued share capital of The Edge. The acquisition has increased the
group’s market share in the global Life Science Sector and complements the group in continuing its expansion and
development in this industry.
Company
Principal activity
Date of acquisition
Proportion of
voting equity
interests acquired
%
Consideration
£000
The Edge
Provider of Discovery Technology Solutions
software and services to Life Science sector
1 March 2021
100
9,221
Details of the purchase consideration, the net assets acquired and goodwill are as follows:
Consideration
Initial cash paid
Initial share consideration
Deferred consideration – cash payable March 2022
Contingent consideration – cash payable by June 2022
Contingent consideration – cash payable March 2023
Working capital and cash adjustment – cash receivable March 2022
Total consideration
Discounting of estimated future cashflows
Present value of consideration
£000
5,500
2,000
500
1,000
1,000
(67)
9,933
(712)
9,221
The initial share consideration was satisfied by the issue of 391,920 new Instem plc ordinary shares at a value of £2.0m
which was based on the published share price. The premium arising on the share issue of £2.0m has been credited to
the merger relief reserve.
The appropriate discounting has been applied to the debt instruments.
The deferred consideration is not based on any performance related conditions and was paid in March 2022. The
contingent consideration is based on certain performance related conditions in the twelve-month period post-
completion. The contingent consideration in the table above is based on the forecast estimate that the performance
related conditions will be fully met and the full consideration will be payable. The contingent consideration was
re-measured at the reporting date. The deferred consideration had been discounted using Instem’s estimated cost of
borrowing and the contingent consideration has been discounted using the company’s Internal Rate of Return (‘IRR’).
8 7
1 1 . ACQUISITION OF THE ED GE SOFT WARE CONSULTANCY LTD ('THE ED GE')
(CONTINUED)
Acquisition related costs amounting to £0.2m have been recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the date of acquisition
Fair Value
£000
Non-Current Assets
Customer relationships
Intellectual property
Brand
Right of use assets
Current Assets
Cash and cash equivalents
Trade and other receivables
Deferred tax asset
Current Liabilities
Trade and other payables
Deferred income
Lease liabilities
Non-Current Liabilities
Deferred tax on acquisition
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets
Goodwill arising on acquisition
2,550
1,342
105
37
2,570
407
64
(430)
(555)
(36)
(759)
5,295
£000
9,221
(5,295)
3,926
Goodwill
Goodwill of £3.9m primarily relates to the ability to generate growth from new customers, synergies provided by the
Group and the skill and expertise of The Edge’s staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and liabilities acquired has been carried out.
Fair values are provisional as they are within the twelve month hindsight period to adjust fair values. No fair value
adjustments have been made to the assets and labilities acquired.
8 8
1 1 . ACQUISITION OF THE ED GE SOFT WARE CONSULTANCY LTD ('THE ED GE')
(CONTINUED)
The fair value of intangible assets are:
• Customer relationships of £2.6m calculated using the income approach - excess earnings. Acquired customer
relationships consisting of ongoing relationships with companies to which The Edge provides annual licenses,
maintenance assistance and bespoke services.
•
Intellectual property of £1.3m calculated using the income approach - relief from royalty. Two proprietary software
packages were acquired, namely BioRails and Morphit.
• Brands of £0.1m calculated using the income approach - relief from royalty. ‘The Edge’ brand and sub-brands
(principally BioRails and Morphit) are considered in aggregate a separable intangible asset and a driver of the
overall business model.
Acquired receivables
The fair value of acquired trade receivables is £0.079m as no loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
The acquired business contributed revenues of £1.9m and net profit of £1.2m to the group for the period from 1 March
to 31 December 2021.
If this business combination had been effected at 1 January 2021, the revenue of The Edge would have been £2.3m
and the profit for the year would have been £1.4m. These values do not represent a measure of the performance of The
Edge as the company’s accounting policy have been changed at the acquisition date to comply with the policies of the
Group.
Purchase consideration – cash outflow
£000
Outflow of cash to acquire subsidiary, net of cash acquired
Initial cash consideration
Net cash adjustment (after deduction of estimated debt)
Less: Balance acquired
Cash
Net outflow of cash – investing activities
4,000
1,500
(2,570)
2,930
Goodwill
Goodwill of £3.9m primarily relates to the ability to generate growth from new customers, synergies provided by the
Group and the skill and expertise of The Edge’s staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and liabilities acquired has been carried out.
Fair values are provisional as they are within the twelve month hindsight period to adjust fair values. No fair value
adjustments have been made to the assets and labilities acquired.
8 9
1 2 . ACQUISITION OF D-WISE TECHNOLO GIES, INC
On 20 March 2021, Instem exchanged contracts to acquire the 100% of the issued share capital of US-based clinical
trial technology & consulting leader d-wise Technologies, Inc (“d-wise”). The acquisition was completed on 1 April
2021. The acquisition has increased the group’s market share in the global Life Science Sector and complements the
group by entering an attractive adjacent area of clinical trial analysis and submission.
Company
Principal activity
Date of acquisition
Proportion of
voting equity
interests acquired
%
Consideration
£000
d-wise Inc
Provider of clinical trial acceleration
solutions to Life Science sector
1 April 2021
100
22,022
Details of the purchase consideration excluding conditional deferred consideration, the net assets acquired and
goodwill are as follows:
Consideration
Initial cash consideration
Initial share consideration
Deferred consideration (1 April 2022) – To be settled in cash
Deferred consideration (1 April 2022) – To be settled in shares
Deferred consideration (1 April 2023) – To be settled in cash
Contingent consideration (1 March 2022) – To be settled in cash and shares
Contingent consideration (1 March 2023) – To be settled in cash
Working capital adjustment – (Q3 2021) – Settled in cash
$000
13,000
7,000
3,128
1,042
4,347
1,500
1,500
5
Total consideration
31,522
Discounting of estimated future cashflows
Present value of consideration
£000
9,437
5,044
2,271
756
3,156
1,089
1,089
4
22,846
(824)
22,022
The initial share consideration was satisfied by the issue of 868,203 new Instem plc ordinary shares at a value of $7.0m
(£5.0m) which was based on the published share price. The premium arising on the share issue of £5.0m has been
credited to the merger relief reserve.
The appropriate discounting has been applied to the debt instruments.
The deferred consideration is not based on any performance related conditions and is payable in two instalments in
April 2022 and 2023. The contingent consideration is based on certain performance related conditions in the twelve-
month period post-completion. The deferred consideration has been discounted using the interest rate as defined in
the share purchase agreement and the contingent consideration has been discounted using the company’s IRR.
The deferred and contingent consideration to be settled in shares should be equal to the nominal value of the deferred
and contingent promissory note, divided by the average closing price of Instem Stock.
9 0
1 2 . ACQUISITION OF D-WISE TECHNOLO GIES, INC (CONTINUED)
The contingent consideration in the table above is based on the forecast estimate that the performance related
conditions will be fully met and the full consideration will be payable. The contingent consideration was re-measured
at the reporting date.
Acquisition related costs amounting to £1.2m have been recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the date of acquisition
Fair Value
£000
Non-Current Assets
Customer relationships
Intellectual property
Brand names
Property, plant and equipment
Right of use assets
Current Assets
Trade and other receivables
Cash and cash equivalents
Accrued Income
Current Liabilities
Trade and other payables
Deferred income
Financial Liabilities
Lease liability
Non-Current Liabilities
Deferred tax on acquisition
Fair value of identifiable net liabilities acquired
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets
Goodwill arising on acquisition
6,094
1,061
1,134
491
662
5,765
1,800
551
(1,634)
(4,230)
(48)
(662)
(2,072)
8,912
£000
22,022
(8,912)
13,110
9 1
1 2 . ACQUISITION OF D-WISE TECHNOLO GIES, INC (CONTINUED)
Goodwill
Goodwill of £13.1m primarily relates to the ability to enter an attractive adjacent area of clinical trial analysis and
submission, generating growth from new customers, synergies provided by the Group and the skill and expertise of
the d-wise staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and liabilities acquired has been carried out.
Fair values are provisional as they are within the twelve month hindsight period to adjust fair values. Except for the
Deferred revenue no other fair value adjustments have been made to the assets and liabilities acquired.
The fair value of intangible assets are:
• Customer relationships of £6.1m calculated using the income approach - excess earnings. Acquired customer
relationships consisting of ongoing relationships with companies to which d-wise provides hosting and consultancy
services, support and maintenance and product licences.
•
Intellectual property of £1.1m calculated using the income approach - relief from royalty. Two proprietary software
products were acquired, namely Blur and Reveal.
• Brands of £1.1m calculated using the income approach - relief from royalty. The ‘d-wise’ brand is a separable
intangible asset and a driver of the overall business model in the fair value measurement and the proportion of
overall enterprise value attributed to the brand. The brand has been trading since 2003 and is well established
within the pharmaceutical industry.
Acquired receivables
The fair value of acquired trade receivables is £5.1m as no loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the year end includes a profit of £0.5m attributable to the additional business generated by d-wise from 1
April to 31 December 2021. Revenue for the year includes £12.7m in respect of d-wise.
If this business combination had been effected at 1 January 2021, the revenue of d-wise would have been £17.3m and
the profit for the year would have been £1m. The directors consider these values represent an approximate measure of
the performance of d-wise on a yearly basis as the fair value adjustment on the acquired deferred revenue needed to
be considered for the future periods.
Purchase consideration – cash outflow
£000
Outflow of cash to acquire subsidiary, net of cash acquired
Initial cash consideration
Working capital adjustment – (Q3 2021) – Settled in cash
Less: Balance acquired
Cash
Net outflow of cash – investing activities
9,437
4
(1,800)
7,641
9 2
1 3 . ACQUISITION OF PDS PATHOLO GY DATA SYSTEMS LTD
On 1 September 2021, Instem acquired the 100% of the issued share capital of PDS Pathology Data Systems Ltd
(“PDS”), a life sciences software company with headquarters in Switzerland and offices in the United States and
Japan. The acquisition has increased the group’s market share in the global Life Science Sector and complements the
group in continuing its expansion and development in this industry.
Company
Principal activity
Date of acquisition
Proportion of
voting equity
interests acquired
%
Consideration
£000
PDS
Provider of Discovery Technology Solutions for
non-clinical study management and regulatory
software and services
1 September 2021
100
9,309
Details of the purchase consideration excluding the benefit of their former PDS’s shareholders, the net assets acquired
and goodwill are as follows:
Consideration
CHF000
Initial cash paid
Initial share consideration
Deferred consideration (1 September 2022) – To be settled in cash
Working capital adjustment – (Q3 2021) – Settled in cash
7,131
3,500
1,000
99
Total consideration
11,730
Discounting of estimated future cashflows
Present value of consideration
£000
5,665
2,790
794
79
9,328
(19)
9,309
The initial share consideration was satisfied by the issue of 359,157 new Instem plc ordinary shares at a value of
CHF3.5m (£2.8m) which was based on the published share price. The premium arising on the share issue of £2.75m
has been credited to the merger relief reserve.
The appropriate discounting has been applied to the debt instruments.
The deferred consideration is not based on any performance related conditions and is payable in in September 2022.
The deferred consideration has been discounted using the PDS’S weighted average cost of capital (WACC).
9 3
1 3 . ACQUISITION OF PDS PAT HOLO GY D ATA S Y STEMS LTD (C ONTINUED)
Instem plc acquired also the benefit of the former PDS’s shareholder loan for a consideration of CHF3.0m (£2.4m)
which was excluded from the total purchase consideration and is recorded as intercompany balance between Instem
plc and PDS. The above treatment will not affect the Group’s cash position as the total consideration payable
remains at CHF14.7m.
Acquisition related costs amounting to £0.3m have been recognised as an expense within non-recurring items in the
Consolidated Statement of Comprehensive Income.
Fair value of assets acquired and liabilities recognised at the date of acquisition
Fair Value
£000
Non-Current Assets
Customer relationships
Intellectual property
Brand names
Property, plant and equipment
Right of use assets
Current Assets
Trade and other receivables
Cash and cash equivalents
Accrued Income
Current Liabilities
Trade and other payables
Deferred income
Loan from former PDS’s shareholders
Lease liability
Non-Current Liabilities
Deferred tax on acquisition
Provisions
Fair value of identifiable net liabilities acquired
Goodwill arising on acquisition
Consideration transferred
Less: fair value of identifiable net assets
Goodwill arising on acquisition
2,047
1,607
153
34
251
528
1,475
9
(249)
(708)
(2,387)
(251)
(568)
(40)
1,901
£000
9,309
(1,901)
7,408
9 4
1 3 . ACQUISITION OF PDS PATHOLO GY DATA SYSTEMS LTD (CONTINUED)
Goodwill
Goodwill of £7.4m primarily relates to the ability to enter an attractive adjacent area of clinical trial analysis and
submission, generating growth from new customers, synergies provided by the Group and the skill and expertise of
the PDS staff.
Identifiable net assets
A provisional fair value exercise to determine the fair value of assets and liabilities acquired has been carried out.
Fair values are provisional as they are within the twelve month hindsight period to adjust fair values. Except for the
Deferred revenue no other fair value adjustments have been made to the assets and liabilities acquired.
The fair value of intangible assets are:
• Customer relationships of £2.1m calculated using the income approach - excess earnings. Acquired customer
relationships consisting of ongoing relationships with companies to which PDS provides provides licenses, hosting
services, support and maintenance, and other services.
•
Intellectual property of £1.6m calculated using the income approach - relief from royalty. Two proprietary software
products were acquired, namely LIMS and TRANSEND.
• Brands of £0.2m calculated using the income approach - relief from royalty. The ‘PDS’ brand is a separable
intangible asset and a driver of the overall business model in the fair value measurement and the proportion of
overall enterprise value attributed to the brand. The brand has been trading since 1981 and is well established n
the life-science industry.
Acquired receivables
The fair value of acquired trade receivables is £0.4m as no loss allowance was required to be recognised on acquisition.
Impact of acquisition on the results of the Group
Profit for the year includes a loss of £0.1m attributable to the additional business generated by PDS from 1 September
to 31 December 2021. The loss was incurred due to fair value adjustment on the acquired deferred revenue of £0.1m.
Revenue for the year includes £1.4m in respect of PDS.
If this business combination had been effected at 1 January 2021, the revenue of PDS would have been £4.3m and the
loss for the year would have been £0.05m. The directors consider these values represent an approximate measure of
the performance of PDS on a year basis as the fair value adjustment on the acquired deferred revenue needed to be
considered for the future periods.
Purchase consideration – cash outflow
£000
Outflow of cash to acquire subsidiary, net of cash acquired
Initial cash consideration
Management participation, commission and bonus – Settled in cash
Former PDS’s shareholder loan
Working capital adjustment – (Q3 2021) – Settled in cash
Less: Balance acquired
Cash
Net outflow of cash – financing and investing activities
3,701
1,964
2,387
79
(1,475)
6,656
The benefit of the former PDS’s shareholder loan has been presented as a financing cash flow as does not form part of
the consideration transferred.
9 5
1 4 . 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
5,712
3,138
At 1 January 2020
12,658
Additions
Exchange adjustment
-
-
At 31 December 2020
12,658
Additions
-
Acquisitions
24,444
Exchange adjustment
-
At 31 December 2020
37,102
At 1 January 2020
2,482
Amortisation expense
Exchange adjustment
-
-
At 31 December 2020
2,482
Amortisation expense
Exchange adjustment
-
-
At 31 December 2021
2,482
Net book value
At 31 December 2019
At 31 December 2020
10,176
10,176
At 31 December 2021
34,620
8,107
1,272
34
9,413
2,238
-
(71)
11,580
4,415
736
(9)
5,142
851
2
5,995
3,692
4,271
5,585
-
-
5,712
-
4,010
-
9,722
3,372
423
-
3,795
663
-
4,458
2,340
1,917
5,264
-
-
3,138
-
10,691
-
13,829
1,618
212
-
1,830
777
-
2,607
1,520
1,308
380
-
-
380
-
1,392
-
1,772
-
29
-
29
123
-
152
380
351
11,222
1,620
21
-
-
21
-
-
-
21
21
-
-
21
-
-
21
-
-
-
30,016
1,272
34
31,322
2,238
40,537
(71)
74,026
11,908
1,400
(9)
13,299
2,414
2
15,715
18,108
18,023
58,311
The gross carrying amount and accumulated amortisation within Software includes internally generated and externally
acquired elements. The cost of internally generated software amounts to £10.8m (2020: £8.6m) with accumulated
amortisation of £4.5m (2020: £3.7m). Software additions for the year include £2.2m relating to internal development
(2020: £1.2m).
The amortisation from software is included in amortisation of internally generated intangibles and the amortisation of
intangible arising on acquisition are included in amortisation of internally generated intangibles.
Identification of the Cash Generating Units (CGUs)
In previous years the CGUs have been based on the Group's legal structure. However, in 2021 we considered a
restructure of the CGUs in response to the ongoing changes of the Group's internal and external activities which
continue to develop as the Group undertakes acquisitions and integrates these entities into the Group.
The assessment has been performed at the legal entity level given the significant amount of judgement in assessing
what level of the cashflows are independent of each other.
We expect that the CGU composition will move in line with the four operating segments in future years when the
operations of the Group become even more integrated.
Gross carrying amount of goodwill
In 2021, the CGUs are identified by the fact that 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.
9 6
1 4 . 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 allocation of goodwill to CGUs is as follows:
Instem LSS Limited
Instem Scientific Limited
Perceptive Instruments Limited
Samarind Limited
Notocord SA
Leadscope Inc
Instem Clinical Holdings Limited
The Edge Software Consultancy Ltd
d-wise Technologies, Inc
PDS Pathology Data Systems Ltd
2021
£000
5,900
500
600
600
500
2,100
-
3,930
13,110
7,410
34,650
2020
£000
5,900
500
600
600
500
Acquisition date
27 March 2002
3 March 2011
21 November 2013
27 May 2016
2 September 2016
2,100
15 November 2019
-
-
-
-
10,200
1 March 2021
1 April 2021
1 September 2021
The Goodwill related to a CGU, being 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 operating
segment pre-tax weighted average cost of capital. Where a CGU operates in multiple operating segments an average
of the relevant WACCs has been used.
After performing further sensitivity analysis, management approved the use of the different pre-tax WACC across the
ten CGUs:
CGUs
Pre-tax WACC
Instem LSS Limited
Instem Scientific Limited
Perceptive Instruments Limited
Samarind Limited
Notocord SA
Leadscope Inc
Instem Clinical Holdings Limited
The Edge Software Consultancy Ltd
d-wise Technologies, Inc
PDS Pathology Data Systems Ltd
14.15%
13.56%
14.57%
14.31%
14.57%
13.56%
14.57%
14.57%
15.21%
14.44%
9 7
1 4 . 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 )
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 produced a budget for 2022 and then forecast up to 2026 based on growth rates of each
operating segment.
Where a CGU operates in multiple operating segments an average growth rate was used for the relevant CGUs. The
growth rates that have been applied were 8.8% for LSS and PDS (2020: 7% growth rate for LSS), 15% for Instem
Scientific and Leadscope (2020: 7%) and 7.5% for Perceptive Instruments (2020: 7%), 5% for Notocord SA (2020: 5%),
5% Instem Clinical Holdings Limited (2020: 2.5%), 10% for Samarind (2020: 2.5%) and 10% for The Edge and d-wise
businesses.
For the perpetuity calculation (2026 and onwards) a 2.5%, growth rate was applied to all CGUs which management
estimates as reasonable considering revenue, payroll and other cost base increases (2020: 2.5% perpetuity growth rate
was applied to all CGUs) and the terminal value is calculated using the Gordon Growth Model.
Sensitivity analysis
Management has carried out sensitivity analyses on the key assumptions used in recoverable amount calculations.
The PDS, Instem Scientific, Notocord and Samarind CGUs were highlighted as sensitive to increases in discount rate
and fall in revenue growth rates.
The carrying amount of our investments includes goodwill, other intangible assets, tangible assets and right of use
assets.
The table below shows the headroom of recoverable amount over the carrying amount, sensitivities for the additional
increase in the discount rate, reduction in forecast revenues and reduction in forecast revenue growth. The sensitivities
below show the percentage change required in each of the assumptions to create an impairment.
Recoverable
amount exceeds the
carrying amount
Sensitivity of the
CGUs on increased
discount rate
Sensitivity of the
CGUs on reduction
in revenue
Sensitivity to
a reduction in
revenue growth
Instem LSS Limited
Instem Scientific Limited
Perceptive Instruments Limited
Samarind Limited
Notocord SA
Leadscope Inc
Instem Clinical Holdings Limited
The Edge Software Consultancy Ltd
d-wise Technologies, Inc
PDS Pathology Data Systems Ltd
421%
267%
315%
205%
103%
322%
-
147%
181%
104%
41%
11%
29%
10%
1%
25%
-
6%
11%
1%
11%
3%
18%
4%
1%
27%
-
13%
9%
1%
(48%)
(4%)
(38%)
(4%)
(1%)
(39%)
-
13%
(21%)
(2%)
9 8
1 4 . 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 Notocord, Samarind and Instem Scientific CGU had a higher forecast revenue growth than cost growth in the
forecasts. This assumed that revenues would outgrow costs in a growth scenario for each CGU due to the low variable
costs in production. The assumption means the CGUs are more sensitive to a reduction in the revenue growth
assumption because the comparable reduction in costs is lower, causing a greater impact on the cashflows.
Review of carrying value of goodwill
Following the review of the carrying value of goodwill as at 31 December 2021, which has been undertaken across the
Group as required by IAS 36 – Impairment of Assets, the Directors have concluded that there is no need to recognise
an impairment loss in 2021. However, the CGUs below were highlighted as sensitive.
Samarind Limited
Samarind is sensitive to the revenue growth assumption due to the assumption that revenues will outgrow the stable
cost base in the period. A 4% decrease in forecast revenue growth would create £0.1m impairment charge for the CGU.
Notocord SA
Notocord is sensitive to all the key assumptions in the forecasts. A 1% increase in the discount rate would create a
£0.15m impairment charge. In addition, a 1% decrease in forecast revenue growth would create a £0.35m impairment
charge for the CGU.
Instem Scientific
Instem Scientific is sensitive to the revenue growth assumption due to the assumption that revenues will outgrow the
stable cost base in the forecast period. A 4% decrease in forecast revenue growth would create a £0.2m impairment
charge for the CGU.
PDS
PDS has been highlighted as sensitive to all the key assumptions in the forecasts. A 1% increase in the discount rate
would create a £0.5m impairment charge. In addition, a 2% decrease in forecast revenue growth would create £0.27m
impairment charge for the CGU.
As of 31 December 2020, the recoverable amount for each of the CGUs was measured using a value-in-use calculation
except for the Instem Clinical CGU and Samarind CGU where the recoverable amount was measured using the FV
less cost to sell method. The key assumptions used for the value in use calculations were those regarding discount
rates, growth rates, margins and cashflows. However, the key assumption for the FV less cost to sell method was the
sales multiple applied, which was based on market activity at the time.
As per to IAS 36, the recoverable amount used is the higher of the fair value less cost to sell and value in use. Based
on the above, management concluded that there are no indicators for impairment on the CGUs as the recoverable
amount for each CGU was higher than its carrying value.
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 2021 and 2020, there were no indications that any other intangible assets may be impaired.
9 9
1 5 . 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 2020
Additions
At 31 December 2020
Additions
At 31 December 2021
Provisions for impairment
At 1 January 2020
Additions
At 31 December 2020
Additions
At 31 December 2021
Carrying value
At 31 December 2020
At 31 December 2021
£000
29,002
420
29,422
20,576
49,998
£000
2,810
(8)
2,802
8
2,810
£000
26,620
47,188
The Group tests annually for impairment against investments held.
At 31 December 2021 the Group had ten wholly-owned subsidiaries and seventeen 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
1 0 0
1 5 . 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 ( C O N T I N U E D )
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
1 0 1
1 5 . 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 ( C O N T I N U E D )
Company
Registered Address
Activity
Ownership
The Edge Software Consultancy Limited
(company number 05400315)
England and Wales
d-wise Technologies UK Limited
(company number 07352898)
England and Wales
Instem Inc
USA
d-wise Technologies Inc
USA
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
Diamond Way
Stone Business Park
Stone
Staffordshire
ST15 0SD
300 Creek View Road
Suite 209
Newark
DE 19711
Software development,
sales, sales support and
consultancy activities
Software development,
sales, sales support and
consultancy activities on
clinical trial analysis
100% by Instem plc
100% by Instem plc
Holding Company
100% by Instem plc
2100 Gateway Centre Blvd.
Suite 150
Morrisville
NC 27560
Software development,
sales, sales support and
consultancy activities on
clinical trial analysis
100% by Instem plc
d-wise Technologies Inc., Morrisville
succursale de Genève Branch
Switzerland
Dryden ICS SA, Avenue
Blanc, 47
Genève
1202
Switzerland
d-wise Technologies Deutschland GmbH
(company number HRB 112147)
Germany
Eschersheimer
Landstrasse 6
60322 Frankfurt am Main
Software development,
sales, sales support and
consultancy activities on
clinical trial analysis
Software development,
sales, sales support and
consultancy activities on
clinical trial analysis
100% by d-wise Technologies Inc
100% by d-wise Technologies Inc
Pathology Data Systems AG
Switzerland
Preclinical Data Systems, Inc.
USA
Pathology Data Systems Ltd
Japan Branch
Japan
Duerrenhuebelstrasse 9
CH-4133 Pratteln, Basel,
Switzerland
Software development, sales,
sales support and provider
of regulatory information
management software
100% by Instem plc
100 Valley Road,
Suite 204
Mt. Arlington,
New Jersey
07856
3-5-1 Aoihigashi
Naka-ku,
Hamamatsu – shi
Shizuoka Prefecture
433-8114
Japan
Software development
100% by Pathology Data Systems AG
Software development
100% by Pathology Data Systems AG
1 0 2
1 6 . 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 2020
Additions
Disposals
Exchange adjustment
At 31 December 2020
Additions
Disposals
Acquisition
Exchange adjustment
At 31 December 2020
Depreciation
At 1 January 2020
Depreciation expense
Disposals
Exchange adjustment
At 31 December 2020
Depreciation expense
Disposals
Exchange adjustment
At 31 December 2021
Net book value
At 31 December 2019
At 31 December 2020
At 31 December 2021
Short leasehold property
£000
IT hardware & software
£000
72
13
(4)
1
82
-
-
-
(2)
80
39
12
(2)
-
49
13
-
(1)
61
33
33
19
1,682
128
(32)
(14)
1,764
144
(255)
525
35
2,213
1,478
126
(32)
(13)
1,559
299
(247)
29
1,640
204
205
573
Total
£000
1,754
141
(36)
(13)
1,846
144
(255)
525
33
2,293
1,517
138
(34)
(13)
1,608
312
(247)
28
1,701
237
238
592
1 0 3
1 7 . I N V E N T O R I E S
Group
Work in progress
Total gross inventories
2021
£000
64
64
2021
£000
64
2020
£000
50
50
2020
£000
50
The inventory consists of high-quality industrial-standard cameras and associated hardware for the Instem Sorcerer
Colony Counter product.
In 2021, a total of £0.02m (2020: £0.02m) of inventory was included in profit and loss as an expense.
1 8 . 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 other receivables
Company
Amounts owed by group companies
Other receivables
2021
£000
11,165
2,040
1,647
14,852
20,156
166
20,322
2020
£000
3,441
1,825
827
6,093
3,259
71
3,330
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
2021
£000
144
391
(35)
2
502
2020
£000
215
87
(161)
3
144
The net impairment (losses)/gain on financial assets recognised in 2021 were £0.4m (2020: £0.01m)
1 0 4
1 8 . 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 2021 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 (2020:
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 77 days (2020: 51 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 £0.02m for credit impairment of
amounts owed by group companies (2020: reversed a provision of £0.6m). The amount of the provision was £0.2m as
of 31 December 2021 (2020: £0.2m).
The age profile of the net trade receivables for the Group at the year-end was as follows:
Debt age
Group
2021
Current
0-30 days
31-60 days
Over 60
days
Total
Trade receivables/Amounts recoverable on contracts
Value (£000)
9,885
1,440
%
75
11
851
6
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
1,029
13,205
8
100
Over 60
days
327
6
Total
5,266
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.
1 0 5
1 9 . 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
2021
£000
24,019
(8,998)
15,021
2020
£000
35,722
(8,998)
26,724
Cash at bank
3,294
20,269
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 (2020: £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
Swiss Franc
Other
Company
Sterling
US Dollar
2021
£000
1,476
1,188
6,515
3,535
1,646
661
15,021
3,294
-
3,294
2020
£000
9,312
1,044
12,326
2,562
-
1,480
26,724
11,197
9,072
20,269
The carrying amount of these assets approximates to their fair value.
1 0 6
2 0 . 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
2021
£000
1,522
686
3,515
5,723
2020
£000
466
533
1,959
2,958
As at 31 December 2021, the accruals balance mainly relates to payroll taxes and statutory liabilities which has
increased from 2020 due to the three acquisitions.
Company - Current
Trade payables
Amounts owed to group companies
Accruals
2021
£000
275
15,921
436
16,632
2020
£000
67
7,979
422
8,468
The directors consider that the carrying amount of trade and other payables approximates to fair value due to their
short maturities.
2 1 . 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
2021
£000
18,935
2020
£000
9,878
1 0 7
2 2 . 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:
Group
Deferred consideration
Contingent consideration
Current liability
Non current borrowings
Deferred consideration
Contingent consideration
Non current liability
Company
Deferred consideration
Contingent consideration
Current liability
Contingent consideration
Non current liability
2021
£000
4,276
2,336
6,612
2020
£000
-
3,060
1,668
4,728
2021
£000
1,218
904
2,122
2021
£000
757
757
2020
£000
268
-
268
2020
£000
815
-
316
1,131
2020
£000
-
-
-
2020
£000
-
-
The contingent consideration included in the Group is in respect of the acquisition of Leadscope Inc, The Edge and
d-wise which were purchased on 15 November 2019, 1 March 2021 and 1 April 2021 respectively.
The deferred consideration above is in respect of the acquisitions of The Edge, d-wise and PDS.
The financial liability maturity analysis is disclosed in the table below.
2021
1 year or less
£000
1 to 2 years
£000
2 to 5 years
£000
Non current borrowings
Deferred consideration
Contingent consideration
4,276
2,336
6,612
3,060
1,668
4,728
-
-
-
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
-
-
-
-
Total
£000
7,336
4,004
11,340
Total
£000
815
268
316
1,399
1 0 8
2 3 . 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).
2021
Group and Company
Carrying amount
£000
Contingent consideration
4,004
2020
Group and Company
Carrying amount
£000
Contingent consideration
316
Fair value
£000
4,004
Fair value
£000
316
Level 3
£000
4,004
Level 3
£000
316
Measurement of fair value of financial instruments
The following valuation technique is used for instruments categorised as Level 3:
Contingent consideration (Level 3)
The fair value of contingent consideration related to the acquisitions of Leadscope Inc, The Edge and d-wise which
were acquired in November 2019, March 2021 and April 2021 respectively. The contingent considerations were
estimated using a present value technique.
Leadscope’s contingent consideration of £284,000 fair value was estimated in 2019 based on the approved cash
flow projections and forecast discounted at 13.4% to adjust for risk. 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 Edge’s contingent consideration of £1.3m fair value was estimated in 2021 based on the approved cash flow
projections and forecast discounted at 30.9% to adjust for risk. The probability weighted cash outflows before discounting
are £2.0m and reflect management’s estimate of a 100% probability that the Edge’s target level of profitability will be
achieved.
Finally, d-wise’s contingent consideration of £1.7m fair value was estimated in 2021 based on the approved cash
flow projections and forecast discounted at 18.6% to adjust for risk. The probability weighted cash outflows before
discounting are £2.1m and reflect management’s estimate of a 100% probability that the d-wise’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
2021
£000
316
3,026
-
658
4
4,004
2020
£000
284
-
-
52
(20)
316
1 0 9
2 3 . 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.
Fair value
2020
£000
Level 3
2020
£000
Carrying
amount
2021
£000
Fair value
2021
£000
Level 3
2021
£000
Loans and receivables
Cash and cash equivalents
15,021
Trade and other receivables
14,852
Financial assets measured at amortised cost
29,873
Financial assets measured at fair value
-
15,021
14,852
29,873
-
Total financial assets
29,873
29,873
Financial liabilities measured at amortised cost
Trade payables and accruals
(5,037)
Financial liabilities measured at amortised cost
(5,037)
Deferred consideration
(7,336)
Contingent consideration
(4,004)
(5,037)
(5,037)
(7,336)
(4,004)
-
-
-
-
-
-
-
-
(4,004)
Financial liabilities measured at fair value
(11,340)
(11,340)
(4,004)
Carrying
amount
2020
£000
26,724
6,093
32,817
-
26,724
6,093
32,817
-
32,817
32,817
(2,425)
(2,425)
(316)
(316)
(2,425)
(2,425)
(316)
(316)
-
-
-
-
-
-
-
(316)
(316)
Total financial liabilities
(16,377)
(16,377)
(2,741)
(2,741)
Total financial instruments
13,496
13,496
30,076
30,076
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 2021
year end the Group had a maximum credit risk exposure of £14.9m (2020: £6.1m).
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 18 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.
1 1 0
2 3 . 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
2021
£000
989
2,493
6,820
194
669
11,165
2020
£000
319
778
1,823
386
135
3,441
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 2021, its £0.5m
bank facility was undrawn (2020: £0.5m undrawn). The Group had positive cash reserves of £15.0m at the 2021 year
end, in addition to the £0.5m undrawn working capital facility, although £3.5m of the cash was held in bank accounts
in China, where it has been traditionally harder to repatriate funds quickly.
The following are the contractual maturities of financial liabilities.
2021
Non derivative financial liabilities
Liabilities relating to right of use assets
Trade payables
Accruals
Deferred consideration
Contingent consideration
Carrying
amount
£000
Contractual
cashflows
£000
1 year or less
£000
2 to 5 years
£000
After 5 years
£000
2,325
1,522
4
7,336
4,004
2,325
1,522
4
7,336
4,004
15,191
15,191
1,077
1,522
4
4,276
2,336
9,215
1,229
-
-
3,060
1,668
5,957
19
-
-
-
-
19
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
2,084
Non current borrowings
Trade payables
Accruals
Deferred consideration
Contingent consideration
815
466
2
268
316
815
466
2
268
316
488
-
466
2
268
-
3,951
3,951
1,224
1,538
815
-
-
-
316
2,669
58
-
-
-
-
-
58
1 1 1
2 3 . 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 £0.6m (2020: £0.1m).
The Group’s exposure to foreign currency risk is as follows.
2021
Sterling
£000
Cash and cash equivalents
Trade and other receivables
Liabilities relating to right of use assets
Trade payables
1,476
3,151
(367)
(841)
Euro
£000
1,188
1,295
(231)
(23)
US Dollars
£000
Renminbi
£000
Swiss Franc
£000
Other
£000
6,515
9,018
(1,166)
(651)
3,535
474
(27)
(1)
1,646
440
(100)
(6)
Net exposure
3,419
2,229
13,716
3,981
1,980
US Dollars
£000
Renminbi
£000
Swiss Franc
£000
2020
Sterling
£000
Cash and cash equivalents
9,312
Trade and other receivables
932
Liabilities relating to right of use assets
(519)
Non current borrowings
-
Trade payables
(191)
Euro
£000
1,044
753
(289)
-
(56)
12,326
2,562
3,320
(646)
(815)
(223)
679
(1)
-
-
Net exposure
9,534
1,452
13,962
3,240
-
-
-
-
-
-
Total
£000
15,021
14,852
661
474
(435)
(2,325)
-
700
Other
£000
1,480
409
(629)
-
4
(1,522)
26,025
Total
£000
26,724
6,093
(2,084)
(815)
(466)
1,264
29,452
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 2021, the indications are that the UK bank base interest rate will not materially differ over the next
12 months. In February 2022, the UK bank base rate increased by 0.25 percentage points to 0.5%. On the basis of the
net cash position at 31 December 2021 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).
1 1 2
2 4 . R E C O N C I L I A T I O N O F M O V E M E N T S O F L I A B I L I T I E S A R I S I N G F R O M
F I N A N C I N G A C T I V I T I E S
Former PDS's
shareholders
£000
Notes
Lease liability
£000
1 January 2020
Cash flows
Repayment of finance cost
Repayment of lease liability
Non-cash
New leases and lease modification
Interest expense
Exchange adjustment
As at 31 December 2020
1 January 2021
Cash flows
Repayment of finance cost
Repayment of lease liability
Repayment of former PDS’s shareholder loan
Non-cash
Intercompany balance between PDS and Instem PLC
Acquisitions
New leases
Interest expense
Exchange adjustment
At 31 December 2021
8
8
8
8
8
8
8
13
8
8
8
8
-
-
-
-
-
-
-
-
-
-
(2,387)
2,387
-
-
-
-
-
2,569
(95)
(621)
186
95
(50)
2,084
2,084
(96)
(963)
-
-
949
261
96
(6)
Total
£000
2,569
(95)
(621)
186
95
(50)
2,084
2,084
(96)
(963)
(2,387)
2,387
949
261
96
(6)
2,325
2,325
1 1 3
2 5 . C U R R E N T T A X A T I O N
The Group current tax receivable is £ 0.1m, net of a payable of £0.8m (2020: receivable of £0.7m, net of a payable of
£0.2m) 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 6 . D E F E R R E D T A X B A L A N C E S
Deferred tax liabilities as at 31 December 2021
Accelerated
tax
depreciation
£000
Tax losses
£000
Defined
benefit
liability
£000
Other timing
differences
£000
Movements
At 1 January 2020
(721)
Foreign exchange differences
Credit/(charge) to profit or loss for the year
Debit to OCI for the year
Adjustments in respect of prior years
-
34
-
(4)
At 31 December 2020
(691)
Foreign exchange differences
Credit/(charge) to profit or loss for the year
Debit to OCI for the year
Credit direct to equity
1
(21)
-
Debit to goodwill arising on acquisitions during the year
(3,400)
Adjustments in respect of prior years
-
At 31 December 2021
(4,111)
395
-
(126)
-
(60)
209
-
(267)
-
64
549
555
307
-
(90)
518
-
735
-
(91)
(140)
-
-
(487)
(10)
(175)
322
7
(343)
13
(419)
-
528
-
26
Total
£000
(506)
(10)
(357)
840
(57)
(90)
14
(798)
(140)
528
(3,336)
575
504
(195)
(3,247)
Other timing differences are predominantly relates to share based payment and capitalised development.
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 2021 were £3.0m (2020: £2.7m) due to uncertainty over the
timing of the recoverability of these losses.
1 1 4
2 7 . P O S T - E M P L O Y M E N T B E N E F I T S
The Group provides post-employment benefits through various defined contribution schemes and a closed UK
defined benefit scheme.
Defined contribution pension schemes
The Group pays fixed contributions into independent entities in relation to several retirement plans and insurances for
individual employees. The Group has no legal or constructive obligations to pay contributions in addition to its fixed
contributions, which are recognised as an expense in the period that related employee services are received.
Defined benefit pension scheme
The Group also operates a legacy 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 2020 and the next
valuation of the Scheme is due as at 5 April 2023. 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 current Schedule of Contributions.
Conversely, if the position is better than expected, it is possible that contributions may be reduced.
The following Schedule of Contributions has been prepared by the Trustees of the Scheme after obtaining the advice
of the Scheme Actuary appointed by the Trustees. The contributions are intended to clear the Scheme deficit by 30
September 2026 and were agreed in June 2021.
Period ended
31 March 2021
31 March 2022
31 March 2023
31 March 2024
31 March 2025
31 March 2026
30 September 2026
Total each year
£000
530
548
568
588
608
629
332
The Group currently expects to pay contributions of £548,000 in the year to 31 December 2022.
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.
1 1 5
2 7 . P O S T - E M P L O Y M E N T B E N E F I T S ( C O N T I N U E D )
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.
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.
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.
1 1 6
2 7 . P O S T - E M P L O Y M E N T B E N E F I T S ( C O N T I N U E D )
Discount rate (pa)
Inflation (RPI pa)
Inflation (CPI pa)
Pension increase (RPI pa)
Pension increase (CPI pa)
2021
%
1.90
3.10
2.40
3.00
2.00
Life Expectancy assumption (number of years from the age of 65)
Years
Male currently aged 45
Female currently aged 45
Male currently aged 65
Female currently aged 65
ANALYSIS OF AMOUNT CHARGED TO FINANCE COSTS
Interest on pension scheme assets
Interest on pension scheme liabilities
Net finance cost charge
ANALYSIS OF AMOUNT RECOGNISED IN OTHER COMPREHENSIVE INCOME/
(EXPENSE)
Gains on assets in excess of interest
Experience gains/(losses) on liabilities
(Losses) from changes to demographic assumptions
Gains/(losses) from changes to financial assumptions
Actuarial gains /(losses) recognised in other comprehensive income/(expense)
24.1
26.0
23.2
24.9
2021
£000
177
(228)
(51)
2021
£000
1,002
118
(322)
577
1,375
2020
%
1.40
2.70
1.90
2.70
1.80
Years
23.8
25.0
22.8
23.7
2020
£000
266
(300)
(34)
2020
£000
-
(351)
(53)
(2,133)
(2,537)
1 1 7
2 7 . P O S T - E M P L O Y M E N T B E N E F I T S ( C O N T I N U E D )
CHANGES IN THE PRESENT VALUE OF THE DEFINED BENEFIT OBLIGATION
2021
£000
Opening defined benefit obligation
16,380
Interest on liabilities
Past service cost and GMP reserve
Benefits paid
Experience (gain)/loss on liabilities
Changes to demographic assumptions
Changes to financial assumptions
228
-
(238)
(118)
322
(577)
2020
£000
13,773
300
5
(235)
351
53
2,133
Closing defined benefit obligation
15,997
16,380
CHANGES IN THE FAIR VALUE OF PLAN ASSETS
2021
£000
Opening plan assets
12,512
Interest on assets
Return on plan assets less interest
Company contributions
Benefits paid
177
1,002
530
(238)
Closing plan assets
13,983
The actual return on assets was a positive return of £1,079,000 (2020: positive return £266,000).
AMOUNT RECOGNISED IN THE CONSOLIDATED STATEMENT OF FINANCIAL
POSITION
2021
£000
Present value of funded obligations
(15,997)
Fair value of plan assets
Net pension liability
Related deferred tax asset
13,983
(2,014)
504
Net pension liability after deferred tax
(1,510)
2020
£000
11,969
266
-
512
(235)
12,512
2020
£000
(16,380)
12,512
(3,868)
735
(3,133)
1 1 8
2 7 . P O S T - E M P L O Y M E N T B E N E F I T 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
2021
£000
3,868
-
51
Remeasurements
(1,375)
Employer contributions
Net defined benefit liability at end
(530)
2,014
2020
£000
1,804
5
34
2,537
(512)
3,868
ANALYSIS OF CUMULATIVE AMOUNT RECOGNISED IN OTHER COMPREHENSIVE
INCOME/(EXPENSE)
Cumulative
2021
£000
Cumulative
2020
£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
3,096
(1,861)
240
(5,978)
(4,503)
Actuarial gain/(loss) recognised in the OCI in the period
1,375
2,094
(1,979)
562
(6,555)
(5,878)
(2,537)
MAJOR CATEGORIES OF PLAN ASSETS AS A PERCENTAGE OF FAIR VALUE OF TOTAL PLAN ASSETS
2021
2020
Equities
Property
Bonds
Corporate Bonds
LDI
Cash
Other
£000
6,127
638
123
1,698
3,071
137
2,189
%
44
5
1
12
22
1
15
£000
5,842
717
858
2,033
994
122
1,946
%
47
6
7
16
8
1
15
13,983
100
12,512
100
1 1 9
2 7 . P O S T - E M P L O Y M E N T B E N E F I T S ( C O N T I N U E D )
The five-year history of experience adjustments is as follows:
2021
£000
2020
£000
2019
£000
2018
£000
2017
£000
Present value of defined benefit obligation
(15,997)
(16,380)
(13,773)
(12,655)
(14,549)
Fair value of plan assets
13,983
12,512
11,969
10,406
10,799
Deficit
(2,014)
(3,868)
(1,804)
(2,249)
(3,750)
Experience gains/(losses) on liabilities
118
Return on plan assets less interest
1,002
(351)
-
-
1,003
65
(957)
156
686
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
(1,239)
1,401
1,158
(1,038)
423
(403)
2 8 . 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
Acquisition
Increase in provision during the year
At 31 December
2021
£000
250
41
-
291
2020
£000
250
-
-
250
The Group holds a provision of £0.25m (2020: £0.25m) in respect of historical contract disputes against a maximum
exposure of approximately £3.8m (2020: £4.0m). The maximum exposure includes 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. As the potential financial outcome cannot yet be determined with any certainty the Board
has concluded that the £0.25m provision was appropriate at 31 December 2021. To date all legal expenses have been
expensed.
The amount of £0.04m relates to the general provision that PDS provided for warranty and remained unchanged as of
31 December 2021 based on management estimates.
1 2 0
2 9 . 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:
2021
No. of shares
Beginning of the year
20,481,909
Issued on exercise of employee share options
Share issue on acquisition of The Edge
Share issue on acquisition of d-wise
Share issue on acquisition of PDS
Share issue, placing
88,667
391,920
868,203
359,157
-
2020
No. of shares
16,623,078
238,141
-
-
-
3,620,690
Total shares issued and fully paid at 31 December
22,189,856
20,481,909
Additional shares were issued during 2021 relating to share-based payments (see note 9 for details on the Group’s
share-based remuneration).
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 £nil (2020:
£0.7m).
Share premium has also been recorded in respect of the issue of share capital related to employee share-based payment.
3 0 . 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 deferred and contingently issuable shares in relation to d-wise acquisition which could potentially dilute the basic
EPS in the future were not included in the calculation of diluted EPS because they are antidilutive for the period of
2021.
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) minus the issue price.
The number of the ordinary shares that could have been acquired at their average market price during the period are
ignored. However, the shares that would generate no proceeds and would not have effect on profit or loss attributable
to ordinary shares outstanding are included.
Profit after tax
(£000)
Earnings per share - Basic
1,678
Potentially dilutive shares
-
Earnings per share - Diluted
1,678
2021
Weighted
average
number of
shares (000’s)
21,591
1,128
22,719
Profit per
share
(pence)
Profit after tax
(£000)
7.8
-
7.4
2,274
-
2,274
2020
Weighted
average
number of
shares (000’s)
18,421
1,231
19,652
Profit per share
(pence)
12.3
-
11.6
1 2 1
3 0 . 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
3,704
Potentially dilutive shares
-
Earnings per share - Diluted
3,704
2021
Weighted
average
number of
shares (000’s)
21,591
1,128
22,719
17.2
-
16.3
Adjusted
earnings per
share (pence)
Adjusted profit
after tax (£000)
2020
Weighted
average
number of
shares (000’s)
18,421
1,231
19,652
Adjusted
earnings per
share (pence)
20.4
-
19.1
2020
£000
2,549
606
-
664
-
208
4,027
(275)
3,752
2,274
3,752
-
3,752
2021
£000
2,984
1,286
(805)
1,563
-
(18)
5,010
(1,306)
3,704
1,678
Reconciliation of adjusted profit before tax:
Reported profit before tax
Non-recurring costs
Non-recurring income
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 after tax
1 2 2
3 1 . C A P I T A L A N D R E S E R V E S
Share capital
The share capital account represents the par value for all shares issued. The Company has one class of share and each
share rank parri passu and carry equal rights.
Share premium account
The share premium account is used to record amounts received in excess of the nominal value of shares on issue of
new shares less the costs of new share issues.
Merger reserve
The merger reserve represents -
•
•
the difference between the consideration payable at the date of acquisition, net of merger relief, and the share
capital and share premium of Instem Life Science Systems Limited and
the difference between the nominal value and share issue price of shares issued as consideration in the purchase
of Leadscope Inc, The Edge Software Consultancy Ltd, d-wise Technologies and PDS Pathology Data Systems
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.
3 2 . 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 (2020: £nil).
1 2 3
3 3 . 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 £0.4m (2020: £1.0m). The net
intercompany balances due to the Company at the year-end totalled £4.4m (2020: due from £4.5m).
During the year, the Group traded in its normal course of business with shareholders and consultancy businesses in
which Directors have a material interest as follows:
KEY MANAGEMENT COMPENSATION:
2021
£000
2020
£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
141
15
156
411
29
29
215
684
Group
Other key management
Salaries and short-term employee benefits
1,194
Post-employment retirement benefits
Employers’ national insurance & social security costs
Share based payment charge
56
97
428
1,775
138
15
153
385
44
34
98
561
1,062
77
74
154
1,367
The Company paid £0.10m (2020: £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 (2020: £nil).
Key management are considered to be the Directors together with the Senior Managers of the business.
3 4 . 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 £21.9m (2020: £16.4m).
1 2 4
3 5 . 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.
An historical contractual licence dispute, which does not affect the ongoing operations of the Group, was heard by
a German court on 17 March 2022 and the official outcome is awaited. The Group has been defending the action.
Notwithstanding this, the cost provision of £0.25m made in 2017 has been maintained in the 2021 financial
statements. As the potential financial outcome cannot yet be determined with any certainty the Board has
concluded that the £0.25m provision was appropriate at 31 December 2021. To date all legal expenses have been
expensed.
On 8 April 2022, the Group signed a new financing arrangement which consists of a committed facility of £10.0m
with HSBC UK Bank plc to support the Group's working capital needs and its acquisition strategy, which can be
extended up to £20.0m if needed, subject to further bank approval. The financial covenants have been considered in
the forecast to ensure compliance.
1 2 5
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)
R Bandali (Independent Non-Executive, appointed 1 December 2021)
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
www.instem.com
Company No: 07148099
A U D I T O R
Grant Thornton UK LLP
Landmark
St Peter's Square
1 Oxford Street
Manchester M1 4PB
B A N K E R
HSBC UK Bank Plc
9th Floor, Liver Building
Pier Head
Liverpool L3 1JH
N O M I N A T E D A D V I S O R A N D J O I N T B R O K E R
Singer Capital Markets Advisory LLP
One Bartholomew Lane
London EC2N 2AX
J O I N T B R O K E R
Stifel Nicolaus Europe Limited
150 Cheapside
London EC2V 6ET
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 2 6
1 2 7
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 2 8
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 , S w i t z e r l a n d , J a p a n ,
C h i n a a n d I n d i a .
1 2 9
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
1 3 0